Muldrow v. Surrex Solutions: Court of Appeal Holds That Recruiters Are Subject to Commissioned Sales Overtime Exemption

I failed to pick up this case when it was published. In Muldrow v. Surrex Solutions Corporation (1/24/12) 202 Cal.App.4th 1232, a recruiter sued his employer for failure to pay overtime and meal period compensation. The trial court (San Diego Superior, Judge Nugent) certified the class, and the case was tried to the court. The court found that the class members were subject to the commissioned employees exemption from the overtime requirements, that the employer provided meal periods to them, and it was not obligated to insure that they took their meal periods.

The Court of Appeal affirmed. First, it reviewed the relevant cases: Keyes Motors, Inc. v. DLSE (1987) 197 Cal.App.3d 557, Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, Harris v. Investor's Business Daily, Inc. (2006) 138 Cal.App.4th 28, and Areso v. CarMax, Inc. (2011) 195 Cal.App.4th 996 (blogged here).

The Court held that the class members were engaged principally in sales. In essence, the Court found that recruiters have to sell an employer and an applicant on each other. "Appellants would then attempt to convince both the candidate and the client that the placement of the candidate with the client was a proper fit." Slip op. at 12.

The Court then held that the class members were paid on a commission basis. "Some candidates were hired directly by employer clients. For these so called "direct hire" placements, appellants received a commission equal to a percentage of the placement fee that Surrex received from the client." The plaintiff conceded that this compensation constituted a commission. Slip op. at 15.

"Surrex placed other candidates by hiring them as consultants. The candidate-turned-consultant would then perform work for the client, and Surrex would in turn bill the client at an hourly rate for the consultant's services." Slip op. at 15. The class members would earn a percentage of the compensation thus earned by Surrex. Distinguishing Keyes Motors and Ramirez, the Court held that this arrangement constituted a commission:

Appellants' contention that the term "commissions" in the relevant regulation should be interpreted to include only those commissions that are based strictly, and solely, on a percentage of the price of the product or service rendered constitutes an excessively narrow and wooden application of Keyes Motors and Ramirez. Such a limited definition would not comport with the contemporary legal sense of the word "commission." On the contrary, the relevant Black's Law Dictionary's definition of "commission" expressly includes payments derived from profits. Moreover, a commission based on profits is hardly a concept foreign to California law.

Slip op. at 18 (citations omitted).

Finally, the Court held that Surrex's system constituted a "bona fide" commission system "as a matter of law." Noting that the DLSE Enforcement Policies and Interpretations Manual states, "Consistent commission earnings below, at or near the draw are indicative of a commission plan that is not bona fide," the Court cited evidence in the record that certain class members were paid commissions in excess of their draws. Slip op. at 22-23. 

The last part of the opinion addresses the plaintiffs' meal period claim. The plaintiffs raised the issue to preserve their right to petition the Supreme Court in the event that it reverses the Court of Appeal's decision in Brinker. Accordingly, the Court of Appeal found no error in the trial court's decision, which was consistent with Brinker. 

The opinion is available here.