Mcaninch et al v. Monroe Muffler Brake Inc

Filing 67

ORDER denying as moot 19 Plaintiffs' Motion to Certify Class and granting 22 Defendant's Motion for Summary Judgment. Signed by Judge Gregory L Frost on 7/5/11. (sem1)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION

WILLIAM MCANINCH, et al.,
Plaintiffs,
Case No. 2:09-cv-989
JUDGE GREGORY L. FROST
Magistrate Judge E.A. Preston Deavers

v.
MONRO MUFFLER BRAKE INC.,
Defendant.

OPINION AND ORDER
This matter is before the Court for consideration of Defendant’s Motion for Summary
Judgment (ECF No. 22), Plaintiffs’ Response in Opposition to Defendant’s Motion for Summary
Judgment (ECF No. 59), Defendant’s Reply in Support of its Motion for Summary Judgment
(ECF No. 64), and Plaintiffs’ Motion for Conditional Class Certification and Court Authorized
Notice (ECF. No. 19). For the reasons that follow, the Court GRANTS Defendant’s motion and
DENIES as MOOT Plaintiffs’ motion.
I. Background
A. Facts
Defendant operates retail stores offering full automobile repair service and the sale of
automotive goods such as brake pads, tires, and oil. Defendant provides these goods and
services to the general public. Defendant operates retail stores under the trade name “Mr. Tire
Auto Service Centers.”
Plaintiffs William McAninch, Casey Wheeler, and Mark Izzo are previous employees of

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Defendant. Plaintiffs were employed as either managers or assistant managers at certain Mr.
Tire Auto Service Centers. As managers and assistant managers, Plaintiffs generally worked an
alternating five and six day workweeks. If Plaintiffs worked during the week, they were
normally scheduled to work from 7:00 a.m. to 7:00 p.m. If Plaintiffs worked on the weekends,
they were normally scheduled to work from 7:00 a.m. to 6:00 p.m. on Saturday and/or from 8:30
a.m. to 5:00 p.m. on Sunday.
During their employment with Defendant, Plaintiffs were not paid overtime pay for hours
worked over forty per week. Plaintiffs allege that the failure to pay them overtime violates the
overtime provisions of the Fair Labor Standards Act of 1938, 29 U.S.C. § 201 et seq. (“FLSA”).
B. Procedural Background
Plaintiffs filed their complaint on November 2, 2009. (ECF No. 2.) The Court held its
preliminary pretrial conference on February 25, 2010. (ECF No. 9.) The Court issued its
Preliminary Pretrial Order on that same day, setting certain scheduling dates. (ECF No. 11.)
The Court set the discovery deadline for December 6, 2010, and the dispositive motions deadline
for January 24, 2011. The Court also directed the parties to call the Magistrate Judge’s chambers
to arrange a collective action scheduling conference. The Honorable James L. Graham then
scheduled the final pretrial conference for September 9, 2011, and the jury trial for October 11,
2011. (ECF No. 14.)
On July 20, 2010, the Magistrate Judge held a collective action status conference and
scheduled the date for filing a motion to proceed as a collective action. (ECF No. 18.) Pursuant
to that schedule, on September 9, 2010, Plaintiffs filed their Motion for Conditional Class
Certification and Court Authorized Notice. (ECF. No. 19.)

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On October 4, 2010, Defendant filed a motion requesting the Court to stay its decision on
the Motion for Conditional Class Certification and Court Authorized Notice pending its decision
on summary judgment. (ECF No. 21.) On that same day, Defendants filed their Motion for
Summary Judgment. (ECF No. 22.) On October 29, Plaintiffs filed a Motion to Amend the
Complaint Instanter. (ECF No. 26.)
On March 1, 2011, the Court granted Defendant’s motion to stay consideration of
Plaintiffs’ Motion for Conditional Class Certification and Court Authorized Notice pending
decision on Defendant’s Motion for Summary Judgment and granted Plaintiffs’ Motion to
Amend the Complaint Instanter. (ECF No. 49.) The Court explained that, “[i]n so far as the
amended complaint deletes all of the plaintiffs’ state law claims, that branch of defendant’s
pending motion for summary judgment is now moot.” Id. at 3. The Court further explained that
it would “proceed to consider the defendant’s motion for summary judgment on the plaintiffs’
FLSA claim as set forth in the amended complaint and as it pertains to the three individually
named plaintiffs only.” Id. The Court then set a briefing schedule on Defendant’s Motion for
Summary Judgment, which was complete on April 4, 2011.
On June 13, 2011, Judge Graham recused himself from this case. (ECF No. 66.) The
case was then randomly assigned to the undersigned judge.
II. Standard
Rule 56(a) of the Federal Rules of Civil Procedures provides that a court “shall grant
summary judgment if the movant shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The presence
of factual disputes will preclude granting summary judgment only if the disputes are genuine and

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concern material facts. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91
L. Ed. 2d 202 (1986). A dispute about a material fact is “genuine” only if “the evidence is such
that a reasonable jury could return a verdict for the nonmoving party.” Id. Although a court
must view the motion in the light most favorable to the nonmoving party, where “the moving
party has carried its burden under Rule 56[(a)], its opponent must do more than simply show that
there is some metaphysical doubt as to the material facts.” Matsushita Electric Industrial Co. v.
Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986); Celotex Corp.
v. Catrett, 477 U.S. 317, 323-24, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986).
III. Discussion
Under the FLSA, all covered employees must be paid one and one-half times their
regular rate of pay for hours worked in excess of forty per week. 29 U.S.C. § 207(a)(1); Comer
v. Wal-Mart Stores, Inc., 454 F.3d 544, 545-56 (6th Cir. 2006). An employer that violates this
provision can be held liable for unpaid overtime compensation plus an equal amount as
liquidated damages. 29 U.S.C. § 216(b). Plaintiffs here contend that Defendant has violated the
FLSA overtime compensation provision.
Defendant, however, argues that it is excepted from the FLSA’s overtime compensation
provision. The FLSA’s overtime provisions are subject to a number of exceptions, all of which
are “to be narrowly construed against employers in order to further Congress’s goal of providing
broad federal employment protection.” Wilks v. Pep Boys (“Wilks I”), No. 3:02-0837, 11 Wage
& Hour Cas. 2d (BNA) 1554, 2006 U.S. Dist. LEXIS 69537, at *32 (Sept. 26, 2006) (citing
Fazekas v. Cleveland Clinic Found. Healthcare Ventures, Inc., 204 F.3d 673, 675 (6th Cir.
2000). “In order to claim an exemption, an employer has the burden of proving, ‘by a

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preponderance of the clear and affirmative evidence,’ that each employee meets each of the
exception’s requirements.” Wilks I, 2006 U.S. Dist. LEXIS 69537, at *32 (citing Acs v. Detroit
Edison Co., 444 F.3d 763, 767 (6th Cir. 2006); Renfro v. Ind. Mich. Power Co., 370 F.3d 512,
515 (6th Cir. 2004); Cowan v. Treetop Enters., Inc., 120 F. Supp. 2d 672, 687 (M.D. Tenn.
1999); Hodgson v. The Klages Coal & Ice. Co., 435 F.2d 377, 382 (6th Cir. 1970)). The Sixth
Circuit, however, has “made it clear that the employer claiming an FLSA exemption does not
bear any heightened evidentiary burden.” Thomas v. Speedway SuperAmerica, LLC, 506 F.3d
496, 501-02 (6th Cir. 2007) (citing Renfro, 497 F.3d at 576) (clarifying that the “phrase ‘clear
and affirmative evidence’ does not heighten [the defendant’s] evidentiary burden when moving
for summary judgment . . . . [the defendant] has the burden to establish the . . . elements by a
preponderance of the evidence”).
In the case sub judice, Defendant claims that Plaintiffs fall under the “retail commission”
exception to the FLSA’s overtime provision. 29 U.S.C. § 207(i). The exception is set forth in
Section 7(i), which provides:
No employer shall be deemed to have violated subsection (a) of this section by
employing any employee of a retail or service establishment for a workweek in
excess of the applicable workweek specified therein, if (1) the regular rate of pay of
such employee is in excess of one and one-half times the minimum hourly rate
applicable to him under section 206 of this title [describing the minimum wage], and
(2) more than half his compensation for a representative period (not less than one
month) represents commissions on goods or services. 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.
29 U.S.C. § 207(i).
In other words, in order to claim this exception, the defendant must
demonstrate the following three elements: (1) the stores in which the [] plaintiffs
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work qualify as “retail or service establishments”; (2) the defendant pays the []
plaintiffs a regular rate of . . . one and one-half times the federal minimum wage, for
each hour they work; and (3) the [] plaintiffs receive more than half of their
compensation (for a representative period of not less than one month) in the form of
commissions earned from the sale of goods or services. See 29 U.S.C. § 207(i); 29
C.F.R. § 779.412 (2000).
Wilks I, 2006 U.S. Dist. LEXIS, at *33-34.
Plaintiffs in the instant action contest only the last prong of this test. That is, Plaintiffs
argue that their compensation does not constitute “commissions earned from the sale of goods or
services.” In order to make this determination, the Court must first review the compensation
structure utilized by Defendant to pay its managers and assistant managers.
A. Compensation Structure
1. Terminology
Defendant utilizes the term “controllable profit,” to encompass a store’s gross profit less
all payroll of the managers and assistant managers, benefits of the managers and assistant
managers (i.e., payroll taxes, health and dental insurance), controllable expenses, and inventory
shortages. This number is also called a “store contribution.” Gross profit is calculated as sales
less cost of those sales to the company and technician payroll. “Controllable expenses” are
utilities, uniforms, refuse, telephone, supplies, small tools, trucks, and bad debt.
The term “budget” is used by Defendant to refer to the expected performance of a
particular store. Prior to each year, Defendant determines what the “earnings expectations” are
from the board of directors and investors. Once earnings goals are obtained, Defendant develops
an estimate of all the fixed expenses that go into the budget. Fixed expenses include rent,
amortization, reals estate taxes, and advertising. Defendant then computes what sales revenue is
needed to achieve the earnings goals after fixed expenses are paid. This is done at the macro
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level, developing a budget for the company as a whole.
In formulating store budgets, the main focus is the sales increase that is needed to achieve
Defendant’s earnings goal. Complete budgets are filtered down to the individual stores,
including sales, cost of sales, and specific line items. Historical data is used to spread the sales
budget between various types of sales, such as tire sales and service sales. Other budget figures
are likewise based on historical data, and include approximately 38 items such as sales
adjustments, tires purchases for customers outside the store, inventory variance, gross mechanic
profit, mechanical sales, supplies, and payroll taxes. The budget figures culminate in a budget
amount of “controllable profit” for each month.
2. Pay Plans
Defendant’s pay plans for store managers and assistant managers are identical except that
assistant managers are ineligible for a year-end bonus.
a. Percentage of controllable profit at budget
If a manager is right on budget, his compensation is equal to the percentage of
controllable profit at budget. For Plaintiffs, the percentage of controllable profit at budget
ranged between $48,000 and $63,000. To determine the percentage of controllable profit at
budget, Defendant takes the controllable profit from the monthly budget and multiplies that
figure times some percentage that is not constant, (i.e., Controllable Profit x % = Percentage of
Controllable Profit at Budget).
To determine the non-constant percentage, each quarter of the year is assigned 25% of a
store manager’s yearly percentage of controllable profit at budget. The quarterly figure is then
further broken down into monthly amounts. The assigned amounts are used to calculate the

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percentage of commission that managers are supposed to earn each month. The assigned portion
of the percentage of controllable profit at budget is divided by the budgeted store contribution
for the month to obtain the percentage, (i.e., Monthly Percentage of Controllable Profit at Budget
/ Monthly Budget Store Contribution = %).
In formulating its pay plan, Defendant analyzed historical data and determined that its
budgeted store profits were regularly higher in certain months and lower in other months. Based
on this information, Defendant lowers the percentage managers earn on the store’s controllable
profit in the busy months and raises the percentage managers earn on the store’s controllable
profit in the slow months. Defendant contends that this fluctuating commission rate prevents a
“feast or famine” pay structure in a business that is cyclical.
b. Draw
Defendant’s pay plans for its managers and assistant managers also establishes a daily
and aggregate annual draw. Managers and assistant managers are required to work a minimum
amount of hours before being eligible for their daily draw, currently 6 hours per day and at the
time this action was filed, 4 hours per day. The aggregate amount is based on the daily draw
multiplied by 286 work days, the number of days a manager works if he follows the alternating 5
and 6 day workweek policy.
The aggregate annual draw is always set at less than the percentage of controllable profit
at budget. For Plaintiffs here, the aggregate annual draw was between 83% and 95% of their
store’s percentage of controllable profit at budget. If a manager’s or assistant manager’s draw is
ultimately more than he is due for pay, the unearned draw is recoupalble at a quarterly
reconciliation and from the year-end bonus for managers only.

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c. Calculating pay
Once the commission percentage figure is determined as set forth above, that figure is
multiplied by a rough version of the actual store contribution for the month. This rough version
is calculated by taking actual gross profit less actual manager’s payroll less budgeted
controllable expenses. To the extent that the monthly percentage exceeds draw, managers
receive 80% of the percentage amount. The other 20% is withheld to cover unearned draw for
the quarter and/or any deficiencies found when actual controllable expenses are reconciled at the
end of the quarter.
At the end of the quarter, figures are recalculated using actual controllable expenses. If
the quarterly figure, calculated with these actual expenses, exceeds total draw for the quarter,
managers receive the excess less whatever has already been paid in draw and percentage
payments. If the quarterly figure is negative, due to unearned draw or higher actual expenses,
this amount may be recouped from the 20% of percentage payments withheld. If the amount due
back to Defendant is more than the 20% withheld, that amount is reconciled at the year-end
bonus calculation. The unearned draw does not carry forward into the next quarter.
d. Commission capping
Defendant caps earned percentage of commissions at 130% of the percentage of
controllable profit at budget.
B. Bona Fide Commission Rate Analysis
The retail commission exception to the overtime provisions of the FLSA is set forth in
Section 7(i) and dictates that for compensation to be considered a commission, the fee paid to the
employee must be based on a “bona fide commission rate.” 29 U.S.C. § 207(i). However,

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neither the FLSA nor the United States Department of Labor’s (“DOL”) implementing
regulations provide a definition for the term “commission” as it is used in the retail or service
exemption. See Wilkes II, 278 F. App’x at 489; Parker v. NutriSystem, Inc., 620 F.3d 274, 278
(3d Cir. 2010). “Indeed, the meaning of ‘commission’ under the FLSA ‘is an issue that
finds little illumination from the sparse case law and the vague references in statutes and
regulations.’ ” Owopetu v. Nationwide CATV Auditing Servs., Inc., No. 5:10-cv-18, 2011 U.S.
Dist. LEXIS 24948, at *9, 161 Lab. Cas. (CCH) P35,884 (D. Vt. March 11, 2011) (quoting
Klinedinst v. Swift Invs., Inc., 260 F.3d 1251, 1254 (11th Cir. 2001)). “The ultimate question of
whether an employer is exempt from the overtime wage requirement is a question of law.”
Keyes v. Car-X Auto Serv., No. 1:07-cv-503, 2009 U.S. Dist. LEXIS 108981, at *5 (S.D. Ohio
Sept. 30, 2009)1 (citing Ale v. TVA, 269 F.3d 680, 691 (6th Cir. 2001); Icicle Seafoods, Inc. v.
Worthington, 475 U.S. 709, 714, 106 S. Ct. 1527, 89 L. Ed. 2d 739 (1986)). “Consequently, the
issue of whether more than one-half of Plaintiffs’ compensation consisted of commissions is a
question of law.” Id.
Here, Defendant argues that it is entitled to the exemption because its pay plan possesses
the attributes the courts and the DOL have found indicative of bona fide commission rates. This
Court agrees.
1. Proportionality
In the only case in which the Sixth Circuit considered whether a commission rate was
bona fide, the appellate court explained that “that to constitute a commission under 29 U.S.C. §

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This Report and Recommendation was adopted by the District Judge in Keyes v. Car-X
Auto Service,” No. C-1-07-503, 158 Lab. Cas. (CCH) P35,668, 2009 U.S. Dist. LEXIS 108980
(S.D. Ohio Nov. 20, 2009).
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207(i), the employer must establish some proportionality between the compensation to the
employees and the amount charged to the customer.” Wilks v. Pep Boys, 278 Fed. Appx. 488,
489 (6th Cir. 2008)2 (“Wilks II”). Plaintiffs contend that proportionality is not present in
Defendant’s pay plan because Defendant “disconnects proportionality by injecting multiple
factors and exercising its discretion.” (ECF No. 59 at 29.) Further, Defendant contends that
“Plaintiffs assert that [Defendant]’s commission plan does not exhibit proportionality because
employees are paid a percentage of profit, rather than a percentage of sales.” (ECF No. 64 at 3.)
a. Percentage of the profit as opposed to a percentage of the sales
Defendant addresses an argument that it maintains was made by Plaintiffs related to the
compensation plan determining the employee’s pay based on a percentage of profit, rather than a
percentage of sales. The Court disagrees that Plaintiffs make such an argument. However, to the
extent that Plaintiffs do, that argument fails. A commission can be tied to a retail
establishment’s profit. See 29 C.F.R. § 779.413(b) (“Although typically in retail or service
establishments commission payments are keyed to sales, the requirement of the exemption is that
more than half the employee’s compensation represent commissions ‘on goods or services,’

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In affirming Wilks I, the Sixth Circuit stated:

[W]e conclude that the district court’s comprehensive and well-reasoned opinion
supports its legal conclusion and the denial of Defendant’s motion for partial
summary judgment. Because the issuance of a detailed written opinion by this Court
would be repetitious, the judgment rendered by the Honorable Aleta A. Trauger is
affirmed on the basis of the reasoning set forth in the September 26, 2006 opinion
and order.
Wilks II, 278 F. App’x at 489-90.

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which would include all types of commissions customarily based on the goods or services which
the establishment sells, and not exclusively those measured by ‘sales’ of these goods or
services.”); Mechmet v. Four Seasons Hotels, Ltd., 639 F. Supp. 330, 339 (N.D. Ill. 1986) aff’d,
825 F.2d 1173 (7th Cir. 1987) (compensating employees in a manner that ties the financial
success of the employees to the financial success of the employer is permissible).
b. Multiple factors and Defendant’s discretion
Plaintiffs contend that proportionality is not present in Defendant’s pay plan because the
plan disconnects proportionality by injecting multiple factors and allowing Defendant to exercise
discretion in setting the commission rate. Specifically, Plaintiffs argue that “[t]he more
conditions [Defendant] imposes on a commission through the factors it uses in determining
profitability and the more discretion it exercises in fluctuating the commission rate, the stronger
Plaintiffs’ argument that a reasonable jury could determine [Defendant] failed to prove by a
preponderance of the evidence the bona fides of its commission rate.” (ECF No. 59 at 25-26.)
Initially, the Court notes that in the instant action the determination as to whether
Defendant’s compensation structure exhibits the necessary proportionality is an issue of law for
the Court to determine. The parties do not dispute any facts related to how Defendant
determines the calculations used to establish Plaintiffs’ pay nor do the parties dispute whether
Defendant actually follows that established format to calculate Plaintiffs’ pay. See e.g.,
Alvarado v. Corporate Cleaning Svc., Inc., 719 F. Supp. 2d 935 (N.D. Ill. 2010) (summary
judgment was denied because questions of fact surrounded whether the employer actually
applied their claimed methodology of compensation). Plaintiffs admit that the “overall question
of whether a compensation structure uses a bona fide commission rate is one of law” but then

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contend that whether a compensation structure uses a bona fide commission rate is not the issue
before the Court. Instead, Plaintiffs claim in a footnote that the real issue before the Court is
whether Plaintiffs were joint employers with Defendant. That issue, Plaintiffs contend is
essentially a question of fact. (ECF No. 59 at 4, fn. 3) (relying on Biore v. Greyhound Corp.,
376 U.S. 473, 481 (1964) and Donovan v. Sabine Irrigation Co., 695 F.2d 190, 194 (5th Cir.
1983)). Plaintiffs’ argument is without merit.
Unlike the issue in Biore and Donovan, the issue before the Court is not whether
Plaintiffs are “employers” within the meaning of the National Labor Relations Act, 29 U.S.C. §
159(c) or Section 203(d) of the FLSA. The issue before the Court is whether Defendant’s
compensation structure utilizes a bona fide commission rate, which is a question of law, not fact.
As to Plaintiffs’ argument regarding discretion, Plaintiffs contend that Defendant’s
exercise of “discretion” in setting the percentage of the store’s controllable profit that the
managers and assistant managers earn weighs against a finding of proportionality. This Court
disagrees. All employers exercise discretion in setting commission rates. Any employer that
pays an employee a percentage of the sales or profits of a retail establishment in which the
employee works sets that percentage rate at its discretion. What Plaintiffs are actually taking
issue with is that the percentage rate fluctuates pursuant to a complicated pay structure. Yet, all
parties agree that a fixed percentage is not necessary for a pay plan to qualify as a bona fide
commission rate. See e.g., Parker, 620 F.3d at 283 (“both the [DOL] and other courts have
recognized that this strict percentage relationship is not a requirement for a commission scheme
under § 7(i)”).
The Court next addresses Plaintiffs’ argument that because Defendant interjects so many

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factors into the compensation plan the plan is less likely to be considered proportional.
Proportionality between any pay plan, however complicated the plan, requires some relationship
or correlation between employee compensation and the sales of the employer. Courts that
determined that proportionality did not exist in a compensation plan found no connection
between the employee’s pay and the company’s sales. For example, in Wilks, because the
plaintiffs earned a predetermined amount for each task completed, which did not fluctuate in
tandem with the amount charged to customers, there was no proportionality. Wilks II, 278 F.
App’x at 489. Proportionality was also missing where an employee was paid an hourly rate that
had no connection to the value of service performed or cost charged to the client. Novak v.
Mitchell’s Motors, Inc., No. 9 C 5748, 2011 WL 109083 (N.D. Ill. Jan. 12, 2011).
When an employer can demonstrate the required relationship between an employee’s
compensation and the company’s sales, courts generally find proportionality. For example, in
one of the most recent decisions involving Section 7(i), commissions were found to be
sufficiently proportional when based on a percentage of the contract price for each work order
completed by the employee. Owopetu, 2011 WL 883703. Likewise, in Horn v. Digital Cable &
Comm’ns, Inc., No. 1:06-CV-325, 2009 WL 4042407 (N.D. Ohio Feb. 11, 2009), the Northern
District of Ohio found that the commissions were proportional where the amount paid to the
employees was related to the value of services. Id. at *6. That is, the employees earned a
percentage of each service they performed, and they had the ability to influence the customer’s
purchasing decision.
Proportionality was also found to exist where an employee was not paid a commission
based on the amount of the sale, but rather on the difficulty of making the sale. Parker, 620 F.3d

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at 283-84. The employees in Parker received a higher commission rate for performing “active”
outgoing sales calls and a lower commission rate for “passive” incoming sales calls. The Third
Circuit specifically held that “the fact that NutriSystem’s plan is not calculated strictly as a
percentage of sale price does not disqualify it from being a commission under § 7(i).” Id. at 283.
In the instant action, Plaintiffs were paid a percentage of their store’s controllable profit.
Plaintiffs were compensated, in part, based on their ability to keep sales figures high (and in part
based on their ability to keep the costs low). An illustration here is helpful. In Parker, the Third
Circuit stated that: “The District Court offered an example in defining proportionality, which we
find helpful: ‘proportionality would not exist if an employee were paid the same dollar amount
for selling a $10 ring as a $1,000,000 ring.” Id. at 283. This is plainly not the case here. It is
uncontroverted that Plaintiffs make more money on high-gross profit sales, such as fuel service
or a transmission flush, as opposed to lower-gross profit sales. Also, Plaintiffs were not paid a
set amount for the sale of an item, regardless of the cost to the customer.
Finally, it is not disputed that Plaintiffs had the ability to stimulate and affect a
customer’s purchasing decisions. For example, one of the plaintiffs testified that he was required
to explain to customers why he or she needed a particular product because “[i]f you can explain
yourself and tell someone why they need something and explain it to them, then they’ll buy it.”
(Izzo Dep. at 140:5-12.) Indeed, Defendant implemented a program designed to encourage
managers to make sales to every customer in their store, referred to as the “NOW” (“No One
Walks”) program. In the zone in which Plaintiffs’ stores were located, an estimated 5% to 10%
of store managers achieved 30% more than their budgeted goal and an estimated 40% of the
stores in the same zone reached their annual profit improvement over the prior year’s sales.

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While the Court recognizes that the compensation structure utilized is certainly not overly
generous, there is still some correlation between employee compensation and the sales of the
employer.
Based on the foregoing, the Court concludes that, while Defendant’s compensation plan
for its managers and assistant managers is certainly complicated, it solidly exhibits the necessary
traits to be considered proportional as that term is interpreted under Section 7(i) of the FLSA.
2. Type of Compensation Plan: Commission Plus a Draw
Defendant’s compensation structure provided Plaintiffs with a daily draw that was set at
between 83% and 95% of the controllable profit at budget set for their store. The Regulations
specifically provide that pay plans that offer commission plus a draw may qualify as a bona fide
commission plan:
(5) Straight commission with “advances,” “guarantees,” or “draws.” This method
of compensation is similar to paragraph (a)(4) of this section [straight commission
without advances] except that the employee is paid a fixed weekly, biweekly,
semimonthly, or monthly “advance,” “guarantee,” or “draw.” At periodic intervals
a settlement is made at which time the payments already made are supplemented by
any additional amount by which his commission earnings exceed the amounts
previously paid.
29 C.F.R. § 779.413(a)(5).
Plaintiffs contend that their draw was largely non-recoverable and, therefore, operated
more like a guaranteed wage or salary. Plaintiffs go on to state that, “[t]he system at bar is
operationally indistinguishable from the one found not to be a bona fide commission in Keyes v.
Car-X Auto Service,” 2009 U.S. Dist. LEXIS 108981. (ECF No. 59 at 35.) Plaintiffs’ argument
is not well taken.
In the Keyes “compensation plan, employees were paid the greater of either the

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commission rate on the total gross sale of services and products attributable to the employee
during a given pay period or a ‘default’ guaranteed wage rate, which was calculated by
multiplying the employee’s regular hourly rate by the number of hours actually worked in a
given pay period.” 2009 U.S. Dist. LEXIS 108981, at 7. Unlike that structure, Plaintiffs here
were compensated based completely on a percentage of controllable profit. Defendant never
committed to paying, and Plaintiffs have not acknowledged receiving, either the draw or their
percentage of controllable profit. Nor were Plaintiffs assigned an hourly rate by which their
hours worked could be multiplied to determine an alternative amount of compensation. Instead,
Defendant’s compensation plan qualifies as a straight commission with draw plan. See 29
C.F.R. § 779.413(a)(5). As opposed to paying Plaintiffs their due commissions when they were
calculated, (i.e., at the end of the month or end of the quarter), Defendant paid Plaintiffs a
periodic draw payment based on a profit goal, or “budget,” set by Defendant.
Moreover, Defendant’s compensation plan requires periodic settlement, an aspect of a
straight commission with a draw plan noted in the Regulations. The Regulation on methods of
compensation of retail store employees requires that periodic settlements be made so any
additional commissions earned over and above the amount of the draw can be paid to the
employee. See 29 C.F.R. § 779.413(a)(5). The reverse (a deduction of any unearned draw)
however, is not mentioned. In fact, as Defendant points out, the Regulation titled “What
compensation ‘represents commissions’ ” indicates a recoupment of unearned draw during a
periodic settlement is not required. 29 C.F.R § 779.416(a). That Regulation provides that where
commissions earned by the employee are less than what that employee earned in draws, “a
deduction of the excess amount from commission earnings for a subsequent period, if otherwise

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lawful, may or may not be customary under the employment agreement.” 29 C.F.R. §
779.416(a). Thus, an employer could, but is not required to, recoup from its employees any
unearned draw.
The issue of periodic settlement was analyzed in Viciedo v. New Horizons Learning Ctr.,
246 F. Supp. 2d 886 (S.D. Ohio 2003). In Viciedo, the Honorable Algenon L. Marbley found
that the commission plan was not bona fide, in part, because of the absence of a periodic
settlement. See id. at 898. When analyzing the “Level I compensation plan,” Judge Marbley
looked only to see whether additional commissions in excess of the draw were paid, not whether
unearned commissions were deducted: “Under the Level I, however, no periodic settlement
takes place whereby draws are supplemented by the additional amount of commissions earned.”
Id.
Unlike under the Level I compensation plan analyzed in Viciedo, Defendant’s plan here
subjected managers and assistant managers to both monthly and quarterly periodic settlements
that always included the addition of earned commissions in excess of draw, as well as the
possible recovery of unearned draw. At the end of each month, Plaintiffs were paid 80% of the
commissions they earned over and above their draw amount for that month. The remaining 20%
was held for use during the quarterly reconciliation. During each monthly reconciliation, if a
certain controllable expense had not been entered into the system, for example, if a utility bill for
the month had not yet arrived, the controllable expense would be estimated for that month. At
the end of the quarter, another periodic settlement occurred. During the quarterly settlement,
Defendant calculated the difference between any estimated controllable expenses used during the
monthly settlement and the amount of the actual expenses. If the manager or assistant manager

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was due additional commissions, those amounts were then paid to him. If the employee had any
unearned draw at the close of the quarter, that amount was deducted from the 20% held back
during the monthly settlements. Where the amount of unearned draw exceeded the 20%
withholding, any additional unearned draw could potentially be deducted from a manager’s
year-end bonus.
While the Court recognizes that Defendant’s plan does not make provision for the
recovery of all unearned draw in all cases, neither the Regulations nor the case law interpreting
those Regulations requires such recoupment for a plan to be considered bona fide. The fact that
Defendant’s plan provides for periodic settlement whereby draws are supplemented by the
additional amount of commissions earned weighs heavily in favor of a finding that Defendant’s
compensation plan is bona fide.
3. Examples from the Regulations
While not offering an example of what a bona fide commission plan is, the Regulations
do offer two examples of what it is not:
A commission rate is not bona fide if the formula for computing the commissions is
such that the employee, in fact, always or almost always earns the same fixed amount
of compensation for each workweek (as would be the case where the computed
commissions seldom or never equal or exceed the amount of the draw or guarantee).
Another example of a commission plan which would not be considered as bona fide
is one in which the employee receives a regular payment consituting [sic] nearly his
entire earnings which is expressed in terms of a percentage of the sales which the
establishment or department can always be expected to make with only a slight
addition to his wages based upon a greatly reduced percentage applied to the sales
above the expected quota.
29 C.F.R. § 779.416(c). The parties disagree as to whether Defendant’s compensation plan fits
into either of these examples.

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As to the first example, Plaintiffs argue that their commissions seldom or never equaled
or exceeded the amount of their draw, which settles their pay structure in the first example of
what a bona fide compensation plan is not. Defendant, however, contends that Plaintiffs
commissions exceeded their draw on a more frequent basis than seldom, removing Defendant’s
pay plan from the first example. This Court agrees.
For a commission to be based on a bona fide commission rate, 29 C.F.R. §
779.416(c) requires the commissions to exceed the guarantee on a more frequent basis than
“seldom.” See e.g., Herman v. Suwannee Swifty Stores, Inc., 19 F. Supp. 2d 1365, 1369 (M.D.
Ga. 1998) (holding plan was not bona fide because the employees never earned more than the
guaranteed hourly wage). The Regulations do not define “seldom,” but Merriam Webster’s
Dictionary defines the term as “rarely” or “infrequently.”
In Spicer v. Pier Sixty LLC, 269 F.R.D. 321 (S.D. N.Y. 2010) and Lee v. Ethan Allen
Retail, Inc., 651 F. Supp. 2d 1361 (N.D. Ga 2009), the district courts considered whether the
plaintiffs earned more than their draw or guaranteed wage more frequently than seldom. The
employees in Spicer were banquet workers who earned a percentage of the banquet fee with a
guaranteed minimum hourly rate if the banquet fee was insufficient. The plaintiffs claimed they
seldom earned more than the guaranteed wage rate, so the employer’s plan was not bona fide and
therefore not exempt under Section 7(i). The court disagreed, determining that exceeding the
guaranteed hourly rate 7 out of 18 events, or 39% of the time, did not indicate the employee
“seldom” received more than the guarantee.
In Ethan Allen, the employee exceeded her draw in only 4 out of 14 months, or 28% of
the time. For the four months the employee did exceed draw, she did not receive any

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commission payment because “throughout her employment at Ethan Allen she maintained a
cumulative deficit as a result of her failure to earn enough commissions to cover her draw in
prior months.” Ethan Allen, 651 F. Supp. 2d at 1364. The court found the employer’s plan to be
a bona fide commission plan in part because the employee did not always or almost always earn
the same fixed amount each week. The plan provided the employee the opportunity to work
more in order to earn more. Although she only exceeded draw four times and the employer used
the additional commissions to reduce the employee’s deficit rather than pay them to the
employee, “the fact that [the employee] could exceed her draw by increasing sales demonstrates
her ability to impact her compensation by increasing sales.” Id. at 1367.
In the instant action, the evidence before the Court shows that Plaintiff Wheeler exceeded
draw 4 out of 14 months, or 29% of the time. Plaintiff Izzo for 5 of 12 months, or 42% of the
time. Plaintiff McAninch for 5 out of 26 months, or 19% of the time. In addition, all three
plaintiffs also received payments of additional commissions due during quarterly reconciliation.
The Court concludes that these totals easily constitute more than seldom.
As to the second example of what a bona fide commission plan is not, it is demonstrated
in Donovan v. Highway Oil, Inc., No. 81-4245, 1986 WL 11266 (D. Kan. July 18, 1986). The
employees in Donovan were gas station managers, and they earned commissions based upon
gallons of gasoline pumped at their stations. The managers were paid monthly draws in the
amount of $1,075. This figure represented the manager’s commission for a threshold sale of
65,000 gallons of gasoline. For every gallon sold in excess of the threshold, the managers were
paid $0.004. Donovan exemplifies a plan in which an employee receives a regular payment
constituting almost the employee’s entire earnings, which is expressed in terms of a sales amount

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the employee is expected to make ($1,075 for 65,000 gallons), plus only a slight addition to that
payment based upon a greatly reduced percentage ($0.004 per gallon).
Defendant’s compensation plan operates nothing like the plan in Donovan. Plaintiffs are
paid a percentage of controllable profit based on gross sales less controllable expenses for each
month. The percentage they are paid does not change during the month, and it is certainly not
“greatly reduced.”
The Court finds that Defendant’s compensation plan does not neatly fit into either
example given in the Regulations of what a bona fide commission rate is not.
4. Hours Worked
Another aspects of Defendant’s compensation plan that Plaintiffs contend weigh in favor
of finding the plan is not a bona fide one, is that Plaintiffs’ pay is not decoupled from the hours
they work. Plaintiffs argue that they were usually scheduled to work approximately 60 hours per
week regardless of the incentives provided by the commissions in Defendant’s pay structure.
Defendants, however, contend that Plaintiffs’ pay is not tied to their hours. This Court agrees.
The Third Circuit has recognized that a “sales associates’ compensation is also
‘decoupled from actual time worked,’ a characteristic both the Seventh Circuit and the
Department identified as a hallmark of ‘how commissions work.’ ” Parker, 620 F.3d at 284
(quoting Yi v. Sterling Collision Ctrs., Inc., 480 F.3d 505, 509 (7th Cir. 2007) and citing Dep’t
of Labor Op. Ltr., 2005 WL 3308624 (Nov. 14, 2005)).3 That is, when compensation is based on

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The Sixth Circuit has reiterated the Supreme Court’s position that “an opinion of the
Administrator of the Wage and Hour Division of the Department of Labor has persuasive value
if the position of the Administrator is well-considered and well-reasoned.” Fazekas, 204 F.3d at
677 (citing Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S. Ct. 161, 89 L. Ed. 124 (1944))
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sales, as opposed to hours worked, the pay may qualify as a bona fide commission rate. As the
Seventh Circuit explained in Yi: “The faster the team works, the more it earns per number of
hours, since its commission is based not on the total number of hours it puts in on a job but on
the number of booked hours times each team member’s booked-hour rate. That is how
commissions work; they are decoupled from actual time worked.” Yi, 480 F.3d at 509. See also
Herman, 19 F. Supp. 2d at 1371(“The whole premise behind earning a commission is that the
amount of sales would increase the rate of pay. Thus, employees may elect to work more hours
so they can increase their sales, and in turn, their earnings.”); Erichs v. Venator Group, Inc., 128
F. Supp. 2d 1255, 1260 (N.D. Cal. 2001) (same).
In the present case, Defendant’s compensation plan provides Plaintiffs with an incentive
to work more and to work more productively. The Court notes, however, that the Sixth Circuit
has found this aspect of compensation plans to be of little importance in determining whether a
commission rate is bona fide. See Wilks II (“[The Court] notes that the defendant has not cited
one statute, rule, or administrative interpretation that bolsters its ‘incentive-to-hustle’-based
theory of commission. Rather, support for this notion stems only from judicially created overlay
to the FLSA that is non-binding on this court.”). That being said, to the extent that this inquiry is
relevant in this circuit, the Court finds that if weighs in favor of a finding that Defendant’s
compensation plan is bona fide.
5. Work at Other Stores
Plaintiffs occasionally were required to fill in for other absent managers at other stores.
This arrangement gives the Court some pause, in that on the days that the employee was not at
his or her own store, the amount of their pay was not tied to the sales he or she made that day,

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but instead were tied to the amount of sales the other employees made at the managers’ home
store. Defendant’s representative testified that Defendants would prorate a bonus calculation
between stores but that it was not practical to calculate only one day of commission for one
store. Plaintiffs, however, point out that their pay did not appear to be prorated between stores
when they worked more that one day at another store. If Defendant did prorate a bonus
calculation between stores, that arrangement obviously takes nothing away from its pay structure
qualifying as a bona fide commission rate. If, however, Defendant did not actually implement its
policy to prorate a bonus calculation between stores, the Court finds that Defendant’s
compensation structure still qualifies as a bona fide commission rate, because ultimately
Plaintiffs’ pay was still tied to the controllable profits made by Defendant.
6. Conclusion - Bona Fide Commission Rate
Even when construing the Section 7(i) exception to the FLSA’s overtime provisions
narrowly against Defendant, the Court concludes that Defendant has met its burden of
establishing that it is entitled to the exception. Defendant’s compensation plan exhibits all of the
necessary traits to constitute a bona fide commission rate. Further, the Court concludes that
applying the exception to Plaintiffs does not run afoul of the FLSA’s purpose or policy of
eliminating “labor conditions detrimental to the maintenance of the minimum standard of living
necessary for health, efficiency, and general wellbeing of workers”. 29 U.S.C. § 202(a)
(“Congressional finding and declaration of policy”).
IV. Conclusion
For the reasons set forth above, the Court GRANTS Defendant’s Motion for Summary
Judgment (ECF No. 22) and DENIES as MOOT Plaintiffs’ Motion for Conditional Class

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Certification and Court Authorized Notice (ECF. No. 19). The Clerk is DIRECTED to ENTER
JUDGMENT in accordance with this Opinion and Order.
IT IS SO ORDERED.
/s/ Gregory L. Frost
GREGORY L. FROST
UNITED STATES DISTRICT JUDGE

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