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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.
11th Cir.: Despite Variable Premium/Bonuses That Fluctuated With Quantity/Quality of Work Performed, Bookkeeper/Accountants Were Paid on “Salary Basis”
Bell v. Callaway Partners, LLC
Plaintiffs were bookkeepers/accountants classified by Defendant as exempt from the Fair Labor Standards Act’s (FLSA) overtime pay requirement. This appeal concerned solely the issue of whether Plaintiff- who was paid a combination of a guaranteed weekly salary plus a variable bonus (at a straight-time rate rather than time and a half)- was paid on a “salary basis” for the purposes of satisfying the so-called “white collar” exemptions of the FLSA. The Court ruled that she was and affirmed the ruling of the lower court, holding that variations in bonus or extra pay do not affect the underlying analysis of whether the first 40 hours are paid at on a “salary basis.”
Describing the pay structure at issue, the Court stated:
“Plaintiffs’ pay consisted of two distinct components. First, Plaintiffs received a guaranteed weekly salary of $1600 or more that did not depend on the quality or quantity of the work performed. This weekly salary was reduced by one-fifth of the weekly salary for every full day a Plaintiff took off from work for personal reasons during the normal workweek without substituting Paid Time Off (“PTO”). But, a Plaintiff could work fewer than eight hours during any given workday without any reduction in his or her weekly salary. Second, Plaintiffs were eligible to receive additional incentive compensation (a “bonus”) paid at a straight-time hourly rate based on the cumulative number of billable hours that Plaintiffs worked. Any bonus to be awarded was determined based on how many additional hours over forty a Plaintiff worked in a given week minus any “deficit” hours a Plaintiff had accumulated in past weeks. For example, if a Plaintiff worked seven and not eight hours on each regularly-scheduled workday in a given week, thus totaling 35 hours of work, he or she still earned the full predetermined weekly salary, but would not earn a bonus in a subsequent week until he or she made up the bonus-hour deficit of five hours and then worked more than 40 hours in a given week.”
Holding that this compensation methodology complied with the “salary basis” test, the Court reasoned:
“An employee is considered “paid on a salary basis” if “he regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of his compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” 29 C .F.R. § 541.602. Plaintiffs argue that they were not paid on a salary basis because the amount of their bonuses fluctuated based on the cumulative number of hours worked. But, as we have previously determined, “as long as there is a non-deductible minimum, additional compensation on top of the non-deductible salary is permissible.” Hogan v. Allstate Ins. Co., 361 F.3d 621, 625 (11th Cir.2004) (citation omitted). And, while additional compensation is permissible, the regulations do not require additional compensation, nor do they prescribe a set method for setting up a bonus system. 29 C.F.R. § 541.604(a) (“An employer may provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly-required amount paid on a salary basis…. Such additional compensation may be paid on any basis ….”).
After a review of the record, we agree with the district court’s well-reasoned analysis concluding that Callaway’s bonus system conformed to the requirements of the salary basis test. (R.374 at 13-24.) While Callaway’s incentive program may have been designed in a way that encouraged overtime work, as Plaintiffs argue it was, because it deducted for “deficit” hours, it nevertheless conformed to the requirements of the FLSA. Because there was a non-deductible minimum weekly salary, Callaway was free to structure any bonus program as it saw fit.
Plaintiffs also argue that Callaway violated the salary basis test when it deducted a full day’s pay for personal days missed during the workweek (Monday through Friday) but did not pay Plaintiffs for a “full day” for partial days worked on Saturday or Sunday. Again, we agree with the district court’s analysis concluding that such deductions were allowable under the provisions of 29 C.F.R. § 541.602(b)(1). (R.374 at 25-34.) Therefore, we hold that the district court did not err in finding Callaway’s pay policies to be in compliance with the FLSA.”
While Salary Increases Were Lowest in 33 Years, Variable Pay Awards Reached an All Time High in 2009, Hewitt Study Finds
While the economic downturn prompted U.S. companies in 2009 to grant employees the lowest base salary increases in 33 years, funding for variable pay was at an all time high, according to a recent survey by Hewitt Associates, a global human resources consulting and outsourcing company. For 2010, employees can expect to see a similar mix of compensation payouts, with variable pay budgets projected to remain stable and base salary increases rising only slightly.
To read the entire press release go to Hewitt Associates’ website.
Overtime Law Blog 