Overtime for Commission-Only Employees

Overtime for commission employees
Commission-only employees have right to overtime pay

On May 8, 2019, the Massachusetts Supreme Judicial Court issued a major decision guaranteeing overtime to employees who are paid on a commission-only basis. The case is Sullivan v. Sleepy’s LLC. The SJC was considering whether salespeople who receive only commissions and a draw and no other salary are eligible for overtime and Sunday premium pay.

The case was brought by salespeople at Sleepy’s, a national chain of mattress stores, who were paid a daily draw of $125 and any sales commissions above that amount. They did not receive any extra pay for working overtime or on Sundays, and they argued that they were eligible for both.

Sleepy’s did not dispute that the overtime statute applied to its salespeople. Instead, it maintained that if you took the salespeople’s take-home pay (again, made up only of the draw and commissions) and divided it by the number of hours they worked, their effective hourly rate was at least the minimum wage for straight time and at least 1.5 times the minimum wage for overtime hours worked. The employees were, in effect, already receiving premium pay as part of their regular pay, according to Sleepy’s argument. The company relied on two opinion letters by the Massachusetts Department of Labor Standards from 2003 and 2009.

This reliance was misplaced, because as the SJC reminded us, the wage and hour laws do not allow employers to “retroactively reallocate and credit payments made to fulfill one set of wage obligations against separate and independent obligations.” In other words, an employer cannot use one wage obligation (to pay commissions) to cover another one (to pay overtime).  

If employers could credit commission and draw payments against their overtime obligations, it would undermine the chief purposes of the overtime law: to discourage long work hours (so that employees can have more personal and family time), to encourage employers to hire more workers (to avoid paying the overtime premium), and to reward employees who do work overtime hours with extra pay. The interpretation of the law advocated by Sleepy’s – whereby it did not have to pay extra money when employees worked overtime – undercut each of these purposes, so the SJC rejected it. 

The SJC’s decision in Sleepy’s will be very important for overtime cases. We have several cases on behalf of employees who are paid on a 100 percent commission basis, must work far more than 40 hours a week, but receive no additional compensation beyond commissions and draws. Those cases will be strengthened by this decision. Feel free to contact us if you work more than 40 hours in some workweeks but only get paid commission, no overtime — or if you work in retail, and work on Sundays, but get paid nothing beyond your commissions.