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Leal v. Magic Auto Touch Up, Inc.

United States District Court, N.D. Texas, Dallas Division

January 4, 2018

SERGIO LEAL, and all others similarly situated under 29 U.S.C. § 216b, Plaintiff,
MAGIC AUTO TOUCH UP, INC., et al., Defendants.



         Plaintiff Sergio Leal (“Leal”)[1] sues defendants Magic Touch Up, Inc. (“Magic Touch”), Charles R. White, Jr. (“Charles”), and James B. White (“James”) for unpaid overtime pay under the Fair Labor Standards Act of 1938 (“FLSA”), 29 U.S.C. § 201 et seq. Defendants move for summary judgment on the ground that Leal is exempt from the FLSA's overtime requirement under 29 U.S.C. § 207(i), and Leal cross-moves for partial summary judgment that Charles and James were his employers and that he is not exempt under § 207(i). For the following reasons, the court denies defendants' motion and grants in part and denies in part Leal's motion.


         Defendant Magic Touch is an automotive body repair business that employed Leal as a paint prepper from February 19, 2015 until March 4, 2016.[2] For the first three months of Leal's employment, Magic Touch paid him $16 per hour for each of the first 40 hours he actually worked during each workweek and overtime pay at the rate of $24 per hour (1½ times his hourly wage) for any overtime hours he actually worked. In this lawsuit, Leal does not seek any damages for the period from February 19, 2015 until April 30, 2015.

         Beginning on April 30, 2015 and continuing until Leal's employment ended on March 4, 2016, Magic Touch compensated Leal using three different compensation systems that were allegedly based on commissions paid for “flag hours” earned. According to defendants, flag hours (also known as “booked hours”) are the estimated labor hours included in each estimate or repair order for Magic Touch's customers. Flag hours “have nothing to do with the number of hours actually spent by a commissioned employee performing a particular service, ” but are, instead, a predetermined estimate calculated using a software program. Ds. 8/24/17 Br. 7.[3]

         Defendants contend that under Magic Touch's first commission plan (“First Commission Plan”), which was in effect from May 1, 2015 until early 2016, each of the first 100 flag hours in a two-week period credited to Leal was paid at the hourly flag rate of $12.80 and every additional flag hour credited to Leal during that same two-week period was paid at the hourly flag rate of $3.50. Leal's pay stubs indicate that, under the First Commission Plan, he earned $1, 280 (shown as “salary”) during each two-week pay period and also earned an additional amount (shown as “commission”) ranging from $441.00 at the low end to $1, 086.75[4] at the high end. Leal contends that Magic Touch guaranteed that he would earn at least $1, 280 during each two-week pay period.

         In early 2016, Magic Touch changed to a team commission. Under this plan (“Second Commission Plan”), Leal was teamed with a painter and two other paint preppers, each of whom would receive a portion of the team's commissions that were calculated by crediting the team with the flag hours that had been estimated and charged to the customers whose automobiles the team prepped and painted. Team commissions were paid as follows: 40% to the painter, and 20% to each of the three paint preppers, one of whom was Leal. When Magic Touch hired a second painter, it replaced the Second Commission Plan with a new commission plan (“Third Commission Plan”). The Third Commission Plan was similar to the Second Commission Plan, except that each team consisted of one painter (who was paid 60% of the team commissions), one paint prepper (who was paid 30% of the team commissions), and one buffer (who was paid 10% of the team commissions).

         Magic Touch terminated Leal's employment on March 4, 2016. A few days later, Leal filed this lawsuit against Magic Touch, Charles, and James for unpaid overtime under the FLSA.[5] Leal contends that, from May 1, 2015 through March 4, 2016, he worked an average of 45 to 55 hours per week but was not paid at the proper rate for overtime hours worked (i.e., more than 40 hours per week), as the FLSA requires.

         Defendants move for summary judgment on Leal's FLSA overtime claim, contending that he falls within the 29 U.S.C. § 207(i) exemption from the FLSA overtime requirements. Leal cross-moves for partial summary judgment establishing that Charles and James were his employers and that he was not an exempt employee under § 207(i).


         When a summary judgment movant will not have the burden of proof on a claim at trial, the movant can obtain summary judgment by pointing the court to the absence of evidence on any essential element of the nonmovant's claim. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once the movant does so, the nonmovant must go beyond the pleadings and designate specific facts demonstrating that there is a genuine issue for trial. See Id. at 324; Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) (per curiam). An issue is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmovant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The nonmovant's failure to produce proof as to any essential element renders all other facts immaterial. See TruGreen Landcare, L.L.C. v. Scott, 512 F.Supp.2d 613, 623 (N.D. Tex. 2007) (Fitzwater, J.). Summary judgment is mandatory where the nonmovant fails to meet this burden. Little, 37 F.3d at 1076.

         To be entitled to summary judgment on a claim or defense for which the movant will have the burden of proof at trial, the movant “must establish ‘beyond peradventure all of the essential elements of the claim or defense.'” Bank One, Tex., N.A. v. Prudential Ins. Co. of Am., 878 F.Supp. 943, 962 (N.D. Tex. 1995) (Fitzwater, J.) (quoting Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986)). This means that the movant must demonstrate that there are no genuine and material fact disputes and that the movant is entitled to summary judgment as a matter of law. See Martin v. Alamo Cmty. Coll. Dist., 353 F.3d 409, 412 (5th Cir. 2003). “The court has noted that the ‘beyond peradventure' standard is ‘heavy.'” Carolina Cas. Ins. Co. v. Sowell, 603 F.Supp.2d 914, 923-24 (N.D. Tex. 2009) (Fitzwater, C.J .) (quoting Cont'l Cas. Co. v. St. Paul Fire & Marine Ins. Co., 2007 WL 2403656, at *10 (N.D. Tex. Aug. 23, 2007) (Fitzwater, J.)).



         The FLSA provides that “no employer shall employ any of his employees . . . for a workweek longer than forty hours unless such employee receives compensation for his employment in excess of the hours above specified at a rate not less than one and one-half times the regular rate at which he is employed.” 29 U.S.C. § 207(a)(1). This overtime requirement does not apply, however, to an employee who falls within one of the exemptions that the FLSA provides. One such exemption is found in § 207(i), which exempts an employee of a “retail or service establishment” if “the regular rate of pay of such employee is in excess of one and one-half times” the federal minimum wage, and “more than half [the employee's] compensation for a representative period (not less than one month) represents commissions on goods or services.” Id.

         Defendants contend that they are entitled to summary judgment on Leal's FLSA overtime claim because Magic Touch's compensation plan satisfies the § 207(i) exemption. FLSA exemptions are “construed narrowly against the employer, and the employer bears the burden to establish a claimed exemption.” Roche v. S-3 Pump Serv., Inc., 154 F.Supp.3d 441, 446 (W.D. Tex. 2016) (citing Allen v. Coil Tubing Servs., L.L.C., 755 F.3d 279, 283 (5th Cir. 2014)). An employer “must prove facts by a preponderance of the evidence that show the exemption is ‘plainly and unmistakably' applicable.” Meza v. Intelligent Mexican Mktg., Inc., 720 F.3d 577, 581 (5th Cir. 2013). Accordingly, to be entitled to summary judgment on Leal's FLSA claim based on the § 207(i) exemption, defendants must establish each of the following essential elements beyond peradventure:

(1) the store in which the employees work is a retail or service establishment; (2) the employer pays the employees a regular rate of one and one-half times the federal minimum wage for each hour they work; and (3) the employees receive more than half of their compensation in the form of commissions earned from the sale of goods or services.

Thomas v. Bob Mills Furniture Co., 2016 WL 1464636, at *2 (W.D. Tex. Apr. 13, 2016) (citations omitted).


         The court begins its analysis by considering whether defendants have established beyond peradventure that Leal received more than half of his compensation in the form of commissions earned from the sale of goods or services.


         Section 207(i) provides, in pertinent part, that “all earnings resulting from the application of a bona fide commission rate shall be deemed commissions on goods or services without regard to whether the computed commissions exceed the draw or guarantee.” 29 U.S.C. § 207(i). The statute does not define “commission” or “bona fide commission rate.” Pittman v. McClain's R.V., Inc., 2013 WL 12139092, at *8 (E.D. Tex. June 12, 2013) (citing Klinedinst v. Swift Invs., Inc., 260 F.3d 1251, 1254 (11th Cir. 2001)). “The Fifth Circuit has not yet spoken on what constitutes a bona fide commission plan.” Crawford v. Saks & Co., 2016 WL 3090781, at *5 (S.D. Tex. June 2, 2016). Courts in other districts have noted that, “[b]y requiring that a commission rate is bona fide, Congress apparently envisions a smell test, one that reaches beyond the formal structure of the commission rate and into its actual effects and the purpose behind it.” Lee v. Ethan Allen Retail, Inc., 651 F.Supp.2d 1361, 1366 (N.D.Ga. 2009) (internal quotation marks omitted) (quoting Erichs v. Venator Grp., Inc., 128 F.Supp.2d ...

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