Opinion ID: 174859
Heading Depth: 3
Heading Rank: 3

Heading: Proportionality and Sales

Text: A number of factors persuade us that NutriSystem's compensation plan establishes a bona fide commission rate and is therefore a commission under the FLSA. We conclude that when the flat-rate payments made to an employee based on that employee's sales are proportionally related to the charges passed on to the consumer, the payments can be considered a bona fide commission rate for the purposes of § 7(i). First, we agree with the District Court that the payments made to NutriSystem's sales associates are sufficiently proportional to the cost to the consumer to qualify as commission under section 7(i). See, e.g., Yi, 480 F.3d at 508; Dep't of Labor Op. Ltr., 2006 WL 4512957 (June 29, 2006). There is only a small difference between the absolute dollar value of the three flat-rate fees paid to sales associates ($18.00, $25.00, and $40.00). The variance in the flat-rate fee as a percentage of the cost to the consumer, which ranges from 5%-14%, is also relatively small. See Appendix I. These relatively small differences support the proposition that proportionality to the cost to the consumer exists in this case. The District Court offered an example in defining proportionality, which we find helpful: proportionality would not exist if an employee were paid the same dollar amount for selling a $10 ring as a $1,000,000 ring. This is plainly not the case here, as the differences in the costs of the meal plans are relatively small, with four of the five meal plans costing the same, $342.36. The men's plan is slightly more expensive, $371.50, because it contains more food. Customers can receive a $50 discount on all five products by selecting the auto-ship option. [5] Second, it is persuasive that NutriSystem's plan bases compensation on sales, just as Judge Posner described in Yi. 480 F.3d at 510. Under the plan, a flat rate fee is not paid unless a sales associate completes a sale. NutriSystem's flat rate payment is tied to both the time the sale is made and whether it is based on an incoming or outgoing call, rather than being a percentage of the cost to the consumer. The amount of the payment is based on the value NutriSystem was receiving from the sales associates' work. Under this plan, NutriSystem creates an incentive for sales associates to be actively making outgoing calls and to work less desirable hours, thus allowing NutriSystem to operate at peak efficiency around the clock. The sales associates' compensation is also decoupled from actual time worked, a characteristic both the Seventh Circuit and the Department identified as a hallmark of how commissions work. Id. at 509; see Dep't of Labor Op. Ltr., 2005 WL 3308624 (Nov. 14, 2005) (The whole premise behind earning a commission is that the amount of sales would increase the rate of pay.) (internal citation omitted). Third, from a policy standpoint it is reasonable to permit NutriSystem to offer different commissions depending on the time of the sale and whether the sale was the result of an incoming or outgoing call. This encourages sales staff to take undesirable shifts and to work harder to close a sale on outgoing calls. Additionally, NutriSystem offers various sales and promotions, including the auto-ship program. Had NutriSystem based commission purely as a percentage of the cost of the goods to consumers, it would have created a disincentive for a sales associate to encourage consumers to take advantage of the discounts that result from the auto-ship method. For example, had NutriSystem declared a 7% commission on all products sold, a sales associate would earn a $26.01 commission on a men's plan under the regular shipping method but only a $22.04 commission under the auto-ship method. NutriSystem offers the auto-ship method at a discount because the company believes in the end, this shipping method will generate the company greater revenue. A sales associate, however, would prefer to sell a consumer a meal plan under the regular shipping method because the associate receives a large commission. NutriSystem's plan eliminates this disincentive by providing associates with a flat rate commission not directly tied to the end cost to consumers. Finally, NutriSystem's plan does not offend the purposes of the FLSA and the overtime provisions discussed supra in Mechmet, 825 F.2d at 1175-76, and Yi, 480 F.3d at 510. First, the Appellants' income in the years they worked at NutriSystem ranged from approximately $40,000 to over $80,000, and thus they were not the lower-income type employees contemplated to be protected by the overtime provisions. Second, NutriSystem employees must achieve certain sales goals to work hours beyond their scheduled eight-hour shifts. Forcing NutriSystem to pay overtime is unlikely to induce the hiring of additional sales associates because the only sales associates working an excess of forty hours per week are the top sales associates. Third, high-performing call center workers could work more than forty hours a week, the health risks or accidents that can occur due to fatigue from long hours are generally not present for call center employees as compared to manual laborers, and thus the overtime premium is not needed to compensate for an increase in danger from working when tired.