Post-Termination Payback of Outstanding Commission Draw Violates FLSA
While a draw against future commissions is lawful, requiring a salesperson to pay back outstanding draws constitutes a violation of the Fair Labor Standards Act, according to the U.S. Court of Appeals for the 6th Circuit.
In Stein v. HHGregg, Inc., the court confirmed that, with regard to commissioned sales people, it is lawful to provide an advance “draw” against future commissions for pay periods in which the earned commissions fall below the minimum wage rate in order to ensure compliance with the FLSA’s requirement to pay at least the minimum wage “free and clear” for all hours worked in a workweek. Any draw would be paid back through deductions when commissions are earned in the future.
The court also held, however, that requiring payback of any outstanding draws after termination of employment is unlawful, because it requires the return of wages that have been already delivered, in violation of the “free and clear” minimum wage requirement. Thus, employers of commissioned employees should recognize that draws used to meet the minimum wage requirement are not recoverable if an employee terminates before the draw has been “earned” back.