I worked for a company as a 100% commissioned employee. No salary at all. I was given benefits such as health insurance and so forth and I was not a sub contractor. I was an actual employee of the company. Anyway, upon interviewing and such they were deceitful in explaining the amount of business they did and lied about the percentage of business I would earn commission from. I was the F&I manager and I got paid based on the finance reserve received as well as a percentage of the profits of extended warranties and such. When I hired on it was during the busy season so all was great. We were selling the 60-70 units a month they had told me about and I was earning a fair commission. Then September came and we went to 25 units or less a month. My commission dropped to less than $700 a month. Yet I was required to be at the office more than 50 hrs a week and it was expected of me to perform other duties that were not paid such as computer repair and networking, showroom cleaning, etc. Anyway, I went to them asking for a small salary and adjustment in my commission rate to help get me through the slow times. They in turn demanded I bring them copies of all my bills before they would do anything. Once they saw my monthly bills they insisted I sell my personal motorcycle, get rid of some of my other bills such as cable tv, internet, home phone, etc and also try to sell my wife's car. I got rid of my motorcycle, sold her car, and went to them with the results. They decided I made enough money in the summer so they put me on a draw against future commissions. They gave me exactly what my monthly bills were leaving me with just enough money for gas to get to and from work. When my wife got a bonus from her job we paid off some of our credit cards which freed up some of our money for other things. Through Sept, Oct, Nov, Dec, Jan, Feb, and Mar my total commisions were less than $3000 so my draw had became a substantial amount ($15000). They came to me and said that slow time was over and it was time to end the draw and start repayment. They wanted to keep 100% of my commissions and give me only a couple hundred a month for gas to get back and forth to work. It would have only taken about 2 months to repay the draw but I could not live 2 months without income so I declined their offer. They said I had no choice or say in the matter and if I quit they would just sue me and garnish my wages. I held out for a month but the pressure built up. I gave them a fair offer to put me on a small salary plus commission and they said they would think about it. Mean while I began the process of replacing the motorcycle they made me sell and I struck a deal on one. The day they found out I was buying a motorcycle they fired me because in their words "I had not earned the right to have a motorcycle". I filed for unemployment and after I presented my evidence it was determined an unjust termination and my unemployment was granted. Now they have contacted an attorney to try to collect the draw they had paid me while I was there. Keep in mind I worked 7 mos for less than 3000 total commission so the draw was nothing more than fair wage for my hrs there. Can the collect on this?

This might be too complicated to get a good answer on an internet website, but lets start with the basics:
- What exactly do you sell? And where do you sell it? Please assume that there is a really good reason that I am asking these questions. It is legally difficult to pay an employee on a 100% commission basis and the one real way to make it work is if you qualify for the Outside Sales exception. (http://www.dol.gov/esa/whd/regs/compliance/fairpay/fs17f_outsidesales.htm)
- I am going to suggest that you take a hard look at the fact sheet that I just cited. If you do not qualify for the exception, then you could not have been legally been paid on a 100% commission basis. The government is clear on this even if the employer is not. This is a point that needs to be hard resolved before you can go any further.
- Let's assume that you fail the Outside Sales exception. If so, it is very likely that you legally must be minimum wage (MW) and probably must also be paid (OT). If you are legally subject to MW and OT, then there is no possibility what-so-ever that this can be legally waived. At that point you would need to prepare a worksheet estimate hours worked by workweek, and figure out what the minimum amount your employer must have legally paid you. If it is greater then the "draws", then your employer owes you money. If not, your worse case is that you owe the difference between the draw paid to you and the MW/OT liability.
- Last point. Everything so far is Labor Law, which is always in affect even if the parties do not want it to be. Labor law cannot be waived. However all law is not labor law. There is also contract law. There is a decent chance that what you describe with your commission agreement involves contract law. There is no chance that contracts can make labor law go away. However, contract law can create obligations and rights which would not otherwise exist under labor law. You need to talk to a local attorney on this last point. That attorney will need to read any actual documents you have on this.

Ok, I worked for a motorcycle dealership. I was the F&I manager so I did not sell the bikes, I sold the finance products and insurance products. In my original post I had mentioned they found out I was buying a bike which is partly why I was terminated. Well they refused to sell me a bike so I went to another dealer and bought one. That pissed them off and is the reason they terminated me. When I first started there they made me clock in and out every day like an hourly employee but I did not get any type of hourly wage. Then a few months later they said I did not have to clock in. It was also policy that we stayed at the dealership for lunch. Only 1 person was allowed to go get lunch for everyone and 99% of the time it was a working lunch. Sadly they have all the employees brainwashed into thinking it is ok to work for free and be treated this way.

BTW, thanks for the article. I am not exempt according to the tests.

I am not a termination expert and will have to defer those questions to someone else.

Based on what you have said, there is no chance that you legally could be paid on a 100% commission basis. So do the other things that I mentioned regarding estimated hours worked and MW/OT calculation should be followed. My understanding is that current OH MW rate is $7/hr although technically the rate in effect at the time the hours were worked is what you should use.

I am not a termination expert and will have to defer those questions to someone else.

Based on what you have said, there is no chance that you legally could be paid on a 100% commission basis. So do the other things that I mentioned regarding estimated hours worked and MW/OT calculation should be followed. My understanding is that current OH MW rate is $7/hr although technically the rate in effect at the time the hours were worked is what you should use.

DAW,

I may be off here, but if the employer clearly misclassified him, could there be an argument that the money they agree to give him as 'draw' was his "salary" in a sense, and thus at least on a going-forward basis from when they agreed to that, could his hourly wage be assumed at 'draw' / 40, instead of MW?

I say this because, well, I'm guessing from a bit of the numbers, but if he could have paid back 15k in 2 months, he's going to be left waaaaaaaaaaay short calculating from state MW. $7 * 55 (to get 40 + 10 OT he'd mentioned) is all of 385 a week, or 1540 a month. Comparing 3080 for 2 months to 15k for two months... owch.

Any way I look at this, the employer comes out ahead. While I know legally right is not the same as just or reasonable, or fair... the laws couldn't really let the company come back and say 'Oh, your right, instead of 7.5k/month in commissions, we should have paid you 1540/month in MW/OT. You have to pay us back, now.', really? That just seems horribly off.

Good luck OP.

I agree that the employer can and should be able to count the so-called "draw" against the MW/OT requirements. I also said that in my first answer.

By the way, the next time an employer asks you what your bills are so that they know how much to pay you, run like you are being chased by the undead.

I agree that the employer can and should be able to count the so-called "draw" against the MW/OT requirements. I also said that in my first answer.

Ok, I get that, but here's what I was trying to frame:

'draw' ends up being, well, let's say for ease, $3000/month.
MW/OT ends up being, again for ease, $2000/month.

Now, if he gets the draw plan invalidated, can the employer then come back and say 'Oh, well, you're right. So in the last 12 months, we've paid you $12,000 too much. We'd like that back now.' Or would the 'draw' be computed as his 'actual' salary at that point?

I just ask that because it would seem like a retroactive decrease in wages, which I know is generally prohibited. Just trying to see if there's a chance where the guy would be much better off just paying them the $$ they say they want, if they could in fact declare a sudden 'overpayment'.

I apologize if my original question/comment wasn't worded properly to get the question across. :)

MW/OT are pretty much black letter federal law. There is nothing that an employer can do to make MW/OT go away.

While I do not necessarily disagree with the point you are making, we are no longer talking about black letter law. If the employer was making a "draw" payment at the time, then there was no legal intention at the time that the payment was unconditional. The employer could argue that there is no retroactive change element to this at all. You are making the argument that when the 100% commission status failed that the draw also failed. Do you have any actual support for this theory?

The draw was always conditional and the empoyer can at least make the argument that they want their money back to the extent that it exceeded MW/OT. Worse, at some point we are talking about state law, not federal law, and Ohio has a reputation for not having much in the way of state labor law.

I agree that you have an argument, but I also agree that the employer can at least make an opposing argument, and I for one have no idea how an Ohio judge would sort this out. Do you?

I certainly am not arguing that the OP should be in any hurry to write any checks. The OP should talk to a local attorney first. I will say however that I am less certain that the OP is at no legal risk then you seem to be.

MW/OT are pretty much black letter federal law. There is nothing that an employer can do to make MW/OT go away.

I wasn't presuming there was. Sorry if I came off any other way.

While I do not necessarily disagree with the point you are making, we are no longer talking about black letter law. If the employer was making a "draw" payment at the time, then there was no legal intention at the time that the payment was unconditional. The employer could argue that there is no retroactive change element to this at all. You are making the argument that when the 100% commission status failed that the draw also failed. Do you have any actual support for this theory?

I have no evidence to support anything. The only reason I wondered if this would be a possible avenue (I think we're all guessing at this point, but most people on here have a much better idea of labor law than I) is that (i think?) most states prohibit a wage reduction without notice. If he wasn't legally being paid draw, and draw was the only agreement made, then what did they pay him?

The draw was always conditional and the empoyer can at least make the argument that they want their money back to the extent that it exceeded MW/OT. Worse, at some point we are talking about state law, not federal law, and Ohio has a reputation for not having much in the way of state labor law.

This is the crux of what I was talking about. In my way of thinking at least, retroactivly saying 'oh, you were supposed to be making only minimum wage, give us back the excess' would be a retroactive wage reduction. Depending on how far they went back, it could quite possibly end up bankrupting the wage earner with the difference in amounts between MW/OT and the 'draw' they received in that timeframe.

I agree that you have an argument, but I also agree that the employer can at least make an opposing argument, and I for one have no idea how an Ohio judge would sort this out. Do you?

No, but it's quite an interesting idea.

I tell billy bob I'll give him 30% of each sale, and only that income, but the manor in which I make him work does not qualify him to be paid on a 100% commission basis.

Billy Bob sells $1,000,000 of goods this month, amazingly only being in the office for 40 hours total, and I pay him his $300,000.

Next month, Billy Bob calls me a name, and I fire him, and then say "Oh yeah, your position did not qualify for 100% commission. We'll default to minimum wage and now you owe me $299,500 for the overpayment."

Something just seems wrong with that. I know it's not the exact issue, but it deals with the 'draw being illegal and reverting to MW/OT' idea. Maybe the OP can use that in their argument if they want to fight it. :)

I certainly am not arguing that the OP should be in any hurry to write any checks. The OP should talk to a local attorney first. I will say however that I am less certain that the OP is at no legal risk then you seem to be.

I don't think I've said he wasn't at legal risk. All I've been trying to say, is, depending on how the math works out, and the rules in this sort of situation, it might behoove him to pay them back for the draw instead of raising the point that the draw was illegal.

If he owes them $5k for the draw, but if the draw is invalidated and he owes over $5k in the difference between OT/MW and what he received, then paying the $5k is a good deal. If instead, he would have made more under MW/OT (which i bet is unlikely) then by all means, fight the draw.

I'm not saying he's not in legal peril, I'm just trying to make sure you didn't tell him to jump out of the pot and into the fire, so to speak, if he could be forced to pay back more than what they're asking when the draw is ruled illegal.

I don't mean to be confusing, and I may be using the wrong terminology for all of this as I've yet to have to deal with any employees and am not a payroll pro or a lawyer, so again I apologize if it's horribly confusing, but I'm just trying to do what everyone tries to do here, and help the OP get the best answer as to what they should do.

Well I replied to their letter with one of my own. Was this wise, stupid, or a waste of time?


August 15, 2008

Dear John Doe:

I am writing in response to the letter sent to me dated July 23, 2008 in reference to an alleged debt owed to (Former employer).

It is my belief that this is not a valid debt nor do I owe any monies to your client. Please ask your client to forward me a copy of the original loan agreement along with all proof of the debt owed including but not limited to the repayment schedule, loan disbursement(s), payments received, and any other supporting documents referencing this alleged debt.

Please forward the requested documents within thirty (30) days of receipt of this letter. In failing to do so I shall consider this matter settled and no further action will be required.

Yours truly,


(Me)

And to clarify the draw some, I was paid $1100 on the 1st and then again on the 15th every month. This was a level amount and they did not take taxes out or insurance or anything. My insurance was $650 a month. Using this math my draw was 2850 a month plus taxes which I don't know if they even paid them or not. I know they never paid any city taxes on me and my Fed tax was really short this year. THis is one reason I requested all the documentation for the alleged loan. (The letter from the attorney does not mention draw or salary, only a loan).