Commissioned Salespeople to be Paid Overtime
The Massachusetts Supreme Judicial Court (SJC) issued a unanimous opinion on May 8, 2019, stating that salespeople who are paid solely on draws and commissions are entitled under Massachusetts law to separate and additional overtime and Sunday pay.
For most retailers, the decision has far-reaching implications that have long relied on Massachusetts Department of Labor Standards (DLS) opinion letters suggesting that commissioned employees are not entitled to such additional compensation.
In response to certified legal questions from the U.S. District Court for the District of Massachusetts, the court ruled that 100 percent of the commission must be paid separately and additional compensation for overtime and Sunday hours worked if their total draws and commissions are always equal to or greater than 1.5 times the Massachusetts minimum wage for all overtime and Sunday hours. The court explained in the decision that employers are required to make such payments even if they pay employee drawings or commissions that always equal or exceed 1.5 times the Massachusetts minimum wage for all overtime and worked on Sunday. (No. SJC-12542 (May 8, 2019).
The relevant part of the Massachusetts Overtime Statute provides that work in excess of 40 hours in 1 week must be paid at the regular rate of the employee “one and a half times” (i.e., 1.5 times). Mass. Laws of Gen. c. 151, §1A.
Massachusetts law also provides for Sunday or certain holidays (i.e., premium pay) for retail employees for their work. Mass. Laws of Gen. c. 136, Paragraph 6 (50).
The 7(i)-retail exemption available to employers under the Fair Labor Standards Act of 1938, 29 U.S.C. § 201 et seq is not recognized by Massachusetts. In 2003 and 2009, the DLS authored two letters of opinion suggesting that retailers were not required to make separate and additional overtime payments and Sunday payments to 100 percent Commission staff if employees received at least 1.5 times the minimum wage for all overtime and Sunday hours worked.
Before the recent SJC decision, and on the basis of the above-mentioned statutes and DLS guidelines, many Commonwealth retail employers paid their domestic sales representatives on a 100% commission and/or draw-up basis, believing that separate and additional overtime and or Sunday Pay was not required as long as their drawings and commissions were equal to or exceeded 1.5 times the Massachusetts minimum wage for all overtime and Sunday hours worked.
The SJC recognized in its decision that the DLS letters of opinion were “less than a model of clarity and could have misled employers. The court maintained, however, that the Massachusetts Overtime and Sunday Pay Statutes require separate and additional overtime and Sunday compensation at 1.5 times the Massachusetts minimum wage.
Whether the commission or draw of an employee is equal to or above 1.5 times the minimum wage for hours worked over 40 or on Sundays. More broadly, the court also explained that an employer cannot retroactively allocate or otherwise “credit” payments classified for one purpose or another purpose. In particular, the court held that, in essence, an employer could not rename drawing and commission payments as overtime or Sunday Payments.
The decision of the SJC has profound implications for retailers and other Commonwealth-based business with employees paid on a 100% commission basis and/or draw-versus-commission basis. Primary, the court found that employers must ensure that such employees are paid at least 1,5 times the minimum wage in Massachusetts, which is currently $ 12.00 per hour, hours worked over 40 hours a week for all hours and worked on Sundays for all hours.
Further, employers may want to review their pay policies broadly to ensure that they comply with the court’s ban on retroactive payment reallocation. Payments for drawings and commissions cannot replace other wage and hour entitlements such as overtime, Sunday and Holiday pay.