I have often dealt with exemption issues, most of which involve the white-collar exemptions, however, I have also had cases involving the nuanced, difficult-to-understand, commission exemption under Section 7(i) of the FLSA. In an interesting case involving this provision, a court has ruled that cable technicians, who were compensated on a job basis, were nevertheless commission employees who qualified for the exemption. The case is entitled Taylor v. HD & Assocs. and issued from the Fifth Circuit Court of Appeals.
The Company installed and repaired cable and telephone equipment. The technicians received daily orders and worksheets and had their routes plotted out on a daily basis. They were compensated based upon the complexity of the project, as each work order was given a point value and that point value determined the compensation for that specific job. The technicians filed a class action, were granted conditional certification and then the Company moved for summary judgment, arguing that they were commission-based workers and fit within the commission exemption of 29 USC 207(i). The district court dismissed the case and the plaintiffs appealed to the Fifth Circuit Court of Appeals.
The Court examined whether the Company had established the elements for the workers to be exempt under Section 7(i). The parties agreed that the Company was in a “retail business” and that the workers’ regular rate of pay was in excess of one and one-half times the applicable minimum hourly rate. The disagreement was over whether these payments constituted “commissions” which are the third necessary element to meet the test. The Court noted that it did not matter what moniker was given to the payments, but rather how they actually operated within the compensation system.
The Court examined certain factors that determine whether a compensation arrangement is “commission.” These include whether the commission is a “percentage or proportion of the ultimate price passed on to the consumer. There is also regard for whether the pay is tied to hours worked or independent of it and whether the work involved is unique enough as to not lend itself to a typical work day. Lastly, the Court examined whether the commission plan “offends” the purpose of the FLSA.
The examination showed that the so-called commission paid was a percentage of the end price paid by the customer and the amount paid was based on customer demand and not tied to the number of hours worked. The Court observed that the nature of the work of repairing cable did not fit within the concept of an eight-hour day as many unforeseen problems could arise. The Court also concluded the pay system was compliant with the purposes of the FLSA. Lastly, the Court referred to an earlier Fifth Circuit case, where that Court referenced that where (as here) a pay system is industry wide, that was evidence that the entire industry was not violating the FLSA.
This case shows that defense counsel must be aware of any and all defenses available. It was not crystal clear from the outset that these payments could be deemed “commissions” but yet that argument was there to be made, was made, and was successful. With that said, the Section 7(i) exemption is nuanced and factually sensitive. The biggest hurdle for defense counsel is often to show that the employer is in a recognized “retail” industry. The lesson is to always be cognizant that a successful defense may literally come out of nowhere if one is attuned to all possibilities.
As this case so clearly demonstrates….