Parker v. NutriSystem, Inc.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 09-3545

ADRIAN E. PARKER, Individually
and on behalf of all others similarly situated

v.

NUTRISYSTEM, INC.

DELORIS WYNN,
Administratrix of the Estate of Adrian E. Parker;
DONALD J. WILSON; FRANK L. STEPHENS, IV;
MONICA THOMPSON; SENYA SAUNDERS,

Appellants

(Pursuant to Rule 12(a), Fed. R. App. P.)
(Pursuant to Rule 43(a)(1), Fed. R. App. P.)

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. No. 2-08-cv-01508)
District Judge: Honorable Harvey Bartle, III
 Argued June 21, 2010
Before: SMITH, FISHER and COWEN, Circuit Judges.

(Filed: September 7, 2010)

Shanon J. Carson (Argued)
Ellen T. Noteware
Berger & Montague
1622 Locust Street
Philadelphia, PA 19103

R. Andrew Santillo
Peter D. Winebrake
The Winebrake Law Firm
715 Twining Office Center
Twining Office Center, Suite 211
Dresher, PA 19025
Counsel for Appellants

Sarah E. Bouchard (Argued)
Katherine E. Kenny
Jonathan S. Krause
Morgan, Lewis & Bockius
1701 Market Street
Philadelphia, PA 19103
Counsel for Appellee

Paul L. Frieden
Laura Moskowitz (Argued)

2
United States Department of Labor
Office of the Solicitor
N-2716
200 Constitution Avenue, N.W.
Washington, DC 20210
Counsel for Amicus Curiae,
Secretary of Labor

David A. Borgen
Goldstein, Demchak, Baller, Borgen & Dardarian
300 Lakeside Drive, Suite 1000
Oakland, CA 94612
Counsel for Amicus Curiae,
National Employment Lawyers Association.,
Comité De Apoyo A Los Trabajadores
Agrícolas, Community Legal Services,
Cornell Labor Law Clinic, Friends of
Farmworkers, Juntos, National Lawyers
Guild Labor and Employment Committee,
Southern Poverty Law Center, The Sugar
Law Center, and Working Hands Legal Clinic

OPINION OF THE COURT

FISHER, Circuit Judge.

This appeal arises from an order of the District Court,
entered July 30, 2009, granting Appellee NutriSystem, Inc.’s

3
(“NutriSystem”) motion for summary judgment on Appellants’
claims for past overtime payments based on violations of the
Fair Labor Standards Act (“FLSA” or the “Act”), 29 U.S.C.
§ 201, et seq.1 We must decide whether the District Court
correctly concluded that NutriSystem’s method of compensating
its call-center employees constituted a commission under the
FLSA so that Nutrisystem was exempt from paying Appellants
overtime. For the reasons articulated below, we agree with the
District Court that NutriSystem’s compensation plan qualified
as a commission and affirm its ruling.

I.

A.

The facts in this case are undisputed. NutriSystem is a
provider of weight loss and weight management products. It
markets and sells its prepackaged meals directly to customers
for personal use. Its core product is a 28-day meal program.
NutriSystem offers several varieties of the meal plan depending
on customers’ needs. In 2008, NutriSystem offered plans under
two methods of shipping, regular or auto-ship, at different
prices: a men’s regular 28-day plan for $371.50, or $319.95; a
women’s regular 28-day meal plan for $342.36, or $293.72; a
women’s or men’s silver 28-day plan (for older customers) for
$342.36, or $293.72; a women’s or men’s diabetic-friendly
28-day plan for $342.36, or $293.72; and a women’s or men’s

1
Deloris Wynn has been substituted as lead plaintiff
pursuant to Federal Rule of Appellate Procedure 43(a)(1).

4
vegetarian 28-day plan for $342.36, or $293.72. Under the
regular method, the customer receives only a 28-day shipment
and then must affirmatively request additional shipments.
Under the auto-ship method, a customer signs up to receive
automatic monthly shipments of food and is charged by
NutriSystem on a monthly basis. Customers are permitted to
cancel the auto-ship plan after the first month.

NutriSystem customers typically place their orders via
telephone or the internet. The phone calls are fielded at a
NutriSystem call center in Horsham, Pennsylvania, which
employs approximately 230 sales associates. Under a
NutriSystem sales policy, sales associates are prohibited from
remaining idle for more than five minutes while awaiting an
inbound call. Before the five-minute mark is reached, an
associate must originate an outbound sales call. These calls are
generally to people who filled out profiles on the company
website but failed to place an order or to customers who
previously placed orders but whose credit cards were declined.

NutriSystem sales associates are assigned to six different
work shifts: 7:00 a.m. to 3:30 p.m., 9:00 a.m. to 5:30 p.m.,
11:00 a.m. to 7:30 p.m., 1:30 p.m. to 10:00 p.m., 3:30 p.m. to
12:00 a.m., and 11:00 p.m. to 7:30 a.m. (the “overnight shift”).
Since January 2007, sales associates, except those working the
overnight shift, have been permitted to work extra hours during
a week if in the preceding week they exceeded the average
“sales dollars per call,” a figure the company calculates based on
the revenue the sales associates generate and the calls they make
each week.

5
 In March 2005, NutriSystem implemented the
compensation scheme for sales associates at issue in this case.
Under the plan, sales associates receive the greater of either
their hourly pay or their flat-rate payments per sale for each pay
period. The hourly rate is $10 per hour for the first forty hours
per week, and $15 per hour for overtime. The flat rates per sale
are $18 for each 28-day program sold via an incoming call
during daytime hours, $25 for each 28-day program sold on an
incoming call during evening or weekend hours, and $40 for
each 28-day program sold on an outbound call or during the
overnight shift. These flat rates do not vary based on the cost of
the meal plan to the consumer.

The majority of the sales associates are compensated
based on these flat rates, not their hourly earnings. Under the
compensation plan, sales associates do not receive overtime
compensation when they are paid the flat rates for the sales
made. There is no change to the flat rates when a sales associate
works more than forty hours in one week.

B.

Adrian Parker, a former sales associate, sued
NutriSystem for violations of the FLSA and the Pennsylvania
Minimum Wage Act (“PMWA”), 43 Pa. Cons. Stat. § 333.101,
et seq., on behalf of himself and others similarly situated
(collectively “Appellants”). Parker asserted his FLSA claim as
a collective action under 29 U.S.C. § 216(b) and his PMWA
claim as a class action under Federal Rule of Civil Procedure 23.

6
 In a July 25, 2008 order, the District Court declined to
exercise supplemental jurisdiction over Parker’s PMWA class
action claim.2 On September 26, 2008, the District Court
conditionally granted Parker’s motion to proceed as a collective
action for his FLSA claims, and seventy-eight plaintiffs opted
in.

NutriSystem moved for summary judgment against lead
plaintiff Parker and the first four opt-in plaintiffs in the FLSA
collective action. NutriSystem informed the District Court it
would move for summary judgment against the remaining
plaintiffs if the court found in its favor. Parker also moved for
summary judgment against NutriSystem. On July 30, 2009, the
District Court granted NutriSystem’s motion for summary
judgment and denied Parker’s.

Appellants filed a timely notice of appeal. The Secretary
of Labor has filed a brief as amicus curiae in support of
Appellants’ position.

2
Appellants argue that the District Court abused its
discretion in declining to exercise supplemental jurisdiction over
the state class action claims. Because we affirm the District
Court’s grant of summary judgment in favor of NutriSystem as
to the federal claims against it, we need not address the propriety
of the District Court’s decision with regard to its jurisdiction
over the state law claims. The District Court was free to decline
to exercise supplemental jurisdiction because it “dismissed all
claims over which it [had] original jurisdiction.” 28 U.S.C.
§ 1367(c)(3).

7
 II.

The District Court had jurisdiction over Appellants’
FLSA claim pursuant to 28 U.S.C. § 1331 and 29 U.S.C.
§ 216(b). We have appellate jurisdiction under 28 U.S.C.
§ 1291. We review a district court’s grant of summary judgment
de novo. Levy v. Sterling Holding Co., 544 F.3d 493, 501 (3d
Cir. 2008). Summary judgment is appropriate “if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law.” Fed. R. Civ. P. 56(c).

III.

The dispute in this case centers on the limited issue of
whether NutriSystem’s method of compensating its sales
associates represents “commissions on goods or services,”
which turns on whether the “earnings result[] from the
application of a bona fide commission rate.” 29 U.S.C. § 207(i).
We conclude that NutriSystem’s compensation plan establishes
a “bona fide commission rate” and is therefore a “commission”
under the FLSA.

A. Background

The FLSA requires that employers pay their employees
one and one-half times their regular rate of pay for any hours
worked in excess of forty hours per week. 29 U.S.C. § 207(a).
The Act contains an exception to the overtime requirements for

8
employees working in retail or service establishments. Section
7(i), the “retail commission exception,” provides:

No employer shall be deemed to have
violated subsection (a) of this section by
employing any employee of a retail or service
establishment for a workweek in excess of the
applicable workweek specified therein, if (1) the
regular rate of pay of such employee is in excess
of one and one-half times the minimum hourly
rate applicable to him under section 206 of this
title, and (2) more than half his compensation for
a representative period (not less than one month)
represents commissions on goods or services. In
determining the proportion of compensation
representing commissions, 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 employer has the burden of
demonstrating that it is eligible for the retail commission
exception. See Mitchell v. Ky. Fin. Co., 359 U.S. 290, 295-96
(1959); Madison v. Res. for Human Dev., Inc., 233 F.3d 175,
183 (3d Cir. 2000).

Here, the parties agree that under § 7(i), NutriSystem
qualifies as a retail establishment and that its sales associates’
regular rate of pay is more than one and one-half times the

9
federal minimum wage; the question we face is the meaning of
“commissions on goods or services.”

“‘In interpreting a statute, the Court looks first to the
statute’s plain meaning and, if the statutory language is clear and
unambiguous, the inquiry comes to an end.’” Kaufman v.
Allstate N.J. Ins. Co., 561 F.3d 144, 155 (3d Cir. 2009) (quoting
Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253-54 (1992)).
Where the statutory language is unambiguous, the court should
not consider statutory purpose or legislative history. See AT&T,
Inc. v. F.C.C., 582 F.3d 490, 498 (3d Cir. 2009).

In determining whether language is unambiguous, we
“read the statute in its ordinary and natural sense.” Harvard
Secured Creditors Liquidation Trust v. I.R.S., 568 F.3d 444, 451
(3d Cir. 2009). A provision is ambiguous only where the
disputed language is “reasonably susceptible of different
interpretations.” Dobrek v. Phelan, 419 F.3d 259, 264 (3d Cir.
2005).

The FLSA does not define the term “commission.” The
plain meaning of the term, according to Black’s Law Dictionary,
is “[a] fee paid to an agent or employee for a particular
transaction, usu[ally] as a percentage of the money received
from the transaction.” Black’s Law Dictionary 306 (9th ed.
2009). Section 7(i), however, requires that in order to be a
commission, the fee paid to the employee must be based on a
“bona fide commission rate.” The “bona fide commission rate”
language is imprecise and capable of ambiguity. Therefore, we
hold the plain language of § 7(i) does not provide sufficient
guidance to govern the application of the statute in this case. Cf.

10
Mechmet v. Four Seasons Hotels, Ltd., 825 F.2d 1173, 1175 (7th
Cir. 1987) (finding that “[i]t would not be sensible to try to
decide [a] case on the basis of dictionary meanings, or for that
matter common legal usages, of the word ‘commission.’”).

Because we cannot unlock the meaning of “commission”
based on the plain language in this context, we consider
legislative history and statutory purpose. See In re Lord Abbett
Mut. Funds Fee Litig., 553 F.3d 248, 254 (3d Cir. 2009)
(“‘Where the statutory language does not express Congress’s
intent unequivocally, a court traditionally refers to the legislative
history and the atmosphere in which the statute was enacted in
an attempt to determine the congressional purpose.’”) (quoting
United States v. Gregg, 226 F.3d 253, 257 (3d Cir. 2000)).

Further, in light of this statutory ambiguity we must
examine the Department of Labor’s (the “Department”) various
interpretations of the statute to determine whether the
Department is entitled to deference. See Chevron U.S.A., Inc. v.
Natural Res. Def. Council, Inc., 467 U.S. 837, 865 (1984).
“Interpretations such as those in opinion letters – like
interpretations contained in policy statements, agency manuals,
and enforcement guidelines, all of which lack the force of law
– do not warrant Chevron-style deference.” Christensen v.
Harris County, 529 U.S. 576, 587 (2000). Rather,
interpretations contained in formats such as opinion letters are
“entitled to respect” based on an agency interpretation’s power
to persuade. Id. (citing Skidmore v. Swift & Co., 323 U.S. 134,
140 (1944) (We consider “the thoroughness evident in [the
interpretation’s] consideration, the validity of [the
interpretation’s] reasoning, [the interpretation’s] consistency

11
with earlier and later pronouncements, and all those factors
which give [the interpretation] power to persuade, if lacking
power to control.”)); see also Packard v. Pittsburgh Transp.
Co., 418 F.3d 246, 253 (3d Cir. 2005). In this case, we examine
the various Department opinion letters addressing the meaning
of commission. Both sides point to court decisions that, they
claim, support their interpretation of the term “commission”
under section 7(i).

Appellants submit that to qualify as a commission under
§ 7(i), the fee paid to an employee must be based on the final
cost to the consumer and that NutriSystem’s plan, therefore,
would not qualify as a commission because the flat rate
payments are based not on the cost to the consumer, but on both
the time the sale was consummated and whether it was the result
of an incoming or outgoing call. The Department supports
Appellants’ position and argues that we should afford Skidmore
deference to its consistent view expressed in various opinion
letters that to qualify as a commission for purposes of § 7(i) the
payment must be “linked to the cost of the product sold or
services provided to the customer.” (Dep’t of Labor Br. at 21.)
NutriSystem, on the other hand, asserts that its compensation
scheme qualifies as commission because the sales associates’
pay varies across pay periods, their compensation was not linked
to the number of hours worked, and the payments were
proportional to the cost to the consumer.

B. Legislative History

Congress enacted the FLSA “to protect all covered
workers from substandard wages and oppressive working hours,

12
‘labor conditions [that are] detrimental to the maintenance of the
minimum standard of living necessary for health, efficiency and
general well-being of workers.’” Barrentine v. Ark.-Best
Freight Sys., Inc., 450 U.S. 728, 739 (1981) (quoting 29 U.S.C.
§ 202(a)). The Act was designed “to ensure that each employee
covered by the Act would receive ‘[a] fair day’s pay for a fair
day’s work’ and would be protected from ‘the evil of overwork
as well as underpay.’” Id. (quoting 81 Cong. Rec. 4983 (1937)
(message of President Roosevelt)).

The legislative history of the overtime compensation
provisions of the FLSA reveal a threefold purpose underlying
them: (1) to prevent workers who, perhaps out of desperation,
are willing to work abnormally long hours from taking jobs
away from workers who prefer shorter hours, including union
members; (2) to spread available work among a larger number
of workers and thereby reduce unemployment; and (3) to
compensate overtime workers for the increased risk of
workplace accidents they might face from exhaustion or
overexertion. Mechmet, 825 F.2d at 1175-76 (7th Cir. 1987)
(citing H.R. Rep. No. 1452, 75th Cong., 1st Sess. (1937); S.
Rep. No. 884, 75th Cong., 1st Sess. (1937)).

C. Department of Labor Interpretations

The Department’s regulations specifically elaborate on
the purpose of § 7(i):

Section 7(i) was enacted to relieve an
employer from the obligation of paying overtime
compensation to certain employees of a retail or

13
 service establishment paid wholly or in greater
part on the basis of commissions. These
employees are generally employed in so-called
“big ticket” departments and those establishments
or parts of establishments where commission
methods of payment traditionally have been used,
typically those dealing in furniture, bedding and
home furnishings, floor covering, draperies, major
appliances, musical instruments, radios and
television, men's clothing, women’s ready to
wear, shoes, corsets, home insulation, and various
home custom orders. There may be other
segments in retailing where the proportionate
amount of commission payments would be great
enough for employees employed in such segments
to come within the exemption. Each such
situation will be examined, where exemption is
claimed, to make certain the employees treated as
exempt from overtime compensation under
section 7(i) are properly within the statutory
exclusion.

29 C.F.R. § 779.414.

Although the Department has not defined “commission”
in its regulations,3 the Wage and Hour Division of the

3
While the Department of Labor’s regulations do not
define commission, they do specify what a bona fide
commission is not:

14
Department of Labor has attempted to explain the meaning of
the term “commission” under the retail commission exception
through various opinion letters. The following three letters are
most relevant to our analysis.

First, the Department opined that alarm system installers
who were compensated based on a percentage of the sales price
of the alarm systems they installed were paid a commission.
However, installers who were paid a flat fee per installation
were not paid a commission and did not fall within the scope of

A commission rate is not bona fide if the
formula for computing the commissions is such
that the employee, in fact, always or almost
always earns the same fixed amount of
compensation for each workweek (as would be
the case where the computed commissions seldom
or never equal or exceed the amount of the draw
or guarantee). Another example of a commission
plan which would not be considered as bona fide
is one in which the employee receives a regular
payment constituting nearly his entire earnings
which is expressed in terms of a percentage of the
sales which the establishment or department can
always be expected to make with only a slight
addition to his wages based upon a greatly
reduced percentage applied to the sales above the
expected quota.

29 C.F.R. § 779.416(c).

15
section 7(i). Dep’t of Labor Op. Ltr., 1996 WL 1031770
(Apr. 3, 1996). The Department’s letter does not elaborate on
whether the installers who were paid a percentage of the sales
price also had the ability to sell upgrades to alarm systems on-
site, thereby increasing their commissions by increasing the cost
to the consumer. Put differently, it is unclear from the letter
whether these installers can be considered “in sales.” The
Department based its determination of what was a “commission”
solely on the fact that one compensation method was based on
a percentage of cost to the consumer and the other was a flat rate
with no connection to the cost to the consumer.

In a second letter concerning health club instructional
employees, the Department was unable to reach an opinion
because the employees – membership sales associates and
personal trainers – appeared to be compensated under more than
one method. Dep’t of Labor Op. Ltr., 2005 WL 3308624 (Nov.
14, 2005). The Department did offer the employer the following
guidance:

Flat fees “paid without regard to the value
of the service performed do not represent
‘commissions on goods or services’ for purposes
of Sec[tion] 7(i).” Field Operations Handbook,
21h04(c) . . . Rather, employees paid a flat fee
“are considered to be compensated on a piece rate
basis and not on the basis of commissions.
Commissions, for purposes of Sec[tion] 7(i),
usually denotes a percentage of the amount of
monies paid out or received.” . . . Moreover,
instructional employees paid a flat fee per lesson

16
 or session taught appear likely to earn the same
amount each week, contrary to the requirements
of 29 C.F.R. § 779.416.

Id.

In the third letter, concerning automobile detailers and
painters, the Department relied on the same above-quoted
passage from the Wage and Hour Field Operations Handbook to
determine the definition of commission. Dep’t of Labor Op.
Ltr., 2006 WL 4512957 (June 29, 2006). The detailers and
painters in this letter were paid according to how many vehicles
they serviced each week. Each vehicle was assigned a
predetermined number of “flag hours” based on the employer’s
expectation of how long the job would take to complete. Each
detailer or painter was assigned a “flag rate” of pay based on his
or her experience and expertise. The detailers and painters were
paid by multiplying their flag rate by the flag hours for each
vehicle they serviced, regardless of how long it actually took
them to complete a job. Under this system, the employees were
encouraged to work rapidly and efficiently, and their pay varied
from week to week. In its letter, the Department concluded that
this payment arrangement was a commission because “the
amount of the payment appears to be related to the value of the
service performed.” Id.

D. Relevant Case Law

This Court has not weighed in on the question of what
qualifies as a commission under § 7(i). Decisions on the
meaning of “commission” under the retail commission

17
exception are, in fact, sparse. Klinedinst v. Swift Invs., Inc., 260
F.3d 1251, 1254 (11th Cir. 2001) (noting that the meaning of
commission “is an issue that finds little illumination from the
sparse case law and the vague references in statutes and
regulations.”). There do not appear to be decisions from other
circuits that have considered whether compensating call center
employees with flat rate payments qualifies as bona fide
commissions under the retail commission exception. Of the
limited case law on this issue, we find the following case most
instructive.

In Yi v. Sterling Collision Centers, 480 F.3d 505 (7th Cir.
2007), the defendants paid the plaintiff auto mechanics under
the following scheme:

[Defendant Sterling] calculates the number of
hours normally required to do a given type of
repair (these are called “booked hours”) and
multiplies that number by a dollar figure. The
product of this multiplication is the labor price of
the repair to the customer. Sterling adds material
costs to the labor price to come up with a final
price. A team of mechanics is then assigned to
the job. Each member of the team keeps track of
the hours he works on the job. When it’s
completed and the hours of the team members are
added up, Sterling determines each member’s
compensation by multiplying (1) the number of
booked hours for the job by (2) the ratio of the
team member’s actual hours worked to the total
hours worked by the team, and then by (3) a

18
 wage, per booked (not actually worked) hour,
based on the skill or quality of the individual team
member.

Id. at 509.

In considering whether that system of compensation was
a commission system within the meaning of the statute, Judge
Posner, writing for the Seventh Circuit, stated:

[t]he essence of a commission is that it bases
compensation on sales, for example a percentage
of the sales price, as when a real estate broker
receives as his compensation a percentage of the
price at which the property he brokers is sold.
Although his income is likely to be influenced by
the number of hours a week that he works, the
relation is unlikely to be a regular one. In one
week business may be slow; he may make no
sales and thus have no income for that week. The
next week business may pick up and by working
overtime that week he may be able to make up the
income he lost because of slack business the
previous week. Over a year his hours of work
may be similar to those of regular hourly
employees. So if he had to be paid overtime, his
annual income would be higher than theirs even
though he hadn’t worked more hours over the
course of the year than they had. We take this to
be the rationale for the commission exemption
from the FLSA’s overtime provision.

19
Id. at 508. The Seventh Circuit noted that a commission can be
based on the full price of the good or service sold or on only part
of the price, for example the price of the labor that goes into the
good or service. Id. at 509-10. The court in Yi concluded that
the compensation plan at issue was indeed a commission under
§ 7(i).

E. NutriSystem’s Compensation Plan and Section 7(i)

1. Skidmore Deference

The Department argues that we should afford Skidmore
deference to the consistent view expressed in its various opinion
letters that to qualify as a commission for purposes of § 7(i), the
payment must be “linked to the cost of the product sold or
services provided to the customer.” (Dep’t of Labor Br. at 21.)
Put differently, to qualify as a commission, an increase in the
cost to the consumer must result in a corresponding increase to
the amount of the payment made to the employee. (See id. at 30
(“Had, for instance, NutriSystem utilized fixed payments that
varied according to the differences in the cost to the customer,
this would have constituted a commission under section 7(i).”).)

Although the Department may have more “specialized
experience” than we do in the day-to-day administration of the
FLSA, we do not find that the opinion letters at issue here
provide sufficiently thorough reasoning, consistency, or factual
similarities to the instant case to warrant deference. See
Skidmore, 323 U.S. at 140.

20
 The work performed by the NutriSystem sales associates
is distinguishable from the alarm installer who was paid a flat
fee per installation. There is no indication in the Department’s
letter that the alarm installer paid a flat fee was responsible for
selling the alarm; rather, he or she was only “delivering” the
product to the consumer. Nothing in the letter suggests that
there was an opportunity for the installer to increase the sales of
his employer.

At argument, the Department pointed to the health club
employee letter as being factually closest and most instructive
to the instant case. That letter, however, did not formally
express an opinion on the compensation scheme because of the
lack of information provided by the employer. Rather, the letter
provided only broad, general guidance by citing to the
Department’s Wage and Hour Field Operations Handbook.
Dep’t of Labor Op. Ltr., 2005 WL 3308624 (Nov. 14, 2005).
This broad guidance, which was not applied to the facts in the
letter, is insufficiently “thorough” to persuade us that a
commission must vary based on the end cost to consumers.
Further, the letter’s guidance does not explicitly require that an
increase in the cost to the consumer result in an increase in the
commission paid to the employee – the requirement the
Department urges us to adopt. Rather, it states that “flat fees
paid without regard to the value of the service performed do not
represent commissions on goods or services for purposes of
Sec[tion] 7(i),” and “[c]ommissions, for purposes of Sec[tion]
7(i), usually denote[] a percentage of the amount of monies paid
out or received.” Id. (internal quotations and citations omitted)
(emphasis in original). This lack of a consistent definition of

21
commission further weighs against the persuasiveness of the
Department’s opinion letters. See Skidmore, 323 U.S. at 140.

Unlike the compensation plans of the opinion letters,
NutriSystem’s payments to employees are based on consumer
preference and the ability of the sales associate to persuade a
customer to purchase a meal plan. Unlike the alarm installer
who is paid a flat fee per installation, the number of calls the
sales associate makes plays no part in determining the number
of additional payments he receives. The number of calls only
increases an associate’s chances of making a sale and receiving
the additional payment. Rather, the external factors of sales
ability and customer preference, which are not present in the
Department’s opinion letters discussed supra, dictate whether
NutriSystem’s sales associates are paid the additional
compensation.

In sum, we do not find the Department’s factually
distinguishable opinion letters and broad general guidance
sufficiently thorough or consistent to warrant deference in this
case. See id.

2. Percentage of Cost to Consumer

Further, we decline to adopt a test that requires a
commission, under § 7(i), to be strictly based on a percentage of
the end cost to the consumer. While the various definitions
discussed supra suggest that a commission is typically
calculated as a percentage of sales price – for example a real
estate broker receives 10% of a house’s sale price or a paint
salesmen receives 20% of his sales – both the Department and

22
other courts have recognized that this strict percentage
relationship is not a requirement for a commission scheme under
§ 7(i). See Dep’t of Labor Op. Ltr., 2005 WL 3308624
(Nov. 14, 2005) (“Commissions, for purposes of Sec[tion] 7(i),
usually denotes a percentage.”) (emphasis added); Yi, 480 F.3d
at 508. Therefore, the fact that NutriSystem’s plan is not
calculated strictly as a percentage of sale price does not
disqualify it from being a commission under § 7(i).4

3. Proportionality and Sales

A number of factors persuade us that NutriSystem’s
compensation plan establishes a “bona fide commission rate”
and is therefore a “commission” under the FLSA. We conclude
that when the flat-rate payments made to an employee based on
that employee’s sales are proportionally related to the charges
passed on to the consumer, the payments can be considered a
bona fide commission rate for the purposes of § 7(i).

First, we agree with the District Court that the payments
made to NutriSystem’s sales associates are sufficiently

4
The Department’s own regulations provide guidance on
what is not a bona fide commission plan. 29 C.F.R.
§ 779.416(c). NutriSystem’s plan does not fall into either of the
examples given in that regulation, and neither Appellants nor the
Department argue that it does. NutriSystem’s employees’ pay
can vary greatly across pay periods and the plan is not based on
the sales NutriSystem expects to make as a whole, but rather is
tied precisely to the number of sales each sales associate closes.

23
proportional to the cost to the consumer to qualify as
commission under section 7(i). See, e.g., Yi, 480 F.3d at 508;
Dep’t of Labor Op. Ltr., 2006 WL 4512957 (June 29, 2006).
There is only a small difference between the absolute dollar
value of the three flat-rate fees paid to sales associates ($18.00,
$25.00, and $40.00). The variance in the flat-rate fee as a
percentage of the cost to the consumer, which ranges from 5%-
14%, is also relatively small. See Appendix I. These relatively
small differences support the proposition that proportionality to
the cost to the consumer exists in this case. The District Court
offered an example in defining proportionality, which we find
helpful: “proportionality would not exist if an employee were
paid the same dollar amount for selling a $10 ring as a
$1,000,000 ring.” This is plainly not the case here, as the
differences in the costs of the meal plans are relatively small,
with four of the five meal plans costing the same, $342.36. The
men’s plan is slightly more expensive, $371.50, because it
contains more food. Customers can receive a $50 discount on
all five products by selecting the auto-ship option.5

Second, it is persuasive that NutriSystem’s plan “bases
compensation on sales,” just as Judge Posner described in Yi.
480 F.3d at 510. Under the plan, a flat rate fee is not paid unless
a sales associate completes a sale. NutriSystem’s flat rate

5
There was discussion at argument dealing with the
boundaries of proportionality. We, like the District Court, need
not define the outer limits of proportionality here as we are
satisfied that it exists in this case.

24
payment is tied to both the time the sale is made and whether it
is based on an incoming or outgoing call, rather than being a
percentage of the cost to the consumer. The amount of the
payment is based on the value NutriSystem was receiving from
the sales associates’ work. Under this plan, NutriSystem creates
an incentive for sales associates to be actively making outgoing
calls and to work less desirable hours, thus allowing
NutriSystem to operate at peak efficiency around the clock. The
sales associates’ compensation is also “decoupled from actual
time worked,” a characteristic both the Seventh Circuit and the
Department identified as a hallmark of “how commissions
work.” Id. at 509; see Dep’t of Labor Op. Ltr., 2005 WL
3308624 (Nov. 14, 2005) (“The whole premise behind earning
a commission is that the amount of sales would increase the rate
of pay.”) (internal citation omitted).

Third, from a policy standpoint it is reasonable to permit
NutriSystem to offer different commissions depending on the
time of the sale and whether the sale was the result of an
incoming or outgoing call. This encourages sales staff to take
undesirable shifts and to work harder to close a sale on outgoing
calls. Additionally, NutriSystem offers various sales and
promotions, including the auto-ship program. Had NutriSystem
based commission purely as a percentage of the cost of the
goods to consumers, it would have created a disincentive for a
sales associate to encourage consumers to take advantage of the
discounts that result from the auto-ship method. For example,
had NutriSystem declared a 7% commission on all products
sold, a sales associate would earn a $26.01 commission on a
men’s plan under the regular shipping method but only a $22.04
commission under the auto-ship method. NutriSystem offers the

25
auto-ship method at a discount because the company believes in
the end, this shipping method will generate the company greater
revenue. A sales associate, however, would prefer to sell a
consumer a meal plan under the regular shipping method
because the associate receives a large commission.
NutriSystem’s plan eliminates this disincentive by providing
associates with a flat rate commission not directly tied to the end
cost to consumers.

Finally, NutriSystem’s plan does not offend the purposes
of the FLSA and the overtime provisions discussed supra in
Mechmet, 825 F.2d at 1175-76, and Yi, 480 F.3d at 510. First,
the Appellants’ income in the years they worked at NutriSystem
ranged from approximately $40,000 to over $80,000, and thus
they were not the lower-income type employees contemplated to
be protected by the overtime provisions. Second, NutriSystem
employees must achieve certain sales goals to work hours
beyond their scheduled eight-hour shifts. Forcing NutriSystem
to pay overtime is unlikely to induce the hiring of additional
sales associates because the only sales associates working an
excess of forty hours per week are the top sales associates.
Third, high-performing call center workers could work more
than forty hours a week, the health risks or accidents that can
occur due to fatigue from long hours are generally not present
for call center employees as compared to manual laborers, and
thus the overtime premium is not needed to compensate for an
increase in danger from working when tired.

26
 IV.

For the foregoing reasons, we will affirm the District
Court’s grant of summary judgment to NutriSystem and denial
of summary judgment to the Appellants.

27
Appendix I

28
Parker, etc. v. NutriSystem, Inc., No. 09-3545

COWEN, Circuit Judge, dissenting

Unlike the majority, I would afford Skidmore deference
to the Department’s view that in order to constitute a
commission for purposes of § 7(I), the amount of compensation
paid to the employee must be proportionally related to the
amount charged to the customer. Because NutriSystem failed to
demonstrate the requisite proportionality, its compensation plan
cannot be considered a bona fide commission plan under § 7(I).

As the majority recognizes, the Department has issued
several opinion letters concerning the scope of the retail
commission exemption. In the majority’s view, these opinion
letters fail to “provide sufficiently thorough reasoning,
consistency, or factual similarities to the instant case to warrant
deference.” Maj. Typescript Op. at 20. I disagree, as in my
view, the opinion letters clearly reflect the Department’s
consistent view that, in order to be considered a commission
under § 7(I), there must be a degree of proportionality between
the payment an employee receives and the costs passed down to
the customer.

For instance, in the April 3, 1996, letter concerning alarm
system installers, the Department explained that, if the installers
“were to be compensated on a percentage of the sales price of
the alarm systems they installed[, s]uch a method of payment
would constitute payment on a commission basis;” but if the
installers were “paid a flat fee per installation, [the Department]
would not consider such a payment to be a commission
payment.” Dep’t of Labor Op. Ltr., 1996 WL 1031770 (Apr. 3,
1996).

1
 Similarly, in its subsequent letter about health club
instructional employees, the Department made clear that, while
instructors who were paid a percentage of the club’s revenue per
lesson would qualify for the exemption, instructors paid a flat
fee per lesson would not because “[f]lat fees paid without regard
to the value of the service performed do not represent
‘commissions on goods or services’ for purposes of [§] 7(I).”
Dep’t of Labor Op. Ltr., 2005 WL 3308624 (Nov. 14, 2005)
(internal quotation marks and citations omitted). In that opinion
letter, the Department went on to state that, in general,
“employees paid a flat fee are considered to be compensated on
a piece rate basis and not on the basis of commissions.
Commissions, for purposes of [§] 7(I), usually denotes a
percentage of the amount of monies paid out or received.” Id.

In the third letter, the DOL determined that automobile
detailers and painters who were paid under the flag-rate method
were subject to the commission exemption because the flag
hours that the employer set for each job corresponded to the
labor hours ultimately charged to the customer. Dep’t of Labor
Op. Ltr., 2006 WL 4512957 (June 29, 2006).

Insofar as these opinion letters express the Department’s
consistent and reasonable position that § 7(I) requires a
proportional relationship between employee compensation and
customer costs, I would afford them a “measure of respect”

2
under Skidmore.1 See Fed. Express Corp. v. Holowecki, 552
U.S. 389, 399 (2008).

After declining to defer to the Department’s
interpretation of § 7(I), the majority nonetheless adopts a
definition that is consistent with the Department’s approach,
holding that “when the flat-rate payments made to an employee
based on that employee’s sales are proportionally related to the
charges passed on to the consumer, the payments can be
considered a bona fide commission rate for the purposes of §
7(I).” Maj. Typescript Op. at 23. The majority then concludes
that NutriSystem’s compensation plan meets this definition
because the payments made to its sales associates are
“sufficiently proportional” to the cost to the consumer. Id.
While I do not object to the majority’s contention that § 7(I)
requires a proportional relationship between employee
compensation and customer costs, I cannot agree that
NutriSystem has demonstrated such a proportional relationship
here.

It is undisputed that NutriSystem’s meal plans vary in
price depending on the type of meal plan the customer chooses

1
See also 29 C.F.R. § 779.413(a)(4) (describing a
“[s]traight commission” as “a flat percentage on each dollar of
sales [the employee] makes”); U.S. Dep’t of Labor, Glossary of
Current Industrial Relations & Wage Terms, Bulletin No. 1438,
at 15 (1965) (defining “commission earnings” as
“[c]ompensation to salespeople based on a predetermined
percentage of the value of sales”); U.S. Dept’ of Labor, Glossary
of Currently Used Wage Terms, Bulletin No. 983, at 4 (1950)
(defining “commission earnings” as “compensation to sales
personnel based on a percentage of value of sales”).

3
and the length of the customer’s commitment. It is likewise
undisputed that the flat-rate fee paid to a sales associate does not
vary depending on the type of plan the customer chooses or the
length of the customer’s commitment. NutriSystem clearly has
not demonstrated that the flat-rate fees are proportionally related
to the cost to the customer. While neither the plaintiffs nor the
Department suggests that a commission must be based on a
strict percentage of the end cost to the consumer, the flat-rate
payments in this case do not correspond at all with the end cost
to the consumer. Rather, the flat-rate payments are based on the
time the sale is made and whether it results from an incoming or
outgoing call. The fact that NutriSystem can perform math to
portray its flat-rate fees as percentages of customer costs does
not transform the fees into commissions.

Therefore I am unable to agree with the majority and
would reverse and remand for further proceedings.

4