Here’s a quandary for finance and payroll people: How do you handle the issue of orders credited to salespeople when they’re out on FMLA leave? Isn’t FMLA leave unpaid?
The FMLA doesn’t specifically address the payment of commissions to employees out on leave. Now we know what you’re thinking: How can someone out on leave sell anything that would earn him or her commissions in the first place? The answer actually isn’t all that complicated.
Picture this: A salesman establishes a long-term relationship with a customer who places a recurring order every month. And the salesman is paid commissions on each of those orders. Then the salesman goes out on FMLA leave, during which the customer places his regular monthly order.
The question now: Is the salesman entitled to the commissions from the order that was placed while he was out on FMLA leave?
A cursory reading of the law would tell you “no,” he’s not entitled to commissions, because FMLA leave by definition is unpaid — and the law makes no mention of an exception for those paid commissions.
But a long-standing court ruling tells a different story.
Background
Here’s what happened: Angela Estes was a sales agent for Meridian One Corp. During her employment she was diagnosed with breast cancer, for which she took FMLA leave.
Despite being out on leave, Estes claimed that the sales she set up prior to taking leave should’ve earned her $1,297 in commissions, which should’ve been paid to her during her absence.
But Meridian refused to pay her the commissions, and Estes sued the company for violating the FMLA.
The company claimed that because FMLA leave is unpaid, an employee has no right to recover commissions earned while out on such leave.
Awarded commissions — and then some
The court, however, shot down the company’s argument for two reasons that were recently pointed out by employment law attorney Brian R. Christiansen of the firm Hellmuth & Johnson:
- Although the FMLA regulations do not address “commissions” specifically, they do state that employees are eligible for monthly production bonuses. And at trial Estes, said that at Meridian commissions for the sales of machines — as well as placement bonuses — are calculated and paid on a monthly basis. This created what the court called an “analogy between ‘monthly bonuses’ and ‘commissions’.” Therefore, the court concluded that a broad interpretation of “bonuses” also encompasses “commissions.” Hence, Estes was entitled to the $1,297 in commissions.
- The FMLA requires employers to treat those on FMLA leave as they’d treat other employees on paid or other forms of unpaid leave. And Estes showed that in the past Meridian had paid commissions to at least two other employees on non-FMLA leave. Thus, the court ruled Meridian had violated the spirit of the FMLA by not also providing Estes with commission payments. (Note: Given the court’s ruling that bonuses should encompass commissions, it appears likely the court would’ve ruled in favor of Estes even if she hadn’t found other employees who’d received commission payments while on leave.)
A monetary award of $1,297 doesn’t sound like much, but due to a unique wrinkle in the FMLA, Meridian ended up with a case of sticker shock anyway.
Under traditional law, each side of a lawsuit would bear their own attorneys’ fees. But not under the FMLA, which grants courts the power to award attorneys’ fees to a winning plaintiff.
As a result, Meridian was ordered to shell out $76,092 in attorneys’ fees.
That uneasy feeling
This ruling may be somewhat unsettling for employers — and with good reason.
It’s another example that some courts can choose not to take FMLA regulations at face value and instead apply their own broader interpretations to the text — making the law more confusing and harder to comply with.
While in this case it’s easy to see the court’s line of thinking (that bonuses and commissions are closely related), the assumption among employers is that lawmakers go to great lengths to draft long, precisely-worded laws — and accompanying guidance — so as not to leave them open to much interpretation.
As a result, employers craft policies not expecting to be held to standards that aren’t specifically outlined in the laws. After all, it would be nearly impossible to anticipate that a court would interpret a law more broadly than it’s written — and what that interpretation might be.
Cite: Estes v. Meridian One Corp.
A version of this post first appeared on our affiliated website, HRBenefitsAlert.com.
