Massachusetts Supreme Judicial Court Rules Against Compensation Plan Linking Commissions to Overtime, Premium Pay

DEBARYLIFE – In the case of Sutton v. Jordan’s Furniture, Inc., decided on March 28, 2024, the Massachusetts Supreme Judicial Court (SJC) affirmed a ruling from the Massachusetts Superior Court, which concluded that the furniture retailer’s commission-based compensation plan violated the Massachusetts Wage Act by deducting overtime and Sunday premium pay from the commissions earned by commission-based sales employees.

Fast Hits

The Massachusetts Supreme Judicial Court maintained a lower court’s decision that a retailer’s commission-based pay scheme, which paid commission-based sales personnel their overtime and Sunday premium pay out of their earned commissions, violated the Massachusetts Wage Act.

Sales employees were paid three different types of advances under the retailer’s compensation plan, which worked like an advance on their future commissions. If their earned commissions for a pay period were less than the amount of the advances paid to them for that pay period, the sales employee would be charged a “negative balance.”

The SJC maintained the trial court’s ruling that the workers were entitled to separate compensation for overtime and Sunday premiums. It further ruled that workers have a private right of action under the Massachusetts Wage Act for any Sunday pay statutory violations.
Context

Employers are required by the Massachusetts overtime statute to give their workers time-and-a-half compensation for any hours above forty in a workweek. Similarly, the Massachusetts Sunday pay statute mandated that companies pay retail employees a “premium” rate for hours worked on Sundays until it was repealed on January 1, 2023.

Additionally, the SJC decided in 2019 that retail salespeople who receive just commissions have a right to premium pay and overtime for working more than forty hours a week, including Sundays.

Jordan’s Furniture implemented a “Sales Draw Plan” that worked like an advance on future commissions for sales staff in an attempt to stay within these guidelines. Three types of advances, or “draws,” were paid to sales employees under the plan: (1) a “base draw,” which was determined by multiplying the number of hours a sales employee worked in a pay period up to forty hours per week, excluding hours worked on Sundays; (2) an “overtime draw,” which was determined by multiplying the number of hours the employee worked over forty hours per week by 1.5 times the minimum wage rate; and (3) a “premium draw,” which was determined by multiplying the number of hours the employee had worked on Sundays during the pay period by the premium rate that was in effect at the time. (The premium rate was 1.5 times the minimum pay prior to December 31, 2018, and it was then reduced by 0.1 times the minimum wage year until December 31, 2023.)

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Jordan deducted future earnings by the difference between the advance and the commissions earned that pay period from sales employees who did not exceed their advance, creating a “negative draw balance.”

A sales employee would therefore get the total of the base draw, overtime draw, and premium draw at the conclusion of the pay period if their commissions earned during that time exceeded the draw; any remaining draw balance would be carried over into the following pay cycle.

A sales employee would be paid the total of their commissions for the period less any negative draw balance (if any) if their commissions for the pay period exceeded the total of the base drawing, overtime draw, and premium draw.

The compensation plan allowed employees who worked overtime or on Sundays to get the same pay as those who did not, the court said. This was one of the scheme’s consequences. Thus, the plan essentially neutralized the impact of the higher pay rates for overtime and Sunday labor that the legislature had mandated.

The Ruling of the SJC

The Superior Court determined that Jordan’s Sales Draw scheme was unlawful in Massachusetts and that the employees were entitled to receive separate compensation for overtime and Sunday premiums after considering the plaintiffs’ objection to the scheme.

After receiving an appeal, the SJC upheld the ruling and declared that workers who violate the Sunday pay requirement had a private right of action under the Massachusetts Wage Act.

The SJC provided evidence to support its decision by pointing out that while Jordan tracked overtime and Sunday hours separately on employee paystubs, its Sales Draw Plan did not give commission-based employees “separate and additional” payments for those hours as mandated by the statutes pertaining to overtime and Sunday pay (as well as by its 2019 decision).

As an employee would have received the same gross compensation had they not worked overtime or on Sunday, as previously shown, the court reasoned, “evad[ing] the purpose of the overtime and Sunday pay statutes” by removing the incentive it creates for employers “to have [their] sales employees work shorter weeks.”

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Accordingly, the compensation scheme violated the Wage Act. In an attempt to shield itself from culpability, Jordan’s claimed that their Sales Draw Plan did not violate the Wage Act since commissions were never retrospectively applied to overtime and Sunday pay, in contrast to the compensation plan that the court had dismissed in its 2019 ruling.

The SJC disagreed, ruling that a compensation plan violates the Wage Act if it credits or allocates payments made to fulfill one set of wage obligations (like commissions) against separate and independent obligations (like overtime and premium pay), regardless of whether the allocation is retroactive. The following is how the court summed up its reasoning:

In other words, commissions received by salespeople are one form of pay; on the other hand, overtime and Sunday pay are two distinct forms of compensation for which companies must reimburse workers.

Jordan failed to offer its sales personnel separate and additional overtime and Sunday pay, in violation of the overtime and Sunday pay rules, by trying to use sums owed to its sales employees in commissions toward their overtime and Sunday premium drawings. (The original text emphasizes.)

The Sunday pay statute can be enforced by employees under the Wage Act, even though it does not specifically grant them a private right of action against employers for violating it or include it among the statutes that can be enforced under that private right of action. This was determined by the court.

The Wage Act “requires employers to timely pay their employees ‘wages earned,'” even those specified by statutes like the Sunday pay provision, the SJC reasoned in support of that ruling. Consequently, an employee may “bring an action to recover for Sunday pay violations under the Wage Act’s private right of action” since the Wage Act covers all wages, including those obtained under the Sunday pay statute.

Important Lessons Learned

The SJC’s ruling in Sutton upholds its ruling from 2019 that workers who are paid exclusively on commission are eligible for premium pay and overtime compensation for hours worked on Sundays or above forty hours per week.

The court made it clear that these distinctions are meaningless, rejecting the retailer’s argument that its compensation plan did not violate the law because it did not “retroactively” allocate commissions to overtime and Sunday pay.

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Any compensation scheme for commissioned employees that uses commissions to allocate amounts owed to employees toward overtime or premium draws is in violation of the overtime and Sunday pay statutes. The court also explained that the Massachusetts Wage Act, which provides automatic treble damages and lawyers’ costs, makes Sunday pay statutory violations actionable.

As a result, Massachusetts employers who pay commissions to their staff members might want to take a close look at their commission-based compensation plans to make sure that commission amounts are not being applied to overtime pay in the past or present, and that commission and overtime payments are kept completely apart from one another.