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FLSA Class Action Defense Cases-Yi v. Sterling Collision: Seventh Circuit Affirms Summary Judgment In Favor Of Defense In FLSA (Fair Labor Standards Act) Class Action Case Based On Commission Exemption To Overtime Pay

Commission Exemption to Overtime Pay Under Federal Fair Labor Standards Act (FLSA) need only be Established by Preponderance of the Evidence Seventh Circuit Holds

Plaintiffs filed a labor law class action against their employer for violations of the federal Fair Labor Standards Act (FLSA) alleging that they were wrongly denied overtime pay. Defense attorneys moved for summary judgment on the ground that members of the putative class action were exempt from overtime pay under FLSA; the district court agreed and entered judgment in favor of the employer and against the class action plaintiffs. Yi v. Sterling Collision Centers, Inc., 480 F.3d 505, 506 (7th Cir. 2007). The Seventh Circuit affirmed.

This case involves “whether a system of compensation common in the auto repair industry is a commission system within the meaning of the [FLSA].” Yi, at 506. While the FLSA requires overtime pay for hours worked in excess of 40 hours per week, see 29 U.S.C. § 207(a)(1), the Circuit Court noted that “there is an exemption for workers in retail stores or other service establishments (including the automobile repair service that is the defendant in this case) who (1) are paid a wage that exceeds one and a half times the minimum wage and (2) receive more than half their compensation in the form of “commissions on goods or services,” Yi, at 506 (citing § 207(i)).

Preliminarily, the Circuit Court flatly rejected the argument that the defense must establish the exemption by “clear and affirmative evidence.” Yi, at 506. While it recognized that some sister circuits have used this or similar language, id., at 506-07, the Seventh Circuit’s analysis of the statute and the case law led it to a different conclusion: the burden of proof is no greater than in other federal civil cases – preponderance of the evidence. Id., at 507. In the Court’s opinion, the narrow interpretation of exemptions referenced in decisional law is properly viewed as “a tie breaker,” id., at 508.

The Court then turned to the facts of the case, and explained at page 508:

The essence of a commission is that it bases compensation on sales, for example a percentage of the sales price, as when a real estate broker receives as his compensation a percentage of the price at which the property he brokers is sold. Although his income is likely to be influenced by the number of hours a week that he works, the relation is unlikely to be a regular one. In one week business may be slow; he may make no sales and thus have no income for that week. The next week business may pick up and by working overtime that week he may be able to make up the income he lost because of slack business the previous week. Over a year his hours of work may be similar to those of regular hourly employees. So if he had to be paid overtime, his annual income would be higher than theirs even though he hadn’t worked more hours over the course of the year than they had. We take this to be the rationale for the commission exemption from the FLSA’s overtime provision.

The Seventh Circuit found that the facts of the case easily supported the judgment, finding that the commission exemption clearly applied. Yi, at 509-10. The Circuit Court found that the district court judgment also dovetailed with the common sense of the matter, explaining at pages 510 and 511:

The system of compensation used by Sterling is industry-wide, and of long standing. . . . It is possible for an entire industry to be in violation of the Fair Labor Standards Act for a long time without the Labor Department noticing. But a more plausible hypothesis is that the auto repair industry has been left alone because the character of its compensation system has been recognized for what it is-a bona fide commission system.

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