Friday, September 10, 2010

3rd Circuit Addresses Commission Exception to FLSA - COTW #6

In honor of Lawffice Space's Labor Week, the Third Circuit issued its first opinion on the commission exception to the FLSA on Tuesday. OK, it might be a coincedence. The case is Parker v. Nutrisystem, Inc., 09-3545, 2010 WL 3465054 (3d Cir. Sept. 7, 2010).

Generally, under the Fair Labor Standards Act, employers must pay their employees overtime. And overtime is 1.5 times the employee's usual pay for time spent over 40 hours per week. But, there are exceptions - for example, retail employees who are paid a bona fide commission rate.

Compensation Method
Nutrisystem paid its call center sales associates a flat rate per sale of any Nutrisystem product regardless of price (there was also a wage option, but it rarely applied). The flat rate across products was based on whether the sales associate made the sale on an incoming or outgoing call and the time of day of the sale. The plaintiffs, with support from the Department of Labor, argued that a "commission" should be a percentage of sales price.

The Third Circuit held that Nutrisystem's pay system qualified as a "commission" and therefore complied with the FLSA. The Court affirmed the decision of the trial court granting summary judgment in favor of Nutrisystem.

Judge Cowen issued a dissent in which he argued that the Court should show a little deference to the ole' DOL. And Nutrisystem, "has not demonstrated that the flat-rate fees are proportionally related to the cost to the customer." And therefore, he would have reversed the trial court.

In the Third Circuit, a compensation system does not need to be mathematically based on the final sales price to fall under the FLSA's commission exception. But, the Court did note the similar pricing of all of Nutrisystem's products at issue. And therefore, the compensation method was "sufficiently proportional to the cost to the consumer to qualify as commission." This suggests that there must be at least some level of proportionality, but exactly what level remains to be seen.

Posted by Philip Miles, an employment lawyer with McQuaide Blasko in State College, Pennsylvania.

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