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Pay Plan Modification Alert: All Commission-Based Compensation Plans Must Separately Account and Pay for Rest Periods

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Pay Plan Modification Alert: All Commission-Based Compensation Plans Must Separately Account and Pay for Rest Periods

On February 28, 2017, in Vaquero v. Stoneledge Furniture LLC, a California Court of Appeal found that employers are required to separately calculate and pay compensation for rest periods for employees receiving commission based pay. The plaintiffs in Vaquero were commission-based salespeople at a furniture store. Each pay period, they received sales commissions plus, if necessary, a draw against future commissions bringing pay to at least $12.01 for each hour worked in the pay period. Their compensation agreement did not provide for separate compensation for non-sales time or for rest periods. The plaintiffs filed suit alleging failure to provide paid rest periods. Stoneledge filed a motion for summary judgment, arguing that the plaintiffs’ claims must fail because Stoneledge paid commissions and, if and when necessary, advanced a draw assuring a minimum of $12.01 per hour for all hours worked, including rest periods. The trial court granted Stoneledge’s motion and entered summary judgment for Stoneledge. The Court of Appeal reversed the decision. The Court determined that commissions earned while selling, along with payment of a recoverable draw, did not compensate employees for non-sales time or break time. The Court did not specify how break time must be calculated. However, it criticized commission-based pay plans under which salespeople receive the same amount of compensation regardless of whether they take rest breaks, suggesting that a compensation plan that includes incentive pay must not discourage employees from taking rest breaks.

What should dealers do now? Dealers should revise their pay plans for commission based employees to ensure that the compensation agreements and pay calculations are revised to provide for compensation for non-sales time as well as rest break time. If you have questions about the Vaquero decision, please contact Arent Fox Automotive group attorneys Aaron Jacoby or Lisa Singer in our Los Angeles office.

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Arent Fox LLP, founded in 1942, is internationally recognized in core practice areas where business and government intersect. With more than 350 lawyers, the firm provides strategic legal counsel and multidisciplinary solutions to clients that range from Fortune 500 corporations to trade associations. The firm has offices in Los Angeles, New York, San Francisco, and Washington, DC.