Robert Stein and Robert Beck, on behalf of themselves and all other persons similarly situated, Plaintiffs-Appellants,
Hhgregg, Incorporated and Gregg Appliances, Inc., d/b/a hhgregg, Defendants-Appellees.
Argued: December 1, 2016
from the United States District Court for the Southern
District of Ohio at Cincinnati. No. 1:15-cv-00396-Susan J.
Dlott, District Judge.
Michael J. O'Hara, O'HARA, RUBERG, TAYLOR, SLOAN
& SERGENT, Covington, Kentucky, for Appellants.
Bembenista Panich, OGLETREE, DEAKINS, NASH, SMOAK &
STEWART, P.C., Indianapolis, Indiana, for Appellees.
Michael J. O'Hara, Megan E. Mersch, O'HARA, RUBERG,
TAYLOR, SLOAN & SERGENT, Covington, Kentucky, Peter L.
Cassady, Kristen M. Myers, BECKMAN WEIL SHEPARDSON LLC,
Cincinnati, Ohio, for Appellants.
Bembenista Panich, Christopher C. Murray, Michelle Maslowski,
OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C.,
Indianapolis, Indiana, for Appellees.
Before: MOORE, SUTTON, and WHITE, Circuit Judges.
NELSON MOORE, Circuit Judge.
Defendants hhgregg, Inc. and Gregg Appliances, Inc. have a
uniform compensation policy whereby their retail and sales
employees, who are paid solely on the basis of commission,
are advanced a "draw" to meet the minimum-wage
requirements whenever their commissions fall below minimum
wage. The amount of the draw is then deducted from future
earnings in weeks when the employees' commissions exceed
the minimum-wage requirements. Plaintiffs Robert Stein and
Robert Beck, on behalf of themselves and all other former and
current employees of defendants, brought suit claiming
violations of the Fair Labor Standards Act ("FLSA")
and of state law. The district court found that
defendants' compensation policy was legal, and that
plaintiffs therefore could not state a claim on which relief
could be granted. The district court dismissed all of
plaintiffs' federal claims, and declined to exercise
supplemental jurisdiction over their remaining state-law
claim. We REVERSE the district court's
judgment dismissing plaintiffs' case, and we
REMAND the case for further proceedings.
own and operate over twenty-five hhgregg stores across Ohio
and over 220 stores across the United States, which sell
appliances, furniture, and electronics. R. 10 (Am. Compl. at
¶ 13) (Page ID #52). Plaintiffs Stein and Beck were
retail sales employees at an hhgregg store in Hamilton
County, Ohio. Id. at 4-5 (Page ID #51-52). Stein, a
current employee, began working at hhgregg in March 2008.
Id. at 4 (Page ID #51). Beck worked at hhgregg from
November 2011 until March 2015. Id. at 5 (Page ID
retail sales employees at hhgregg, including Stein and Beck,
are subject to a draw-on-commission policy. Id. at
¶ 14 (Page ID #53). Under this policy, all retail sales
employees are paid solely on the basis of commissions.
Id. at ¶ 15 (Page ID #53). 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. Id. at
¶¶ 16-17 (Page ID #53); R. 33-1, Exh.1 (Sales
Commission Plan at 1) (Page ID #315). If an employee reports
working forty hours or less in a week (a non-overtime week),
"the Draw equals the difference between the minimum wage
for each hour worked and the amount of commissions [actually]
earned." R. 33-1, Exh. 1 (Sales Commission Plan at 1)
(Page ID #315). If an employee works more than forty
hours in one week (an overtime week), "the Draw equals
the difference between an amount set by the Company (at least
one and one-half (1½) times the applicable minimum
wage) for each hour worked and the amount of commissions
[actually] earned." Id. Draw payments are
"calculated on a weekly basis." Id. An
employee receives a draw only if the commissions earned that
week fall below the minimum wage (in a non-overtime week) or
one and one-half times the minimum wage (in an overtime
to plaintiffs' amended complaint, employees who receive a
draw are required to repay it, "typically . . . by
deducting the amount of the 'draw' from commissions
earned during the very next week, assuming the commissions
after the deducted 'draw' repayment exceed the
minimum wage obligation for that week." R. 10 (Am.
Compl. at ¶ 20) (Page ID #54). Thus, if the weekly
minimum wage were assumed to be $290, and an employee earned
only $100 in commissions in one week, he would receive a draw
of $190 to meet the minimum wage of $290. However, if the
following week he earned $600 in commissions, he would
receive only $410, and the remaining $190 would be credited
back to the company to repay the $190 draw from the previous
week. Plaintiffs allege that if the subsequent week's
commissions are insufficient to repay the draw,
"Defendants deduct the amount of the outstanding
'draw' from the next paycheck the employee receives
for a week in which the employee's commissions minus the
outstanding 'draw' exceed the applicable minimum
wage." Id. An employee may be subject to
discipline, including termination, if he or she receives
frequent draws or accumulates too great of a draw balance.
Id. at ¶ 31 (Page ID #56); R. 33-1, Exh. 3
(Retail Sales Compensation-Draw Policy at 1-2) (Page ID
#318-19). At least as late as the time plaintiffs filed their
amended complaint, defendants' policy stated that
"[u]pon termination of employment, the [employee] will
immediately pay the Company any unpaid Deficit amounts."
R. 33-1, Exh. 1 (Sales Commission Plan at 2) (Page ID #316).
Although the U.S. Department of Labor ("DOL")
recognizes the draw-on-commission pay structure (referred to
as "straight commission with . . .
'draws'") as a potential method of compensation
for retail sales employees, 29 C.F.R. § 779.413(a)(5),
the draw policy at issue here appears to be somewhat unique.
First, whereas a typical draw system pays a fixed amount as a
draw in each pay period, id., the amount of the draw
paid under defendants' policy varies from week to week.
Second, the fixed draw amount usually "bear[s] a more or
less fixed relationship to the commission earnings which
could be expected." 29 C.F.R. § 779.416(a).
Defendants' policy, on the other hand, bases the draw not
on expected commissions, but on the minimum wage.
further allege that in addition to their sales duties,
employees are required to attend mandatory trainings and
conferences. R. 10 (Am. Compl. at ¶ 29 (Page ID #55).
Because no commissions are earned during these times,
plaintiffs allege that employees, with the knowledge and even
approval of managers, worked "off the clock" to
avoid incurring a draw based on the inclusion of these hours.
Id. at ¶ 29 (Page ID #55-56). They also allege
that managers approved of employees working "off the
clock" to avoid increasing the amount of the draw.
Id. at ¶ 28 (Page ID #55).
15, 2015, Stein and Beck brought suit on behalf of themselves
and all other current and former commissioned retail sales
employees at stores owned and operated by defendants,
alleging violations of the FLSA and of state law.
Id. at ¶ 1 (Page ID #49). Specifically,
plaintiffs allege that (1) defendants' draw policy
violates the FLSA, 29 U.S.C. §§ 206(a) and 207(a)
and (i); (2) the draw policy encouraged hhgregg retail
employees to work "off the clock" and deprived them
"of earned wages and compensation in violation of
§§ 206(a) and 207(a) and (i)"; (3) the draw
policy improperly manipulated commissions in violation of
§§ 207(a) and (i); (4) defendants failed to pay
overtime properly in weeks in which overtime was actually
worked; (5) defendants' policies and practices
constituted a willful violation of the FLSA; and (6)
defendants' policies and practices constituted unjust
enrichment under state laws. Id. at ¶¶
33-46 (Page ID #56-59).
August 31, 2015, defendants filed a motion to dismiss
pursuant to Federal Rule of Civil Procedure 12(b)(6). R. 27
(Def. Mot. to Dismiss) (Page ID #207-09). The district court,
relying on several DOL opinion letters, found that
defendants' policy was lawful, and dismissed all of
plaintiffs' federal claims. R. 40 (Dist. Ct. Order at 18)
(Page ID #467). This timely appeal followed.
Standard of Review
review de novo a district court's decision to dismiss a
complaint for failure to state a claim under Federal Rule of
Civil Procedure 12(b)(6)." Orton v. Johnny's
Lunch Franchise, LLC, 668 F.3d 843, 846 (6th Cir. 2012).
We must take as true the non-conclusory allegations in the
complaint, and determine if the complaint contains
"sufficient factual matter" to support a claim for
relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
The allegations must be more than mere "labels and
conclusions, and a formulaic recitation of the elements of a
cause of action will not do." Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007). Rather, the
"[f]actual allegations must be enough to raise a right
to relief above the speculative level." Id.
general, we may not consider matters outside the pleadings in
reviewing a Rule 12(b)(6) motion to dismiss unless the motion
is treated as a motion for summary judgment under Federal
Rule of Civil Procedure 56. Gavitt v. Born, 835 F.3d
623, 640 (6th Cir. 2016). "However, a court may consider
exhibits attached to the complaint, public records, items
appearing in the record of the case, and exhibits attached to
defendant's motion to dismiss, so long as they are
referred to in the complaint and are central to the claims
contained therein, without converting the motion to one for
summary judgment." Id. Although the complaint
does not quote verbatim from defendant's compensation
policy, the policy is referenced throughout the complaint,
and appears in the record as an exhibit to the Second
Declaration of Robert Beck, which was filed with
plaintiffs' reply in support of their motion for
conditional certification. R. 33-1, Exh. 1 (Sales Commission
Plan at 1-2) (Page ID #315-16). Because the compensation
policy is central to plaintiffs' case, we will consider
its language in addition to that of the pleadings to
determine the facial sufficiency of plaintiffs' claims.
The retail or service establishment exemption does not
district court held that defendants were exempt from overtime
pay under the retail or service establishment exemption, and
that plaintiffs' allegations that they were deprived of
minimum wage and overtime pay therefore failed to state a
claim on which relief could be granted. R. 40 (Dist. Ct.
Order at 14) (Page ID #463). As an initial matter, we note
that the district court erred in applying the exception to
plaintiffs' claims alleging violations of the
minimum-wage requirements, because the retail or service
exemption relieves employers from only their overtime
obligations. See 29 U.S.C. § 207(i). To the
extent that the exemption does apply, it affects only those
claims alleging violations of overtime requirements.
7(i) of the FLSA exempts retail or service employees from the
overtime pay requirement if (1) "the regular rate of pay
of such employee is in excess of one and one-half
times the minimum hourly rate applicable" under the
FLSA, and (2) "more than half his compensation . . .
represents commissions on goods or services." 29 U.S.C.
§ 207(i) (emphasis added). The parties agree that
plaintiffs' compensation is based entirely on
commissions.Appellants' Br. at 6; Appellees'
Br. at 55. Neither party has alleged that the draw "is
actually paid as a salary" or otherwise does not
represent commissions. See 29 C.F.R. §
779.416(a). The overtime exemption therefore applies if
"the regular rate of pay . . . is in excess of
one and one-half times the minimum hourly rate applicable to
him" under the minimum wage provisions of the FLSA. 29
U.S.C. § 207(i) (emphasis added). The "regular rate
of pay" is defined as the "hourly rate actually
paid the employee for the normal, nonovertime workweek for
which he is employed." 29 C.F.R. § 779.419(b)
overtime exemption does not apply. The allegations contained
in plaintiffs' amended complaint demonstrate only that in
a normal, nonovertime week, employees are entitled to
exactly the minimum hourly rate. Specifically, the
amended complaint states that:
[i]n a non-overtime week . . . the "draw" equals
minimum wage for each hour worked minus the amount of
commissions earned . . . . In weeks where the commissions
earned are greater than . . . one and one-half times the
minimum wage . . . the employee was simply paid commissions
and no "draw."
R. 10 (Am. Compl. at ¶ 17 (Page ID #53) (emphasis
added). Although we recognize that an employee could, in
theory, earn commissions in excess of one and one-half times
the minimum wage, the pleadings do not indicate how much
plaintiffs actually earned in nonovertime weeks. In their
motion to dismiss, defendants argue only that
"Plaintiffs acknowledge hhgregg guaranteed them a draw
equal to at least one-and-a-half times the minimum
wage in weeks in which they worked more than 40 hours."
R. 28 (Mot. to Dismiss at 13) (Page ID #222) (emphasis
added). Given the facts alleged in the pleadings, we find no
basis for applying the overtime exemption. We
therefore hold that the district court erred in dismissing
plaintiffs' claims on the basis of the overtime
Plaintiffs alleged sufficient facts to demonstrate that the
draw policy violates the FLSA
Count One of their amended complaint, plaintiffs claim that
defendants' draw system violates §§ 206(a) and
207(a) and (i) of the FLSA. For the reasons explained below,
we conclude that plaintiffs have failed to allege sufficient
facts demonstrating that defendants' practice of
deducting the amount of the draw from future earnings
violates the FLSA. However, we also conclude that plaintiffs
have alleged sufficient facts to demonstrate a violation
where defendants' compensation policy holds employees
liable for any unearned draw payments upon termination for
Deduction of Draws ...