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California Supreme Court Unanimously Holds Employers May Not Attribute Commissions Paid in One Period to Other Periods to Satisfy Commissioned Sales Exemption

In Commission Sales Exemption, Commissions on July 14, 2014 at 11:13 am

This morning, the California Supreme Court issued its opinion in Peabody v. Time Warner Cable, Inc., Case No. S204804, __ Cal. 4th __ (July 14, 2014).  At the request of the Ninth Circuit, the Court considered whether an employer may attribute commission wages paid in one pay period to other pay periods in order to satisfy California’s compensation requirements.  The court unanimously concluded no:

[A]n employer satisfies the minimum earnings prong of the commissioned employee exemption only in those pay periods in which it actually pays the required minimum earnings. An employer may not satisfy the prong by reassigning wages from a different pay period.

Id. at *9.  The Court cited the narrow construction of exemptions against the employer and the purpose of the minimum earnings requirement:

Whether the minimum earnings prong is satisfied depends on the amount of wages actually paid in a pay period. An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall. This interpretation narrowly construes the exemption’s language against the employer with an eye toward protecting employees. (Ramirez v. Yosemite Water Co., supra, 20 Cal.4th at pp. 794-795.) It is also consistent with the purpose of the minimum earnings requirement. Making employers actually pay the required minimum amount of wages in each pay period mitigates the burden imposed by exempting employees from receiving overtime. This purpose would be defeated if an employer could simply pay the minimum wage for all work performed, including excess labor, and then reassign commission wages paid weeks or months later in order to satisfy the exemption‟s minimum earnings prong.

Id. at *7.  The Court also cautioned against conflated federal and state labor law in this area: Although it is true that the commissioned employee exemption has a federal counterpart in 29 U.S.C. section 207(i), “[w]e have previously cautioned against ‘confounding federal and state labor law’ . . .  ‘ . . . where the language or intent of state and federal labor laws substantially differ.’ ” (Martinez v. Combs, supra, 49 Cal.4th at p. 68.) Unlike state law, federal law does not require an employee to be paid semimonthly. (Olson v. Superior Pontiac- GMC, Inc. (11th Cir. 1985) 765 F.2d 1570, 1574-1575.) It also permits employers to defer paying earned commissions so long as the employee is paid the minimum wage in each pay period. (Id. at pp. 1578-1579.) In light of these substantial differences from California law, reliance on federal authorities to construe state regulations would be misplaced. Id. at *9.

By CHARLES H. JUNG

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California Supreme Court Prohibits Waiver of PAGA Representative Claims

In Arbitration, Class Waiver, PAGA on June 23, 2014 at 1:44 pm

This morning, the California Supreme Court issued its long-awaited opinion in Iskanian v. CLS Transportation Los Angeles, LLC, No. S204032, __ Cal.4th __ (Jun. 23, 2014).

The Court held that the U.S. Supreme Court’s opinion in Concepcion abrogated Gentry v. Superior Court, 42 Cal. 4th 443 (2007).  The Court decided that class action waivers are enforceable.  But it also held that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.  Id. at *2.

[W]e conclude that the FAA’s goal of promoting arbitration as a means of private dispute resolution does not preclude our Legislature from deputizing employees to prosecute Labor Code violations on the state’s behalf. Therefore, the FAA does not preempt a state law that prohibits waiver of PAGA representative actions in an employment contract.

Id. 

Facts

Plaintiff Iskanian worked as a driver for CLS.  Id. He signed an arbitration agreement providing that “any and all claims” arising out of his employment were to be submitted to binding arbitration.  Id.  The arbitration agreement also contained a class and representative waiver that said:

[E]xcept as otherwise required under applicable law, (1) EMPLOYEE and COMPANY expressly intend and agree that class action and representative action procedures shall not be asserted, nor will they apply, in any arbitration pursuant to this Policy/Agreement; (2) EMPLOYEE and COMPANY agree that each will not assert class action or representative action claims against the other in arbitration or otherwise; and (3) each of EMPLOYEE and COMPANY shall only submit their own, individual claims in arbitration and will not seek to represent the interests of any other person.

Id. at *2-3.  After briefing on the motion to compel arbitration, the California Supreme Court decided the Gentry case, holding that a class action waiver may be unenforceable in some circumstances.  Id. at *5.  In April 2011, the U.S. Supreme Court issued AT&T Mobility LLC v. Concepcion, 563 U.S. __ (2011), invalidating the California Supreme Court’s decision in Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005), which had restricted consumer class action waivers in arbitration agreements.

Holdings

 The Court held that Gentry was preempted by the FAA under the rule in Concepcion.  Iskanian, supra, __ Cal. 4th at *7.

It is thus incorrect to say that the infirmity of Discover Bank was that it did not require a case-specific showing that the class waiver was exculpatory.  Concepcion holds that even if a class waiver is exculpatory in a particular case, it is nonetheless preempted by the FAA.  Under the logic of Concepcion, the FAA preempts Gentry’s rule against employment class waivers.

The Court also distinguished its recent holding in Sonic-Calabasas A, Inc. v. Moreno (2013) 57 Cal.4th 1109 (Sonic II), which “established an unconscionability rule that considers whether arbitration is an effective dispute resolution mechanism for wage claimants without regard to any advantage inherent to a procedural device (a Berman hearing) that interferes with fundamental attributes of arbitration.”

By contrast, the Gentry rule considers whether individual arbitration is an effective dispute resolution mechanism for employees by direct comparison to the advantages of a procedural device (a class action) that interferes with fundamental attributes of arbitration.  Gentry, unlike Sonic II, cannot be squared with Concepcion.

Iskanian, supra, __ Cal. 4th at *10.

PAGA

The Court carved out an exception for PAGA claims:

In sum, the FAA aims to promote arbitration of claims belonging to the private parties to an arbitration agreement.  It does not aim to promote arbitration of claims belonging to a government agency, and that is no less true when such a claim is brought by a statutorily designated proxy for the agency as when the claim is brought by the agency itself.  The fundamental character of the claim as a public enforcement action is the same in both instances.  We conclude that California‘s public policy prohibiting waiver of PAGA claims, whose sole purpose is to vindicate the Labor and Workforce Development Agency‘s interest in enforcing the Labor Code, does not interfere with the FAA’s goal of promoting arbitration as a forum for private dispute resolution.

Id. at *43.

Attorneys

Glenn A. Danas of Capstone Law argued for Plaintiff and Appellant.

David F. Faustman of Fox Rothschild argued for Defendant and Respondent.

By CHARLES H. JUNG

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U.S. Supreme Court Upholds Class Waiver in Arbitration Agreement

In Arbitration, Class Waiver on June 20, 2013 at 5:56 pm
American Express Co. shipping receipt, New Yor...

American Express Co. shipping receipt, New York City to St. Louis, MO (August 6, 1853) (Photo credit: Wikipedia)

In a five-to-three decision today, the U.S. Supreme Court issued its opinion in American Express Co. v. Italian Colors Restaurant, No. 12-133, 570 U.S. __ (June 20, 2013).  At issue was whether a contractual waiver of class arbitration is enforceable under the Federal Arbitration Act (“FAA”) when the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery.  The Court held that it was.

“Respondents argue that requiring them to litigate their claims individually—as they contracted to do—would contravene the policies of the antitrust laws. But the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.”  Slip Op. at 4.

Nor does congressional approval of Rule 23 establish an entitlement to class proceedings for the vindication of statutory rights. . . . One might respond, perhaps, that federal law secures a nonwaivable opportunity to vindicate federal policies by satisfying the procedural strictures of Rule 23 or invoking some other informal class mechanism in arbitration. But we have already rejected that proposition in AT&T Mobility, 563 U. S., at ___ (slip op., at 9).

Slip Op. at 5.

Justice Scalia, writing for the majority, also rejected the argument that “Enforcing the waiver of class arbitration bars effective vindication, respondents contend, because they have no economic incentive to pursue their antitrust claims individually in arbitration.”  Id.

[T]he fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy. See 681 F. 3d, at 147 (Jacobs, C. J., dissenting from denial of rehearing en banc).  The class-action waiver merely limits arbitration to the two contracting parties. It no more eliminates those parties’ right to pursue their statutory remedy than did federal law before its adoption of the class action for legal relief in 1938, see Fed. Rule Civ. Proc. 23, 28 U. S. C., p. 864 (1938 ed., Supp V); 7A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure §1752, p. 18 (3d ed.2005). Or, to put it differently, the individual suit that was considered adequate to assure “effective vindication”of a federal right before adoption of class-action procedures did not suddenly become “ineffective vindication” upon their adoption.

Id. at 7.

By CHARLES JUNG

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