AMERICAN Income Life Insurance Co. sells insurance policies in California. It hires agents that it pays on commission. David Hamilton, Bridget Smith, and David Joh worked for American Income as agents. They each believed that they would be a salaried worker when they first applied, but later found that they would be paid in commission only.
American Income required agents to undergo “rigorous” trainings which lasted “at least several weeks.” During training, the agents frequently work more than eight hours per day, and six or more days per week. However, they do not earn money while training because their compensation is commission-based. The employer regulates its agents’ schedules, requiring off-site and in-office sales meetings to occur at certain times. Agents are generally not paid minimum wage or overtime pay. They also do not receive regular meal and rest breaks and are not paid for missed breaks. Agents are also required to pay their own expenses incurred in the performance of their jobs.
For all these, agents are made to sign contracts providing that “The Agent is not an employee of the Company; rather, the agent is an independent contractor. The agent has no fixed hours and is free to choose the time and manner in which services are performed.”
The employees sued American Income for unpaid wages, unreimbursed expenses, and for missed meal and rest breaks.
Under California law, whether or not employees are paid hourly, piece-rate, or on commission, they must be paid no less than the minimum wage for all hours worked. If an employee spends time doing other work-related activities not covered by the plan (such as pick-up or clean-up activities, or attending compulsory work meetings), the times spent doing these are considered hours worked, and must be paid the minimum wage (or an agreed hourly rate, if any).
Employees who are paid by commissions are entitled to at least minimum wages for each and every hour worked, including overtime pay when necessary. Basing the employee’s pay solely on the ability to generate sales or earnings for the company without regard to the employee’s actual hours worked does not comply with the law.
A commission plan may provide payment of a fixed “advance,” or “draw” on a periodic basis. Commission advances typically will require certain conditions that must be satisfied before commissions are earned. Thus, even though a commission advance may have already been paid, an employee will not have yet earned the commission if certain conditions are not yet satisfied. The employee’s sale must be commissionable for the employee to earn the commission. If advances are paid for anticipated sales that do not materialize, the commission may be “recovered” or “clawed back” as a deduction from future pay. However, if the system of payment results in employees not being paid for non-productive (or non-selling) time, that pay practice may be illegal.
Employees who are paid on a commission plan are still entitled to rights that are provided to hourly employees, such as the right to be provided off-duty meal and rest breaks. An employer shall not require commissioned employees to work during breaks. If an employer fails to provide a meal or rest breaks, the employee is entitled to one additional hour of pay at the employee’s regular rate of compensation for each workday that the meal or rest break (or both) is not provided.
Are employees paid on commission entitled to separate pay for rest breaks if the commission plan has a “claw back” provision? Courts said yes, particularly where the plan does not address how employees are to be paid for rest breaks (which is time spent not earning commissions). Where the commission computation did not account for rest breaks, the employee should be separately paid for rest breaks.
Lastly, an employer must reimburse employees for all necessary expenditures incurred in performing their duties. These include travel expenses; costs of uniforms or special clothing required by the employer; and costs of supplies, tools, materials, or equipment.
In the case against American Income Insurance, the parties agreed to settlement and not to proceed trial. The employees will recover $5.75 million in damages from the employer.
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The Law Offices of C. Joe Sayas, Jr. welcomes inquiries about this topic. All inquiries are confidential and at no-cost. You can contact the office at (818) 291-0088 or visit www.joesayaslaw.com. [For more than 25 years, C. Joe Sayas, Jr., Esq. successfully recovered wages and other monetary damages for thousands of employees and consumers. He was named Top Labor & Employment Attorney in California by the Daily Journal, consistently selected as Super Lawyer by the Los Angeles Magazine, and is a past Presidential Awardee for Outstanding Filipino Overseas.]
