Many employers compensate their salespeople with commissions. Some pay commissions in addition to a base salary or an hourly wage. But often salespeople are compensated solely by commissions, sometimes with a draw against the commission. Plaintiffs’ lawyers are taking aim at commission only plans.
The employees’ theory is that commissions only compensate employees for time during which they can earn a commission. Put another way, commissions do not compensate employees for any time when they are prevented from earning a commission. For example, if salespeople are required to attend a monthly or weekly meeting during which they are precluded from selling, employees’ lawyers argue that the salespeople are entitled to compensation for that time, which must be at least minimum wage.
Unfortunately, there is some support for this argument. Recent cases such as Gonzales v. Downtown LA Motors, 215 Cal.App.4th 36 (2013), have held that an employee compensated by a piece rate plan must be separately compensated for time spent under the employer’s control performing tasks that are not compensated by the piece rate plan. For example, an auto mechanic may be paid a set amount for performing a brake job or an oil change. But time spent between jobs, or cleaning or organizing tools, is uncompensated. Similarly, the argument is that salespeople are uncompensated when they are not engaged in activities which could lead to a commission.
At least one federal court, in Balasanyan v. Nordstrom, Inc., 913 F. Supp. 2d 1001, 1007 (S.D. Cal. 2012) reconsideration denied, No. 3:10-CV-2671-JM WMC, 2013 WL 903267 (S.D. Cal. Mar. 6, 2013), has applied that logic to commissioned salespeople, finding that Nordstrom’s commissioned salespersons did not receive at least minimum wage for time spent in the stockroom or for pre-opening or post-closing activities.
California courts are not bound by this decision, and have not themselves directly addressed this issue. Until they do, employers that compensate their salespersons solely by commissions are potential targets of individual or class action lawsuits. While there are many reasons why the piece rate cases should not be applied to commissioned salespeople, risk-averse employers may want to consider paying a base salary or hourly wage in addition to commissions until California courts settle the issue.