Court Opinion

ID: 3177172
Source: CourtListenerOpinion
Date Created: 2016-02-12 22:03:49.633128+00
Date Added: 2024-06-11T12:20:36.697029
License: Public Domain

United States Court of Appeals
                     For the First Circuit
 
 

No. 15-1199

                          JOSEPH LALLI,

                      Plaintiff, Appellant,

                               v.

                 GENERAL NUTRITION CENTERS, INC.
                   and GENERAL NUTRITION CORP.,

                     Defendants, Appellees.
 

          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF MASSACHUSETTS

          [Hon. Michael A. Ponsor, U.S. District Judge]
 

                             Before

                   Kayatta, Stahl, and Barron,
                         Circuit Judges.
                                  

     Mathew P. Jasinski, with whom William Narwold and Motley Rice
LLC were on brief, for appellant.
     Robert W. Pritchard, with whom Allison R. Brown and Littler
Mendelson, P.C. were on brief, for appellee.

                                  

                        February 12, 2016
                                  
           STAHL, Circuit Judge.       From August 2009 through January

2013, Plaintiff-Appellant Joseph Lalli ("Plaintiff" or "Lalli")

was   employed   by   General    Nutrition   Centers,   Inc.   and   General

Nutrition Corp. (collectively, "Defendants" or "GNC") as a store

manager.   Lalli challenged his compensation arrangement under the

Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 201-219, and the

Massachusetts Minimum Fair Wage Law ("State Wage Law"), Mass. Gen.

Laws ch. 151, §§ 1-22.          Upon GNC's motion, the district court

dismissed the complaint.         Lalli now appeals that decision.       For

the reasons set forth below, we affirm.

                         I.     Facts & Background

           The facts of the case are quite straightforward.              GNC

sells health and wellness products through company-owned stores

throughout the United States.        Lalli was a store manager at a GNC

store in Massachusetts.          As a store manager, Lalli earned a

guaranteed weekly salary regardless of the hours worked that week

and a non-discretionary sales commission that varied based upon

the amount of eligible sales attributed to him for that week.

Whenever Lalli worked over forty hours in a given week, he was

also paid an overtime premium for each hour worked in excess of

the forty hours.       In calculating Lalli's overtime, GNC used a

"fluctuating workweek" ("FWW") method to calculate his overtime

                                    - 2 -
pay rate.   Under this method, GNC would (1) add together both (a)

the guaranteed salary for the week and (b) the commissions earned

that week; (2) divide the total wages by the number of hours the

employee logged for that week; and (3) pay an additional 50% of

the resulting per hour rate for any hour worked in excess of forty

hours that week.

            On December 31, 2013, Lalli filed a two-count complaint

alleging violations of the FLSA and the State Wage Law.        Lalli

alleged that GNC's method of calculating overtime violated the

statutes, arguing that the FWW calculation method lawfully applies

only when a business pays a fixed amount for the week.     Because

the commission earnings varied from week to week, Lalli alleged

that GNC did not pay him a "fixed" amount.    One month later, GNC

moved to dismiss the complaint for failure to state a claim.    The

district court allowed the motion, concluding that an employer may

use the FWW method to assess overtime pay rates even when an

employee's weekly pay varies as a result of performance-based

commissions.   Lalli then filed the instant appeal.

                                - 3 -
                                                                   II.   Analysis

                             The FLSA1 requires employers to compensate employees for

each hour worked in excess of forty hours during a workweek "at a

rate not less than one and one-half times the regular rate at which

[they are] employed."                                          29 U.S.C. § 207(a)(1).           "[T]he regular rate

refers to the hourly rate actually paid the employee for the

normal, non-overtime workweek for which he is employed."                                                    Walling

v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419, 424 (1945).

                             If         an          employee        is    paid    a     fixed    salary   each   week

regardless                        of         the           hours   worked,       the    employer    calculates   the

"regular rate" each week by dividing the weekly wages by the hours

worked that particular week.                                               Overnight Motor Transp. Co. v.

Missel, 316 U.S. 572, 580 n.16 (1942).                                                 "[T]hough week by week the

regular rate varies with the number of hours worked," it is

"regular in the statutory sense inasmuch as the rate per hour does

not vary for the entire week."                                              Id. at 580.          The employer then

multiplies the regular rate by 50% to produce the additional

overtime compensation that must be paid for every hour worked

beyond forty that week.                                          O'Brien v. Town of Agawam, 350 F.3d 279,

                                                            
              1
       The parties agree that the FLSA and the State Wage Law
requirements are essentially identical.  We see no reason to
question this premise. See Valerio v. Putnam Assocs. Inc., 173
F.3d 35, 40 (1st Cir. 1999).

                                                                         - 4 -
287 (1st Cir. 2003).                                           Only an additional "half" is required to

satisfy the statute because the "time" in "time-and-a-half" has

already been compensated under the salary arrangement.2                                         Id. at

288.

                             All of these principles are echoed and illustrated in

the interpretive bulletins issued by the Department of Labor

("DOL").                      In 29 C.F.R. § 778.109, the DOL lays out the general

rule for calculating overtime pay:

                             The "regular rate" under the Act is a rate per
                             hour. The Act does not require employers to
                             compensate employees on an hourly rate basis;
                             their earnings may be determined on a piece-
                             rate, salary, commission, or other basis, but
                             in such case the overtime compensation due to
                             employees must be computed on the basis of the
                             hourly rate derived therefrom . . . .      The
                                                            
              2
       "The application of the principles above stated may be
illustrated by the case of an employee whose hours of work do not
customarily follow a regular schedule but vary from week to week,
whose total weekly hours of work never exceed 50 hours in a
workweek, and whose salary of $600 a week is paid with the
understanding that it constitutes the employee's compensation,
except for overtime premiums, for whatever hours are worked in the
workweek. If during the course of 4 weeks this employee works 40,
37.5, 50, and 48 hours, the regular hourly rate of pay in each of
these weeks is $15.00, $16.00, $12.00, and $12.50, respectively.
Since the employee has already received straight-time compensation
on a salary basis for all hours worked, only additional half-time
pay is due. For the first week the employee is entitled to be
paid $600; for the second week $600.00; for the third week $660
($600 plus 10 hours at $6.00 or 40 hours at $12.00 plus 10 hours
at $18.00); for the fourth week $650 ($600 plus 8 hours at $6.25,
or 40 hours at $12.50 plus 8 hours at $18.75)."       29 C.F.R. §
778.114(b).

                                                                     - 5 -
          regular hourly rate of pay of an employee is
          determined by dividing his total remuneration
          for employment . . . in any workweek by the
          total number of hours actually worked by him
          in that workweek for which such compensation
          was paid.

Section 778.109 then states that "[t]he following sections give

some examples of the proper method of determining the regular rate

of pay in particular instances."

          Two   "examples"   of   compliant     pay   structures   warrant

particularly close attention here.        Section 778.114 describes what

to do when an employee receives a "[f]ixed salary for fluctuating

hours."   According to the DOL, an employee may be employed on a

salary basis and have hours "which fluctuate from week to week" if

the salary is paid "pursuant to an understanding with his employer

that he will receive such fixed amount as straight time pay for

whatever hours he is called upon to work in a workweek, whether

few or many."   29 C.F.R. § 778.114(a).         "Where there is a clear

mutual understanding . . . that the fixed salary is compensation

. . . for the hours worked each workweek, whatever their number,

. . . such a salary arrangement is permitted by the Act" if the

resulting regular rate is sufficient to provide compensation above

the minimum wage rate.   Id.      As in Missel, the regular rate "is

determined by dividing the number of hours worked in the workweek

                                  - 6 -
into the amount of the salary."   Id.   "Payment for overtime hours

at one-half such rate in addition to the salary satisfies the

overtime pay requirement because such hours have already been

compensated at the straight time regular rate."      Id. (emphasis

added).

          In O'Brien, we restated these conditions in a four-

factor test:

          (1) the employee's hours must fluctuate from
          week to week;

          (2) the employee must receive a fixed salary
          that does not vary with the number of hours
          worked during the week (excluding overtime
          premiums);

          (3) the fixed amount must be sufficient to
          provide compensation every week at a regular
          rate that is at least equal to the minimum
          wage; and

          (4) the employer and employee must share a
          "clear mutual understanding" that the employer
          will pay that fixed salary regardless of the
          number of hours worked.

350 F.3d at 288.    If the employer uses the FWW method, it must

satisfy a fifth factor in order to comply with the FLSA's overtime

requirement:   "the employee [must] receiv[e] a fifty percent (50%)

overtime premium in addition to the fixed weekly salary for all

hours worked in excess of 40 during the week."        See Wills v.

                               - 7 -
RadioShack    Corp.,   981     F.   Supp.   2d   245,   255   (S.D.N.Y.   2013)

(emphasis added).

             Section 778.118, on the other hand, describes what to do

when an employee receives a "[c]ommission paid on a workweek

basis."   As an adjacent section points out:              "Commissions . . .

must be included in the regular rate.            This is true regardless of

whether the commission is the sole source of the employee's

compensation or is paid in addition to a guaranteed salary[.]"               29

C.F.R. § 778.117.      "When the commission is paid on a weekly basis,

it is added to the employee's other earnings for that workweek .

. . and the total is divided by the total number of hours worked

in the workweek to obtain the employee's regular hourly rate for

the particular workweek."           Id. § 778.118.      As with the overtime

premium   provided     under    section     778.114,    where   an   employee's

compensation arrangement already accounts for the "time" in "time-

and-a-half," the employee who earns a commission on a workweek

basis "must then be paid extra compensation at one-half of that

rate for each hour worked in excess of the applicable maximum hours

standard."     Id. (emphasis added).

             In the instant case, Defendants employed a pay structure

that combines the example set out in section 778.114 (a fixed

weekly salary regardless of hours worked) with the example set out

                                      - 8 -
in section 778.118 (commissions paid weekly).3                                           Because each

element reflects a permissible compensation scheme, one might

suspect Defendants to be on solid footing.                                         Instead, Plaintiff

contends that two rights make a wrong, and that the commission

component of the pay arrangement takes the pay scheme as a whole

outside the example provided in section 778.114.                                         The district

court rejected this contention, and we review its determination de

novo.                 Ruivo v. Wells Fargo Bank, N. Am., 766 F.3d 87, 90 (1st

Cir. 2014).

                             We agree with the district court and hold that the

payment of a performance-based commission does not foreclose the

application of section 778.114 with respect to the salary portion

of the pay structure at issue.

                             Lalli was paid a fixed salary for whatever hours he

worked, and Lalli's earned commissions were added to his regular

rate calculation.                                      GNC then paid Lalli a 50% premium on top of the

regular rate for all overtime hours worked.                                        Based on the plain

language of the federal regulations at issue, GNC's compensation

                                                            
              3
       Plaintiff appears to tactically avoid invoking the word
"salary" at various points in his pleadings and papers.       The
district court found that Plaintiff was paid a salary and
commissions, and Plaintiff seems to imply that he was salaried in
his briefing.   We find no reason to imbue a clear record with
ambiguity on this point and proceed accordingly.

                                                                  - 9 -
arrangement would seem to pass muster.                                           Plaintiff demurs, pointing

first to our decision in O'Brien and next to the DOL's interpretive

bulletins.                         We turn to O'Brien first.

                             In O'Brien, this Circuit considered whether the pay

scheme established in a collective bargaining agreement ("CBA")

between a town and its police officers satisfied the fixed salary

requirement of 29 C.F.R. § 778.114(a).                                           350 F.3d at 286-90.   Under

the CBA, officers worked four shifts every six days, each shift

being eight hours.                                       Id. at 282.    Officers received 1/52 of a yearly

"base salary" each week regardless of how many hours they worked

that week.                         Id. at 283.

                             The CBA also included contractual overtime and shift-

differential pay.                                              For the former, an officer would receive

contractually stipulated overtime pay at a rate of time-and-a-half

for each hour worked in excess of eight hours on any given shift,

whether or not the officer was entitled to overtime under the FLSA

at the end of the week.4                                           Id. at 282.   For the latter, an officer

                                                            
              4
       For example, an officer who worked three eight-hour shifts
and one ten-hour shift in a given week would be entitled to two
hours of contractual overtime at a rate of one and one-half the
regular rate, but because the officer did not work in excess of
forty hours during the workweek there would be no entitlement to
FLSA overtime. O'Brien, 350 F.3d at 282 n.6.

                                                                      - 10 -
would receive an additional $10 per week for any week in which the

officer worked a nighttime shift.        Id. at 283 n.7.

             This Circuit held that both the contractual overtime and

the shift differential meant that the officers did not receive a

"fixed amount as straight-time pay" for whatever hours they worked.

Id. at 289.      For this reason, the compensation scheme did not meet

the second, "fixed salary" condition of section 778.114's four-

factor test for calculating overtime.        Id. at 289-90.

             Plaintiff points to some of O'Brien's broader language

in an attempt to extend its holding to the circumstances before

us.       This   attempt   fails.     O'Brien   examined   two   forms    of

compensation that were ruled to be incompatible with section

778.114.    Neither of these forms of compensation is before us, and

both are distinguishable from the commissions at hand.

             With respect to contractual overtime, we noted that "the

officers receive[d] more or less straight-time pay depending on

how many contractual overtime hours they work[ed] each week."            Id.

at 289.    This was inconsistent with section 778.114, which clearly

states that "the salary may be paid [an employee] pursuant to an

understanding with his employer that he will receive such fixed

amount as straight time pay for whatever hours he is called upon

to work in a workweek, whether few or many." (emphasis added).

                                    - 11 -
Unlike in O'Brien, the employee here received a fixed salary that

did not vary based on the number of hours worked.     Thus, O'Brien

is inapposite on this point.

           With respect to shift-differential pay, however, the

compensation varied "even without reference to the number of hours

worked."   Id. at 288.     Rather, the compensation varied with the

type of hours worked because nighttime hours were more valuable

than daytime hours.      Id.   The O'Brien court held that this too

"does not fit the § 778.114 mold" and made quick work of the

provision, pointing out that merely assuring a level of "fixed

minimum" compensation is not sufficient to place a pay scheme

within section 778.114.    Id.

           Although the town purported to pay a "base salary," the

salary could not actually be called "fixed" with respect to the

hours worked because the compensation for those hours varied from

week to week.   Simply put, one cannot have a "fixed salary" based

on all hours worked if all hours worked do not fall within that

fixed salary.   Therefore, because the shift-differential pay was

part of the officers' salary, it "require[d] the larger conclusion"

that the officers did not receive a fixed salary "as straight time

pay for whatever hours [they were] called upon to work in [the]

                                 - 12 -
workweek."    Id. at 289, 288 (citing 29 C.F.R. § 778.114) (emphasis

added).

             Plaintiff tries to draw a broader lesson from the O'Brien

language and argues that any additional form of compensation that

must be factored into an employee's regular rate removes the pay

scheme as a whole from the purview of section 778.114 because

employees must receive a "fixed amount" for straight-time labor

each week.    See id. at 289.   This is based on O'Brien's use of the

term "straight-time pay," which refers to pay for normal, non-

overtime hours.    See Manning v. Bos. Med. Ctr. Corp., 725 F.3d 34,

55 (1st Cir. 2013).

             This view, while tenable, is ultimately unpersuasive

because it inflates the import of a single sentence in our decision

to find answers to questions that were not asked there.     Unlike in

O'Brien, the salary here remains fixed regardless of the number or

type of hours worked.      Only the commissions vary.    Returning to

the DOL's own language, it is evident that "[t]he regulation does

not expressly preclude payment of such bonuses."           Switzer v.

Wachovia Corp., No. CIV.A. H-11-1604, 2012 WL 3685978, at *3 (S.D.

Tex. Aug. 24, 2012).

                                 - 13 -
           Section 778.114, by its plain language, requires a fixed

salary for hours worked, not a fixed total amount of compensation

for the week:

           An employee employed on a salary basis may
           have hours of work which fluctuate from week
           to week and the salary may be paid him pursuant
           to an understanding with his employer that he
           will receive such fixed amount as straight
           time pay for whatever hours he is called upon
           to work in a workweek, whether few or many.
           (emphasis added).

The "fixed amount as straight-time pay" referred to in O'Brien,

350 F.3d at 288, is the same "fixed amount as straight time pay"

referred to in the text above, 29 C.F.R. § 778.114(a).                 This, in

turn, refers to the "fixed salary" otherwise mentioned throughout

the regulation.    See id.    And the term "salary," of course, cannot

be read so broadly as to encompass all forms of compensation

comprising the regular rate.             As the district court pointed out,

section 778.117 speaks of commissions being paid "in addition to

a   guaranteed   salary,"     a    phrase    that    makes   little    sense   if

commissions are already part of the employee's salary.                Similarly,

section 778.109 states that it is the "total remuneration" (except

statutory exclusions) that must be included in the regular-rate

calculation,     suggesting       that   different   types   of   remuneration

                                     - 14 -
(e.g., salary plus commissions) may be combined in a compliant

compensation plan.

          The premiums in O'Brien betrayed any claim that the

officers' salary could be described as fixed regardless of the

hours worked, even if part of that salary (the so-called "base

salary") did not fluctuate.      As both the O'Brien court and other

courts have noted, the regulation requires that the fixed salary

cover whatever hours are worked, not merely that "the employees

receiv[e] a minimum salary every week."          See Adeva v. Intertek

USA, Inc., No. CIV.A. 09-1096, 2010 WL 97991, at *3 (D.N.J. Jan.

11, 2010); accord O'Brien, 350 F.3d at 288 ("[I]t is not enough

that the officers receive a fixed minimum sum each week.").

          In the instant case, the employee was paid on the

combination   of   a   salary   basis   under   section   778.114   and   a

commission basis under section 778.118.         The employee had "hours

of work which fluctuate[d] from week to week" and the "salary [was]

paid him pursuant to an understanding . . . that he [would] receive

such fixed amount as straight time pay for whatever hours he [was]

called upon to work in [the] workweek."         The fact that Lalli was

given additional commissions as straight-time pay for whatever

eligible sales he made does not detract at all from the fact that

                                 - 15 -
he was given his salary as straight-time pay for whatever hours he

worked.

             Plaintiff would have us rewrite section 778.114 in the

following manner to be restrictive rather than illustrative:

             An employee [may be] employed on a salary
             basis . . . [for] hours of work which fluctuate
             from week to week . . . [only if] the salary
             . . . [is] paid him pursuant to an
             understanding with his employer that he will
             receive [only] such fixed amount as straight
             time pay for . . . [the workweek].

We cannot, and should not, ignore the plain language of the

regulation, especially when doing so runs counter to the statute's

inherently flexible nature. See 149 Madison Ave. Corp. v. Asselta,

331 U.S. 199, 203-04 (1947) ("It was not the purpose of Congress

in enacting the [FLSA] to impose upon the almost infinite variety

of employment situations a single, rigid form of wage agreement.").

In short, Lalli's dissection of O'Brien mistakes the forest for

the trees.     GNC's compensation structure fits comfortably within

DOL   regulations    and   nothing   in   O'Brien   compels   us   to   hold

otherwise.

             Not only is it therefore unnecessary to extend O'Brien

to encompass commissions, it would also be inappropriate to do so.

That is because, under section 778.114, performance-based bonuses

cannot be said to vary based on the hours worked absent unusual

                                 - 16 -
circumstances not present here.   Although both shift-differential

bonuses and sales commissions may relate to the type of hours

worked in some broad or conceptual sense (insofar as some parts of

the day may typically entail more sales than others), a bonus for

particular hours worked necessarily varies by the hour worked

whereas a commission for sales only incidentally varies by the

hour worked.

          When an employee is paid a bonus for working a nighttime

shift, his pay fluctuates as a direct result of the hour he is

called upon to work.   His compensation, by definition, varies with

respect to the particular hour without regard to whether that hour

is spent productively or idly.    Thus, any underlying salary could

not be called "fixed" with respect to "whatever hours he is called

upon to work," as required under section 778.114.

          On the other hand, when an employee is paid a bonus for

executing a large number of sales, his pay fluctuates as a direct

result of those sales.   The relative ease with which the sales are

made may be incidentally related to the hours worked in theory,

but not necessarily related in practice. This distinction matters.

An efficient employee may well make more sales during a "typically

slow" period than another employee may make during a "typically

                               - 17 -
busy" period.5                               Thus, to hold that a sales commission varies based

on         the           hours                worked           under   section   778.114   would   cramp   the

regulation's language to fit a hypothetical state of affairs.6                                             The

point being that the time-based bonuses in O'Brien are readily

distinguishable from the performance-based bonuses here.

                             Nor are we alone in this assessment. Almost7 every court

to have considered whether the "fixed weekly salary" requirement

is breached "by paying an employee bonuses tied to performance

. . . [has] held, or stated, that, so long as the bonuses and

premiums [are] not tied to the number of hours worked by the

employee, they [are] consistent with that requirement."                                               Wills,

                                                            
              5
      Moreover, a "typically busy" period may end up unexpectedly
slow, whereas a "typically slow" period may end up unexpectedly
busy.
              6
       In common parlance, if an employee were promoted for taking
unpopular hours, he might well be said to have been promoted "based
on the hours he worked." On the other hand, if an employee were
promoted for leading the team in sales, it would sound curious (or
perhaps jilted) to say he was promoted "based on the hours he
worked."
              7
       There is at least one not-so-notable exception. In West v.
Verizon Servs. Corp., the district court held that an employer
violated the FWW requirements because the plaintiff's hourly rate
was below the minimum wage and because her hours did not fluctuate.
No. 08 Civ. 1325, 2011 WL 208314, at *11 (M.D. Fla. Jan. 21, 2011).
In dicta, the court then stated that plaintiff's "salary was not
fixed because she had received various bonus payments and
commissions." Id. The court offered no citations or analysis to
support this proposition.

                                                                       - 18 -
981 F. Supp. 2d at 256-57 (citing Lance v. Scotts Co., No. 04 Civ.

5720, 2005 WL 1785315 (N.D. Ill. Jul. 21, 2005); Brantley v.

Inspectorate Am. Corp., 821 F. Supp. 2d 879 (S.D. Tex. 2011);

Soderberg v. Naturescape, Inc., No. 10 Civ. 3429, 2011 WL 11528148

(D. Minn. Nov. 3, 2011); Switzer, 2012 WL 3685978).

              Meanwhile, "almost every court . . . ha[s] held that

paying   an    employee      hours-based,     or   time-based,   bonuses   and

premiums—-such as extra pay for holiday, weekend, or night work—-

offend[s] § 778.114's requirement of a 'fixed weekly salary.'"

Id. at 255-56 (citing Ayers v. SGS Control Servs., Inc. (Ayers

II), No. 03 Civ. 9078, 2007 WL 3171342 (S.D.N.Y. Oct. 9, 2007);

Brantley, 821 F. Supp. 2d 879; Brumley v. Camin Cargo Control,

Inc., No. 08 Civ. 1798, 2010 WL 1644066 (D.N.J. Apr. 22, 2010);

Adeva, 2010 WL 97991; Dooley v. Liberty Mut. Ins. Co., 369 F. Supp.

2d 81 (D. Mass. 2005); O'Brien, 350 F.3d 279).               This reflects a

clear and well-reasoned distinction between the two forms of

compensation.         Because Lalli's salary was not "based on the time

or type of work assignment," Brantley, 821 F. Supp. 2d at 890, and

Lalli's commissions were not tied to the hours worked, the instant

case falls within this persuasive line of authority.

              Next,    we   turn   our   attention   to   Plaintiff's   second

argument regarding section 778.114: the impact of the DOL's April

                                     - 19 -
2011 bulletin.     In July 2008, the DOL proposed a change to section

778.114 that would have made it so "[p]ayment of overtime premiums

and   other    bonus   and   non-overtime   premium   payments   will   not

invalidate the 'fluctuating workweek' method of overtime payment

. . . ."      73 Fed. Reg. 43654, 43670 (July 28, 2008).         In April

2011, the DOL rejected this proposal because it "believe[d] the

principles for including bonuses in the regular rate discussed in

other sections of the regulations [were] clear, [and it did] not

find that further clarifications or additional cross-references

[were] necessary in [§ 778.114]."      76 Fed. Reg. 18832, 18849 (Apr.

5, 2011).       According to Plaintiff, this rejection shows that

section 778.114 is inapplicable whenever bonuses are included in

a pay scheme.

              Plaintiff's invocation of the DOL bulletin fails for

the same reasons his invocation of O'Brien is left wanting.             The

bulletin cites strictly to hours-based cases, employs hours-based

examples, and tailors its reasoning to concerns raised by hours-

based bonuses and premiums.          The bulletin offers no guidance

whatsoever on performance-based commissions.

              With respect to case authority, the DOL suggests that

its rejection of the proposed change is consistent with the federal

courts' interpretation of the regulation.        76 Fed. Reg. at 18850.

                                   - 20 -
The cases cited for this proposition all deal with variations in

compensation by the number and type of hours worked.                                             See id.

(citing O'Brien, 350 F.3d 279 (contractual overtime and night-

shift pay); Adeva, 2010 WL 97991 (day-off pay, off-shore pay, and

holiday pay); Dooley, 369 F. Supp. 2d 81 (weekend pay); Ayers v.

SGS Control Servs., Inc. (Ayers I), No. 03 CIV. 9078, 2007 WL

646326 (S.D.N.Y. Feb. 27, 2007) (sea pay and day-off pay)).                                         None

of the performance-based commission cases, on the other hand, were

directly cited or drawn into question. As such, the DOL's decision

to leave the regulation alone means that the bulletin would have

done nothing to change the federal courts' existing "treatment of

that precise issue."                                           Wills, 981 F. Supp. 2d at 252.8

                                                            
              8
       Some of the performance-based commission cases point out
that the pay schemes at issue predated the DOL's April 2011
bulletin.   See, e.g., Switzer, 2012 WL 3685978, at *4-5.      This
seems to us immaterial. The bulletin did not address performance-
based bonuses and rejected proposed changes to the rule, thereby
leaving the state of the law unchanged with respect to such
commissions. See Wills, 981 F. Supp. 2d at 258 (noting that the
pre-Final Ruling case law "is in fact quite relevant" because "[i]t
shows how courts have interpreted the language of § 778.114, which,
significantly, the Final Ruling left intact"). In short, the rule
already prohibited the use of hours-based bonuses in conjunction
with the FWW method and, contrariwise, already permitted the use
of performance-based bonuses prior to the rejected proposal.
Nothing changed. See 76 Fed. Reg. at 18850 ("The Department does
not believe that it would be appropriate to expand the use of [the
FWW] method of computing overtime pay beyond the scope of the
current regulation. Accordingly, the final rule has been modified
from the proposal to restore the current rule . . . .").

                                                                      - 21 -
                             If anything, the DOL bulletin indirectly approved of the

developing distinction between time-based and performance-based

bonuses.                    The bulletin cites Adeva among its list of cases showing

"that the courts have not been unduly challenged in applying the

current regulation to additional bonus and premium payments."                                                 76

Fed. Reg. at 18850.                                            In Adeva, the defendants attempted to rely

upon the Lance decision to support their hours-based bonuses, but

the court found the defendants' comparison to the commission case

"misplaced."                             Adeva, 2010 WL 97991, at *3 n.2 (citing Lance, 2005

WL 1785315).                             The Adeva court distinguished the holding in Lance,

noting that "[t]he case at bar does not deal with the payment of

commissions," and pointed out that "commission fluctuations are

permissible                          under                DOL    regulations"      per   sections   778.117   and

778.118.9                     Id.           Presumably, the DOL read the Adeva decision in full

before citing it with favor.

                             The           language              and   reasoning    of   the   bulletin   further

confirm its sole focus on hours-based bonuses.                                                      The bulletin

                                                            
              9
       The Lance decision dealt with a pay scheme involving both a
salary component and a commissions component. 2005 WL 1785315, at
*2. The court found that the plaintiff received a fixed salary,
and that the fluctuations in commissions did not mean that the
salary itself was not "fixed" for purposes of section 778.114.
Id. at *4-7. Instead, the court pointed to sections 778.117 and
778.118 to show that such a method of calculating overtime pay was
"specifically contemplated and authorized by the DOL." Id. at *6.

                                                                       - 22 -
discusses    bonuses    "for    certain     activities     such     as   working

undesirable hours," 76 Fed. Reg. at 18849 (emphasis added), and

raises the concern that shifting compensation into such bonus

payments    could   "potentially    resul[t]      in    wide   disparities    in

employees' weekly pay depending on the particular hours worked,"

id.   at    18850   (emphasis    added).         As    discussed    above,   the

relationship between sales and "the particular hours worked" is

incidental at best, and we do not believe that the DOL would

consider "doing your job" to be an altogether different "activity"

than "doing your job well."

            In sum, neither the O'Brien decision nor the DOL's April

2011 bulletin reach or answer the particular question posed here:

whether a compensation structure employing a fixed salary still

complies    with    section    778.114    when    it    includes    additional,

variable performance-based commissions.                We hold that it does.

Courts have almost uniformly distinguished between hours-based

bonuses and performance-based commissions in evaluating whether an

employee's compensation structure is permissible under section

778.114, and we join that line of reasoning today.                 In order for

the DOL to exclude such agreements from the regulation, it would

have to interpret section 778.114 contrary to almost every court

                                   - 23 -
to rule on this question,10 and it would have to ignore the plain

language of the adjacent regulations governing commissions, which

seem to specifically envision, and endorse, such agreements.                                           We

do not think the DOL has interpreted, or would interpret, section

778.114 in such a manner, and we do not read section 778.114 to

impose any such restriction.

                             GNC's                   pay       scheme      epitomizes   the   compensation

arrangements illustrated in sections 778.114 and 778.118, and the

mere combination of these two permissible methods does not render

the former inapplicable. We need go no further based on the record

before us.11

                                                               III.     Conclusion

                             For the foregoing reasons, the judgment is AFFIRMED.

                                                            
              10
       See Wills, 981 F. Supp. 2d at 263 ("It is doubtful that DOL
can reverse the courts' uniform construction of the plain language
of an interpretive regulation without changing the text of that
regulation, let alone without giving notice of its intent to do so
and an opportunity for comment.").
              11
       Because we hold that the pay scheme complies with the DOL's
regulatory examples, we need not separately analyze the
arrangement under the FLSA directly. See O'Brien, 350 F.3d at 287
n.15 ("[T]he parties limit their arguments to whether the
compensation scheme . . . comports with the regulation, and we
confine ourselves to the same question.").     We do not mean to
imply, however, that a pay scheme must fall within a regulatory
example in order to comply with the statute.

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