Other Cases Of Interest

Commissions That Are Paid As Advances And Are Contingent Are Not Wages And An Employer May Make Chargebacks If The Contingencies Are Not Met

Deleon v. Verizon Wireless, LLC
(Cal. Ct. of App., 2d Dist.), filed July 10, 2012

Saul Deleon, worked as a retail sales representative for Verizon Wireless. He and other retail sales representatives received an hourly wage plus monthly commissions. Under their compensation plan, commissions on the sale of cell phone service plans were paid in advance, but not earned until the expiration of a chargeback period during which the customer might cancel the service. If the customer cancelled the service during the chargeback period, the amount of the commission attributed to it was deducted from later commission payments.

Deleon sued on behalf of himself and other retail sales representatives whose commissions were subject to chargebacks. He alleged that Verizon violated Labor Code section 223, which prohibits the secret underpayment of wages by charging back against future commissions sums that were paid as commissions on sales that were cancelled during the chargeback period.

The trial court granted a motion for summary judgment in favor of Verizon.

The Court of Appeal affirmed. It framed the issue as whether the chargeback provision violates Section 223 by “secretly pay[ing] a lower wage while purporting to pay the wage designated by statute or by contract.”

Based upon the undisputed facts, the court concluded the commission payments were advances, not wages, and as a result the chargeback provision did not violate the Labor Code. It reasoned that because the payments were advances, Verizon could legally advance commission payments to its retail sales representatives before completion of all conditions for payment, and charge back any excess advance over commissions earned against future advances should the conditions not be satisfied.