Semprini v. Wedbush Securities: Advances on Commissions Are Not a “Salary” Exempting Financial Advisors, Says CA Ct. of Appeal

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Does a compensation plan providing for an advance on future commissions qualify as a “salary” for purposes of the administrative exemption established in Industrial Welfare Commission Wage Order 4? In Semprini v. Wedbush Securities, Inc., Cal. Ct. App. 4th Dist., No. G067740, Nov. 5, 2020 (slip op. available here), a California court of appeals concluded that it does not.

California law requires employers to pay overtime rates to employees who work above a set number of hours, unless an exemption applies. Under the applicable wage order, an employee is exempt under the administrative exemption if that employee (1) is primarily engaged in exempt duties and (2) earns “a monthly salary equivalent to no less than two (2) times the state minimum wage for full-time employment.” (Cal. Code Regs., tit. 8, § 11040, subd. 1(A)(2)(g).)

Wedbush attempted to comply with the wage order by essentially “loaning” its employees money, so that they would receive enough compensation to qualify under the exemption. Wedbush classified its financial advisors as “exempt” and paid them solely on commission; but if a financial advisor’s commission in a given month was less than double the minimum wage, it paid the financial advisor the commission plus a “draw” on future commissions to make up the difference. Financial advisors were then required to repay the “draw.”

The court ruled that this arrangement did not satisfy administrative exception’s salary basis test because “[a]n advance is not a wage.” Slip op. at 11. The court reasoned that “[t]he salary basis test requires the employers to pay their employees at least double the minimum wage, not loan them that amount.” Id. (emphases in original). The court went on to note that Wedbush’s compensation arrangement could also violate state minimum wage requirements if an employee was forced to repay advances after termination.

The matter is being remanded to the Orange County Superior Court, where the court previously granted the plaintiffs’ motion to certify a class of approximately 150 class members.

Authored by:
Robert Friedl, Senior Counsel