Casanova et al v. Gold's Texas Holdings Group, Inc.
Filing
72
ORDER GRANTING 64 Motion for Partial Summary Judgment; DENYING 65 Motion for Summary Judgment. Signed by Judge David A. Ezra. (rf)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
DANIEL CASANOVA and TIFFANY §
SAUL, individually and on behalf of all §
§
others similarly situated,
§
§
Plaintiffs,
§
§
vs.
§
§
GOLD’S TEXAS HOLDINGS
§
GROUP, INC.,
§
§
Defendant.
1161 DAE
ORDER (1) GRANTING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY
JUDGMENT AND (2) DENYING DEFENDANT’S MOTION FOR SUMMARY
JUDGMENT
Before the Court are two motions: (1) a Motion for Partial Summary
Judgment filed by Daniel Casanova and Tiffany Saul, individually and on behalf of
all others similarly situated (collectively, “Plaintiffs”) (Dkt. # 64); and (2) a
Motion for Summary Judgment filed by Gold’s Texas Holdings Group, Inc.
(“Defendant” or “ Gold’s Gym”) (Dkt. # 65). On March 21, 2016, the Court heard
oral argument on the cross motions: Lawrence Morales II, Esq., appeared on behalf
of Plaintiffs and Carrie Hoffman, Esq., appeared on behalf of Defendant. After
careful consideration of the supporting and opposing memoranda and the
arguments presented at the hearing, the Court, for the reasons that follow,
1
GRANTS Plaintiffs’ Motion for Partial Summary Judgment (Dkt. # 64) and
DENIES Defendant’s Motion for Summary Judgment (Dkt. # 65).
BACKGROUND
This case concerns the applicability of an exemption contained in the
Fair Labor Standards Act (“FLSA”), codified as 29 U.S.C. § 207(i). Section 207(i)
exempts certain employers from having to pay employees overtime for hours
worked in excess of 40 per week where, inter alia, more than half of an
employee’s compensation represents commissions on goods or services. See 29
U.S.C. § 207(i)(2). The question before the Court is whether the compensation
plan for trainers at Gold’s Gym qualifies as a commission under the exemption.
On December 22, 2013, Plaintiffs filed suit on behalf of themselves
and all others similarly situated. (Dkt. # 1.) Plaintiffs are past and present
personal trainers employed by Gold’s Gym. (Id.) Plaintiffs’ complaint alleges that
Gold’s Gym violated the FLSA, 29 U.S.C. § 201 et seq., by improperly classifying
them and other personal trainers as exempt from the FLSA and not paying them
time and one half for hours worked in excess of 40 hours per week. (Id. ¶ 1.) On
November 19, 2014, this Court issued an order granting conditional class
certification. (Dkt. # 24.) Subsequently, over eighty individuals have opted into
the conditional class.
2
Defendant operates forty-one full-service gyms throughout Texas and
employs personal trainers to assist gym members improve their physical fitness.
(“Copeland Decl.,” Dkt # 65-
.) A trainer’s primary responsibility includes
“providing customized fitness programs to the customer that include education and
guidance on proper nutrition, cardiovascular exercise, resistance training and other
programs to help the member achieve their fitness goals.” (“Job Description,” Dkt.
# 65, Ex. 1-B.)
Trainers are compensated in two different ways. First, trainers are
assigned a certain number of hours per week to work on the floor of the gym.
(“Code of Conduct,” Dkt. # 64, Ex. 1.) These hours are commonly referred to as
For each hour worked on the floor, the trainer receives a fixed hourly rate. (Code
of Conduct.) During floor hours, a trainer performs a variety of tasks that include
assisting gym members while they work out, re-racking weights, completing
administrative work, assisting in selling personal training sessions to gym
members, and conducting gym orientations for new members. (Copeland Dep. at
13.) Each gym, however, has a limited number of “floor hours” based on
budget constraints. (See
comprise a relatively small amount of a trainer’s overall compensation package.
3
The primary basis of a trainer’s compensation comes from conducting
personal training sessions with members. (Code of Conduct.) Under this portion
of the compensation package, trainers receive a percentage of the price charged to
a gym member for each personal training session that the trainer actually conducts.
(Code of Conduct.) The only exception to this compensation scheme, whereby a
trainer receives a percentage of the training session price without conducting a
session, occurs where the member cancels the session within a 24-hour window or
the member does not attend the session.
a trainer must conduct the personal session to earn the percentage of the price. In
general, the length of each session is one hour. (Id. at 77:3 7.) Accordingly, the
more sessions a trainer conducts, the more that trainer would earn. (Id. at
)
The price range of a personal training session is set by Gold’s Gym,
but trainers negotiate within that range with gym members for the actual price
charged, based on a variety of factors, including the type of session sold (i.e. a
bootcamp, one-on-one, or small group session), the number of sessions a gym
member purchases, the trainer’s certification level, and whether the gym member is
The percentage that a trainer would receive as
compensation for each session is based on two elements: (1) the amount of national
certifications and specialty certificates the trainer possessed; and (2) the amount of
4
sessions a trainer conducts in a bi-weekly pay period. (“2013 Incentive Pay
Understanding1,” Dkt. # 65, Ex. 1 at 16.) In 2013, trainers at Gold’s Gym received
the following percentages for sessions they conducted:
Title
Fitness Coach
Fitness Specialist 1
Fitness Specialist 2
Fitness Specialist 3
Fitness Expert
Count
Any
Any
0-29
0-39
0-49
Bi-Weekly Count
Payout Count Payout
35%
35%
40%
30+
45%
45%
40+
50%
55%
50+
60%
(Id.) Trainers earn different titles, and thus a higher percentage of the training
session price, by becoming more skillful. Gold’s Gym set out the following
standards for a trainer to increase his or her earning capacity:
Title/Classification
Fitness Coach
Fitness Specialist 1
Fitness Specialist 2
Fitness Specialist 3
Fitness Expert
Certifications Required
1 National Certification
1 National Certification and 2 Specialties
1 National Certification and 2 Specialties
1 National Certification and 2 Specialties
2 National Certification and 3 Specialties
(Id.) According to this payment structure, for example, a Fitness Expert would
receive 55% of the price paid by a gym member for the first 49 sessions that
Fitness Expert conducted in a bi-weekly pay period. (Id.) For each session over
1
The Record includes four separate “Incentive Pay Understanding” documents
from 2009, 2011, 2012, 2013. (See Dkt. #
Gym changed the titles of various trainers and the percentages earned by each
trainer for servicing a session. The Court cites the most recent “Incentive Pay
Understanding” because the compensation scheme did not change in a manner
relevant to the application of the exemption found in 29 U.S.C. § 207(i).
5
50 in a given pay period, that Fitness Trainer would receive 60% of the price paid
by the gym member upon conducting that session with the member. (Id.; Copeland
Apparent from the charts, trainers can increase the percentage
they receive per session that they service by earning more certifications and
specialties.
Finally, in addition to being paid in the manner just described, up until
2012, trainers were also eligible to receive a flat percentage of their volume of
sales of membership packages and personal training sessions. (Dkt. 64-2 at 1.)
Under this model, trainers did indeed receive a percentage of the sale for a personal
However,
starting in 2012, Gold’s Gym rolled out a new compensation system that stated
“[t]rainers are not eligible for sales commissions.” (Id. at 3; see also Copeland
) Under this compensation method, “[a]ll [t]rainers [were]
paid for sessions serviced.” (Dkt. # 64-2 at 3.) Therefore, the only method of
compensation for personal trainers was by working “floor hours” at a set rate and
servicing personal training sessions at each trainer’s relevant percentage rate.
LEGAL STANDARD
A court must grant summary judgment when “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); see also Meadaa v. K.A.P.
6
Enterprises, L.L.C., 756 F.3d 875, 880 (5th Cir. 2014). “Substantive law will
identify which facts are material.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986). A dispute is only genuine “if the evidence is such that a reasonable
jury could return a verdict for the nonmoving party.” Id.
In seeking summary judgment, the moving party bears the initial
burden of demonstrating the absence of a genuine issue of material fact. Celotex
Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party meets this burden,
the nonmoving party must come forward with specific facts that establish the
existence of a genuine issue for trial. Distribuidora Mari Jose, S.A. de C.V. v.
Transmaritime, Inc., 738 F.3d 703, 706 (5th Cir. 2013) (quoting Allen v. Rapides
Parish Sch. Bd., 204 F.3d 619, 621 (5th Cir. 2000)). “Where the record taken as a
whole could not lead a rational trier of fact to find for the non-moving party, there
is no genuine issue for trial.” Hillman v. Loga, 697 F.3d 299, 302 (5th Cir. 2012).
In deciding whether a fact issue has been created, “the court must
draw all reasonable inferences in favor of the nonmoving party, and it may not
make credibility determinations or weigh the evidence.” Kevin M. Ehringer
Enters. v. McData Servs. Corp., 646 F.3d 321, 326 (5th Cir. 2011) (quoting Reeves
v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000)). However,
“[u]nsubstantiated assertions, improbable inferences, and unsupported speculation
are not sufficient to defeat a motion for summary judgment.” United States v.
7
Renda Marine, Inc., 667 F.3d 651, 655 (5th Cir. 2012) (quoting Brown v. City of
Hous., 337 F.3d 539, 541 (5th Cir. 2003)).
DISCUSSION
Gold’s Gym argues that its compensation plan is a commission
because it is based on a percentage of the amount charged to the customer,
not a flat rate per hour. (Dkt. # 67 at 10.) Gold’s Gym further argues that its
compensation plan represents a commission, because trainers negotiate the
ultimate price per session with their clients, compensation varies based on a
trainer’s certifications, and trainers are incentivized to train more people at
once and charge higher rates. (Id. at 14.)
Plaintiffs’ central argument is that the compensation plan is not
a bona fide commission, because the work is not decoupled from actual time
worked. (Dkt. # 64 at 8.) Plaintiffs assert that a true bona fide commission
is solely tied to the amount of sales and that Gold’s Gym’s compensation
plan is nothing more than an hourly rate disguised as a commission. (Id.)
The FLSA requires an employer to compensate every employee at a rate
not less than one and one-half times the regular rate at which he is employed for
each hour worked over forty in a given workweek, unless a statutory exception
applies. 29 U.S.C. § 216(a)(1). One such exception is the “retail or service
8
establishment” exemption. Id. § 207(i). This exception exempts an employer from
paying overtime to an employee if:
(1) The employer is a retail or service establishment; and
(2) The regular rate of pay of such employee is in excess of one and
one-half times the minimum hourly rate applicable to him; and
(3) More than half of his compensation for a representative period (not
less than one month) represents commissions on goods or services.
Id. The statute provides “all earnings resulting from the application of a
bona fide commission rate shall be deemed commissions on goods or
services.” Id. The employer bears the burden to prove an employee is
exempt under the FLSA; exemptions are narrowly construed. Cleveland v.
City of Elmendorf, Tex., 388 F.3d 522, 526 (5th Cir. 2004).
I.
Gold’s Gym is a Retail-Service Establishment
As a matter of thoroughness, before addressing whether the
compensation scheme is a bona fide commission, the Court will first address
whether Gold’s Gym qualifies as a retail or service establishment. To
determine whether an employer is a “retail or service establishment” for
purposes of the § 207(i) exemption, courts look to the former statutory
definition in Section 13(a)(2) of the FLSA, codified as 29 U.S.C. § 213(a)(2)
(repealed 1989). Parker v. ABC Debt Relief, Ltd. Co., No. 3:10-CV-1332-P,
2013 WL 371573, at * 8 (N.D. Tex. Jan. 28, 2013) (citing Gieg v. DDR,
9
Inc., 407 F.3d 1038, 1047 (9th Cir. 2005)); 29 C.F.R. § 779.313. Section
13(a)(2) defines a “retail or service establishment” as one in which 75% of
the annual dollar volume of sales of goods or services is “not for resale” and
“is recognized as retail sales or services in the particular industry.” ABC
Debt Relief, 2013 371573 at 8; 29 C.F.R. § 779.313. However, “there is no
‘bright line’ in determining whether the retail concept exists; instead ‘a case
by case approach is in order with the referents being common sense and
common parlance.’” Collins v. Horizon Training Ctrs, L.P., No. 3:02-CV1310-L, 2003 WL 223 88448, at * 5 (N.D. Tex. Sept. 30, 2003)
According to Department of Labor regulations, a retail or
service establishment must have a “retail concept.” 29 C.F.R. § 779.316.
The regulations describe “characteristics and examples” of retail or service
establishments:
Typically a retail or service establishment is one which sells goods or
services to the general public. It serves the everyday needs of the
community in which it is located. The retail or service establishment
performs a function in the business organization of the Nation which
is at the very end of the stream of distribution, disposing in small
quantities of the products and skills of such organization and does not
take part in the manufacturing process . . . It provides the general
public its repair services and other services for the comfort and
convenience of such public in the course of its daily living. Illustrative
of such establishments are: Grocery stores, hardware stores, clothing
stores, coal dealers, furniture stores, restaurants, hotels, watch repair
establishments, barber shops, and other such local establishments.
29 C.F.R. § 779.318.
10
Plaintiffs do not point the Court to, nor can the Court find,
summary judgment evidence that Gold’s Gym is not a “retail or service
establishment.” Gold’s Gym, on the other hand, submitted an affidavit by its
Senior Vice President of Human Resources in support of its designation as a
“retail or service establishment.” (Copeland Aff.) Copeland attests that
Gold’s Gym “operates individual gyms which market and sell fitness
products and services to the local communities in which they are located,”
(id. ¶ 6) “sells its products and services . . . [that] are not subject to resale,”
(id. ¶ 7) and “[o]ne hundred percent of [its] revenue is generated from direct
sales of fitness products and services to [its] members.” (Id. ¶ 8.) Such
evidence, especially in light of Plaintiffs offering no contrary evidence,
indicates the absence of a genuine issue of material fact.
Plaintiffs assert, however, that the single affidavit of one of
Defendant’s officers is insufficient summary judgment evidence as a matter
of law because the officer is an interested party. See Hodgson v. Crotty
Bros. Dallas, 450 F.2d 1268, 1281 (5th Cir. 1971) (noting in dicta that
evidence to show an entity is a “retail or service establishment” requires
“disinterested sources, lest member organizations in various industries be
permitted to create their own exemptions.”) In Hodgson, the Fifth Circuit
affirmed the district court’s decision by noting that the relevant statute was
11
“the best disinterested source of all” because it expressly provided that the
business entity qualified as a “retail or service establishment.” Id. at 1281.
Here, the Department of Labor issued an Opinion Letter
indicating that an athletic and fitness club would qualify as a “retail or
service establishment” where the club was open to the general public and
sold memberships and physical training sessions that were not for resale.
U.S Dep’t of Lab., Opinion Letter on Fair Labor Standards Act, 2005
the force of law and is not binding on this Court, Christensen v. Harris Cnty,
529 U.S. 576, 587 (2000) (“Interpretations such as those in opinion
letters . .
Chevron-style
deference.”), it is “entitled to respect” to the extent that the letter has the
“power to persuade.” Id. (“[O]pinion letters are ‘entitled to respect’ under
our decision in Skidmore, but only to the extent that those interpretations
have the ‘power to persuade’.”) (quoting Skidmore v. Swift & Co., 323 U.S.
134, 140 (1944)). Having independently considered the characteristics of
Gold’s Gym’s business, the Court finds that the Department of Labor’s
opinion letter has the power to persuade because its subject matter and legal
conclusion is directly germane to the facts of this case. Similar to the fitness
and athletic club subject to the opinion letter, Gold’s Gym is open to the
12
general public and sells memberships and personal training sessions that are
not subject to resale. Therefore, based on the sworn statements made by
Defendant’s Vice President for Human Resources and the persuasive agency
letter, the Court finds that Gold’s Gym is a “retail or service establishment.”
II.
Compensation Scheme as a Bona Fide Commission
To be exempt under § 207(i), “more than half of [the
employee’s] compensation for a representative time . . . [must] represent[]
commissions on goods or services.” 29 U.S.C. § 207(i)(2). The express
language of § 207(i) requires the fee paid to the employee be based on a
“bona fide commission” to qualify as a commission under the exemption.
Id. The Fifth Circuit has not answered or considered the meaning of a “bona
fide commission” under this section of the FLSA. Accordingly, it is a matter
of first impression in this circuit.
In any statutory interpretation case, the Court starts with the
statutory text and, unless otherwise defined therein, interprets the text in
accordance with its ordinary meaning. See D.G. ex rel. LaNisha T. v. New
Caney Indep. Sch. Dist., 806 F.3d 310, 316 (5th Cir. 2015). Here, the
Congress did not define “commission” in the FLSA. According to Black’s
Law Dictionary, the ordinary or plain meaning of a “commission” would be
“a fee paid to an agent or employee for a particular transaction, usu[ally] as a
13
percentage of the money received from the transaction.” Commission,
Black’s Law Dictionary (10th Ed. 2014). However, the statutory
requirement that the commission be “bona fide” is susceptible to more than
one reasonable interpretation, and is accordingly ambiguous. See Parker v.
NutriSystem, Inc., 620 F.3d 274, 278 (3d Cir. 2010) (“The ‘bona fide
commission rate’ language is imprecise and capable of ambiguity.”);
Mechmet v. Four Seasons Hotel, Ltd., 825 F.2d 1173, 1175 (7th Cir. 1987)
(“[T]he meaning of the word ‘commissions’ in section section 207(i) is not
clear just from reading the provision.”) “[A]fter a conclusion that the statute
is ambiguous . . . the court [may] turn to the legislative history.” United
States v. Kaluza, 780 F.3d 647, 658 (5th Cir. 2015). Unfortunately “there is
no relevant legislative history” to infer Congress’ intent and meaning of a
“bona fide commission.” Yi v. Sterling Collision Ctrs, Inc., 480 F.3d 505,
508 (7th Cir. 2007) (finding that there is no relevant legislative history).
However, the Department of Labor has promulgated certain regulations
interpreting a “bona fide commission” under the FLSA.
Federal regulations state “[c]ommissions (whether based on a
percentage of total sales or of sales in excess of a specified amount, or on
some other formula) are payments for hours worked.” 29 C.F.R. § 778.117.
The regulations also explain that employees paid by commission are
14
“generally employed in so-called ‘big ticket’ departments and those
establishments . . . where commission methods of payment are traditionally
used.” 29 C.F.R. § 779.414. The regulations provide a non-exhaustive list
of traditional retail and service establishments that compensate by
commissions; this list does not include personal fitness trainers or an
analogous position. Id. Finally, federal regulations provide two nonexhaustive examples of compensation plans that do not qualify as bona fide
commissions: (1) a plan where the formula for computing commissions is
such that the employee always or almost always earns the same fixed
amount of compensation for each workweek; and (2) a plan where the
employee receives a regular payment, constituting nearly his entire earnings,
that is expressed in terms of a percentage of the sales which the business can
always be expected to make; his wages are increased only slightly by a small
percentage of sales above the expected quota. 29 C.F.R. § 779.416 (c).
Neither party disputes, nor do the facts suggest, that the Gold’s Gym
compensation plan falls into either of these prohibited commission
categories.
“If a statute is ambiguous, the court is only required to defer to
an agency’s interpretation that reasonably effectuate[s] Congress’s intent.”
Freeman v. Quicken Loans, Inc., 626 F.3d 799, 805 (5th Cir. 2010) (internal
15
quotations omitted). In this case, since no relevant legislative history exists
about the meaning of a “bona fide commission,” there is no relevant
Congressional intent for the Department of Labor to effectuate. Further, the
regulations do not directly define a “bona fide commission” and do not
provide the Court sufficient guidance to determine the parameters of such a
compensation scheme. Therefore, the regulations lack “the force of law”
and the Court will only grant deference to the regulations “with respect
proportional to [their] ‘power to persuade.’” Id. (quoting United States v.
Mead, 533 U.S. 218, 235 (2001)). Working within this statutory and
regulatory black hole, three circuits have attempted to define what
constitutes a “bona fide commission” under § 207(i).
In 1987, the Seventh Circuit found a compensation scheme
where waiters received an hourly wage and shared the 18% service charge
added to each banquet bill to be a commission. Mechmet, 825 F.2d at 1177.
The Mechmet court attached significance to the fact that the waiters were
not marginalized workers who needed the protections of the FLSA, that they
were employees of a “big-ticket department” (banquets), and the nature of
the banquet business lends itself to irregular hours, because work is tied to
the demands of consumers. Id.
16
In 2001, the Eleventh Circuit found a compensation scheme to
be a “bona fide commission” because it “provide[d] workers with an
incentive to work quickly.” Klinedinst v. Swift Investments, Inc., 260 F.3d
1251, 1256 (11th Cir. 2001). There, the employee was assigned a “flag rate”
for each task, which was simply an estimate of the time the task typically
takes to complete. Id. at 1254. The company calculated the employee’s
compensation by multiplying the “flag hours” completed by each employee
by his or her hourly rate of pay. Id. Accordingly, “[t]he flag rate of pay was
not the hours of time it actually took the worker to complete a job. It [was]
the method of providing employees with an incentive to ‘hustle’ to finish
their jobs in order to obtain a larger number of jobs for greater
compensation.” Id.
In 2007, the Seventh Circuit found a bona fide commission
existed where auto mechanics were paid in a similar fashion. Yi, 480 F.3d at
509. There, an auto body shop calculated the number of hours typically
required to perform a given task (“book hours”) and multiplied that number
by a dollar figure. A team of mechanics would be assigned a task and each
worker would keep track of their actual hours spent on the assignment.
Once the laborers completed the job, the auto body shop calculated their
compensation by multiplying (1) the number of booked hours for the task by
17
(2) the ratio of the team member’s actual hours worked to the total hours
worked by the team by (3) that employee’s wage rate, which was based on
his or her skill level. Yi, 480 F.3d at 509.
In considering whether the auto mechanics’ compensation
scheme was a bona fide commission, the Yi court found it important that
[T]he 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 [personal rate based on his or her skill level]. That is how
commissions work: they are decoupled from actual time worked.
Id. at 509. The Yi court also found that a bona fide commission is one
where “the relation [between income and hours worked] is unlikely to be a
regular one.” Id. at 508.
In 2010, the Third Circuit held that a compensation system was
a bona fide commission where employees received a flat-rate per sale.
Parker, 620 F.3d at 283. There, the Third Circuit held “when the flat-rate
payments made to an employee based on that employee’s sales are
proportionally related to the charges passed on to the consumer, the
payments can be considered a bona fide commission for purposes of
§ [20]7(i).” Id. Further, the Third Circuit agreed with the Seventh Circuit
that a “hallmark” of a commission is that it is “decoupled from time actually
worked.” Id. at 284.
18
The Seventh Circuit more recently held that window-washers
were paid under a bona fide commission system. Alvarado v. Corp.
Cleaning Servs., Inc., 782 F.3d 365, 368 (7th Cir. 2015). There, the
window-washers were paid under a similar compensation scheme as the
auto-workers in Yi: upon receiving a window-washing order, the company
assigned “points” to the job based on its perceived difficulty. Id. at 366.
The company compensated the window-washer by multiplying the number
of points the washer worked by an hourly rate specific to that worker. Id. at
367. Accordingly, the faster a window-washer worked, the more points he
or she could accumulate and thus increase compensation for that pay period.
The Alvarado court found it important that “commission-compensated work
involve[ed] irregular hours of work.” Id. Indeed, the court wrote that “[a]n
employee who is paid by the sale is not a commission worker if his sales are
made at a uniform rate (e.g. one sale per hour), so that the ratio of his hours
worked to his pay is constant.” Id. at 368. Unlike a piece-rate worker2,
window-washers “can work only when [the company] is hired to wash a
building’s windows. Employment is necessarily irregular (rather than the
2
A piece-rate worker is one who is paid by the item produced instead of by the
item sold. Thus a piece-rate worker is paid for making an item even if the item is
not sold, while a commission-based worker is paid only when he makes a sale.
Piece-rate workers do not qualify for the § 207(i) exemption. See Alvarado, 782
F.3d at 367; Yi, 480 F.3d at 510.
19
standard eight-hour workday) . . . because of the peculiar conditions of the
window-washing business.” Id.
District Courts across the country have discussed a variety of
compensation plans and whether they fit within the bona fide commission
definition under the FLSA. See Owopetu v. Nationwide CATV Auditing
Servs., Inc., No. 5:10-CV-18, 2011 WL
2011); Charlot v. Ecolab, No. 12-CV-4543, 2015 WL 5774984, at * 21
(E.D.N.Y. Sept. 2015). In Charlot, the District Court found a compensation
plan to be a bona fide commission where the commission was tied to
customer demand, Charlot, 2015 WL 5774984 at *17, and the scheme
incentivized the employee to work more efficiently so that compensation
was decoupled from actual time worked. Id. at 18, 21. In Owopetu, the
court reasoned the compensation qualified as a bona fide commission
because: (1) the commissions provided incentive to the employees to work
faster and more efficiently, because technicians could increase their pay by
completing more work orders; (2) the commissions were proportional
amounts paid by the consumer; and (3) compensation was tied to customer
demand and the quantity of sales, even though plaintiff himself was not
involved in sales. Owopetu, 2011 WL 883703 at * 4. A U.S. District Court
in Texas has held that for purposes of the FLSA, “payment to an employee is
20
a commission if it is based on a percentage of the charge to the customer.”
Cantu-Thacker v. Rover Oaks, Inc., No. H-08-2109, 2009 WL 1883967, at
* 4 (S.D. Tex. June 30, 2009).
Construing these cases, the Court finds that certain
characteristics exist that define a bona fide commission. First, a bona fide
commission is either a percentage or proportion of the ultimate price passed
on to the consumer. See Parker, 620 F.3d at 283; Yi, 480 F.3d at 508.
Second, a bona fide commission is decoupled from actual time worked, so
that there is an incentive for the employee to work more efficiently and
effectively. See Parker, 620 F.3d at 284; Yi, 480 F.3d at 509; Charlot, 2015
WL 5774984 at 18. Third, the type of work is such that its “peculiar nature”
does not lend itself to a standard eight-hour work day. Alvarado, 782 F.3d at
368. Fourth, the compensation system must not offend the purposes of the
FLSA. 3 Id. No factor appears dispositive in the case law, but the first two
seem to carry the most weight. Finally, in determining whether a
compensation scheme is a bona fide commission, a court should keep in
mind that under the FLSA, “exemptions are narrowly construed.”
Cleveland, 388 F.3d at 526.
3
is made in “good faith”. Bona Fide, Black’s Law Dictionary (10th Ed. 2014).
21
Extending the rationale here, the undisputed evidence
establishes that trainers were paid a percentage of the fee paid for the
session. (Dkt. # 64-2; “Casanova Dep.,” Dkt. # 65-4 at
This fact
would seem to indicate the existence of a bona fide commission
compensation scheme. However, trainers were not paid the percentage upon
negotiating and executing a sale4, but only upon spending an hour with the
client during the actual training session. (“Marques Dep.,” Dkt. # 64-4 at
Accordingly, there was no way for trainers to work
were only able to earn their
percentage by working an hour-long session with a client. Therefore, the
compensation system was not decoupled from time. Instead, a one-to-one
correlation existed between the hours a trainer worked and his or her
compensation.5 Such a compensation system reflects nothing more than an
hourly wage, where the employee’s rate of pay changes based upon his or
her qualifications. This is not a commission.
4
Indeed, Gold’s Gym dispensed with paying trainers a percentage of their gross
sales of membership packages and physical training sessions in late 2011.
5
The Court finds it de minimis to the compensation scheme’s characterization that
trainers still received their percentage of the fee where clients cancelled within 24hours or did not show up for a scheduled session and thus did not have to work an
hour.
22
Defendant argues that since the nature of the personal trainer
business is tied to customer demand and irregular hours, the scheme more
closely resembles a bona fide commission. (Dkt. #
The Court finds
this argument unpersuasive. Gold’s Gym is open for a limited number of
hours per day. (Copeland Aff. ¶ 10.) This means that Defendant could
schedule regular work-hours for its trainers to conduct sessions and
complete all the other tasks typically performed during “floor hours.” While
it is true that the quantity of sessions is directly tied to customer demand, the
demand present in this case is distinguishable in a relevant way from the
demand found in the facts presented to the other circuits. The Yi court and
the other circuit court decisions found the existence of customer demand
important where the employees could process or service such demand at a
faster pace and thereby increase their pay by servicing more customers per
hour. For example, if customer demand increased for the auto-workers in
Yi, employees could work faster to fix more cars per hour and earn more
money, because they were paid a percentage per task. Here, trainers cannot
work more effectively and efficiently to process customer demand because
servicing a customer at Gold’s Gym must be done in one-hour increments.
Put simply, trainers cannot process demand for a training session any faster
than the time it takes to complete a session. Therefore, the existence of
23
customer demand in this case does not indicate the existence of a bona fide
commission. Instead, customer demand in this case reinforces the
conclusion that the payment system is not decoupled from time and thus not
a bona fide commission.
Defendant also argues that the compensation scheme provided
performance-based incentives for trainers to increase their income. (Dkt.
#
application of performance-
based incentives in the case law to bona fide commissions. For example, the
window-washers in Alvarado had a performance-based incentive to clean
windows in a rapid fashion to accumulate more income. Here, trainers have
an incentive to earn more national certifications because a greater amount of
certifications results in earning a greater percentage of the training session
price paid by a gym member. Clearly, this is not a performance-based
system, but is instead a qualification-based system; one that is unlike all
other incentive structures in the relevant case law. This qualification-based
system does not incentivize trainers to work faster and thus earn more
commission-based income. Instead, the qualification-based incentives under
these facts simply qualify the trainer to earn a higher hourly-rate. This is not
a commission.
24
There is some contention that the compensation scheme is a
bona fide commission because trainers negotiate their own rates. The Court
does not disagree that trainers negotiate their own rates per session.
However, individually negotiated rates would be germane to finding a bona
fide commission if the trainer received payment upon completing the sale of
a session. That is not the case here. Instead, trainers may negotiate the price
of the sale, but they do not earn their percentage until conducting a session
with a client. Accordingly, trainers are simply negotiating a higher hourly
rate with the client that is earned only after working the hour-long session.
Finally, the purposes of the FLSA are to remove labor
conditions that are detrimental to the health and safety of workers, to spread
employment opportunity among many workers to reduce unemployment,
and to increase the welfare of low paid workers. See 29 U.S.C. § 202(a); Yi,
480 F.3d at 510. The lead Plaintiff, Daniel Casanova, earned over $90,000
in 2012, one of the years encompassed by this lawsuit. (Dkt. # 67-15 at 21.)
The Yi court noted that the named plaintiffs in that case did not require the
protections of the FLSA because they made more than $60,000 a year.
Accordingly, this Court finds that the compensation scheme does not violate
the purposes of the FLSA for a trainer like Casanova. However, evidence
exists in the record that other trainers did not make nearly as much money as
25
Casanova and worked a significant amount of hours for which they did not
receive compensation. (See “Lucero Dep.,” Dkt #
Dep.,” Dkt. #
“Koehler Dep,” Dkt. # 64, Ex. 7 at
e compensation scheme may
offend the purposes of the FLSA because it created a labor condition
requiring workers to work excessive hours without compensation. This
characteristic weighs against the Court finding the Gold’s Gym
compensation plan a bona fide commission.
Accordingly, upon considering the characteristics of a bona fide
commission and construing the exemption narrowly as the Court must, the
Court finds as a matter of law that Gold’s Gym’s compensation system for
trainers is not a bona fide commission. Therefore, Defendant may not claim
the § 207(i) exemption and assert it at trial.
Since the Court finds that the compensation scheme at issue is
not a bona fide commission, the Court need not reach the remaining
elements necessary to qualify for an exemption under § 207(i), namely
whether “the regular rate of pay of such employee is in excess of one and
one-half times the minimum hourly rate applicable to him,” and whether
“more than half of [an employee’s] compensation for a representative period
26
(not less than one month) represents commissions on goods or services.” 29
U.S.C. § 207(i).
CONCLUSION
For the reasons explained above, the Court GRANTS Plaintiffs’
Motion for Partial Summary Judgment and DENIES Defendant’s Motion for
Summary Judgment. Defendant may not, as a matter of law, defend against
alleged violations of the FLSA at trial by claiming the exemption set forth in 29
U.S.C. § 207(i) because the instant compensation scheme is not a bona fide
commission.
IT IS SO ORDERED
DATE: San Antonio, Texas, March 23, 2016.
_____________________________________
DAVID ALAN EZRA
UNITED STATES DISTRICT JUDGE
27
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