Peabody v. Time Warner: California Supreme Court Decides Commission Issue

Jul 14 2014 - Compensation - Gail Cecchettini Whaley

Commissioned inside sales representatives in California are entitled to earn overtime unless they meet specific exemption requirements. Under California law, a commissioned inside sales representative that is covered by Wage Order 4 or Wage Order 7 is exempt from overtime if:

  • The employee’s earnings exceed 1.5 times the state  minimum wage; and
  • At least 50 percent of the employee’s total compensation comes from commissions.

Today, the California Supreme Court, in Peabody v. Time Warner Cable Inc., issued a decision interpreting the first prong of the test: the compensation requirement. The question before the court was whether, to meet this prong, an employer may attribute commission wages paid in one pay period to another pay period.

The unanimous answer from the court was “No”:

“[A]n employer satisfies the minimum earnings prong of the commissioned employee exemption only in those pay periods in which it actually pays the required minimum earnings. An employer may not satisfy the prong by reassigning wages from a different pay period.”

The case was brought by a Time Warner account executive who sold cable TV advertising. She argued that her biweekly paychecks included only an hourly wage and often did not exceed 1.5 times the minimum wage. Time Warner argued that if you factored in the employee’s monthly commissions, the exemption’s minimum earnings prong was met. Time Warner argued that the commissions, which were paid on the final biweekly payday of each month, should be attributed to the weeks of the preceding month.

Although the decision sets new legal precedent in California, it is consistent with the Division of Labor Standards Enforcement’s (DLSE) earlier interpretation of the exemption.

This case will be covered in more detail in the July 24 edition of the HRCalifornia Extra newsletter

Gail Cecchettini Whaley, CalChamber Employment Law Counsel/Content


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