Labor & Employment

Where’s The Rest Of My Pay?

Commission-Only Employees Must Be Paid Separately for Rest Periods

April 18, 2017

By Brian M. Ragen

In Vaquero v. Stoneledge Furniture LLC, a California Court of Appeal recently held that inside sales employees who are paid on a 100% commission basis must be separately compensated for their rest periods.

Though inside sales persons are exempt from overtime (provided they earn at least 1.5-times minimum wage and earn more than half of their compensation from commissions), they are not exempt from California’s meal and rest period requirements.  Thus, the Court’s logic was as follows:  Inside sales employees must receive at least one paid rest period of 10 minutes for every four hours worked.  If 100% of an employee’s pay is attributable to commissions, then he or she is not being compensated for rest periods—i.e., an employee cannot earn a commission while “resting,” so an employee paid only commissions must not be receiving pay for rest periods.

Notably, the Court’s reasoning applies even where an employee receives a minimum amount each pay period, if that minimum amount is treated as a “draw” or an “advance against commissions.”  (For example, in order to preserve the overtime exemption, it is common to ensure that inside salespersons receive at least 1.5-times minimum wage every pay period, but later to treat those payments as advances against earned commissions.)  Indeed, in Vaquero, the sales employees were paid on a 100% commission basis, but if they failed to earn at least $12.01 per hour in any given pay period, they received “Minimum Pay” of $12.01 per hour as a “draw” against future commissions. (At the time, this amount exceeded 1.5 times the then-applicable $8 per hour minimum wage.)  The commission agreement explained, “The amount of the draw will be deducted from future [commissions], but an employee will always receive at least $12.01 per hour for every hour worked.”  With respect to meal periods, the Court disapproved of this arrangement, finding that an employee who was paid 100% commissions could not possibly be receiving pay for rest periods, noting, “[T]he purpose of a rest period is to rest, not to work.”

In reaching its conclusion, the Court relied heavily on a line of cases involving piece-rate workers (i.e., employees who are paid a fixed rate for each task they complete, such as sewing a garment, or changing the oil on a vehicle).  In that context, it is clear that employees who receive only their piece rate are not being compensated for rest periods, because no work towards completing a “piece” can be accomplished during rest periods.  Despite their differences, the Vaquero Court found that commission pay systems and piece-rate systems were essentially identical in their treatment of rest breaks:  “The commission agreement used by Stoneledge . . . is analytically indistinguishable from a piece-rate system in that neither allows employees to earn wages during rest periods.”

Ask MSK:

Does Vaquero mean that we need to revise our commission plan?

If your sales employees are paid 100% commission—even if they receive a minimum “draw” or “advance against commissions” each pay period—it is virtually certain that you will need to revise your commission plan.  If your inside sales employees receive a base salary plus commissions, it would be wise to ensure that the base salary is sufficient to cover all rest periods, and to state expressly in your commission plan that the base salary is intended to include rest period pay.

If we pay rest periods separately, what hourly rate should we use?

This remains unclear after Vaquero.  Arguably, nothing prevents employers from paying rest periods at 1.5 times minimum wage—regardless of how much the sales employee earns in commissions during the pay period.  But when similar cases arose in the piece-rate context (requiring employers to pay piece-rate employees separately for their rest periods), the California Legislature quickly introduced Labor Code section 226.2, which requires employers to pay piece-rate employees for rest periods at their “regular rate,” i.e., their total compensation for the pay period divided by their hours worked for the pay period.  The Division of Labor Standards Enforcement may apply a similar rule with respect to commissioned employees or the Legislature could pass similar legislation in the commission context in light of Vaquero.

I thought sales persons were exempt from most wage and hour rules. What gives?

Outside sales persons are exempt from overtime and meal and rest period requirements.  To qualify for this exemption, the employee must spend more than half of his or her time outside of the office engaged in sales activities.

 

What’s In Your Arbitration Agreement?

California High Court Finds Another Exception to Enforcing Arbitration Agreements As Written

April 13, 2017

By Suzanne Steinke and Mazen Khatib

Many employers enter into pre-dispute arbitration agreements with their employees so that any future claims or disputes between the employer and the employee get resolved through binding arbitration, rather than a court of law. The United States Supreme Court has traditionally favored the enforcement of such arbitration agreements as written. This has included approving agreements that contain a waiver of the right to bring a class action in any forum, meaning that an employer and an employee must resolve all disputes in arbitration and on an individual, not class-wide, basis. This class action waiver is significant for employers because an employee is stopped from bringing any claim in court or arbitration to benefit and on behalf of any employees other than herself.

California courts have been reluctant to fully embrace pre-dispute arbitration agreements, even though they are generally required to follow U.S. Supreme Court pronouncements in this area. Although California’s highest court has finally accepted that class action waivers in arbitration agreements are enforceable, with its recent decision in McGill v. Citibank, it once again shows its willingness to find exceptions to avoid fully enforcing these agreements as written. (more…)

Data Breaches: An Employer’s Duty to Protect Employees’ Personal Information

By Aaron Wais

An appellate court in Pennsylvania recently dismissed an employee class action against their employer over a data breach, holding that the employer did not have a duty to protect its employees’ personal information (e.g., names, birth dates, social security numbers, bank information, etc.).  While this was a significant victory for employers, non-Pennsylvania employers should temper their enthusiasm because courts in other states, including California, have made clear that employers do have a legal duty to protect their employees’ personal information. These courts have also made clear that the liability for a data breach differs when an employer has legally compliant, written policies for safeguarding private information and responding to data breaches in a timely manner.

(more…)

City of Los Angeles “Bans the Box”

December 15, 2016

Written by Erica Parks

Los Angeles Mayor Eric Garcetti has signed into law the “Fair Chance Initiative,” which prohibits employers from asking applicants about their criminal histories “at any time or by any means,” including on job applications, “unless and until a conditional offer of employment has been made.” The new law, which can found here, goes into effect January 1, 2017 and will apply to employers with 10 or more employees working in the City of Los Angeles (individuals who work in the city at least two hours on average each week are counted) and city contractors. There are limited exceptions to the law, such as for positions that require employees to carry firearms and for positions working with minors. Once the new law goes into effect, Los Angeles will become the latest in a growing number of jurisdictions, including over 100 cities and counties and about 23 states, that have adopted similar “ban the box” laws, including New York City, as we alerted you last year.

Federal Court Lowers the Boom on DOL’s Higher Salary Regulation

November 23, 2016

By Erica Parks

It has been a rough few weeks for the Department of Labor (“DOL”) in Texas federal court. Yesterday in Sherman, Texas, U.S. District Judge Amos Mazzant granted a nationwide preliminary injunction temporarily blocking the DOL’s new overtime regulations, which were scheduled to take effect on December 1, 2016. As we alerted you last month, those regulations would, among other things, nearly double the salary basis required to qualify for any of the “white collar” exemptions from federal overtime laws. Opponents of the rule have argued that it oversteps the authority granted to the DOL by Congress. (more…)

Don’t Look Back: California Restricts Use of Salary Histories

October 24, 2016

By Erica Parks

In August, we alerted you to  several measures around the country that may indicate a trend towards restricting employers from seeking or relying upon applicants’ wage histories, including then-pending California Assembly Bill (“AB”) 1676. Recently, Governor Brown signed AB 1676 into law. Fortunately, unlike earlier drafts of AB 1676 and the Massachusetts statute discussed in our August Alert, the new California law does not prohibit employers from seeking wage history; rather, the new law, which can be read in full here, will amend California’s Fair Pay Act (“CFPA”) to preclude employers from relying on an applicant’s salary history as the sole justification for a wage disparity, stating that “prior salary shall not, by itself justify any disparity in compensation.”

The Governor has also signed into law Senate Bill (“SB”) 1063, the Wage Equality Act of 2016, which expands the CFPA’s prohibitions beyond gender-based wage differentials to encompass wage differentials based on race and ethnicity. SB 1063, which can be read in full here, mirrors the gender-related provisions of the CFPA, and prohibits employers from paying “employees at wage rates less than the rates paid to employees of another race or ethnicity for substantially similar work when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.” Similarly, employers bear the burden of establishing that any wage differentials is based upon a seniority system, a merit system, a system that measures earnings by quantity or quality of production, or “a bona fide factor other than race or ethnicity, such as education, training, or experience.” Like the gender-related provisions, a “bona fide factor” must not be based on or derived from a race or ethnicity-based differential and must be job-related and consistent with a “business necessity,” defined as an “overriding legitimate business purpose such that the factor relied upon effectively fulfills the business purpose it is supposed to serve.” Similarly, one or more of the factors relied upon must account for the entire wage differential. The new law also incorporates the amendments made by AB 1676, such that employers are precluded from relying on an applicant’s salary history as the sole justification for a race or ethnicity-related wage disparity. Finally, the SB 1063 includes an anti-retaliation provision nearly identical to the CFPA’s gender-related anti-retaliation provisions, including significant protections for employees who disclose, inquire, or discuss their wages.

These new laws go into effect on January 1, 2017.  Before the new year, businesses that operate in California  should take steps to ensure that their hiring practices conform to the CFPA, as amended by AB 1676 and SB 1063.

Please contact MSK if you would like to discuss whether changes to your recruiting or pay practices are advisable for your business.

The Regs They Are a-Changin’: Are You Ready?

October 10, 2016

By Anthony Amendola and Melvin Felton II

FLSA: Employees Must Earn More To Qualify For Overtime Exemption

The U.S. Department of Labor’s long-expected amended regulations to the Fair Labor Standard Act (“FLSA”) will become effective on December 1, 2016. Under these new regulations, employees across the nation must earn at least $913 per week (or $47,476 annually) in order to qualify for any of the “white collar” (executive, administrative or professional) overtime exemptions. This minimum salary will be adjusted annually to an amount equal to the 40th percentile of weekly earnings for full-time salaried workers.  Although lawsuits have been filed seeking to block the regulations, at this time, employers should be prepared for implementation on December 1.

Under existing law, in order to be properly classified as exempt from overtime under any of the white collar exemptions, an employee must meet both a duties test (i.e., his or her primary job duties must meet certain minimum requirements) and a salary basis test (i.e., he or she must be paid a fixed salary each week that is not subject to deduction based on the quantity or quality of work). For many years, the minimum weekly salary to meet the FLSA salary basis requirement was only $455 per week. (more…)

Labor and Employment Tips for Startups

By Samantha E. Becker

labor-and-employment-tips-image

Photo credit: iStock.com/LeoWolfert

Here are 10 employment tips to prevent your start-up from losing ground before it gets started:

  1. Make sure you understand the differences between employees and independent contractors and follow all legal requirements when it comes to wages, benefits and terms of employment. Distinguishing employees from independent contractors is complex and fact-specific (the IRS uses a 20-factor test!) and errors can result in costly litigation down the road.
  2. Don’t classify employees as salaried to avoid paying for overtime and/or other benefits. Most employees in a company should be paid on an hourly basis and even salaried employees can later try to sue for unpaid wages and overtime, penalties, and attorneys’ fees.
  3. You cannot pay equity to avoid paying minimum wages. Make sure you pay employees for their regular and overtime hours worked based on the rates set forth by state and federal laws. (more…)

Don’t Show Me The Money

Massachusetts Pay Equity Law Has Implications for California and New York Employers That Seek or Use Applicant Wage History

By Erica Parks
August 23, 2016

The Massachusetts Equal Pay Act (“MEPA”) has prohibited employers from paying men and women differently for “work of like or comparable character” since 1945, nearly two decades before the federal Equal Pay Act (“EPA”) was passed and before any other state passed pay equity legislation.  This month, Massachusetts Governor, Charlie Baker, signed into law Senate Bill 2119 (“S.2119”), which makes several significant changes to the MEPA, most of which are similar to recent amendments to California and New York equal pay legislation.  Notably, however, S.2119 makes Massachusetts the first in the nation to prohibit employers from requesting or seeking an applicant’s salary history.  S.2119 can be read in full here.

Once S.2119 goes into effect, on July 1, 2018, the previously undefined term “comparable character” will be replaced by “comparable work,” which is defined as “work that is substantially similar in content and requiring substantially similar skill, effort, and responsibility and performed under similar working conditions.”  This new definition mirrors California’s recently expanded Fair Pay Act (“CFPA”), which broadened the scope of claims that can be pursued under the law from claims for jobs that require “equal skill” to claims for “substantially similar work, when viewed as a composite of skill, effort, and responsibility, and performed under similar working conditions.” By comparison, New York Labor Law § 194(1) (“NYLL”) and the federal EPA require equal pay for “equal work.” (more…)

Employers Should Take Note of the Department of Labor’s Final “Persuader Rule”

 

By Steven M. Schneider and Jessica Iglesias
June 28, 2016

The Department of Labor (“DOL”) recently issued its final rule concerning the controversial “persuader rule” that greatly expands employers’ obligations under the Labor-Management Reporting and Disclosure Act of 1959 (the “LMRDA”). The persuader rule, scheduled to take effect July 1, 2016, not only impacts employers with union-represented employees, but it also may impact employers who presently do not have union-represented employees or union-organizing activities.

Under the LMRDA, any person who pursuant to any “agreement or arrangement” with an employer undertakes to persuade employees to exercise or not exercise their right to organize and bargain collectively, is obligated to report specific information about such agreement or arrangement to the DOL. Historically, the DOL has treated most legal work to be exempt from these reporting requirements, provided that the attorneys avoided direct communication with their clients’ rank and file employees and the client was free to accept or reject the attorney’s advice.  However, the DOL’s revised persuader rule extends the reporting requirements to “indirect persuader activities” engaged in by attorneys. (more…)