morning your hours may please the court counsel yours we're asking you this morning to reverse the decision of the district court which dismissed an f l s a collective action filed by the plaintiffs in this case challenging a draw system employed by a judge greg which was used by h h gregg to meet its minimum wage obligations the critical issue before this court i think can be fairly framed this way made employer reason tale in this case a retail sales employer made its minimum wage obligation by lending money to the employee and then having the employee pay back that money in the next paycheck or their commissions exceed the minimum wage our complaint is very specific they judge greg used the compensation plan that provided drawls only in weeks where the commissions fell below minimum wage could be nothing  earned on commissions or it could be a modest amount that had to be supplemented by the draw the draw then creates a debt to the employee in favor of the company well how how was this different from the compensation schemes that were laid out in the regulations but the compensation schemes that are mentioned in the interpret regulations those are interpreted guides none of those include a system none of those include an example of a system that's employed by h h gregg there are compensation systems where there are essentially commission that are advanced to two employees in other words an employer will sort of estimate the number of commissions or the amount of sales an employee is supposed to have or  quarter or month or year and then use some division of that is a draw ok with that's not what happened here would it is it would it be legal for them to say you your salary is equal to the minimum wage plus other than that i'm going accounting basis what ever you have earned during the period that exceeds the minimum wage for that period yes as long as they don't recover the minimum wage part of it i can't hear you the as long as they don't we're going to cinema as long as the employer does not try to recover the minimum wage part of that compensation paid but let's say they say ok it's the first of the year you're going to be paid the minimum wage every week and it's up it's up to you how you want to collect that extra over the minimum wage at the end of the year for instance i mean how is that different except that are they're doing a running account i mean there's never a week when they get mixed up let's make sure i understand that there's never a week when they get less than the minimum wage in our view there is in the weeks where there are lindt money to cover the minimum wage it's a debt that's not a wage and the reason we say that a judge but it is free and clear because the only way it's not free and clear is the extent to which the company when someone leaves or is fired that they they pull that back that part i would understand to be a problem but i didn't understand that that happened here with judge sawyer to find a weekly basis all you're doing is reconciling advances to make sure the pay is evened out that you're getting your minimum wage through out i don't i have no idea what you do it's just word play it would be a problem if at the time you leave the company said now wait a second here you still owe us five hundred dollars do one of the main clearance answer the question as to the name plaintiffs my understanding is that did not happen is to mr back he left is understand it but i didn't i know he left but i didn't think we have we have a hypothetical problem but no it is first of all it is their policy is religion in the complaint it is their policy to collect the news once they leave it's also their policy in a minute let me so we will hear from them on this point but let me just ask you this let's just say they take the view today or going forward that we're not going to claw back advances when someone leaves the company but just say that's their view so we've taken that off the table i'm a judge white i can understand how anybody is hurt in fact i don't understand how you think we'll ever get anybody to work for them if you can't advance the money regularly to even out the swings of commissions i mean that's one of the problems with commission base salaries you have great months and you have terrible months and it's this is the way law firms work draws allow you to even it out and it's incredibly sensible matts why the regs allow it so i would judge white had no idea how anyone's hurt except with the hypothetical of when someone leaves if they claw it back bulletin say i think that the fact that they that they threatened to call it that to call it that this significant i mean i i have trouble with the notion that it's a problem that if you're not creating a debt but that's why i'm interested to know whether did you allege that  as to the name plaintive there were when they left in that order one of them one of the name planets mr stein had was with the company when the complaint was filed can you keep was with the excuse me one of the name plaintiffs mr stein was with the company when the complaint was filed mr beck intervene later we filed an amended complaint for him he had just left the company at that time there been no effort to  to that i know of specifically by the company to collect the debt that he left with when he and i said he brought leave with a negative balance yes and we allege in the complaint that it is their policy because it stated specifically in the policy what it is or is it a summary judge no it's a motion to dismiss and so the question is whether the allegations in the complaint or are fairly rigid to a level reasonable expectation that discovery will produce evidence that will meet the elements a threat of discipline against the employee is also incorporated into give let's talk about the threat of discipline if your commission this whole process is a measure of production right i mean in the sense that it's not necessarily that you're being fired for or you're being disciplined for being in the hole the point is that if you're in the hole it necessarily you haven't been selling up to the expectations for a given week the difference between and to get back to judge sutton's question the difference between the commission plan and used here where you have draws only in weeks when they're under minimum wage it's different from the typical commission system where the employer temps to set sales goals that you judge white are referring to set sales goals over a period of time a month a quarter a year and then divides that expectation of sales into individual draws that are tied to expected commissions these wage right i mean you want that you want minimum wage that's paid to them finally in unconditionally how can you call a debt that's paid to an employee i mean a debt that the employee kur just that is paid to him finally unconditionally you would consider what will forget the what happens when someone leaves the company you think it's wrong in week one the commissions are two hundred the minimum wage will be four hundred that week they advance the two hundred will call it so they get to four hundred that in week two they have six hundred commissions and they don't get to keep the extra two hundred that's that's which that would be an example of something you think is wrong and unfair and i just find that crazy i the employer and received by the employee unless they are paid finally in an conditionally or free and clear the wage requirements of the act will not be met where the employee kicks back directly or indirectly to the employer were to another person for the employer's benefit third the wage delivered to the employee so hypothetically if the company had said we're going to pay a drop of two hundred dollars a week to every employee and each week it will be subtracted from any commissions that they earned that week so if they earn six hundred commissions track the two hundred and they get to keep four hundred plus the two hundred drop with that simple system  in compliance with the regulation that is long as they keep the draw as long as they keep that draw but when it when the draws used only it's only this is not sixteen periodic and if you go to the target of guidelines you'll see that the commission plans the the talk just a just a follow up on judge moore's hypothetical what happens with the problem let's just say minimum wage requires four hundred a week ok so if i'm understand judge morris hypothetical you'd have two hundred is guaranteed and if you have six hundred commission you subtract the two hundred she get the four hundred i mean but what do you do in a week or you don't have enough to get to four hundred one what does everybody do then then they then they pay a minimum wage but that's just and they don't get to recoup it they don't get the future commission that's correct that's correct but you've transformed it into a salary plus commission that's a salary plus commission approach that that is their choice w i thought the race contemplate a draw system i mean i if they don't they don't but they do but but look at the interpretive guides you're on those interpretive guides talk about drugs that are paid to fix dinner gold fix them else that's not what h h gregg has done here getting rid of they what it they set the draw at minimum wage the draws only paid in weeks where the commissions are below minimum wage so there's no fixed period draw but wrongs can come once a month they can come once in six months but it by draws can only i don't know what the draws are only paid in weeks where the commission earned by the employee is below minimum wage so if the employee makes new sales in the course of a week they pay  roughly let's use one hundred dollars as minimum wage they pay him four hundred dollars from week one to use that is their minimum wage obligation unfortunately would they do is they lend that money to the employee twenty nine c f or five thirty one thirty five specifically prohibits them from doing that it's only a loan if they claw it back and that's only a departure point it could be a loan that's forgiven i'm sorry could saying that these are not draws that that the compensation system does not include purity periodic draws the compensation system is that you get your commission and that's it unless your commission is less than with the minimum wage in which case for that week you'll get a draw that will bring your commission whatever that is up to minimum wage that's that's right only in the weeks where commission from has been a minimum wage ok and then the employees is  required to give that money back at the next paycheck to the employer so what if and does what if you rephrase it and you the so that it  so that you can say that that's the case semantically would that make a difference well i don't think it's i think it i don't know it's paying minimum wage in week where they don't meet the two or seven eight five seven seven nine four point four one six and you'll see a description of how those commission plans are normally structure they are periodic fix period just to make sure i know what you're talking about i thought the agency's interpretations of the regs were very hurtful to you in the opinion letters i know i agreed and i had what would you say you lose under those i would say if you apply the opinion letters not to the interpretive guides which are not published regulations are not subject to the notice and comment period the funny thirty one you're just disagreeing with the validity of our and some of the rock which some people are doing these days well to the that you give think that's important what what what does it say what is the policy say the policy doesn't say we're going to collect the debt the cut policy says you remain liable but you know acol are we talking about on terminations when someone leaves yes yes just so the policies you have the company has a policy that says when someone leaves even though you've advanced them five hundred dollars which has not been reconciled the company does not seek that money back there's there is nothing in the policy that indicates the company will collect that money in the company never has collected that money but there's an allegation in the complaint paragraph twenty three on terminations for any reason defendants continue to work plaintiffs and similarly the company has ever held anybody actually liable there's no allegation that the company held mr beck liable or tried to pursue the debt in any way and in fact they you're saying they have to have a person for whom this was actually applied in order to challenge a policy if a policy exists well they have to have suffered an actual injury in order to bring the complaint and they've not suffered such an what if somebody works there and they've gotten themselves in the hole for let's say two thousand dollars and they're filling out a mortgage application and they're asked if they have any debts and they're going to be entirely truthful you're listing your credit card for eight hundred dollars and then i mean whether they do with as they have their two thousand dollars in the hole we've never had an inquiry for that kind of situation we've never had people listing this is a liability there is as as quote a debt does the policy doesn't make reference to it as a debt it simply says you know that the  liability remains but the lawyers knowing what it remains open it's an open account which if you will but there's no actions as ever been taken to actually collect on th and the plaintiffs then then put it in the policy then say that this is this is something that on the day you leave if if you were in the whole you know it's the end of the  davis forgiven well even if you don't want to call it that it's hard to change a policy that is what it is but can you say on behalf of a company in open court that half the company they're not going to collect that back who who is head of the people where i'm asking you about a company to say they're not going to in the future ever collect want to be stets you know debts when someone leaves yes absolutely reiner and in fact that language the two words that are we're talking about are no longer in the policy what are the good word power is there a written policy and is it in front of us well there is it is in a sense that when this case was argued before the court below it was the motion to dismiss and there was also pending a motion for conditional certification and the plaintiffs had supplied to the court in connection with their motion for conditional certification  a copy of the policy so the court below had the policy itself before it when it was deciding these motions they were all being argued and decided i don't think we have i'm not certain of that iran or whether it's for you or not for you that would have been up to the plaintiffs the appellant's to claim it was in the record of the district court well it was in the record for the district court in terms of the motion for conditional certification and so and of course the complaint talks about the policy so to the extent that the court considered the actual wording of the policy in making its decision i don't think it went beyond the pleadings technically because the pleadings to talk about the policy and the policy was but i take it you wouldn't mind if we had the policy we can ask you know your i don't absolutely not i there's no objection we know we don't think that the policy of that language in the policy makes any difference at all so there is language in the policy there's language in the policy that says that employees who are or have been advanced i have have been given a draw advanced their commissions in the form of  draw and that having earned commissions sufficient to cover that remain liable for the amount of the unrecovered advance essentially and i'm paraphrasing i don't know if that's the exact language because i don't that the language you said is it was complaint was filed he'd already gone and he never claimed never alleged in the complaint that he had been somehow subjected to actual liability in order to recover any amount that might and there are claims in addition to that and on the face you know that it's not apparent that the i think you can challenge a a written agreement and policy with the expectation that that's what it is you're saying well we don't follow it well normally there'd be question of fact about whether you fall or not but they also claim that the policy is to encourage them to not record over time to get out of the hole so that they're they're working hard to make the commissions so that they get out of the hole but if they report their real hours then they're going to be further in the hole because the draw is bigger and so they're encouraged not to put in  not to write down as many hours and just work on the commission on their own time why isn't that a question of well it's not what they're or they fail to allege is a violation of the law though  they've not that they said this violated the overtime provisions but your honor it doesn't violate the overtime provision the complaint nowhere alleges that the plaintiffs fails to report their actual hours and in that same week failed to earn sufficient commissions to recover to cover whatever hours they have worked there those two allegations those two situations are never married up so while there are allegations about this conclusion reallocations about what supposedly happened they never come to the point where they allege and this happened to me where i was not paid minimum wage and in a week or i was not paid overtime in a week because i had failed to report some some measure of hours the only thing that they do allege is that when they're attending meetings for instance where they can't earn a commission that in that circumstance they're being there or they're being denied or or that's a violation of the law but in fact that's not the case because case law makes very clear that whether you're in a situation where you can actually can earn the commission or you're actually in very involved in your selling activities makes no difference as long as the commission overall the compensation is sufficient to meet minimum wage and overtime obligations but counting those hours so if you're being told don't count these hours these meeting hours because you won't cover your commission won't cover your drop if you put in those meeting hours then that's not following the law but that's not what that's not what the complaint alleges the complaint doesn't allege that in a particular week or in any week i didn't report all of my hours and in that week i didn't make enough commissions i was in draw it never  those two things so what we have here is purely speculative allegations about what might have been or what might occur but there's no allegation that it ever did occur to these particular plaintiffs and that's the whole point of the is that you can't just rely on speculation or conclusory allegations you actually have to have core facts that demonstrate that a of a lie a violation of the law may have occurred then that's what's missing labor's opinion letters is this whole argument about free and clear which is the very crux of the plaintiff's claims i mean plaintiffs what plaintiffs are complaining about is not that they're getting letters opine on what happens when you leave them free and  amount of that and own draw if you will of the advance then in whatever week that advance applied to if you if you then there was nothing to collect it from then you're you are taking back money but if you'd never take that step what you're dealing with is is you're never in the free and clear regulation i mean that the problem with the whole argument about free and clear is that the language that that pertains to appears in  five thirty one point thirty five but that's only talking about what happens within a particular workweek and here there's no allegation that in any particular workweek the companies like giving with one hand and taking back with the other that doesn't happen employees take at least the minimum wage home with them at every week which is what free and clear stands for in five thirty one thirty five seems so  doesn't the company just have a policy will pay the minimum wage to everyone and they get commissions over and above what the minimum wage is if they actually have sold more product in that week and just leave it at that well that's essentially what the policy provides you know you'd have to do even if they didn't sell under the my simple situation is suppose they had a very bad week or they were sick they would still get the minimum wage  that circumstance what the court is describing is not one hundred percent commission based policy but rather it's just a salary as judge sutton earlier mentioned plus commissions which is a different alternate kind  of compensation plan that whether to have a commission only system could you literally have a commission only system and forget about draws and still be in compliance with the fair labor standards act i don't think so because you you know if you know a given week you don't give them the four hundred they don't exactly work forty hours and they don't get the four what if you spread it out if you said this is commission only we are going to spread your can what we spread it out over a six month period say four year period so you're going to get a we're going to give you would draw it that happens to equal the minimum wage every week and at the end of the month or at the end of six might mean you'd want to spread it out at the end of six months or a year we're going to look at all of your commissions and look at all of your draws and we're going to give you the difference and that's basically what you do but you don't you don't couldn't then point on it the other words under that system all you're getting if all you earn is it you take all of those draws and you compare it to all of the commission and if there's anything extra you pay it and that's what the red  sort of contemplate and that's kind of what you're doing the only difference is you don't pick a point entirely everything up the the points that the tallies are john continuously so they're they're done essentially each week that tally is made and the point here is that the rigs that deal with commission plans actually do contemplate a recovery of whatever if there's a difference between the amount of the draw and the amount of the excess of actual commissions which one uses for sixteen a year honor some seventy nine or sixteen  five thirty one point thirty five upon which plaintiffs base their whole claim is that the real regulation that should be looked at is five thirty one point thirty six and thirty seven because that deals specifically with the situation that issue here where there is a deduction from excess earnings that occur in subsequent weeks and the what's allowed in thirty five thirty one thirty six and thirty seven are the exact same deductions in excess earnings weeks that five thirty one point thirty five precludes in the minimum wage we thank you can read it to the court it says to the extent sales associate total draws exceed the sales associates total manner earned commissions quote the deficit the sales associate is liable to and obligated to pay what do we do wit two realities one that you have made an allegation that that has been forced as to the plaintiffs here number one and number two your friend on the other side just acknowledged in open court that it will not be enforced of i'm just you can argue with me but just what do we do with that do you want us to say well that's just who knows it's not an issue about whether now they're going to tell the court when the court obviously is concerned about collecting debts that they aren't going to collect it in fact in our case if just so you know i mean they just said it in open court it could go in an opinion saying this is the knowledge that they've made it's now the language is now removed from the policy i mean you can deal with this how  want but i suggest a practical approach but look at how do you want to know and i appreciate the practical approach but it doesn't tell us what they've done in the past to tells us what the representing to the court today and we haven't gotten to that because we've not  to have a plaintiff that is his problem we do have a plaintiff that has this problem mr beck has left the company he is subject to the policy i just read to the court he has a liability to the company in fact that they let me let me just finish this very important point if you don't mind judge if mr beck who was the terminated employee is allowed to testify in deposition he will say ventura lee they recovered that from vacation pays in suing for it that's not in the record it's not part of the record this is a motion to dismiss a complaint it's in the complaint it cation paper a judge i can represent to the court that at the time we filed  complaint that they had deducted that money i don't i can't represent that to the court but without we have a complaint that alleges that it's in force against the plainest and similarly situated employees it's a distinction between the interpretive guides that have been referenced by counsel especially for thirteen and for sixteen those are interpreted that's what chevron requires they require deference to publish regulations and the publish regulation that should dictate the outcome of this case is five thirty one thirty five twenty nine c f r five thirty one thirty five which says wage payments can only be considered wages paid if they're done