Massachusetts High Court Finds Employer Liable for Unpaid Overtime Despite Employer’s Reliance on DLS Opinion Letters

Seyfarth Synopsis: The SJC issued two important decisions in April and early May. In early May, the SJC found that commission-only salespeople are entitled to additional compensation for overtime and Sunday work, even though DLS opinion letters supported the employer’s understanding that commissions alone were sufficient for such hours if employees’ compensation exceeded one and one half times the minimum wage. This decision comes on the heels of another SJC decision in April holding that employees need not show injury among class members for purposes of meeting the numerosity requirement for class certification.

On May 8, 2019, the Massachusetts Supreme Judicial Court (SJC) ruled in Sullivan v. Sleepy’s LLC that retail sales employees compensated solely by commissions and draws against those commissions were entitled to additional compensation for overtime hours and for work on Sunday.  The Department of Labor Standards (DLS), the state agency responsible for interpreting the state overtime law, had suggested in opinion letters that an employer can satisfy its overtime obligations as to commission-only sales employees so long as employees’ commissions exceed one and one half times the minimum wage.  Acknowledging that the employer may have been “misled” by those opinion letters, the SJC nonetheless held that the employees were entitled to additional amounts for overtime and to satisfy the Sunday premium pay obligation.  

The plaintiffs were sales employees at the defendant’s retail stores and were compensated on a one hundred percent commission basis.  Their wages took the form of a recoverable draw of $125 per day, plus earned commissions in excess of the draw.  On at least one occasion, the plaintiffs worked more than 40 hours in a workweek, and they worked at least one Sunday.  There was no dispute that the plaintiffs’ commissions exceeded the minimum wage and exceeded one and one half times the minimum wage when they worked overtime or on Sunday.

Nonetheless, the plaintiffs sued their employer on behalf of themselves and other similarly situated employees, claiming to be owed overtime pay and premium pay for work on Sunday.  In addition to requiring overtime for hours worked in excess of 40 in a workweek, retail employees are entitled to premium pay for work on Sunday under Massachusetts law.  Note, however, that the Sunday premium pay requirement is being phased out incrementally over the next four years. 

Before the SJC, the employer pointed to two DLS opinion letters that suggested that the employees had been paid correctly.  The Court explained that the two opinion letters “may have misled . . . employers” regarding overtime compensation for commission-only sales employees, but held that the amount of compensation paid to the plaintiffs was impermissible. It concluded that separate and additional compensation owed to such employees for overtime or Sunday work at a rate of at least one and one-half times the minimum wage was above and beyond any commissions or draws.       

The Sleepy’s decision has significant implications for retailers who have been relying on the DLS opinion letters regarding how to compensate commission-only employees for overtime and Sunday premium pay.  Commissions alone are not enough, and retailers will need to adjust their pay practices immediately.  Further, unlike federal law, an employer’s good faith belief that it is in compliance with the law is not a defense to the imposition of mandatory treble damages.   

The Sleepy’s decision comes on the heels of another SJC decision, Gammella v. P.F. Chang’s China Bistro, Inc., regarding class actions involving wage claims.  In Gammella, the plaintiff claimed that she was owed three hours’ of reporting pay, meaning that she reported to work as scheduled but was then sent home for lack of work.  While she sought to bring her claims as a class action, there was no way from the employer’s records to distinguish between employees who were paid correctly for the hours they actually worked versus those who might have been owed reporting pay.  The trial court denied class certification on this basis, explaining that the plaintiff could not establish “numerosity” -- that the size of the class was sufficiently numerous.  The trial court did not address other requirements for maintaining a class action.  On appeal to the SJC, the Court found that the plaintiff’s inability to identify other injured class members was not fatal to establishing numerosity.  It held that it was sufficient for the plaintiff to show from the employer’s records that there were other employees who were paid for fewer than three hours, even though they may not have suffered any injury.  As the decision is only focused on numerosity, the SJC did not address whether the plaintiff would otherwise be able to satisfy the requirements of maintaining a class action.  Nor did it address how the plaintiff could ever prove liability on a classwide basis.  Nonetheless, the plaintiffs’ bar is likely to argue that Gamella somehow lowers the requirements for bringing a class action in Massachusetts state courts.