center in horsham pennsylvania based on the flat rate payments they were seized the district court granted summary judgment against them and found them exempt from the overtime requirements of the fairly were standards act under the retail commission exemption c nine u s c section two us of an i respectfully this was an error which potentially effects hundreds of thousands of call center workers residing in the united states who are engaged every day in ordinary scripted inside telephone sales and processing of phone orders that arrive as the result of widely advertised one hundred numbers on t v the web and print media tell us if you will what is a commission for purposes the f l s say does not define the term commission so we start there well next that's why i'm asking this and i would like to so deal with the kid needs to deal with the case and we may want to craft a rule or tempted  so this is a matter of start statutary and statutory interpretation what's wrong with the way that this record is that one way of looking at what a commission is look up the dictionary in iraq clear from the dictionary file why is the way the court threw it off the wall because the first rule statutory construction or honor is that we are to ascertain the intent of congress five to find commission earnings as quote compensation to sales people based on a predetermined percentage of the value of sales there is more directly applicable legislative history concerning the definition of commission your honor the department of labor has consistently defined commission based compensation systems as those that are proportional to the cost base passed up to on to the customer and you've argued that this is not truly proportional  your argument is that it has to be proportional to price not exactly your honor that would be a strict proportionality test like the one that work used by nutrisystem of arguing for an early so proportional to what so it needs to be proportional to to the price pip paid by the customer but that doesn't necessitate that he proportional to what nutrisystem earns that would be proportional to their move to to their margin  i believe that if it could be proportional to price it could be proportional to labor costs taking into account the the automobile repair cases it could be proportional to the experience or skill level of the employees that are making the sale for example an employee with more experience or more skills could earn a higher percentage but it has to fluctuate based on the price paid by the customer becomes meaningless  more at higher prices or not if you're referring to the argument and i just want to make sure i understand your question your honor that there was is an incentive for employees to sell at a higher price we disagree with that companies put products on sale every day all the time so they advertise twenty percent off or thirty percent off the reason for that your honor is to move the product it's to sell more product faster and that benefits the employees who are selling the product so if i'm an employee of it and i'm selling course i want the automobile dealer to cut the price on the car so i can sell more cars so i don't i don't think that argument is right for that reason i also don't think it's right for second reason the honor and that is this the exemption only requires that fifty percent of commissions fifty percent of total commit total earnings are commissions it doesn't require one hundred percent so there are plenty of ways that a company can incentivize its workers in that other fifty percent of compensation whether through bonuses or increased hourly rates or spirits or whatever but there are lots of ways that you can incentivize employees and still pay a commission as consistently defined by the department of labor for thirty years  will allow the department to or you what they'd like to let me let me ask you though you were suggesting to us your whole argument is predicated on the assumption that the district court got it wrong so to constitute a commission under twenty nine u s c two zero seven i the employer must establish some proportionality between the cut compensation to the employees and the amount charged to the customer here but fortunately it doesn't have to be exactly pro rata it doesn't have to be exactly but let me give you my example if if if my clients if appellants so two hundred ninety three dollars worth of product they received eight hundred dollars if they sell three hundred  seventy one dollars worth of product they received eight hundred dollars and certainly if not for a system increase the price of its products so that it could reap a bigger profit for itself our clients still receive the same flat payment of eight hundred dollars no matter what at the end of the dollars over for three months later they still receive the same flat rate of fifteen dollars now establishing the definition of commission using nutrisystem sed definition which really lacks basis in the law it doesn't have any basis at all it's where you're ascribing the definition of commission to the value that's placed upon the service by the by the employer that's a hallmark of the peace treaty system and that's why we believe that this is a piece rate system here nutrisystem determined what was the value of the service that was provided and what's necessary for me to incentivize these workers to sell it that's absolutely no different than any other piece racist in effect those are the those are the hallmarks of such a system except this is a sales business and it's just looks like a commission that in and you talk about some proportionality the percentages are pretty close even on the auto show it's one percentage point higher but it's within what you know one could argue would be some proportionality and econ well your honor yes that the fact that their sales employees only means that they fit the first part of the test you have to it's a retail sales commission exemption so you need to be involved in a retail or sales establishment but that doesn't get you past the second part of the test which is that it's got to be a bona fide commission and a bona fide commission is not as the department of labor's taught us for thirty years something that's paid on a purely flat rate basis if we establish that to be the rule all have they could break loose it really could you have you have given a blank check to the cost center industry which is absolutely huge to go back and change that system so they just don't have to pay overtime anymore and and taking that out to a logical conclusion it doesn't stop with telephone call centers it also applies to the rest of retail so we really believe that that's a very very slippery slope and dangerous precedent to set and that's why the department of labor has defined commission the way that it has all right we'll have you back and report thank you very much it's your brief has really focused on the second issue in this case and what i would ask just to be clear is if the panel you wouldn't have filed an amicus but my question is we don't have to that's a waste i agree your honor and it would be there if we did there would be no need to reach it however i think department is is involved in this case on both of these issues because the secretary believes it's very important that the f s a not be misinterpreted or misread to otherwise valid state law class actions proceeding simultaneously in federal court that's right or that's not all that well we would like to see the court reach out and clarify that distance you did not establish a rule as a matter of law that there's an inherent in compatibility between a collective action that's an opt in under both under sixteen b to the cost of the goods sold or the services provided well and what about the point that yours fisher made and that is that there is a range a percentage range of commissions that range  very very much there is a small band of a percentage who ate something between these various products in between these various products for men and women isn't based on or the so called commit commission payment the compensation in the departments you needs to be somehow linked to the cost of the goods sold or the services provided to the customer so if that's what the percentages are based on that is based of day rather than the cost of the product of the goods sold now the department labors interpretation historical interpretation is that there needs to be the safeguard this prerequisite that the compensation is tied to the goods the cost of the goods sold or the services provided to the customer this is a clear and narrow interpretation as is proper under the l s a of what the commission exemption requires and it's it's for employees or for employers the regulated committee to understand what is the commission it has to be tied to the cost passed on to the customer as opposed to a subjective number that the company arrives at based on some other determination based on the business purposes now we're not saying where is it written or otherwise that the mission is it in the law that it must be exactly mathematically related as a percentage of what the cost of pay it doesn't need to be mathematically exactly related as a percentage we've talked about the put apartment talks about the percentages being one of the ways to inherently relate the compensation paid to the employee and the cost of the goods but it doesn't need to be a strict percentage it could be a flat fee that also bears a relationship to the value of the services provided or the cost of the good the point is that it be established as in relationship to the goods sold or the service provided as opposed to some other criteria now the company as mr carson mentioned companies are free to provide additional incentives as nutrisystem did here to encourage workers to work an overnight shift to make those more difficult calls those kinds of things but there has to be a baseline relationship between the compensation paid and the cost of the goods sold the department feels that this is a very important safeguard or touchstone for the commission exemption before employees are deemed to be exempt from the overtime required what are you asking us to give skidmore deference to we're asking that the court defer to the partner and articulated views in opinion letters over over the course of thirty years and also the department's wage and hour divisions field operations handbook all of which and then see it and reiterate the same ideas the departments view of interpretation of commission appears to me from what's been cited the the but gave guidance in that area that to the extent that the gym employees were selling memberships and receiving a flat fee of that the fact these were paid without regard to the cost of the product whereas a percentage would be more favorable for example if those instructors instead of getting a flat fee per lesson were given a percentage of the revenue of the lesson so that letter is a playable in this case but you've never held that all flat fees or percent not commissions now we don't hear that is the cas it could be a flat fee that's there's a relationship to the cost of the product or the services provided which so that's that's why i guess i was asking you know when you're asked you know us to give skidmore deference here you answered the waters and you answered the handb in looking at what is perhaps perhaps most persuasive anything you've said it's your brief and i'm not sure that as amica as your title do any more than you're getting here today an opportunity is it possible to craft here on simply reference to proportionality is that concept with whatever mathematical implications good afternoon may please court my name is sarah bouchard in along with my colleague jonathan kraus we represent nutrisystem in this matter as you stated there are two issues on appeal but only one of which needs to be decided today and that is whether chief judge bartol correctly ruled that nutrisystem sales associates are exempt under seven eye of the f l a say in the case law as well as some basic common sense demonstrate that nutrisystem sales associates were paid pursuant to a bona fide commission plan cost of the meal plans well i think in the brief that relates to that actually we did your honor and the district court below noted that this isn't the difference between a ten dollar ring and a million dollar ring in fact for the five meal plans cost exactly the same amount of money and that's three hundred forty two dollars the only meal plan that is any different in price is a difference of thirty dollars and that's three hundred seventy one dollars for the men's meal plan simply because of the who are selling those meal plans and so the the proportionality is basically a five percent commission basically based it's not a strict five percent of what the cost is the cost for on every sale well the customer is charged three hundred forty two dollars and on three hundred forty all the facts right what i'm asking is what is the evidence of the proportional relationship between the commission they and the price to the consumer when is the what's the what is the proportionality and words of devastated well it's demonstrated that nutrisystem wants to pay eighteen dollars to its daytime associates for that particular sale and although the percentage may decrease ever so slightly for the men's program nutrisystem has made a decision that it doesn't want to incense associates to only go after men sales versus women sales employee rather than proportionality we are conceding with judge bartol that some proportionality is required but in those decisions they also speak to the value of the services provided by the employee which i believe the department of labor also stated was part of what constitutes a valid commission well that you say there's an exact proportionality here so my question to you is when you say there doesn't have to be exact how much wiggle room is there in this being you know range i can speculate that if there was three thousand dollars on an initial sale and the sales associate received eighteen dollars that that would probably not be proportional well if we agree with you like your friend across the aisle give us the words part of the opinion as to how proportional the proportionally has to be what do we phrase well i think if i may rephrase if that's ok i think that the definition would be what constitutes a bona fide commission and i think that there are three factors that this court could put into the to that opinion and it doesn't have to be mathematically exactly the same and the range that it would be acceptable or not acceptable is highly highly the fun when we put that at the well i think what you put is the three factors which a bona fide commission reflects the value of the service provided by the employee it's dealing to from actual hours worked and it bears some proportionality to the revenue generated by the company so you you have is if you look at the d linking of the hours where in the court below plaintiffs suggested that this was a piece rate and why it's not a piece rate is demonstrated on page twenty nine of our brief to this court where we demonstrated a scatterplot the lead plaintiff parker's ours if it was a piece rate what you would see is a linear progression of the amount of hours worked with correlate to the compensation made it would be a straight line but if you look on page twenty nine what you see with mr parker's compensation related to his hours is that it's all over the place and that's one of the hallmarks of a valid commission that the sales associate is not always in control like knitting a sweater or making a blanket there are preferences of the customer involved there's incentives you have to persuade and that's what judge posner found to be illustrative of a bonafide commission let me ask you by the skidmore different question the district court's opinion you mentioned the opinion letters didn't talk in terms of department of labor ski the the other side's position of the you l's consistent interpretation deserve skidmore deference well i think the deal well had stated that the gym membership case was the closest one that could be analogous to this case and importantly she said they didn't even decide on it so i'm not sure how we're going to give deference to an opinion letter that was not even decided so if that's what we're giving deference to then i would say that there is no deference provided if it goes to the level of skidmore which i think is is pretty shaky i think we need to look at all of the factors in skidmore deference which are validity of reasoning value that the associate provides we're adding the d linkage because that's also in the deal well opinion letters on piece rate that it not be linked to hours worked i think we could all be on the same page on the law it's just whether these plans met the appropriate standard which are standard rule you hear a summary judgment decision it is to no vote on the second right and there's some question that the other side puts plainly and unmistakably language to suggest that it's more than a preponderance of the evidence standard but that's simply not the case the case law makes clear that exemptions are resolved on a preponderance of evidence basis it seems likely that there analysis although they point only to the to the fitness center letter that their analysis has been consistent over thirty years and how they analyze these cases and in the absence of a definition on commission shouldn't that be persuasive to us well if it is you need to look at the d l opinion letter in two thousand and six in which they said a flat rate which was flagged hours constituted a valid commission and that's very similar to the circumstances and eight so i think that there are opinion letters to go in our favor as well that are consistent with the seventh circuit in the eight which also go to the standard that there needs to be some value provided by the employe would you like me to address a second issue or or or not would you like to i would prefer to say on seven i if that's ok i've had the panel has new for the questions ok thank you thank you yes if you would a second on the second issue so you the the you on the second issue the court actually decided the second issue for the first issue that's correct ok now suppose we disagree with your position on commission is there still an argument that the court is correct on the second issue that do these cases to these two claim should not be combined absolutely that that's definitely our position  with respect to the second issue i just wanted to bring because it's on the basis of an intervening event the supreme court's decision in the shady grove case and bring that to to commend to your honor's attention how the shady grove through any light on this case we believe it actually does shed some light on the de asensio pending one aspect of it your honor which is this in the shady grove opinion the court as as you  know provided that the new york statute prohibiting penalties in class actions was trumped by federal rule twenty three and in that opinion the supreme court affirmed  that the the number of class members in the class action is a is a procedural issue that is not a bridge any substantive right of a defendant  d the supreme court made that very clear there's a long passage about that in the shady grove case in the dia sencion opinion although it wasn't sufficient to tip the scales what tipped the scales in the asensio opinion of course  the novel and complex issues of state law under the wage payment collection act which would impact on commonality which would which would be numerous income and now i don't mean to say numerous or commonality your honor what i mean to say is that the issue that the third circuit found relevant india sense you know which was the the predominate in of number of class members in the state law class claim versus the f l s they opt in claim said india sense here that that may a bridge a substantive right of the defendant and shady grove the supreme court clarified that that's a mere procedural difference which does not abridge any substantive right and we think that that sheds some light on the situation and actually is in line with the c circuit's opinion in lindsay v geico on the inherent in compatibility issue where it also concluded that the mere procedural differences in the between the two procedures wasn't sufficient to prevent supplemental jurisdiction i just wanted to bring that to your attention because it wasn't in the briefs in the supreme court case was decided recently with respect to the first issue quick quickly your time is up and we gave you several extra minutes during your primary thank you very much your honor we really appreciate it the debate that we're having over the definition of commission we believe is another factor that shows w should prevail what's important here is the standard of proof and the fact that this court and the supreme court have ruled consistently that exception exemptions to the f oss they are to be narrowly construed and drawn against the employer so where there is a reasonable difference in mind in here there obviously as we have appellants in the department of labor with a different view than the district court that that that is it in itself evidence that this is an open issue and where it's an counsel interesting issue take it under advisement