Litigating California Wage & Hour and Labor Code Class Actions

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commission and only that employee experiences the chargeback when the item is returned. In fact, the state Division of Labor Standards Enforcement (“DLSE”) has construed Hudgins as approving a commission chargeback for such an identified return. 71 Moreover, multiple cases have since echoed that interpretation of Hudgins. 72 As discussed below, guidelines have now emerged that should allow employers to craft compensation systems that include a chargeback element without running afoul of California law. 2. The Steinhebel Case Approves Certain Chargeback Plans In February 2005, in Steinhebel v. Los Angeles Times Communications, LLC, 73 the Second District Court of Appeal rejected the broad reading of Section 221 that the plaintiffs advanced. The court expressly held that California’s various “antideduction” provisions do not preclude an employer from advancing a commission to an employee subject to chargeback if a condition for “earning” the chargeback is not satisfied. More specifically, the court upheld a pay system that advanced newspaper telesales employees a commission the day they sold a newspaper subscription, but wherein the subscription was not “earned” until the customer kept the subscription for twentyeight days without canceling. If the customer canceled sooner for any reason, then the commission was “charged back” by being deducted from the employee’s next commission advance. The court held that the contract was consistent with the Labor Code and public policy because the contract plainly defined the “earning” of the commission as the customer keeping the newspaper for twenty-eight days without canceling, and the overall pay system inured to the benefit of the employees by allowing them to be paid sooner than the “earning” date. 74 Indeed, given the widespread nature of commission chargeback systems, the court was reluctant to 71 72 73 74 DLSE Opinion Letter 1999.01.09. The DLSE has also opined that chargebacks of commissions are acceptable when a customer fails to pay for an item so long as the sales contract makes clear that the commission is not earned until payment is received. DLSE Opinion Letter 1999.01.09 (“A commission is ‘earned’ when the employee has perfected the right to payment; that is, when all of the legal conditions precedent have been met. Such conditions precedent are a matter of contract between the employer and the employee, subject to various limitations imposed by common law or statute.”); see also DLSE Opinion Letter 2002.12.09-2 (“Commissions are earned only after the reasonable conditions precedent of the employment agreement have been met and commissions can be calculated.”). See Steinhebel v. Los Angeles Times Communications, LLC, 126 Cal. App. 4th 696, 711 (2005); Harris v. Investor’s Bus. Daily 138 Cal. App. 4th 28, 41, modified, 138 Cal. App. 4th 871e (2006) (discussed below, each interpreting Hudgins as allowing chargebacks for identified returns). 126 Cal. App. 4th 696 (2005). Id. at 708-09. Seyfarth Shaw LLP | www.seyfarth.com Litigating California Wage & Hour Class Actions (12th Edition) 22
declare such a system illegal without some express language in the Labor Code requiring such a result: Compensating employees in part with advances on commissions is a longstanding practice. No prior case has held the practice to violate the California Labor Code, and we are pointed to no statute that expressly bars such a practice. In view of its widespread nature, we are loathe to hold the Labor Code bars such a practice by implication. 75 3. Further Development of the Law Since Steinhebel Steinhebel remains good law, and an employer setting up a chargeback system may use the Steinhebel system as a safe template. It is important to note, however, that Steinhebel involved ideal facts for the defendant: the chargeback agreement was in a writing signed by the employees; the agreement referred to the initial payment as an “advance”; the conditions to earn the commissions were spelled out in the compensation plan; and those conditions did not seem particularly onerous. But what if some of the ideal elements are missing? The first word on chargebacks following Steinhebel suggested that if an employer did not document the chargeback agreement properly, it could violate California law. In Harris v. Investor’s Business Daily, 76 another panel of the Second District Court of Appeal held that the lack of a written chargeback agreement precluded summary judgment for the employer. As in Steinhebel, the plaintiffs sold newspaper subscriptions, and the money they initially received was subject to chargeback if the customer canceled the subscription without holding it a certain period of time. Unlike Steinhebel, however, there was no written agreement that described the initial payment as an advance or otherwise suggested that it was not “earned” upon the completion of the sale. Given that the plaintiffs testified that they understood they earned the money when their sale was completed, the court held that there was a triable issue of fact whether the chargeback system violated Labor Code Section 221. 77 Later, the First District Court of Appeal issued a far more favorable chargeback opinion in Koehl v. Verio, Inc., 78 a case involving chargebacks against salespersons who sold internet services. As in Steinhebel, the chargeback plan in Koehl was in a 75 76 77 78 Id. at 709. 138 Cal. App. 4th 28, modified, 138 Cal. App. 4th 871 (2006). Id. at 41. 142 Cal. App. 4th 1313 (2006). Seyfarth Shaw LLP | www.seyfarth.com Litigating California Wage & Hour Class Actions (12th Edition) 23
Page 1 and 2: Litigating California Wage & Hour a
Page 3 and 4: Table of Contents I. Introduction a
Page 5 and 6: A. Disclosure of Class Member Names
Page 7 and 8: associated statutory penalties. 1 T
Page 9 and 10: who does not meet the threshold com
Page 11 and 12: exempt work is of a kind which in e
Page 13 and 14: 3) The employee performs his or her
Page 15 and 16: decisions have concluded that under
Page 17 and 18: Bell court to look beyond the Wage
Page 19 and 20: place of business, would that quali
Page 21 and 22: IWC had the authority to promulgate
Page 23: stores” by providing them a porti
Page 27 and 28: employers should be able to defend
Page 29 and 30: waive the right to reimbursement, s
Page 31 and 32: Due to the ambiguity in the meaning
Page 33 and 34: For each workday the employer fails
Page 35 and 36: Arguably, no additional $100-per-pa
Page 37 and 38: permitted” the employee to work t
Page 39 and 40: federal decisions also held that an
Page 41 and 42: for all overtime hours worked. The
Page 43 and 44: much broader, such as the court’s
Page 45 and 46: In the appeal of Chau, the appellat
Page 47 and 48: years before the lawsuit, or for an
Page 49 and 50: imposition of penalties, 194 routin
Page 51 and 52: In one such class action, Elliot v.
Page 53 and 54: First, there has been a substantial
Page 55 and 56: Recent court decisions have begun t
Page 57 and 58: of her hours was paid at a rate of
Page 59 and 60: the limitations period for a penalt
Page 61 and 62: passage, then the employee could st
Page 63 and 64: all, but rather simply to proceed w
Page 65 and 66: Shortly thereafter, another Divisio
Page 67 and 68: and the ability to bring a collecti
Page 69 and 70: XIII. Class Action Fairness Act of
Page 71 and 72: the plaintiff is “master of her c
Page 73 and 74: alleged conduct or any related cond
Page 75 and 76:
Initially, the decisions were split
Page 77 and 78:
XIV. Class Certification A. General
Page 79 and 80:
expectations and the realistic requ
Page 81 and 82:
In the immediate wake of Sav-On, th
Page 83 and 84:
Similarly, employers may argue that
Page 85 and 86:
A 5 to 4 ruling reversed the Ninth
Page 87 and 88:
facility to the next, or variations
Page 89 and 90:
employer’s defense arsenal, and t
Page 91 and 92:
In reaching this conclusion, the Co
Page 93 and 94:
party who seeks the same relief, pr
Page 95 and 96:
is to be so maintained.” This det
Page 97 and 98:
speech. 429 Therefore, the court he
Page 99 and 100:
Puerto, or Crab Addison cases would
Page 101 and 102:
epresentative. That question was an
Page 103 and 104:
CashCall to disclose the identities
Page 105 and 106:
nothing but still are bound by the
Page 107 and 108:
Initially, there appeared to be a v
Page 109 and 110:
the case. As any one of these class
Page 111 and 112:
have any great impact on class sett
Page 113 and 114:
plaintiff’s attorney and putative
Page 115 and 116:
the California Supreme Court issued
Page 117 and 118:
While California courts have essent
Page 119 and 120:
The plaintiffs attempted to justify
Page 121:
Breadth. Depth. Results. www.seyfar
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