What Is A Commission?

The California wage orders exempt from the overtime rules "any employee whose earnings exceed one and one-half times the minimum wage if more than half that employee's compensation represents commissions." (See, for example, Wage Order No. 4, section 3(D).) Labor Codesection 204.1 defines "commission wages" as "compensation paid to any person for services rendered in the sale of such employer's property or services and based proportionately upon the amount or value thereof." Although that provision is limited to employees of vehicle dealers, the California Supreme Court has ruled it generally applicable to Labor Code provisions concerned with commissioned employees. See Ramirez v. Yosemite Water Co., 20 Cal.4th 785 (1999).

In a recent case, the Second District Court of Appeal in Los Angeles applied that definition to a CarMax plan that provided its sales consultants with a uniform dollar payment for each sale of a vehicle, lease, appraisal purchase and extended service plan, no matter what the sale price of the car. A class action lawsuit contended that the plan was not a true commission arrangement because the consultants did not receive a percentage of the price.

Earlier cases, including Ramirez, had concluded that pay was not commission wages unless unless the pay was a percent of the price of the product or service. See, e.g., Keyes Motors, Inc. v. Division of Labor Standards Enforcement, 197 Cal.App.3d 557 (1987). However, this Court found that CarMax's plan did provide for commission wages. It determined that the earlier cases had focused on the part of the definition that required a relationship to "value." But, the definition also provided that a commission could be based proportionately on "amount." In the case of CarMax, the amount that it paid its consultants was proportionate to the number (or amount) of cars sold. Areso v. CarMax, Inc., Case No. B219981 (May 20, 2011).

The Areso case is also instructive on the value of Labor Commissioner interpretations of the wage and hour laws. The Court of Appeal gave "no deference" to the DLSE Enforcement Policies and Interpretation Manual, because it was not adopted in accordance with the Administrative Procedure Act. But, DLSE opinion letters are not underground regulations, and may properly be considered.