Mass. gov proposes ‘fix’ for commission-only employees

Not surprisingly, attorneys who represent employers and those who represent employees disagree on both the process and potential end result of Massachusetts Gov. Charlie Baker’s move to use a supplemental spending bill to respond to a decision by the Supreme Judicial Court in May 2019.

Baker’s proposal — which seeks to “clarify the responsibilities of employers related to overtime for inside sales employees who are paid entirely on commission” — comes in the wake of Sullivan, et al. v. Sleepy’s LLC, et al.

The SJC in Sleepy’s held that retail salespeople paid on a 100-percent commission basis are entitled to separate additional payments at one-and-a-half times the minimum wage for overtime and Sunday hours.

In arguing Sleepy’s, the employers had highlighted their reliance on two opinion letters from the Department of Labor Standards sanctioning the concept that overtime and Sunday pay requirements could be satisfied as long as the math worked. In other words, if the amount of compensation employees received met or exceeded the income to which they would be entitled under the law, it was fine to treat commissions as the functional equivalent of OT or Sunday pay.

Writing for the court, Justice Scott L. Kafker said the SJC recognized “that the opinion letters are less than a model of clarity and may have misled the employers.”

In addition to adding inside sales to the list of excluded forms of employment in the overtime law, Baker’s proposal would add an affirmative defense to Wage Act enforcement actions under G.L.c. 149, §150, and claims of overtime violations under G.L.c. 151, §1A, to shield employers who rely on opinion letters in good faith and are similarly “misled” in the future.

The governor’s measure comprises Sections 20 through 22 of H. 4067, which was referred to the House Ways and Means Committee on Sept. 9.

‘Dead letters’

Brook S. Lane of Boston, one of the attorneys for the plaintiffs in Sleepy’s, described his reaction to the governor’s proposal in one word: “shock.”

“To see a provision retroactively take away wages that the SJC has found employees were entitled to receive is incredible,” he said.

“To see a provision retroactively take away wages that the SJC has found employees were entitled to receive is incredible.”

— Brook S. Lane, Boston

Boston lawyer Nicholas F. Ortiz, who represents employees, agreed, saying the proposal “threatens to divest a lot of people of money the guardian of the law, the SJC, has said they have earned.”

According to Lane, the very opinion letters on which businesses had been relying made clear that they were limited to the question that the Department of Labor Standards had been presented and were also subject to being invalidated based on subsequent developments in the law.

Lane said there had been a number of such developments related to commission-only employees, both in the form of an overhaul to the relevant regulations in 2015 and a series of court decisions that preceded Sleepy’s. Those developments should have disabused employers of the notion that they could still tailor their compensation systems around the opinion letters.

“When the regulations changed, the opinion letters became dead letters,” Lane said.

Despite employers’ assertions to the contrary, Sleepy’s was not a case of the SJC “going rogue,” Lane said. The court simply reviewed its three prior decisions — Mullally v. Waste Mgt. of Mass., Inc.; Somers v. Converged Access, Inc.; and Dixon v. Malden — and followed them to their logical conclusion, he said.

In Mullally, the court articulated the purposes of the overtime requirement: “to reduce the number of hours of work, encourage the employment of more persons, and compensate employees for the burden of a long workweek.”

Like Mullally, the Sleepy’s decision implicates “core interests” of the overtime law, which the governor’s proposal essentially undercuts, Ortiz said.

If employers are going to deprive employees of time with their families, “they can pay more for that, at least,” he added.

Ortiz also pointed to Dixon, in which the SJC rejected an employer’s attempt to mitigate unpaid wages in the form of earned, unused vacation time, through “gratuitous, after-the-fact payments.”

“There is no good-faith argument, in my view, that there is any surprise here,” Ortiz said of the Sleepy’s ruling.

Instead, he said, employers made an incorrect legal judgment because they were blind — perhaps willfully — to how the law had evolved, he said.

‘Not a huge departure’

However, Boston attorney Peter J. Moser, who represents employers, said the governor is essentially proposing something not so radical: importing the federal exemption for inside sales into state law.

Employers like the reassurance of knowing that an exemption is going to be treated the same under both sets of rules, and there is precedent for bringing state law in line with its federal counterpart, he said.

As a result, Moser said he does not see Baker’s proposal as an attempt to upend the Sleepy’s decision but rather as a means of “fixing the suddenly created rift between federal and state law.”

Boston’s Paul M. Harris, who represents automobile dealerships and has been involved in litigation that the Sleepy’s decision has prompted, also applauded Baker’s proposal. He and colleague Sara Decatur Judge agreed that employers would benefit from state law becoming aligned with federal law.

The governor’s proposal “is not a huge departure or some new law that has never been seen before,” Judge said.

But Ortiz doesn’t buy it, noting in a blog post that workers in Massachusetts have used the legislative process to win additional rights that do not exist in places such as Florida or Iowa.

“Our laws and our federal system have developed differently for different reasons,” he said.

Moreover, while Massachusetts is generally considered an employee-friendly state, there are counter-examples, such as the exemption from overtime that exists for restaurant employees under state but not federal law, Ortiz noted.

If the affirmative defense of good-faith reliance on an opinion letter were adopted, Lane said, Massachusetts employees would be left with fewer rights under state law than under federal law. Further, if the door is opened to create affirmative defenses to Wage Act violations, other industry groups will inevitably try to create new affirmative defenses for other employment laws, he warned.

“In sum, Massachusetts always has been dedicated to protecting employee rights,” he said. “This would open the door to subverting all of those laws and all efforts made to protect Massachusetts employees.”

But Judge said not only is it vital to employers to be able to rely on opinion letters from the Department of Labor Standards, issuing such guidance is the reason the department exists in the first place.

On the whole, auto dealers have long tried to meet their legal obligations, but to the extent there are “bad egg employers” out there in the world, nothing in the appropriations bill should deter enforcement actions brought by the Attorney General’s Office, Judge said.

‘Does not smell right’

Lane said he shares the concerns of others about the Legislature enacting changes in the law that will impact tens of thousands of people based on an extremely small amount of information. Legislators need to take more time to get educated on the intricacies of the issue, he said, arguing that such a significant change in the law should be made through the “normal channels, using normal procedure.”

The supplemental budget process is normally meant for adding money to the snow removal fund before the end of the fiscal year, for example, not enacting major changes to overtime law, Ortiz said.

“That’s one of the things that does not smell right to me,” he said.

It was also telling that when the governor issued a press release announcing the supplemental budget, he did not mention employees or overtime, Ortiz said.

But Moser said that criticism of the governor’s proposal as bypassing the normal legislative process is ironic. He cited as an example the so-called “grand bargain” that Baker signed into law last year. The measure created a permanent sales tax holiday, will increase the minimum wage over the next five years, and gave rise to a new Paid Family and Medical Leave law. It was prompted by interest groups willing to do an “end run” around the legislative process and achieve their goals using ballot questions, Moser noted.

“A lot of this stuff lately seems to be taking a different path,” he said.

Neutral proposal?

Though some who represent employees feel otherwise, Harris said he believes the effect of the governor’s proposal would be neutral, benefiting both employers and employees.

In-house salespeople paid on commission generally want to work in excess of 40 hours, Harris said.

“The more they are there, the more they can sell,” Harris said.  “If they wanted to work an hourly job, they’d work an hourly job.”

Harris said car salespeople with whom he has spoken were displeased with the Sleepy’s decision, and for good reason. Their employers reacted to the ruling by changing their wage plans and reducing their hours, in turn reducing the salespeople’s commissions.

Some dealerships have responded to Sleepy’s by closing on Sundays, he added.

“Employees are now being restricted on what they can earn,” he said.

The loudest complaints about the governor’s proposal seem to be coming from attorneys who make their living by bringing wage-and-hour cases on behalf of employees, Judge said.

But Massachusetts auto dealerships — the state’s largest sales-tax contributor — deserve forms of support like the governor’s proposal, she argued.

They are vital sources of employment across the spectrum, from blue-collar jobs like mechanics to professional management positions like comptrollers and accountants, she said.

Harris noted how prevalent longevity is in the automobile sales industry.

“People don’t work 20 or 30 years at a place that is underpaying them,” he said.