Pay Plan Modification Alert: All Commission-Based Compensation Plans Must Separately Account and Pay for Rest Periods

Each pay period, they received sales commissions plus, if necessary, a draw against future commissions bringing pay to at least $12.01 for each hour worked in the pay period. Their compensation agreement did not provide for separate compensation for non-sales time or for rest periods.

The plaintiffs filed suit alleging failure to provide paid rest periods. Stoneledge filed a motion for summary judgment, arguing that the plaintiffs’ claims must fail because Stoneledge paid commissions and, if and when necessary, advanced a draw assuring a minimum of $12.01 per hour for all hours worked, including rest periods. The trial court granted Stoneledge’s motion and entered summary judgment for Stoneledge.

The Court of Appeal reversed the decision. The Court determined that commissions earned while selling, along with payment of a recoverable draw, did not compensate employees for non-sales time or break time. The Court did not specify how break time must be calculated. However, it criticized commission-based pay plans under which salespeople receive the same amount of compensation regardless of whether they take rest breaks, suggesting that a compensation plan that includes incentive pay must not discourage employees from taking rest breaks.

What should dealers do now?

Dealers should revise their pay plans for commission based employees to ensure that the compensation agreements and pay calculations are revised to provide for compensation for non-sales time as well as rest break time.