Court of Appeal Approves Nordstrom Class Settlement

Nordstrom employees filed a class action challenging a commission plan. The parties settled for nearly $9 million in cash and vouchers, and Nordstrom agreed to make changes to its commission plans.

One employee filed a valid objection, which the trial court overruled. The trial court then approved the settlement as "fair, adequate and reasonable." The objector, Kellie Taylor, appealed.

Taylor's objection primarily went to the contention that the plaintiff's claims were stronger than what the settlement justified. The court evaluated the strength of the commission claims and found Nordstrom had a number of good faith defenses to whether its commission plan was faulty. This case will be helpful in providing an overview of commission plan law. For example, the court rejected the notion that the parties' allocation of $0 to PAGA and waiting time penalties was unreasonable:

There is no willful failure to pay wages if the employer and employee have a good faith dispute as to whether and when the wages were due. (Amaral v. Cintas
Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1201-1202.)

The court then explored the good faith basis for the dispute. In doing so, the court summarized cases discussing commission plans and their validity:

The right to commission wages is subject to the employment contract between an employer and employee, and Nordstrom calculated and paid its employees’ commission wages in accord with its written commission agreements with its employees. “It is undisputed that commissions are ‘wages,’ and thus that plaintiff’s claim for commissions falls within the terms of Labor Code sections 2926 and 206. [Citations.] However, for purposes of enforcing the provisions of the Labor Code, ‘[t]he right of a salesperson or any other person to a commission depends on the terms of the contract for compensation.’ [Citations.] Accordingly, plaintiff’s right to commissions ‘must be governed by the provisions of the [employment agreement].’ [Citation.] We have already concluded that, pursuant to the plain language of the written employment agreement, plaintiff was not entitled to any further commissions after he was terminated. Accordingly, defendant’s failure to pay such commissions cannot constitute a violation of the Labor Code.” (Nein v. HostPro, Inc. (2009) 174 Cal.App.4th 833, 853, fn. omitted; see also Div. of Lab. Stds. Enforcement, Enforcement Policies and Interpretations Manual (June 2002 Rev.) § 34.3 [“Commission computation is based upon the contract between the employer and the employee”] (DLSE Manual); id., § 34.3.1 [“Computation of commissions frequently relies on such criteria as the date the goods are delivered or the payment is received. Sometimes, the commission of the selling salesperson is subject to reconciliation and chargebacks if the goods are returned. If these conditions are clear and unambiguous, they may be utilized in computing the payment of the
commissions”].)

Good stuff. Then the court discussed payment of commissions when they can be calculated, rather than immediately:

If commissions cannot be calculated as of the time employment is terminated,
California law permits an employer to pay commissions after the termination date, as long as they are paid once they can be calculated. (DLSE Manual, supra, §§ 4.6, 5.2.5.) California law also permits Nordstrom’s policy of paying commissions based on net sales. (Steinhebel v. Los Angeles Times Communications, LLC (2005) 126 Cal.App.4th 696, 707 [approving process under which “an employer makes advances on commissions to employees and later reconciles any overpayments by deductions from future commissions”]; Hudgins v. Neiman Marcus Group, Inc. (1995) 34 Cal.App.4th 1109, 1122 [central issue decided was that employer could not deduct pro rata share of commissions from all employees for returns where salesperson could not be identified; “[a]s to those items of merchandise the customer decides to keep, the sales associate has clearly earned his or her commission at the moment the sales documents are completed and the customer takes possession of the purchased items. As to identified returns, the sale is reversed and the individual sales associate is required to return the commission because his or her sale was rescinded”], italics added.)

Taylor also objected to the use of merchandise coupons as partial payment because coupons cannot be used as a substitute for wages under Section 212. The court rejected this argument because the wages were not due and earned. This was a settlement of a disputed claim.

So, the Court approved the settlement. This case appears to throw some cold water on the new trend of objecting to settlements.

The case is Nordstrom Commission Cases and the opinion is here.