In this appeal from a judgment after a bench trial, we consider two issues. First, we address whether the trial court erred in determining that an
In our initial opinion in this matter, we concluded that the trial court properly determined that the employees were subject to the commissioned employees exemption. We also concluded that the trial court had not erred in denying the meal period claim. The Supreme Court granted the class's petition for review and deferred further action in the matter pending its consideration of a related issue in Brinker Restaurant Corp. v. Superior Court
It is undisputed that Brinker does not affect our prior conclusion that the trial court properly determined that the class employees were subject to the commissioned employees exemption. With respect to the class members' meal break claim, in Brinker the Supreme Court held that while an employer has a duty to provide meal periods to its employees, it "is not obligated to police meal breaks and ensure no work thereafter is performed." (Brinker, supra, 53 Cal.4th at p. 1040.) Accordingly, we again reject the class members' claim that the trial court erred "in ruling that [the employer] was not obligated to ensure that meal period[s] were taken," and affirm the judgment and a postjudgment order awarding costs to the employer.
Tyrone Muldrow filed this action against Surrex Solutions Corporation (Surrex) on behalf of himself and a class of current and former Surrex
At a bench trial of the class members' claims, Surrex asserted that it was not required to pay overtime to the class members because they were subject to the commissioned employees exemption (Cal. Code Regs., tit. 8, § 11070, subd. 3(D)) and the administrative employees exemption (id., subd. 1(A)(2)). Surrex also contended that it had provided meal periods to the class members, as required.
The trial court determined that the class members were subject to the commissioned employees exemption. The trial court further concluded that Surrex had provided meal periods for the class members, and that the law did not obligate Surrex to ensure that the employees utilized the meal periods. Because these determinations disposed of the action, the court did not proceed to determine whether the class members were subject to the administrative employees exemption. The court entered judgment and a postjudgment award of costs in favor of Surrex.
Appellants filed an appeal from the judgment in which they claim that the trial court erred in determining that the commissioned employees exemption applied to them and that they were therefore not entitled to overtime. In addition, appellants claim that the trial court erred in denying their claim for missed meal periods.
Appellants claim that the trial court erred in determining that Surrex was not required to pay them overtime (§ 510) because they were subject to the commissioned employees exemption (Cal. Code Regs., tit. 8, § 11070, subd. 3(D)).
Appellants' contention raises a mixed question of law and fact. (Ramirez v. Yosemite Water Co, (1999) 20 Cal.4th 785, 794 [85 Cal.Rptr.2d 844, 978 P.2d 2] (Ramirez) ["The question whether Ramirez was an outside salesperson within the meaning of applicable statutes and regulations is, like other questions involving the application of legal categories, a mixed question of law and fact."].) Mixed questions of law and fact are reviewed de novo, where the claim to be reviewed is "predominantly one of law." (In re Marriage of Sonne (2010) 48 Cal.4th 118, 124 [105 Cal.Rptr.3d 414, 225 P.3d 546].)
In this appeal, appellants contend that the trial court erred in determining that they were subject to the commissioned employees exemption, in light of undisputed facts pertaining to both their employment duties and Surrex's compensation system. We apply the de novo standard of review to this claim, since the claim raises a question of law. (See Ramirez, supra, 20 Cal.4th at p. 794 [applying de novo standard of review because, "[i]n the present case, although there was some controversy as to the facts — i.e., as to what Ramirez did as an employee for Yosemite — the predominant controversy is the precise meaning of the term `outside salesperson,' a question of law."].)
In Keyes Motors, Inc. v. Division of Labor Standards Enforcement (1987) 197 Cal.App.3d 557 [242 Cal.Rptr. 873] (Keyes Motors), the Division of Labor Standards Enforcement (DLSE) determined that an employer that sold and serviced automobiles was required to pay overtime wages to its mechanics. The employer sought a judicial declaration that it was not required to pay overtime wages to its mechanics because the mechanics' compensation, which was based on a percentage of the hourly rate charged to customers for repairs, constituted "commission wages." (Id. at p. 560.) The trial court granted the requested relief. (Id. at p. 561.)
On appeal, the Keyes Motors court began its analysis of the relevant statutory and regulatory provisions by stating that the "DLSE is the body charged with administration and enforcement of IWC orders ...," and that the "DLSE's primary responsibility is to interpret the intent of the IWC." (Keyes Motors, supra, 197 Cal.App.3d at pp. 561-562.) The Keyes Motors court then noted that the "DLSE has consistently read [the commissioned employees exemption] to exempt from overtime only employees in sales positions." (Keyes Motors, supra, at p. 562.) The Keyes Motors court further observed that the DLSE cited the following portion of section 204.1
In adopting the definition of commission wages in section 204.1 for purposes of determining the applicability of the commissioned employees
In applying the first of these requirements, the Keyes Motors court stated, "Common sense militates against conceiving of auto mechanics as `commission salesmen' any more than plumbers or electricians simply because their employers sell automobiles." (Keyes Motors, supra, 197 Cal.App.3d at p. 564.) The court also commented, "`[t]he DLSE's interpretation is entitled to great weight ....' [Citation.]" (Ibid.) Ultimately, the Keyes Motors court held that the trial court had erred in determining that the mechanics were subject to the commissioned employees exemption. (Ibid.)
In Ramirez, our Supreme Court considered the meaning of "outside salesperson" as used in section 1171 in determining whether an employee who engaged in sales and who performed delivery functions for a bottled water company was exempt from the state's overtime laws. (Ramirez, supra, 20 Cal.4th at p. 794.) After concluding that the trial court and the Court of Appeal had erred in their interpretation of section 1171, the court remanded the case to the trial court to make a factual determination as to whether the employee was in fact an "outside salesperson." (Ramirez, supra, at pp. 801, 803.)
As relevant to this case, the Ramirez court observed that the trial court had also concluded that the employee was subject to the commissioned employees exemption. (Ramirez, supra, 20 Cal.4th at p. 794.)
In Harris v. Investor's Business Daily, Inc. (2006) 138 Cal.App.4th 28 [41 Cal.Rptr.3d 108] (Harris), the Court of Appeal considered whether the commissioned employees exemption applied to a group of telemarketing employees who sold magazine subscriptions. In considering the first prong of the Keyes Motors test for determining the applicability of the exemption, the Harris court noted that it was undisputed that the telemarketers sold a product. (Harris, supra, at p. 37.) Thus, according to the Harris court, in determining whether the employees were exempt, the only question was "whether they were paid on the basis of a percentage of the price of subscriptions sold." (Ibid.) The employees in Harris were paid based on a point system in which they earned points related to the number of subscriptions sold.
Finally, in Areso v. CarMax, Inc. (2011) 195 Cal.App.4th 996 [124 Cal.Rptr.3d 785] (Areso), the Court of Appeal considered whether a class of car salespersons who were paid a uniform amount for each vehicle sold (approximately $150) were subject to the commissioned employees exemption. (Id. at p. 1007.) After noting that section 204.1 permitted commissions to be based on "amount or value," the Areso court stated: "Section 204.1 on its face allows wages based on the number of items sold to be considered commission wages. None of the cases interpreting section 204.1 has involved a compensation system which, like CarMax's, compensates salespeople with a uniform payment for each item or service sold, and as a result no case has construed the word `amount' in the statute. [Fn. omitted.] This is an issue of first impression, and new facts require new law." (Areso, supra, at p. 1007.)
The Areso court distinguished Keyes Motors and its progeny, stating, "The Keyes Motor['s] definition of `commission' ... does not control our case, as it does not exclude Areso's compensation from the ambit of section 204.1's definition of commission wages as `based proportionately upon the amount or value'...." (Areso, supra, 195 Cal.App.4th at p. 1006, italics added.) Accordingly, the Areso court held, "CarMax's uniform payment for each vehicle sold constitutes commission compensation under section 204.1." (Id. at p. 1009.)
Appellants claim that they were not subject to the commissioned employees exemption because they were not primarily engaged in sales, their commissions were not based on price, and Surrex's compensation system was not a bona fide commission system. We consider each argument in turn.
Applying Keyes Motors and its progeny, we first consider whether appellants were employed "principally in selling a product or service." (Keyes Motors, supra, 197 Cal.App.3d at p. 563.)
Appellants' primary job duty was to recruit "candidates" for employer "clients." Surrex's clients would place "job orders" with Surrex and appellants would search for potential candidates to fill the job orders. Appellants would use various resources to find candidates, including an internal database that Surrex maintained and various "on-line job boards." Appellants would then attempt to convince both the candidate and the client that the placement of the candidate with the client was a proper fit. Michael Ellis, an executive vice-president for Surrex, described this part of the process as follows: "We have to convince the candidate that they're the right person, that this position is the right place for them. We have to convince them on dollars. We have to convince the client that this is the right person for them. We prep both sides. When they get together on the interview, that's where hopefully the magic happens. [¶] Then again, after they've met, we need to debrief both the client and the candidate to make sure to pull it together. Then we have to make sure to nail down the sides of the tent that have to do with rate, the client's rate, the candidate's rate, and then make sure it all comes together. It's a very difficult sale."
Surrex obtained revenue from a client only in the event of a successful placement. As Ellis testified, "The only money Surrex gets is when a client hires on the people that we find for them, and we bring them on as either an employee or a subcontractor to Surrex."
Appellants' employment agreements state that their duties and responsibilities include, "[a]ccount development, sales, account management, and recruiting." (Italics added.) Surrex's employees and executives testified that appellants were engaged in selling. For example, when asked to describe the traits of a successful consulting service manager, Ellis testified that the company looked for "highly motivated salespersons," stating, "It's all sales." Ellis also testified, "[I]f someone were to come to me and interview for a job at Surrex and tell me that they did not believe that recruitment is sales, ... I would ask them to leave. They would not be hired." Robert Bishop, a senior consulting service manager at Surrex, testified "when I'm acting in a recruiting capacity, I do sales; recruiting individuals, convincing them to work for our company."
The evidence discussed above demonstrates that appellants' job, reduced to its essence, was to offer a candidate employee's services to a client in
We also reject appellants' contention that time spent "searching on the computer, searching for candidates on the website, cold calling, interviewing candidates, inputting data, and submitting resumes," may not be considered sales-related activities. We agree with the trial court's reasons for rejecting this argument: "[P]laintiffs point to the number of activities the employees are engaged in prior to the actual point in time that the sale is made. This argument perceives the word sales in a vacuum contrary to the job description of any salesman. The whole point of these activities, including online search for candidates, resume reviews, unsolicited (cold) calls, etc., are the essential prerequisites necessary to accomplishing the sale."
In light of the evidence of appellants' sales-related activities discussed above, we conclude that appellants were employed "principally in selling a product or service." (Keyes Motors, supra, 197 Cal.App.3d at p. 563.)
We next consider whether Surrex's commissions were sufficiently related to the price of services sold to constitute commissions for purposes of the commissioned employees exemption.
Surrex generally placed candidates with clients in one of two ways. Some candidates were hired directly by employer clients. For these so-called "direct hire" placements, appellants received a commission equal to a percentage of the placement fee that Surrex received from the client. Appellants concede that such payments constitute commissions for purposes of the commissioned employees exemption.
Surrex placed other candidates by hiring them as consultants. The candidate-turned-consultant would then perform work for the client, and Surrex would in turn bill the client at an hourly rate for the consultant's services. As Glenn Crawford, an executive vice-president for Surrex, testified, "[The client] essentially leases [the candidate] from [Surrex] on an hourly basis." Appellants received a percentage of the "adjusted gross profit," that Surrex earned from the clients as payment for their placement of these candidate/consultants. Adjusted gross profit was defined generally as the rate at which clients were billed for a consultant, less the costs to Surrex of employing the consultant. Costs included the consultant's pay rate, benefits and expenses, as well as an overhead adjustment factor.
The precise formula for consultant commissions is specified in appellants' employment agreements. That formula states in relevant part: "The commission in the consulting business is earned at a starting rate of 32% of adjusted gross profit .... The adjusted gross profit is calculated as follows: AGP = bill rate (pay rate + burdened overhead + benefits + expenses). In most periods, billable consultants' expenses are zero. In most cases benefits are zero for W-4 hourly consultants. For W-4 salaried employees, benefits include all associated costs, including vacations, sick leave and bench time. Burdened overhead is 0.14 X pay rate."
Appellants contend that money they were paid pursuant to Surrex's consultant commission system does not qualify as commissions for purposes of the commissioned employees exemption. Specifically, appellants maintain that the formula is "too complex," since it is based on several cost-related factors in addition to price. Appellants argue: "[T]he commission formula for consulting placements was far too complex to fall within the exemption. Rather than simply being based on a percentage of the service price as the commission for direct hire placements was, the consulting placement commission lost touch with the service price once it became entangled with the adjusted gross profit, which was defined as the bill rate less the pay rate plus burdened overhead, benefits, and expenses."
We disagree that either the Keyes Motors court or the Ramirez court intended to preclude an employer from calculating commissions based on anything other than a straight percentage of profits. Most importantly, neither the Keyes Motors court nor the Ramirez court had any occasion to address this issue, because in both cases, the employees' commissions were based on a straight percentage of the price charged to the customer. (Keyes Motors, supra, 197 Cal.App.3d at p. 561 [The "mechanic earns a fixed percentage of the hourly rate charged the customer"]; Ramirez, supra, 20 Cal.4th at p. 804 [employee received a "percentage of the price of the bottles of water and related products sold"].) "`"It is axiomatic that cases are not authority for propositions not considered."'" (Silverbrand v. County of Los Angeles (2009) 46 Cal.4th 106, 127 [92 Cal.Rptr.3d 595, 205 P.3d 1047], citations omitted.) Thus, "[t]he Keyes Motors definition of `commission' ... does not control our case ...." (Areso, supra, 195 Cal.App.4th at p. 1006.)
In this case, in contrast, appellants affected not only the revenue that Surrex received, but also the costs that Surrex would bear. Paige Freeman, a senior consulting services manager, testified that consulting service managers negotiated both the rates that Surrex paid candidate/consultants and the rate at
Appellants do not dispute that Surrex's commission system for consultant placements was based on the price of services sold, albeit not solely on the price. As appellants acknowledge, the Surrex commission system "started with the service price"; the amount of revenue generated by consulting services managers was a critical factor in determining the compensation that the employees received. (Compare with Harris, supra, 138 Cal.App.4th at p. 37 [concluding telemarketers who were paid through a commission system based on points were not exempt because "[t]he point values were not tied to
Finally, the sole argument that appellants offer to support their contention that the term "commissions" in the commissioned employees exemption (Cal. Code Regs., tit. 8, § 11070, subd. 3(D)) should be construed as excluding commission systems such as Surrex's, is that such a formula is "too complex." Appellants' contention that the Surrex's commission system is "too complex" is neither factually accurate nor legally relevant. The formula was clearly stated in the employees' employment agreements and, in most cases, could be calculated simply by knowing the candidate's "bill rate" and "pay rate" (both of which the consulting service managers, themselves, negotiated).
Appellants contend that they were not subject to the commissioned employees exemption because Surrex's compensation plan did not constitute a "bona fide" commission system "as a matter of law."
After a brief startup period, Surrex paid each consulting service manager a draw ranging from approximately $3,000 to $5,500 per month. A draw is an advance on commissions to be earned in the future. Consulting service
Appellants note that the DLSE's Enforcement Policies and Interpretations Manual states, "Consistent commission earnings below, at, or near the draw are indicative of a commission plan that is not bona fide." (DLSE Enforcement Policies and Interpretations Manual (June 2002) § 50.6.1.4.) Appellants further contend that in order for this court to determine whether Surrex's commission system was bona fide, we must examine commissions paid, rather than commissions earned, because "a [consulting services manager] is only paid above the draw when cumulative commissions exceed cumulative draws." We assume for purposes of this decision that Surrex was required to demonstrate that sufficient numbers of consulting services managers were consistently paid amounts in excess of their guaranteed draw in order for Surrex's compensation plan to constitute a "bona fide" commission system.
Crawford testified that during the relevant time period, "seven to ten" consulting services managers consistently received payments in excess of their guaranteed draw. In addition, one of Surrex's senior consultant service managers, Robert Bishop, testified that his annual income at Surrex over the past three years had averaged between $270,000 and $300,000 — an amount far in excess of his $60,000-per-year guaranteed draw. Bishop also testified that approximately two-thirds of Surrex's current workforce had been paid commissions in excess of their draws. David Hattman, another Surrex consulting service manager, testified that he "routinely" received compensation in excess of his draws. In light of the foregoing evidence, we reject appellants' contention that Surrex's commission system "was not bona fide as a matter of law."
Appellants contend that the trial court erred in denying their claim for missed meal periods. Specifically, appellants claim that the court erred in concluding that Surrex "only had to provide for such breaks, even if they were not taken."
Accordingly, we conclude that the trial court did not err in denying appellants' missed meal period claim.
The judgment and postjudgment order awarding costs are affirmed. Surrex is entitled to costs on appeal.
McConnell, P. J., and McIntyre, J., concurred.
Appellants failed to raise this issue in their initial briefing on appeal. Further, prior to the Brinker decision, there were a number of cases that appellants could have cited in support of this theory in filing their opening brief on appeal in March 2011: "[A]n employer may not undermine a formal policy of providing meal breaks by pressuring employees to perform their duties in ways that omit breaks. (Cicairos v. Summit Logistics, Inc. (2005) 133 Cal.App.4th 949, 962-963 [35 Cal.Rptr.3d 243]; see also Jaimez v. Daiohs USA, Inc. [(2010)] 181 Cal.App.4th [1286,] 1304-1305 [105 Cal.Rptr.3d 443] [proof of common scheduling policy that made taking breaks extremely difficult would show violation]; Dilts v. Penske Logistics, LLC (S.D.Cal.2010) 267 F.R.D. 625, 638 [indicating informal anti-meal-break policy `enforced through "ridicule" or "reprimand"' would be illegal].) The wage orders and governing statute do not countenance an employer's exerting coercion against the taking of, creating incentives to forego, or otherwise encouraging the skipping of legally protected breaks." (Brinker, supra, 53 Cal.4th at p. 1040.)
Accordingly, we decline appellants' request that they be permitted to raise a new issue at this time. (Dahms v. Downtown Pomona Property & Business Improvement Dist. (2009) 174 Cal.App.4th 708, 711, fn. 1 [96 Cal.Rptr.3d 10] ["Any arguments that could have been raised in the original briefs ... but were not raised until the supplemental briefs [(upon transfer from the Supreme Court)] will not be considered"].)