Reed v. Brex, Inc. et al

Filing 147

ORDER granting in part and denying in part 142 Motion for Reconsideration. Signed by Chief Judge Nancy J. Rosenstengel on 4/24/2020. (dhg)

Case 3:17-cv-00292-NJR Document 147 Filed 04/24/20 Page 1 of 8 Page ID #2453

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
TOM REED and MICHAEL ROY,
individually and on behalf of all others
similarly situated,
Plaintiffs,
Case No. 3:17-CV-292-NJR

v.
BREX, INC., et al.,
Defendants.

MEMORANDUM AND ORDER
ROSENSTENGEL, Chief Judge:
Pending before the Court is a Motion to Reconsider or Certify for Interlocutory Appeal
from Defendants Brex, Inc., John Keeley, and Kevin Floyd (together, “Brex”) (Doc. 142), and
a Motion to Reconsider from Plaintiffs Tom Reed and Michael Roy (together, “Class
Representatives”) (Doc. 143). For the reasons set forth below, the Court grants in part and
denies in part the motions.
FACTUAL & PROCEDURAL BACKGROUND
This action arose out of claims under the federal Fair Labor Standards Act (“FLSA”)
and state law brought by a class of automotive technicians against Brex. The facts underlying
the case are described at length in this Court’s recent order (Doc. 140) on the motions for
summary judgment (“MSJ Order”) brought by Technicians and Brex. Class Representatives
allege unfair labor practices and failure to pay overtime, while Brex argues that the “Hourly
Bonus Production Scale”(the “Scale”), which it uses to pay employees, exempts its employees
from the FLSA overtime requirement under the FLSA “retail and service exception” 29 U.S.C.

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§ 207(i). The FLSA generally requires employers to pay overtime for hours worked beyond
forty in a week. 29 U.S.C. § 207(a). However, the retail and service exception provides that
employees who are paid through a ”bona fide commission rate” instead of an hourly wage
will be exempt from the overtime requirement as long as (1) the employee’s pay is at least
one and one-half times the minimum hourly rate (the “Applicable Minimum”), and (2) more
than half of the employee’s compensation for a representative period of not less than one
month represents commissions on goods and services (the “50% Rule). 29 U.S.C. § 207(i). In
order to ensure that employee compensation did not fall below the Applicable Minimum,
Brex paid employees a guaranteed minimum commission (“Guarantee”) in pay periods in
which the employee’s earned commissions would otherwise fall below the Applicable
Minimum. Brex did not require employees to pay back any excess of the Guarantee over
earned commissions out of any future commissions that exceeded the Applicable Minimum
(such repayment from future excess commission of the excess of a prior Guarantee over the
Applicable Minimum, to be termed “Reconciliation”).
In its MSJ Order, this Court found that Brex’s Scale did constitute a bona fide
commission rate and proceeded to consider whether it complied with the 50% Rule. Class
Representatives cited two unpublished cases in arguing that a Guarantee must always be
subject to Reconciliation in order to count as commission for compliance with the 50% Rule.
See Tillis v. South Floor Covering, Inc., 2018 U.S. Dist. LEXIS 162608 (S.D. Miss.); Keyes v. Car-X
Auto Services, 2009 U.S. Dist. LEXIS 108981, (S.D. Ohio). Defendants, on the other hand,
argued that a Guarantee would always count towards commission, regardless of whether
Reconciliation occurred. In taking this position, Brex pointed to a number of unpublished
decisions that were at best tangentially related to the contention they sought to make and
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which provided little support for their argument. See, e.g., Erichs v. Venator, 128 F. Supp. 2d
1255, 1259–60 (N.D. Cal. 2001) (holding that Guarantee may be counted towards commission,
but not addressing whether Reconciliation is required and prescribing a “smell test” to assess
the effects and purpose of the payment scheme); Crawford v. Saks & Co., 2016 U.S. Dist. LEXIS
71805 at *15 (S.D. Tex.) (holding that Guarantee counted towards commission where
Guarantee had Reconciliation).
This Court declined to follow the line of cases advanced by the Class Representatives,
noting that those cases misinterpreted relevant statutes and regulations and relied on earlier
decisions that did not support their holdings. Similarly, the Court was unpersuaded by the
cases advanced by Brex, which largely did not address the relevant question of whether a
Guarantee without Reconciliation can count as commission for the 50% Rule. Instead, the
Court referred to the Department of Labor (“DOL”) regulations on point, which state that
Reconciliation “may or may not be customary under the employment arrangement.” 29
C.F.R. § 779.416(a). Based on this language, the Court concluded that there was no categorical
rule as to whether Guarantees without Reconciliation would always or never count as
commission for the 50% Rule. Rather, the Court concluded that it must address such
Guarantees on a case by case basis, looking to whether they “actually function[] as an integral
part of a true commission basis of payment[.]” The Court ultimately concluded that neither
side had presented sufficient facts to determine whether the Guarantee provided by Brex
counted as commission, denying summary judgment to both parties on the issue of whether
or not the Scale complies with the 50% Rule.
Alas, the parties were unsatisfied with this middle path, and both sides moved to
reconsider the portion of the Court’s MSJ Order addressing compliance with the 50% Rule.
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While still unconvinced by the parties’ arguments for a categorical rule as to whether a
guarantee without commission would always or never count towards commission for the
50% Rule, further consideration of the facts underlying this dispute led the Court to ask for
additional briefing on the issue of whether or not there was any Representative Period in
which more than 50% of the compensation of the Class Representatives had come from the
Guarantee, rather than from commissions. Having considered the additional briefing
provided by the parties, the Court will assess whether to reconsider its MSJ Order based on
this information.
LEGAL STANDARD
Motions for reconsideration are only appropriate where a court has misunderstood a
party, made a decision outside of the issues presented by the parties, made an error of
apprehension, where a significant change in the law has occurred, or where significant new
facts have been discovered. Broaddus v. Shields, 665 F.3d 846, 860 (7th Cir. 2011) (citing Bank
of Waunakee v. Rochester Cheese Sales, Inc., 906 F.2d 1185, 1191 (7th Cir. 1990)).
ANALYSIS
I.

Compliance with the 50% Rule
A. Applicable Law
In discussing calculation of commissions for purposes of applying the 50% Rule, 27

U.S.C. § 207(i) states that “in determining the proportion of compensation representing
commissions, all earnings resulting from the application of a bona fide commission rate shall
be deemed commissions on goods or services without regard to whether the computed
commissions exceed the draw or guarantee” (emphasis added). Thus, even if a Guarantee were
determined not to count towards commission, the part of an employee’s compensation that
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constituted wages rather than commission would only be the part by which the Guarantee
exceeded earned commissions in the weeks in which the employee received the Guarantee.
Furthermore, as discussed, a Guarantee that is part of a bona fide commission scheme
may count towards commission. Reconciliation is not necessarily required for a Guarantee to
count towards commission, but rather “may or may not be customary under the employment
arrangement.” 29 C.F.R. § 779.416(a). Relevant regulations and administrative materials do
not provide clear guidance on how to do determine whether a Guarantee without
Reconciliation will count towards commission, merely noting that it must “actually function[]
as an integral part of a true commission basis of payment[.]” Id. In determining whether
features of a compensation system constituted a bona fide commission scheme, Judge Posner
in Yi v. Sterling Collision Ctrs., Inc., 480 F.3d 505, 508–10 (7th Cir. 2007), looked to whether the
compensation of individual employees was still essentially based on individual sales and
“decoupled” from hours worked, noting as well that certain employment arrangements that
were customary throughout an industry were perhaps more likely to be found acceptable. It
thus follows that in examining a Guarantee that lacks Reconciliation, the Court must consider
whether such a Guarantee results in worker compensation that is overly “coupled” with
hours rather than sales. In making such a determination, it is the view of this Court that
relevant factors include the frequency with which a worker receives a Guarantee rather than
earned commission and the extent to which a Guarantee exceeds earned commission in the
weeks in which it is paid. For a Guarantee without Reconciliation to count towards
commission, it should not constitute a substantial part of a worker’s compensation in many
weeks. Rather, it should act more like a limited supplement, paid out infrequently and
constituting a relatively small addition to the employee’s earned compensation, merely so as
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to ensure payment of the Applicable Minimum. Where available, information as to common
practice in the relevant industry may also be informative as to whether a Guarantee without
Reconciliation should count towards commission.
B. Discussion
Here, based on the additional calculations provided by the parties, the Court is able
to observe that the Guarantee is paid out relatively infrequently, and in the weeks in which
a Guarantee is paid, it exceeds earned commissions by a relatively small margin. The
combined amounts by which Guarantee payments exceeded earned commissions in the
course of any given representative period were small and represented a minor portion of
total compensation, far below 50%. While the Court does not have information on prevailing
conditions in the industry, it is nonetheless inclined to conclude that the Guarantee paid by
Brex does function was part of a bona fide commission scheme and thus should be counted
as commission. Even if the Guarantee were not to be counted as Commission, Brex’s Scale
would still comply with the 50% Rule, for only part of the Guarantee that would not count as
commission would be the amount by which the Guarantee exceeded earned commissions in
the weeks in which the Guarantee was paid. Accordingly, the Court amends its MSJ Order
and grants summary judgment to Brex on the issue of compliance with the 50% Rule. The
Court will now proceed to the state law claims brought by the Class Representatives, and the
actions against Brex managers as individuals, which it did not reach in its MSJ Order
II.

State Law Claims
A. Applicable Law
In addition to their claims under the FLSA, the Class Representatives have brought

claims under the Illinois Minimum Wage Law (“IMWL”), 820 Ill. Comp. Stat. 105/1 et seq.,
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and Missouri Minimum Wage Law (“MMWL”), Mo. Rev. Stat. §§ 290.505 et seq. These state
laws both contain exceptions equivalent to the federal retail and service exception. 820 Ill.
Comp. Stat. 105/4a(2)(F); Mo. Rev. Stat. § 290.505(3). Relevant state courts have indicated that
because these statutes are modeled after the FLSA, the same analysis applies. E.g., Villareal v.
El Chile, Inc., 776 F. Supp. 2d 778, 784 (N.D. Ill. 2011) (citing Condo v. Sysco Corp., 1 F.3d 599,
601 n.3 (7th Cir. 1993)) (noting analysis under IMWL parallels FLSA analysis); Karnes v. Happy
Trails RV Park, LLC, 361 F.Supp.3d 921, 927 (W.D. Mo. 2019) (noting that MMWL is generally
interpreted in accordance with FLSA and conducting single analysis for both laws).
B. Discussion
As the Court has determined that Brex is entitled to summary judgment on its FLSA
claims, the same analysis would indicate that it is entitled to summary judgment on its state
law claims. Class representatives appear to concur that the analysis for these statutes is the
same as for FLSA. Doc. 120 at 20 (“The Illinois and Missouri statutory wage and hour laws
are consistent with federal law regarding the “retail and service establishment exemption.”).
Accordingly, the Court grants summary judgment to Brex on the state statutory claims.
Having granted summary judgment to Brex on the FLSA and state statutory claims,
the only claims remaining are the claims against Brex managers as individuals. Where there
is no liability against the entity, there cannot be liability for the individual managers, and the
Court grants summary judgment on those claims as well.
CONCLUSION
For the reasons set forth above, the Court GRANTS Brex’s Motion to Reconsider and
amends its MSJ Order to GRANT summary judgment to Brex on all remaining counts. Brex’s
motion to certify for interlocutory appeal is DENIED as moot, and the Class Representatives’
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Motion to Reconsider is DENIED. This action is DISMISSED with prejudice. The Clerk of
Court is DIRECTED to enter judgment accordingly.
IT IS SO ORDERED.
DATED: April 24, 2020
___________________________
NANCY J. ROSENSTENGEL
Chief U.S. District Judge

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