Time Warner Burned by the “Commissioned Employee Overtime Exemption.”

The California Supreme Court recently addressed a novel issue regarding the “commissioned employee overtime exemption,” which provides that employees are not entitled to overtime pay if (1) they earn 1½ times minimum wage, and (2) commissions represent more than half their compensation. The Court held that commissions earned in one month but paid in another month cannot be allocated to the month in which they were earned for purposes of meeting the minimum earning requirement of the commissioned employee overtime exemption.

In this case, Time Warner account executives were paid only minimum wage for many weeks in which they worked overtime but did not earn any commission. However, employees received large paychecks in other periods during which they were paid commissions per the comp plan (i.e., when the customer made payment). Claiming that it met the minimum earnings requirement for the commissioned employee exception to the overtime requirement, Time Warner argued that it should be permitted to allocate the commission wages paid in one month to another month in which they were actually earned. The California Supreme Court rejected that argument, leaving Time Warner liable to a class of account executives for each week in which they worked overtime and were not actually paid 1½ times minimum wage. In reaching its conclusion, the Court looked to the language of some Labor Code statutes (such as sections 204 and 226) that speaks in terms of wages “earned during that pay period.” The Supreme Court also noted that its conclusion was “consistent with the purpose of the minimum earnings requirement. Making employers actually pay the required minimum amount of wages in each pay period mitigates the burden imposed by exempting employees from receiving overtime. This purpose would be defeated if an employer could simply pay the minimum wage for all work performed, including excess labor, and then reassign commission wages paid weeks or months later in order to satisfy the exemption’s minimum earnings prong.”

This case serves as a reminder that employers would be well advised to periodically have their comp plans reviewed by qualified counsel with an eye toward identifying potential blind spots like basic error made by an employer as large as Time Warner.

Please contact Jim Parton at jparton@partonsell.com or Frank Conway at fconway@partonsell.com for more information regarding a review of your employee compensation plans for compliance with current wage and hour requirements.

The case is Peabody v. Time Warner Cable, Inc. (Cal., July 14, 2014, S204804) 2014 WL 3397770

The California Supreme Court recently addressed a novel issue regarding the “commissioned employee overtime exemption,” which provides that employees are not entitled to overtime pay if (1) they earn 1½ times minimum wage, and (2) commissions represent more than half their compensation. The Court held that commissions earned in one month but paid in another […]