Commission Based Salespersons: A Cautionary Tale

Commission Based Salespersons: A Cautionary Tale

Do you pay employees on a commission basis? if so, I’d like to share information with you from a recent newsletter by DeAnn Chase of the Chase Law Group.

A recent case issued by the California appellate court will have a significant impact on the structure of commission-based compensation for inside salespersons.  The case of Vaquero v. Stoneledge Furniture involved employees engaged in retail furniture sales activities for Ashley Furniture Stores, (“Ashley”).  Ashley argued that its compensation program ensured that employees were paid at least minimum wage, and that this compensation plan adequately accounted for the employees’ meal and rest periods.  However, Ashley’s compensation plan was structured such that the employees were paid via a “draw” against advanced commissions that equated to an hourly wage that exceeded the minimum hourly wage, but allowed Ashley to “claw back” future commissions for pay periods in which the employees’ commissions did not exceed the hourly minimum payments.  The court therefore determined that this program did not adequately account for non-sales activities, such as time spent in meetings or trainings.  Accordingly, the court determined that Ashley’s compensation plan did not adequately account for the employees’ mandatory rest periods, and that the employees should have been separately compensated for these rest periods.  Notably, the court found that an alternative compensation program instituted by Ashley prior to the court’s final determination was adequate.  This compensation program provided that the employees would be paid a fixed hourly wage that complied with the local, state and federal minimum wage, and then provided the employees with incentive-based commissions based on sales. 

If you run a business that hires and pays salespeople based on commission, then make sure you pay attention to a few important details:

  • If your salespeople work outside your business premises 50% or more of their time, they may be paid on a commission-only basis.
  • If your salespeople are in-house, you need to make sure that their mix of fixed- and incentive-based pay ensures that they are making at least minimum wage and that they are properly compensated for their meal and rest breaks.  An employer must provide employees with timely uninterrupted rest breaks wherein the employee is relieved of sales duties and can take care of personal matters.
  • Whether your salespeople are outside or inside your business, their compensation plans must be in writing.  These plans must be carefully drafted to ensure that it meets the sales needs for your business while complying with applicable employment laws relating to your employees.
  • Regardless of whether salespeople are outside or inside your business, you should have your employees track their time for hours worked, as well as meal and rest periods, so that you are able to recreate the employees’ time in the event your commission-based compensation plan is challenged.

Insurance producers, real estate salespersons, retail sales, telemarketers, and other individuals that sell products or services for businesses all fall within the type of employees to whom these rules apply.  If your business has salespeople, in-house or outside, we are happy to review or draft a commission compensation plan that complies with the latest updates in California law.  Contact us to schedule a consultation in order to determine a compensation plan that is appropriate for your business.

If you have questions regarding this topic and how it applies to your business, you may contact DeAnn at 310-545-0700 or

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