Commission Wages and California’s Compensation Requirements

By August 5, 2014Articles

In the case of Peabody v. Time Warner Cable, Inc., the Supreme Court of California issued a ruling which provided clarification regarding commission wages earned, and when they must be paid to satisfy California’s compensation requirements.

Under California’s Wage Order Number 4, an employee who works in excess of eight (8) hours per day, or over 40 hours per week, must be paid overtime.  However, the commissioned employee exemption provides that overtime provisions “shall not apply to any employee whose earnings exceed one and one half (1 ½) times the minimum wage if more than half of that employee’s compensation represents commissions.”

In this case, Plaintiff worked as an advertising executive earning both hourly wages and commission pursuant to Defendant’s executive commission plan.  In Plaintiff’s complaint, she alleged that she worked over 40 hours per week, was not paid overtime, and earned less than minimum wage the weeks she did not receive commission.

Time Warner did not dispute the fact that most of Plaintiff’s paychecks fell below the minimum wage requirement, but argued that her commissions should be reassigned from the biweekly pay periods in which they were paid to earlier pay periods when they were earned.  By internally reassigning Plaintiff’s commissions, the employer claimed it satisfied California’s compensation requirements.

In performing its analysis, the court turned to Labor Code Section 204 which provides “all wages … earned by any person in any employment are due and payable twice during each calendar month.”  Furthermore, all earned wages, including commissions, must be paid no less frequently than semimonthly.  (Labor Code Section 200).  Based on the foregoing, the court held that “whether the minimum earnings prong is satisfied depends on the amount of wages actually paid in a pay period.  An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.”

To read this case, click here:  Susan J. Peabody v. Time Warner Cable, Inc.