Seyfarth Shaw LLP | www.seyfarth.com Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) 31 bars such a practice. In view of its widespread nature, we are loath to hold the Labor Code bars such a practice by implication.153 3. Further Development of the Law Since Steinhebel Under Steinhebel, an employer may use an appropriate chargeback system. But note that Steinhebel involved ideal facts for the defendant: the chargeback agreement was in a document signed by the employees; the agreement referred to the initial payment as an “advance”; the conditions to earn the commissions were spelled out in the compensation plan; and those conditions did not seem particularly onerous. But what if some of these ideal elements are missing? The first word on chargebacks following Steinhebel suggested that if an employer did not document the chargeback agreement properly, it could violate California law. In Harris v. Investor’s Business Daily,154 another Court of Appeal panel held that the lack of a written chargeback agreement precluded summary judgment for the employer. As in Steinhebel, the plaintiffs sold newspaper subscriptions, and the money they initially received was subject to chargeback if the customer canceled the subscription without holding it a certain period of time. Unlike Steinhebel, however, there was no written agreement that described the initial payment as an advance or otherwise suggested that it was not “earned” upon the completion of the sale. Given that the plaintiffs testified that they understood they earned the money when their sale was completed, the Court of Appeal held that there was a triable issue of fact as to whether the chargeback system violated Labor Code Section 221.155 Later, the Court of Appeal issued a far more favorable chargeback opinion in Koehl v. Verio, Inc.,156 a case involving chargebacks against salespersons who sold internet services. As in Steinhebel, the chargeback plan in Koehl was in a writing acknowledged by each employee. Unlike Steinhebel, however, the compensation plan did not refer to the original payment as an “advance,” although it did state expressly that the commission was not “earned” until the customer made three months of payments on the contract. Koehl held that, as long as the plan made clear that the commission was not earned until a later condition was satisfied, it made no difference whether the payment was labeled a “commission“ or an “advance.”157 Koehl further noted that this conclusion was entirely consistent with Harris, which merely held that, in the absence of a writing memorializing the parties’ agreement, a material dispute between the employer and employee as to when the commission was “earned” made summary judgment of the Section 221 claim inappropriate.158 153 Id. at 709. 154 138 Cal. App. 4th 28, modified, 138 Cal. App. 4th 871 (2006). 155 Id. at 41. 156 142 Cal. App. 4th 1313 (2006). 157 Id. at 1334. See also Torres v. Wells Fargo Bank, N.A., 2016 WL 7373856, at *5 (C.D. Cal. Oct. 12, 2016) (“the fact that Plaintiffs' hourly pay is an advance on commissions does not render the deductions illegal under § 221. Where a compensation plan provides that a commission is not earned until certain conditions are met, then any commission payment made before those conditions are satisfied is considered an advance which ‘by definition is not a wage because all conditions for performance have not been satisfied.’”). 158 142 Cal. App. 4th at 1334.
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