May 25, 2020

Split Panel of the Sixth Circuit Holds that Written Policy Trumps Company’s Actual Practices

In Stein v. hhgregg, a split panel of the Sixth Circuit held that a written policy would trump the company’s actual practices. hhGregg employs retail sales employees that are paid under a “draw-on-commission policy.” Under that policy, sales employees are paid on the basis of commissions only. If after dividing the employee’s weekly commission by the number of hours worked, the quotient fails to equate to the federal hourly minimum wage, the employee is paid a draw from his or her future earnings equaling the difference. Employees are expected to repay the draws based on future commissions earned. At the time the plaintiffs filed their amended complaint, hhGregg’s written policy stated that “[u]pon termination of employment, the [employee] will immediately pay the Company any unpaid Deficit amounts.”

The plaintiffs, one former and one current hhGregg employee, brought a collective action on behalf of themselves and other similarly situated current and former employees, alleging violations of the Fair Labor Standards Act (“FLSA”) and state law. In one of the claims, the plaintiffs alleged that hhGregg’s written policy requiring repayment upon termination violated the FLSA. The district court dismissed all of the federal claims under Fed. R. Civ. P. 12(b)(6) and declined to exercise supplemental jurisdiction over the state law claims.

On appeal, the majority reversed. Regarding the post-termination liability claim, the majority recognized that at oral argument defense counsel represented that the “defendants have not collected and will not in the future collect any debts from any employee upon termination, and that this language is no longer in the policy.” The majority, however, stated that it was “focus[ing]” on the written policy rather than its implementation, because employees could reasonably believe that they remain liable to hhGregg for the unearned draws.

Judge Sutton dissented in part, stating that he would have affirmed the dismissal of the post-termination liability claim. In doing so, he implicitly recognized the potential impact that an oral argument can have on an appeal, honing in on defense counsel’s declarations made during the argument.

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About this Author

Kelly Mihocik, Squire Patton Boggs Law Firm, Litigation Attorney
Associate

Kelly Mihocik focuses her practice on general and complex commercial litigation matters.

Kelly joined the firms after serving as a Staff Attorney for the US Court of Appeals for the Sixth Circuit. Kelly completes complex legal research and prepares analysis and pleadings on behalf of her clients.

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