The Anatomy of Florida Labor Law
Federal and Florida labor laws impose various obligations upon employers of individuals classified as employees, including the obligation to pay minimum wages and overtime compensation for hours worked over 40 in a week. Florida’s Department of Economic Opportunity has interpreted the federal Fair Labor Standards Act and the Florida Minimum Wage Act (incorporated therein by reference) as precluding an employer from paying an employee solely for the commission-based work time spent on a job , if the employee also performs other non-commission based tasks necessary and/or integral to the work. As a result, both the federal courts and the Florida Agency will look closely at whether an employee classified as commission-only meets the legal definition of "outside salesperson," based upon the amount of the employee’s total compensation attributable to inside versus outside sales.
What is Commission-Only Employment?
In all employment situations, there are two types of compensation: (1) fixed income in some form (hourly, salary, etc.) and (2) bonus income (commissions, bonus, etc.). In Florida, commission-only employment is one where the employee is receiving only commission for his or her work, and not a base salary. In other words, commission based employees get only what they sell in terms of compensation, with no fixed income as either a set hourly wage or salary. Almost exclusively, those that are commission-based employees are in the sales industry, although there are certain exceptions. Examples include some real estate agents, insurance salespeople, territory managers, product converters, and account managers, among others. The vast, vast majority of commission-only employees, however, will be in the sales industry in one or another form. They are people selling products and/or services, and getting paid for their efforts based upon the amount of sales completed and/or new businesses created. The upside to commission-only workers is obvious, both for the employer and the employee. The downside to only receiving commission to workers is also obvious, although the employee may not be aware of it when he or she begins the commission only position. In a commission-only situation, if the employee does not sell any products or receive any business, then there is no income to be made. Often, this is likely to be the case since most commissions are a percentage of the sales price or of the net revenue received by the employer.
Wage and Hour Laws
Florida has specific rules governing the conditions under which employees may be paid by commission-only compensation systems. These rules exist in addition to the federal laws governing minimum wage requirements and overtime pay under the Fair Labor Standards Act (FLSA). Many employers wonder whether an employee can be classified as exempt from overtime based solely on that employee being paid a commission-only basis. The answer to this question depends upon how the employee is classified under the FLSA.
Under Florida law, commissions paid pursuant to a written contract can be excluded from the calculation of the minimum wage but only if the employee qualifies as exempt from the overtime requirements of the federal FLSA. Any employee compensated exclusively on a commission basis must satisfy the requirements of both federal and state law in order to be exempt from overtime pay requirements. One category of employee that might be classified as exempt from overtime pay under federal law and state law and subject to the above rule is the outside salesperson. On the other hand, many states do not recognize the "outside salesperson" exemption and, therefore, do not permit such employees to be paid a commission-only basis.
Key points for Florida employers to remember regarding commission-only employees. Employers who want to set their own exempt pay scales or plans must meet the specific criteria for establishing any particular classification. Employers should also be mindful that state and federal overtime laws must be evaluated when determining the proper classification of any employee.
Employers’ Rights and Responsibilities
Employers in Florida who hire commission-only employees must take into account a number of important factors that govern how they reimburse these employees. Generally, it is the employer’s responsibility to ensure that its commission-only and non-commission employees are treated in a fair and equitable manner under the law. Employers should maintain written policies regarding the payment of wages and reimbursements provided for per the Florida statutes. Such written policies should be kept accessible for easy reference and revision as needed (within accordance with state law) and should be made available to all Florida wage employees.
Florida employers who determine their employees are not being fairly reimbursed for their labor should promptly take the necessary steps to correct the problem. Employees who are not reimbursed accurately as per state law may pursue employees with complaints under the governing federal laws under the Fair Labor Standards Act or the Florida Minimum Wage Act (FMWA). The FMWA requires employers to pay employees the mandated minimum wage for all hours worked. Failing to pay all earned wages (not to mention amounts that should be paid above the minimum wage under the Commission Wages Act) can cause serious legal liability for the employer, as well as accrued interest, government penalties, and back wages owed.
Under the Florida Minimum Wage Act (FMWA), Florida wage employees are guaranteed the right to overtime pay for hours worked in excess of 40 hours per week. The Commission Wages Act (CWA) specifically governs the payment of commissions to: "employees whose earnings exceed one and one-half (1.5) times the minimum wage specified in this subsection for hours worked in excess of 40 (40) hours in any one week by the employer." The CWA statute references the application of overtime laws as per federal law (FLSA) and state law (FMWA).
Florida employers should consider having an employment lawyer review their commission-only and commission-based wage policies to ensure compliance with state law. Penalties and liabilities can increase dramatically depending on the number of Florida employees affected by any violation of the law.
Separation and Severance Issues
Commission-only Employees’ Rights Upon Termination and Severance Pay Rules
Under Fla. Stat. § 448.07, Florida law does not require the payment of wages after term of employment in the absence of contractual agreement. However, under Section 448.07, an employee hired for a definite term is entitled to receive all wages due, which he or she would have earned during the term if the employment had continued until the end of the term. If there is no contractual agreement requiring the payment of wages after the term of employment, then unless there is an agreement to pay severance pay or a company policy to pay severance, Florida law does not require an employer to pay its employees after their employment has ended. Thus, if an employer has an unwritten or written policy that provides for severance upon termination, that policy may be enforced so long as the terms are not in violation of other labor laws or public policy.
Florida law requires an employer to pay its employees earned but unpaid wages on the next regularly scheduled pay period upon termination (without regard to the reason for termination) or upon separation of employment. Florida’s law "does not distinguish between employees who are paid on a commission basis and those who are paid on any other basis." § Fla. Admin. Code Ann. r. 60Q-6.009.
In Brenner v. Little Village Nursing & Rehab Center, Inc., the employee, a private duty nurse, worked out of her home and worked without a paycheck for three months because the employer said it had been experiencing cash flow problems. The employer then terminated Brenner. The employer claimed Brenner was an independent contractor, not an employee and therefore was not entitled to wages or final paychecks. However, the court rejected this argument and found that her contention was supported by abundant evidence in the record including, among other things, that nursing care was performed at the employer’s location, supervision was exercised by the employer , and all supplies necessary for patient care were supplied by the employer and any bills for such items were sent directly to the employer. As a result, the court determined that Brenner was an employee rather than an independent contractor and awarded her unpaid wages.
The law does not require employers to pay employees for less than 24 hours worked in a week. Fla. Stat. § 448.045.
Section 448.07 also states that all employees whose wages are due and unpaid at the time of termination (even if the termination was for cause) shall be paid all wages due on or before the next regular payday. In accordance with this statute, where an employee is terminated after a pay period during which the employee had worked at least 10 hours, the employee must receive his or her last check on or before his or her next scheduled payday. Brenner v. Little Village Nursing and Rehab. Center, Inc., 769 So. 2d 1077, 1078 (Fla. 4th DCA 2000). The Brenner court determined that "employee’s termination during the period between biweekly pay periods did not excuse employer from paying employee her last check on or before her next regularly scheduled payday." Id. (emphasis added). Moreover, since Brenner did not deny working more than 10 hours within the pay periods for which she was not paid, she was entitled to the wages agreed upon or due and any collateral benefits or premiums earned but unpaid. Accordingly, Brenner was entitled to her last payment because she had worked more than 10 hours the month before her termination.
Under Florida law, if the regular scheduled payday would fall on a holiday on which the office is closed, the employer may pay the employee on the last day prior to the holiday, as long as the employer pays the employees "in accordance with the regular schedule of the employer." Brenner, 769 So. 2d. at 1079.
Thus, under Florida law, if an employee reports to work or is available to work on a scheduled workday, the employer is required to pay him or her for at least four hours of work, regardless of whether less than four hours was actually worked. Fla. Stat. § 448.045.
Disputes: How to Resolve and Claim Damages
If a commission-only employee in Florida suspects a violation of their rights under the statute, there are several avenues through which relief can be sought. The first step is usually to attempt to resolve the dispute with the employer through direct communication, whether through their supervisor, an internal complaint process, or some other method. If these avenues do not bear fruit, however, then the employee may bring a claim under F.S. § 448.08 either in Court through the filing of a civil case, or through an administrative proceeding before the Florida Commission on Human Relations ("FCHR").
The Litigation Process:
A civil action can be filed for any claim brought under the statute. No administrative review proceeding before the FCHR is required; though one may be elected, even after the filing of an attorney demand letter. The filing of a civil action must occur within two years of the alleged violation of the law. The aggrieved employee may be entitled to recover "the unpaid commission, the amount of liquidated damages, the unpaid minimum wage for hours worked by the employee, and reasonable attorneys’ fees," as well as any other compensatory damages deemed appropriate by a Court.
Proceedings Before the FCHR:
An employee who chooses to seek administrative relief through the FCHR must give notice "to the prospective defendant prior to filing to the intended complaint so that a resolution may be pursued." That process begins when the employee files a "charge of discrimination" with the FCHR. That charge must be filed within 365 days of the "alleged violation." Employers then have 25 days to respond to the accused discrimination. After an initial evaluation of the charge and response, the FCHR will proceed to "FCHR’s mediation process, where the parties will have the opportunity to discuss the issues of the allegations and reach a resolution or settlement." If the mediation is unsuccessful, however, then the case will advance to an investigation, which the FCHR will conclude with an "administrative determination." That determination will either conclude that there is "No Cause" for the action, or that "Cause" is "determined." In the former case, the employee will receive a "Right to Sue" letter and will be free to pursue a civil suit, as noted above. In the latter case, the FCHR will commence an administrative proceeding, and if so requested, refer the matter to the appropriate Administrative Court Judge. The outcome of the proceeding will result in a recommended order, which is always subject to review by the FCHR, whose decision can be appealed to the district court of appeal. While, as discussed below, Florida law is a bit uncertain as to whether an employee may file a civil suit before completing an administrative remedy before the FCHR, all of this can take a fairly significant amount of time.
Recent Cases, Statutes, and Trends
Over the last year, the Florida Supreme Court has addressed some issues particular to "commission-only" employees, and courts interpreting the Florida statute have addressed others. In general, however, there is little to no precedent addressing how to calculate "wages." The single issue that has garnered some attention in court decisions deciding the limited issue of the offsetting of "draws" from "wages" is whether to offset an employee’s commission draws or monthly set salary against non-commission or nondiscretionary bonuses, including bona fide fringe benefits, and vice versa.
In a case decided in 2016 (Sokol v. Bank of America, N.A., 188 So.3d 836 (Fla. 4th DCA 2016), a Florida appellate court rejected the employer’s request to offset a noncommission compensation plan, which included both set commissions and bonuses, against non-discretionary fringe benefits. In Sokol, the employee was provided with monthly bonuses in addition to commission draws. The employee was also eligible for "bona fide" fringe benefits, consisting of basic medical insurance, supplemental insurance, and paid time off. Upon termination , the employee sued. The employer countered that certain deductions, including the aforementioned fringe benefits, should be offset from the employee’s commission and/or base salary. The lower court agreed, and awarded the employee funds after deducting all amounts available to the employee, including the amounts used by the employee to pay for fringe benefits. On appeal, the appellate court reversed, finding that offsets may not be asserted against non-commission compensation, including all bonuses and fringe benefits, whether discretionary or not.
All of the trends point to an increasing recognition of the applicability of section 448.07. While practitioners should be aware that Florida employment law, and specifically laws and regulations which would treat employees differently based on the method of payment of wages, can and do change very rapidly, at this point in time, the most likely sources for changes addressing commission-only employment would be through court decisions addressing the "primarily based on commission" language as it applies to individual employers or by legislative changes to the definition of "wages" in other areas.