In a case of first impression, the Massachusetts Supreme Judicial Court has found that, under Massachusetts law, retail and inside sales employees, paid entirely on a commission or draw basis, are entitled to separate and additional pay for overtime hours worked and premium pay for work on Sundays. See Sullivan v. Sleepy’s LLC, No. SJC-12542 (Mass. May 8, 2019).In Sullivan, the plaintiff-employees worked as salespeople at retail mattress stores operated by the defendant-employers, and were paid a “100% commission” basis and received a $125 daily draw (advance) regardless of how many hours per week they worked.  Occasionally, the employees worked more than forty hours in a week or on Sunday.  On these occasions, the employers did not pay the employees any additional compensation beyond the recoverable daily draw and any commissions.  However, the employees’ compensation always equaled or exceeded the minimum wage for their first 40 hours of work per week, and likewise exceeded or equaled 1.5 times the hours they worked over forty hours and for all Sunday hours.  The latter is required under state overtime and Sunday pay law.

The employees brought a lawsuit alleging that their employers’ payment policies violated the Wage Act, as well as overtime and Sunday pay statutes. The employers challenged the lawsuit alleging that the employees had received all compensation to  which they were entitled  and were further offset by other compensation that they had received.

The Court examined state overtime and Sunday pay statutes, regulations, Department of Labor Standards’ opinion letters, public policy, and a series of SJC cases before deciding that Massachusetts law requires separate and additional overtime compensation to be paid to a 100% commission employee regardless of whether that employee receives a recoverable draw or commissions that equal or exceed 1.5 times the employee’s regular rate for any hours worked beyond forty or worked on Sunday. In determining the rate that must be paid for purposes of calculating overtime pay, the SJC held that overtime and Sunday pay should be “one and one-half times the minimum wage for one hundred percent commission employees.”

Final Takeaway

The decision will significantly affect retail establishments that pay employees on a commission basis. Employers should immediately review their compensation policies and practices to ensure that their commission plans take into account the requirements of this case. The SJC did not indicate whether it intended its decision to apply retroactively.  While thatis certainly a possibility, we will continue to monitor the issue as it could potentially result in significant exposure for Massachusetts employers with 100% commission paid employees. 

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