A recent ruling from a California court explains how businesses should approach sick leave pay for exempt outside sales staff earning commissions, clarifying a gray area in California’s Healthy Workplaces, Healthy Families Act. In Hirdman v. Charter Communications, LLC, an employee who was classified as an exempt outside salesperson, brought a lawsuit against Charter Communications alleging that the company failed to pay sick time at the correct rate of pay. The company calculated sick leave for outside salespersons by paying them at their hourly base rate, which excluded commissions.
The former employee argued that even though outside salespeople are exempt from overtime pay requirements, the paid sick leave law does not define “exempt” and “nonexempt” employees, especially for purposes of calculating sick leave for commissioned, exempt employees. Relying on an analysis of the bill from the Senate Committee on Labor and Industrial Relations, and an October 2016 Division of Labor Standards and Enforcement (DLSE) opinion letter based on that report, the plaintiff further argued that exempt outside salespersons should be paid sick leave using one of the calculation methods for non-exempt employees, which would account for commissions. Under California law, paid sick time for exempt employees is calculated in the same manner that wages are calculated for other forms of paid leave.
Charter Communications argued that the term “exempt employees” means all exempt employees, including outside salespersons, and the court agreed. Because DLSE opinion letters are not binding authority, the court rejected the 2016 DLSE opinion letter that stated employees who are paid by commission must be paid the regular rate of pay for the workweek in which the employee uses paid sick time or using the 90 day look back method. The original opinion letter took the position that the third method of calculating sick leave pay for exempt employees only applied to employees exempt under the professional, executive, or administrative exemptions.
As a result of this decision, California employers can calculate paid sick leave for exempt, outside salespersons based on the same method used for other types of paid leave and are not required to include commissions. California employers who employ salespeople who earn commissions should seek legal counsel regarding their current paid sick leave calculations.
Employers Council members can reach out to CAinfo@employerscouncil.org to get additional support and guidance from one of our trusted California advisors.
Brittanie Young is an HR Consultant with Employers Council
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