California Court of Appeals Confirms Non-Exempt Commissioned Employees Must Be Paid Enhanced Rest Break Compensation

On February 28, 2017 the California Court of Appeals confirmed in Vaquero v. Stoneledge Furniture LLC, that non-exempt commissioned employees are entitled to enhanced compensation during rest and recovery periods.  This ruling brings commissioned employees into alignment with the recent statutory changes for “piece-rate” employees in California.

AB 1513, codified as Labor Code §226.2 is known as California’s “piece rate law.”  The piece rate law took effect on Jan. 1, 2016 and requires employers to pay piece-rate employees for rest and recovery periods and other nonproductive time.  For employees who qualify, the law mandates that they shall be compensated for rest and recovery periods at a regular hourly rate that is no less than the higher of:  

(i) an average hourly rate determined by dividing the total compensation for the workweek, exclusive of compensation for rest and recovery periods and any premium compensation for overtime, by the total hours worked during the workweek, exclusive of rest and recovery periods; or 

(ii) The applicable minimum wage. 

Labor Code §226.2(a)(3)(A)

Labor Code §226.2 explicitly states that it shall apply to employees who are compensated on a piece-rate basis.  However, in a case of first impression, the Second District Court of Appeals in Vaquero clarified that the need to compensate legally mandated rest and recovery periods at an enhanced rate also applies to non-exempt employees compensated on a commission basis.  

Specifically, the Court stated: 

“the DLSE Manual treats commissioned and piece-rate employees alike for purposes of applying the minimum wage requirement to non-productive working hours. There is no reason California law should not treat these categories of workers the same for purposes of complying with the requirement to provide paid rest periods.”

The Vaquero decision is a cautionary reminder to employers with non-exempt commissioned employees that rest periods –the 10 minute breaks required by California law - must be separately tracked and compensated at the rates dictated by the statute.   

Concerned employers should consult with counsel to determine whether commission agreements adequately compensate non-exempt commissioned employees for non-productive time and reflect the proper method of calculation for the employees’ wage statements.  Failure to comply with this new guidance may create significant potential wage and hour liability for California employers.