What’s On Their Minds: Are Outside Salespeople Employees Subject to 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, 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.

On September 2, 2015, the Supreme Court of Ohio heard oral argument in 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, 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.  The key provision was a requirement that every employer pay eligible 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. 4114.14 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.

Read the oral argument preview here.

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 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.”)

At Oral Argument

Arguing Counsel

John P. Susany, Stark & Knoll Co., L.P.A., Akron, for Appellants Robert and Joan Minchak

Andrew Biller, Markovitz Stock and DeMarco, LLC, Columbus, for Appellees John Haight and Christopher Pence.

Minchaks’ Argument

R.C. 4111.14(B)(1) is constitutional and is easily harmonized with Section 34a in how they each define employees for purposes of minimum wage laws. While it is the position of the appellants that Section 34a is not self-executing, it really doesn’t matter because 34a provides for implementing legislation, and by its own terms R.C. 4111.14 was that implementing legislation. The seminal issue is really whether or not R.C. 4111.14 is constitutional; if it is constitutional, as appellants assert, the statute exists in harmony with 34a and the inquiry ends there.

For 70 years prior to the 34a amendment, Ohio had always incorporated and followed the FLSA, and always had the exemptions contained in the FLSA, and it relied on the jurisprudence of the FLSA, so to divorce the two at this point would be unnatural. Section 34a and R.C. 4111.14(B) both state that the term “employee” has the same meanings as under the FLSA. The term “employee” in the statute does not conflict with or restrict the meaning of the term “employee” in section 34a. The intent of both is to apply the FLSA to Ohio. Section 34a contains only one exemption, “employees of a solely family owned and operated business who are family members of an owner.” This was not included in the FLSA, and so is separately listed. The exemptions that are included in the FLSA are incorporated by reference, which include exemptions for outside salespeople.

While section 203 of the FLSA defines an employee as any individual employed by an employer, section 213 excludes outside salespeople from minimum wage, and they are excluded from Section 34a and R.C. 4111.14 also.

Each year the Ohio Department of Commerce, the agency charged with overseeing minimum wage, identifies what the minimum wage will be and also identifies what the exemptions from that law are. According to the Department of Commerce, outside salespeople are exempt and have been even since the passage of 34a. The Minchaks relied on that determination, and properly did not pay minimum wage to its outside salespeople.

Haight’s and Pence’s Argument

The only thing section 34a is borrowing from the FLSA is the meaning of certain terms. The FLSA says “employee” means any individual employed by an employer. Section 34a only borrows the meaning of “employee” from the FLSA—it doesn’t borrow “employee entitled to minimum wage” from the FLSA.

Section 34a contains all of its requirements within it- it contains its own exemptions, including some, but not all the FLSA exemptions, and states no other exemptions shall apply. 34a does not include the FLSA’s exemption for outside salespeople. Section34a sets forth five exemptions from minimum wage coverage, although they are still employees. The only type of employee not actually an employee under 34a are casual workers employed at the residence of the employer—that is an exception to the meaning of employee.

Section 34a is self-executing. It sets forth who has the rights, what those rights are, and how the rights can be enforced. It also states laws may be passed, and then only for certain purposes, so it anticipates that it is self-executing and laws need not be passed. Here the terms in the Constitution are defined, not just in the FLSA, but also through all the FLSA case law which has defined these terms. Over the course of 60-70 years, if these terms ever were ambiguous, they aren’t now. There is also a presumption that modern constitutional provisions are self executing

As for the Department of Commerce poster, it provides inaccurate and inconsistent guidance, and no reasonable employer could rely on these posters to provide legal advice as to their obligations under the law.

Appellants and their amici ignore the plain language of 34a primarily in favor of policy arguments, such as record keeping will be burdensome—those arguments have already been made to the voters, who rejected them. The remedy to fix this is to go back to the legislature or the voters and amend the Constitution.

The plain language of 34a must control here. Outside salespeople are still employees, entitled to the minimum wage.

What Was On Their Minds

The Definition and Meaning of Employee

Doesn’t the FLSA define “employee” and in a very broad way, asked Justice French?

Who would not be an employee, asked Justice Pfeifer? Would all the members of the Supreme Court of Ohio be included?

The FLSA

Are outside sales employees excluded from the minimum wage under the FLSA, asked Justice Lanzinger?

What happens to section 34a if Congress amends the FLSA, asked Justice Pfeifer?

If Congress were to change the definitions, would Ohio be bound by those, asked Chief Justice O’Connor?

Is there any reliance on the federal regulations, or just the language in the statute, asked Justice French? Is there any reason to look farther than the statute?

Section 34a

What do we do with the specific phrase in second paragraph of 34a-“only exemptions set forth in this section shall apply to this section,” asked Justice French? Are the terms of the Constitution clear enough to make them self-executing? If we have to look at common law and cases interpreting the meaning of those terms, how is that self-executing? Wasn’t the purpose of adopting this amendment just to raise the minimum wage? How would a rule of strict construction apply here, with a constitutional amendment?

R.C. 4111. 14(B)

The legislature cannot pass anything in conflict with Section 34a, asked Justice French?

Voter Information When Constitutional Amendment was Passed

What information was available at the time the issue was on the ballot, asked Justice French? Was there anything relating to who might be included? Were the position papers that were put out at the time this was on the ballot misleading?

Remedy

What is the court being asked to do here, asked Justice O’Donnell? Is there anything to remand?

How it Looks from the Bleachers

To Professor Bettman

Bleary-eyed. Other than Justice French, who seems very comfortable with issues of statutory construction and Constitutional interpretation, and who asked almost all the questions, the rest of the justices seemed to struggle even to put a question together. I sympathize. While I understand the big picture debate between the parties, I got lost in the weeds. I found the briefs in the case more helpful than the arguments.

I’m calling this one for the Minchaks, because I just don’t believe the court is going to accept the salesmen’s broad definition of employees who are subject to the minimum wage requirements. I’m not sure how the court is going to get there, although big policy reasons are certainly lurking in the background. One of Justice O’Donnell’s questions may be key—in construing the constitutionality of a statute, a court is supposed to try and harmonize the two, not focus on the conflict as a starting point. The majority of the court of appeals didn’t do that. I think the Supreme Court will find the statute and Section 34a are not in conflict, and therefore does not need to answer the question of whether Section 34a is self-executing.

While we agree about the probable outcome, my student contributor, Connie Kremer, gives a far better analysis here than I did. Please read on.

To Student Contributor Connie Kremer

This looks like a win for the Minchaks. Justice French wasted no time jumping into the heart of the issue, directing John Susany, attorney for the Minchaks, to R.C. 4111.14(B)(1) as it compares to Article II, Section 34a of the Ohio Constitution. Justice French asked whether or not § 34a is self-executing. I think Mr. Susany’s response to that question lays the groundwork for the court’s decision.

Mr. Susany argued, on behalf of the Minchaks, that § 34a is not self-executing. He directs the court to § 34a’s express reliance on the FLSA for the meanings of the terms, “employers,” “employees,” and “independent contractors.” As in the brief filed for this action, Mr. Susany seeks to clarify the differences between a word’s meaning and its definition. The FLSA defines “employee” broadly (any individual employed by an employer), but narrows its meaning through the use of exemptions and exceptions to that definition. The argument that § 34a’s intent was to incorporate the terms’ broader meanings is supported by the fact that the FLSA does not expressly define “independent contractor.” It is implausible that § 34a would refer to the narrow definitions of the FLSA when one of the terms has no express definition.

Mr. Biller countered this argument by noting that the FLSA states that “employee means any individual employed by an employer.” He also states that an amendment to the Constitution can be self-executing but still draw on outside sources for definitions of its terms. A constitutional amendment is self-executing if it simply establishes the rights and liabilities imposed by the amendment. Section 34a indicates that legislation may be passed, but does not require legislation to take effect.

Mr. Biller made some good arguments, but I think the Court will ultimately find Mr. Susany’s to be more compelling. Mr. Susany argued that it ultimately doesn’t matter whether § 34a is self-executing, because—as long as R.C. 4111.14(B)(1) is not in conflict with 34a—it is not unconstitutional. So, the question turns to whether or not R.C. 4111.14(B)(1) is in conflict with 34a.

I found it interesting that Mr. Biller did not address, nor did the Justices push, on Mr. Susany’s argument that Constitutional interpretation begins with trying to harmonize legislation with the Constitution. Mr. Susany established the standard for deeming legislation unconstitutional beyond a reasonable doubt. I think the court can rely on this process for constitutional interpretation and this standard to sway any continued ambiguity in favor of deeming R.C. 4111.14(B)(1) constitutional and in harmony with § 34a.

Mr. Biller reminded the court of its consistent stance not to “substitute its policy judgment in place of that of Ohio’s voters and the legislature.” Still, the consideration of the fallout has to rest in the back of the minds of the Justices who may be otherwise inclined to side with Mr. Biller. As Mr. Susany stated, a finding for Haight and Pence would likely result in an “avalanche of lawsuits and class-action lawsuits.”

This case leaves me with unanswered questions. Mr. Biller asserted that the poster distributed by the Ohio Department of Commerce contains many inaccuracies and would not be relied upon by a reasonable employer. After going back and reviewing the poster, I think that may be an overstatement. While attorneys may be inclined to further investigate the basis for the poster, I don’t know that a reasonable employer would question its validity, accuracy, or completeness. I was surprised that Mr. Susany did not use any portion of his rebuttal to address this.

Furthermore, Mr. Biller’s reference to a reasonable employer left me with a question that, while likely only ancillary to the case at hand, I would have liked answered. He argued that a reasonable employer would not have relied on the poster by the Department of Commerce, and said that a finding in the Minchaks’ favor would punish law abiding employers. I want to know how many employers in Ohio have interpreted § 34a in the same manner as Mr. Biller, as requiring protections for outside salespeople. I don’t think that question bears much weight on this issue, but I find it lingering in my mind. Were the Minchaks outliers to the norm, or were they the norm?

Given that constitutional interpretation favors findings that legislation is constitutional, the potential fall-out of an alternative ruling, and § 34a’s reliance on the FLSA, I think the court will find that R.C. 4111.14(B)(1) exists in harmony with § 34a, and that outside salespeople are excluded from the minimum wage protections of § 34a.

 

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