On April 1, 2015, the U.S. Court of Appeals for the Seventh Circuit decided Alvarado v. Corporate Cleaning Serv., Inc., 2015 WL 1456573 (7th Cir. Apr. 1, 2015), an important decision interpreting the Fair Labor Standards Act’s overtime requirements.  The plaintiffs in the case were twenty-four (24) window washers employed by a company servicing commercial skyscrapers in the Chicago area.  The plaintiffs argued they had not been paid certain overtime wages under the Act.  The company, CCS, admitted it had not paid overtime, but argued that an exemption applied in the case to the FLSA’s overtime requirements.

Under the Act, an employer is required to pay its hourly employees time and a half for hours worked over 40 in a week. 29 U.S.C. § 207(a)(1).  However, there is an exception: an employer does not have to pay time and a half overtime if:

  1. the worker’s regular pay exceeds one and a half times the federal minimum wage;
  2. more than half his compensation for a representative period (not less than one month) represents commissions on goods or services; and
  3. the worker is employed by a retail or service establishment.

29 U.S.C. § 207(i).  The second and third issues were considered on appeal: whether the employer’s window washers were paid mostly by commission, and whether the employer was a retail or service establishment.

CCS argued that it paid its workers in commissions in part due to the particular nature of its jobs.  When the company received an order, it calculated the difficulty and duration of the job, and assigned it a number of “points.”  These points were used to calculate the cost to the client, as well as the compensation for the workers, with the difference going to operating costs and profit for the business.  Importantly, the window washers were only paid if there was a sale for cleaning services to a building.

The court found that CCS’s employees were paid in majority on commission, then went on to find that the employer was also a service establishment, since it provided window washing services.  Thus, all three elements of 29 U.S.C. § 207(i) having been satisfied, the workers were found not to be entitled to overtime pay under the Act.

The court shored up its decision by noting that most of the employees of CCS, as well as their union, chose not to join the suit, noting that they were satisfied with how they were currently paid.  While their irregular schedule resulted in some long weeks of work, it also allowed most of the workers to visit family in Mexico during the cold Chicago winters.  With good pay, safe working conditions, and long holidays, the court found the plaintiffs were not part of the class targeted by the Act’s overtime protections.

In summary, the Fair Labor Standards Act exempts certain hourly employees from increased overtime pay as long as they are well compensated, receive pay mostly through commissions, and are employed by a retail or service establishment.