N.D.Ala.: GM’s Salary Based on Forecast Sales of Store Did Not Qualify As a “Bona Fide Commission Plan;” Retail Exemption Inapplicable
Kuntsmann v. Aaron Rents, Inc.
This case was before the court on the defendant’s motion for summary judgment. The defendant asserted that plaintiff was exempt under either the executive exemption, administrative exemption or the so-called combination exemption of the two. As discussed here, the defendant further argued that even if the plaintiff was not properly deemed exempt under any of the 3 exemptions, he was paid in accordance with 207(i), the “retail exemption” and thus not entitled to overtime compensation. After holding that issues of fact regarding the plaintiff’s primary duties precluded summary judgment, the court addressed the defendant’s final contention regarding the retail exemption and held that it was inapplicable because the plaintiff had not been paid “commissions” as required for application of the retail exemption.
Describing the compensation plan at issue, the court explained:
During his time as GM of that store, Kuntsmann was the highest ranking and only employee in the store whom Aaron classified as exempt from the FLSA’s minimum wage and overtime requirements. Aaron’s compensation scheme for GMs is based on the revenue and operating profits of each individual store. The GM of each store receives a monthly income that approximates the expected financial performance of the store in a month. This approximation, called the “draw,” is compared with the actual earnings of the store on a monthly basis. Then, Aaron adjusts salary upwards when the store performance exceeds the draw and sometimes downward when the store performance does not meet the draw. GMs are also eligible for monthly bonuses based on set financial goals. Aaron reviews each store’s performance twice a year and can increase or decrease the draw according to performance. Aaron also looks at the financial performance of the store at the end of each quarter and provides the GM a bonus if his total monthly commission is greater than the GM’s quarterly draw.
After disposing of the plaintiff’s argument that the retail exemption argument was waived by the defendant’s failure to assert it in its answer (the court reasoned that it wasn’t really an exemption despite referring to it as same, but rather an “exception”), and discussing the elements necessary for the retail exemption, the court explained that it was not applicable, because the plaintiff had not been paid under a “bona fide commission plan.” After noting a lack of authority on the issue, the court distinguished two prior cases from within the Eleventh Circuit.
First, the court noted that time did not play any role in the compensation system at bar, which the court reasoned supported its finding that the plaintiff had not been paid a commission as defendant claimed:
The compensation scheme examined in Klinedinst is distinguishable from the one at issue in the present case. The Eleventh Circuit emphasized the importance of time as a factor in the Klinedinst compensation scheme; time does not play a role in the compensation of an Aaron’s GM. In addition, inherent differences appear between how the auto mechanics in Klinedinst and the GMs at Aaron earn their compensation. The auto mechanics’ compensation derived from each individual job that they performed that was assigned a particular number of “flag hours.” The connection between individual sales and the compensation of an Aaron GM is much more attenuated, however. At Aaron, GMs are neither paid on a “per job basis,” nor an hourly basis but a monthly compensation based on previous quarters’ revenue that could possibly be increased or decreased based on the store’s profits. The payment system in Klinedinst is different enough from the Aaron compensation scheme so that the opinion does not guide this court’s analysis as to whether Aaron’s payment scheme meets the final requirements of § 207(i) at the summary judgment stage—whether its compensation scheme qualifies as a bona fide commission plan.
The court also reasoned that plaintiff’s salary at issue was not a “commission,” because he was not being paid based on total sales attributed to him, but rather based on his store’s overall profits and whether they exceeded the company’s expectations:
A great difference exists between simply adding up total sales attributed to a salesperson each month and then giving the salesperson a certain percentage of those sales in compensation, and awarding a store manager a “bonus” if his store’s profits exceeded the company’s predictions. As Kuntsmann argued, his monthly salary was based on a published rate and did not change based solely on his sales or the store’s sales alone. The payment system in Ethan Allen diverges enough from the Aaron compensation scheme so that the opinion does not direct this court’s analysis as to whether Aaron’s scheme qualifies as a bona fide commission plan under § 207(i).
Thus, the court concluded:
Therefore, this court finds that Aaron has not demonstrated that its compensation scheme qualifies as a “bona fide commission plan.” 29 U.S.C. § 207(i). Although some circuits have doubted the validity of the “clear and affirmative evidence” standard, the Eleventh Circuit has not retreated from this standard, and Aaron has not met it regarding the applicability of the § 207(i) exception. Moreover, regardless of how exacting Aaron’s burden should be when proving the applicability of an FLSA exception, the Eleventh Circuit has also instructed this court to construe FLSA exceptions “narrowly and sensibly.” Klinedinst, 260 F.3d at 1254. After narrowly construing § 207(i), the court has serious doubts as to whether Aaron’ compensation scheme qualifies under the statutory section. While recognizing that determining whether a compensation system qualifies as a bona fide commission plan is a question of law for the court, Aaron has not met its burden of proof at this stage.
Click Kuntsmann v. Aaron Rents, Inc. to read the entire Memorandum Opinion.
8th Cir.: Where Employer’s Change to Workweek Was Permanent, “Legitimate Business Purpose” Not Required
Abshire v. Redland Energy Services, LLC
Following an order granting the defendant-employer summary judgment, the plaintiff appealed. At issue was whether the employer’s permanent change to its workweek- for the stated purpose of reducing overtime hours worked by its employees- violated the FLSA. The lower court held that the purpose behind the employer’s change to its workweek was irrelevant, so long as the change was intended to be permanent. Affirming the award of summary judgment, the Eighth Circuit agreed.
The facts were relatively straight-forward and not in dispute. The defendant-employer changed the designation of its workweek from Tuesday-to-Monday to Sunday-to-Saturday for employees who worked 12 hour shifts for seven consecutive days from Tuesday to Monday, followed by seven days off. The change was intended to and did result in fewer hours calculated as overtime.
Initially, the court explained that an employer may pick any contiguous 168 hours as its workweek. The court then explained:
Having concluded that the FLSA does not prescribe how an employer must initially establish its “workweek” for overtime purposes, we come to the issue raised in this case—whether the FLSA limits an employer’s freedom to change an existing workweek designation. Again, § 778.105 of the Department of Labor’s regulations directly addresses the issue: “The beginning of the workweek may be changed if the change is intended to be permanent and is not designed to evade the overtime requirements of the Act.” This sentence makes one limitation clear—a change must be “intended to be permanent.” But that is not at issue here. Appellants have never challenged Redland’s contention that the May 2009 change in the oil rig operators’ workweek was intended to be permanent. Rather, Appellants argue that Redland’s change violated § 207(a)(1) because it was made for the purpose of reducing the number of hours in their normal work schedules that must be paid at the overtime rate, and therefore it was “designed to evade the overtime requirements of the Act.”
The caution that a workweek change may not be designed to evade the requirements of § 207(a)(1) has been part of the Department of Labor’s interpretive pronouncements since the FLSA was first enacted. See Department of Labor, Interpretative Bulletin No. 4, ¶ 3 (Nov. 1, 1938), cited in Harned, 192 S.W.2d at 380. It was an understandable caution in advising how this initially controversial Act would be construed and applied. Many early FLSA cases dealt with payroll plans devised to evade the Act’s new payroll expense obligations. For example, in an early case applying § 207(a), the Supreme Court invalidated a “split-day” compensation plan “so designed as to deprive the employees of their statutory right to receive [overtime pay] for all hours worked in excess of the first regular 40 hours.” Walling v. Helmerich & Payne, Inc., 323 U.S. 37, 40, 65 S.Ct. 11, 89 L.Ed. 29 (1944). That decision is now codified in the regulations. See 29 C.F.R. § 778.501(a). But the Department has never interpreted its general caution that changes to the workweek may not be “designed to evade the overtime requirements,” nor has it attempted to clarify what constitutes “evasion.”
Citing an Illinois Minimum Wage Law case as authority, the court rejected the plaintiff’s assertion that an employer may not make a change to its workweek absent a “legitimate business purpose” (i.e. just to reduce overtime hours/pay):
The precise issue before us was presented, and Appellants’ contention persuasively rejected, in a case applying overtime requirements of the Illinois Minimum Wage Law for which administrative regulations including 29 C.F.R. § 778.105 had been adopted. Kerbes v. Raceway Assocs., LLC, –––Ill.App.3d ––––, 356 Ill.Dec. 476, 961 N.E.2d 865, 870 (2011). In Kerbes, the racetrack employer changed its designated workweek so as to split racing event weekends into two different workweeks, eliminating overtime pay for its part-time hourly employees. Concluding that an employer’s right to establish a workweek was “well-settled” by the above-cited cases, the court further concluded the racetrack’s modification of its workweek did not violate the overtime requirements of the FLSA…. [T]he FLSA does not require a workweek schedule that maximizes an employee’s accumulation of overtime pay. Thus, a schedule whereby an employee’s actual work schedule is split between two workweeks does not violate the federal legislation. If such a schedule does not itself violate the FLSA, we fail to see how a change to such a schedule could be viewed as having been “designed to evade the overtime requirements of this Act.” Id., 356 Ill.Dec. 476, 961 N.E.2d at 872. We agree with this reasoning.
Appellants argue that a workweek change intended to reduce hours of overtime earned is contrary to the purposes of the FLSA’s overtime requirements and is therefore “designed to evade” those requirements. We disagree. Appellants’ assumption that an original purpose of the FLSA was to maximize the payment of overtime rates is contrary to more contemporary authority. See Missel, 316 U.S. at 578, 62 S.Ct. 1216 (“In a period of widespread unemployment and small profits, the economy inherent in avoiding extra pay was expected to have an appreciable effect in the distribution of available work.”). Thus, an employer’s effort to reduce its payroll expense is not contrary to the FLSA’s purpose. Moreover, Christensen v. Harris Cnty., 529 U.S. 576, 585, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000), clearly teaches that courts may not imply a prohibition that cannot be found in the Act. Cases involving other FLSA requirements illustrate this principle. For example, in Lamon v. City of Shawnee, 972 F.2d 1145, 1153 (10th Cir.1992), the court concluded that a public employer’s new workweek adopted to take advantage of an FLSA amendment did not violate the Act “[e]ven if [the employer’s] sole purpose were to avoid the prospect of paying overtime rates.” And in Morehead v. City of Pearl, 763 F.Supp. 175, 176 (S.D.Miss.1990), the court noted that a scheduling change intended to reduce overtime hours was not “an evasion” of the overtime requirements; it was “straight-up avoidance” of overtime that the FLSA does not require be paid.
We reject Appellants’ contention that an employer’s permanent change in the designated workweek violates § 207(a)(1) unless it is justified by a “legitimate business purpose.” So long as the change is intended to be permanent, and it is implemented in accordance with the FLSA, the employer’s reasons for adopting the change are irrelevant. Accordingly, whether Redland in fact adopted the change in question to achieve administrative efficiencies in calculating and paying wages and overtime, and if so, whether that was a “legitimate business purpose” justifying the change, were not genuine disputes of material fact that precluded the grant of summary judgment in favor of Redland. Fed.R.Civ.P. 56(a).
Thus, the Eighth Circuit affirmed the judgment for the defendant.
Given the clear language of the CFR regulation that an employer’s change to a workweek must not be “designed to evade the overtime requirements of the [FLSA],” and the defendant’s acknowledgement here that its change was explicitly made to reduce overtime pay to its employees, while having them work the same number of hours, the Eighth Circuit’s holding is somewhat curious. At least for now however, the Eighth Circuit is the only Circuit to have pondered the issue.
Click Abshire v. Redland Energy Services, LLC to read the entire Opinion.
S.D.N.Y.: De Minimis Exception Applies Only in Cases Where There is a “Practical Administrative Difficulty in Recording Time”
Chavez v. Panda Jive, Inc.
Anyone who handles more than a handful of FLSA cases no doubt knows that defendants often raise an affirmative defense regarding the de minimis nature of the work. Typically the defense asserted claims that even if the defendants failed to properly pay the plaintiff for all time due and owing under the FLSA, such time was de minimis, so no damages are due and owing. And, while most of the decisions discussing the issue focus on the amount of time that is (or is not) de minimis as a matter of law, a recent case sheds light on the narrow circumstances where the defense is even available to an employer. And, as it turns out, the defense is likely applicable far less than you might have thought, only in circumstances where there is a “practical administrative difficulty in recording [the employee’s] time,” as discussed briefly in this case.
In this case, the plaintiff’s time records clearly showed overtime hours worked, however the defendant paid him only straight time for his overtime hours, and not time and a half. As the court’s opinion indicates, initially the defendant had raised an exemption defense, however because the plaintiff was admittedly paid by the hour, the defendant ultimately conceded that the plaintiff was generally entitled to overtime (which he was not paid) when he worked over 40 hours in a work week. However, the defendant asserted that because such time was “de minimis” it was not recoverable under the FLSA. Rejecting defendant’s contention, the court explained:
The de minimis exception applies, however, only in cases where there is a “practical administrative difficulty of recording additional time,” such as an employee’s commuting time. Singh v. City of New York, 524 F.3d 361, 371 (2d Cir.2008) (Sotomayor, J.); Reich v. N.Y. Transit Auth., 45 F.3d 646, 652 (2d Cir.1995). This is not such a case: defendants concede that they paid Chavez only straight time for hours for which their own records explicitly show he was owed time and a half. See, e.g., Reply Memorandum of Law in Support of Defendants’ Motion for Summary Judgment dated May 4, 2012 at 4–5; Tr. at 5–6. Accordingly, the Court grants summary judgment to plaintiff on the issue of liability against defendant Panda Jive for overtime hours Chavez worked prior to moving back to Penelope’s kitchen in December 2009.
Click Chavez v. Panda Jive, Inc. to read the entire Memorandum Order.
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