Separate Compensation for Rest Breaks and Non-Productive Time Required for Non-Exempt Commissioned Employees

Non-exempt commissioned employees must be paid separately and specifically for rest breaks and non-productive time, a California appellate court has ruled.  The court found that a compensation plan that does not pay employees directly for rest periods undermines the public policy of encouraging employees to take their rest breaks. 

In Vaquero, et al. v. Stoneledge Furniture LLC, the California Court of Appeal, Second Appellate District ruled that Wage Order 7-2001 (mercantile industry) requires employers to separately compensate non-exempt commissioned employees for rest breaks.  It further held that the same analysis applies to “any other compensation system that does not separately account for rest breaks and other nonproductive time.”  A link to the opinion filed February 28, 2017, can be found here.

The plaintiffs in this case were sales associates at a retail furniture company. They filed a wage and hour class action alleging, in part, that under their former compensation agreement, their employer failed to provide rest periods in violation of Labor Code section 226.7 and Wage Order No. 7-2001.

Under the agreement at issue, sales associates were paid on a draw of $12.01 per hour that was advanced against future commissions. The agreement did not provide separate compensation for any non-selling time, such as time spent attending meetings or taking rest breaks.  Sales associates recorded the time electronically for meals, but they did not clock out for rest breaks.

The court found that a compensation plan that does not compensate employees directly for rest periods would undermine the public policy of encouraging employees to take their rest breaks.

Under the agreement, sales associates who earned commissions above the guaranteed minimum, received the same amount of compensation regardless of whether they took rest breaks. The commission did not separately account for rest breaks, and there was no way to determine the rate of pay, all of which violated California law and the Wage Order.

For those associates who did not exceed the weekly minimum rate, the company advanced monies to compensate employees for hours worked, including rest breaks. However, these advances were eventually clawed back when the associate earned commissions above the guaranteed minimum. Thus, the court found that the advances or draws against future commissions were not compensation for rest periods because they were eventually returned to the employer.

Thus, regardless of whether the associates met the weekly minimum or not, the court found that the agreement violated Labor Code section 226.7 and Wage Order 7-2001.

Commission-based compensation agreements are still valid in California. However, employers should ensure that employees paid by commissions are separately compensated for rest breaks and other non-productive time.

The Opinion is silent as to how to calculate the rate at which rest breaks must be paid to employees paid on a draw plus commissions plan. Yet, Labor Code section 226.2 may provide some guidance.  Although this section applies only to employees compensated by piece-rate, it requires employers to separately compensate piece-rate employees for rest, recovery and other nonproductive time at a regular hourly rate “no less than the higher of”: (1) the “average hourly rate”; or (2) the applicable minimum wage.  An article regarding Labor Code section 226.2 can be found here.

If you are an employer with non-exempt commissioned employees, you should talk to your Jackson Lewis attorney to ensure compliance with this new ruling.

Don’t Assume PAGA Claims Are Not Arbitrable: Ninth Circuit Reverses District Court Order Denying Motion To Compel Arbitration of PAGA Claim

On March 3, 2017, in an unpublished decision in Valdez v. Terminix International Company Limited Partnership, Case No.15-56236, the U.S. Court of Appeals for the Ninth Circuit reversed a District Court order denying defendant Terminix International Company Limited Partnership’s (Terminix) motion to compel arbitration of plaintiff Palcido Valdez’s (Valdez) claim for penalties for violation of the California Private Attorneys General Act of 2004, Labor Code section 2698 et seq. (PAGA).

As readers may recall, in 2014, the California Supreme Court held in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014), that PAGA representation actions cannot be waived in arbitration agreements. For more information on the Iskanian decision, click here.

In 2015, in Sakkab v. Luxottica Retail North America, Inc., 803 F.3d 425 (9th Cir. 2015), the Ninth Circuit previously held that the Federal Arbitration Act (FAA) does not preempt the California “Iskanian rule” prohibiting PAGA waivers.  For more information on the Sakkab case, click here.

Nevertheless, the Ninth Circuit has now held that “Iskanian and Sakkab clearly contemplate that an individual employee can pursue a PAGA claim in arbitration, and thus that individual employees can bind the state to an arbitral forum. The Ninth Circuit explained, “Iskanian does not require that a PAGA claim be pursued in the judicial forum; it holds only that a complete waiver of the right to bring a PAGA claim is invalid,” and that Sakkab “recognized that employees may pursue PAGA claims in arbitration.”

In doing so, the Ninth Circuit also affirmed that the Iskanian rule is not preempted by the FAA as it “does not stand as an obstacle to the accomplishment of the FAA’s objectives,” citing Sakkab, and that the U.S. Supreme Court’s recent decision in DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463 (2015), which, according to the Ninth Circuit, “evinces a garden-variety application of the FAA preemption test” to strike down “arbitration-specific contract defenses,” does not cast doubt on Sakkab’s holding that the Iskanian rule is a valid, “generally applicable” contract defense.

After holding that PAGA claims are arbitral, the Ninth Circuit determined that Valdez’s PAGA claim fell within the scope of the arbitration clause at-issue. As such, the Ninth Circuit reversed the District Court’s order denying Terminix’s motion to compel arbitration and remanded the case back to the District Court to determine whether to dismiss or stay the action pending arbitration.

Accordingly, following Valdez, although prior thought was that PAGA claims could not be compelled to arbitration and should be stayed pending arbitration of the underlying claims (see prior discussion here), employers should consider attempting to compel PAGA claims to arbitration claims through valid arbitration agreements.

Employers who operate in California and have arbitration agreements should seek legal guidance to ensure the arbitration agreements are valid and enforceable. Please contact Jackson Lewis if you have any questions.

Upcoming Webinar: For California Employers, Pay Equity Keeps Getting More “Comp”licated

Understanding the recent California Fair Pay Act amendments and the rising tide of equal pay claims is “comp”licated. Employers want to ensure they pay employees fairly and without discrimination. The latest broad expansion of California’s Fair Pay Act (CFPA) is making sure employers do that, and more. In January 2016, the CFPA, went into effect protecting only on the basis of gender and has been expanded to cover race and ethnicity, effective January 2017.

In addition, other recent changes to the law create new challenges for employers and compel us to be more proactive in examining our pay systems. Internal pay claims, government agency investigations, and litigation are only expected to rise, so join us to understand what is needed to find and fix the issues you may currently have.

Click here to register for this webinar.

Los Angeles Issues Rules and Regulations Implementing ‘Ban the Box’ Legislation

The Los Angeles Fair Chance Initiative for Hiring Ordinance “FCIHO” went into effect on January 22, 2017. The Bureau of Contract Administration, the Designated Administrative Agency responsible for enforcing the Ordinance, has issued “Rules and Regulations” for the FCIHO. Click here for highlights and more information on the regulations.

Can Employers Require Their Employees to Remain On Call During Rest Breaks?

In another important decision regarding an employer’s obligation to provide rest breaks, the California Supreme Court in Jennifer Augustus et al. v. ABM Security Services, Inc. (2016) 2 Cal.5th 257, dealt with two issues related to employee rest breaks: 1) whether employers are required to permit their employees to take off-duty rest periods pursuant to Labor Code 226.7 and Wage Order 4; and 2) whether employers may require their employees to remain “on call” during rest periods.

Plaintiff worked as a security guard for defendant ABM Security Services. ABM required its guards to keep their pagers and radio phones on during rest periods and to remain vigilant and responsive to calls when needs arose.  Plaintiff moved for summary judgment on its rest break claim.

The trial court granted summary judgment for Plaintiff, awarding approximately $90 million in statutory damages, interest and penalties. The Court of Appeals reversed, noting that Wage Order 4, subdivision 12(A) contained no mention of an “off duty” rest period while subdivision 11(A) specifically mentioned that employees were to be “relieved of all duty” during the meal period.  Based on this distinction, the Court of Appeals concluded that employers were not required to provide off-duty rest periods.

The California Supreme Court reversed, finding that employers are required to provide off-duty rest periods. In reaching this conclusion, the Supreme Court relied on the following points: 1) Labor Code section 226.7 treats meal and rest breaks the same, which would be difficult to reconcile if Wage Order 4 treated them differently; 2) Wage Order 4, subdivision 12(A)’s language authorizing that rest periods are counted as hours worked without deduction of wages is unnecessary if an employee was permitted to work during rest breaks; 3) there is no language authorizing on-duty rest periods under Wage Order 4, subdivision 12 similar to language authorizing on-duty meal periods under Wage Order 4, subdivision 11; and 4) language included in other wage orders, such as Wage Order 5, specifically provide for limited exceptions when on-duty rest breaks are authorized, which would be superfluous if the default was to permit on-duty rest breaks.  The Supreme Court concluded that during rest periods, employers must relieve employees of all duties and relinquish control over how employees spend their time.

The second question was whether an employer could satisfy its obligation to provide an off-duty rest period while still requiring its employees to remain on call. The Court concluded the answer was no.  Forcing employees to remain on call requires them to carry a devise or make arrangements so that the employee is reachable during the break, responding when the employer seeks contact with the employee, and performing other work if the employer requests.  The Court found these obligations irreconcilable with an employee’s ability to use their rest break for their own purposes.


Pursuant to Labor Code section 226.7 and Wage Order 4, employers should be mindful that they are required to relinquish all control over how employees spend their break time and must relieve their employees of all duties, including the obligation that an employee remain on call.  While the case specifically dealt with Wage Order 4, the reasoning is equally applicable to the other Wage Orders.

An Employee Fails to Return from Leave As Originally Scheduled—Has That Employee “Voluntarily Resigned”?

The California Court of Appeal has issued a new ruling that reminds employers to scrutinize all communications received from employees about their leaves and their own attempts at follow-up before considering an employee to be, “voluntarily resigned.”

Click here to read the full article about this ruling on our Disability, Leave & Heath Management Blog.


California Division of Industrial Relations Overview of New California Laws Available

Jackson Lewis recently completed a series of seminars throughout California on many of the key California workplace law updates. On December 28, 2016, the California Department of Industrial Relations (DIR) released its own 2016 Legislative Digest summarizing new laws that impact employees. The DIR Legislative Digest is the DIR’s summary of key laws and is helpful for employers to see their focus.

Highlights include:

  • SB 3 on the annual increases to the state minimum wage on January 1, 2017.
  • AB 1066 on overtime pay for farmworkers.
  • SB 1015 on the Domestic Workers Bill of Rights.

If you have questions, please feel free to contact the Jackson Lewis attorney you normally work with.