In Areso v. CarMax, Inc., (— Cal.Rptr.3d —-, Cal.App. 2 Dist., May 20, 2011), a court of appeal considered whether sales consultants, who were paid a uniform payment for each vehicle sold, were commissioned employees within the meaning of the Labor Code and thus exempt from overtime compensation requirements. The court of appeal held that the employer’s uniform payment for each vehicle sold constitutes commission compensation and, therefore, the sales consultants were not entitled to overtime compensation.
Leena Areso (“Areso”) worked for CarMax, Inc. (“CarMax”), as a sales consultant. Until February 1, 2005, CarMax paid all sales consultants under a “National Pay Plan” that “included a uniform dollar payment for each sale of a vehicle, lease, appraisal purchase (purchasing a used vehicle from a customer), and extended service plan.” CarMax paid the consultants $150 per vehicle and 10 percent of any accessory sold. The uniform payment plan was implemented “to avoid an incentive for its sale staff to push higher-priced items to maximize their own commissions.”
In February 2005, CarMax implemented a new plan for its California sales consultants. “Under the California Pay Plan, CarMax paid Areso and other sales consultants pursuant to a formula which took into account the number of vehicles sold by a sales consultant (the ‘level’) and the average price of the vehicles or other products sold, decreasing the percentage paid to the sales consultant as the average sale price increased, and providing for an adjustment if the base payment totaled less than the ‘target commissions.'” Under the California Pay Plan, a sales consultant would earn approximately $154 per vehicle sold and 10 percent of the purchase price of all accessories sold.
Areso filed a class action lawsuit on behalf of herself and other sales consultants in which she alleged, among other things, that CarMax failed to pay its sales consultants overtime in violation of section 1194 of the Labor Code. CarMax alleged that both of its payment plans qualified for the “commissioned sales” exemption from the Labor Code’s overtime pay requirement. The trial court granted judgment in favor of CarMax.
The court of appeal found “CarMax’s uniform payment for each vehicle sold constitutes commission compensation under [Labor Code] section 204.1.” Therefore, the sales consultant qualified for the “commissioned sales” exemption from the overtime pay requirement.
Labor Code section 510, subdivision (a) provides that a day’s work consists of eight hours of labor “and any work in excess of eight hours in one day, 40 hours in one workweek, and the first eight hours of the seventh day of work in any workweek ‘shall be compensated at the rate of no less than one and one-half times the regular rate of pay for an employee.’” The Labor Code provides exemptions from the overtime pay requirement, including exemptions for employees who receive more than half of their compensation from commissions. Section 204.1, which applies to employees of vehicle dealers, provides the following: “Commission wages paid to any person employed by an employer licensed as a vehicle dealer . . . are due and payable once during each calendar month . . . . Commission wages are 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.”
The issue before the court of appeal was “whether CarMax’s payments to Areso of $150 (under the National Plan) or $154 per vehicle (under the California), constitute wages ‘based proportionately on the amount or value’ of CarMax’s property or services sold, thus exempting CarMax from the overtime compensation requirement of the Labor Code.” Areso argued CarMax’s payments were not commissions because the payments were a set rate and were not based on a percentage price of the vehicles. Areso cited California cases that held commissions must be based on “a percent of the price of the product or service.” The court of appeal rejected Areso’s argument that it was bound to find in her favor based on the cases she cited.
The court found that although the line of cases cited by Areso “relies on the statute’s plain language allowing commission wages to be based proportionately on the value (price) of the property or services sold by the employee,” the plain language of section 204.1 provides an alternative. Section 204.1 allows commission wages to “be based on the amount
(number) of property or services sold by the employee.” Both the National Plan and California Plan used by CarMax to compensate its sales consultants compensates them “with a uniform payment for each vehicle sold, which constitutes wages based proportionately on the amount of vehicles sold.”
The court found section 204.1 includes within its definition of commission wages those wages that are based on the number of items sold. The prior cases cited by Areso that interpreted section 204.1 did not involve “a compensation system, which like CarMax’s, compensates salespeople with a uniform payment for each item or service sold, and as a result no case has construed the word ‘amount’ in the statute.”
The court rejected Areso’s argument that the uniform payment system used by CarMax is a piece-rate system rather than a system of commission compensation. CarMax paid sales consultants for automobiles sold not for each piece of goods finished, appointment made, or procedure completed.
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