Massachusetts Supreme Judicial Court Finds That Commissioned Salespeople Must Be Paid Overtime

On May 8, 2019, the Massachusetts Supreme Judicial Court (SJC) issued a unanimous opinion holding that salespeople who are paid solely on draws and commissions are entitled to separate and additional overtime and Sunday pay under Massachusetts law. The decision has far-reaching implications for most retailers, which have long relied on opinion letters from the Massachusetts Department of Labor Standards (DLS) suggesting that commissioned employees are not entitled to such additional compensation.

The court’s ruling was in response to certified questions of law from the United States District Court for the District of Massachusetts asking whether 100 percent-commission inside sales employees must be paid separate and additional compensation for overtime and Sunday hours worked when their total draws and commissions always equal or exceed 1.5 times the Massachusetts minimum wage for all overtime and Sunday hours. In the decision, the court explained that employers must make such payments even if they pay employees draws or commissions that always equal or exceed 1.5 times the Massachusetts minimum wage for all overtime and Sunday hours worked. Sullivan v. Sleepy’s, LLC, No. SJC-12542 (May 8, 2019).

The Massachusetts Overtime Statute provides, in relevant part, that work in excess of 40 hours in 1 week must be paid at “one and one half times” (i.e., 1.5 times) the employee’s regular rate. Mass. Gen. Laws c. 151, § 1A. Massachusetts law also provides for time-and-a-half pay for retail employees for their work on Sundays or certain holidays (i.e., premium pay). Mass. Gen. Laws c. 136, § 6 (50). Massachusetts does not recognize the 7(i) retail exemption available to employers under the Fair Labor Standards Act of 1938, 29 U.S.C. § 201 et seq. Nonetheless, in 2003 and 2009, the DLS authored two opinion letters that suggested that retailers did not need to make separate and additional overtime and Sunday payments to 100 percent-commission employees provided that the employees received an amount equal to at least 1.5 times the minimum wage for all overtime and Sunday hours worked. Prior to the recent SJC decision, and based on the foregoing statutes and DLS guidance, many retail employers in the Commonwealth paid their inside sales persons on a 100 percent commission and/or draw-versus-commission basis, believing that separate and additional overtime and/or Sunday pay was not required as long as their draws and commissions equaled or exceeded 1.5 times the Massachusetts minimum wage for all overtime and Sunday hours worked.

In its decision, the SJC acknowledged that the DLS opinion letters were “less than a model of clarity and may have misled the employers.” However, the court still went on to hold that the Massachusetts Overtime and Sunday Pay Statutes require separate and additional overtime and Sunday compensation at 1.5 times the Massachusetts minimum wage, regardless of whether an employee’s commission or draw equals or exceeds 1.5 times the minimum wage for hours worked over 40 or on Sundays. The court also explained more broadly that an employer may not retroactively allocate or otherwise “credit” payments categorized for one purpose to a different purpose. Specifically, the court held that an employer cannot, in essence, rename draw and commission payments as overtime or Sunday payments.

The SJC’s decision has profound implications for retailers and other companies doing business in the Commonwealth with employees paid on a 100 percent commission and/or draw-versus-commission basis. First, the court determined that employers must ensure that such employees are paid at least 1.5 times the Massachusetts minimum wage, which is currently $12.00 per hour, for all hours worked over 40 hours in a workweek and for all hours worked on Sundays. Second, employers may want to broadly examine their pay policies to ensure compliance with the court’s prohibition on retroactive reallocation of payments. Payments for draws and commissions cannot substitute for other wage and hour entitlements such as overtime, Sunday, and holiday pay.