©2024 Seyfarth Shaw LLP www.seyfarth.com 2024 Cal-Peculiarities | 221 7.7.5 Commissioned sales employees The federal exemption. A commissioned salesperson in a “retail or service establishment” is exempt from overtime requirements if the salesperson is paid more than 1.5 times the federal minimum wage and earns pay mostly in the form of commissions on goods or services.217 Federal minimum wage payments are satisfied by a total of pay (whether in commissions, base salary, advances, or some combination) that, when divided by hours worked during the pay period, meet the minimum wage. The California version. The California requirements for the exemption are (1) total compensation exceeding 1.5 times the California minimum wage and (2) at least 50% of total pay from commissions.218 (For discussion of what California considers a true commission, see § 7.15.1.) This exemption applies to overtime pay but still obliges California employers to pay the minimum wage to commissioned sales employees for all hours worked, and to provide meal periods and rest breaks. Many employers reconcile commissions and pay them on a monthly basis. California courts have acknowledged that employers can pay a commission in anticipation of its being earned.219 But in 2014 the California Supreme Court complicated the basis for the commissioned-employee exemption by stating that it is not proper for an employer to attribute commissions paid in one pay period to other pay periods to make up any shortfall in meeting the pay requirements of the exemption.220 This means that employees must be paid more than one-half of their pay in commissions each pay period in order to be exempt as a commissioned employee. Sick pay implications. In 2016, the DLSE issued an opinion letter regarding California’s Healthy Workplaces, Healthy Families Act of 2014. In this letter, the DLSE opined that the term “exempt,” as used in Labor Code section 246(k), refers only to those employees who satisfy both the salary and duties tests of the professional, executive, or administrative exemptions.221 Thus, according to the DLSE, the term “exempt” does not include those employees who are exempt from overtime under the outside sales exemption or the commissioned employee exemption. Therefore, for purposes of sick pay, California employers should look to Labor Code sections 246(l)(1) or (2)—which articulate the two methods used to calculate sick pay for nonexempt employees— when determining how to calculate sick time for commissioned employees, even if they qualify as exempt from overtime as either an outside salesperson or a commissioned employee. 7.7.6 Collective bargaining agreements Union-friendly California, in Labor Code section 514, created an overtime exemption for employees covered by certain collective bargaining agreements.222 Accordingly, state overtime-pay requirements do not apply to “an employee covered by a valid collective bargaining agreement if the agreement expressly provides for the wages, hours of work, and working conditions of the employees, and if the agreement provides premium wage rates for all overtime hours worked and a regular hourly rate of pay for those employees of not less than 30 percent more than the state minimum wage.”223 The Court of Appeal has clarified that for purposes of this exemption the governing definition of “overtime” is provided by the CBA, not the Labor Code.224 One might think that the section 514 exemption would cover an overtime claim by any plaintiff who enjoys all the described CBA-provided benefits. After all, the rationale of a CBA exemption is that a worker who is adequately protected by a union does not need statutory protection. So there is little reason to suppose that the CBA exemption would be lost if some other member of the collective bargaining unit—someone not suing—does not enjoy all the described benefits. The CBA exemption would be of very limited practical benefit to an employer if, for example, every member of the collective bargaining unit must earn at least 130% of the state minimum wage. (As of 2024, 130% of the minimum wage for larger employers is $20.80 (1.3 * $16.00)—a wage higher than what typical probationary employees earn.)
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