Salesperson exemption (Orders 4 and 7)

STATE OF CALIFORNIA GRAY DAVIS, Governor

DEPARTMENT OF INDUSTRIAL RELATIONS
DIVISION OF LABOR STANDARDS ENFORCEMENT
Santa Rosa Legal Section
50 D street, suite 360
Santa Rosa, CA 95404
(707) 676-6788

H. THOMAS CADELL, Of Counsel

                                   June 13, 2002

Don D. Sessions, Esq.
23456 Madero, Suite 170
Mission Viejo, CA 92691

        Re:         Salesperson Exemption

Dear Mr. Sessions:

 Anne Stevason, Acting Chief Counsel of the Division, has asked

me to respond on behalf of the Division of Labor Standards
Enforcement to your letter of March 27, 2002.

 In your letter you analyze the coverage of IWC Order 7 and

conclude that the order may not cover insurance sales under the
definition of "commodities". Based on the enforcement position
taken by the Division of Labor Standards Enforcement (this includes
the enforcement history of the predecessor Division of Industrial
Welfare (DIW) which originally had enforcement jurisdiction over the
IWC Orders. DIW and the former Division of Labor Law Enforcement
(DLLE) were merged in 1976 to form the present DLSE) (DLSE), it is
true that Order 7 was never intended to cover such activities as
real estate or insurance sales. The occupation of insurance sales
(along with many other "semi-white collar" positions) was, for
enforcement purposes, covered under the provisions of Order 4. The
IWC was aware of this enforcement position and, as a result of
pressure from similarly-situated sales-related businesses, added
the language which is contained at Section 3 (D) of Order 7-2001 to
Order 4 (see Section 3(D) of Order 4-2001) in 1980.

 Your argument regarding whether the insurance agent (you should

note that among the workers specifically covered under the
provisions of Wage Order 4 are "agents" — see IWC Order 4-2001,
Section 2, Definition of "Professional, Technical, Clerical,
Mechanical, and Similar Occupations") is being
paid a commission or, as with an attorney, accountant, or trusted
advisor, is receiving a fee for professional services, while
interesting, is not persuasive. Actually, the fact that since the
insurance agent is not covered under Order 7, but under Order 4,
your detailed analysis of "wholesale vs. retail" and "goods or
commodities" is, of course, irrelevant.

 We are not sure if your seemingly rhetorical question

regarding whether the commission paid to insurance agents is,
indeed, commission, needs an answer. Your question assumes,
correctly or not, that insurance agents are different from other
salespeople. We would simply point out that the fact that real
estate agents are likewise licensed and also owe a fiduciary duty
to their client does not affect the fact that the compensation they
are paid is a commission.

  In the case of Keyes Motors v. DLSE (1987) 197 Cal.App.3d 557;

242 Cal.Rptr. 873, the court concluded that in order for a
compensation scheme to constitute "commission wages" within the
meaning of the overtime compensation requirements of the IWC
Orders, employees must be involved principally in selling the
product or service, not making the product or rendering a service;
and the amount of the employee's compensation must be a percent of
the price of the product or service. In our experience, we have
found that insurance sales commissions meet these requirements.

 We hope this adequately addresses the questions you raise in

your letter of March 27, 2002. Thank you for your interest in
California labor law issues.

Yours truly,

H. THOMAS CADELL, JR.
Attorney for the Labor Commissioner

c.c. Arthur Lujan, State Labor Commissioner
Tom Grogan, Chief Deputy Labor Commissioner
Anne Stevason, Acting Chief Counsel
Assistant Labor Commissioners
Regional Managers