Spurred by a recent change in a Massachusetts wage and hour regulation, plaintiffs’ attorneys are aggressively pursuing class action lawsuits seeking unpaid overtime premium pay on behalf of car salespeople across the Commonwealth. In Massachusetts, successful wage and hour lawsuits entitle plaintiffs to not only unpaid wages, but also automatic treble damages (i.e., three times owed wages) and a payment of their reasonable attorney’s fees. As a result, this recent trend poses significant risks to Massachusetts car dealers.
It has long been an accepted industry practice for car dealerships to pay their sales employees on a 100% commission basis. Typically, these employees receive a “recoverable draw” on a weekly basis against which earned commissions are credited, with successful sales employees earning wages far and above the draw. Under federal law, these sales employees are exempt, and thus are not entitled to overtime premium pay. Under Massachusetts law, however, the sales employees are nonexempt. Accordingly, dealerships apply the draw and/or commissions to cover any wages for both minimum wage and any overtime hours worked for in a given week.
The crux of these recent class action lawsuits is a disputed interpretation of a change to a Massachusetts wage and hour regulation as applied to this widespread pay plan practice. In early 2015, the following language was added to the definition of “Overtime Rate”: “Whether a nonexempt employee is paid on an hourly, piece work, salary, or any other basis, such payments shall not serve to compensate the employee for any portion of the overtime rate for hours worked over 40 in a work week.” 454 CMR 27.03(3) (emphasis added). Sales employees, and their attorneys, interpret the regulation’s new language to prohibit any crediting or applying of the draw or commission payments toward overtime premium pay. In short, the current spate of class action lawsuits claim that sales employees should receive premium pay separately and in addition to the draw and commissions – even if the draw and commissions comfortably cover every hour worked (at minimum wage for hours up to 40, and at time and a half for hours over 40). With a current $11 an hour minimum wage, the sales employees, on a class wide basis, are seeking $16.50 for each overtime hour worked. Due to the automatic treble damages in Massachusetts, the amount sought for each salesperson increases to a whopping $49.50 an hour for each overtime hour worked every week.