Tag Archives: Wage and Hour

S.D.Ohio: Hybrid Salary Plus Commissions Plan Violated FLSA, Because Commissions Did Not Comprise More Than 50% Of Wages; 7(i) Exemption Not Applicable

Keyes v. Car-X Auto Services

This case was before the Court on Plaintiff’s Motion for Summary Judgment, relative to his FLSA claims.  Defendants contended that they were entitled to the exemption from the overtime wage requirement under 7(i) of the FLSA, 29 U.S.C. § 207(i), the so-called “Retail Exemption,” because Plaintiff’s regular rate of pay exceeded one and one-half times the minimum wage rate and over half of Plaintiff’s compensation came from commissions earned on the sale of goods and services.  The Court granted Plaintiff’s Motion, explaining that Defendants were not entitled to the benefit of 7(i), because they were unable to show that 50% or more of Plaintiff’s income was derived from commissions, as differentiated from salary.

Discussing the elements of the Retail Exemption and applying the exemption to the pay policy at issue, the Court explained, “The parties do not dispute that Defendant Car-X is a retail establishment or that Plaintiff’s regular rate of pay exceeded one and one-half times the minimum wage rate. Thus, the issue before the Court is whether more than one-half of Plaintiff’s compensation consisted of commissions on goods or services.

Federal regulations recognize that employees of retail or service establishments are usually compensated in any one of five ways:

(1) Straight salary or hourly rate: Under this method of compensation the employee receives a stipulated sum paid weekly, biweekly, semimonthly, or monthly or a fixed amount for each hour of work.

(2) Salary plus commission: Under this method of compensation the employee receives a commission on all sales in addition to a base salary (see paragraph (a)(1) of this section).

(3) Quota bonus: This method of compensation is similar to paragraph (a)(2) of this section except that the commission payment is paid on sales over and above a predetermined sales quota.

(4) Straight commission without advances: Under this method of compensation the employee is paid a flat percentage on each dollar of sales he makes.

(5) Straight commission with “advances,” “guarantees,” or “draws.” This method of compensation is similar to paragraph (a) (4) of this section except that the employee is paid a fixed weekly, biweekly, semimonthly, or monthly “advance,” “guarantee,” or “draw.” At periodic intervals a settlement is made at which time the payments already made are supplemented by any additional amount by which his commission earnings exceed the amounts previously paid.29 C.F.R. § 779.413(a).

By definition, each of these compensation plans, except for the “straight salary or hourly rate,” qualify as “bona fide commission plans” under § 207(i). Viciedo v. New Horizons Computer Learning Center of Columbus, LTD, 246 F.Supp.2d 886 (S.D.Ohio 2003).

Under Defendant’s compensation plan, employees were paid the greater of either the commission rate on the total gross sale of services and products attributable to the employee during a given pay period or a “default” guaranteed wage rate, which was calculated by multiplying the employee’s regular hourly rate by the number of hours actually worked in a given pay period. (Deposition of Robert Keyes at 14, 15-16, 101-02, 213-17; Govind Aff. at ¶¶ 10-14, Govind Dep., Ex. 3, Employee Sales/Commission Reports). Car-X did not calculate a setoff or overpayment in weeks in which Plaintiff earned extra for commissions. (Keyes Dep. at 101-102; Govind Dep. at 104-105). While Defendants avoid designating which of the above examples under 29 C.F.R. § 779.413(a) best fits the characteristics of Car-X’s compensation plan, Plaintiff argues that Defendants’ compensation plan is based on a hybrid system and is not a bona fide commission plan under the FLSA. As in Viciedo, we find the present facts remarkably similar to those in Donovan v. Highway Oil Inc., Case No. 81-4245, 1986 WL 11266 at *4 (D.Kan. July 18, 1986), in which that court found the defendant’s compensation plan possessed the characteristics of both a salary plus commission plan and a quota bonus plan. In Donovan, managers of a gas station bringing suit to recover overtime wages allegedly due under the FLSA were paid a set commission for selling a threshold amount of gasoline, and then a small commission for each additional gallon of gasoline sold in excess of the threshold amount. The court found that “the only true commission portion of the salaries appears to be those amounts over the threshold level” and that the amount of said commissions did not meet the requirements of 29 C.F.R. § 207(i) as they did not comprise more than half of the managers’ compensation. Donovan, 1986 WL 11266 at *4. While Defendants argue that all Car-X technicians were paid based on commissions from services and products sold, we find, as did the court in Donovan, that the plan’s operation, as explained by Defendants’ witness and Plaintiff himself, belies such an argument. (See Govind Dep. at 60-62, 65-66, 72; Ex. 3, Employee Sales/Commission Reports; Keyes Dep. at 14, 101-102, 213-17). For this reason, we find that the default guaranteed wage represents a salary and only that amount in excess of such constitutes the true commission portion. Defendant has failed to demonstrate that more than fifty percent of Plaintiff’s compensation for any representative period consists of commissions.”

Accordingly, the Court granted Plaintiff’s Motion for Summary Judgment as to his FLSA claim.

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Filed under Commissions, Exemptions

Iowa Wal-Mart Wage Suit Settled For $11M, Quad City Times Reports

The Quad City Times is reporting that, “[a] class-action lawsuit filed eight years ago in Clinton County accusing Wal-Mart of intimidating employees into working overtime without pay has been settled, with the company agreeing to pay $11 million. The lawsuit was filed in June 2001 by Sally Mussmann and Taylor Vogue, two former employees of the Wal-Mart store in Clinton.”

The article stated that, “[t]he lawsuit alleged that Wal-Mart gave its employees tasks that were impossible to complete during their scheduled work hours, then intimidated them into working extra hours without pay to complete their assignments.”

To read the entire article go to the Quad City Times website.

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Filed under Settlements, Wage and Hour News

Lowe’s To Pay $29.5 Million To Settle Overtime Lawsuit, Central Valley Business Times Reports

The Central Valley Business Times is reporting that Lowe’s has settled an overtime class action accusing the home improvement retailer of forcing thousands of employees to work “off the clock.”

“Home improvement retailer Lowe’s Companies Inc. (NYSE: LOW) has agreed to pay $29.5 million to settle a class action lawsuit that argued it had required “thousands” of hourly workers to toil “off the clock.”

Two former Lowe’s employees alleged that they and thousands of other hourly Lowe’s workers were required to work before and after their normal shifts but were not paid for the extra work…

Earlier, Lowe’s denied all of the claims raised in the lawsuit. The company, contacted Wednesday for comment, said it could not comment directly on the settlement but a spokeswoman said the company believes it is in compliance with all laws and regulations.

The settlement was approved Tuesday by the Los Angeles Superior Court, shortly before the case was to finally go to trial.”

To read the entire story go the the Central Valley Business Times’ website.

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Filed under Settlements, Wage and Hour News

W.D.La.: Employer’s Suit Seeking Declaratory Judgment That Employees Are Properly Deemed Exempt Dismissed; Subject Matter Jurisdiction Lacking, Because No Case Or Controversy

City of Monroe v. Otwell

The case was before the Court on the Magistrate Judge’s Report and Recommendation, recommending that the case be dismissed for lack of subject matter jurisdiction, because there was no case or controversy. The employer had filed the instant declaratory judgment complaint against 19 higher ranking members of the Monroe Police Department (the “Police Officer Defendants”). The City sought a judgment against the Police Officer Defendants pursuant to 28 U.S.C. § 2201 declaring that they meet the executive and/or administrative exemptions from the overtime provisions of the Fair Labor Standards Act (“FLSA”). Finding that the case did not present a live case or controversy, the Court dismissed the case.

On June 17, 2009, the Court (sua sponte) questioned whether there was appropriate subject matter jurisdiction in this matter because the complaint contained no allegations to suggest that there is any current dispute between the City and the Police Officer Defendants. (June 17, 2009, Order [doc. # 12] ). The Court then afforded plaintiff 15 days to file a brief, together with appropriate, competent evidence, to establish the court’s jurisdiction to retain the matter. Id. The City was cautioned that if it failed to so comply, or if jurisdiction was found to be lacking, then dismissal would be recommended. Id. It appears from the text of the Order that the parties did not file briefs on the issue of subject matter jurisdiction.

Adopting the Magistrate’s reasoning (from the report and recommendation), finding it lacked subject matter jurisdiction, because there was no dispute between the parties, the Court discussed the applicable law:

“Federal courts are obliged to examine the basis for the exercise of federal subject matter jurisdiction. Smith v. Texas Children’s Hospital, 172 F.3d 923, 925 (5th Cir.1999). A lack of subject matter jurisdiction may be raised at any time. Giles v. Nylcare Health Plans, Inc., 172 F.3d 332, 336 (5th Cir.1999). Furthermore, a court must raise the issue sua sponte if it discovers that it lacks subject matter jurisdiction. Id.

‘A federal court may not issue a declaratory judgment unless there exists an actual case or controversy.” Columbia Cas. Co. v. Georgia & Florida RailNet, Inc., 542 F.3d 106, 110 (5th Cir.2008) (citation omitted). The burden is on the party seeking a declaratory judgment to establish the existence of an actual case or controversy, i.e. “a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. See, Cardinal Chemical Co. v. Morton Intern., Inc., 508 U.S. 83, 113 S.Ct. 1967 (1993) (citation omitted); Vantage Trailers, Inc. v. Beall Corp., 567 F.3d 745, 2009 WL 1262388 (5th Cir. May 8, 2009) (citing MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127, 127 S.Ct. 764 (2007)). If the plaintiff fails to meet this burden, then the court lacks jurisdiction. Hosein v. Gonzales, 452 F.3d 401, 403 (5th Cir.2006).

Despite having been afforded an opportunity to so, the City has not endeavored to establish that its request for declaratory relief against the Police Officer Defendants presents an actual case or controversy sufficient to support subject matter jurisdiction. Accordingly, the undersigned is compelled to find that the court lacks subject matter jurisdiction to retain plaintiff’s remaining claim. See Hosein, supra. Of course, in the absence of subject matter jurisdiction, dismissal is required. Fed.R.Civ.P. 12(h)(3).”

Thus, the Court dismissed the case for want of subject matter jurisdiction, without prejudice.

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Filed under Exemptions

Low-Wage Workers Often Cheated, Study Says

The New York Times reports that, “[l]ow-wage workers are routinely denied proper overtime pay and are often paid less than the minimum wage, according to a new study based on a survey of workers in New York, Los Angeles and Chicago.

The study, the most comprehensive examination of wage-law violations in a decade, also found that 68 percent of the workers interviewed had experienced at least one pay-related violation in the previous work week.”

To read the entire New York Times article based on the National Employment Law Project’s (NELP) study click here.

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Filed under Wage Theft