Vaquero v. Stoneledge Furniture, LLC
Wage Order No. 7 requires employers to compensate commissioned employees separately for rest periods — and a guaranteed hourly draw that is later clawed back out of commissions is not compensation at all, but an interest-free loan.
Vaquero v. Stoneledge Furniture, LLC (2017) 9 Cal.App.5th 98
Wage & Hour
Rest periods
Lab. Code § 226.7 · Wage Order No. 7
In brief. Stoneledge paid furniture sales associates on commission, guaranteeing at least $12.01 per hour through a “draw” that was deducted from later commissions. The Court of Appeal reversed summary judgment for the employer, holding that “Wage Order No. 7 applies equally to commissioned employees, employees paid by piece rate, or any other compensation system that does not provide compensation for rest breaks and other nonproductive time.” (Vaquero v. Stoneledge Furniture, LLC (2017) 9 Cal.App.5th 98, 111.) The claw-back was fatal: the draws “were not compensation for rest periods because they were not compensation at all. At best they were interest-free loans.” (Id. at p. 115.) Tracking rest-period time and calling it paid is not enough — the compensation formula itself must contain a component that pays for it.
By Jonathan J. Delshad
Founder & Editor-in-Chief
Facts
The regulatory text. Wage Order No. 7-2001 governs the mercantile industry and applies “to all persons employed in the mercantile industry whether paid on a time, piece rate, commission, or other basis.” (Vaquero v. Stoneledge Furniture, LLC (2017) 9 Cal.App.5th 98, 106, quoting Cal. Code Regs., tit. 8, § 11070, subd. 1.) Subdivision 4 establishes the duty to pay such employees the minimum wage “for all hours worked.” (Id. at p. 106, quoting Cal. Code Regs., tit. 8, § 11070, subd. 4(A).) The operative sentence for this case is in subdivision 12(A), which after prescribing ten minutes of net rest time per four hours worked or major fraction thereof provides: “Authorized rest period time shall be counted as hours worked for which there shall be no deduction from wages.” (Id. at pp. 106–107.) Labor Code section 226.7, subdivision (b) forbids requiring an employee “to work during a meal or rest or recovery period,” and subdivision (c) imposes the one-hour premium when a period “is not provided.” (Id. at p. 106.)
The compensation plan. Ricardo Bermudez Vaquero and Robert Schaefer were sales associates for Stoneledge Furniture, LLC, which did business in California as Ashley Furniture HomeStores. (Vaquero, supra, 9 Cal.App.5th at p. 102.) From 2009 through March 29, 2014, after a training period paid at $12.01 per hour, Stoneledge paid associates on commission. If an associate failed to earn “Minimum Pay” of at least $12.01 per hour in commissions in a pay period, the company paid a “draw” against “future Advanced Commissions.” The agreement stated: “The amount of the draw will be deducted from future Advanced Commissions, but an employee will always receive at least $12.01 per hour for every hour worked.” (Id. at p. 103.)
Two features of the plan proved decisive. First, “[t]he commission agreement did not provide separate compensation for any nonselling time, such as time spent in meetings, on certain types of training, and during rest periods.” (Vaquero, supra, 9 Cal.App.5th at p. 103.) Second, associates did record that time: they clocked in and out through an electronic system, did not clock out for rest periods, and Stoneledge “authorized and permitted sales associates to take rest periods of at least 10 consecutive minutes for every four hours worked or major fraction thereof.” (Ibid.) On that basis Stoneledge contended that “all time during rest periods was recorded and paid as time worked identically with all other work time,” and that associates “are paid at least $12 per hour even if they make no sales at all.” (Ibid.) The company also represented that repayment of a draw was “never taken if it would result in payment of less than the [Minimum Pay of $12.01 per hour] for . . . all time worked in any week.” (Ibid.)
The plan Stoneledge adopted afterward. Effective March 30, 2014 — the day after the class period closes — Stoneledge replaced the agreement with one paying a $10 base hourly wage “for all hours worked,” plus percentage-of-sales incentive payments, under which “no portion of a sales associate’s base pay is deducted from or credited against incentive payments.” (Vaquero, supra, 9 Cal.App.5th at pp. 103–104.) The contrast is instructive: the successor plan is precisely the structure the opinion holds lawful.
Procedural history
Vaquero and Schaefer filed a putative class action alleging failure to provide paid rest periods under section 226.7 and the wage order, failure to pay all wages owed on termination under section 203, unfair business practices, and declaratory relief. By stipulation the trial court certified a class of California sales associates employed from September 30, 2009 through March 29, 2014, divided into three subclasses. (Vaquero, supra, 9 Cal.App.5th at p. 104.) An earlier action by the plaintiffs had been removed to federal court. (Ibid., fn. 2.)
Stoneledge moved for summary judgment, arguing that the rest-period claim failed as a matter of law because it paid a guaranteed minimum for all hours worked including rest periods; that section 203 does not reach rest-period premium pay and that in any event it had not “willfully” failed to pay wages; and that the remaining claims were derivative. (Vaquero, supra, 9 Cal.App.5th at p. 104.)
The trial court granted the motion. It found that “Stoneledge’s payment system specifically accounted for all hours worked . . . and guaranteed that [sales associates] would be paid more than the $12 an hour for those hours,” so that “there was no possibility that the employees’ rest period time would not be captured in the total amount paid each pay period.” (Vaquero, supra, 9 Cal.App.5th at p. 104.) By “tracking all the hours that its sales associates and employees were present at the facility, including rest periods,” the company could “ensure that the compensation it paid its employees via commission would never fail to include payment for the time employees spent taking their mandatory rest periods.” (Id. at pp. 104–105.) The court disposed of the remaining causes of action as derivative, without reaching their merits. (Id. at p. 105.) Plaintiffs appealed.
Issue
The court framed two questions at the outset: “Are employees paid on commission entitled to separate compensation for rest periods mandated by state law? If so, do 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 pay periods?” (Vaquero, supra, 9 Cal.App.5th at p. 102.)
Holding
“We answer both questions in the affirmative, and reverse the trial court’s ruling granting summary judgment in favor of the employer.” (Vaquero v. Stoneledge Furniture, LLC (2017) 9 Cal.App.5th 98, 102.) Wage Order No. 7 “requires employers to separately compensate employees for rest periods if an employer’s compensation plan does not already include a minimum hourly wage for such time” (id. at p. 110), and that requirement reaches commissioned employees: the order “applies equally to commissioned employees, employees paid by piece rate, or any other compensation system that does not provide compensation for rest breaks and other nonproductive time” (id. at p. 111). Stoneledge’s plan failed because its commission formula “did not include any component that directly compensated sales associates for rest periods” (id. at p. 114), and the draws it advanced “were not compensation for rest periods because they were not compensation at all. At best they were interest-free loans” (id. at p. 115). The court was careful about scope: “Our conclusion does not cast doubt on the legality of commission-based compensation. Instead, we hold only that such compensation plans must separately account and pay for rest periods to comply with California law.” (Id. at p. 117.) The judgment was reversed with directions, and the trial court was ordered to rule on the merits of the previously unaddressed causes of action. (Id. at pp. 117–118.)
Reasoning
1. The wage order’s text presupposes payment. The analysis starts from subdivision 12(A): “The plain language of Wage Order No. 7 requires employers to count ‘rest period time’ as ‘hours worked for which there shall be no deduction from wages.’” (Vaquero, supra, 9 Cal.App.5th at p. 108.) That phrasing carries a premise, which Bluford v. Safeway Stores, Inc. (2013) 216 Cal.App.4th 864 had already identified: “[t]he wage order’s requirement not to deduct wages for rest periods presumes the drivers are paid for their rest periods.” (Id. at p. 109, quoting Bluford, supra, 216 Cal.App.4th at p. 871.) One cannot deduct from a wage that was never paid.
2. The Armenta anti-averaging principle. Bluford rested on Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314, which held that employers cannot comply with minimum wage obligations by averaging wages across multiple pay periods: “[t]he minimum wage standard applies to each hour worked by [employees] for which they were not paid.” (Vaquero, supra, 9 Cal.App.5th at p. 109, quoting Armenta, supra, 135 Cal.App.4th at p. 324.) Wage orders requiring compensation “for all hours worked” require payment for every hour, including nonproductive time, “at the statutory or agreed rate and no part of this rate may be used as a credit against a minimum wage obligation.” (Id. at p. 109, quoting Armenta, supra, 135 Cal.App.4th at p. 323, italics omitted.) Applying that to activity-based pay, the court in Bluford held that allowing employers like Safeway to account for rest periods indirectly by negotiating a purportedly higher piece rate is impermissible averaging — such plans “effectively ‘averag[e] pay to comply with the minimum wage law instead of separately compensating employees for their rest periods at the minimum or contractual hourly rate.’” (Id. at p. 110, quoting Bluford, supra, 216 Cal.App.4th at p. 872.)
3. Extending the rule to commission plans — the analytical core. This is the step that makes the case significant, and the court was candid that it was breaking new ground: “Neither Bluford nor the federal cases applying California law involved employees paid on commission. Nor did any of those cases address the issue whether the requirement of separately compensating employees for rest periods applies to commissioned employees.” (Vaquero, supra, 9 Cal.App.5th at p. 110.) Two grounds carried the extension. The first is textual: the order by its terms covers persons paid “on a time, piece rate, commission, or other basis,” and “[w]here, as here, the language of a wage order is unambiguous, it is dispositive.” (Id. at p. 111.) The second is functional: “nothing about commission compensation plans justifies treating commissioned employees differently from other employees,” because the Stoneledge agreement “is analytically indistinguishable from a piece-rate system in that neither allows employees to earn wages during rest periods.” (Ibid.)
4. Rest periods are for resting. Stoneledge’s answer was that commissions keep accruing during breaks, since “sales and resultant commissions are routinely earned while employees are not present, including while on break.” The court rejected the premise on the record and on common sense: Stoneledge “cites no authority or evidence in the record for this assertion,” and “[i]t also makes no sense to assume that a commission-based employee who works 100 minutes per 40-hour work week longer than another employee . . . would not earn more in commissions than the employee who spent those same 100 minutes in a break room.” (Vaquero, supra, 9 Cal.App.5th at p. 112.) The point aligns with Augustus v. ABM Security Services, Inc. (2016) 2 Cal.5th 257, 273, that “[a] rest period, in short, must be a period of rest.” (Vaquero, supra, 9 Cal.App.5th at p. 111.) And the court noted Stoneledge had effectively conceded the point: “[t]he only opportunity lost by taking a rest period is to make a sale that would increase wages beyond the $12 minimum weekly pay rate.” (Id. at p. 112.)
5. The DLSE Manual and the “directions of the employer” rejoinder. Section 47.7 of the DLSE manual provides that where employer directions preclude commissioned or piece-rate workers from earning during a period, the employee must receive at least the minimum or contract hourly rate for that time. (Vaquero, supra, 9 Cal.App.5th at p. 112.) Stoneledge argued rest periods are not taken “as a result of the directions of the employer,” and the trial court agreed that rest periods are “readily distinguishable from the required yet uncompensated work” in the other cases. The court found the argument to “improperly discount the language of Wage Order No. 7, which counts rest periods as ‘hours worked’ and requires compensation for those hours even though rest periods are, admittedly and by design, nonproductive.” (Id. at p. 113.) Section 47.7 addresses one situation; it “does not negate that requirement for time attributable to rest periods.” (Ibid.)
6. Section 226.2 does not create a negative implication. Stoneledge’s most technical argument was that Labor Code section 226.2, which requires separate compensation of piece-rate employees for rest, recovery and nonproductive time, deliberately omits commissioned employees. The court declined to read silence as exclusion. “Nothing in section 226.2 . . . suggests that the Legislature intended to adopt a different rule for commission-based employees or to nullify the plain language of Wage Order No. 7,” and the statute “does not even mention commission-based employees.” (Vaquero, supra, 9 Cal.App.5th at pp. 113–114.) Section 226.2 by its own terms applies to piece-rate employees and disclaims any intent to “limit or alter minimum wage or overtime compensation requirements, or the obligation to compensate employees for all hours worked under any other statute or local ordinance.” (Id. at p. 114.) The fact the Legislature “could have drafted [section 226.2] to include both . . . piece-rate and commission plans,” as Stoneledge argued, “indicates nothing about the Legislature’s intent with regard to commission plans, and we decline to imply any such intent.” (Ibid.) The court supported the point with a see citation to the rule that “‘[a]n intention to legislate by implication is not to be presumed.’” (Ibid., citing In re Christian S. (1994) 7 Cal.4th 768, 776.)
7. Tracking time is not paying for it. Turning to the plan itself, the court conceded a great deal to the employer before rejecting its conclusion — the company “did in fact keep track of hours worked, including rest periods,” and “treated ‘break time identically with other work time.’” (Vaquero, supra, 9 Cal.App.5th at p. 114.) The defect lay elsewhere: “The problem with Stoneledge’s compensation system, however, is that the formula it used for determining commissions did not include any component that directly compensated sales associates for rest periods.” (Ibid.) Because the commission was simply delivered sales multiplied by a rate, “[s]ales associates who were paid their commission received the same amount of compensation regardless of whether they took rest breaks.” (Id. at p. 115.) That is the Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1104 problem: the employee “essentially performs 20 minutes of ‘free’ work, i.e., the employee receives the same amount of compensation for working through the rest periods that the employee would have received had he or she been permitted to take the rest periods.” (Vaquero, supra, 9 Cal.App.5th at p. 116, quoting Murphy, supra, 40 Cal.4th at p. 1104.)
8. A draw that is clawed back is a loan, not a wage. The sharpest holding concerns the guaranteed minimum. For associates whose commissions fell short, the company advanced the difference and then “clawed back (by deducting from future paychecks) wages advanced to compensate employees for hours worked, including rest periods.” (Vaquero, supra, 9 Cal.App.5th at p. 115.) The court’s conclusion is unusually blunt: “The advances or draws against future commissions were not compensation for rest periods because they were not compensation at all. At best they were interest-free loans.” (Ibid.) “Stoneledge cites no authority for the proposition that a loan for time spent resting is compensation for a rest period.” (Ibid.) And taking the money back “effectively reduces either rest period compensation or the contractual commission rate, both of which violate California law,” implicating sections 221, 222 and 223. (Ibid.) Walking through the plan’s own illustrative table across five weeks, the court observed that the draws paid in weeks 1 and 2 “are not compensation to the employee (for rest periods or otherwise) because the employee has to pay them back,” and that when the associate finally earns a full commission in week 5, “it is impossible to determine whether the sales associate is compensated for rest periods and, if so, at what rate.” (Id. at p. 116.) Hence the closing line of the analysis: Stoneledge’s claim that “a Sales Associate at rest is earning at least $12 per hour” is “only true for sales associates who were never paid by commission.” (Ibid.)
9. Two limiting gestures. The court took care to bound its holding. On commercial consequences: “Our conclusion does not cast doubt on the legality of commission-based compensation,” and “[n]or will our decision lead to hordes of lazy sales associates,” since employers retain performance discipline — Stoneledge’s own agreement subjected associates who missed sales expectations to termination. (Vaquero, supra, 9 Cal.App.5th at p. 117.) On scope, footnote 8 reserves the salaried case entirely: “This case does not involve, and we have no occasion to question, the propriety of compensation plans that pay non-exempt employees a salary that compensates them for rest periods and other nonproductive work time.” (Id. at p. 110, fn. 8.) There was no dissent.
Significance
Vaquero completes a line. Armenta barred averaging; Gonzalez v. Downtown LA Motors, LP (2013) 215 Cal.App.4th 36 applied it to piece-rate technicians’ nonproductive time; Bluford applied it to piece-rate drivers’ rest periods; and the Legislature codified the piece-rate rule in section 226.2. Vaquero supplies the missing quadrant — commissioned employees — and does so on reasoning general enough to reach “any other compensation system that does not provide compensation for rest breaks and other nonproductive time.” (Vaquero, supra, 9 Cal.App.5th at p. 111.) After Vaquero, the operative question for any incentive-pay structure is not whether the employee ends up above the floor, but whether the formula contains a component that pays for the rest period.
The draw holding is the part most often underestimated. Guaranteed-minimum-plus-recoverable-draw is an extremely common structure in retail, auto sales, staffing and financial services. Vaquero holds that the guarantee does no compliance work at all where the advance is recouped, because a repayable advance is not compensation. That reasoning is indifferent to the size of the guarantee.
Two features of posture matter to how the case is used. It is a Court of Appeal decision, not a Supreme Court one — but the Supreme Court denied review on June 21, 2017 (S241162), and the opinion has not been disapproved. And it is a reversal of summary judgment, so nothing was adjudicated against Stoneledge on the merits; the court expressly remanded for the trial court to reach the section 203, unfair competition and declaratory relief claims it had never analyzed. (Vaquero, supra, 9 Cal.App.5th at pp. 117–118.)
Key quotes
“Wage Order No. 7 applies equally to commissioned employees, employees paid by piece rate, or any other compensation system that does not provide compensation for rest breaks and other nonproductive time.” (Vaquero v. Stoneledge Furniture, LLC (2017) 9 Cal.App.5th 98, 111.)
“The advances or draws against future commissions were not compensation for rest periods because they were not compensation at all. At best they were interest-free loans.” (Id. at p. 115.)
“The problem with Stoneledge’s compensation system, however, is that the formula it used for determining commissions did not include any component that directly compensated sales associates for rest periods.” (Id. at p. 114.)
“Our conclusion does not cast doubt on the legality of commission-based compensation. Instead, we hold only that such compensation plans must separately account and pay for rest periods to comply with California law.” (Id. at p. 117.)
Practice pointer
Audit the formula, not the paycheck. The dispositive question after Vaquero is whether the compensation formula contains a discrete component that pays for rest periods — not whether the employee cleared the minimum wage for the period. Get the plan document and the pay-calculation methodology in discovery, not just wage statements: if commissions are computed as sales multiplied by a rate, with no separate hourly element, the plan fails on its face under page 114 regardless of how much anyone earned. Then examine the guarantee. If the employer advances a draw and recoups it from later commissions, page 115 converts the entire guarantee into an interest-free loan and the compliance defense collapses; look for the recoupment mechanics in the agreement and for actual deductions in the pay records. Note also the derivative claims: because the trial court never reached the section 203, UCL and declaratory relief causes of action, plaintiffs should expect to litigate willfulness on remand rather than assume it follows. On the employer side, the cure is visible in Stoneledge’s own successor plan (p. 104) — a true base hourly wage for all hours worked that is not credited against or deducted from incentive pay. Two boundaries to respect: footnote 8 (p. 110) expressly reserves salaried non-exempt plans, so do not cite Vaquero against a salary structure; and section 226.2 governs piece-rate employees on its own terms, so plead the wage order for commissioned employees rather than relying on the statute.
Open questions
Salaried non-exempt plans. The court expressly reserved them: “This case does not involve, and we have no occasion to question, the propriety of compensation plans that pay non-exempt employees a salary that compensates them for rest periods and other nonproductive work time.” (Vaquero, supra, 9 Cal.App.5th at p. 110, fn. 8.)
What a compliant commission plan must show. The court held the formula must contain a component that “directly compensated” for rest periods (id. at p. 114) but did not specify the rate, the disclosure, or the verifiability required — though its approving reference to Bluford’s concern that Safeway’s plan “provided no means by which an employee could verify he was paid for his rest periods” (id. at p. 115) suggests transparency is part of the test.
The remaining causes of action. Because the trial court disposed of the section 203, unfair business practices and declaratory relief claims as derivative without reaching their merits, the Court of Appeal remanded them unresolved — including Stoneledge’s argument that any failure was not “willful” under section 203. (Id. at pp. 104, 117.)
Retroactivity and reliance. The opinion resolves a question no California appellate court had addressed for commissioned employees (id. at p. 110), yet says nothing about the effect on employers who structured plans in reliance on section 226.2’s piece-rate-only text before February 2017.