Commissioned Employees Must Be Paid 1.5 Times The Minimum Wage In Every Pay Period To Be Exempt From Being Paid Overtime

On July 14, 2014, the California Supreme Court issued a decision in Peabody v. Time Warner Cable Inc. that could benefit employees who are paid on commission.¹ The case involved Ms. Peabody who worked as a commissioned salesperson for Time Warner Cable Inc. (“Time Warner”).² Ms. Peabody sold advertising for Time Warner’s various cable channels.³ Time Warner paid Ms. Peabody biweekly, based on commissions and on a base salary.⁴ Often, Ms. Peabody worked 45 hours a week and was not paid overtime.⁵ After ten months of working for Time Warner, Ms. Peabody resigned and brought a class action suit against Time Warner for violations of California’s wage and overtime laws.⁶

Under California wage laws, the general rule is that employees who work more than eight hours in one work day or more than 40 hours in a workweek must be paid overtime.⁷ However, if an employee’s earnings exceed one and one-half (11/2) times the minimum wage and if more than half of that employee’s earnings is from commission, then the employee is said to be exempt and is not paid overtime.⁸ This is known as the commissioned sales exemption to overtime.

Time Warner had a system in which commissions were paid out to employees only after several conditions were met.⁹ This meant that commissions were not paid in the pay period in which they were earned, but in a later pay period, once the conditions were satisfied.¹⁰Ms. Peabody showed that in most pay periods, she was paid only her base salary, which was a little more than minimum wage.¹¹ Thus, Ms. Peabody argued she was not an exempt employee and was entitled to overtime.¹² On the other hand, Time Warner maintained that Ms. Peabody was an exempt commissioned employee because commission wages were attributable to pay periods in which they were earned, and not in which they were paid.¹³

In the end, the California Supreme Court disagreed with Time Warner.¹⁴It found that commissions could not be attributed to the pay period in which they were earned for purposes of satisfying the commissioned sales exemption.¹⁵ An “employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.”¹⁶ The court was clear – to be exempt, an employee must be paid at leastone and one-half (11/2) times the minimum wage in every pay period.¹⁷

This ruling is important for current employees working on commission who are exempt from being paid overtime. Exempt employees might want to make sure they are paid at least one and one half times (11/2) the minimum

____________________________

¹ Peabody v. Time Warner Cable Inc., No. S204804, 2014 WL 3397770 (Cal. 2014).

² Peabody v. Time Warner Cable Inc., No. S204804, 2014 WL 3397770, at *1 (Cal. 2014).

³ Peabody v. Time Warner Cable Inc., No. S204804, 2014 WL 3397770, at *1 (Cal. 2014).

⁴ Peabody v. Time Warner Cable Inc., 689 F.3d 1134, 1136 (9th Cir. 2012).

⁵ Peabody v. Time Warner Cable Inc., No. S204804, 2014 WL 3397770, at *1 (Cal. 2014).

⁶ Peabody v. Time Warner Cable Inc., 689 F.3d 1134, 1136-37 (9th Cir. 2012).

⁷ IWC Wage Order No. 4, subd. 3(A)(1) (2014) (“Such employees shall not be employed more than eight (8) hours in any workday or more than 40 hours in any workweek unless the employee receives one and one-half (1 1/02) times such employee’s regular rate of pay for all hours worked over 40 hours in the regular workweek.”)

⁸ IWC Wage Order No. 4, subd. 3(D) (2014) (“The provisions of subsections (A), (B), and (C) above shall not apply to any employee whose earnings exceed one and one-half (1 1/02) times the minimum wage if more than half of that employee’s compensation represents commission.”)

⁹ Peabody v. Time Warner Cable Inc., No. S204804, 2014 WL 3397770, at *1 (Cal. 2014).

¹⁰ Peabody v. Time Warner Cable Inc., No. S204804, 2014 WL 3397770, at *1 (Cal. 2014).

¹¹ Peabody v. Time Warner Cable Inc., No. S204804, 2014 WL 3397770, at *1 (Cal. 2014) (assuming a 40 hour work week); Peabody v. Time Warner Cable Inc., 689 F.3d 1134, 1136 (9th Cir. 2012) (While her base salary was little more than the minimum wage, Ms. Peabody’s commission wages represented 77 percent of her overall compensation.).

¹² Peabody v. Time Warner Cable Inc., No. S204804, 2014 WL 3397770, at *1 (Cal. 2014).

¹³ Peabody v. Time Warner Cable Inc., No. S204804, 2014 WL 3397770, at *1 (Cal. 2014).

¹⁴ Peabody v. Time Warner Cable Inc., No. S204804, 2014 WL 3397770, at *3 (Cal. 2014).

¹⁵ Peabody v. Time Warner Cable Inc., No. S204804, 2014 WL 3397770, at *3 (Cal. 2014).

¹⁶ Peabody v. Time Warner Cable Inc., No. S204804, 2014 WL 3397770, at *3 (Cal. 2014).

¹⁷ Peabody v. Time Warner Cable Inc., No. S204804, 2014 WL 3397770, at *3 (Cal. 2014).