Robert STEIN and Robert Beck, on behalf of themselves and all other persons similarly situated, Plaintiffs-Appellants, v. HHGREGG, INCORPORATED and Gregg Appliances, Inc., d/b/a hhgregg, Defendants-Appellees.
No. 16-3364
United States Court of Appeals, Sixth Circuit.
Argued: December 1, 2016. Decided and Filed: October 12, 2017
873 F.3d 523
Tapia, in its interpretation of
III. CONCLUSION
We hold that this sentence is both procedurally and substantively unreasonable. It is procedurally unreasonable because the district court violated Adams‘s due-process right when it relied on unreliable claims about the minimum amount of time needed in considering the imposition or length of a term of imprisonment, the district court‘s narrow focus on avoiding only the consideration to rehabilitate a drug addict. The sentence is substantively unreasonable because the district court is prohibited from considering rehabilitation as a factor in either deciding to impose a period of incarceration or determining the length of such a period of incarceration. In other words, it was procedurally and substantively unreasonable for the district court to calculate Adams‘s sentence by relying on a faulty premise about rehabilitation, which was a consideration it should never have incorporated into its decisionmaking process in the first place. The district court, therefore, abused its discretion in imposing this sentence for violation of supervised release.
Consequently, we VACATE Adams‘s sentence for his supervised-release violation and REMAND for resentencing in accordance with
Robert STEIN and Robert Beck, on behalf of themselves and all other persons similarly situated, Plaintiffs-Appellants,
v.
HHGREGG, INCORPORATED and Gregg Appliances, Inc., d/b/a hhgregg, Defendants-Appellees.
No. 16-3364
United States Court of Appeals, Sixth Circuit.
Argued: December 1, 2016
Decided and Filed: October 12, 2017
of Adams‘s eligibility for RDAP was mistakenly circumscribed.
MOORE, J., delivered the opinion of the court in which WHITE, J., joined, and SUTTON, J., joined in part. SUTTON, J. (pp. 539-40), delivered a separate opinion concurring in part and dissenting in part.
OPINION
KAREN NELSON MOORE, Circuit Judge.
Defendants hhgregg, Inc. and Gregg Appliances, Inc. have a uniform compensation policy whereby their retail and sales employees, who are paid solely on the basis of commission, are advanced a “draw” to meet the minimum-wage requirements whenever their commissions fall below minimum wage. The amount of the draw is then deducted from future earnings in weeks when the employees’ commissions exceed the minimum-wage requirements. Plaintiffs Robert Stein and Robert Beck, on behalf of themselves and all other former and current employees of defendants, brought suit claiming violations of the Fair Labor Standards Act (“FLSA“) and of state law. The district court found that defendants’ compensation policy was legal, and that plaintiffs therefore could not state a claim on which relief could be granted. The district court dismissed all of plaintiffs’ federal claims, and declined to exercise supplemental jurisdiction over their remaining state-law claim. We REVERSE the district court‘s judgment dismissing plaintiffs’ case, and we REMAND the case for further proceedings.
I. BACKGROUND
Defendants own and operate over twenty-five hhgregg stores across Ohio and over 220 stores across the United States, which sell appliances, furniture, and electronics. R. 10 (Am. Compl. at ¶ 13) (Page ID #52). Plaintiffs Stein and Beck were retail sales employees at an hhgregg store in Hamilton County, Ohio. Id. at 4-5 (Page ID #51-52). Stein, a current employee, began working at hhgregg in March 2008. Id. at 4 (Page ID #51). Beck worked at hhgregg from November 2011 until March 2015. Id. at 5 (Page ID #52).
All retail sales employees at hhgregg, including Stein and Beck, are subject to a draw-on-commission policy. Id. at ¶ 14 (Page ID #53). Under this policy, all retail sales employees are paid solely on the basis of commissions. Id. at ¶ 15 (Page ID #53). However, in pay periods when an employee‘s earned commissions fall below the minimum wage, he or she is paid a “draw” to meet the minimum-wage requirements. Id. at ¶¶ 16-17 (Page ID #53); R. 33-1, Exh. 1 (Sales Commission Plan at 1) (Page ID #315). If an employee reports working forty hours or less in a week (a non-overtime week), “the Draw equals the difference between the minimum wage for each hour worked and the amount of commissions [actually] earned.” R. 33-1, Exh. 1 (Sales Commission Plan at 1) (Page ID #315). If an employee works more than forty hours in one week (an overtime week), “the Draw equals the difference between an amount set by the Company (at least one and one-half (1 1/2) times the applicable minimum wage) for each hour worked and the amount of commissions [actually] earned.” Id. Draw payments are “calculated on a weekly basis.” Id. An employee receives a draw only if the commissions earned that week fall below the minimum wage (in a non-overtime week) or one and one-half times the minimum wage (in an overtime week). Id.
According to plaintiffs’ amended complaint, employees who receive a draw are required to repay it, “typically . . . by deducting the amount of the ‘draw’ from
Although the U.S. Department of Labor (“DOL“) recognizes the draw-on-commission pay structure (referred to as “straight commission with . . . ‘draws‘“) as a potential method of compensation for retail sales employees,
Plaintiffs further allege that in addition to their sales duties, employees are required to attend mandatory trainings and conferences. R. 10 (Am. Compl. at ¶ 29) (Page ID #55). Because no commissions are earned during these times, plaintiffs allege that employees, with the knowledge and even approval of managers, worked “off the clock” to avoid incurring a draw based on the inclusion of these hours. Id. at ¶ 29 (Page ID #55-56). They also allege that managers approved of employees working “off the clock” to avoid increasing the amount of the draw. Id. at ¶ 28 (Page ID #55).
On June 15, 2015, Stein and Beck brought suit on behalf of themselves and all other current and former commissioned retail sales employees at stores owned and operated by defendants, alleging violations of the FLSA and of state law. Id. at ¶ 1 (Page ID #49). Specifically, plaintiffs allege that (1) defendants’ draw policy violates the FLSA,
On August 31, 2015, defendants filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). R. 27 (Def. Mot. to Dismiss) (Page ID #207-09). The district court, relying on several DOL opinion letters, found that defendants’ policy was lawful, and dismissed all of plaintiffs’ federal claims. R. 40 (Dist. Ct. Order at 18) (Page ID #467). This timely appeal followed.
II. ANALYSIS
A. Standard of Review
“We review de novo a district court‘s decision to dismiss a complaint for failure to state a claim under
In general, we may not consider matters outside the pleadings in reviewing a
B. The retail or service establishment exemption does not apply
The district court held that defendants were exempt from overtime pay under the retail or service establishment exemption, and that plaintiffs’ allegations that they were deprived of minimum wage and overtime pay therefore failed to state a claim on which relief could be granted. R. 40 (Dist. Ct. Order at 14) (Page ID #463). As an initial matter, we note that the district court erred in applying the exception to
Section 7(i) of the
The overtime exemption does not apply. The allegations contained in plaintiffs’ amended complaint demonstrate only that in a normal, nonovertime week, employees are entitled to exactly the minimum hourly rate. Specifically, the amended complaint states that:
[i]n a non-overtime week . . . the “draw” equals minimum wage for each hour worked minus the amount of commissions earned . . . . In weeks where the commissions earned are greater than one and one-half times the minimum wage . . . the employee was simply paid commissions and no “draw.”
R. 10 (Am. Compl. at ¶ 17 (Page ID #53) (emphasis added). Although we recognize that an employee could, in theory, earn commissions in excess of one and one-half
C. Plaintiffs alleged sufficient facts to demonstrate that the draw policy violates the FLSA
In Count One of their amended complaint, plaintiffs claim that defendants’ draw system violates
1. Deduction of Draws From Future Earnings
a. “Free and clear” regulation
The DOL regulations clearly state that when an employee earns less in commissions than he was advanced through a draw, “a deduction of the excess amount from commission earnings for a subsequent period, if otherwise lawful, may or may not be customary under the employment arrangement.”
The
The wage requirements of the Act will not be met where the employee “kicks-back” directly or indirectly to the employer or to another person for the employer‘s benefit the whole or part of the wage delivered to the employee. This is true whether the “kick-back” is made in cash or in other than cash.
Id.
Plaintiffs argue that defendants failed to deliver wages “free and clear,” because under the compensation policy, any draw amount paid to meet the minimum wage is deducted from future paychecks. They characterize the draw as “nothing more than a loan” that retail sales employees are then expected to repay, or arguably,
[t]o the extent a Sales Associate‘s total Draws exceed the Sales Associate‘s total earned commissions (the “Deficit“), the Sales Associate is liable to, and obligated to pay, the Company the amount of the Deficit. The Company will have the right to demand the payment of, and the Sales Associate will be obligated to pay the Company, the Deficit.
R. 33-1, Exh. 1 (Sales Commission Plan at 1) (Page ID #315). Although the policy does not specify how employees are expected to repay the company, we take as true plaintiffs’ non-conclusory allegation that:
[t]he “draw” is typically recovered by Defendants by deducting the amount of the “draw” from commissions earned during the very next week, assuming the commissions after the deducted “draw” repayment exceed the minimum wage obligation for that week. In a week where the employee owes a “draw” back to Defendants, yet commissions are insufficient to cover the repayment, then Defendants deduct the amount of the outstanding “draw” from the next paycheck the employee receives for a week in which the employee‘s commissions minus the outstanding “draw” exceed the applicable minimum wage.
R. 10 (Am. Compl. at ¶ 20) (Page ID #54).
The question before us is whether recovery of the draw is an unlawful kick-back. The term “kick-back” is not defined in either the
b. DOL Interpretive Materials
Our determination that this policy is lawful finds support in the DOL Field Operations Handbook, as well as several DOL opinion letters. We recognize that these interpretations of Department regulations are “not ‘subject to the rigors of the Administrative Procedur[e] Act, in-
Here, the DOL Field Operations Handbook indicates that the
The employer has established payment of a weekly draw against commissions and a monthly pay (settlement) period. The salesperson draws $125 a week against earned commissions . . . . [By the first pay (settlement) date,] the salesperson has earned only $500 in commissions and is paid an additional $170 at the end of the pay (settlement) period to meet the total minimum wage ($3.35 x 200 [=] $670) due for the hours worked during that month or pay period. At the end of the following month, the salesperson has earned $1,000 in commissions. The employer deducts from this amount the $170 that was paid the previous month to bring the employee up to the minimum wage. The employer pays the salesperson $670 ($3.35 x 200) and carries the remaining $160 into the next month. This salesperson has also been paid in compliance with the
FLSA . If the employer pays an additional amount ($170 the first month) to satisfy the minimum wage, this amount may be recovered from excess commissions earned but not paid in subsequent pay (settlement) periods. Similarly, commissions earned but not paid in a given pay (settlement) period which are in excess of the amount required to satisfy minimum wage requirements may be carried forward and applied to the minimum wage on subsequent pay (settlement) dates.
Id. § 30b05(c)(3)(a), (c). This hypothetical is very similar to the policy at issue here. In both scenarios, the employer pays a certain amount to the employee to “bring the employee up to the minimum wage,” which is credited against future commission earnings. Id.
In contrast, the Field Operations Handbook also provides an example of an impermissible draw policy, which is consistent with our interpretation of the “free and clear” regulation. See
A salesperson is paid four weekly draws of $150 each for a total of $600 for the monthly pay (settlement) period. At the end of the month, the salesperson‘s commission earnings total $1,000. The employer deducts the $600 in draws from this amount and pays the remainder (or excess) of $400 to the salesperson. The following month, the salesperson is paid $600 in draws and earns no commissions. To meet the minimum wage obligation for the salesperson, the employer applies $70 from the $400 excess earned and paid the previous month. This practice is not in compliance with the requirements of the
FLSA . Any part of a commission that is actually paid to the employee may not be carried forward as a credit into subsequent pay (settlement) periods.
U.S. Dep‘t of Labor, Wage & Hour Div., Field Operations Handbook § 30b05(c)(3)(d) (2016). The Field Operations Handbook makes clear that the DOL views defendants’ practice of crediting draws against future earnings as permissible under the
Importantly, this interpretation appears to be the longstanding position of the DOL. Defendants point to three opinion letters that express a consistent view in support of the type of compensation structure used by defendants. In 1981, the DOL considered the legality of a similar compensation plan, which paid a “subsidy” to employees in weeks when commissions fell below the minimum wage, but later credited those subsidies against future commissions in excess of the minimum wage. U.S. Dep‘t of Labor, Wage & Hour Div., Opinion Letter, 1981 WL 179034 (Mar. 3, 1981). The employer sought guidance on whether this payment structure delivers the minimum wage “free and clear.” Id. The Deputy Administrator stated, “[w]here an employer advances funds to a commission salesperson to satisfy the minimum wage requirement, this amount may be recovered from excess commissions earned in a subsequent settlement period.” Id. Seventeen years later, the DOL again opined that a policy nearly identical to the one described in the 1981 opinion letter met the minimum-wage requirements of the
We find these materials to be persuasive, not only because they demonstrate that the DOL has maintained a consistent position for several decades, but also because their reasoning demonstrates that the DOL considered the legality of these provisions in light of the exact same regulation at issue here, that is, the “free and clear” regulation. See U.S. Dep‘t of Labor, Wage & Hour Div., Opinion Letter, 1981 WL 179034 (Mar. 3, 1981); U.S. Dep‘t of Labor, Wage & Hour Div., Opinion Letter, 1998 WL 852727 (Feb. 23, 1998);
c. Draw Policy and Overtime Violations
There are, however, limits to the persuasive power of the DOL‘s interpretations. First, we note that in each of the opinion letters, the DOL considered only potential violations of the minimum-wage requirements, because the employees at issue were all exempt from the overtime requirements of the
2. Post-Termination Liability
We also note that defendants’ compensation plan is distinguishable from those discussed in the opinion letters in that the policy here states that an employee is required to “immediately pay [defendants] any unpaid Deficit amounts” upon termination. R. 33-1, Exh. 1 (Sales Commission Plan at 2) (Page ID #316). The district court, in its opinion, noted the questionable legality of this policy, but granted defendants’ motion to dismiss because “there have been no facts alleged demonstrating that hhgregg enforces that aspect of its compensation plan when employment is terminated or ended.” R. 40 (Dist. Ct. Order at 13) (Page ID #462). At oral argument, defendants’ counsel represented to the court that defendants have not collected and will not in the future collect any debts from any employee upon
We do not believe that defendants’ assurances to the court end the inquiry. In analogous circumstances, we have focused upon the language of a written policy rather than its actual implementation, because “[s]imply because a [policy] has never been applied does not mean that the employee has not been affected by the policy.” Mich. Ass‘n of Governmental Emps. v. Mich. Dep‘t of Corr., 992 F.2d 82, 86 (6th Cir. 1993). Here, the policy clearly states that “[t]he Company will have the right to demand the payment of, and the Sales Associate will be obligated to pay the Company, the Deficit.” R. 33-1, Exh. 1 (Sales Commission Plan at 1) (Page ID #315). This obligation continues after termination for any reason, when the policy requires that “the Sales Associate will immediately pay the Company any unpaid Deficit amounts.” Id. at 2 (Page ID #316). Employees subject to this policy may reasonably believe that they remain liable to hhgregg for any unearned draw payments.
The dissent argues that although such a policy may under certain circumstances violate the
Plaintiffs have alleged sufficient facts to support a claim that defendants’ policy, as written, violates the
Although we find sufficient support in DOL interpretations that a company may lawfully credit draws against future unpaid earned commissions, we find no support for the claim that a company may demand repayment of wages already paid upon termination. The 1981 and 1998 opinion letters are specifically limited to policies
We therefore hold that plaintiffs failed to state a claim that defendants’ policy of deducting draw payments from future unpaid earned commissions violates the minimum wage and overtime requirements of the
D. Plaintiffs alleged sufficient facts to support a claim that defendants’ policies and practices encouraged employees to work “off the clock” without compensation
Plaintiffs argue that the district court erred in holding that they had failed to state a claim on which relief could be granted with regard to their “off the clock” claims.7 Appellants’ Br. at 44. Count Two of plaintiffs’ amended complaint alleges that defendants encouraged plaintiffs to work “off the clock” for substantial periods of time without compensation. R. 10 (Am. Compl. at ¶¶ 35-37) (Page ID #57). In support of this claim, plaintiffs state that:
[i]n each Store, Plaintiffs and Similarly Situated Employees often worked “off the clock” to avoid incurring such a debt to their employer. Defendants were aware of the practice, have tolerated this practice, have approved of this practice, and sometimes encouraged this practice of working “off the clock” in order to avoid a higher draw.
Id. at ¶ 13 (Page ID #50). In addition, plaintiffs state that defendants violated the minimum wage and overtime requirements by “requiring or coercing Plaintiffs and Similarly Situated Employees to work ‘off the clock’ for such things as required training and store meetings, or have expressly or tacitly approved such a practice.” Id. at ¶ 4 (Page ID #50).
The
Plaintiffs allege sufficient facts that, when taken as true, establish that defendants’ policies and practices with regard to working “off the clock” violate the minimum wage and overtime requirements of the
Defendants respond that, if plaintiffs’ allegations are correct, the practice would not violate the
This argument fails. Employers must actually pay the minimum wage for all hours worked in a given pay period.
Plaintiffs’ amended complaint states that hhgregg‘s managers tolerate and at times encourage their employees to work off the clock without compensation. Plaintiffs have alleged sufficient facts to support a claim that this practice violates the minimum wage and overtime requirements of the
E. Plaintiffs alleged sufficient facts to support a claim that defendants failed to pay overtime properly
Plaintiffs allege that “Defendants failed to properly compensate Plaintiffs and Similarly Situated Employees at the rate of one and one-half times the lawfully required regular rate for all weeks in which overtime was actually worked.” R. 10 (Am. Compl. at ¶ 41) (Page ID #58). In a workweek that exceeds forty hours, an employee is entitled to “compensation for his employment in excess of [forty hours] at a rate not less than one and one-half times the regular rate at which he is employed.”
F. The district court erred in dismissing plaintiffs’ remaining claims
Finding that none of plaintiffs’ federal claims had survived, the district court dismissed Count Five, alleging willful violations of the
The district court declined to exercise supplemental jurisdiction over the state-law claim for unjust enrichment in Count Six “because no federal claims remain[ed].” In light of our reinstatement of the federal claims, we remand this claim as well for further consideration.
III. CONCLUSION
Based on the foregoing, we REVERSE the district court‘s judgment dismissing
CONCURRING IN PART AND DISSENTING IN PART.
SUTTON, Circuit Judge, concurring in part and dissenting in part.
I agree with the Court that hhgregg‘s draw-on-commission policy for its active retail workers comports with the Fair Labor Standards Act. And I agree with the Court that a draw-on-commission policy may under certain circumstances violate the Act when employees leave the company. But I part ways with the Court in its conclusion that the company violated the rights of the named plaintiffs when they left the company. I thus would affirm in full Judge Dlott‘s decision to dismiss the claims.
According to the plaintiffs, hhgregg may not “claw back” draws it has paid to satisfy its minimum wage obligations when an employee leaves the company with a draw balance. As a general matter, I agree, as did the district court and as do my colleagues. The problem is that hhgregg did not do this and does not do it. As Judge Dlott correctly observed, the amended complaint contains “no facts” alleging hhgregg actually demanded that these employees (or any others) repay a draw after they left the company. R. 40 at 13. Trying to sidestep that conclusion, the plaintiffs point to two allegations: (1) “[u]nder such [draw] policy and practice, if there is an outstanding draw at the point the Similarly Situated Employee leaves employment with Defendants, the employee is obligated to repay the outstanding draw amount to the Defendants,” and (2) “[u]pon termination of employment for any reason, Defendants continue to hold Plaintiffs and Similarly Situated Employees liable for any unpaid ‘draw’ amount.” Appellants’ Br. 33.
But the plaintiffs concede that no such policy was applied to them. Asked whether the named plaintiffs had been asked to repay any outstanding draw, their counsel could respond only that “[i]t is [hhgregg‘s] policy to collect those once they leave.” Oral Arg. at 5:30–33. Plaintiff Robert Beck had “left owing a draw,” but “[t]he company did not make him pay it.” Id. at 5:15-22. After admitting “[t]here had been no effort . . . by the company to collect the debt that [Beck] left with when he had an excess draw,” counsel again argued that “we allege in the complaint that it is [hhgregg‘s] policy, because it‘s stated specifically in the policy, that they collect those debts.” Id. at 7:19-39; see also id. at 7:40-46 (conceding that hhgregg did not collect the named plaintiffs’ unpaid draws, but “they can collect it“).
The Court reasons that a provision in the company‘s employment policy violates the Act even if the company did not apply it to the plaintiffs or for that matter anyone else. That‘s why the Court must resort to hypotheticals: that “an employee . . . can be required” to repay the company, and “could be liable for thousands of dollars.” Maj. Op. 535 (emphasis added).
Oral argument cleared up any doubts. Defense counsel declared in open court that “the company never has collected that money.” Oral Arg. 18:53-59. And it acknowledged it never will:
Q. Can you say on behalf of the company in open court that . . . they‘re not going to collect [any outstanding draws]?
A. Yes, Your Honor. . . .
Q. For anybody? Not just these plaintiffs, but for anybody?
A. Correct, correct. . . . Never have they. There is nothing in the record,
in this complaint, to suggest that, actually, the company has ever tried to collect. . . . Q. But to be clear, I‘m asking you on behalf of the company to say they‘re not going to, in the future, ever collect one of these “debts” . . . when someone leaves.
A. Yes. Absolutely, Your Honor. And in fact, that language . . . [is] no longer in the policy.
Id. at 21:16-56.
That‘s all we should need to know to affirm Judge Dlott‘s decision. So far as the amended complaint goes, there is no plausible factual predicate for this claim. The plaintiffs had no answer to the point at oral argument, and none has emerged since.
The plaintiffs’ “off-the-clock” overtime allegations do not fill this void. No one here claims that working off-the-clock amounts to a per se violation of the
In the final analysis, the plaintiffs have not alleged that hhgregg sought repayment of their outstanding draws after they left the company, and they have not alleged that they were paid less than time and a half for overtime hours worked. In the absence of such facts, their claims remain on the wrong side of “the line between possibility and plausibility.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). With the named plaintiffs claims’ dismissed, the district court lacked jurisdiction over any similarly situated plaintiffs. See Genesis HealthCare Corp. v. Symczyk, 569 U.S. 66, 133 S.Ct. 1523, 1531-32, 185 L.Ed.2d 636 (2013). Judge Dlott properly granted hhgregg‘s motion to dismiss in its entirety.
For these reasons, I respectfully dissent.
FLIGHT OPTIONS, LLC; Flexjet, LLC; OneSky Flight, LLC; Flight Options Holding I, Inc., Plaintiffs/Counter-Defendants-Appellants,
v.
INTERNATIONAL BROTHERHOOD OF TEAMSTERS, LOCAL 1108; International Brotherhood of Teamsters, Airline Division, Defendants/Counter-Claimants-Appellees.
No. 17-3188
United States Court of Appeals, Sixth Circuit.
Argued: October 5, 2017
Decided and Filed: October 16, 2017
Notes
For example, if it is a requirement of the employer that the employee must provide tools of the trade which will be used in or are specifically required for the performance of the employer‘s particular work, there would be a violation of the Act in any workweek when the cost of such tools purchased by the employee cuts into the minimum or overtime wages required to be paid him under the Act.