The Price of Foregoing Written Commission Agreements

Posted on June 7, 2010 by Noel Tripp

As recently discussed here¸ a properly drafted commission agreement is essential in New York (and every state) to minimize exposure to a variety of claims, including claims for alleged unpaid commissions and improper wage deductions. In fact, in New York and other states, a written signed commission agreement is required pursuant to state law, absent which adverse inferences can be drawn.

A counter-example to the Swig Equities decision (see discussion linked above), which demonstrated the value of such an agreement, is the recent decision of the New York state trial court in Nichols v. SG Partners, Inc., 2010 NY Slip Op 30174U (N.Y. Sup. Ct. Jan. 25, 2010). Plaintiffs in Nichols were two former executive recruiters who received a base salary plus commissions. Upon termination they sued to collect alleged outstanding commissions for placements they had made. In their Complaint, they described the employer’s practice in calculating commissions to be to “more or less annually tally the placements made by plaintiffs and make additional payments based upon a percentage of the revenues from the placements.” The employer asserted that no such enforceable oral contract existed, or in the alternative was barred by various defenses to contract formation. 

Because no written contract governed the parties’ agreement regarding, inter alia, when a commission was earned, the Court refused to dismiss as a matter of law Plaintiffs’ claims that the employer breached the oral contract governing payment of commissions. Further, the Court did not dismiss the Plaintiffs’ assertion that the company’s commission payment/reconciliation process constituted an unlawful deduction from wages. Relying on precedent, the Court held that the claim under Section 193 was not duplicative of the claim for breach of contract, even though the claim sought recovery of the same commission compensation. This ruling also revived Plaintiffs’ claims under Labor Law § 198.1-a for a 25% penalty on the owed wages and attorneys’ fees.

Failure to enter into a written commission agreement creates enormous potential exposure for all businesses that employ commissioned staff.

Tags: , , , , , , , , ,

Time to Eat? Health Care Employers Should Make Sure There Is

Posted on November 6, 2009 by Paul DeCamp

Over the past year or so, employers in the health care industry, particularly in the Northeast, have been – and continue to be – targeted in a number of lawsuits alleging improper payment of hours worked by their hourly employees. Specifically, these lawsuits allege that certain health care facilities automatically deducted time for meal breaks, even when an employee worked through the meal period. Several of the lawsuits also include claims for unpaid pre- and post-shift work, as well as unpaid training time. The lawsuits seek back wages, interest, attorneys’ fees, and liquidated (double) damages.

Under the federal Fair Labor Standards Act (FLSA), most employees must be paid at least the minimum wage (currently $7.25 per hour) for all hours worked and must be paid one-and-one-half times the “regular rate of pay” for all hours worked in excess of 40 hours in a workweek. Under the FLSA, bona fide meal periods do not count as “hours worked.” Ordinarily, 30 minutes or more is long enough for a bona fide meal period, although meal periods of less than 30 minutes in which the employee is completely relieved from duty for the purpose of eating may be bona fide under certain conditions. Factors to be considered in determining whether a meal period is bona fide include, among others, whether the employees have sufficient time to eat a regular meal, whether there are work-related interruptions to the meal period, and whether the employees have agreed to the shorter period. Meal periods of less than 20 minutes should be especially scrutinized to ensure that the time is sufficient to eat a regular meal under the circumstances.

Many employers automatically deduct a 30-minute lunch period from an employee’s total daily time worked. Typically, such deductions are made unless the employee notifies the employer that he or she did not take a 30-minute lunch period that day. This practice generally is permissible under the FLSA, provided that the employer accurately records actual hours worked, including any work performed during the lunch period (and accurately compensates the employee for the actual hours worked).

The lawsuits claim that the employers made automatic deductions for meal periods, but the employees were not able to take their full meal periods, thereby making the meal periods compensable working time (i.e., “hours worked” under the FLSA). Failure to account for or compensate for hours worked, even in small increments, may result in minimum wage and/or overtime violations. When spread across all employees subject to an automatic deduction, such violations have the ability to add up quickly.

The lawsuits have thus far been limited to the Northeast. At least one law firm, however, has sent letters to numerous hourly-paid health care workers, and its web site indicates pending “investigations” of health care employers in all 50 states. Several of the lawsuits include claims under the FLSA, ERISA, and the Racketeer Influenced and Corrupt Organizations Act, and name senior officials and managers as individual defendants.

In addition to private litigation, health care employers must also contend with increased enforcement by the U.S. Department of Labor’s Wage and Hour Division, which has hired several hundred additional investigators to look into potential wage and hour violations, particularly in low-wage industries. The health care industry has traditionally been a targeted industry for federal wage and hour enforcement.

Given the increased focus, employers in the health care industry should examine their payroll policies and practices to ensure compliance with federal and state wage and hour laws. In particular, employers using automatic deductions for meal periods should reconsider whether the automatic deduction is necessary to achieving the goals for which it was implemented. If not, the employer should consider doing away with the automatic deduction. If so, the employer should take steps to make sure that employees are aware of the method by which they can report exceptions to the automatic deduction, and that they, in fact, do so when they are unable to take their full meal period.

State laws may place additional obligations and restrictions on employers, such as increasing the period of time for which back wages can be recovered, further limiting the ability of an employer to deduct for meal periods, or providing for treble damages.
Tags: , , ,