Adrian Parker v. NutriSystems Inc

Filing 920100907

Opinion

PRECEDENTIAL U N IT E D STATES COURT OF APPEALS F O R THE THIRD CIRCUIT

No. 09-3545

ADRIAN E. PARKER, Individually a n d on behalf of all others similarly situated v. N U T R IS Y S T E M , INC.

D E L O R IS WYNN, A d m in istratrix of the Estate of Adrian E. Parker; D O N A L D J. WILSON; FRANK L. STEPHENS, IV; M O N IC A THOMPSON; SENYA SAUNDERS, Appellants (Pursuant to Rule 12(a), Fed. R. App. P.) (Pursuant to Rule 43(a)(1), Fed. R. App. P.)

On Appeal from the United States District Court f o r the Eastern District of Pennsylvania (D .C . No. 2-08-cv-01508) D istrict Judge: Honorable Harvey Bartle, III

Argued June 21, 2010 B e f o re : SMITH, FISHER and COWEN, Circuit Judges. (F ile d : September 7, 2010) S h a n o n J. Carson (Argued) E llen T. Noteware B e rg e r & Montague 1 6 2 2 Locust Street P h ila d e lp h ia , PA 19103 R . Andrew Santillo P e te r D. Winebrake T h e Winebrake Law Firm 7 1 5 Twining Office Center T w in in g Office Center, Suite 211 D re sh e r, PA 19025 C o u n se l for Appellants S a ra h E. Bouchard (Argued) K a th e rin e E. Kenny J o n a t h a n S. Krause M o rg a n , Lewis & Bockius 1 7 0 1 Market Street P h ila d e lp h ia , PA 19103 C o u n s e l for Appellee P a u l L. Frieden L a u ra Moskowitz (Argued) 2

U n ite d States Department of Labor O f f ic e of the Solicitor N -2 7 1 6 2 0 0 Constitution Avenue, N.W. W a sh in g to n , DC 20210 C o u n s e l for Amicus Curiae, S e c re ta r y of Labor D a v id A. Borgen G o ld s te in , Demchak, Baller, Borgen & Dardarian 3 0 0 Lakeside Drive, Suite 1000 O a k la n d , CA 94612 C o u n s e l for Amicus Curiae, N a tio n a l Employment Lawyers Association., C o m ité De Apoyo A Los Trabajadores A g r íc o l a s , Community Legal Services, C o r n e ll Labor Law Clinic, Friends of F a r m w o r k e r s , Juntos, National Lawyers G u ild Labor and Employment Committee, S o u th e rn Poverty Law Center, The Sugar L a w Center, and Working Hands Legal Clinic

OPINION OF THE COURT

FISHER, Circuit Judge. T h is appeal arises from an order of the District Court, en tered July 30, 2009, granting Appellee NutriSystem, Inc.'s 3

( " N u t riS ys te m " ) motion for summary judgment on Appellants' c la im s for past overtime payments based on violations of the F a ir Labor Standards Act ("FLSA" or the "Act"), 29 U.S.C. § 201, et seq.1 We must decide whether the District Court c o rre c tly concluded that NutriSystem's method of compensating its call-center employees constituted a commission under the F L S A so that Nutrisystem was exempt from paying Appellants o v e rtim e . For the reasons articulated below, we agree with the D is tric t Court that NutriSystem's compensation plan qualified a s a commission and affirm its ruling. I. A. T h e facts in this case are undisputed. NutriSystem is a p ro v id er of weight loss and weight management products. It m ark ets and sells its prepackaged meals directly to customers f o r personal use. Its core product is a 28-day meal program. N u triS ys te m offers several varieties of the meal plan depending o n customers' needs. In 2008, NutriSystem offered plans under t w o methods of shipping, regular or auto-ship, at different p ric e s: a men's regular 28-day plan for $371.50, or $319.95; a w o m e n 's regular 28-day meal plan for $342.36, or $293.72; a w o m e n 's or men's silver 28-day plan (for older customers) for $ 3 4 2 .3 6 , or $293.72; a women's or men's diabetic-friendly 2 8 -d a y plan for $342.36, or $293.72; and a women's or men's

Deloris Wynn has been substituted as lead plaintiff p u rsu a n t to Federal Rule of Appellate Procedure 43(a)(1). 4

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v e g e ta ria n 28-day plan for $342.36, or $293.72. Under the re g u la r method, the customer receives only a 28-day shipment a n d then must affirmatively request additional shipments. U n d e r the auto-ship method, a customer signs up to receive a u to m a tic monthly shipments of food and is charged by N u triS yste m on a monthly basis. Customers are permitted to c a n ce l the auto-ship plan after the first month. N u triS yste m customers typically place their orders via t e le p h o n e or the internet. The phone calls are fielded at a N u triS ys te m call center in Horsham, Pennsylvania, which em p lo ys approximately 230 sales associates. Under a N u triS ys t e m sales policy, sales associates are prohibited from re m a in in g idle for more than five minutes while awaiting an in b o u n d call. Before the five-minute mark is reached, an asso ciate must originate an outbound sales call. These calls are g e n e ra lly to people who filled out profiles on the company w e b site but failed to place an order or to customers who p re v io u s ly placed orders but whose credit cards were declined. N u triS ys te m sales associates are assigned to six different w o rk shifts: 7:00 a.m. to 3:30 p.m., 9:00 a.m. to 5:30 p.m., 1 1 :0 0 a.m. to 7:30 p.m., 1:30 p.m. to 10:00 p.m., 3:30 p.m. to 1 2 :0 0 a.m., and 11:00 p.m. to 7:30 a.m. (the "overnight shift"). S in c e January 2007, sales associates, except those working the o v e rn ig h t shift, have been permitted to work extra hours during a week if in the preceding week they exceeded the average " sa le s dollars per call," a figure the company calculates based on th e revenue the sales associates generate and the calls they make e a ch week.

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In March 2005, NutriSystem implemented the c o m p e n s a tio n scheme for sales associates at issue in this case. U n d e r the plan, sales associates receive the greater of either th e ir hourly pay or their flat-rate payments per sale for each pay p erio d . The hourly rate is $10 per hour for the first forty hours p e r week, and $15 per hour for overtime. The flat rates per sale a re $18 for each 28-day program sold via an incoming call d u rin g daytime hours, $25 for each 28-day program sold on an in c o m i n g call during evening or weekend hours, and $40 for e a c h 28-day program sold on an outbound call or during the o v e rn ig h t shift. These flat rates do not vary based on the cost of th e meal plan to the consumer. T h e majority of the sales associates are compensated b a se d on these flat rates, not their hourly earnings. Under the c o m p e n s a tio n plan, sales associates do not receive overtime c o m p e n s a tio n when they are paid the flat rates for the sales m a d e . There is no change to the flat rates when a sales associate w o rk s more than forty hours in one week. B. A d ria n Parker, a former sales associate, sued N u triS yste m for violations of the FLSA and the Pennsylvania M in im u m Wage Act ("PMWA"), 43 Pa. Cons. Stat. § 333.101, e t seq., on behalf of himself and others similarly situated (c o lle c tiv e ly "Appellants"). Parker asserted his FLSA claim as a collective action under 29 U.S.C. § 216(b) and his PMWA c la im as a class action under Federal Rule of Civil Procedure 23.

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In a July 25, 2008 order, the District Court declined to e x e r c is e supplemental jurisdiction over Parker's PMWA class ac tio n claim.2 On September 26, 2008, the District Court c o n d itio n a lly granted Parker's motion to proceed as a collective a c tio n for his FLSA claims, and seventy-eight plaintiffs opted in . N u triS ys te m moved for summary judgment against lead p la in tif f Parker and the first four opt-in plaintiffs in the FLSA c o llec tiv e action. NutriSystem informed the District Court it w o u ld move for summary judgment against the remaining p la in tif f s if the court found in its favor. Parker also moved for s u m m a ry judgment against NutriSystem. On July 30, 2009, the D istrict Court granted NutriSystem's motion for summary ju d g m e n t and denied Parker's. A p p ellan ts filed a timely notice of appeal. The Secretary o f Labor has filed a brief as amicus curiae in support of A p p e lla n ts ' position.

Appellants argue that the District Court abused its d iscretio n in declining to exercise supplemental jurisdiction over th e state class action claims. Because we affirm the District C o u rt's grant of summary judgment in favor of NutriSystem as to the federal claims against it, we need not address the propriety o f the District Court's decision with regard to its jurisdiction o v e r the state law claims. The District Court was free to decline to exercise supplemental jurisdiction because it "dismissed all c la im s over which it [had] original jurisdiction." 28 U.S.C. § 1367(c)(3). 7

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II. T h e District Court had jurisdiction over Appellants' F L S A claim pursuant to 28 U.S.C. § 1331 and 29 U.S.C. § 216(b). We have appellate jurisdiction under 28 U.S.C. § 1291. We review a district court's grant of summary judgment d e novo. Levy v. Sterling Holding Co., 544 F.3d 493, 501 (3d C ir . 2008). Summary judgment is appropriate "if the pleadings, d e p o sitio n s , answers to interrogatories, and admissions on file, to g e th e r with the affidavits, if any, show that there is no genuine is s u e as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). I I I. T h e dispute in this case centers on the limited issue of w h e th e r NutriSystem's method of compensating its sales a s s o c i a t e s represents "commissions on goods or services," w h i ch turns on whether the "earnings result[] from the ap p lica tio n of a bona fide commission rate." 29 U.S.C. § 207(i). W e conclude that NutriSystem's compensation plan establishes a "bona fide commission rate" and is therefore a "commission" u n d e r the FLSA. A . Background T h e FLSA requires that employers pay their employees o n e and one-half times their regular rate of pay for any hours w o rk e d in excess of forty hours per week. 29 U.S.C. § 207(a). T h e Act contains an exception to the overtime requirements for

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e m p l o ye e s working in retail or service establishments. Section 7 ( i) , the "retail commission exception," provides: N o employer shall be deemed to have v io la te d subsection (a) of this section by e m p l o yin g any employee of a retail or service e sta b lis h m e n t for a workweek in excess of the a p p lic a b le workweek specified therein, if (1) the r e g u la r rate of pay of such employee is in excess o f one and one-half times the minimum hourly ra te applicable to him under section 206 of this title , and (2) more than half his compensation for a representative period (not less than one month) rep rese n ts commissions on goods or services. In d e te rm in in g the proportion of compensation re p re se n tin g commissions, all earnings resulting f ro m the application of a bona fide commission ra te shall be deemed commissions on goods or s e rv ic e s without regard to whether the computed c o m m is sio n s exceed the draw or guarantee. 2 9 U.S.C. § 207(i). The employer has the burden of d e m o n s tra tin g that it is eligible for the retail commission e x c e p tio n . See Mitchell v. Ky. Fin. Co., 359 U.S. 290, 295-96 (1 9 5 9 ); Madison v. Res. for Human Dev., Inc., 233 F.3d 175, 1 8 3 (3d Cir. 2000). H e re , the parties agree that under § 7(i), NutriSystem q u a lif ie s as a retail establishment and that its sales associates' re g u la r rate of pay is more than one and one-half times the

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f e d era l minimum wage; the question we face is the meaning of " c o m m is s io n s on goods or services." " `In interpreting a statute, the Court looks first to the s ta tu te 's plain meaning and, if the statutory language is clear and u n a m b i g u o u s , the inquiry comes to an end.'" Kaufman v. A lls ta te N.J. Ins. Co., 561 F.3d 144, 155 (3d Cir. 2009) (quoting C o n n . Nat'l Bank v. Germain, 503 U.S. 249, 253-54 (1992)). W h e re the statutory language is unambiguous, the court should n o t consider statutory purpose or legislative history. See AT&T, In c . v. F.C.C., 582 F.3d 490, 498 (3d Cir. 2009). In determining whether language is unambiguous, we " re a d the statute in its ordinary and natural sense." Harvard S e c u re d Creditors Liquidation Trust v. I.R.S., 568 F.3d 444, 451 ( 3 d Cir. 2009). A provision is ambiguous only where the d is p u te d language is "reasonably susceptible of different in te rp re ta tio n s ." Dobrek v. Phelan, 419 F.3d 259, 264 (3d Cir. 2 0 0 5 ). T h e FLSA does not define the term "commission." The p la in meaning of the term, according to Black's Law Dictionary, is "[a] fee paid to an agent or employee for a particular tra n sa c tio n , usu[ally] as a percentage of the money received f ro m the transaction." Black's Law Dictionary 306 (9th ed. 2 0 0 9 ). Section 7(i), however, requires that in order to be a c o m m is sio n , the fee paid to the employee must be based on a " b o n a fide commission rate." The "bona fide commission rate" la n g u a g e is imprecise and capable of ambiguity. Therefore, we h o ld the plain language of § 7(i) does not provide sufficient g u id a n c e to govern the application of the statute in this case. Cf. 10

M e c h m e t v. Four Seasons Hotels, Ltd., 825 F.2d 1173, 1175 (7th C ir. 1987) (finding that "[i]t would not be sensible to try to d e c id e [a] case on the basis of dictionary meanings, or for that m atter common legal usages, of the word `commission.'"). B e c au s e we cannot unlock the meaning of "commission" b a se d on the plain language in this context, we consider le g is la tiv e history and statutory purpose. See In re Lord Abbett M u t. Funds Fee Litig., 553 F.3d 248, 254 (3d Cir. 2009) ( " `W h e re the statutory language does not express Congress's in ten t unequivocally, a court traditionally refers to the legislative h isto ry and the atmosphere in which the statute was enacted in a n attempt to determine the congressional purpose.'") (quoting U n ite d States v. Gregg, 226 F.3d 253, 257 (3d Cir. 2000)). F u r th e r , in light of this statutory ambiguity we must e x a m in e the Department of Labor's (the "Department") various in te r p r e ta tio n s of the statute to determine whether the D e p a rtm e n t is entitled to deference. See Chevron U.S.A., Inc. v. N a tu r a l Res. Def. Council, Inc., 467 U.S. 837, 865 (1984). " In te rp re ta tio n s such as those in opinion letters ­ like in t e rp r e ta tio n s contained in policy statements, agency manuals, a n d enforcement guidelines, all of which lack the force of law ­ do not warrant Chevron-style deference." Christensen v. H a rr is County, 529 U.S. 576, 587 (2000). Rather, in terp r e ta tio n s contained in formats such as opinion letters are " e n title d to respect" based on an agency interpretation's power to persuade. Id. (citing Skidmore v. Swift & Co., 323 U.S. 134, 1 4 0 (1944) (We consider "the thoroughness evident in [the i n t e r p r e t a t i o n ' s ] consideration, the validity of [the in te rp re ta tio n 's ] reasoning, [the interpretation's] consistency 11

w ith earlier and later pronouncements, and all those factors w h ic h give [the interpretation] power to persuade, if lacking p o w e r to control.")); see also Packard v. Pittsburgh Transp. C o ., 418 F.3d 246, 253 (3d Cir. 2005). In this case, we examine th e various Department opinion letters addressing the meaning o f commission. Both sides point to court decisions that, they c la im , support their interpretation of the term "commission" u n d er section 7(i). A p p e lla n ts submit that to qualify as a commission under § 7(i), the fee paid to an employee must be based on the final c o st to the consumer and that NutriSystem's plan, therefore, w o u ld not qualify as a commission because the flat rate p a ym e n ts are based not on the cost to the consumer, but on both th e time the sale was consummated and whether it was the result o f an incoming or outgoing call. The Department supports A p p e lla n ts ' position and argues that we should afford Skidmore d e f ere n c e to its consistent view expressed in various opinion le tte rs that to qualify as a commission for purposes of § 7(i) the p a ym e n t must be "linked to the cost of the product sold or s e rv ic e s provided to the customer." (Dep't of Labor Br. at 21.) N u triS yste m , on the other hand, asserts that its compensation s c h e m e qualifies as commission because the sales associates' p a y varies across pay periods, their compensation was not linked to the number of hours worked, and the payments were p ro p o rtio n al to the cost to the consumer. B . Legislative History C o n g re ss enacted the FLSA "to protect all covered w o r k e r s from substandard wages and oppressive working hours, 12

`la b o r conditions [that are] detrimental to the maintenance of the m in im u m standard of living necessary for health, efficiency and g e n e ra l well-being of workers.'" Barrentine v. Ark.-Best F r e ig h t Sys., Inc., 450 U.S. 728, 739 (1981) (quoting 29 U.S.C. § 202(a)). The Act was designed "to ensure that each employee c o v e re d by the Act would receive `[a] fair day's pay for a fair d ay's work' and would be protected from `the evil of overwork a s well as underpay.'" Id. (quoting 81 Cong. Rec. 4983 (1937) (m essa g e of President Roosevelt)). T h e legislative history of the overtime compensation p ro v is io n s of the FLSA reveal a threefold purpose underlying th e m : (1) to prevent workers who, perhaps out of desperation, a re willing to work abnormally long hours from taking jobs a w a y from workers who prefer shorter hours, including union m e m b e r s ; (2) to spread available work among a larger number o f workers and thereby reduce unemployment; and (3) to c o m p e n s a te overtime workers for the increased risk of w o r k p la c e accidents they might face from exhaustion or o v e re x e rtio n . Mechmet, 825 F.2d at 1175-76 (7th Cir. 1987) (c itin g H.R. Rep. No. 1452, 75th Cong., 1st Sess. (1937); S. R ep . No. 884, 75th Cong., 1st Sess. (1937)). C . Department of Labor Interpretations T h e Department's regulations specifically elaborate on th e purpose of § 7(i): S e c tio n 7(i) was enacted to relieve an e m p lo ye r from the obligation of paying overtime c o m p e n s a tio n to certain employees of a retail or 13

s e rv ic e establishment paid wholly or in greater p a r t on the basis of commissions. These e m p l o ye e s are generally employed in so-called " b ig ticket" departments and those establishments o r parts of establishments where commission m e th o d s of payment traditionally have been used, typ ic a lly those dealing in furniture, bedding and h o m e furnishings, floor covering, draperies, major a p p lia n c es , musical instruments, radios and tele v isio n , men's clothing, women's ready to w e a r, shoes, corsets, home insulation, and various h o m e custom orders. There may be other se g m e n ts in retailing where the proportionate a m o u n t of commission payments would be great e n o u g h for employees employed in such segments to come within the exemption. Each such situ a tio n will be examined, where exemption is c la im e d , to make certain the employees treated as e x e m p t from overtime compensation under sec tio n 7(i) are properly within the statutory e x c lu s i o n . 2 9 C.F.R. § 779.414. A lth o u g h the Department has not defined "commission" in its regulations,3 the Wage and Hour Division of the

While the Department of Labor's regulations do not d e f in e commission, they do specify what a bona fide c o m m iss io n is not: 14

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D e p a rtm e n t of Labor has attempted to explain the meaning of th e term "commission" under the retail commission exception th ro u g h various opinion letters. The following three letters are m o s t relevant to our analysis. F irst, the Department opined that alarm system installers w h o were compensated based on a percentage of the sales price o f the alarm systems they installed were paid a commission. H o w e v e r, installers who were paid a flat fee per installation w e re not paid a commission and did not fall within the scope of

A commission rate is not bona fide if the f o rm u la for computing the commissions is such th a t the employee, in fact, always or almost a lw a ys earns the same fixed amount of c o m p e n s a tio n for each workweek (as would be th e case where the computed commissions seldom o r never equal or exceed the amount of the draw o r guarantee). Another example of a commission p la n which would not be considered as bona fide is one in which the employee receives a regular p a ym e n t constituting nearly his entire earnings w h ic h is expressed in terms of a percentage of the s a le s which the establishment or department can a lw a ys be expected to make with only a slight a d d it io n to his wages based upon a greatly re d u c ed percentage applied to the sales above the e x p e cte d quota. 2 9 C.F.R. § 779.416(c). 15

s e c tio n 7(i). Dep't of Labor Op. Ltr., 1996 WL 1031770 (A p r. 3, 1996). The Department's letter does not elaborate on w h e th e r the installers who were paid a percentage of the sales p ric e also had the ability to sell upgrades to alarm systems ons ite , thereby increasing their commissions by increasing the cost to the consumer. Put differently, it is unclear from the letter w h e th e r these installers can be considered "in sales." The D ep a rtm en t based its determination of what was a "commission" s o le ly on the fact that one compensation method was based on a percentage of cost to the consumer and the other was a flat rate w ith no connection to the cost to the consumer. In a second letter concerning health club instructional e m p l o ye e s, the Department was unable to reach an opinion b e c au s e the employees ­ membership sales associates and p e rs o n a l trainers ­ appeared to be compensated under more than o n e method. Dep't of Labor Op. Ltr., 2005 WL 3308624 (Nov. 1 4 , 2005). The Department did offer the employer the following g u id a n c e: F la t fees "paid without regard to the value o f the service performed do not represent `c o m m is s io n s on goods or services' for purposes o f Sec[tion] 7(i)." Field Operations Handbook, 2 1 h 0 4 (c ) . . . Rather, employees paid a flat fee " a re considered to be compensated on a piece rate b a s i s and not on the basis of commissions. C o m m issio n s, for purposes of Sec[tion] 7(i), u s u a lly denotes a percentage of the amount of m o n ies paid out or received." . . . Moreover, in s tru c tio n a l employees paid a flat fee per lesson 16

o r session taught appear likely to earn the same a m o u n t each week, contrary to the requirements o f 29 C.F.R. § 779.416. Id . In the third letter, concerning automobile detailers and p a in te rs , the Department relied on the same above-quoted p a ss a g e from the Wage and Hour Field Operations Handbook to d e te rm in e the definition of commission. Dep't of Labor Op. L tr., 2006 WL 4512957 (June 29, 2006). The detailers and p a in te rs in this letter were paid according to how many vehicles th e y serviced each week. Each vehicle was assigned a p red eterm in ed number of "flag hours" based on the employer's e x p e cta tio n of how long the job would take to complete. Each d e taile r or painter was assigned a "flag rate" of pay based on his o r her experience and expertise. The detailers and painters were p a id by multiplying their flag rate by the flag hours for each v e h ic le they serviced, regardless of how long it actually took th em to complete a job. Under this system, the employees were e n c o u ra g e d to work rapidly and efficiently, and their pay varied f ro m week to week. In its letter, the Department concluded that th is payment arrangement was a commission because "the a m o u n t of the payment appears to be related to the value of the s e rv ic e performed." Id. D . Relevant Case Law T h is Court has not weighed in on the question of what q u a lif ie s as a commission under § 7(i). Decisions on the m e a n in g of "commission" under the retail commission 17

e x c e p tio n are, in fact, sparse. Klinedinst v. Swift Invs., Inc., 260 F .3 d 1251, 1254 (11th Cir. 2001) (noting that the meaning of c o m m is sio n "is an issue that finds little illumination from the s p a rs e case law and the vague references in statutes and re g u la tio n s ." ). There do not appear to be decisions from other c irc u its that have considered whether compensating call center e m p l o ye e s with flat rate payments qualifies as bona fide c o m m is sio n s under the retail commission exception. Of the lim ite d case law on this issue, we find the following case most in s tr u c tiv e . In Yi v. Sterling Collision Centers, 480 F.3d 505 (7th Cir. 2 0 0 7 ), the defendants paid the plaintiff auto mechanics under th e following scheme: [ D e f en d a n t Sterling] calculates the number of h o u rs normally required to do a given type of re p a ir (these are called "booked hours") and m u ltip lie s that number by a dollar figure. The p ro d u c t of this multiplication is the labor price of th e repair to the customer. Sterling adds material c o sts to the labor price to come up with a final p ric e . A team of mechanics is then assigned to th e job. Each member of the team keeps track of th e hours he works on the job. When it's co m p leted and the hours of the team members are ad d ed up, Sterling determines each member's c o m p e n s a tio n by multiplying (1) the number of b o o k e d hours for the job by (2) the ratio of the te a m member's actual hours worked to the total h o u rs worked by the team, and then by (3) a 18

w ag e, per booked (not actually worked) hour, b a se d on the skill or quality of the individual team m em b er. Id . at 509. In considering whether that system of compensation was a commission system within the meaning of the statute, Judge P o s n e r, writing for the Seventh Circuit, stated: [ t]h e essence of a commission is that it bases c o m p e n s a tio n on sales, for example a percentage o f the sales price, as when a real estate broker re c eiv e s as his compensation a percentage of the p ric e at which the property he brokers is sold. A lth o u g h his income is likely to be influenced by th e number of hours a week that he works, the re la tio n is unlikely to be a regular one. In one w e e k business may be slow; he may make no s a le s and thus have no income for that week. The n e x t week business may pick up and by working o v e rtim e that week he may be able to make up the in c o m e he lost because of slack business the p rev io u s week. Over a year his hours of work m a y be similar to those of regular hourly e m p lo ye e s. So if he had to be paid overtime, his a n n u a l income would be higher than theirs even th o u g h he hadn't worked more hours over the c o u rse of the year than they had. We take this to b e the rationale for the commission exemption f ro m the FLSA's overtime provision. 19

Id . at 508. The Seventh Circuit noted that a commission can be b ase d on the full price of the good or service sold or on only part o f the price, for example the price of the labor that goes into the g o o d or service. Id. at 509-10. The court in Yi concluded that th e compensation plan at issue was indeed a commission under § 7(i). E . NutriSystem's Compensation Plan and Section 7(i) 1 . Skidmore Deference T h e Department argues that we should afford Skidmore d e f ere n c e to the consistent view expressed in its various opinion le tte rs that to qualify as a commission for purposes of § 7(i), the p a ym e n t must be "linked to the cost of the product sold or s e rv ic e s provided to the customer." (Dep't of Labor Br. at 21.) P u t differently, to qualify as a commission, an increase in the c o st to the consumer must result in a corresponding increase to th e amount of the payment made to the employee. (See id. at 30 (" H a d , for instance, NutriSystem utilized fixed payments that v aried according to the differences in the cost to the customer, th is would have constituted a commission under section 7(i).").) A lth o u g h the Department may have more "specialized e x p e rie n c e" than we do in the day-to-day administration of the F L S A , we do not find that the opinion letters at issue here p ro v id e sufficiently thorough reasoning, consistency, or factual s i m i l a ritie s to the instant case to warrant deference. See S k i d m o r e , 323 U.S. at 140.

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T h e work performed by the NutriSystem sales associates is distinguishable from the alarm installer who was paid a flat fe e per installation. There is no indication in the Department's le tte r that the alarm installer paid a flat fee was responsible for s e llin g the alarm; rather, he or she was only "delivering" the p ro d u c t to the consumer. Nothing in the letter suggests that th e re was an opportunity for the installer to increase the sales of h is employer. A t argument, the Department pointed to the health club e m p lo ye e letter as being factually closest and most instructive to the instant case. That letter, however, did not formally e x p re ss an opinion on the compensation scheme because of the la c k of information provided by the employer. Rather, the letter p ro v id e d only broad, general guidance by citing to the D e p a rtm e n t's Wage and Hour Field Operations Handbook. D ep 't of Labor Op. Ltr., 2005 WL 3308624 (Nov. 14, 2005). T h is broad guidance, which was not applied to the facts in the lette r, is insufficiently "thorough" to persuade us that a c o m m is s i o n must vary based on the end cost to consumers. F u r th e r, the letter's guidance does not explicitly require that an in c re a se in the cost to the consumer result in an increase in the c o m m is sio n paid to the employee ­ the requirement the D e p a rtm e n t urges us to adopt. Rather, it states that "flat fees p a id without regard to the value of the service performed do not re p re se n t commissions on goods or services for purposes of S e c [ t io n ] 7(i)," and "[c]ommissions, for purposes of Sec[tion] 7 (i), usually denote[] a percentage of the amount of monies paid o u t or received." Id. (internal quotations and citations omitted) (e m p h a s i s in original). This lack of a consistent definition of

21

c o m m is sio n further weighs against the persuasiveness of the D e p a rtm e n t's opinion letters. See Skidmore, 323 U.S. at 140. U n l ik e the compensation plans of the opinion letters, N u triS ys te m 's payments to employees are based on consumer p re f ere n c e and the ability of the sales associate to persuade a c u sto m e r to purchase a meal plan. Unlike the alarm installer w h o is paid a flat fee per installation, the number of calls the s a le s associate makes plays no part in determining the number o f additional payments he receives. The number of calls only in c re a se s an associate's chances of making a sale and receiving th e additional payment. Rather, the external factors of sales a b ility and customer preference, which are not present in the D e p a rtm e n t's opinion letters discussed supra, dictate whether N u triS ys te m ' s sales associates are paid the additional c o m p e n s a tio n . In sum, we do not find the Department's factually d is tin g u is h a b le opinion letters and broad general guidance su f f icie n tly thorough or consistent to warrant deference in this c a s e . See id. 2 . Percentage of Cost to Consumer F u r th e r , we decline to adopt a test that requires a c o m m is sio n , under § 7(i), to be strictly based on a percentage of th e end cost to the consumer. While the various definitions d is c u ss e d supra suggest that a commission is typically c a lc u la te d as a percentage of sales price ­ for example a real e sta te broker receives 10% of a house's sale price or a paint s a le sm e n receives 20% of his sales ­ both the Department and 22

o th e r courts have recognized that this strict percentage re la tio n s h ip is not a requirement for a commission scheme under § 7(i). See Dep't of Labor Op. Ltr., 2005 WL 3308624 (N o v . 14, 2005) ("Commissions, for purposes of Sec[tion] 7(i), u su a lly denotes a percentage.") (emphasis added); Yi, 480 F.3d a t 508. Therefore, the fact that NutriSystem's plan is not c a lc u la te d strictly as a percentage of sale price does not d isq u alify it from being a commission under § 7(i).4 3 . Proportionality and Sales A number of factors persuade us that NutriSystem's c o m p e n s a tio n plan establishes a "bona fide commission rate" a n d is therefore a "commission" under the FLSA. We conclude th a t when the flat-rate payments made to an employee based on th a t employee's sales are proportionally related to the charges p a ss e d on to the consumer, the payments can be considered a b o n a fide commission rate for the purposes of § 7(i). F irst, we agree with the District Court that the payments m a d e to NutriSystem's sales associates are sufficiently

The Department's own regulations provide guidance on w h a t is not a bona fide commission plan. 29 C.F.R. § 779.416(c). NutriSystem's plan does not fall into either of the e x a m p le s given in that regulation, and neither Appellants nor the D e p a rtm e n t argue that it does. NutriSystem's employees' pay c a n vary greatly across pay periods and the plan is not based on th e sales NutriSystem expects to make as a whole, but rather is tie d precisely to the number of sales each sales associate closes. 23

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p ro p o rtio n a l to the cost to the consumer to qualify as c o m m is sio n under section 7(i). See, e.g., Yi, 480 F.3d at 508; D ep 't of Labor Op. Ltr., 2006 WL 4512957 (June 29, 2006). T h e re is only a small difference between the absolute dollar v a lu e of the three flat-rate fees paid to sales associates ($18.00, $ 2 5 .0 0 , and $40.00). The variance in the flat-rate fee as a p e rc e n ta g e of the cost to the consumer, which ranges from 5%1 4 % , is also relatively small. See Appendix I. These relatively sm a ll differences support the proposition that proportionality to th e cost to the consumer exists in this case. The District Court o f f e r e d an example in defining proportionality, which we find h elp f u l: "proportionality would not exist if an employee were p a i d the same dollar amount for selling a $10 ring as a $ 1 ,0 0 0 ,0 0 0 ring." This is plainly not the case here, as the d if f e re n c e s in the costs of the meal plans are relatively small, w ith four of the five meal plans costing the same, $342.36. The m e n 's plan is slightly more expensive, $371.50, because it c o n ta in s more food. Customers can receive a $50 discount on a ll five products by selecting the auto-ship option.5 S e c o n d , it is persuasive that NutriSystem's plan "bases c o m p e n s a tio n on sales," just as Judge Posner described in Yi. 4 8 0 F.3d at 510. Under the plan, a flat rate fee is not paid unless a sales associate completes a sale. NutriSystem's flat rate

There was discussion at argument dealing with the b o u n d a rie s of proportionality. We, like the District Court, need n o t define the outer limits of proportionality here as we are s a tis f ie d that it exists in this case.

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p a ym e n t is tied to both the time the sale is made and whether it is based on an incoming or outgoing call, rather than being a p e rc e n ta g e of the cost to the consumer. The amount of the p a ym e n t is based on the value NutriSystem was receiving from th e sales associates' work. Under this plan, NutriSystem creates a n incentive for sales associates to be actively making outgoing c a lls and to work less desirable hours, thus allowing N u triS ys te m to operate at peak efficiency around the clock. The s a le s associates' compensation is also "decoupled from actual tim e worked," a characteristic both the Seventh Circuit and the D e p a rtm e n t identified as a hallmark of "how commissions w o rk ." Id. at 509; see Dep't of Labor Op. Ltr., 2005 WL 3 3 0 8 6 2 4 (Nov. 14, 2005) ("The whole premise behind earning a commission is that the amount of sales would increase the rate o f pay.") (internal citation omitted). T h ird , from a policy standpoint it is reasonable to permit N u triS ys te m to offer different commissions depending on the tim e of the sale and whether the sale was the result of an in c o m i n g or outgoing call. This encourages sales staff to take u n d e sira b le shifts and to work harder to close a sale on outgoing c a lls . Additionally, NutriSystem offers various sales and p ro m o tio n s , including the auto-ship program. Had NutriSystem b a s e d commission purely as a percentage of the cost of the g o o d s to consumers, it would have created a disincentive for a s a le s associate to encourage consumers to take advantage of the d is c o u n ts that result from the auto-ship method. For example, h a d NutriSystem declared a 7% commission on all products s o ld , a sales associate would earn a $26.01 commission on a m e n 's plan under the regular shipping method but only a $22.04 c o m m is sio n under the auto-ship method. NutriSystem offers the 25

a u to -sh ip method at a discount because the company believes in th e end, this shipping method will generate the company greater r e v e n u e . A sales associate, however, would prefer to sell a c o n su m e r a meal plan under the regular shipping method b e c au s e the associate receives a large commission. N u triS ys te m ' s plan eliminates this disincentive by providing a ss o c ia te s with a flat rate commission not directly tied to the end c o s t to consumers. F in a lly, NutriSystem's plan does not offend the purposes o f the FLSA and the overtime provisions discussed supra in M e c h m e t, 825 F.2d at 1175-76, and Yi, 480 F.3d at 510. First, th e Appellants' income in the years they worked at NutriSystem ra n g e d from approximately $40,000 to over $80,000, and thus th e y were not the lower-income type employees contemplated to b e protected by the overtime provisions. Second, NutriSystem em p lo yee s must achieve certain sales goals to work hours b e yo n d their scheduled eight-hour shifts. Forcing NutriSystem to pay overtime is unlikely to induce the hiring of additional s a le s associates because the only sales associates working an e x c e s s of forty hours per week are the top sales associates. T h ird , high-performing call center workers could work more th a n forty hours a week, the health risks or accidents that can o c c u r due to fatigue from long hours are generally not present f o r call center employees as compared to manual laborers, and th u s the overtime premium is not needed to compensate for an in c re a se in danger from working when tired.

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IV . F o r the foregoing reasons, we will affirm the District C o u rt's grant of summary judgment to NutriSystem and denial o f summary judgment to the Appellants.

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A p p e n d ix I

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Parker, etc. v. NutriSystem, Inc., No. 09-3545 C O W E N , Circuit Judge, dissenting U n lik e the majority, I would afford Skidmore deference to the Department's view that in order to constitute a c o m m is sio n for purposes of § 7(I), the amount of compensation p a id to the employee must be proportionally related to the a m o u n t charged to the customer. Because NutriSystem failed to d e m o n s tra te the requisite proportionality, its compensation plan ca n n o t be considered a bona fide commission plan under § 7(I). A s the majority recognizes, the Department has issued se v e r a l opinion letters concerning the scope of the retail c o m m is s io n exemption. In the majority's view, these opinion le tte rs fail to "provide sufficiently thorough reasoning, c o n sis te n c y, or factual similarities to the instant case to warrant d e f e re n c e . " Maj. Typescript Op. at 20. I disagree, as in my v iew , the opinion letters clearly reflect the Department's c o n sis te n t view that, in order to be considered a commission u n d e r § 7(I), there must be a degree of proportionality between th e payment an employee receives and the costs passed down to th e customer. For instance, in the April 3, 1996, letter concerning alarm system installers, the Department explained that, if the installers " w e r e to be compensated on a percentage of the sales price of th e alarm systems they installed[, s]uch a method of payment w o u ld constitute payment on a commission basis;" but if the in sta llers were "paid a flat fee per installation, [the Department] w o u ld not consider such a payment to be a commission p a ym e n t." Dep't of Labor Op. Ltr., 1996 WL 1031770 (Apr. 3, 1 9 9 6 ). 1

S im ila r l y, in its subsequent letter about health club in stru c tio n a l employees, the Department made clear that, while in s tru c to rs who were paid a percentage of the club's revenue per le ss o n would qualify for the exemption, instructors paid a flat fe e per lesson would not because "[f]lat fees paid without regard to the value of the service performed do not represent `c o m m i s s i o n s on goods or services' for purposes of [§] 7(I)." D e p 't of Labor Op. Ltr., 2005 WL 3308624 (Nov. 14, 2005) (in te rn a l quotation marks and citations omitted). In that opinion lette r, the Department went on to state that, in general, " e m p lo ye e s paid a flat fee are considered to be compensated on a piece rate basis and not on the basis of commissions. C o m m is s io n s , for purposes of [§] 7(I), usually denotes a p e rc e n ta g e of the amount of monies paid out or received." Id. In the third letter, the DOL determined that automobile d e ta ile rs and painters who were paid under the flag-rate method w e re subject to the commission exemption because the flag h o u rs that the employer set for each job corresponded to the la b o r hours ultimately charged to the customer. Dep't of Labor O p . Ltr., 2006 WL 4512957 (June 29, 2006). Insofar as these opinion letters express the Department's c o n s is te n t and reasonable position that § 7(I) requires a p ro p o rtio n a l relationship between employee compensation and c u sto m e r costs, I would afford them a "measure of respect"

2

u n d er Skidmore.1 See Fed. Express Corp. v. Holowecki, 552 U .S . 389, 399 (2008). After declining to defer to the Department's in t e rp r e ta tio n of § 7(I), the majority nonetheless adopts a d e f in itio n that is consistent with the Department's approach, h o ld in g that "when the flat-rate payments made to an employee b a se d on that employee's sales are proportionally related to the c h a rg e s passed on to the consumer, the payments can be c o n sid e re d a bona fide commission rate for the purposes of § 7 (I)." Maj. Typescript Op. at 23. The majority then concludes th a t NutriSystem's compensation plan meets this definition b ec au s e the payments made to its sales associates are " s u f f ic ie n tly proportional" to the cost to the consumer. Id. W h ile I do not object to the majority's contention that § 7(I) re q u ire s a proportional relationship between employee c o m p e n s a tio n and customer costs, I cannot agree that N u triS yste m has demonstrated such a proportional relationship h e re . It is undisputed that NutriSystem's meal plans vary in p ric e depending on the type of meal plan the customer chooses

See also 29 C.F.R. § 779.413(a)(4) (describing a " [ s]tra ig h t commission" as "a flat percentage on each dollar of s a le s [the employee] makes"); U.S. Dep't of Labor, Glossary of C u rre n t Industrial Relations & Wage Terms, Bulletin No. 1438, a t 15 (1965) (defining "commission earnings" as " [ c]o m p e n sa tio n to salespeople based on a predetermined p erc en tag e of the value of sales"); U.S. Dept' of Labor, Glossary o f Currently Used Wage Terms, Bulletin No. 983, at 4 (1950) (d e f in in g "commission earnings" as "compensation to sales p e rs o n n e l based on a percentage of value of sales"). 3

1

a n d the length of the customer's commitment. It is likewise u n d is p u te d that the flat-rate fee paid to a sales associate does not v a ry depending on the type of plan the customer chooses or the le n g th of the customer's commitment. NutriSystem clearly has n o t demonstrated that the flat-rate fees are proportionally related to the cost to the customer. While neither the plaintiffs nor the D e p a rtm e n t suggests that a commission must be based on a s tr ic t percentage of the end cost to the consumer, the flat-rate p a ym e n t s in this case do not correspond at all with the end cost to the consumer. Rather, the flat-rate payments are based on the tim e the sale is made and whether it results from an incoming or o u tg o in g call. The fact that NutriSystem can perform math to p o rtra y its flat-rate fees as percentages of customer costs does n o t transform the fees into commissions. Therefore I am unable to agree with the majority and w o u ld reverse and remand for further proceedings.

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