Oral Argument Preview: Are Outside Salespeople Exempted Employees Under Ohio’s Minimum Wage Laws? John Haight et al. v. Cheap Escape Company et al.

Update: On March 17, 2016, the Supreme Court of Ohio handed down a merit decision in Haight v. Minchak, Slip Opinion No. 2016-Ohio-1053. In a 5-2 opinion authored by Justice Lanzinger, in which Justice O’Donnell concurred in the syllabus and judgment only, the court held that the meaning of the term “employee” under R.C. 4111.14(B)(1) is constitutionally valid because it does not clearly conflict with or restrict the meaning of that same term under Article II, Section 34a of the Ohio Constitution. Justice O’Neill wrote a dissent, joined by Justice Pfeifer.

Read the analysis of the oral argument here.

On September 2, 2015, the Supreme Court of Ohio will hear oral argument in the case of John Haight et al. v. Cheap Escape Company et al., 2014-1241. At issue in this case is whether or not an outside salesperson is an employee subject to the minimum wage protections of Article II, Section 34a of the Ohio Constitution. Underlying this question is whether the legislature, particularly in the enactment of R.C. 4111.14, imposed requirements or defined terms that conflict with Section 34a.

Case Background

In November of 2006, Ohio voters approved the Ohio Fair Minimum Wage Amendment which became Article II Section 34a of the Ohio Constitution.  A key provision was a requirement that every employer pay employees a minimum wage, adjusted annually pursuant to a formula tied to the consumer price index.  A short time later, the legislature enacted R.C. 4111.14 to implement that provision.

Defendants-Appellants Robert and Joan Minchak owned Cheap Escape Company, a company that published a coupon book and operated an electronic coupon website for consumers. Plaintiffs-Appellees John Haight and Christopher Pence worked for Cheap Escape as sales representatives selling advertising space, and were paid either commissions plus a draw (an additional $100-$200 per week), or commissions without a draw. It is undisputed that Haight and Pence were not paid minimum wage. In dispute is whether Cheap Escape was obligated to pay minimum wage to its outside salespeople.

Haight and Pence sued Cheap Escape and the Minchaks personally, to recover unpaid minimum wages. Cheap Escape went bankrupt during the proceedings of this case. The trial court found that Haight and Pence were not employees as defined by Ohio’s minimum wage laws. Ohio defers to the Fair Labor Standards Act (FLSA) to define “employee,” and the FLSA exempts outside salespeople from its minimum wage requirements.

The Second District Court of Appeals reversed in a split decision authored by Judge Jeffrey Froelich and joined by Judge Mike Fain, finding that R.C. 4111.14(B)(1) impermissibly modifies Section 34a by defining “employee” in R.C. 4111.14 differently and more narrowly than that term is defined in Section 34a and the FLSA. In dissent, Judge Jeffrey Welbaum believes R.C. 4111.14(B) does not conflict with Article I, Section 34a.

Key Precedent

29 U.S.C. 203(e) (Fair Labor Standards Act defines employee as meaning any individual employed by an employer.)

29 U.S.C. 213(a)(1) (Fair Labor Standards Act does not apply minimum wage requirements to “any employee employed…in the capacity of outside salesman.”)

Article II, Section 34a of the Ohio Constitution (Establishes Ohio minimum wage requirements and defers to the Fair Labor Standards Act to define employer and employee.)

R.C. 4111.14(B)(1) (In its implementation of constitutional minimum wage authority, section 4111.14 defines employee as an individual “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.”)

DiCenzo v. A-Best Prods. Co., Inc., 120 Ohio St.3d 149, 2008-Ohio-5327 (“An Ohio court has discretion to apply its decision only prospectively after weighing the following considerations: (1) whether the decision establishes a new principle of law that was not foreshadowed in prior decisions, (2) whether retroactive application of the decision promotes or retards the purpose behind the rule defined in the decision, and (3) whether retroactive application of the decision causes an inequitable result.”)

The Minchaks’ Argument

The Minchaks argue that outside salespeople and others who receive commissions are not entitled to minimum wages, and that specifically, Haight and Pence were paid all commissions due them, and are not entitled to minimum wage on top of that.  The only way Haight and Pence can prevail is to show that R.C. 4114.14 conflicts with Article II, Section 34a of the Ohio Constitution.  They do not conflict, but rather exist in harmony.

The FLSA was enacted before Ohio enacted its current wage and hour laws.  Under Article II Section 34a of the Ohio Constitution, “employee” is to have the same meaning as under FSLA. The statute says the same thing.

Further, the legislative intent in enacting R.C. 4111.14 was to allow “certain employees to receive minimum wage, while exempting others in the same manner as the FLSA.” As support for this intent, the Minchaks direct the Court to a poster produced by the Ohio Department of Commerce which indicates that “an outside salesman compensated by commissions” is exempt from minimum wage requirements.

The Minchaks additionally try to distinguish between the “definition” of employee and the “meaning” of employee as incorporated from the FLSA by the state of Ohio.  They assert that “[a] term’s ‘meaning’ is broader than its ‘definition,’” and that the FLSA “uses several sections to determine the meaning of an employee entitled to minimum wage: strict definitions, exceptions, and exemptions to the general definition.”

The Minchaks disagree with Haight’s and Pence’s argument that—strictly speaking—the FLSA’s definition of employee is any individual employed by an employer. Rather, they focus on the explicit exemption of “outside salesman” from the wage and hour protections of the FLSA. In doing so, they seek to extend the exemptions of the FLSA to the “meaning” of the term employee. Pence and Haight have cherry-picked only one piece of the FSLA to try and expand the types of employees entitled to the minimum wage.

Furthermore, the Minchaks argue that the only way that the appellees can be successful in this case is if the court opts to “change Ohio’s wage and hour law to extend minimum wages to traditionally exempt employees, including outside sales people who also receive commission, thereby declaring R.C. 4111.14 unconstitutional.” They go on to assert that “because 4111.14 exists in harmony with Article II, Section 34a, Appellees cannot meet their burden [of demonstrating that 4111.14 is unconstitutional].”

Finally, citing to DiCenzo v. A-Best Products Co., the Minchaks argue that any finding that salespeople are covered by Ohio’s minimum wage laws should be applied only prospectively rather than retroactively.

In summary, the Minchaks argue that the definitions and the exemptions must be read together to create the FLSA’s meaning of the term employee. That combined meaning, excluding outside salespeople, is what was intended to be incorporated by the Ohio legislature.

Haight’s and  Pence’s Argument

Haight and Pence argue that section 34a grants minimum wage protection to employees, and “employee” has the same meaning under that section of the Ohio Constitution as under the FSLA. Under the FSLA, “employee” means any individual employed by an employer, which would include them.  They observe that section 34a expressly exempts certain categories of employees from its coverage. While the FSLA exemptions include outside salespersons, the Section 34a exemptions do not, which indicates inclusion of such persons.  But R.C. 4114.14(B) excludes from the meaning of “employee” anyone exempt from the FSLA minimum wage requirements, thus ignoring the specific list of exemptions in Section 34a and incorporating all the FSLA exemptions. So Haight and Pence are included under the Ohio Constitution, but excluded under the statute. Section 34a is self-executing, and disallows any exemption not set forth in that section, or any law restricting any of its provisions.

Given the express language of section 34a of the Ohio Constitution, Haight and Pence argue that R.C. 4111.14(B)(1) is in clear conflict with the Ohio Constitution in its exemption of outside salespeople, and thus is unenforceable.

Haight and Pence also argue that if the court rules in its favor, the holding should be applied retroactively to give effect to the constitutional amendment the voters approved eight years ago.

Haight’s and Pence’s arguments can be summarized as follows: (1) the language of section 34a of the Ohio Constitution controls the definition of employee, (2) section 34a incorporates the definition of employee from the FLSA but does not incorporate every FLSA exemption, (3) there is no express exemption of salespeople in section 34a—therefore, they are not exempt, and (4) R.C. 4111.14(B)(1) improperly created an exemption for salespeople.

Minchaks’ Proposed Proposition of Law No. 1

The meaning of the term “employee” under R.C. 4111.14(B)(1) is constitutionally valid because it does not clearly conflict with or restrict the meaning of that same term under Article II, Section 34a of the Ohio Constitution.

Minchaks’ Proposed Proposition of Law No. 2

If the statutory meaning of “employee” under R.C. 4111.14(B)(1) is unconstitutional and invalid, that conclusion and ruling should apply prospectively only under the three-part test propounded in DiCenzo v. A-Best Products Co.

Haight’s and Pence’s Proposed Counter-Proposition of Law No. 1

Article II, Section 34a of the Ohio Constitution is a self-executing constitutional provision and, as such, the definition of “employee” under §34a controls actions under that section instead of the narrower definition of “employee” in R.C. 4111.14(B)(1).

Haight’s and Pence’s Proposed Counter-Proposition of Law No.2

R.C. 4111.14(B)(1) is unconstitutional because the legislature exceeded its authority to implement Article II, Section 34a of the Ohio Constitution when it defined “employee” differently, and more narrowly, than the term is defined in §34a or in the Fair Labor Standards Act.

Haight’s and Pence’s Proposed Counter-Proposition of Law No. 3

This case does not present the extraordinary circumstances required to apply the decision of the court of appeals prospectively only, and, as a result, the general rule of retroactive application controls.

Amici In Support of Minchaks

Amici, Ohio Council of Retail Merchants, Ohio Chamber of Commerce, Ohio Chapter of the National Federation of Independent Business, Ohio Farm Bureau Federation, and Ohio Management Lawyers Association, filed jointly to assert that upholding the finding below would be an “astonishing expansion of the regulatory burden on employers.” Amici argue that failing to reverse the holding below would be contrary to the Ohio Constitution, including but not limited to, the minimum wage amendment, contrary to the guidance of administrative agencies, and contrary to the settled expectations of Ohio’s employers. Amici point to the expansive effects of the court of appeals’ interpretation in that it would lead to a “devastating restructuring of Ohio wage and hour law and the cost would be destructive to the Ohio economy,” would create substantial litigation, and would mandate the termination of minimum wage exemptions for many previously exempt categories. As such, amici advocate for a reversal of the court of appeals opinion.

Amici in Support of Haight and Pence

Amicus, the Ohio Association for Justice, (OAJ) looks to the “important implications” this decision has on Ohio workers. It observes that the Ohio Constitution, Article II, Section 34a adopted certain provisions of the FLSA, not including all of its exemptions. OAJ cites for support the specific inclusion of some exemptions as support for its claim that others (including salespeople) were intentionally and specifically excluded (evaluating the exemptions under the “legal maxim of expressio unius est exclusio alterius (“the inclusion of one thing implies the exclusion of all others”)). OAJ focuses on its plain reading of the statute in urging the Court to overturn R.C. 4111.14 as unconstitutional.

Amicus, the Ohio Employment Lawyers’ Association, asserts an interest in protecting minimum wage rights of Ohio employees. Amicus emphasizes that any legislation that contradicts or impedes Ohio Constitution, Article II, Section 34a is unconstitutional. Amicus follows to say that R.C. 4111.14 is therefore unconstitutional. Amicus also claims that employers were put on notice by the OSBA Labor and Employment Law Section to proceed with caution when relying on exemptions of outside salespeople (among other categories).

Student Contributor: Connie Kremer

 

This entry was posted in Labor and Employment Law, Ohio Supreme Court Watch, Oral Argument Preview, Student Contributors and tagged , , . Bookmark the permalink.