Blog

Employers can chargeback an advance that never became a commissionable sale

Deleon v. Verizon Wireless, LLC (2012) 207 Cal.App.4th 800, 143 Cal.Rptr.3d 810

Background: Plaintiff Saul Deleon, a retail sales representative, on behalf of himself and other aggrieved employees, filed a complaint against Defendant AirTouch Cellular doing business as Verizon Wireless (Verizon Wireless) seeking penalties under the Labor Code Private Attorneys General Act of 2004 (PAGA) for a violation of Labor Code section 223, which prohibits the secret underpayment of wages. Defendant’s compensation plans included commission payments, which defendants could recover, or charge back against future commissions, if certain conditions were not met. One of the compensation plans stated that, “In the event a customer disconnects service during the commission chargeback period, your commission is subject to adjustment by the original amount advanced for the sale. Your commission advance will be adjusted to account for disconnects within the chargeback period….” Another compensation plan stated that, if a customer disconnects service during the chargeback period, “the sale is not considered vested[.]” (Deleon v. Verizon Wireless, LLC (2012) 207 Cal.App.4th 800, 143 Cal.Rptr.3d 810). Plaintiff challenged the defendant’s right to recover advanced commission.

Court History: Verizon moved for summary judgment on the ground that the chargeback policy did not violate section 223 because: (1) Deleon’s commission payments were advances, not wages; (2) the chargeback policy was set forth in the compensation plans and was not a “secret” underpayment of a lower than agreed-upon wage; and (3) the chargeback provision did not result in a payment of a lower wage than the wage designated in the compensation plans.  Plaintiff opposed the motion, arguing that a triable issue of fact existed as to whether the commission payments he received qualified as “advances.” Trial Court granted Defendant’s motion and Plaintiff appealed.

Pertinent Issues addressed: The Court of Appeal affirmed the trial court’s judgment in favor of Verizon upon following relevant findings:

a. Even though commissions are wages, the right to commissions depends upon the terms of the contract for compensation and the contractual terms must be met before an employee is entitled to commissions. (Citing, Steinhebel v. Los Angeles Times Communications, LLC (2005) 126 Cal.App.4th 696, 704-705, 24 Cal.Rptr.3d 351; and Koehl v. Verio, Inc. (2006) 142 Cal.App.4th 1313, 1330, 48 Cal.Rptr.3d 749).

b. The language in the Verizon’s compensation plans was clear and it expressly stated that the retail sale representative’s commissions were not earned at the time of sale of the cell phone service plan and referred to commission payments as “advances.” Accordingly, commissions were earned and payable only if the customer did not discontinue the cell phone service plan during the applicable chargeback period. Until then, plaintiff had not made a commissionable sale.

c. The chargeback provisions only reconciled commission advances, not earned commissions. Such practice did not violate section 223.

d. The compensation plans stated that, a retail sales representative consented to the compensation contract by either written acknowledgment or continued performance. Since, Section 223 does not state that the compensation or wage contract must be a written contract signed by the parties, the continued performance of the services, and the defendant’s annual training on how the compensation plans operate, demonstrated the assent of plaintiff and the aggrieved employees to the terms of the compensation plans.

e. The undisputed facts that, Plaintiff received copies of the compensation plans, received training on how the chargeback provision operated, and received commission statements setting forth his commission advances and chargebacks, objectively established that Plaintiff understood that he would be compensated under the terms of the compensation plans.

f.  The chargeback provision was not substantively unconscionable because, Verizon offered to consumers a cell phone service plan, and paid its retail sales representatives commission on sales. The company’s choice of the relevant chargeback period does not “shock the conscience.” The net compensation a retail sales representative earns bears a direct relation to the product (cell phone service contract) he or she sold.

Pointers:

  • The case encourages advance commissions. However, the employers should be careful as to these advances should be only related to the sale and not services.
  • Even though Section 223 does not state that the compensation or wage contract must be in writing, employers should prefer to obtain written consent of its employees for compensation plans.