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N.D.Tex.: Debt Settlement Company Not a “Retail or Service Establishment”
Parker v. ABC Debt Relief, Ltd. Co.
This case was before the court on the parties’ cross motions for summary judgment, regarding a variety of issues. As discussed here, one of the issues concerned the applicability of the so-called retail sales exemption, commonly referred to as 7(i), to defendant, a debt settlement company. The court held that the defendant was not a “retail or service establishment” within the meaning of 7(i), and held that the plaintiffs were not retail or service exempt as a matter of law.
Rejecting the defendant’s argument that the plaintiffs were subject to the retail exemption, because they engaged in telephone sales of a specific retail product to the general public, the court explained:
To determine whether an employer is a “retail or service establishment,” courts look to the former statutory definition in Section 13(a)(2) of the FLSA, 29 U.S.C. § 213(a)(2), which defines a “retail or service establishment” as one in which 75% of the annual dollar volume of sales of goods or services is “not for resale” and “is recognized as retail sales or services in the particular industry.” See 29 C.F.R. 779.319; Geig, 407 F.3d at 1047.
“Determination of whether a business fits the retail concept is not without difficulty.” Brennan, 477 F.2d at 296. In making their determinations, courts consistently rely on the expertise of the Department of Labor, which has promulgated an extensive series of regulations and interpretive rules that accompany the statute. See 29 C.F.R. § 779.300 et seq. Although courts are not bound by interpretative bulletins, they do provide guidance because they reflect the position of those most experienced with the application of the Act. Brennan, 477 F.2d at 296–97. Courts must consider all circumstances relevant to the business at issue. 29 C.F.R. 779.318(b).
After quoting the relevant section of the CFR, the court reasoned:
The Department of Labor’s regulations consistently emphasize that the exemption is meant to apply to “traditional” local retail establishments. 29 C.F.R. §§ 779.314, 779.315, 779.317. To assist the public, the regulations identify certain establishments as traditional local retail or service establishments—e.g., restaurants, hotels, barber shops, and repair shops. The regulations also seek to assist the public by identifying establishments that do not fall within the exception—e.g., insurance companies that sell insurance and electric companies that sell power. 29 C.F.R. §§ 779.316, 779.317. The Fifth Circuit has noted this ” ‘demonstrates that not everything the consumer purchases can be a retail sale of goods or services’ and ‘industry usage is not controlling.’ ” Brennan, 477 F.2d at 295 (citation omitted).
The regulations elaborate further on the definition by stating that “an establishment, wherever located, will not be considered a retail or service establishment within the meaning of the Act, if it is not ordinarily available to the general consuming public.” 29 C.F.R. § 779.319. “An establishment does not have to be actually frequented by the general public in the sense that the public must actually visit it and make purchases of goods or services on the premises in order to be considered as available and open to the general public. A refrigerator repair service shop, for example, is available and open to the general public even if it receives all its orders on the telephone and performs all of its repair services on the premises of its customers.” Id.
In this case, Defendants operated a debt settlement business from the eighth and tenth floors of an office building in Dallas, Texas. There were three main aspects to this debt settlement operation—sales, customer service, and negotiation with creditors. The Salespeople recruited the clients. They were constantly making telephone calls (around 300 calls a day)—to prospective customers all over the country—trying to sell a service. This is not the type of service that is utilized by the general public in the course of their daily living. Defendants were not “serv[ing] [an] everyday need [ ] of the community.” Defendants did not operate from a store front. They did not serve the general public by providing a retail product or service in the traditional sense. Defendants’ debt negotiation and settlement business was similar to other establishments that lack a “retail concept”—such as banks, brokers, credit companies, and loan offices. 29 C.F.R. § 779.317.
For these reasons, the Court finds that Defendants did not establish their burden of proving they operate a retail or service establishment within the meaning of the FLSA. The Court hereby DENIES Defendants’ motion for summary judgment on the retail or service establishment exemption and finds as a matter of law the salespeople Plaintiffs are not exempt from overtime pay under the retail or service exemption.
Click Parker v. ABC Debt Relief, Ltd. Co. to read the entire Memorandum Opinion and Order.
Recent Exemption Cases of Interest
The last few weeks have brought their share of interesting misclassification/exemption cases. In one case, a law school graduate performing non-lawyer duties was held to be non-exempt. In another, a court within the Fifth Circuit held that a tax lien negotiation business- clearly within the CFR’s definitions of a business lacking a retail concept- was in fact a retail business subject to 7(i)’s so-called retail sales exemption. Lastly, despite his managerial duties at times, a court held that a police sergeant might not be exempt under the executive exemption and denied the police department-employer’s motion for summary judgment. Each of these decisions is discussed in greater detail below.
Law School Graduate Employed as a Graphic Consultant Non-Exempt
Kadden v. VisuaLex, LLC
In the first case, the defendant- a litigation support company- employed plaintiff- a college and law school graduate as a graphics consultant. At issue was whether the defendant had properly deemed plaintiff to be exempt from the FLSA’s overtime requirements. The defendant (“VisuaLex”) contended that the plaintiff was exempt under either the creative professional exemption, the administrative exemption, or the so-called combination exemption whereby an employer can utilize elements of multiple white-collar exemptions to render an employee exempt. While acknowledging that the case presented a close call, the court held that the plaintiff lacked the requisite primary duties to meet the elements of any of the exemptions asserted. Thus, the court held that the plaintiff had been misclassified and should have been paid proper overtime. In so doing, the court reiterated that the fundamental tenet of exemption cases is an examination of the employees primary duties and not simply a job description or a list of duties performed. The court also reminded us that the learned professional examination is only applicable where the advanced degree of learning or science is actually required for and by the position performed by the employee- holding such a degree alone is not sufficient to meet the stringent exemption requirements.
Click Kadden v. VisuaLex, LLC to read the entire Opinion and Order.
Tax Consultants Subject to 7(i) Retail Exemption Notwithstanding CFR Regs Defining “Tax Services” Establishments as “Lacking a Retail Concept”
Wells v. TaxMasters, Inc.
The second case was before the court on the parties’ competing motions for summary judgment. Deciding the case in favor of the defendants, the court held that the plaintiffs were subject to the so-called retail exemption codified in 7(i) of the FLSA. It was uncontested that the plaintiffs regularly worked in excess of 40 hours. Similarly, the duties they performed were not at issue nor was the methodology by which they were paid (qualifying for the pay element of the retail sales exemption). Rather the sole issue appears to have been whether or not defendants- an enterprise engaged in rendering “tax resolution services”- was in a retail establishment within the meaning of 7(i) such that plaintiffs could properly be deemed to be exempt from overtime under the so-called retail exemption.
Holding that the defendants were a retail establishment, notwithstanding the Department of Labor’s regulations stating otherwise, the court reasoned:
Whether Defendants were exempt under Section 207(i) thus turns on whether they were “an establishment 75 percentum of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry.” 29 U.S.C. § 213(a)(2). According to Department of Labor regulations, a retail or service establishment must have a “retail concept.” 29 C.F.R. § 779.316 (2005). Section 318 of the regulations describes the “characteristics and examples” of retail or service establishments:
Typically a retail or service establishment is one which sells goods or services to the general public. It serves the everyday needs of the community in which it is located. The retail or service establishment performs a function in the business organization of the Nation which is at the very end of the stream of distribution, disposing in small quantities of the products and skills of such organization and does not take part in the manufacturing process.
Such an establishment sells to the general public its food and drink. It sells to such public its clothing and its furniture, its automobiles, its radios and refrigerators, its coal and its lumber, and other goods, and performs incidental services on such goods when necessary. It provides the general public its repair services and other services for the comfort and convenience of such public in the course of its daily living. 29 C.F.R. § 779.318. Section 317 of the regulations provide a “partial list of establishments lacking ‘retail concept’ ” which includes, among over one hundred other examples, “tax services.” 29 C.F.R. § 779.317.
Plaintiffs do not dispute that Defendants sold more than 75 per cent of their products directly to the consumer. Instead, Plaintiffs insist that the Department of Labor regulations, which expressly define “tax services” companies as lacking a retail component, are determinative. See Doc. 60, 61, 63. Defendants contend both that they were not a “tax services” establishment and that Section 779.317 therefore does not apply and that Fifth Circuit precedent holds that the Department of Labor’s list of non-retail establishments is not determinative. Doc. 64.
The Defendants are correct that the Fifth Circuit has declined to follow strictly the Department of Labor’s list. See Rachal v. Allen, 376 F.2d 999 (5th Cir.1967) (rejecting Secretary of Labor’s position that a fixed base aeronautics operator’s business has no retail concept merely because it is part of an industry, namely, the air transportation industry, that Section 779.317 lists as lacking a retail concept). “There is no magic in placing a business in a category and then asserting that since it is in that category, it is like all businesses with which it has been placed.” Id. at 1003. In Rachal, the Fifth Circuit rejected the Secretary of Labor’s argument that because a fixed-base operator engaged in servicing and selling aircraft at airports was in the air transportation industry, and because the Secretary had made a determination in Section 779.317 that the air transportation industry lacked a retail concept, a fixed base operator necessarily lacked a retail concept:
[T]he Secretary’s argument … assumes the result of the issue we are asked to determine…. The issue is whether, under the statute, there may be, as a matter of law, and if so whether there is as a matter of fact, a retail concept in the defendants’ business, notwithstanding the Secretary’s determination. It is, of course, the function of the Court, as well as of the Secretary, to interpret the statute. Id. (citing Walling v. La Belle S.S. Co., 148 F.2d 198 (6th Cir.1945)). The question for this Court, then, is whether Defendants provided services that meet the Secretary’s four criteria for establishments with a retail concept. 29 C.F.R. § 770.319 (listing criteria).
Certainly Defendants sold their services to the general public. In fact, the Plaintiffs in this action worked as salespeople in a call center and sold Defendants’ services directly to consumers. Plaintiffs contend, however, that Defendants’ “services do not serve the every day needs of the public” because “these services provide a specialized function that is not necessary for the community’s daily routine.” Doc. 68 at 22. It is not the case that an establishment must provide a product or service used by each member of the community on daily basis for it to serve the everyday needs of the community. Addressing just such an argument, the District Court for the Middle District of Florida reasoned that:
[t]he list provided in the regulations of businesses which are recognized as retail reflects that such narrow interpretation would be incorrect. This list includes billiard parlors, bowling alleys, cemeteries, coal yards, crematories, dance halls, embalming establishments, funeral homes, fur repair and storage shops, hotels, masseur establishments, recreational camps, taxidermists, theatres, and undertakers, none of which would be used daily by everyone in the community. Reich v. Cruises Only, Inc., 1997 WL 1507504, *4 (M.D.Fla.1997).
This Court agrees. The summary judgment evidence before the Court indicates that Defendants provided not only tax preparation services that each member of the community may well utilize, but also tax dispute services to address issues that may, in some instances, arise in the course of filing taxes. Doc. 64–1 at 7–8. Each member of “the community” does not require tax services on a daily basis any more than they require frequent visits to the undertaker. Yet these services derive inevitably from the only two certainties in life. Such certain, but periodic, services are no less retail in nature than the sale of “automobiles, … radios and refrigerators,” or the “incidental services on such goods when necessary.” 29 C.F.R. § 779.318. Defendants’ tax resolution services clearly were “services for the comfort and convenience of such public in the course of its daily living.” Id.
It is not clear if the case would have been decided differently outside the Fifth Circuit. Of interest, in footnote 5 of its opinion, the court declined to follow a Sixth Circuit opinion on point that reached the opposite conclusion, Hodgson v. N.G. Kallas Co., 480 F.2d 994 (6th Cir.1973).
Click Wells v. TaxMasters, Inc. to read the entire Opinion and Order.
Notwithstanding Management Duties, Police Lieutenant Might be Non-Exempt; Defendant’s Motion for Summary Judgment re: Executive Exemption Denied
Jones v. Williams
In the third exemption case of interest, the case was before the court on the defendant’s motion for summary judgment regarding all of plaintiff’s asserted claims (Title VII, retaliation, unpaid overtime, etc.). As discussed here, the court denied the defendant’s motion with regard to plaintiff’s unpaid overtime claim, citing issues of fact precluding a finding- as a matter of law- that plaintiff was subject to the executive exemption.
The court’s brief description of the plaintiff’s duties was as follows:
Steven Jones currently works as a police supervisor with the rank of lieutenant at BCCC. (Defs.’ Mot. Summ. J., ECF No. 44, at 2, Ex. 1; Deposition of Steven Jones, ECF No. 51, at 7–8.) Jones’s duties include making shift assignments, reviewing paperwork, responding to calls in the event he is needed, and “mak[ing] sure everybody is on their post, looking clean and doing their jobs.”
After noting that the defendant’s cited an outdated regulation as the basis for their exemption defense, the court ultimately held that the defendant failed to show that the plaintiff’s primary duties were the performance of exempt work:
Here, the defendants’ exemption claim fails summary judgment on two fronts. First, the defendants have failed to adduce any evidence that Jones has any responsibility with respect to hiring or firing or that his opinions are given “particular weight” with regard to these matters. See
29 C.F.R. § 541.105. Without such evidence, the defendants cannot sustain an exemption claim under § 541.100.
Second, taking the available facts regarding his job responsibilities in the light most favorable to Jones, the defendants have not convincingly demonstrated that, even though he supervises other officers, Jones’s primary duty is not law enforcement. See 29 C.F.R. § 541.3(b). As evidence that Jones primarily performs exempt work, the defendants point to Jones’s statement that his duties include “making shift assignments … review[ing] all paperwork and … respond[ing] to calls in the event an officer has an issue or my sergeant is unable to deal with an issue … mak[ing] sure everybody is on their post, looking clean and doing their jobs.” (Jones Dep. at 9.) However, in interpreting a similar job description (“a lieutenant’s ‘primary responsibility … is to make sure that their people in the field can handle any situation that happens at any time’ “), the Tenth Circuit noted that this description could merely encompass “the kind of front-line supervision” that the regulations deem “non-managerial.” Maestas, 664 F.3d at 830. Elsewhere in the record, Jones has indicated that his duties also include being “on-call” (Jones Dep. at 59), maintaining emergency generators when needed, ensuring campus safety, and setting up traffic barrels. Jones was, apparently, essential to front line security during the snow storms that caused him to work substantial overtime. Jones may perform enough non-exempt duties like these to fall outside the scope of the exemption. The defendants have certainly not demonstrated his job position falls squarely within an exemption. Accordingly, the defendants’ motion for summary judge with respect to Jones’s FLSA claim will be denied.
Click Jones v. Williams to read the entire Memorandum opinion.
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.
N.D.Ga.: “Design Consultant” For Furniture Store, Paid Strictly Commissions, Retail Exempt Under 7(i)
Lee v. Ethan Allen Retail, Inc.
Plaintiff brought this case based on 200-250 hours she claimed to have worked in overtime for Defendant, which she was not paid for. Defendant maintained the Plaintiff was subject to the so-called retail exemption of 7(i). Before the Court was Defendant’s Motion for Summary Judgment on the retail exemption issue. The Court granted Defendant’s Motion, holding that Plaintiff was paid under a bona fide commission plan throughout her employment with Defendant, despite the fact that she never received anything other than her bi-weekly draw.
The Court relied on the following facts:
“Defendant Ethan Allen owns and operates Ethan Allen Design Centers (“Design Centers”) throughout the United States. These Design Centers are retail establishments, which sell Ethan Allen home furnishing products. Plaintiff began working as a Design Consultant on August 6, 2006, at Ethan Allen’s Peachtree City, Georgia Design Center. Plaintiff worked as a Design Consultant throughout her employment with Ethan Allen. As a Design Consultant, Plaintiff’s primary job responsibility is selling Ethan Allen home furnishing products. Design Consultants, including Plaintiff, are paid on a commission basis. They are never paid a salary. After an initial two week training period, Plaintiff began making sales and earning commissions. Ethan Allen paid Plaintiff according to its written Design Consultant Compensation Plan (“Compensation Plan”). Pursuant to this Compensation Plan, Design Consultants earn a minimum of 7% commission on net written sales per fiscal month. The commission increases to 8% if the Design Consultant has sales of at least $45,000, 8.5% at $55,000, and 9% at $70,000. Design Consultants earn a commission on every dollar of their sales; there are no caps on the amount of commissions a Design Consultant can earn.
During the first four months of employment, Ethan Allen pays its Design Consultants through a non-recoverable, bi-weekly draw. Every month Ethan Allen reduces the Design Consultant’s commissions by the amount of the draw. The Design Consultant earns commissions on sales that exceed her draw. Because the draw is non-recoverable, Design Consultants do not have to repay Ethan Allen if the amount of their draw exceeds their commissions during the month. After the initial four month period, however, Ethan Allen pays its Design Consultants through a bi-weekly, recoverable draw. Accordingly, if a Design Consultant does not earn enough in commissions to cover the draw, the Design Consultant carries forward a deficit, which she owes to Ethan Allen. Ethan Allen then reduces any deficit from prior months by the amount that her commissions exceeded the draw.
Plaintiff received a bi-weekly draw of approximately $1,100. Although Plaintiff earned commissions that exceeded her draw in four of the fourteen months she was employed at Ethan Allen, she never received an additional commission payment beyond her draw because throughout her employment at Ethan Allen she maintained a cumulative deficit as a result of her failure to earn enough commissions to cover her draw in prior months. When Ethan Allen terminated, Plaintiff she had an accumulated deficit of $4,610.14.”
Discussing the retail exemption, and granting Defendant’s Motion the Court stated, “The retail or service establishment exemption applies where: (1) the employee was employed by a retail or service establishment; (2) the employee’s regular rate of pay was more than one and one-half times the minimum hourly rate; and (3) more than half of the employee’s compensation comes from commissions. 29 U.S.C. § 207(i); 29 C.F.R. § 779.412; see also Schwind v. EW & Assocs. Inc., 371 F. Supp 2d 560, 563 (S.D.N.Y.2005). As the employer, Defendant bears the burden of proving the applicability of this exemption by ” ‘clear and affirmative evidence.’ ” Klinedinst, 260 F.3d at 1254 (quoting Birdwell v. City of Gadsden, 970 F.2d 802, 805 (11th Cir.1992)). Moreover, the Court construes exemptions from the overtime provisions of the FLSA narrowly against the employer. Birdwell, 970 F.2d at 905.
Plaintiff concedes that Defendant is a retail establishment and that her regular rate of pay was in excess of one and one-half times the minimum hourly rate applicable to her, thus satisfying the first two prongs of the test. (Pl.’s Resp. to Def.’s Mot. for Summ. J. at 5; Pl.’s Mot. for Summ. J. at 5.) The dispute in this case centers around the final requirement.
To rely on the retail or service establishment exemption, Defendant must demonstrate that more than half of Plaintiff’s compensation for a representative period of at least one month represents commissions on goods or services. See29 U.S.C. § 207(i).Section 207(i) provides that:
In determining the proportion of compensation representing commissions, all earnings resulting from the application of a bona fide commission rate shall be deemed commissions on goods and services without regard to whether the computed commissions exceed the draw or guarantee.
29 U.S.C. § 207(i) (emphasis added). Accordingly, in determining whether more than half of Plaintiff’s compensation came from commissions, the Court must also determine whether the commissions paid to Plaintiff were the result of “the application of a bona fide commission rate.”Id. Provided that the employer’s compensation plan is a bona fide plan, any compensation calculated as commissions according to the plan will count as commissions, even if the amount of commissions may not equal or exceed the guarantee or draw in some weeks. 29 C.F.R. § 779.416(b); Erichs v. Venator Group, Inc., 128 F. Supp 2d 1255, 1259 (N.D.Cal.2001). Conversely, even where an employer characterizes the entirety of an employee’s earnings as commissions, the employer may not rely on the retail and service establishment exemption unless the commissions are calculated pursuant to a bona fide commission plan. See generally Erichs, 128 F. Supp 2d at 1260 (explaining that “some payment plans that apparently are commission plans on their face may reveal themselves to be something different upon closer inspection.”). Although Ethan Allen categorized 100% of Plaintiff’s earnings as commissions, Plaintiff contends that Ethan Allen cannot demonstrate that more than half of her compensation came from commissions because her earnings did not result from the application of a bona fide commission rate.
Congress did not define the meaning of “bona fide commission rate.” Herman v. Suwannee Sifty Stores, Inc., 19 F. Supp 2d 1365, 1369 (M.D.Ga.1998) (Sands, J.); Erichs, 128 F. Supp 2d at 1259. Black’s Law Dictionary defines “bona fide” as “made in good faith.” BLACKS’S LAW DICTIONARY 186 (8th ed.2004). Courts have applied this definition to the term bona fide commission rate in Section 207(i).See Herman, 19 F. Supp 2d at 1370 (“Congress … provided that to use this commission-based exception, the commission rate must be set in good faith.”). Therefore, “[t]he inquiry is whether the employer set the commission rate in good faith.” Enrichs, 128 F. Supp 2d at 1259.
The Code of Federal Regulations provides two examples of commission rates that are not bona fide. See29 C.F.R. § 779.416(c). First, a commission rate is not bona fide where “the employee, in fact, always or almost always earns the same fixed amount of compensation for each workweek (as would be the case where the computed commissions seldom or never equal or exceed the amount of the draw or guarantee).”Id.Second, an employer’s commission plan is not bona fide where “the employee receives a regular payment constituting nearly his entire earnings which is expressed in terms of a percentage of the sales which the establishment … can always be expected to make with only a slight addition to his wages based upon a greatly reduced percentage applied to the sales above the expected quota.”Id.
These two examples are not exhaustive. See Erichs, 128 F. Supp 2d at 1260. The Court must examine Defendant’s particular commission rate and determine whether the plan is bona fide or set in good faith. As the Court explained in Herman:
Congress did not state that any commission rate was fine … Instead, it limited the exception to ensure employers would create a commission rate in good faith. Since Congress did not specify a definition of ‘bona fide [,]’ … the DOL did so through section 779.416(c). The DOL’s interpretation is consistent with the purpose of passing an exception to overtime by paying commissions. The whole premise behind earning a commission is that the amount of sales would increase the rate of pay. Thus, employees may elect to work more hours so they can increase their sales, and in turn, their earnings. When a commission plan never affects the rate of pay, the purpose behind using a commission rate also fails.
Herman, 19 F. Supp 2d at 1370;
Erichs, 128 F. Supp 2d at 1260. By requiring that a commission rate is bona fide, “Congress apparently envisions a smell test, one that reaches beyond the formal structure of the commission rate and into its actual effects and the purpose behind it.” Erichs, 128 F. Supp 2d at 1260.
The commission rate in this case passes this “smell test.” Defendant set the commission rate in good faith; the commission rate was not a superficial attempt to categorize Plaintiff’s earnings as commissions in order to avoid having to pay her overtime compensation. Cf. Id. at 1260-61 (finding that the defendant’s commission rate plan was not made in good faith because it was an attempt to replicate the prior, “legally nebulous” plan and would not increase sales); Herman, 19 F. Supp 2d at 1372 (holding that store managers who never received more than the guaranteed rate or received more than the guaranteed rate only once a year were not exempt under the retail and service exemption). Plaintiff’s compensation was entirely commission based. She received a commission ranging from 7% to 9% depending on the volume of her sales. Every two weeks, Plaintiff received a recoverable draw. After the initial four months of employment, if Plaintiff did not have enough sales to cover the draw, she went into deficit. Ethan Allen then deducted any earnings from commissions exceeding the draw from this deficit.
Ethan Allen’s compensation plan provided Plaintiff with a meaningful opportunity to elect to work more hours to increase her sales and earnings. Plaintiff’s monthly commissions exceeded her draw four times. Although Defendant used these funds to reduce Plaintiff’s accumulated deficit from prior months, the fact that Plaintiff could exceed her draw by increasing sales demonstrates her ability to impact her compensation by increasing sales. Unlike the example in the Code of Federal Regulations, Plaintiff did not always or almost always earn the same fixed amount each week; Plaintiff’s earnings fluctuated based on the amount of her sales. Because all of Plaintiff’s earnings resulted from the application of a bona fide commission rate, and are commissions within the meaning of Section 207(i), Defendant met its burden of demonstrating that one of the exemptions to the FLSA’s general overtime requirements applies to Plaintiff. Accordingly, the Court GRANTS Defendant’s motion for Summary Judgment [# 91].”
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