California Court of Appeal Rules on Wage and Hour & Overtime Pay

In a recent wage and hour case, the California Court of Appeal, Fourth Appellate District, issued a decision in a matter involving whether certain employees should be exempt from overtime pay requirements because their income was argued to be derived from commissioned sales. In Muldrow v. Surrex Solutions Corporation, the court determined that a class of workers, known as senior consulting service managers, were commissioned sales and were not entitled to payment for overtime in this instance.

As we have shared in prior posts, the way an employer classifies a worker, does not determine whether that worker is entitled to overtime pay and other benefits of employment. Sometimes employers try to avoid compliance with California’s labor laws by misclassifying them to avoid paying the wages workers should be paid. In this case, the question was whether the employees were commissioned sales people which would exempt them from the benefit of overtime pay.

The plaintiffs in this case worked to fit job candidates to jobs. Some of the matches were made using cold calling and some were made using Surrex’s databases. The plaintiffs were only paid commissions if the match was made and stuck. In certain instances, the employment candidates were essentially kept by Surrex itself as consultants. They were effectively loaned to Surrex’s clients and in these placements, the plaintiffs were paid from a formula that resulted in the “adjusted gross profit” that Surrex received for the work.

Plaintiffs contended in this case that they really did not “sell” a product or service and should not be categorized as sales people. They took the position that their pay should not be categorized as “commissions.” The time they spent identifying and recruiting new candidates was not sales in their view.

Surrex categorized them as commissioned sales people exempt from overtime pay. If they were categorized as other than sales, the commissioned sales exemption that precluded them from receiving overtime pay, would not apply.

The court’s view, like that of the trial court, was that the activities performed to make these matches was sales related. The managers were deemed to be performing essentially sales activities and were exempt for overtime pay requirements.

Arguing that the formula for their compensation was complex and did not relate to the services sold and could not be deemed commissions, the plaintiffs sought to secure the payments they believed to be warranted under the law. The court did not agree and found that the commissions were related to the price of services sold. This conclusion led to the court’s view that these were “commissions for purposes of the commissioned employees exemption (Cal.Code. Regs., tit. 8, ยง 11070, subd. (3)(D)).”

It is possible that the California Supreme Court will accept this case for review given the importance of the decision and implications for workers who could be deemed as performing sales functions. Requirements such as overtime pay, wage and hour issues, rest breaks and related claims provide important protection for workers.

Hersh & Hersh represents consumers, workers, patients and accident victims. If you have any questions about your employment situation or whether you are being paid properly by your employer, please contact our law firm to speak confidentially and for no fee at all, with one of our lawyers.