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Commissions Don't Fulfill Overtime Obligations

July 1, 2019
While a recent Massachusetts Supreme Judicial Court (SJC) case dealing with unpaid wages may seem novel in its origins, it is as predictable as ever in its outcome.
The case began when some retail salespeople who are usually paid only on commission claimed they were entitled to extra payments of 1.5 times the minimum wage as overtime for time worked more than 40 hours a week and/or premium pay for time worked on Sunday. The case got to the SJC after the salespeople filed a federal lawsuit alleging that they met the conditions for overtime or premium pay but did not receive the extra wages to which they were entitled. 
The company claimed that its practice of providing draws and commissions “essentially” satisfied the state’s overtime and Sunday-pay statutes and that the employees received all compensation legally owed them. The federal court requested a ruling from the Massachusetts SJC to clarify the issue.   
The SJC disagreed with the employer’s argument, ruling that the salespeople’s’ draws and commissions could not be allocated retroactively to cover unpaid overtime wages or Sunday pay. The SJC has made it clear over the years that overtime work requires separate and additional compensation even if the employee is a commission-only employee.
The SJC stated that it reached … “this conclusion based on the language and purposes of the overtime statute, the regulatory guidance, and our previous case law establishing that, in most circumstances, employers may not retroactively reallocate and credit payments made to fulfill one set of wage obligations against separate and independent obligations.” 
The ruling may compel some retailers to change their pay practices when employees work more than 40 hours a week and/or on Sunday. The change may come as a surprise to some retailers because for years they operated on the assumption that, based on guidance from the Massachusetts Department of Labor Standards, their wage practices complied with the law. 
Now that the federal court’s questions have been answered, it remains to be seen whether the decision will be made retroactive to cover the employees who brought the suit and whether they are entitled to recover treble damages. Since the employees worked for the employer back in 2014-2016, the retroactivity question remains to be seen. 
The lesson of this case is that the company relied, at least partially, on one or more opinion letters from the state’s Department of Labor Standards, one of the key agencies in oversight of the wage and hour law. But the SJC gave short shrift to the letters by stating …“We recognize that the opinion letters are less than a model of clarity and may have misled the employers,”… and then went on to state that reliance on the letters did not protect the employer at all.
The Massachusetts courts have been protective of employee wages so any employer offering a novel theory or justification for an unusual pay structure should be prepared to defend it in court and may well lose if it appears the employees have been “shorted” wages. 
AIM members with questions about this or any other HR-related issue may call the AIM Employer Hotline at 1-800-470-6277.
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