Lalli v. General Nutrition Center et al

Filing 43

Judge Michael A. Ponsor: MEMORANDUM AND ORDER entered granting 8 Motion to Dismiss for Failure to State a Claim, cc:cl. "...For the foregoing reasons, Defendants' Motion to Dimiss (Dkt. No. 8) is hereby ALLOWED. The clerk will entere judgment for Defendants. This case may now be closed." See Memorandum and Order for details. (Healy, Bethaney)

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

JOSEPH LALLI,
Plaintiff,

)

)
)

v.

)

C.A. No. 13-cv-30208-MAP

)

GENERAL NUTRITION CENTERS,
INC. ,and GENERAL
NUTRITION CORP.,
Defendants.

)
)
)
)

MEMORANDUM AND ORDER REGARDING
DEFENDANTS' MOTION TO DISMISS
(Dkt. No.8)
January 13, 2015
PONSOR, U.S.D.J.
I.

INTRODUCTION

This is a waqe and hour case brouqht by Plaintiff and
would-be class representative Joseph Lalli, a former store
manaqer of Defendants, General Nutrition Centers, Inc., and
General Nutrition Corp.

(collectively "GNC" or

"Defendants"), challenqinq GNC's alleqed failure to pay him
time-and-a-half compensation for hours worked in excess of
forty hours.

Plaintiff contends that GNC's company-wide

policy of usinq the "fluctuatinq work week" ("FWW") method
to calculate overtime for non-exempt employees violated the
Federal Labor Standards Act ("FLSA"), 29 U.S.C. § 207(a),

and the Massachusetts Minimum Fair Wage Law, Mass. Gen.
Laws, ch. 151, § lA.
Defendants have moved to dismiss.

At the heart of this

case is a disagreement over whether a company may use the
FWW pay model when it factors sales commissions into the
regular weekly rate.

As will be seen below, the undisputed

facts make clear that Defendants correctly employed the FWW
approach in calculating Plaintiff's pay rate.

As a result,

the court will allow Defendants' motion to dismiss.
II. FACTS
Plaintiff is a resident of Palmer, Massachusetts.

He

managed a GNC store in Massachusetts from September 2010
through January 2013.

At all relevant times, he was a non­

exempt employee under the FLSA.
GNC sells health and wellness products including
vitamins, minerals, and supplements through approximately
3,100 company-owned stores throughout the United States.
There are around seventy GNC stores in Massachusetts.

At

these locations, GNC sold products made by GNC as well as
products made by third parties.

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Plaintiff received a guaranteed salary as compensation
for each week worked.

In addition, GNC paid its store

managers commissions, over and above their regular pay,
based on a percentage of GNC product sales and on sales of
select third-party products.

All commissions were computed

and paid with the employee base pay on a bi-weekly basis.
The commissions were not contingent either on store
performance or on numbers of hours worked, but rather were
based on the individual employee's successful efforts in
selling eligible GNC and third-party products.

Inevitably,

these commissions would vary from week to week.
Plaintiff occasionally worked more than forty hours per
week.

When this happened, GNC calculated Plaintiff's

overtime wages using the FWW pay model.

Under this method,

GNC would (1) add together both (a) the guaranteed base
portion of the employee's wages for that week and (b)
commissions for the workweek;

(2) divide the total wages by

the number of hours the employee logged for that week; and
(3) pay 50% of the resulting per hour rate for any hour
worked in excess of forty hours per week.

Because the

commission figures were included in compiling the regular

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hourly rate and because commissions were inherently
variable, Plaintiff alleges that GNC did not pay him a
"fixed amount as straight time pay."

29 C.F.R. § 778.114.

As a result, he argues, it was improper for GNC to use the
FWW approach in calculating his overtime.
On December 31, 2013, Plaintiff filed this two-count
complaint alleging violations of the FLSA, 29 U.S.C. §
207(a} , and the Massachusetts Minimum Fair Wage Law, Mass.
Gen. Laws ch. 151, § 1A.

Plaintiff seeks to bring this

complaint individually and as a class representative for a
nation-wide and state-wide class.

The parties agree that

Massachusetts labor law substantively mirrors its federal
counterpart.
On January 31, 2014, Defendants moved to dismiss.
(Dkt. No.8.)
the class.

On March 12, 2013, Plaintiff moved to certify

(Dkt. No. 24.)

On April 4, 2014, the court

allowed Defendants' motion to stay briefing on the class
certification motion until it ruled on the motion to
dismiss.

(Dkt. No. 36.)
III. DISCUSSION

A.

Standard of Review

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When faced with a motion to dismiss, a court must
accept the allegations of the complaint as true, drawing all
reasonable inferences in favor of the plaintiff.
v. Oliver, 510 U.S. 266, 268 (1994).

Albright

To survive a

motion

to dismiss, a complaint must contain "sufficient factual
matter" to state a claim for relief that is actionable as a
matter of law and "plausible on its face."
Iqbal, 556 U.S. 662, 678 (2009)

Ashcroft v.

(citing Bell Atlantic Co. v.

Twombly, 550 U.S. 544, 570 (2007»; Fed. R. Civ. P.
12(b) (6).

Dismissal is appropriate if a plaintiff's well­

pleaded facts do not "possess enough heft to show that
plaintiff is entitled to relief."

Clark v. Boscher, 514

F.3d 107, 112 (1st Cir. 2008) (quoting Twombly, 550 U.S. at
557) .
B.

Legal Framework
A covered employee under the FLSA is entitled to

overtime compensation "at a rate not less than one and one­
half times the regular rate at which he is employed."
U.S.C. § 207(a) (1).

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An employer may pay the overtime rate

based on a fixed weekly salary method, which applies when an
employee is paid a fixed hourly rate for a fixed amount of

5

hours per week.

Under this method of calculating overtime,

an employee is compensated at 1.5 times the hourly wage for
all hours worked in a given week beyond forty.

Thus, an

employee who earned $10 per hour and worked fifty hours in a
given week would earn $550 for that week because the last
ten hours would be compensated at $15 per hour.
Alternatively, an employer may pay overtime under the
FWW method when the employee receives a fixed weekly salary
for hours that fluctuate each week when certain conditions
are met.

Under this formula, an employee's fixed salary is

divided by the number of hours worked in a particular week
to determine the regular rate.

Then, in addition to the

regular salary, the employee is paid 50% of that rate for
all hours beyond forty.

"Payment for overtime hours at

one-half such rate in addition to the salary satisfies the
overtime pay requirement because such hours have already
been compensated at the straight time regular rate, under
the salary arrangement."

29 C.F.R. § 778.114.

Accordingly, if a manager's weekly pay was $1,000 and
he or she worked fifty hours that week, the "regular rate"
for that week would be calculated as $20.

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The manager would

then receive, as overtime pay, one-half of this "regular
rate" for every hour worked above forty.
would receive

Thus, the manager

on top of the $1,000 salary -- $10 per hour

for ten hours of overtime, for a total of $100.

The

manager's compensation for the week would be $1,100. 1

See

Wills v. RadioShack Corp., 981 F. Supp. 2d 245,249
(S.D.N.Y. 2013); see also 29 C.F.R. § 778.114(b).
1.

Statutory and Regulatory Framework

Section 207 of the FLSA requires that overtime pay be
based upon the regular rate, but i t does not specify how
that rate should be calculated.

The regular rate "shall be

deemed to include all remuneration for employment paid to,
or on behalf of, the employee, but shall not be deemed to
include" eight enumerated exceptions to the rule, none of
which is at issue here.

29 U.S.C. § 207(e).

The Supreme Court has approved paying an employee a
flat weekly salary for fluctuating hours, so long as the

Bad this manager instead been paid at a
time-and-a-half rate for overtime hours above forty, he or
she would have received $37.50 for each hour above forty,
assuming a regular rate of $25/hour ($1000 per week divided
by 40). Thus, the total pay for that 50-hour workweek would
have been $1,375, rather than $1,100.
1

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employer also pays a premium of "fifty percent additional
for the hours actually worked over the statutory maximum."
Overnight Motor Transp. Co. v. Missel, 316 U.S. 572, 581
(1942).

In 1968, the Department of Labor ("DOL") issued an

interpretive rule based on Missel, describing the so-called
FWW method.

29 C.F.R. § 778.114(a).

This method of

calculating overtime pay may be applied "when an employee is
paid a fixed weekly salary regardless of how many hours the
employee may work in a given week."

O'Brien v. Town of

Agawam, 350 F.3d 279, 287 (2003) (citation omitted) .
Section 778.114(a) -- "Fixed salary for fluctuating
hours" -- requires that four conditions be satisfied before
an employer may compensate employees with the FWW method:
(1) the employee's hours must fluctuate from week
to week;
(2) the employee must receive a fixed salary that does
not vary with the number of hours worked during the
week (excluding overtime premiums) ;
(3) the fixed amount must be sufficient to provide
compensation every week at a regular rate that is at
least equal to the minimum wage; and
(4) the employer and employee must share a "clear
mutual understanding" that the employer will pay that
fixed salary regardless of the number of hours worked.
Id. at 288.
2.

Relevant Case Law

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In 2003, the First Circuit determined whether a
municipality's omission of certain wage augmentations from
the regular weekly rate calculation, as determined by the
police union's collective bargaining agreement ("CBA"),
violated the FLSA.

O'Brien, 350 F.3d at 288.

The plaintiff

officers contended that the town's use of the FWW method to
calculate their pay violated the FLSA because the second and
fourth conditions had not been met.

Id.

In analyzing the

rather convoluted CBA, the First Circuit found that the CBA
provision that paid a $10 shift-differential payment to
officers who worked the night shift and an additional bonus
for hours worked beyond eight in a day meant that "the
compensation scheme . . . does not comply with § 778.114."
Id. at 290.
In concluding that the payment of shift differential
premium made the FWW method for calculating overtime
improper, the First Circuit noted that "while the shift
differential itself may be small, it requires the larger
conclusion that most officers do not receive a

'fixed

amount' for their straight-time labor each week."
288.

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Id. at

In the wake of O'Brien, several courts have considered
whether a performance-based bonus or commission system may
be compatible with the FWW method, and they have held that
it can.

See, e.g., Willis, 981 F. Supp. 2d at 256 (holding

that a quarter1y·and annual performance-based bonus
compensation system complied with the FWW method); Switzer
v. Wachovia Corp., 2012 WL 3685978, at *4 (S.D. Tex. Aug.
24, 2012) (holding that non-discretionary, performance-based
bonuses based on sales, portfolio growth, and customer
service were compatible with the FWW method); Soderberg v.
Naturescape, Inc., 2011 WL 11528148, at *5 (D. Minn. Nov. 3,
2011) (holding the same for production and year-end
performance-based bonuses); Lance v. Scotts Co., 2005 WL
1785315, at *6-7 (N.D. Ill. July 21, 2005) (holding the same
for sales-based commissions) .
These cases illustrate a "development by the courts of
a rational distinction between bonuses that turn on hours
worked, and bonuses that do not, under which performance­
based bonuses were uniformly held consistent with the FWW."
Wills, 981 F. Supp. 2d at 258.

This distinction between

hours-based and performance-based bonuses arises both from

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the regulatory lanquaqe and the case law interpretinq it,
includinq O'Brien.

See Switzer, 2012 WL 3685978, at *3

("The regulation [§778.114] does not expressly preclude
payment of [perfor.mance-based] bonuses."); Soderberg, 2011
WL 11528148, at *4 (distinguishinq O'Brien because i t
"involved compensation tied directly to the hours of work
(e.q., hourly shift premiums and shift differentials)").

The hours-based/perfor.mance-based distinction derives
support from the similar distinction in the FLSA calculation
of an employee's reqular rate of pay as set forth in 29
U.S.C. §§ 207 (e) (5-7).

This provision excludes certain

hours-based extra compensation from the reqular rate
computation (such as pay for workinq more than eiqht hours a
day or for workinq on a holiday) but does not exclude
certain performance-based bonuses from consideration as part
of an employee's reqular rate.
256 n.9.

Wills, 981 F. Supp. 2d at

These cases reached the conclusion that "'straiqht

time pay' for work in a workweek was 'fixed' and did not
vary with the number of hours worked, notwithstandinq the
payment of perfor.mance-based bonuses."
3685978, at *3.

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Switzer, 2012 WL

c.

Analysis
The parties dispute whether the second prong of

§ 778.114 -- requiring that,

to be paid under the FWW

method, the employee must receive a fixed salary that does
not vary with the number of hours worked during the week
(excluding overtime premiums) -- has been met.

Plaintiff

argues that the inclusion of sales commissions in the
calculation of overtime pay means that his salary is not
"fixed."

Defendants draw a distinction between performance­

based, non-discretionary commissions and commissions based
on the amount or type of hours worked.

They argue that a

"fixed" salary may include such performance-based bonuses.
Ultimately, the case turns on the breadth of O'Brien's
holding, which instructs how the "fixed salary" may be
calculated.
Plaintiff argues that the "fixed salary" referenced in
§ 778.114 encompasses all forms of compensation,

commissions.

including

The crucial point, he contends, is that the

term "salary" in the "fixed salary" requirement includes
commissions.

Although plausible, this argument is not

supported by the weight of statutory authority and case law.

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As a threshold matter, the requlations appear to make
it clear that a commission is distinct from a salary.

While

the DOL mandates that commissions must be included in
calculatinq the reqular rate, it also instructs:
This is true reqardless of whether the commission
is the sole source of the employee's compensation
or is paid in addition to a guaranteed salary or
hourly rate, or on some other basis, and reqardless
of the method, frequency, or reqularity of
computinq, allocatinq and payinq the commission.
29 C.F.R. § 778.117 (emphasis added).

It is hard to see how

a commission can be viewed as part of a salary when i t is
characterized as beinq paid "in addition" to a salary.

Cf.

Lance, 2005 WL 1785315, at *6 ("When commission is paid on a
weekly basis i t is added to the employee's other earninqs
for that workweek . . . . ") (quotinq 29 C.F.R. § 778.118).
Contrary to Plaintiff's argument, O'Brien does not hold
that any variation in compensation disqualifies the employer
from usinq the FNW method to calculate overtime.

In

O'Brien, the First Circuit addressed two issues that have
some relevance to the case now before the court: whether socalled waqe augmentations

shift differential pay and off-

day bonuses, amonq others

had to be included in

calculatinq overtime, and whether the officers' CBA
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comported with the FWW method.

Ultimately the court

concluded in O'Brien that these wage augmentations had to be
included in any calculation of the overtime compensation and
that, as a result, the FWW method of calculating overtime
did not properly apply.

The O'Brien court, however, never

considered whether the payment of performance-based, non­
discretionary commissions would disqualify a pay scheme from
using the FWW method to calculate overtime.
The pivotal fact in the record now before the court is
that, although Plaintiff's compensation certainly did vary
from week to week, i t did not vary with the number or nature
of the hours worked during the week.

Unlike the police

officers in O'Brien, who received pay increments for working
undesirable shifts, store managers at GNC received the same
weekly salary regardless of when and how often they worked.
If a police officer in O'Brien were to work a night shift,
he or she would be entitled to more pay than the same rank­
and-file officer working the same number of hours during the
day.

Thus, the town did not pay each officer the same

amount of pay for straight-time labor each week.

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Id. at

288.

Such a system, the O'Brien court held, precluded the

application of § 778.114.
GNC's system is different.

The additional compensation

Plaintiff received was not based on the type or amount of
hours he worked, but on his ability (or perhaps luck) in
finalizing a sale.

The commissions were paid based on

sales, irrespective of hours worked.

Indeed, a store

manager who worked more hours might garner more commissions,
but he might not.
In sum, O'Brien did not address whether an employer may
use the FWW to compensate overtime work when its employees
are paid a performance-based, non-discretionary commission
in addition to a weekly salary.

The pertinent regulation,

29 C.F.R. § 778.114, does not expressly forbid the use of
the FWW with a commission-based system.

Plaintiff has not

identified any case that interprets § 778.114 as prohibiting
the FWW method where performance-based commissions are paid.
In fact, the majority of courts that have addressed
performance-based bonuses have found them compatible with
the FWW method.

The court agrees with this majority and

finds that an employer may utilize the FWW even when an

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employee's pay may vary based on performance-based
commissions.
IV.

CONCLUSION

For the foregoing reasons, Defendants' Motion to
Dismiss (Dkt. No.8) is hereby ALLOWED.
enter judgment for Defendants.

The clerk will

This case may now be closed.

It is So Ordered.

IJ~~
MICHAEL A. PONSOR
U. S. District Judge

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