Employment Lawyer: Commissioned Salesman Might Be Owed Overtime

A highly-compensated employee will not necessarily be subject to an exemption. Plaintiff Sean Freixa earned more than $70,000 in salary and commissions during a one year period of employment of employment between 2013 and 2014. However, the Eleventh Circuit held that he may be entitled to overtime compensation during certain work weeks.

Freixa sold cruises for Prestige Cruises, LLC. He worked an average of sixty hours per week, for which he received a fixed salary of $500 per week or $26,000 per year, plus commissions that were calculated monthly, based upon how many cruise bookings he sold. For one month, Friexa earned almost $9,000 in commissions, however, for other months, he earned no commissions at all.

Under the FLSA, retail and service establishments do not have to pay overtime to commissioned salespersons, as long as:

(i) Their regular rate of pay is at least one and one half times the minimum wage, or $10.88, for every hour worked in a work week, in which overtime hours are worked; and

(ii) More than half of their total earnings in a representative period consists of commissions.

Friexa brought an action for overtime compensation, alleging that his compensation fell below the $10.88 threshold in certain workweeks when he received no compensation The FLSA generally requires that an employer calculate an employee’s regular rate of pay on a weekly basis. However, the district court “found it difficult to determine the exact weeks during which Friexa earned commissions,” and therefore, it invoked a federal regulation that allows the use of a different “reasonable and equitable method” of calculation if it is not possible or practicable to allocate the commission among the workweeks of the period in proportion to the amount of commission actually earned or reasonably presumed to be earned each week. Following this analysis, the district court divided Freixa’s entire pay for the year across every hour in every week he worked—assuming 60 hours per week, and the district court arrived at an hourly average rate of $23.45. The district court awarded summary judgment in favor of the cruise service.

However, the Eleventh Circuit found that the district court misapplied the regulatory exception for allocating commissions. Commissions must be applied across work weeks within the computation period in which they were earned, which in this case was a month by month basis, not for an entire year. Therefore, there was a genuine issue as to a material fact.

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If you have questions related to employment law call Mark J. Berkowitz P.A. at (954) 527-0570 for assistance.