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The case against hhgregg Inc. alleging that the company failed to pay overtime, and used a method of deducting commission draws from future pay, all in violation of the FLSA, has been revived. The Sixth Circuit Court of Appeals reversed the dismissal of the lower federal court, sending the case back to litigation.
The appellate court explained that the district court incorrectly found hhgregg's method of offsetting an employee's wages based on commission was lawful. In reversing, it additionally explained that the retailer or service establishment exception did not apply.
In Ohio, unlike many other states, all employers are pretty much required to pay time-and-a-half for overtime hours. In this case, an alleged policy of hhgregg was encouraging off-the-clock overtime. It was claimed that managers encouraged this behavior so as to minimize commission/salary draws.
While hhgregg claimed, and the lower court agreed, that the Ohio employee plaintiffs were exempt from overtime under the FLSA as commissioned employees, the appellate court disagreed.
In addressing the unpaid overtime claim, the appellate court's opinion demonstrates rather clearly that the math being used by hhgregg was rather questionable. Allegedly commissioned employees were paid minimum wage as a draw against commissions, or as a minimum wage. If their commissions totaled more than their wages, they got their commissions and got no draw. If the commissions did not exceed the draw, the employee got the draw less the commissions earned. Seems simple enough, right?
Basically, how hhgregg ran into legal trouble here was by employees being asked to work unpaid overtime in order hit commission goals that would only really cover their regular salaries, and would not account for the time-and-a-half bump earned for their overtime hours.
Additionally, the issue with paying employees on a draw-on-commissions basis is that when an employee leaves with drawn-on-advance-commission compensation, an employer might want to be paid back the draw. And since hhgregg has a policy (that they claim not to enforce) permitting them to clawback a draw from a terminated employee, the court revived the employees' claim that the clawback violated the FLSA.
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