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Major court victory for employers being challenged
SHERRY KARABIN
Legal News Reporter
Published: May 13, 2016
The Ohio Supreme Court is being asked to reconsider a recent decision that determined outside salespeople, white collar workers and those who perform certain other duties don’t meet the definition of employee and are therefore exempt from the state’s minimum wage law requirements.
The court’s decision in Haight v. Minchak addressed the constitutionality of the Fair Minimum Wage Amendment approved by Ohio voters in 2006. The plaintiffs argued the meaning of “employee” under the Ohio Constitution conflicted with the one in the amendment.
The case dates back to 2012 when JB Dollar Stretcher Magazine outside sales representatives John Haight and Christopher Pence filed a lawsuit in the Montgomery Court of Common Pleas against the former owners of the Cheap Escape Company, Robert and Joan Minchak. Cheap Escape published JB Dollar Stretcher, a direct mail advertising paper featuring coupon discounts.
Haight and Pence were paid commissions plus a draw. The company quit paying or reduced the draw when its salespeople underperformed. They argued that the draw that was available to a sales representative who failed to earn a commission fell below the minimum wage mandated by Article II, Section 34a of the Ohio Constitution.
Haight and Pence sought past wages and damages, including attorneys’ fees and punitive damages, related to hourly wages and recordkeeping issues.
To prevail they needed to be deemed “employees.” Thus, the plaintiffs argued that exempting sales representatives from the definition of “employee,” as is permitted in the minimum wage statute conflicted with with the definition of “employee” in Article II, Section 34(a) of the Ohio Constitution.
According to Andrew Biller, of counsel at Markovits, Stock & DeMarco, who represented the plaintiffs, “since the implementing legislation contains exemptions from the definition of ‘employee’ that the Ohio Constitution does not have the statute is unconstitutional.”
The employees were also seeking to have their case certified as a class action. But on March 17, 2016, the Ohio Supreme Court dashed those plans when it held that the minimum wage amendment was constitutional. The 5-2 decision overturned a 2nd District Court of Appeals ruling that favored the plaintiffs.
“If the court had ruled the other way, not only would these employers have been liable for the additional wages, employers throughout Ohio would have found themselves responsible for paying minimum wages to workers they believed were exempt,” said John Susany, a partner at Stark & Knoll Co., who represented the defendants Joan and Bob Minchak.
“Employers also would have been subject to expanded recordkeeping requirements for executive and professional employees,” said Susany. “Employers never had to track these employees’ hours in the past, yet they would have been subject to class actions dating back three years.”
Shortly after voters approved the minimum wage amendment, the General Assembly enacted legislation to implement it, including Ohio Revised Code 4111.14(B)(1) which states, “In accordance with Section 34a of Article II, Ohio Constitution, the terms ‘employer,’ ‘employee,’ ‘employ,’ ‘person,’ and ‘independent contractor’ have the same meanings as in the Fair Labor Standards Act of 1938 . . . ‘Employee’ means individuals employed in Ohio, but does not mean individuals who are excluded from the definition of ‘employee’ under 29 U.S.C. 203(e) or individuals who are exempted from the minimum wage requirements in 29 U.S.C. 213 and from the definition of ‘employee’ in this chapter.”
Under the FLSA certain categories of employees are exempt from minimum wage requirements, including white collar workers who perform executive, administrative and professional duties. There is also an outside sales employee exemption for those who primarily sell goods or services or rent facilities and do the work outside the employer’s office.
Susany said the defendants believed these two salespeople met the definition of exempt. He argued that since the FLSA exempted these two employees, along with other outside salespeople who were paid commissions and Ohio’s Fair Minimum Wage Amendment adopted the meanings of employee under the FLSA, the employers were not required to pay minimum wage or keep detailed time records for these workers.
“The amendment directly states that the Fair Labor Standards Act and its rules apply to Ohio,” said Susany. “Yet the employees claim that Ohio’s definition of who is an employee did not include the exemptions and exclusions to minimum wage and recordkeeping.”
The trial court ruled in favor of the defense and the plaintiffs appealed to the 2nd District Court of Appeals. The appellate court reversed, concluding the General Assembly exceeded its authority when it defined “employee” differently and more narrowly than the Ohio Constitution.
“The appellate court ruling had the effect of wiping out all of Ohio’s exemptions and imposing additional recordkeeping requirements on all employers,” said Susany. “The penalties for violating these rules are steep, including two times the employee’s back wages, all costs, the employee’s attorneys’ fees and potential punitive damages at a minimum of $150 for every day a violation existed.”
Last year, Stark & Knoll appealed the appellate court decision to the Ohio Supreme Court, arguing on behalf of the employers and winning the case.
In its March 17, 2016 ruling, the Ohio Supreme Court upheld the constitutionality of the minimum wage amendment, thereby keeping minimum wage exemptions in place for a number of workers, including outside salespeople.
The majority opinion states “To be entitled to minimum wage, an individual must be an ‘employee.’ Article II, Section 34a of the Ohio Constitution provides that ‘employee’ shall have the same “meanings” as in the FLSA. This provision is without further limitation. Therefore, both the FLSA exclusions and exemptions are to be considered when determining whether an individual is an employee. Because R.C. 4111.14(B)(1)’s provisions are consistent with this interpretation, the statute is constitutional.”
“Most employers believed they were doing the right thing for years,” said Kathleen Hahner, an associate at Stark & Knoll who represented the defense. “The plaintiffs argued that their version of the amendment is what voters intended when they adopted it. But from the employer perspective the Supreme Court’s decision enforced what has been the law the entire time.”
Biller has filed a motion for reconsideration with the Ohio Supreme Court.
“The Ohio Supreme Court held that, under the FLSA, the term ‘employee’ does not include employees who are exempt from the FLSA’s minimum wage requirements, even if the employees are subject to the FLSA’s other requirements.
“No federal court, including the U.S. Supreme Court, has ever held that FLSA-exempt employees are not ‘employees’ under the FLSA,” said Biller. “Accordingly, we asked the Ohio Supreme Court to reconsider its decision and bring it in line with federal court precedent interpreting a federal statute, the Fair Labor Standards Act. Because FLSA-exempt employees are, by definition, ‘employees’ under the FLSA, then they must also be under the minimum wage amendment because it expressly uses the ‘same’ meaning.”
Stark & Knoll has filed a response to the motion for reconsideration on behalf of employers.
“Unlike the constitutional provision and corresponding amendment, the FLSA covers much more than just minimum wage,” said Hahner. “When limited to minimum wage, the FLSA undeniably narrows the meaning of employee and includes both exclusions and exemptions.”
The Supreme Court has not yet ruled upon the motion.