Labor Secretary Hilda Solis has expressed the Department of Labor’s (DOL) view that an opt-in class action suit under the Fair Labor Standards Act (FLSA) and an analogous state law class action can be pursued in the same lawsuit. In the amicus brief (pdf) filed in Parker v. NutriSystem Inc., (3d Cir, No. 09-3545) Solis argues in favor of allowing both state and federal wage and hour claims to proceed in one class action, and takes the position that flat-fee compensation payments that bear no relationship to the cost of the goods sold do not fall under the FLSA’s Section 7(i) retail or service sales exemption.

This case originated when plaintiff Adrian Parker brought a class action suit under the FLSA and under the Pennsylvania Minimum Wage Act (PMWA) alleging that he and current and former NutriSystem call center employees were denied overtime pay for hours worked in excess of 40 per week. Call center employees were paid either hourly or by the sale of weight-loss meal supplies. The U.S. District Court for the Eastern District of Pennsylvania rejected the overtime claim on the grounds that because the employees were paid commissions for every order they took, NutriSystem’s pay structure qualified for the “retail commission exception” in the FLSA. In addition, the court granted the company’s motion to dismiss the state law claim, reasoning that the opt-out mechanism for state law class actions is “inherently incompatible” with the opt-in scheme specified by Congress with respect to FLSA collective actions.

The appeal of this decision is now pending before the United States Court of Appeals for the Third Circuit. In support of the plaintiff, the DOL argues that there is a strong presumption by Congress in favor of having related federal and state law claims proceed together in one federal court lawsuit, and that nothing in the text or legislative history of the FLSA supports the district court’s finding of procedural incompatibility. The DOL also takes the position that straight flat-fee payments are analogous to piece-rate compensation, which is subject to overtime requirements. Therefore, the DOL argues, NutriSystem’s flat fees paid without regard to the value of the items sold do not represent “commissions on goods or services” for purposes of the FLSA’s retail commission exception.

If the Third Circuit ultimately agrees with the DOL, employers in this jurisdiction face the possibility of being collectively sued under both state and federal wage and hour law. In addition, employers in the sales or service industries would need to take a closer look at their pay structures in order to ensure that they are compliant with the FLSA.