Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Stein v. Hhgregg, Incorporated

United States Court of Appeals, Sixth Circuit

October 12, 2017

Robert Stein and Robert Beck, on behalf of themselves and all other persons similarly situated, Plaintiffs-Appellants,
v.
Hhgregg, Incorporated and Gregg Appliances, Inc., d/b/a hhgregg, Defendants-Appellees.

          Argued: December 1, 2016

         Appeal from the United States District Court for the Southern District of Ohio at Cincinnati. No. 1:15-cv-00396-Susan J. Dlott, District Judge.

         ARGUED:

          Michael J. O'Hara, O'HARA, RUBERG, TAYLOR, SLOAN & SERGENT, Covington, Kentucky, for Appellants.

          Danuta Bembenista Panich, OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C., Indianapolis, Indiana, for Appellees.

         ON BRIEF:

          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.

          Danuta 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.

          OPINION

          KAREN 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.

         I. BACKGROUND

         Defendants 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 #52).

         All 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 week). Id.

         According 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[1] 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.

         Plaintiffs 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).

         On June 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);[2] (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).

         On 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.

         II. ANALYSIS

         A. Standard of Review

         "We 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.

         In 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.

         B. The retail or service establishment exemption does not apply

         The 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.

         Section 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.[3]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) (citations omitted).

         The 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[4] for applying the overtime exemption. We therefore hold that the district court erred in dismissing plaintiffs' claims on the basis of the overtime exemption.

         C. Plaintiffs alleged sufficient facts to demonstrate that the draw policy violates the FLSA

         In 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 any reason.

         1. Deduction of Draws ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.