Blogs

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Attorneys

"Inside Sales Exemption" - Are Commissions Calculated When Earned or When Paid?

September 6, 2012

The Ninth Circuit has referred the Peabody v. Time Warner Cable case to the California Supreme Court to answer this question.

Under the commissioned salesperson exemption, or the “inside sales exemption” in Wage Orders 4 and 7 (ONLY) an employee is exempt from overtime if his or her earnings: 1) exceed one and one-half times the minimum wage; and 2) more than half of the employee’s compensation represents commissions. Under California’s minimum hourly wage of $8.00, an inside sales commissioned employee must earn at least $12.00 per hour to qualify for the exemption.

Susan Peabody was employed by Time Warner Cable as an Account Executive in the Media Sales Department. She was a commissioned salesperson who sold advertising on Time Warner Cable’s various cable channels. She was paid a base annual salary of $20,000 per year and also earned commissions based on the revenue generated by advertising that aired every broadcast month. According to Time Warner Cable, a “broadcast month” lasted four or five weeks. Ms. Peabody worked approximately 45 hours per week and was paid on a biweekly basis.

Ms. Peabody filed a class action against Time Warner Cable claiming that she was entitled to overtime because she was not exempt under the “inside sales exemption.” According to Ms. Peabody, she received large monthly commissions in only about half of the pay periods, and therefore she did not earn at least 1 ½ times the minimum wage in the remaining pay periods, as required by the inside sales exemption.

Time Warner argued that Ms. Peabody’s earnings should be calculated based on the “broadcast month” (every four or five weeks), so that Ms. Peabody’s commissions covered the pay periods for which they were earned rather than the actual pay period in which the commissions were paid. Based on this calculation, Ms. Peabody was clearly paid enough each pay period to qualify for the inside sales exemption. Noting that there is no California authority on this issue, the Ninth Circuit referred the issue to the California Supreme Court for a ruling.

We will monitor the case and let readers know what the California Supreme Court decides.