Beware of the Wage Act – Review Pay Plans for Commission Based Inside Salespersons and Stay Alert for Future Claims

In early May, the Massachusetts Supreme Judicial Court held that 100% commission-based inside salespersons are entitled to separate, additional overtime pay and premium pay for Sunday work. The decision, Sullivan v. Sleepy’s LLC, underscored the importance of tracking the hours employees work, regardless of the total value of their compensation.

Both employers and employees took note. Many employers sought to amend their pay plans to bring them into compliance with what some considered to be a new rule—i.e., that compensation plans must ensure that commission-based inside salespersons are paid separate and additional overtime and Sunday premium pay even if the salesperson has been paid compensation in another form that exceeds the total amount of overtime and Sunday premium pay that would have been earned for the same workweek, had the salesperson been compensated on an hourly basis at the minimum wage. Many commission-based inside salespersons filed lawsuits relying on the Sleepy’s decision to allege Wage Act violations.

One question raised in those law suits was whether the requirements for compensation plans set forth in Sleepy’s would apply retroactively. A recent decision from the Superior Court’s Business Litigation Session answered that question. In Derek Wright, et al. v. Balise Motor Sales Company, et al., the Court (Sanders, J.) held that it should be given retroactive effect. While not binding on other Massachusetts courts, the decision should put even those employers who changed their pay plans to provide for separate overtime and Sunday premium pay on notice of the potential for the start of an open season for claims by commission-based inside salespersons.

The implication for this retroactive effect cannot be understated. Every employer in Massachusetts that paid 100% commission-based inside salespersons without separately providing for overtime or Sunday premium pay may be liable for three years of unpaid overtime and Sunday premium pay, plus attorney’s fees and mandatory treble damages. Moreover, unlike federal law, the Massachusetts Wage Act does not provide a safe harbor from the treble damages to an employer who believed in good faith that it had complied with its obligations under the statute.

The Balise decision also provides some additional clarity for employers when developing compensation plans that will comply with Sleepy’s requirements.

  • A plan will not comply with the Wage Act if it states that the employer will make additional payments or draws to the salesperson if the salesperson’s base draw is insufficient to satisfy the overtime or Sunday premium pay due in a given week.
  • A plan will not comply with the Wage Act simply because the employer has expressly informed its inside salespersons that the draws were intended to satisfy the employer’s overtime or Sunday premium pay obligations.

As a reminder, as part of the “Grand Bargain,” Massachusetts has begun to phase out the obligation of retail employers to pay the time-and-one-half premium pay for hours worked on Sundays and holidays. Beginning this year, that premium wage is reduced by 10 percent annually until it is eliminated in 2023.

The Sleepy’s decision continues to have significant implications for employers, and Conn Kavanaugh’s experienced employment lawyers will continue to monitor any developments. Employers with commission-based compensation plans should consult with counsel to ensure compliance going forward and assess potential exposure for past plans.


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