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  • Court Clarifies Commission Case

    By the end of this year all commission agreements in California must be in writing.  When drafting or reviewing your commission agreement it is a good idea to keep in mind several issues; one of which is whether the commissioned employee is exempt from California’s overtime laws.  A recent court decision (Muldrow v. Surrex Solutions) addresses the basic requirements of the inside salesperson exemption.

    Let me start off by reminding you that there are two different possible sales-related exemptions under California’s overtime laws: inside sales persons and outside salespersons.  Outside salespersons are exempt under most, if not all, wage orders.  Inside salespersons are only exempt if the employment is governed by Wage Order 4 (professional, technical, clerical mechanical and similar occupations) or Wage Order 7 (mercantile industry).  If some other wage order applies then the inside salesperson exemption is not available.  There are several different distinctions between the inside salesperson and the outside salesperson exemptions that I hope to address in a subsequent article.  For now, I want to focus on a couple of key points discussed in the Muldrow case.

    Surrex Solutions Corporation locates and provides qualified candidates for employment to other companies.  Sometimes the candidates are hired directly by the customer and other times Surrex “rents” the candidate to the customer for a specified billing rate.  Surrex employees review open positions, research and locate qualified candidates, negotiate terms of employment/hiring with candidates and customers, and obtain orders from customers for the candidates.  The Surrex employees are paid a percentage of any placement/hiring fees when the customer hires the candidate directly, and a percentage of the adjusted gross profit for candidates retained on a consultant basis.  Tyrone Muldrow, on behalf of himself and other similarly situated employees, filed a class action against Surrex claiming he was entitled to overtime.  The trial court and the appellate court rejected the claim and determined Muldrow was exempt from California’s overtime laws under the inside salesperson exemption.

    The court emphasized several earlier cases distilling the necessary criteria for the inside salesperson exemption:  “First, the employees must be involved principally in selling a product or service, not making the product or rendering the services.  Second, the amount of their compensation must be a percentage of the price of the product or service.” (quoting Ramirez v. Yosemite Water Co (1990) 20 Cal.4th785)

    In addressing the first issue (i.e, was the employee involved principally in selling a product or service), the court reduced Muldrow’s job to its essence: Surrex employees would offer a candidate’s services to a client in exchange for a payment of money from the client to Surrex.  Although there was some discussion regarding duties leading up to the consummation of the sale, all of those duties were part of the selling process and therefore the employees were “involved principally in selling a product or service.”

    As to the second issue, the employees conceded that they were paid a percentage of the price of the product for the direct hires, but claimed that since the amounts paid on the non-direct hire cases was not based on the gross price of the product or service, it was not a commission.  The court had no trouble rejecting this argument.  Nothing indicates the percentage must be based on the gross price versus an adjusted gross or net price.  The court similarly rejected the employees’ argument that the commission plan should be rejected because it was “too complex.”

    An interesting issue that was not addressed by the court (and possibly not raised by either side) was the fact that the commissions are calculated by taking the gross profit then deducting ordinary costs of doing business in order to calculate the commission.  There has been discussion for some time regarding the extent to which an employer can use the ordinary costs of doing business in the calculation of bonuses, commissions and profit-sharing agreements.  The California Supreme Court has flip-flopped on the issue at least once.  The latest rule is that, at least with respect to managerial profit sharing plans, an employer can calculate a profit sharing plan using profitability which necessarily includes the ordinary costs of doing business.  Under Muldrow, it would appear an employer can also calculate a commission based on the ordinary costs of doing business (e.g., overhead, employee costs, benefit costs, etc.)

    Commission plans can be simple or they can be complicated.  Even simple commission agreements need to carefully consider a number of factors.  Now that California law will require all commission agreements to be in writing and provided to the employee, it is extremely important for you to review and understand your commission arrangement.  If your plan is not in writing, now is the time to start working on it with a knowledgeable professional.  And don’t forget to consider any possible overtime ramifications!

    The Law Office of Phillip J. Griego
    95 South Market Street, Suite 520
    San Jose, CA 95113
    Tel. 408-293-6341
     
    Original article by Robert E. Nuddleman, former associate of The Law Office of Phillip J. Griego.
     
    Feel free to suggest topics for the blog. We are happy to consider topics pertaining to general points of Labor and Employment Law, but we cannot answer questions about specific situations or provide legal advice. If you desire legal advice, you should contact an attorney.
     
    Your use of this blog does not create an attorney-client relationship between you and the Law Office of Phillip J. Griego. The use of the Internet or this blog for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be posted in this blog and the Law Office of Phillip J. Griego cannot guarantee the confidentiality of anything posted to this blog.Phillip J. Griego represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.

  • 3 Interesting Overtime Results

    $4,385,000 settlement in class action case against DIRECTV, Inc:

    Michael Cicero, on behalf of himself and other installers, filed a class action lawsuit against DIRECTV alleging he and other installers were not paid overtime and were not paid for time spent driving to and from installation sites.  Cicero alleged installers were paid based on the number of installations performed and did not receive meal breaks.  The parties settled prior to trial and DIRECTV agreed to establish a $4,385,000 settlement fund for the class.

    $2,910,000 settlement in class action against Kaiser Foundation:

    Yvette Smith, Tim Dodson, and Molla Enger, on behalf of themselves and other business application coordinators and senior business application coordinators, sued Kaiser Foundation Hospitals alleging the employees were misclassified as exempt employees.  Kaiser contended the employees were exempt under the California and Federal administrative exemptions.  The plaintiffs asked for $6.46 million, but settled for $2.91 million prior to trial.

    County of Los Angeles defeats paramedic overtime claim:

    Richard Dupless and Tom Fahrny, on behalf of themselves and 82 similarly situated department employees, sued the County of Los Angeles alleging a violation of the Fair Labor Standards Act.  The plaintiffs argued that the county incorrectly calculated their regular pay rate because the county did not consider hazard bonuses paid to the employees.  The plaintiffs also alleged that they were not paid overtime when doing hazardous materials handling.  The county argued that it correctly calculated the regular rate of pay because the plaintiffs were not entitled to the bonuses unless they worked shifts in paramedic or hazardous materials position, therefore the bonuses were not part of the regular pay for the non-paramedic and non-hazardous materials positions.  The county also argued that the paramedics were not entitled to overtime unless they worked more than 182 hours in a week.  The judge granted the county’s motion for summary judgment.  No word yet on whether there will be an appeal.

    The Law Office of Phillip J. Griego
    95 South Market Street, Suite 520
    San Jose, CA 95113
    Tel. 408-293-6341
     
    Original article by Robert E. Nuddleman, former associate of The Law Office of Phillip J. Griego.
     

    Feel free to suggest topics for the blog. We are happy to consider topics pertaining to general points of Labor and Employment Law, but we cannot answer questions about specific situations or provide legal advice. If you desire legal advice, you should contact an attorney.

    Your use of this blog does not create an attorney-client relationship between you and the Law Office of Phillip J. Griego. The use of the Internet or this blog for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be posted in this blog and the Law Office of Phillip J. Griego cannot guarantee the confidentiality of anything posted to this blog.

    Phillip J. Griego represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.

  • Makeup Time versus Comp Time

    One reader asked what the rules are regarding makeup time.

    It should first be noted that there are two different Labor Code provisions employers and employees need to know. Labor Code §204.3 regarding Comp time allows an employee to work more hours in one workweek and take the time off (at time and one-half) at a later date. This is different from the makeup time provisions of Labor Code §513, which allows an employee to work extra time in one day and make it up with time off (in an equal amount of time) during the same workweek.

    Comp Time
    Labor Code §204.3 allows an employee to compensating time off under certain circumstances in lieu of overtime compensation. First, the comp time must be at one and one-half times the employee’s regular rate. In other words, if the employee should be paid one hour of overtime, the employee must receive one and one-half hours of comp time.

    Second, there must be a written agreement between the employer and the employee, or in a collective bargaining agreement, allowing comp time before the employee accrues the comp time. The employee cannot accrue more than 240 hours of comp time.

    Finally, the employee must request the use of comp time in writing. Upon discharge from employment, any unused comp time shall be paid at the employee’s current rate of pay, or the average of the employee’s regular rate over the last three years, whichever is greater.

    Employees can require the employer pay the comp time in cash for any accrued comp time over the preceding two pay periods. Industries under IWC Orders Nos. 1, 3, 8, 10, 13, and 14 cannot use comp time (industries handling products after harvest or preparing agricultural products for market on the farm, industries in the canning, freezing, and preserving industries, industries affecting public housekeeping and amusement and recreation industries, and the manufacturing industry.)

    The Labor Commissioner has issued the following Caveat regarding comp time:

    The provisions of Section 204.3 are patterned on provisions found in 29 U.S.C. §207(o). It should be noted that these compensatory time provisions are only applicable under the federal law to state and local government employees; the compensating time provisions under federal law are not applicable to employees of private employers. Any employer utilizing the provisions of Section 204.3 should be advised of this caveat as use of the compensating time provisions of the state law may result in violation of the federal law.

    In other words, while a private employer can adopt a comp time plan under California law, if the employee works more than 40 hours in the workweek, the employer may owe the employee overtime pay under the Fair Labor Standards Act.

    Makeup Time
    Labor Code §513 states:

    If an employer approves a written request of an employee to make up work time that is or would be lost as a result of a personal obligation of the employee, the hours of that makeup work time, if performed in the same workweek in which the work time was lost, may not be counted towards computing the total number of hours worked in a day for purposes of the overtime requirements specified in Section 510 or 511, except for hours in excess of 11 hours of work in one day or 40 hours in one workweek. An employee shall provide a signed written request for each occasion that the employee makes a request to make up work time pursuant to this section. An employer is prohibited from encouraging or otherwise soliciting an employee to request the employer’s approval to take personal time off and make up the work hours within the same week pursuant to this section.

    This Labor Code section is incorporated into each of the IWC Orders except 14:

    If an employer approves a written request of an employee to make-up work time that is or would be lost as a result of a personal obligation of the employee, the hours of that make-up work time, if performed in the same workweek in which the work time was lost, may not be counted toward computing the total number of hours worked in a day for purposes of the overtime requirements, except for hours in excess of eleven (11) hours of work in one (1) day or forty (40) hours of work in one (1) workweek. If an employee knows in advance that he or she will be requesting make-up time for a personal obligation that will recur at a fixed time over a succession of weeks, the employee may request to make-up work time for up to four (4) weeks in advance; provided, however, that the make-up work must be performed in the same week that the work time was lost. An employee shall provide a signed written request for each occasion that the employee makes a request to make up a work time pursuant to this section. While an employer may inform an employee of this make-up time option, the employer is prohibited from encouraging or otherwise soliciting an employee to request the employer’s approval to take personal time off and make-up the work hours within the same workweek pursuant to this section.

    The Makeup Time exception requires:

    1. Written request by the employee to make up time which would be lost by the employee due to a personal obligation
    2. Makeup hours worked in one day may not exceed eleven (11) nor, of course, may the number of makeup hours worked in one workweek exceed forty (40).
    3. Request may be made for makeup time for a recurring personal obligation which is “fixed in time over a succession of weeks” provided a written request is made every four (4) weeks.
    4. Employers are prohibited from soliciting or encouraging employees to make a request for makeup hours, but informing employees of this right is permitted.
    The Law Office of Phillip J. Griego
    95 South Market Street, Suite 520
    San Jose, CA 95113
    Tel. 408-293-6341
     
    Original article by Robert E. Nuddleman, former associate of The Law Office of Phillip J. Griego.
     

    Feel free to suggest topics for the blog. We are happy to consider topics pertaining to general points of Labor and Employment Law, but we cannot answer questions about specific situations or provide legal advice. If you desire legal advice, you should contact an attorney.

    Your use of this blog does not create an attorney-client relationship between you and the Law Office of Phillip J. Griego. The use of the Internet or this blog for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be posted in this blog and the Law Office of Phillip J. Griego cannot guarantee the confidentiality of anything posted to this blog.

    Phillip J. Griego represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.