Groupon Lawsuit: Guess the FLSA Infraction...

Workforce reported earlier this week that Groupon, the hot Chicago-based startup that basically defined the "daily deals" category, has been sued in "class action" style for unpaid overtime.  It's a somewhat tricky suit - not your garden variety unpaid overtime class-action, since it involves sales professionals. Hmmm - let's dig into a bit of the workforce article (find the whole thing here):

"The suit says the Chicago-based 3-year-old daily-deal business didn't pay sales employees overtime, violating wage laws, or didn't pay them enough.  “It's a systemic problem,” said Douglas Werman, a Chicago-based attorney who filed the suit on behalf of Dailey and is seeking class-action status on behalf of her and other sales reps allegedly cheated out of overtime pay.

His firm, Werman Law Office, won the largest wage-and-hour case in Illinois history two years ago, an $11 million settlement against Troy, Michigan-based staffing firm Kelly Services Inc.

The overtime suit could become a problem for the company, which employs more than 4,800 sales reps worldwide out of a workforce approaching 10,000. Roughly 1,000 of the reps are in the U.S. and therefore covered by federal labor laws.

On average, the reps are paid about $32,500 a year, plus commissions equal to a percentage of the value of the deals they line up with restaurants, salons and other local businesses."

Most of you have salespeople that are out beating the street, and most of you classify those sales pros as exempt, meaning they're not generally eligible for overtime.  Which begs the question, why are the Groupon reps eligible for overtime if yours are not?

What's your take?  Think about it and I'll give you my best guess below.  Thinking....(music in background)

Got your answer?  Here's mine:

At a 32K base and knowing a bit about the Groupon model, my take is that these reps might be classified as non-exempt and overtime eligible due to the fact that they're more telemarketer than sales pro.  I'm betting that most of these people report to HQ in Chicago and smile and dial via the phone, rarely seeing customers in the field.  Also playing into that model is the fact that they're probably hooked up to a predictive dialer, which means they're fed one call right after another in their territory and they're banging it out like a telemarketer.

Which means that they don't control what they work on and when they work on it, which is the first test of independence I usually throw up for poor man's overtime eligibility test.

That's nothing but a guess, but I'm thinking it's directionally accurate.  What's your take?

PS - you have to love the model this law firm is operating under.  I can imagine the tweet from a partner - "just took down @kellyservices for 11 large.  will scan #monster for companies who are mis-classifying sales pros after the celebration.  #winning

Comments

[_BillGraham]

Kris: I think you're on the right track. There is an exemption for inside salespeople if their commission earnings are at least 50% of total compensation (or is that just in California?). Maybe they aren't meeting that requirement.

[Joshua Westbrook]

Here's my take:

The exemption only applies to employees who receive more than half their monthly income from commissions.

This caveat trips up alot of companies.

Not exactly sure what Groupon's commissions are, but I doubt that it's more than 50% in most cases.

[KD]

Bill and Josh - Thanks for stopping by and weighing in.

Josh - looked up some stuff off your note, and I think what I described is still at play related to inside/outside sales (which gets into autonomy, etc.)

From a DOL Fact sheet - http://www.dol.gov/whd/regs/compliance/fairpay/fs17f_outsidesales.pdf

Outside Sales Exemption
To qualify for the outside sales employee exemption, all of the following tests must be met:
• The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or
contracts for services or for the use of facilities for which a consideration will be paid by the client or
customer; and
• The employee must be customarily and regularly engaged away from the employer’s place or places of
business.
The salary requirements of the regulation do not apply to the outside sales exemption. An employee who does
not satisfy the requirements of the outside sales exemption may still qualify as an exempt employee under one
of the other exemptions allowed by Section 13(a)(1) of the FLSA and the Part 541 regulations if all the criteria
for the exemption is met.

First time in awhile I looked up a DOL fact sheet .....

KD

[Desiree Porcaro, Ultimate Software]

The FLSA classification issue is a tough one for most companies. We find that a good payroll tool, with comprehensive reporting capabilities, will go far in helping HR Generalists and payroll administrators stay on top of how managers and recruiters are hiring and then categorizing their employees.

[Tim]

Kris,

All the daily deal sites work on a telesales (inside sales) model. Add in the fact that startups don't generally worry about pesky things like the FLSA and you see where they got in trouble. It appears from the article that Groupon didn't know employees were misclassified until they hired some experienced managers. If I was at Living Social I'd start looking at how my salespeople are classified right away....

[Human Resource Management System]

Perhaps this so called exemption only applies to those who earn more through commissions?

[Lots of Comp Experience]

Everyone's missing one important aspect of the commissioned, inside sales exemption - it only applies to retail or service establishments (both federally and in CA)... Don't think Groupon is even close to qualifying for that!

[Carpet Cleaning Reno]

Groupon Inc. accused two former sales managers in a lawsuit of taking confidential trade secrets with them when they quit the Internet coupon company.

[Daily Dealer]

I have a question that somewhat pertains to this. I, too, work for a similar Daily Deal site and they just took us to "Commission Only" status, but are still required to work 40 hour weeks and they hold the right to market our deals whether we close the deal or not, therefore not paying us a salary or base AND not giving us true potential to make our commissions. Does anyone know if this breaks any FLSA laws?

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[carpet cleaning services in melbourne]

there are some interesting points in the conversation, for those who care to have a listen.