Vaquero v. Stoneledge Furniture LLC

• Citation: 214 Cal.Rptr.3d 661,9 Cal.App.5th 98
• Decision Date: 28 February 2017
• Docket Number: B269657
• Parties: Ricardo Bermudez VAQUERO et al., Plaintiffs and Appellants, v. STONELEDGE FURNITURE LLC, Defendant and Respondent.
• Court: California Court of Appeals Court of Appeals

9 Cal.App.5th 98

214 Cal.Rptr.3d 661

Ricardo Bermudez VAQUERO et al., Plaintiffs and Appellants,

v.STONELEDGE FURNITURE LLC, Defendant and Respondent.

B269657

Court of Appeal, Second District, Division 7, California.

Filed February 28, 2017

As Modified March 20, 2017

Cohelan Khoury & Singer, Michael D. Singer, Jeff Geraci, San Diego; Law Offices of Raphael A. Katri, Raphael A. Katri, Los Angeles; Law Offices of Kevin T. Barnes, Kevin T. Barnes and Gregg Lander, Los Angeles, for Plaintiffs and Appellants.

Littler Mendelson, J. Kevin Lilly and Scott M. Lidman, Los Angeles, for Defendant and Respondent.

SEGAL, J.

INTRODUCTION

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? We answer both questions in the affirmative, and reverse the trial court's ruling granting summary judgment in favor of the employer.

FACTUAL AND PROCEDURAL BACKGROUND

Ricardo Bermudez Vaquero and Robert Schaefer worked as Sales Associates for Stoneledge Furniture, LLC, a retail furniture company doing business in California as Ashley Furniture HomeStores. After termination of their employment, Vaquero and Schaefer filed a class action complaint alleging that Stoneledge's commission pay plan did not comply with California law. The parties largely agree on the relevant facts regarding Stoneledge's employee compensation system.

A. Stoneledge's Compensation System

From 2009 through March 29, 2014 Stoneledge compensated Sales Associates pursuant to the Sales Associate Commission Compensation Pay Agreement. After a training period during which new employees received $12.01 per hour, Stoneledge paid sales associates on a commission basis. If a sales associate failed to earn "Minimum Pay" of at least $12.01 per hour in commissions in any pay period, Stoneledge paid the associate a "draw" against "future Advanced Commissions." The commission agreement explained: "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." The commission agreement included a table providing an example of how the draw and Advanced Commissions system worked, assuming 40 hours of "non-Training Time" in a work week:

Week # Min. Weekly Advanced Gross Week Draw Cumulative
                Weekly Commission Pay (Owe) Draw (Owe)
                Pay
                 1          $480.40              $300              $480.40      $180.40       $180.40
                 2          $480.40              $400              $480.40       $80.40       $260.80
                 3          $480.40              $550              $480.40      -$69.60       $191.20
                 4          $480.40       $800 (-$191.20 draw)     $608.80        $0            $0
                 5          $480.40              $750               $750          $0            $0
                

The commission agreement did not provide separate compensation for any non-selling time, such as time spent in meetings, on certain types of training, and during rest periods. Sales associates recorded this time, however, using Stoneledge's electronic timekeeping system. Sales associates clocked into the system at the start of each shift, clocked out and back in for meal periods, and clocked out again when their shifts ended. Sales associates did not clock out for rest periods. 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.

Stoneledge contends that under its compensation plan "all time during rest periods was recorded and paid as time worked identically with all other work time .... [¶¶] Thus, Sales Associates are paid at least $12 per hour even if they make no sales at all." Although Stoneledge deducted from sales associates' paychecks any previously paid draw on commissions, Stoneledge states such "repayment [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."

Effective March 30, 2014, Stoneledge implemented a new commission agreement that pays sales associates a base hourly wage of $10 "for all hours worked." In addition, sales associates can earn various types of incentive payments based on a percentage of sales. Under the new agreement, no portion of a sales associate's base pay is deducted from or credited against incentive payments.

B. The Litigation

Vaquero and Schaefer filed a putative class action alleging causes of action for failure to provide paid rest periods under Labor Code section 226.7¹ and the applicable wage order, failure to pay all wages owed upon termination under section 203, unfair business practices, and declaratory relief.² Pursuant to the parties' stipulation, the trial court certified a class comprised of three subclasses of sales associates corresponding to the plaintiffs' three primary claims: unpaid rest periods, unpaid wages upon termination, and unfair business practices. The class is limited to sales associates employed by Stoneledge in California from September 30, 2009 through March 29, 2014, the time period during which the previous commission agreement was in effect.

Stoneledge filed a motion for summary judgment or in the alternative for adjudication, arguing that the rest period claim failed as a matter of law because Stoneledge paid its sales associates a guaranteed minimum for all hours worked, including rest periods. With respect to the claim for violation of section 203, Stoneledge argued a claim for rest period "premium pay" is not an action to recover "wages" under section 203 and, in any event, Stoneledge did not "willfully" fail to pay wages, as required for a violation of section 203. Stoneledge argued that, because the class claims for failure to pay for rest periods and for wages owed at termination failed as a matter of law, the derivative claim for unfair business practices also failed.

The trial court granted Stoneledge's motion and entered judgment for Stoneledge. The court found "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. With this system there was no possibility that the employees' rest period time would not be captured in the total amount paid each pay period." The court stated, "By tracking all the hours that its sales associates and employees were present at the facility, including rest periods, Stoneledge was able to 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. [¶¶] Under Stoneledge's plan ... sales associates are uniformly paid at or above a rate which expressly encompasses all the time present in the workplace and all the time worked, including rest periods." The court therefore granted Stoneledge's motion for summary adjudication on the cause of action for violation of section 226.7.

The trial court, without examining the merits of the remaining claims, concluded they all failed because they were derivative of the rest period claim. The court stated, "With regard to the ... causes of action for violation of Labor Code section 203, unfair business practices and declaratory relief, each of those causes of action are derivative of the ... cause of action for failure to pay rest periods. [¶¶] Absent a failure by Stoneledge to pay plaintiffs for the required rest period, there would, as a consequence, be no unpaid wages remaining at the termination of the employment. Likewise, there would be no unfair business practice claim under [Government Code] section 17200. And the declaratory relief claim would also fail absent the underlying statutory violation upon which the cause of action is based." The plaintiffs timely appealed from the judgment.

DISCUSSION

A. Wage Order No. 7 and Compensation for Rest Periods

The Legislature authorized the Industrial Welfare Commission (IWC) to regulate the wages, hours, and working conditions of various classes of workers to protect their health and welfare. (Augustus v. ABM Security Services, Inc. (2016) 2 Cal.5th 257, 263, 211 Cal.Rptr.3d 634, 385 P.3d 823 ; Rodriguez v. E.M.E., Inc. (2016) 246 Cal.App.4th 1027, 1033, 201 Cal.Rptr.3d 337.) "To this end, the IWC promulgated so-called wage orders ... for workers in a number of industries and occupations." (Rodriguez , at pp. 1033-1034, 201 Cal.Rptr.3d 337.)³ "As a consequence, 'wage and hour claims are today governed by two complementary and occasionally overlapping sources of authority: the provisions of the Labor Code, enacted by the Legislature, and a series of 18 wage orders, adopted by the IWC.' " (Rodriguez , at p. 1034, 201 Cal.Rptr.3d 337 ; see Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1026, 139 Cal.Rptr.3d 315, 273 P.3d 513.) "Those laws and wage orders are also subject to enforcement by a state agency, namely, the Division of Labor Standards Enforcement (DLSE)." (Rodriguez , at p. 1034, 201 Cal.Rptr.3d 337 ; see Brinker, at pp. 1028-1029 & fn. 11, 139 Cal.Rptr.3d 315, 273 P.3d 513.)⁴

"An employer is required to authorize and permit the amount of rest break time called for under the wage order for its industry." (Brinker , supra , 53 Cal.4th at p. 1033, 139 Cal.Rptr.3d 315, 273 P.3d 513.) The rest period claim here is based on section 226.7 and Wage Order No. 7-2001, which applies to the mercantile industry. (See Cal. Code Regs. tit. 8, § 11070, subds. 1, 2(H) [defining "[m]ercantile [i]ndustry"] (Wage Order No. 7).)

Section 226.7 provides: "An employer shall not require an employee to work during a meal or rest or recovery period mandated pursuant to an applicable statute, or ... order of the [IWC]." (§ 226.7, subd. (b).) "If an employer fails to provide an employee a meal or rest or...