©2024 Seyfarth Shaw LLP www.seyfarth.com 2024 Cal-Peculiarities | 243 for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.”390 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.”391 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.”392 7.15.2 When are commissions earned? Commissions generally are earned upon the completion of a sale and any post-sale contingencies set forth in the commission plan.393 The DLSE recognizes that employers may set reasonable conditions that must occur before a commission is considered “earned.” One opinion letter states: “Commissions are due and payable after the reasonable conditions precedent of the employment agreement have been met. If commissions cannot be calculated until after an event has happened then the commissions are not ‘earned’ within the meaning of [Labor Code] Section 204 until the happening of that event so long as the event is reasonably tied to the calculation.”394 The Court of Appeal has stated that preconditions to earning the commission must be “clearly expressed,” must “relate to the sale,” and “cannot merely serve as a basis to shift the employer’s cost of doing business to the employee.”395 7.15.3 Advances and chargebacks Employers may advance commissions on a sale and then charge back the advance if the sale does not go through.396 Thus, if the employer advances an employee a commission for selling a magazine subscription, then the advance can be “charged back” against future commissions (cancelling out commissions generated in future sales) if the purchaser cancels the subscription within one month.397 The employer’s position is strongest if the earning criteria in the plan are clear, the employee has authorized the chargeback arrangement in writing, and the arrangement ensures that the employee will always be paid the applicable minimum wage.398 Advances paid against commissions to be earned may be recovered at termination of employment only if there is a specific written agreement to that effect and, for nonexempt employees, only to the extent that the recovery does not invade the minimum wage or any overtime premium pay. The Court of Appeal struck down a chargeback arrangement in Hudgins v. Neiman Marcus. In that case, a retailer addressed the problem of rescinded sales in certain sections of the store by imposing on all sales commissions in each section a pro rata deduction for “unidentified returns” (items returned that could not be tracked to a particular sales associate). Neiman Marcus concluded that this unidentified-returns policy effected a “forfeiture of commissions individually earned,” on the rationale that “[a]s to those items of merchandise the customer decides to keep, the sales associate has clearly earned his or her commission at the moment that the sales documents are completed and the customer takes possession of the purchased items.”399
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