A client came to us recently to inquire about the lawfulness of his employer's progressive discipline policy. He wasn't actually seeking our services for a wage and hour issue, but we nonetheless asked him what kind of hours he kept, and whether he ever received overtime pay.
"Yeah, I've heard about some of those overtime lawsuits," he said, "but I don't have one. You see, I'm on a straight commission."
Five minutes later, we had concluded that his employer's progressive discipline policy was quite lawful, but its overtime policy violated California wage and hour law. Yes, it is common knowledge among salespeople that overtime pay is not due to a commissioned salesperson. Common knowledge, however, is not always correct.
Under California law, the "commissioned sales exemption" does not apply unless (i) the employee is an "outside" salesperson, who spends more than half of their time engaging in sales activities outside the employer's place of business; or (ii) the salesperson makes more than 1 ½ times the minimum wage, and more than half of that employee’s compensation represents commissions.
More importantly, the "commissioned inside sales exemption" only applies to workers who are employed in the mercantile industry (covered by Wage Order 7) or in professional, technical, clerical, mechanical and similar occupations (covered by Wage Order 4). Who are those?
The "Mercantile Industry" means any industry, business, or establishment operated for the purpose of purchasing, selling, or distributing goods or commodities at wholesale or retail; or for the purpose of renting goods or commodities. Obvious examples include retail stores, leasing companies and automobile dealerships.
The "Professional, Technical, Clerical, Mechanical, and Similar Occupations" include professional, managerial, supervisorial, laboratory, research, technical, clerical, office work, and mechanical occupations, such as accountants; agents; appraisers; artists; attendants; audio-visual technicians; bookkeepers; bundlers; billposters; canvassers; carriers; cashiers; checkers; clerks; collectors; communications and sound technicians; compilers; copy holders; copy readers; copy writers; computer programmers and operators; demonstrators and display representatives; dispatchers; distributors; door-keepers; drafters; elevator operators; estimators; editors; graphic arts technicians; guards; guides; hosts; inspectors; installers; instructors; interviewers; investigators; librarians; laboratory workers; machine operators; mechanics; mailers; messengers; medical and dental technicians and technologists; models; nurses; packagers; photographers; porters and cleaners; process servers; printers; proof readers; salespersons and sales agents; secretaries; sign erectors; sign painters; social workers; solicitors; statisticians; stenographers; teachers; telephone, radio-telephone, telegraph and call-out operators; tellers; ticket agents; tracers; typists; vehicle operators; x-ray technicians; their assistants and other related occupations listed as professional, semiprofessional, technical, clerical, mechanical, and kindred occupations.
Do those descriptions cover your employer's place of business? It is important to note that what matters is not what an employee's job may be. What matters is the primary purpose of the business for which the employee works.
For example, a person who sells parts for a Ford dealership would likely be governed by the mercantile industry's commissioned salesperson exemption under Wage Order 7. A person who does precisely the same work for an automotive repair shop would not. Auto repair shops are governed by Wage Order 9, pertaining to working conditions in the transportation industry. That wage order contains no commissioned salesperson exemption.
Likewise, someone paid a commission to drum up business for a print shop would be exempt under Wage Order 4. Someone who does the same for a restaurant's banquet hall (covered by Wage Order 5 -- hospitality industry), or a health club (Wage Order 2 - personal service industry), would be entitled to overtime pay.
If you are working long hours on a straight commission (or a "draw against commission") basis, you might have a significant amount of back pay due to you. If you are in the restaurant, auto repair, manufacturing, farming, filmmaking or construction industries -- in other words, unless Wage Orders 4 or Wage Order 7 apply to your employer -- you are entitled to overtime pay if you work overtime hours, in spite of what your manager may be telling you.