At the end of March, the California Court of Appeal found that employee compensation plans must separately account and pay for rest periods to comply with California law. This decision directly affects employers who compensate employees through commission or piece-rate compensation plans.

The employer in this recent case compensated its employees through commission plans that multiplied weekly sales by an applicable commission rate and paid that amount if it exceeded the minimum contractual rate of $12/hour. For sales associates whose commissions did not exceed the minimum rate in a given week, the company clawed back wages advanced to compensate employees for hours worked, including rest periods, by deducting from future paychecks.

When the employer only paid an employee a commission, that commission did not account for rest periods. When the employer compensated an employee on an hourly basis (including for rest periods), the employer took back that compensation in later pay periods. The court therefore found that the employer’s commission agreement did not compensate for rest periods taken by sales associates who earned a commission instead of the guaranteed minimum of $12/hour. The court also confirmed that the piece-rate compensation plans must pay employees for rest periods.

In light of this decision, employers are now required to separately compensate employees for rest periods if the applicable compensation plan does not already include a minimum hourly wage for such time. Specifically, employers who keep track of hours worked, including rest periods, violate this requirement by paying employees a guaranteed minimum hourly rate as an advance on commissions earned in later periods. Employers should review their compensation contracts and ensure that workers paid on commission receive separate compensation for legally required rest periods.