Oct 12, 2017

Stein, et al. v. hhgregg, Inc., et al.b, No. 16-3364 (MOORE, Sutton, White).

Stein, et al. v. hhgregg, Inc., et al.b, No. 16-3364 (MOORE, Sutton, White).

Plaintiffs, current or former employees in hhgregg stores in Ohio, filed suit challenging hhggregg’s draw-on-commission policy. Under this policy, all retail sales employees are paid solely on the basis of commissions. However, in pay periods when an employee’s earned commissions fall below the minimum wage, he or she is paid a “draw” to meet the minimum-wage requirements. According to the plaintiffs’ amended complaint, employees who receive a draw are required to repay it out of future commissions, and are liable for the amount of the draw when they are terminated, which they argued was a violation of the Fair Labor Standards Act. The district court dismissed their complaint for failure to state a claim upon which relief could be granted, and the plaintiffs appealed.

The Sixth Circuit reversed, with the majority finding that the complaint alleged sufficient facts to demonstrate that the draw policy violated the FLSA, but only because the policy held employees liable for any unearned draw payments upon termination for any reason. The majority held that this violated the FLSA regulations requiring that a minimum wage be paid “finally and unconditionally or ‘free and clear.’” The majority drew a distinction between wages already paid and wages to be paid, holding that an employer can deduct from the latter but cannot require repayment of the former.

The Court also held that hhgregg’s policies and practices encouraged employees to work “off the clock,” violating the minimum wage and overtime requirements of the FLSA by not properly compensating them for all hours worked in a given week.

Judge Sutton concurred in part, but dissented with respect to the majority’s conclusion that the company violated the rights of the named plaintiffs in this case. He noted that the complaint did not allege that hhgregg actually enforces the clawback-after-termination provision, and the plaintiffs conceded that hhgregg did not enforce the policy as to them. Therefore, Judge Sutton would have affirmed the dismissal of their claims.