Peabody v. Time Warner Cable, Inc. Commission Wages: How and When They are to be Paid

In the case Peabody v. Time Warner Cable, Inc., 59 Cal.4th 662 (2014), the California Supreme Court agreed to resolve a question from the Ninth Circuit Court of Appeals. The question involved commission wages and California's commissioned employee exemption to overtime pay. Specifically, the question put to California's highest court was whether an employer could take commission wages paid in one period and apply them to other pay periods in order to fulfill the statutory compensation requirements for the State of California and avoid the payment of overtime.

The plaintiff, Susan Peabody, was an account executive with Time Warner Cable, Inc. (“Time warner”). Peabody was paid hourly wages on a semi-monthly basis, and was paid commissions on a monthly basis under a compensation plan. Peabody sued Time Warner for unpaid minimum and overtime wages, basing her claims on the fact that many weeks she worked over forty hours a week and was not paid overtime. She disputed Time Warner's argument that she fell within the commissioned employee exemption to overtime pay by showing that her hourly earnings did not equal the required one and a half times minimum wage to place her in that exemption (in this case, the required minimum wage amount was $12/hour).

The fact that Peabody’s hourly wages did not equal the required minimum amount for purposes of meeting the exemption was not in controversy. Instead, Time Warner argued that when Peabody's commission wages were reassigned from the bi-weekly pay periods in which they were earned to other pay periods, her overall pay met the minimum requirement of the exemption. From the arguments offered to the court, it appeared that Time Warner structured its commission compensation plan so that it would fill any shortfall in wages, thus ensuring that the employees earning commissions would fall within the commissioned employee exemption.

The California Supreme Court's Analysis

The California Supreme Court began its consideration of the question before it by stating that statutes governing conditions of employment are to be construed broadly in favor of protecting employees, citing to its decision in Brinker Restaurant Corp. v. Superior Court, 53 Cal.4th 1004 (2012). The court further noted that it narrowly construes exemptions against the employer.

With these principles guiding their analysis, the court went on to conclude that: (1) all wages should be paid on a semi-monthly basis; and (2) it is not permissible to defer any part of wages due for one period until payment of wages due for a later period. The court reasoned that not allowing commission wages to be reassigned and requiring that they be paid twice a month would mitigate the burden imposed by exempting commission employees from overtime pay. The whole logic of the exemption is defeated if an employer is able to attribute commission wages paid weeks or even months to later pay periods in order to satisfy the exemption’s minimum earning prong.

California v. Federal Law

The California Supreme Court supported its decision to require semi-monthly commission payments by pointing to the California Labor Code, which requires semi-monthly paychecks to include wages earned during that pay period. The court also noted that the Division of Labor Security and Enforcement (“DLSE”) policies require compliance with the commissioned employee exemption to be determined on a workweek basis.

In response to Time Warner’s contention that federal law allows for a monthly commission compensation plan and, therefore, California should allow its employers to do the same. The California Supreme Court simply stated that it is not required to follow federal law and declined to do so.

Going Forward

In light of Peabody, California employers should review their employees’ compensation to determine if it satisfies the minimum compensation requirements of the commissioned employee exemption. The employee must be paid the required minimum earnings in each pay period since wages no longer can be reassigned from different pay periods in order to satisfy the minimum monetary amount.

Regardless of the exempt status of an employee, all employees must be paid commissions on a semi-monthly basis (unless they fall within statutory exceptions). Employers should review the timing and frequency of their commission payments to ensure that they comply with California law as outlined in the Peabody decision.

Peabody v. Time Warner is a significant decision because many California employers have policies relating to the payment of commissions on a monthly basis, irrespective of the exemption. If you believe that payment of your commission does not comply with the law as articulated by the California Supreme Court, or if you think that you do not fall within the commissioned employee exemption, contact the employment attorneys at Nassiri Law Group. We practice in Orange County, Riverside and Los Angeles. Call 714-937-2020 today so that we can review your case.