Wage and Hour Case Notes
| Publication year | 2021 |
| Author | By Lois M. Kosch and Nicole R. Roysdon |
By Lois M. Kosch and Nicole R. Roysdon
Lois M. Kosch is a partner at Wilson Turner Kosmo. She represents employers in all aspects of employment law and litigation and also serves as an arbitrator, both privately and through the American Arbitration Association. Ms. Kosch is a former member of the Labor and Employment Law Section's Executive Committee. Nicole R. Roysdon is a Senior Associate at Wilson Turner Kosmo. She represents employers in all areas of employment law, specializing in wage and hour class and PAGA representative actions. She may be reached at nroysdon@wilsonturnerkosmo.com.
Plaintiffs, who worked as financial advisors, filed a putative class action alleging Wedbush Securities, Inc. (Wedbush) misclassified them and class members as exempt. Financial advisors were paid on a commission-only basis and were not paid overtime. The more sales they made, the higher the percentage used to calculate their monthly commission payment. If the amount of commissions financial advisors earned in a given month was less than double the minimum wage, Wedbush paid them the commission due plus a draw, or advance on future commissions, in an amount equal to the difference between the commission and double the minimum wage. However, financial advisors were expected to repay the draw via deductions from future commission payments, to the extent the future commissions exceeded double the minimum wage. Wedbush asserted that financial advisors were properly classified as exempt under the administrative exemption.
After the trial court granted class certification, it bifurcated trial to decide whether Wedbush's compensation plan satisfied the salary basis test for application of the administrative exemption under California law. The trial court found it did and entered judgment in Wedbush's favor based on its exemption defense. The appellate court reversed and remanded, finding that "a compensation plan based solely on commissions, with recoverable advances on future commissions" does not qualify as a salary for purposes of the administrative exemption.
Under IWC Wage Order No. 4-2001, employees may be classified as exempt if they are primarily engaged in exempt duties and are paid a "monthly salary equivalent to no less than two (2) times the state minimum wage for full-time employment." Wage Order 4 does not define what constitutes a "salary" for purposes of the administrative exemption, so the court looked to federal regulations implementing the Fair Labor Standards Act (FLSA). Because 29 C.F.R. § 541.602(a)(3) (2019) only allows an employer to credit the payment of commissions against up to ten percent of the salary amount, the court found that a commission-only plan, which is based 100 percent on commissions, does not satisfy the federal salary basis test. Since "California courts follow the federal salary basis test to a substantial degree," a commission-only compensation plan also does not pass California's salary basis test.
To meet the salary basis test, the federal regulations also require that the employee receive "a predetermined amount constituting all or part of the employee's compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed." (29 C.F.R. § 541.602(a) (2019).) Since Wedbush's financial advisors' commissions fluctuated each month, they did not constitute a predetermined amount and could not be considered a...
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