8.29.22 – National Law Review
Although the plaintiff cable technicians, who were paid by the completed job and not by the hour, were covered employees under the Fair Labor Standards Act (FLSA), they nonetheless were bona fide commissioned employees and therefore exempt from the overtime requirements of Act, the Fifth Circuit Court of Appeals recently ruled. Accordingly, the district court’s grant of summary judgment to the plaintiffs’ employer was affirmed. Taylor v. HD & Assocs., 2022 U.S. App. LEXIS 22762 (5th Cir. Aug. 16, 2022). The Fifth Circuit has jurisdiction over the federal courts in Louisiana, Mississippi, and Texas.
HD & Associates (HDA), a subcontractor for a major cable communications corporation, installs and repairs cable and telephone equipment for the cable corporation’s residential customers in Louisiana. HDA is located in Louisiana and all of the relevant work that HDA performed for the cable corporation was in Louisiana. The cable corporation creates daily work orders for customer service requests in a digital platform, bundles them, and creates and assigns routes for the technicians, with arrival times for each work order assigned based on the time estimate for that type of work order. Both the cable corporation and HDA use the digital platform to track the location of each technician and their completed assignments, and to update routes and assignments as needed. Each work order is allocated a point value based on the complexity of the assignment and the point value determines how much the technician is paid for that assignment.
Plaintiff Byron Taylor, on behalf of himself and other similarly situated technicians, filed a lawsuit against HDA, alleging that they worked in excess of 40 hours per week but were not paid overtime, in violation of the FLSA. Following a grant of conditional certification, HDA moved for summary judgment, asserting that the company was not covered by the FLSA and even if it was, the technicians were bona fide commissioned employees exempt from the FLSA’s overtime requirements. The district court agreed with both contentions, and further concluded that the technicians were exempt under the FLSA’s Motor Carrier Act exemption. Thus, the district court granted summary judgment to HDA and dismissed the case. The plaintiffs appealed and the Court of Appeals affirmed the grant of summary judgment.
On appeal, the Fifth Circuit first addressed whether the technicians or HDA (or both) are covered by the FLSA, noting that there are two methods for establishing FLSA coverage: individual and enterprise-wide. An individual employee is covered by the FLSA if they “engage in commerce or in the production of goods for commerce.” In this respect, “[t]here is no de minimis requirement,” so “[a]ny regular contact with commerce, no matter how small, will result in coverage.” The fact that the technicians “work directly on the instrumentalities of interstate commerce, including phone and internet service,” is sufficient for them to fall under the FLSA’s individual coverage prong. Thus, even if the company was not covered under the enterprise prong – which the district court mistakenly had analyzed by relying on individual-coverage precedent – the plaintiffs were subject to the FLSA.
Regardless, the technicians were in fact bona fide commissioned employees and therefore exempt from the FLSA’s overtime requirements. The commissioned employee exemption, set forth in 29 U.S.C. § 207(i), applies to (1) employees of retail or service establishments; (2) whose regular rate of pay is in excess of one and one-half times the applicable minimum hourly rate; and (3) more than half of whose compensation represents commissions on goods or services. Here, neither party disputed the first two elements of the exemption, so the only issue was whether the technicians’ pay constituted commissions. Noting that whether a payment is a commission depends on how it works in practice rather than its name, the Fifth Circuit adopted the definition of a commission frequently used by other courts and involving several, non-dispositive factors:
(1) whether the commission is a “percentage or proportion of the ultimate price passed on to the consumer;” (2) whether the commission is “decoupled from actual time worked, so that there is an incentive for the employee to work more efficiently and effectively;” (3) the type of work is such that its “peculiar nature” does not lend itself to a standard eight-hour work day; and (4) whether the commission system “offend[s] the purposes of the FLSA.”
In this case, the “commission” paid to the technicians is a percentage of the ultimate price passed onto the cable corporation’s customers and the amount earned is tied to customer demand, not to the number of hours the technicians work. Moreover, concluded the Court of Appeals, “given the nature of cable repairs, the work does not lend itself to a standard workday” and, given that the payment system is widely used in the cable technician industry, it “does not offend the purposes of the FLSA.” On the contrary, as the Fifth Circuit had noted in a previous case, “where a system of pay is industry-wide, it is persuasive that the whole industry is not violating FLSA overtime provisions.”
Most importantly, the amount of income technicians can earn is based on how hard they work and how skilled they are, rather than how long they spend on a given assignment. Thus, a technician given a five-point job earns the same amount whether the assignment takes one hour or three to complete it, thereby incentivizing them to work faster and more efficiently. Moreover, because technicians are paid only for services they actually provide and cannot “stock” their services as, for example, a garment worker can sew items that can then be placed into inventory if not immediately needed, the points system is not a “piece rate” compensation method. In sum, the points-based compensation method is a commission system and the technicians were properly deemed to be overtime-exempt under the FLSA. In light of this determination, the Court of Appeals elected not to address the district court’s further conclusion that the Motor Carrier Act exemption also applied.