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March 25 — Personal trainers working at Gold's Gym locations in Texas aren't exempt employees under the Fair Labor Standards Act and therefore may seek overtime pay, a federal district court in Texas ruled.
An FLSA exemption for retail or service establishment employees whose compensation is more than 50 percent based on commissions doesn't apply, the court decided March 23. Although the trainers receive a share of fees paid by gym customers, they only are paid after providing hour-long training sessions to those customers.
The trainers' pay therefore isn't “decoupled” from their actual working hours so Gold's Gym can't claim the exemption for commission-paid employees, the court said.
The ruling is significant because it clarifies when retail employees can be deemed as working on commission for purposes of the FLSA exemption.
Citing relevant Labor Department regulations and court decisions, Judge David A. Ezra said a bona fide commission can't depend on hours worked and must be payable when an employee makes the sale.
Under Gold's compensation system, trainers couldn't increase their pay by being more efficient, the court said. Instead, they had to complete the one-hour training sessions in order to be compensated.
“Such a compensation system reflects nothing more than an hourly wage, where the employee's rate of pay changes based upon his or her qualification,” Ezra wrote. “This is not a commission.”
Gold's Texas Holding Groups Inc., which operates 41 Gold's Gym locations, argued its trainers fell under the FLSA exemption, which is codified at 29 U.S.C. §207(i). Trainers receive a percentage of the fees charged to Gold's customers they train, with the fee varying based on a trainer's certification level and type of training offered.
That amounts to a commission because trainers negotiate the price per session with the customer and compensation varies based on a trainer's expertise, Gold's argued. The system gives the trainers incentives to train more people at a time and to charge higher rates, Gold's said.
Ruling for more than 80 current and former Gold's trainers allegedly denied overtime pay despite working more than 40 hours a week, the court said the pay system isn't a “bona fide commission.”
Trainers are paid a percentage of the fee charged to the customer, which looks like a commission, the court said. However, trainers aren't paid that amount on negotiating and making the sale of training services, but only after spending at least an hour training the customer, the court said.
Because compensation still depends on the trainers' hours worked, it's not a commission and the FLSA exemption doesn't apply, the court ruled.
Gold's argued the compensation system provided “performance-based incentives” for trainers to increase their income, a common feature of commission-based pay.
But the court said Gold's “misconstrues” the application of performance-based incentives to bone fide commissions.
Here, the trainers have financial incentives to earn more certifications to increase their share of the customer's training fee. That isn't a “performance-based system,” but rather a “qualification-based system” that differs from incentive structures found in genuine commission arrangements, the court said.
“This qualification-based system does not incentivize the trainers to work faster and thus earn more commission-based income,” the court said.
“Instead, the qualification-based incentives under these facts simply qualify the trainer to earn a higher hourly-rate,” Ezra wrote. “This is not a commission.”
The Morales Law Firm in San Antonio represented the trainers. Gardere Wynne Sewell LLP represented Gold's Texas Holding Groups Inc.
To contact the reporter on this story: Kevin McGowan in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Susan J. McGolrick at email@example.com
Text of the opinion is available at http://www.bloomberglaw.com/public/document/Casanova_v_Golds_Tex_Holdings_Grp_Inc_No_513CV1161DAE_2016_BL_905.
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