In Peabody v. Time Warner Cable, ___ Cal.4th ___  (July 14, 2014), the California Supreme Court certified for the 9th Circuit Court of Appeals that an employer may not attribute commission wages paid in one pay period to other pay periods in order to satisfy California’s compensation requirements.

Plaintiff worked for defendant employer as a commissioned salesperson who sold advertising on the company’s cable television channels.  She received biweekly paychecks, which included hourly wages in every pay period and commission wages approximately every other pay period (i.e. once every four weeks).  After Plaintiff’s employment ended, she filed a class action lawsuit alleging claims of unpaid overtime and other wage and hour violations.  Defendant removed the matter to federal court and filed a motion for summary judgment, arguing that plaintiff was not entitled to overtime wages because she fell within California’s “commissioned employee exemption.”  This exemption requires that an employee’s earnings exceed one and one-half times the minimum wage (i.e., $12 per hour during the relevant time period), yet most of plaintiff’s paychecks included only hourly wages and were for less than that amount. Defendant argued, however, that commissions should be reassigned from the biweekly pay periods in which they were paid to earlier pay periods. It reasoned that the commissions should be attributed to the monthly pay period for which they were earned. (Italics added.) Attributing the commission wages in this manner would satisfy the exemption’s minimum earnings prong. The U.S. District Court agreed and granted summary judgment. Plaintiff appealed to the Ninth Circuit, which then asked the California Supreme Court to answer the question of whether plaintiff’s commissions could be allocated over the course of a month, or whether the commissions must only be counted toward the pay period in which the commissions were paid.

The California Supreme Court answered that the latter is correct.  First, the court concluded that Labor Code Section 204 requires that all earned wages, including commissions, be paid no less frequently than semimonthly. Second, “whether the minimum earnings prong is satisfied depends on the amount of wages actually paid in a pay period. An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.” As the court noted, “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.” Additionally, permitting wages paid in one pay period to be attributed to a different pay period would be inconsistent with several Labor Code provisions.