By: Renee Inomata
The Sullivan v. Sleepy’s LLC Decision
On May 8, 2019, the Massachusetts Supreme Judicial Court (“SJC”) determined that under state law, non-exempt, retail inside sales employees who have been paid on a commission-only basis are entitled to overtime and Sunday premium pay, in addition to commissions and draws, even if the commissions and draws exceeded the overtime and Sunday premium pay amounts. In Sullivan v. Sleepy’s LLC, et al., SJC-12542, 2019 WL 2018024 (2019), the SJC’s opinion signals the end of paying non-exempt, retail employees on a commission-only basis in Massachusetts.
In Sullivan, a federal district court posed the following two questions to the SJC:
2. If a [100%] commission inside sales employee works on a Sunday in a given workweek, is the employee entitled to any additional compensation for Sunday permit pay when the employee’s total compensation (through draws and commissions) for that work week compensates the employee in an amount equal to or greater than 1.5 times the employee’s regular rate or at least 1.5 times the minimum wage for all Sunday hours worked? If additional compensation is due, what is the employee’s regular rate for purposes of Sunday premium pay?
The SJC answered both of these questions “yes.” While admitting that the regulations and opinion letters by the Massachusetts Department of Labor Standards may have created confusion for employers, and the opinion letters even “may have misled the employers,” the Court interpreted existing guidance to conform to its interpretation of Massachusetts law that commission-only inside sales employees are owed overtime and Sunday premium pay.
SJC Points to Prior Decisions
In reaching its decision, the SJC relied on prior decisions in Mulally v. Waste Mgt. of Mass., Inc., 453 Mass. 526 (1988) (overtime and non-overtime hours included in the calculation of the wage rate in prevailing wage rate case); Somers v. Converged Access, Inc., 454 Mass. 582 (2009) (misclassified independent contractor’s overtime pay cannot be reduced by claiming that he would have been paid less as an employee); and Dixon v. Malden, 464 Mass. 446 (2013) (“undifferentiated gratuitous weekly payments” could not be reallocated as vacation pay).
Specifically, the SJC stated:
The Mulally, Somers, and Dixon decisions all demonstrate that the overtime statute requires separate and additional overtime compensation to be provided to a one hundred percent commission employee regardless of whether that employee receives a recoverable draw or commissions that equal or exceed one and one-halftimes the minimum wage for any hours worked beyond forty.
Thus, 100% commission-only inside sales employees no longer exist in Massachusetts. From now on, those employees are entitled to a separate and additional overtime payment (beyond draws and commissions) of at least 1.5 times the Massachusetts minimum wage (currently $12.00/hour). Those employees are also entitled to premium pay for Sunday work, also equal to no less than 1.5 times the minimum wage (however, employees are not entitled to both overtime and Sunday premium pay for the same time worked).
The Bottom Line
The result for many employers who employ commission-only inside sales people is an obligation to recalculate the amounts to which they are entitled in overtime pay under the Court’s decision and to pay over those amounts before a lawsuit is filed. If a lawsuit is filed before the shortfall is rectified, the current and former sales people would become entitled to automatic treble damages and attorneys’ fees under the Massachusetts Wage Act.
What Employers Should Do
For now, unless changed by the legislature, employers should revisit their compensation structures and ensure that all non-exempt salespersons are paid minimum wage, overtime and Sunday premium pay (but not both), even if the employee has been paid compensation in another form that exceeded the total amount of minimum wage, overtime and Sunday premium pay that would have been earned for the same workweek.