On January 24, 2012, California employers received a welcome victory regarding commission plans and the commission overtime exemption under Wage Orders 4 and 7. In Muldrow v. Surrex Solutions Corp., (CA4/1 Case No. D057955 1/24/12), the Fourth Appellate District of the Court of Appeal found that employment recruiters were eligible for the California commission exemption under Wage Order 7. The Court found that the recruiters “engaged in sales” duties and otherwise qualified for the overtime exemption in Section 3(D) of Wage Order 7. The case provides a good discussion for employers regarding what constitutes “sales duties.” Section 3(D) provides an overtime exemption:
. . . to any employee whose earnings exceed one and one-half (1 ½) times the minimum wage if more than half of that employee’s compensation represents commissions.
In order to meet the commission exemption, the Court found an employee must: (1) be principally involved in selling a product or service, not making the product or rendering the service; and, (2) the amount of their compensation must be a percent of the price of the product or service. The Court held that the recruiters were engaged in “sales” since their primary job duty was to recruit "candidates" for employers. The Court decided that the offering of a candidate’s employment services in exchange for money satisfied the definition of the word "sell.”
The case is instructive for employers subject to Wage Order 4 since there is a similar commission overtime exemption in Section 3 of the Wage Order. The commission exemption from overtime does not exempt an employer from Sections 11 and 12 of the Wage Order regarding meal and rest periods. However, the Court found that the Employer “provided” employees with meal periods and, therefore, denied the plaintiff’s meal period claims. It is important to remember that the commission exemption is not contained in all 17 Wage Orders. Moreover, employers must also ensure that employees meet an overtime exemption under the Fair Labor Standards Act (“FLSA”) to avoid the payment of overtime under federal law. Employer should consult legal counsel before relying on a similar argument since such analysis is highly fact sensitive and the Muldrow v. Surrex Solutions Corp case could be subject to further legal challenge.