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The United States Department of Labor Issues New Opinion Letter on Third Party Payments to Employees

On June 25, 2020, the U.S. Department of Labor (“DOL”) issued a new opinion letter regarding compensation of employees by third parties. The opinion letter was written in response to a request from automobile dealerships employing sales consultants who occasionally received payments directly from automotive manufacturers pursuant to incentive programs for selling certain cars or meeting sales objectives. The dealerships wanted to know whether payment received by sales consultants from automotive manufacturers may count toward the dealership’s minimum wage obligations for the sales consultants. The DOL indicated that, under the facts presented, the payment from car manufacturers to sales consultants would likely count toward minimum wage obligations of the car dealership.

Factual Background

The sales consultants at issue were employed by several car dealerships. The sales consultants at times received payment directly from car manufacturers pursuant to incentive programs for meeting certain sales objectives. The incentive programs were established by the car manufacturers, but the car dealerships communicated the incentive program terms to the sales consultants. The sales consultants received incentive payments from the car manufacturers only for work performed on behalf of the car dealership employing them. The dealerships considered these incentive payments as wages paid to the sales consultants. Further, the dealerships learned the incentive program terms, communicated these terms to the sales consultants, and worked with incentive program sponsors to determine when payments should be made.

Analysis

The DOL began its analysis by noting an employer’s obligation to pay covered employees a minimum hourly wage and emphasizing that the FLSA’s definition of “wage” is fairly open-ended insofar as it includes certain non-cash items and, under certain circumstances, a limited amount of tips received by tipped employees. In other words, the DOL reasoned that “[t]his definition does not serve to limit other payments under the FLSA” from being considered “wages.”

With this in mind, the DOL cited to legal precedent indicating that a third-party payment may constitute a “wage” under the FLSA. However, the DOL cautioned that not all third party payments will qualify as a “wage.” The DOL reasoned that determining whether a payment from a third party constitutes wages will depend upon the terms of the employment agreement (express or implied) and compliance with the other requirements of the FLSA. For example, the DOL noted that “[a]n agreement to include third-party payments as part of the employee’s compensation may be implied based on the particular circumstances, including the understanding and practices of the parties.” In support of these principles, the DOL cites to a recent Third Circuit decision—Dept. of Labor v. Bristol Excavating, Inc., 935 F.3d 122, 133 (3d Cir. 2019)—wherein the Court emphasized the following as relevant considerations:

  1. whether the specific requirements for receiving the payment are known by the employees in advance of their performing the relevant work;
  1. whether the payment is for a reasonably specific amount; and
  1. whether the employer’s facilitation of the payment is more than serving as a pass-through vehicle (e.g., as with processing tips).

Turning to the facts presented, the DOL noted that, while the parties did not indicate whether there were any employment agreements that explicitly address whether these payments are considered wages, “the facts demonstrate that the payments are, at least implicitly, part of the employment agreement.” The DOL identified the following “facts” as leading to this conclusion: (1) the employer “embraced” the payments as wages, as opposed to disputing them; (2) employees knew of the specific payment terms; and (3) the car dealerships played more than a “pass-through vehicle” role for the payments by learning and communicating the terms to employees and “work[ing] with incentive program sponsors to determine when payments should be made.”

Takeaway

The determination as to whether or not third-party payments count as “wages” presents a fact-intensive question dependent upon many circumstances, including but not limited to the terms of the employment agreement between the parties and the understanding and practices of the parties. In general, however, it seems that the more involved an employer is in the handling of third-party payments, the more likely it is that the third-party payments could be considered wages paid by the employer.

If you have an issue or questions concerning whether third-party payments should be considered wages, please contact the Law Offices of Kevin J. Dolley, LLC by phone at (314) 645-4100 or email at kevin@dolleylaw.com.

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The Law Offices of Kevin J. Dolley represents clients in labor law, employment law and employment discrimination matters throughout the State of Missouri, including St. Louis, St. Louis County, St. Charles County, Boone County, Jefferson County, Lincoln County, Jackson County, Phelps County, Franklin County, Ste. Genevieve, St. Clair and the Cities of St. Louis, Kansas City, St. Charles, O'Fallon, Lake St. Louis, Hillsboro, Troy, Clayton, Rolla, Columbia, Jefferson City, Kirksville, Farmington, Cuba, Augusta, Union, Maryland Heights, Cape Girardeau and Springfield.
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