A Texas federal court handed a quick win Wednesday to a class of trainers claiming Gold’s Gym unfairly denied them overtime, ruling their pay did not comprise “bona fide commissions” under the Fair Labor Standards Act. The case is entitled Casanova et al. v. Gold’s Texas Holdings Group Inc., and was filed in federal court in the Western District of Texas.
The issue was whether the payments received constituted commissions under the FLSA. If ruled commissions, the employer could seek the protection and the exemption of Section 7(i) of the FLSA, the so-called commission exemption. The Court ruled that the percentage of the fees paid by clients and given to the trainers were tied to one-hour class sessions and therefore were “wages” rather than commissions. Thus, Section 7(i) was inapplicable.
The Court found that “the compensation system was not decoupled from time. Instead, a one-to-one correlation existed between the hours a trainer worked and his or her compensation. Such a compensation system reflects nothing more than an hourly wage, where the employee’s rate of pay changes based upon his or her qualifications.”
The trainers filed a collective action in December 2013, claiming they were misclassified and entitled to overtime. The group was granted conditional class and 80 trainers opted in. The trainers were paid in a two-part system that included a flat rate for “floor hours” or hours worked performing general tasks at the gym and some of the fees for individual and group training classes that the employees sell and conduct. The employees were paid a set percentage of these fees based on certificates they earned and the number of classes they conducted.
The employer claimed these were commissions; the trainers claimed that the fees were proportional to and tied to hours worked, without performance-based fluctuations, and thus were not “commissions” as defined by the FLSA. The Court noted that bona fide commissions were demarcated by several characteristics, including that the commissions were a percentage of the price passed on to the consumer and were separate and apart from actual hours worked so that the employees had an incentive to work more efficiently. The payments failed to meet this second prong of the test, as employees could not work more quickly since the classes were a fixed length of time.
The Section 7(i) exemption rests on receipt of at least 50% of commission compensation by the affected employees, as well as some other requirements, e.g. retail industry. In that instance (and in those weeks) the employee is exempt. The whole point of “commission,” however is that it seeks to incentivize people to work more quickly or efficiently, to churn up that commission.
Without the protection of 7(i), all of these extra payments must be calculated into the regular rate for any week in which any employee(s) worked overtime, thus inflating the regular rate by, in all likelihood, small amounts of money on a weekly basis. If, however, a lawsuit is filed and it is a class action and eighty or so employees join in and computations are done for 2-3 years going back, then the wages are doubled, with attorney fees added in, it is plain that the exposure is geometric.
Much better to research and resolve the issue before the compensation (e.g. “commission”) system is implemented…