In case you missed it, last quarter a divided Sixth Circuit
reversed an employer’s judgment on collective FLSA minimum and overtime wage
claims based on a draw and sales commission compensation system. Stein v. HHGregg, Inc. 873 F.3d 523 (6th
Cir. 2017). In that case, the
employer provided the employees with a variable draw against future sales commissions
during weeks when they failed to earn enough sales commissions to cover the
employer’s minimum and overtime wage obligations. In weeks when the employees’ commissions
exceeded their minimum wage entitlement, the excess was withheld as necessary to
reimburse the employer for past draws.
The Court agreed that this system was lawful, did not constitute an
unlawful kickback to the employer and did not violate the FLSA’s free and clear
rules. However, to the extent that the
employer retained the right in its employment policies to require repayment of
any such draws upon termination of employment, the policy by itself violated
the FLSA even though there were no
allegations that the employer had ever enforced it and not a single employee or
plaintiff specifically alleged that they had ever repaid any draws upon
termination of employment. Further,
the Court found that the employer violated the FLSA by permitting such sales
employees to attend mandatory training meetings and conferences off the clock even
though the complaint’s allegations never specifically alleged that any employee
had failed to be paid under such circumstances. In other words, the complaint had failed to specifically
allege that any of the employees had been paid a draw (rather than a sales
commission which exceeded the minimum wage) in weeks when they worked off the
clock and intentionally underreported their working hours. That the employees were able to keep future sales commission by not getting
paid a draw for attending such sales/staff meetings did not reflect compliance
with the FLSA, which requires that employees be paid minimum and overtime wages
in the week that they were earned.
The procedural posture was that the plaintiffs had filed a
complaint with the federal court in Cincinnati and the employer had moved to
dismiss under Civil Rule 12(b)(6). The
District Court had relied solely on the allegations in the complaint, FLSA
regulations and letter rulings, and the DOL’s Field Manual to find that the
alleged compensation system was lawful. The
case has now been remanded for discovery and, probably, settlement.
NOTICE: This summary is designed merely to inform and alert you
of recent legal developments. It does not constitute legal advice and does not
apply to any particular situation because different facts could lead to
different results. Information here can be changed or amended without
notice. Readers should not act upon this information without legal advice. If
you have any questions about anything you have read, you should consult with or
retain an employment attorney.
