A recent California Appellate decision expanded the definition of “commissions” and found that no overtime was owed to a car salesperson, despite the long hours she worked. In Areso v. CarMax, Inc., the Court held that CarMax’s commission plan qualified as “commission wages” under Labor Code section 204.1, for purposes of the exemption, because it pays a uniform or standard amount to each salesperson for each vehicle sold, regardless of price.

Are you a commissioned salesperson? Are you owed overtime? The Areso case may be of interest to you. If you have any questions regarding this case, or a possible claim, give us a call. A summary of the case follows:

Areso was a car salesperson for CarMax, Inc. She filed a putative class action lawsuit, alleging misclassification and failure to pay overtime wages. Under the law, an employer’s commission plan must be “based proportionately on the amount or value” of the sale of the employer’s property or services.  CarMax won on a motion for summary judgment because the Court found that its compensation arrangement is a “performance-based incentive system and thus fairly understood to be a
commission structure” based on the statutory language that commissions may be based on the “amount” rather than “value” of vehicles sold, where the “amount” is
interpreted to mean the number of vehicles sold.

To qualify for the commissioned salesperson exemption, the employee: (1) must be involved principally in selling a product or service (not making a product or rendering a service); and (2) the amount of their compensation must be based proportionately on the amount or value of the product or service.  However, the Areso Court distinguished this case from other cases where the employer’s commission plan was held not to constitute commission wages because those cases interpreted whether the commissions were based on the “value” of the product or service.

The Court also noted no other court has construed the word “amount” in the statute, and that CarMax’s payment of a standard amount of earnings for each vehicle sold satisfies the statutory requirement. The Court found that a standard – or uniform, fee for each vehicle satisfies the law and is “proportionate” because it is a one-to-one proportion based on the number of vehicles sold.

While this case appears good for employers who pay salespersons by commissions, there are strict requirements before the compensation plan will pass muster and qualify under the law. The case is also a relatively new interpretation of law and it remains to be seen if other courts will follow. You can find a full copy of the case at http://case.lawmemo.com/ca/areso.pdf

If you are an employee paid under a commission plan who wonders if that plan is legal, or if you are an employer seeking to establish a compensation plan in compliance with the law, feel free to give us a call.

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