242 | 2023 Cal-Peculiarities ©2023 Seyfarth Shaw LLP www.seyfarth.com compensation and average hourly rest-break rate for piece-rate employees. The DLSE thus added a further layer of complication for employers that had hoped to look only to the total hourly and piece-rate pay in determining the average hourly rest break rate. Employers may, however, exclude payments that are not included in the regular rate of pay, such as vacation payments, gifts, and travel expenses. Rest period time need not be separately tracked. Providing some relief to employers from the potential burdens of the new law, the DLSE advises that employers need not separately track actual rest break time taken by piece-rate employees. Instead, employers must pay for all compensable (legally required) rest breaks at the specified rate, and record these minutes on the wage statement. The employer need not record the actual number of minutes employees take for rest breaks or report those minutes on wage statements. 7.15 Payment of Commissions Employees earn commissions in accordance with the level of products or services that they sell. Employees who earn more than 1.5 times the minimum wage and whose total pay consists mostly of commissions are exempt from California overtime requirements. (See § 7.7.5.) Nonexempt employees paid on commission must receive, through a draw against commissions or otherwise, at least the minimum wage for all hours worked in each pay period.And the Court of Appeal has held that these employees must also be paid separately, at the minimum wage, for the time spent on rest breaks.368 7.15.1 What payments qualify as commissions? To qualify as receiving “commission” wages, the employee must be involved principally in sales activities (not on product creation or rendering service), and the compensation must depend on the level of sales.369 The DLSE has defined commissions narrowly, as wages paid based on a percentage of the sale, and argues that wages paid for the number of units is really a piece-rate, not a commission rate.370 But the Court of Appeal has rejected this narrow interpretation in the context of a pay plan for car salespersons.371 At issue was a Labor Code provision stating that commissions for employees of licensed vehicle dealers consist of “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.”372 The Court of Appeal concluded that fixed payments of $150 for each car sold or leased qualified as payments that would count towards determining whether a car salesperson made most of her pay from commissions and thus qualified as exempt from overtime requirements. The Court of Appeal reasoned that a uniform payment for each vehicle sold was “proportionate—a one-to-one proportion. The pay will rise and fall in direct proportion to the number of vehicles sold.”373 The Court of Appeal has also recognized that payments reflecting a percentage of the adjusted gross profit on the sale of a product or service can qualify as commissions. The employees at issue placed candidates with client companies and, once the candidate was successfully placed, received a percentage of the adjusted gross profit from the placement, as determined by a formula that included the employer’s costs and expenses. The Court of Appeal, rejecting the plaintiff’s argument that this formula was too “complex” to qualify as a commission, reasoned that the payments “were sufficiently related to the price of services sold to constitute commissions for purposes of the commissioned employees exemption.”374
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