California Companies Must Pay Salespeople for Rest Breaks Separately from Commissions

“A. B. C. ... Always Be Closing.”

        - Alec Baldwin portraying Blake, Glengarry Glen Ross (1992).

Salespeople paid on commission are ingrained with an urgency to sell every waking minute, as exemplified by Alec Baldwin’s notorious “Always Be Closing” speech in Glengarry Glen Ross. But here in California, that motto needs some refining because two weeks ago a California Court of Appeal held that California-based inside salespeople paid only on commission must also be paid separate and additional compensation for ten-minute rest breaks.[1]

In holding that an employer is required “to separately compensate its sales associates for ... rest periods,” the Court of Appeal relied principally on the plain text of Wage Order No. 7 and a line of cases starting with Armenta v. Osmose, Inc., which “held that employers cannot comply with minimum wage obligations by averaging wages across multiple pay periods; instead, [t]he minimum wage standard applies to each hour worked by [employees] for which they were not paid.”[2]

The Vaquero court traced the holding in Armenta forward to its logical extension in Bluford v. Safeway Stores, Inc., where that court held that Safeway failed to meet its obligations to pay its truck drivers for all hours worked because it only paid its drivers based on “number of miles driven, the time when the trips were made, and the locations where the trips began and ended,” instead of also separately compensating its drivers for each ten-minute rest break they were entitled to take.[3] While the employer argued that its compensation system already incorporated payment for rest periods, the court was not persuaded because “[e]ven if that is so, it is akin to averaging pay to comply with the minimum wage law instead of separately compensating employees for their rest periods at the minimum or contractual hourly rate ... [which] is not allowed under California labor law.”[4]

Applying Armenta and Bluford to inside salespeople, the Vaquero court found that the employer’s compensation system for its salespeople failed to separately compensate for paid rest breaks (i.e., for non-productive time), and thus violated the California Labor Code requiring employers to pay for employees’ ten-minute rest breaks.[5] In particular, the Vaquero court reasoned that the draw system maintained by the employer – permitting the employer to claw back advances on future compensation if its salespeople did not exceed the minimum weekly pay – acted, “[a]t best ... [as] interest-free loans.”[6] As the Court explained, “when [the employer] paid an employee only a commission, that commission did not account for rest periods. When [the defendant] compensated an employee on an hourly basis (including for rest periods), the company took back that compensation in later pay periods. In neither situation was the employee separately compensated for rest periods.”[7] Accordingly the Vaquero court concluded that such a commission system “effectively reduces either rest period compensation or the contractual commission rate, both of which violate California law.”[8]

The Vaquero court noted that its decision would not stand as an obstacle to an employer using a lawful commission-based compensation system to incentivize its salespeople, nor would it “lead to hoards of lazy sales associates” because, like the company in Vaquero, employers can always require employees to “meet minimum sales expectations” and subject ineffective salespeople to “disciplinary measures up to and including termination.”[9] In other words, California salespeople can continue to always be closing, so long as their employers pay them separately for their ten-minute rest breaks.[10]

Bryan Schwartz Law previously blogged about a related case last year, which held that the same employer could not escape classwide liability for maintaining a compensation policy that failed to provide for minimum and overtime wages and related compensation when employees performed non-exempt work such as cleaning up the employer's stores or moving the employer's furniture products.

Bryan Schwartz Law also previously blogged about an important California Supreme Court decision issued last December, Augustus v. ABM Security Services, Inc., which clarified that an employer cannot require an employee to be on call during his or her ten-minute rest break without receiving an additional premium payment in the event that the employer interrupts the employee's ten-minute rest break (as explained by the California Supreme Court: "A rest period, in short, must be a period of rest.").

If you are an inside salesperson in California who is paid solely on commission without separate compensation for your ten-minute rest break, please contact Bryan Schwartz Law.

---

[1] Vaquero v. Stoneledge Furniture LLC, No. B269657, 2017 WL 770635, at *5 (Cal. Ct. App. Feb. 28, 2017) (“The parties disagree, however, whether California law, including Wage Order No. 7, required Stoneledge to separately compensate its sales associates for such rest periods. We conclude it does.”) (“Vaquero”).

[2] Id. citing (Armenta v. Osmose, Inc., 135 Cal. App. 4th 314, 324 (2005)).

[3] Bluford v. Safeway Stores, Inc., 216 Cal. App. 4th 864, 872 (2013).

[4] Id.

[5] Labor Code § 226.7(b); Cal. Code Regs. tit. 8, § 11070(12)(A) (“Industrial Wage Commission Order No. 7”) (“Authorized rest period time shall be counted as hours worked for which there shall be no deduction from wages.”)

[6] Vaquero at *9.

[7] Id. at *10.

[8] Id. at *9.

[9] Id. at *11.

[10] Id.