HR Alert

CA Court of Appeal: Commission-Based Compensation Plans Must Separately Account and Pay for Rest Periods

Requirement Violated by Paying Employees a Guaranteed Minimum Hourly Rate as Advance on Future Commissions Earned

The California Court of Appeal (Second Appellate District) has held that commission-based compensation plans must separately account and pay for rest periods to comply with state law.

Employers of California employees covered by the rest period provisions of the Industrial Welfare Commission wage orders generally must authorize and permit a net 10-minute paid rest period for every four hours worked or major fraction thereof. Insofar as is practicable, the rest period should be in the middle of the work period. If an employer does not authorize or permit a rest period, the employer must pay the employee one hour of pay at the employee's regular rate of pay for each workday that the rest period is not provided.

Authorized rest period time must be counted as hours worked, for which no deduction from wages is permitted.

Court Decision
According to the court's opinion, employees paid on commission are entitled to separate compensation for rest periods mandated by state law. Therefore, commission-based compensation plans must separately account and pay for rest periods to comply with state law.

The court further noted that employers who keep track of hours worked--including rest periods--violate this requirement by paying employees a guaranteed minimum hourly rate as an advance on commissions earned in later pay periods.

Note: Employers with questions as to the case's impact on workplace policies or practices are advised to contact a knowledgeable employment law attorney.

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