TOM REED and MICHAEL ROY, individually and on behalf of those similarly situated v. BREX, INC., et al.
No. 20-1697
United States Court of Appeals For the Seventh Circuit
ARGUED NOVEMBER 9, 2020 — DECIDED AUGUST 9, 2021
Before SYKES, Chief Judge, and HAMILTON and BRENNAN, Circuit Judges.
Appeal from the United States District Court for the Southern District of Illinois. No. 3:17-cv-00292-NJR — Nancy J. Rosenstengel, Chief Judge.
HAMILTON, Circuit Judge.
I. Fair Labor Standards Act
The Fair Labor Standards Act requires that most covered employees be paid one and a half times their hourly wage for time that they work beyond 40 hours a week. Yi v. Sterling Collision Centers, Inc., 480 F.3d 505, 506 (7th Cir. 2007), citing
What counts as a bona fide commission? “The essence of a commission is that it bases compensation on sales, for example a percentage of the sales price, as when a real estate broker receives as his compensation a percentage of the price at which the property he brokers is sold.” Yi, 480 F.3d at 508. If an employee‘s “commissions vary in accordance with the employee‘s performance on the job,” he or she may qualify for exemption.
We examined these requirements in detail in Yi v. Sterling Collision Centers, Inc., where we affirmed summary judgment for a similar employer. Like this case, Yi was brought by auto repair technicians who worked on a commission basis subject to a convoluted pay algorithm. Noting that commission-based pay for such technicians was widespread and longstanding, we held that the plaintiffs in Yi qualified as commission-eligible workers in retail
We also explained that commission plans may qualify as bona fide under the Act even if they partially reflect hours worked or if an employer describes them using idiosyncratic terms that do not correspond closely with the Act‘s language. Id. at 508–09. The payment plan in Yi recognized that some workers may work collaboratively on big projects and accordingly split commissions for each project based on the number of hours each mechanic worked on the collaboration. The plan also compared actual hours worked to the nominal labor costs charged to the customer. Finally, each employee was paid a different baseline wage based on his or her skills and quality of work. Id. at 509. We concluded that this hybrid hourly-commission structure was a bona fide commission as a matter of law because each group‘s total commission incentivized efficient work, and pay was “decoupled from actual time worked.” Id.; see also
II. Undisputed Facts and Brex‘s Payment Plan
Defendant Brex operates a chain of over two dozen “Car-X” auto repair shops in Illinois and Missouri. Plaintiffs Tom Reed and Michael Roy worked for Brex as auto repair technicians. They also represent other Brex technicians in this collective and class action lawsuit, alleging that Brex‘s pay scale for auto technicians violates federal and state employment laws that require employees to be compensated at time-and-a-half for overtime hours. Because the parties agree that the state-law claims are co-extensive with the federal ones, we focus on the federal Fair Labor Standards Act,
Brex‘s pay scale for its auto technicians has some Rube-Goldberg-esque qualities: to arrive at a technician‘s take-home pay, Brex starts with the total cost charged to customers for each technician‘s weekly repairs and applies a series of divisions, multiplications, and additions, some of which are redundant.
First, Brex calculates its total receipts for repairs and sales that a given technician has made during a pay period, excluding tire installations. That total sales number is then divided by hours worked to come up with an average “hourly production.” Brex publishes a table to convert bands of “hourly production” to hourly wages (called “hourly commission“). Generally, the calculated hourly wages translate to roughly 16 to 17 percent of the hourly production.
For example, if a technician‘s hourly production is between $100 and $104.99 per hour during a pay period, Brex‘s table defines the baseline hourly wage for that pay period as $16.25. In contrast, if that technician‘s hourly production is between $80 and $84.99 per hour, then the base hourly wage for that pay period is $12.80.
There are a couple of further complications in Brex‘s pay system. First, tire sales and installation are counted separately.
The hourly wage also has a floor that applies even if the mechanic‘s hourly production is anemic during the particular pay period. This floor works out to be one and a half times the applicable state minimum wage, rounded up. Plaintiffs Reed and Roy concede that the alternative wage floor is triggered in only 16 percent of paychecks, meaning that 84 percent of Brex paychecks are paid on the commission scale.
By way of example, say employee A worked 45 hours during a pay period and produced $5,000 in non-tire sales. Employee A also installed six tires and was licensed in electrical repair and as an inspector in Missouri. First, the pay scale would divide total production ($5,000) by hours worked (45) to arrive at an hourly production of $111.11. Using the pay scale converter, any hourly production between $110.00 and $114.99 translates to a base wage of $17.88 per hour (or 16.1 percent of hourly production). Both of this technician‘s certifications carry an additional bonus of 50 cents per hour, bringing the total hourly wage up to $18.88, and each tire adds $5.00 to the total. Because $18.88 exceeds one and a half times the minimum wage in Illinois and Missouri, that is the applicable hourly wage. So for this week, employee A‘s gross pay will be 45 hours times $18.88 per hour plus (six tires at $5.00 per tire) equals $879.60.
Next, compare a slightly more efficient employee B, who produced the same amount of sales ($5,000) for just 35 hours of work, holding everything else constant. This technician‘s hourly production would be $142.86. Using Brex‘s conversion chart, base hourly pay would be $22.75 (15.9 percent of hourly production), and adjusted hourly pay with certificates would be $23.75 per hour. During this pay period, employee B would be paid (35 hours) times ($23.75 per hour) plus (six tires at $5.00 per tire) equals $861.25. Though employee B worked 22 percent fewer hours than employee A, B would be paid just 2 percent less.
Reed and Roy sued on behalf of 157 Brex technicians claiming that this scheme violates the Fair Labor Standards Act because they are not paid overtime wages even though they are entitled to time-and-a-half under the Act. Their primary claim is that the pay scale does not reflect a bona fide commission, which would be excepted from the overtime requirements, because it incorporates hours worked in so many steps in computing pay. They also point to Brex‘s description of its pay plan as providing hourly wages. In further support, the technicians argue that the payment plan does not further the purposes of the time-and-a-half requirement for overtime hours because it does not discourage Brex from requiring its technicians to work long hours. In fact, the evidence shows that Brex technicians regularly work more than 40 hours per week. Finally, plaintiffs advance the disconcerting alternative theory that Brex‘s minimum wage floor violates the Act because it is too generous: they say that employees who fall back on this option for one pay period should have to pay back their excess earnings in subsequent pay periods, though
Brex moved for summary judgment on all these theories, arguing that the undisputed evidence showed that the commission structure was bona fide and the guarantee was lawful. The district court initially granted judgment as a matter of law on the first theory, and after Brex moved to reconsider, did so on the second as well, entering final judgment for Brex. Reed and Roy pursue both theories on appeal.
III. Analysis
We review a district court‘s summary judgment ruling de novo, giving the non-moving parties the benefit of conflicting evidence and reasonable inferences from the evidence. Vesey v. Envoy Air, Inc., 999 F.3d 456, 459 (7th Cir. 2021). Summary judgment is appropriate when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
Reed and Roy‘s primary claim that they are not paid bona fide commissions fails because the undisputed facts as presented to the district court show that Brex pays each technician based on his or her actual sales. Because pay is proportional and correlated to each technician‘s sales, the exception applies to Reed and Roy, so that they are not entitled to additional overtime wages. As plaintiffs point out, we have traced the purposes of the general overtime requirement in part to Congress‘s desire to prevent workers from working dangerously long hours. Yet the fact that Brex‘s technicians work long hours cannot on its own create an issue of triable fact as to whether they qualify for this statutory exception to the general overtime rule. On appeal, plaintiffs also raise factual issues that were not presented to the district court, and in fact contradict the positions they did take. These arguments were forfeited.
In the district court, Brex moved for summary judgment on the ground that Yi foreclosed Reed and Roy‘s claims. According to Brex, the undisputed evidence showed that each technician‘s earnings were determined almost entirely as a roughly 16 percent commission on sales, so no reasonable jury could conclude that the pay scale was not bona fide. In opposing the motion, Reed and Roy focused on Brex‘s repeated description of its plan as “hourly” in the written materials it gave its technicians and in its executives’ deposition testimony that hours worked is a factor in calculating take-home pay. The technicians also highlighted that Brex‘s pay algorithm explicitly incorporates hours worked in several of the steps for computing pay. Not only does Brex pay an hourly bonus to some well-credentialed technicians, but it also determines an hourly commission by dividing sales by hours worked, and it reports hourly wages. Since Brex pays its technicians an “hourly” wage for each “hour” worked during a pay period, plaintiffs reason, pay is not “decoupled” from time worked, as required by Yi.
We understand the point, but as we have said before, “the nomenclature is not determinative.” Alvarado v. Corporate Cleaning Services, Inc., 782 F.3d 365, 371 (7th Cir. 2015), citing Yi, 480 F.3d at 508 (holding payment plan to be a bona fide commission even though it described itself as a non-exempt “piece-rate” plan). It is uncontested that Brex‘s payment plan determines weekly pay by dividing sales by hours worked, multiplying by the commission rate of roughly 16 percent, and then multiplying that “hourly” rate by hours worked. The formula is convoluted, but it is mathematically identical to paying a straight commission. First multiplying and then dividing by the same number (hours
Likewise, the fact that Brex reports an “hourly” wage does not change the nature of the plan. It was undisputed before the district court that the “hourly” wage varies in accordance with a technician‘s sales in that week. It was therefore a bona fide commission under our precedents, and summary judgment was appropriate. Alvarado, 782 F.3d at 367–68 (affirming summary judgment for employer where undisputed facts showed that compensation was “proportional and correlated” to sales receipts); Yi, 480 F.3d at 509–10 (affirming summary judgment for employer notwithstanding evidence that employer weighted otherwise bona fide commission formula by hours worked); see also Parker v. NutriSystem, Inc., 620 F.3d 274, 283 (3d Cir. 2010) (affirming summary judgment for employer where undisputed evidence showed that employee pay was “proportionally related to the charges passed on to the consumer,” and rejecting rule that commissions are bona fide only if they are calculated “strictly as a percentage of sale price“).2
Brex‘s admissions that technician pay is partially a function of hours worked do not create a triable issue of fact. Obviously, to some extent, technicians who work more hours are likely to have more repair opportunities and therefore make more money. Yi, 480 F.3d at 508 (noting that a commission employee‘s “income is likely to be influenced by the number of hours a week that he works“). And small hourly bonuses for certification do not convert an employee‘s pay into a standard wage so long as “more than half his compensation represents commissions on goods and services.”
No factual issues preclude summary judgment. With one caveat, which was forfeited in the district court, the terms and impact of the payment plan are not in dispute. Both sides’ summary judgment materials were packed with undisputed examples of pay fluctuations — person to person, week to week, and year to year. No reasonable jury could look at that data and conclude that a given technician “always or almost always earns the same fixed amount of compensation for each workweek.”
Reed and Roy also argue that summary judgment is inappropriate because Brex technicians log, on average, 25 percent more hours than a standard 40-hour workweek, creating, they say, a factual dispute as to whether the commission plan encourages efficient work. This argument stems from our previous discussion of the purposes of the Act‘s overtime provisions, first adopted in 1938 before the nation had recovered from the Great Depression: (1) preventing workers willing to work longer hours from taking work away from those who prefer shorter hours; (2) spreading work around to more employees to reduce aggregate unemployment; and (3) deterring employers from forcing employees to work long, unhealthy, or dangerous hours. Mechmet v. Four Seasons Hotels, Ltd., 825 F.2d 1173, 1176 (7th Cir. 1987); see also Alvarado, 782 F.3d at 371 (concluding that payment plan was bona fide commission in part because seasonal employees did not work more than 2,000 hours per year); Yi, 480 F.3d at 510 (similarly noting total hours worked in finding employees were subject to commission exception).
As discussed below, we are not opposed to interpreting vague or ambiguous statutory texts in light of evident purposes, but “no legislation pursues its purposes at all costs.” Rodriguez v. United States, 480 U.S. 522, 525–26 (1987). We have explained: “Compromises draw unprincipled lines between situations that strike an outside observer as all but identical. The limitation is part of the price of the victory achieved, a concession to opponents who might have been able to delay or block a bill even slightly more favorable to the proponents.” Chicago Professional Sports Ltd. P‘ship v. Nat‘l Basketball Ass‘n, 961 F.2d 667, 671 (7th Cir. 1992).
For more than eighty years, the detailed and evolving provisions of the Fair Labor Standards Act provide ample proof of the point. From its first enactment in 1938, the scope of the Fair Labor Standards Act has been the subject of complex political and policy compromises and statutory amendments.3
The commission exception is one of those statutory exceptions to the general overtime rule adopted as part of the galaxy of compromises essential to passage. Those exceptions and compromises should not be undone by courts in the name of achieving broader statutory purposes. E.g., Covalt v. Carey Canada Inc., 860 F.2d 1434, 1439 (7th Cir. 1988) (“laws have both directions and limits, and each must be scrupulously honored“). Employers and employees do not and need not respond to economic incentives imposed by statutory provisions that do not apply to them.
To be sure, evidence that employees regularly work extreme hours can be relevant to whether a complex pay scale actually offers incentives for more efficient work or whether the employees are retail or service workers to begin with. See Dyal v. PirTano Construction, Inc., 2018 WL 1508487, *10–12 (N.D. Ill. Mar. 27, 2018) (denying summary judgment in part and correctly noting that hours worked are not relevant where pay plan is unquestionably a bona fide commission but can affect analysis of evidence showing that commissions are not bona fide). But where the evidence offered to defeat summary judgment
On appeal, Reed and Roy point to a new issue of material fact that they say is disputed. They now claim that the pay plan is not implemented as described and that workers’ pay is totally arbitrary. Plaintiffs cite a spreadsheet included as an exhibit in the summary judgment briefing that includes aggregate data about “sales” and “commissions” for each technician-workweek. Plaintiffs’ appellate brief includes some new back-of-the-envelope calculations, which show that the pay scale is not a roughly 16 percent commission. In fact, they say, the calculations show that each technician‘s weekly pay was not correlated with sales at all, meaning that the alleged commission structure is anything but bona fide. For example, they calculate that one technician‘s commission rate equaled 11.4 percent of sales in one week, but 64.8 percent of sales in another week, as opposed to the roughly 16 percent that results from using Brex‘s table.
Plaintiffs are correct that summary judgment would have been inappropriate if there were factual disputes as to whether commissions were actually correlated with sales. An employee compensation algorithm that spits out random numbers does not base compensation on sales and would not be a bona fide commission. See Yi, 480 F.3d at 508.
But these arguments are at least forfeited and perhaps waived. “Summary judgment is the proverbial put up or shut up moment in a lawsuit, when a party must show what evidence it has that would convince a trier of fact to accept its version of events.” Beardsall v. CVS Pharmacy, Inc., 953 F.3d 969, 973 (7th Cir. 2020) (cleaned up). It is therefore incumbent on the party opposing a summary judgment motion to “inform the district court of the reasons why summary judgment should not be entered.” Riley v. City of Kokomo, 909 F.3d 182, 190 (7th Cir. 2018). Parties who fail to bring record evidence to the district court‘s attention risk forfeiting their right to rely on it on appeal. Wrolstad v. Cuna Mutual Ins. Society, 911 F.3d 450, 455 (7th Cir. 2018).
Reed and Roy did not present these new calculations to the district court. In fact, they did not even dispute Brex‘s assertions that technician pay was determined using the pay scale as described above. All their arguments were built on that foundation. Plaintiffs’ new factual argument is not a mere “appellate amplification of a properly preserved issue.” Lawson v. Sun Microsystems, Inc., 791 F.3d 754, 761 (7th Cir. 2015).
All the evidence underlying these new calculations was available to plaintiffs during the summary judgment briefing, yet they did not bring them to the attention of the district court or give Brex an opportunity to explain or clarify them. These lapses are especially problematic because the calculations that plaintiffs now cite do not explicitly separate out tire sales and commissions, rendering the spreadsheets inconclusive at best. Accordingly, this appeal is not the “rare situation” in a civil case where we would review the district court‘s decision for plain error, and Reed and Roy may not raise these novel issues of fact on appeal. See Henry v. Hulett, 969 F.3d 769, 786 (7th Cir. 2020) (en banc) (“our ability to review for plain error in civil cases is severely constricted“); Wrolstad, 911 F.3d at 455.
We are now left only with Reed and Roy‘s unusual alternative argument that they were paid too much. The genesis
Reed and Roy rely almost exclusively on the regulations’ use of the phrase “a guarantee or draw against commissions,” which they read as “guarantee[,] or [,that is,] draw against commissions.” See
We are not persuaded by Reed and Roy‘s argument. We begin with the statutory text, which implicitly but plainly permits a “draw or guarantee.”
Department of Labor regulations explain that employers may smooth the peaks and valleys of a commission-based payment model, without losing application of the bona fide commission exception, by providing employees with “periodic payments, which are described variously in retail or service establishments as ‘advances,’ ‘draws,’ or ‘guarantees.‘”
“If [] it appears from all the facts and circumstances of the employment that the stipulated sum ... actually functions as an integral part of a true commission basis of payment, then such compensation may qualify as compensation which ‘represents commissions on goods or services.‘”
Brex‘s payment plan, as described before the district court, meets these flexible criteria. The regulation allows that the guarantee can operate as an alternative minimum floor, and Brex‘s alternative minimum floor is thus within the regulatory ambit. And the Department‘s suggestion that an employer “may or may not” recoup excess payments shields Brex against the exact argument that Reed and Roy now raise.
To be sure, the regulations admonish that further inquiry may be needed to determine whether the guarantee is actually part of a bona fide commission system. This guidance appears to be driven by the concern that an employer will implement a sham “guaranteed commission” that employees will almost never exceed — and when they do, the marginal commissions will be minimal. See
But the undisputed evidence presented to the district court shows that the Brex payment plan is a bona fide commission because pay is highly responsive to sales performance and varies in accordance with sales. Likewise, this guarantee is the exception, not the rule: Brex‘s technicians are paid on a true commission basis 84 percent of the time. This is not a case where an employer offers a nearly insurmountable baseline wage threshold or allows only “slight” upward deviations for exemplary performance. See
Reed and Roy invoke the regulation‘s observation that a guarantee “can never represent commissions, of course, if it is actually paid as a salary.”
Even if the Act and regulations were ambiguous as applied to the Brex pay system, our reading also avoids an improbable, even perverse, outcome. The entire point of the Act is to require or encourage employers to pay their employees more, not less. Yet Reed and Roy say that Brex should have paid them less by docking their pay during weeks of plenty to compensate for the lean weeks. The statute and regulations do not require us to find that an employer violates the Act by paying its employees more than necessary. We will not strain to read them to arrive at that odd result.
Reed and Roy argue that genuine issues of material fact preclude summary judgment on this theory, but their arguments
Reed and Roy make other undeveloped factual arguments in favor of reversal, but such arguments and legal arguments unsupported by pertinent authority are waived. See, e.g., Williams v. Board of Education of City of Chicago, 982 F.3d 495, 511 (7th Cir. 2020). They claim that the fact that the guaranteed wage floor is paid for 16 percent of all workweeks raises an issue of fact for the jury as to whether the guarantee operates as an integral part of a true commission system. That figure shows only that the guarantee occasionally guarantees. And the Act permits guarantees. Plaintiffs’ observation of this fact, without any citation to relevant authority or attempt to situate Brex‘s practices within the permissive statutory and regulatory framework, cannot defeat summary judgment on its own. That is especially true here, where the undisputed evidence presented to the district court showed that there was substantial hourly and weekly variation in pay and that the guarantees are therefore “computed in accordance with a bona fide commission payment plan or formula under which the computed commissions vary in accordance with the employee‘s performance on the job.”
For these reasons, the judgment of the district court is AFFIRMED.