It doesn’t matter how much money you take home in commissions – you can still be entitled to overtime pay, according to a recent decision in federal court.

Background

Wyndham Vacation Ownership operates resorts and time-share units across the Caribbean and North America. Sales representatives at Wyndham’s four Tennessee properties filed a lawsuit, Pierce v. Wyndham Vacation Resorts, Inc., in which they claimed the company violated the Fair Labor Standards Act (FLSA). They said the company required them to work off the clock, denied them overtime pay and altered timecards. The collective action now includes more than 150 plaintiffs.

Wyndham filed a motion to dismiss the claims of four of these plaintiffs, all of whom earned more than $100,000 as commissioned sales representatives. (One earned $906,457 in 2010.) Wyndham said they should not qualify for FLSA-mandated overtime because of the law’s exemption for highly compensated workers.

The Law at Issue

The FLSA requires that employees be paid time-and-a-half for all hours worked over 40 in a given workweek. There’s a special rule for “highly compensated” workers who are paid $100,000 or more.

A highly compensated employee is exempt from overtime pay if:

1. The employee earns total annual compensation of $100,000 or more, which includes at least $455 per week in salary.
2. The employee’s primary duty includes office or non-manual work.
3. The employee “customarily and regularly” performs at least one duty or responsibility of an executive, administrative or professional employee.

The Law Applied

First, the magistrate judge said the FLSA exemption applied to executive employees paid on a salary basis – and because commissions are not salaries, they are not guaranteed.

Second, because the plaintiffs’ primary responsibilities were “sales, not management,” they did not qualify as exempt executives.

Wyndham’s motion to dismiss was denied. The collective action will proceed towards trial.

What It Means

Writing for Lexology, Jason Knott said “This decision is a warning to employers to carefully consider whether their highly paid commissioned employees may still be subject to the overtime law.” Further, he noted, the Pierce decision may inspire the Department of Labor to review the FLSA’s highly compensated employee test as it applies to sales staff.

For employees who work on commission, this is an important decision – it shows that regardless of your total compensation, you can be eligible for overtime if your guaranteed salary does not meet FLSA thresholds.