Sales are the lifeblood of a company. It is the company’s public interface, and the means by which customers get their hands on a product or service. For these reasons, keeping your sales department employees content and happy is imperative to maintaining a consistent revenue stream. We focus here on sales employees because of the ubiquity of commission-based pay structures in this space; however, the reasoning here applies to any piece-rate or commission-based W2 worker.

Two daily rest periods and one daily meal break are some of the most basic allowances a modern 40-hour-a-week employee is due. In Washington State, these requirements are set forth in WAC § 296-126-092 (for agricultural employees see WAC § 296-131-020). Employees shall be allowed a rest period for every four hours of work, and, importantly, the rest period shall be “on the employer’s time.” The Washington State Department of Labor and Industries (“LnI”) interprets this language to mean “that the employer is responsible for paying the employee for the time spent on a rest period.” See LnI Administrative Policy No. ES.C.6.1. Seemingly straightforward enough and a perk that many of us take for granted.

The right to rest periods may not be waived by the employee, unlike the situation with the right to a meal period.

Unsurprisingly, regulations lead to grey areas and questions of interpretation. Some companies pay sales employees based solely on commissions, but do not pay them separately for the rest periods mandated by state law. Employees may be allowed to take their breaks, but are not paid specifically for those intervals of time in addition to any earned commission. An analysis of relatively recent court precedent indicates that companies with such compensation practices may be exposing themselves to LnI audits and back pay to their employees.

In 2015, the Washington State Supreme Court held that agricultural piece-rate workers are entitled to be paid separately for their 10-minute breaks, in addition to their earned piece-rate compensation. Lopez Demetrio v. Sakuma Bros. Farms, Inc., 183 Wn.2d 649 (2015). The break time was to be compensated at the worker’s “regular rate of pay,” which is to be calculated by “tallying the worker’s total piece rate earnings and dividing those earnings by the hours the worker has worker, excluding from the divisor time spent resting…”

Now, the Lopez decision is admittedly based on the agricultural worker regulation (WAC § 296-131-020), but it would not take much to stretch the reasoning used by the Supreme Court to regular employees. In fact, two federal cases in the Western District of Washington have relied on the state Sakuma Bros. decision to require companies to pay non-agricultural commission-based employees separately for their rest periods.[1] See Helde v. Knight Transp., Inc., 2016 U.S. Dist. LEXIS 56162; Mendis v. Schneider Nat’l Carriers Inc., 2016 U.S. Dist. LEXIS 156695.[2] These courts see commission or piece-rate earnings as money already earned by the employee. Thus, an employee not being paid separately for his or her rest time is effectively “self-funding” their own rest periods. “If rest periods are unpaid or self-funded, there is an incentive to skip them regardless of how few or how many pieces an employee can generate in a day.” Helde, 2016 U.S. Dist. LEXIS 56162 at 11.

Despite the Washington Supreme Court having ruled conclusively only on the agricultural worker regulation, all indicia points to the ultimate application of the holding to all employees within the state, particularly in light of this state’s history of strong worker protections. Accordingly, companies should be paying sales employees on an hourly or hourly + commission basis. In this manner, the employer can ensure that an employee is paid “on the employer’s time” no matter when they choose to take their ten minute rest periods. Commission-only and piece-rate only compensation structures should be reserved solely for clear independent contractors or an “outside salesperson.” See WAC § 296-128-540.

MDK Law has been assisting employers with employment issues for more than three decades. Do not hesitate to contact our firm with any employment or compensation related questions.

-Dennis Kasimov

Dennis Kasimov is a business, transactional and litigation attorney at MDK Law.

 

This blog contains general information and is not intended to provide specific legal advice or establish an attorney client relationship. This blog should not be used as a substitute for legal advice from a licensed attorney in your state.

 

[1] While these decisions are not binding on Washington State courts, the reasoning holds firm as consistent with Sakuma Bros.

[2] California also requires separate rest period pay for commission-based employees. See Vaquero v. Stoneledge Furniture, LLC, 9 Cal. App.5th 98 (2017).

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