Seventh Circuit ruled this week that Car-X Tire & Auto technicians were properly compensated with commission rates
Chicago—At the center of an overtime pay case involving multi-location Car-X Tire & Auto is a “complicated payment scheme” for auto repair technicians, according to a decision by the United States Court of Appeals For the Seventh Circuit.
The Fair Labor Standards Act generally requires that covered workers be paid extra for overtime work, but it exempts from that requirement some retail and service employees who are paid “bona fide commissions.”
Plaintiffs Tom Reed and Michael Roy are auto repair technicians for defendant Brex, Inc. (Car-X). They claimed that Brex’s payment plan is not a true commission, so that under the Act they are paid hourly wages and thus are entitled to overtime pay.
Brex, with dozens of locations in Missouri and Illinois, countered that, when one peels back the layers of its complex payment system, it is in fact a bona fide commission based on each technician’s sales during a pay period. The district court granted summary judgment for Brex based on the bona fide commission exemption.
The Fair Labor Standards Act requires that most covered employees be paid one and a half times their hourly wage for time that they work beyond 40 hours a week. The act is full of exceptions, however, and one is that the time-and-a-half requirement does not apply to employees in retail or service establishments if (1) the employee’s regular rate of pay exceeds one and a half times the statutory minimum wage and (2) more than half the employee’s compensation comes from bona fide commissions on goods or services.
The statute does not elaborate further, except to say that “all earnings resulting from the application of a bona fide commission rate shall be deemed commissions on goods or services without regard to whether the computed commissions exceed the draw or guarantee.”
What counts as a bona fide commission? “The essence of a commission is that it bases compensation on sales, for example a percentage of the sales price, as when a real estate broker receives as his compensation a percentage of the price at which the property he brokers is sold.”
If an employee’s “commissions vary in accordance with the employee’s performance on the job,” he or she may qualify for exemption. Thus, a “commission rate is not bona fide if … the employee, in fact, always or almost always earns the same fixed amount of compensation for each workweek.”
Likewise, commission plans designed so that employees always receive the same take-home pay with only “slight” upward variances for exceptional sales weeks are not “bona fide.”
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