Salon owners in California who pay employees on commission are subject to liability for failing to pay all wages due.Â Under California law, âcommissionsâ are a form of wages applicable only to an employee who sells a product or service, not to an employee who makes a product or provides a service to the employerâs customers.Â Keyes Motors v. DLSE 197 Cal.App.3d 557 (1987). Salon employees in California whose job is to cut and/or color hair, must therefore be paid on an hourly basis, a piece rate basis, or a combination of those.Â Salon technicians who have been paid on a typical net commission basis are likely due unpaid wages and statutory penalties.
Piece Rate Wages for Hair Stylists and Colorists
California Assembly Bill 1513 (AB 1513) went into law on January 1, 2016, adding section 226.2 to the California Labor Code to address compensation for piece rate work.Â Piece rate workers are paid according to the number of units they complete.Â Piece rate units might be defined by the numbers of widgets assembled by a factory worker, the number of cars washed by a car washer or the number of haircuts given by a barber or cosmetologist.
AB 1513 did not create new wage obligations, but instead codified the legal obligations described in two important appellate decisions that addressed the wages of piece rate workers back in 2013: Gonzales v. Downtown LA Motors, 215 Cal. App. 4th 36 (2013) and Bluford v. Safeway, Inc., 216 Cal. App. 4th 864 (2013).
In Gonzales, the court held that mechanics who worked on a piece rate basis must be paid for their non-productive time (time during a shift when the worker was not actively engaged in compensable work). An employer, the court explained, cannot average the wages worked by an employee to show that the employee received at least minimum wage for all hours she was under the employerâs control.Â The employer must pay no less than the applicable minimum wage for every minute an employee is under its control, including time when no compensable work is being performed under a piece rate system.
In Bluford, the court held that piece rate workers must also be paid separately for rest periods because rest periods under California law are deemed on-the-clock, compensable work time.Â If a piece rate worker is only paid by the unit, then she is not being compensated for rest periods in accordance with California law.
So, although AB 1513 did not modify the duties described in the Gonzales and Bluford cases, it provided employers a âsafe-harborâ period during which the employer could take steps to limit its liability to certain types of claims or lawsuits arising out of its misclassification of technicians as commissioned employees.Â To take advantage of the safe harbor protections, however, the employer was required to:Â (1) notify the California Department of Industrial Relations no later than July 1, 2016 that it would pay wages due to employees who had not been compensated for non-productive time or rest periods (back to July 1, 2012); and (2) make the wage payments no later than December 15, 2016.Â Many piece rate employers failed to take advantage of these safeguards. A list of employers who notified the DIR of their intention to participate in the safe harbor provision can be found at the DIR website.
Labor Code Â§ 226.2, the product of AB 1513, places specific duties on employers of piece rate workers including:
(a) For employees compensated on a piece-rate basis during a pay period, the following shall apply for that pay period:
(1) Employees shall be compensated for rest and recovery periods and other nonproductive time separate from any piece-rate compensation.
(2) The itemized statement required by subdivision (a) of Section 226 shall, in addition to the other items specified in that subdivision, separately state the following, to which the provisions of Section 226 shall also be applicable:
(A) The total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for those periods during the pay period.
(B) Except for employers paying compensation for other nonproductive time in accordance with paragraph (7), the total hours of other nonproductive time, as determined under paragraph (5), the rate of compensation, and the gross wages paid for that time during the pay period.
(3) Â Â Â Â Â Â Â Â (A) Employees: shall be compensated for rest and recovery periods at a regular hourly rate that is no less than the higher of
(i) An average hourly rate determined by dividing the total compensation for the workweek, exclusive of compensation for rest and recovery periods and any premium compensation for overtime, by the total hours worked during the workweek, exclusive of rest and recovery periods.
(ii) The applicable minimum wage.
(B) For employers who pay on a semimonthly basis, employees shall be compensated at least at the applicable minimum wage rate for the rest and recovery periods together with other wages for the payroll period during which the rest and recovery periods occurred. Any additional compensation required for those employees pursuant to clause (i) of subparagraph (A) is payable no later than the payday for the next regular payroll period.
These statutory mandates codify the wage rights set out in Gonzales and Bluford.Â Given the common salon industry practice of paying stylists and colorists as commissioned employee, it is likely that thousands of salon employees in California have been underpaid during the past four years.
Salon Class Action
In early 2016 Kitchin Legal filed a class action lawsuit (on behalf of 231 employees) against five jointly-owned Northern California hair salons.Â The case is based on the salonsâ alleged failure to abide by a wide range of California employment laws, including Labor Code Â§ 226.2.Â After months of negotiations and the exchange of thousands of lines of employee data, our clients entered into a proposed class-wide settlement valued at over $1 million.Â We are now in the process of seeking court approval for the class action settlement.
Top Rated San Francisco Salon
In late 2016 Kitchin Legal filed an individual lawsuit on behalf of a stylist against one of the top ranked hair salons in San Francisco. [The lawsuit is based on the salonâs alleged violations of several California wage and hour laws, including Labor Code Â§ 226.2.] Â The salon owner, who either was ignorant of the law, or chose to ignore his legal duties, is facing a six-figure wage claim, one of the largest components of which is based on the allegation that our client was improperly paid as a commissioned employee.
Risk and Consequences
For Salon Owners
Nearly every year California passes new legislation or enacts new regulations pertaining to the duties of employers to their workers. Employers who do not have a sophisticated human resources professional on staff or a competent employment attorney on retainer to help them keep abreast of these changes can become particularly vulnerable to employment-related claims.
An employer who decides to risk non-compliance with any aspect of Californiaâs employment laws can face significant financial consequences, including a class action lawsuit by a group of employees.Â The worst decision a salon owner can make is to remain ignorant of California labor laws or to ignore its legal obligations hoping its employees will not challenge its illegal practices through a lawsuit.
The best decision a salon owner can make at any time is to have a skilled California employment attorney review its policies and practices for compliance with California labor laws, including in particular, Labor Code Â§ 226.2.
For Salon Employees
The biggest risk facing an employee whose compensation rights have been violated is delay.Â All of these claims are governed by specific statutes of limitations.Â Employees can generally seek recovery of unpaid wages for up to four years (under Californiaâs unfair completion laws).Â Once the statute of limitations runs on a claim, it is gone forever, however.Â Â Salon employees who have been paid as commissioned employees and who have not been paid separately for non-productive time and rest periods should talk with an employment attorney right away.
Patrick R. Kitchin is the founder of Kitchin Legal APC, a San Francisco, California employment law firm. He has represented tens of thousands of employees in both individual and class action cases involving violations of California and federal labor laws since founding his firm in 1999. According to retail experts and the media, his wage and hour class actions against Polo Ralph Lauren, Gap, Banana Republic, and Chicoâs led to substantial changes in the retail industryâs labor practices in California. Patrick is a graduate of The University of Michigan Law School and is personally and professionally committed to the protection of workersâ rights everywhere.