The California Chamber of Commerce has joined the U.S. Chamber of Commerce in urging the Fourth Appellate District Court to review a case involving wage statements.
The joint friend-of-the-court letter asks the appeals court to provide California employers with certainty and clarity about how advance commission payments must be listed on a wage statement.
Advance Commission Payments
Many employers in California utilize a commission advance and chargeback program like the one at issue in the case, Macy’s West Stores, Inc., dba Macy’s, and Macy’s, Inc. v. Superior Court of California for the County of San Bernardino.
Macy’s advances commission payments to its employees, subject to chargeback if the item on which the commission is paid is returned within a certain period. And like many employers in California, Macy’s agrees to charge back such advances only in the form of an offset against future advanced commission payments, the letter states.
The superior court held that Macy’s violated Section 226 of the California Labor Code by issuing wage statements that reported these advanced commission payments at the time they were paid, without making further note of them on subsequent wage statements after the relevant chargeback period expired (meaning after they were earned).
Wage Statement Questions
The California and U.S. chambers respectfully urged the Fourth Appellate District Court to grant the review and clarify two questions that will have significant impact on businesses throughout California:
- When an employer agrees to charge back advanced commissions only through an offset against future advanced commission payments, does the employer properly issue a wage statement reporting the commissions at the time of payment, without notation on future wage statements when the commissions are earned; and
- Does the Private Attorneys General Act (PAGA) still afford a private right of action for alleged violations of California Labor Code Section 226(a)(6)—which requires itemized wage statements to show “the inclusive dates of the period for which the employee is paid”—in light of legislative amendments in 2015 that effectively removed this statutory provision from PAGA’s scope?
In the letter, the chambers argue that with respect to the laws governing paying employees advance commissions, California courts have long recognized the permissibility of programs such as the one at issue in the Macy’s case. Employers’ use of such payment plans benefits employees, as it pays them sums above their hourly wages, the letter comments.
Many of the chambers’ members, as well as the businesses whose interests the chambers represent, use the reporting practice at issue here: They report the payment of advance commissions at the time the dollars are paid to employees, without additional notation at the time those dollars are considered earned. The superior court’s ruling raises concerns about the legality of this widespread practice and creates significant uncertainty for California employers.
The consequences of potential liability for violating Section 226 and the possibility of penalties under PAGA are severe, and businesses in California therefore take their compliance with reporting requirements seriously. Absent the appellate court’s review, employers throughout California will need to take action to review their commission reporting practices, and (given the superior court’s one-paragraph order) will do so without any real guidance, the letter states.
Lower Court Ruling Created Uncertainty
The uncertainty created by the superior court’s order will impose significant costs on California employers and will be of no benefit to California employees, the letter comments. The purpose of Labor Code Section 226 is “to assist the employee in determining whether he or she has been compensated properly.”
Macy’s current reporting method achieves precisely this purpose: Macy’s wage statements inform employees of their commission payments as they are actually received. Under the superior court’s order, however, employers would have to report commission payments long after employees’ receipt of those payments, which would serve only to confuse the very individuals wage statements are meant to benefit.
The issues presented by Macy’s are ones of first impression and are extremely important to California employers, the letter states. The issues will ultimately need to be decided by the appellate courts, and the uncertainty created by the superior court’s ruling and the costs to employers and employees in California warrant the Fourth Appellate District Court’s immediate review.
Staff Contact: Heather Wallace