Rebischke v. Tile Shop, LLC

229 F.Supp.3d 840

David REBISCHKE, on behalf of himself and all others similarly situated, Plaintiffs,

v.TILE SHOP, LLC, The, Defendant.

Case No. 14–cv–624 (SRN/BRT)

United States District Court, D. Minnesota.

Signed January 25, 2017

Paul J. Lukas and Michele R. Fisher, Nichols Kaster, PLLP, 80 South 8th St., Ste. 4600, Minneapolis, MN 55402; J. Derek Braziel, Lee & Braziel, LLP, 1801 North Lamar St., Ste. 325, Dallas, TX 75202; Rowdy B. Meeks, Rowdy Meeks Legal Group LLC, 8201 Mission Rd., Ste. 250, Prairie Village, KS 66208, for Plaintiffs.

Joseph M. Sokolowski, Ashley R. Thronson, Pamela Abbate–Dattilo, and Timothy Billion, Fredrikson & Byron, P.A., 200 South 6th St., Ste. 4000, Minneapolis, MN 55402, for Defendant.

MEMORANDUM OPINION AND ORDER

SUSAN RICHARD NELSON, United States District Judge

This matter is before the Court on Defendant's Motion for Summary Judgment ("Mot. for Summ. J.") [Doc. No. 66]. For the reasons set forth below, the Motion is granted.

I. BACKGROUND

The material facts of this matter are undisputed. Instead, the parties dispute the significance of some facts and which facts are relevant. The Court notes these disputes where necessary.

A. The Tile Shop, Store Managers, and Their Compensation

Defendant The Tile Shop, LLC ("The Tile Shop") sells manufactured and natural stone tiles, settings, and related accessories and maintenance items. (Decl. of Leigh Behrman ("Behrman Decl.") at ¶ 2 [Doc. No. 71].) During the relevant period—between March of 2011 and March of 2014¹ —The Tile Shop experienced significant growth, expanding from 54 to 108 stores nationwide. (Id. at ¶ 3.) The number of Tile Shop employees more than doubled during this time, but "Human Resources and payroll administration functions did not grow commensurately." (Id. at ¶ 4.)

A Store Manager oversees each of The Tile Shop's retail locations. (Id. at ¶ 5.) Store Managers "regularly direct the work of all employees at the store they manager [sic], and they have authority to hire and fire employees." (Id. ) Compensation for Store Managers consists of four parts: (1) a fixed salary; (2) commissions; (3) spiffs; and (4) bonuses. (Id. at ¶ 6; Decl. of Carl Randazzo ("Randazzo Decl.") at ¶ 2 [Doc. No. 78].) Store Managers' fixed salaries range between $42,000 and $85,000—based on the store's sales for the prior year—and are paid out in fixed amounts each pay period. (Behrman Decl. at ¶ 6; see Randazzo Decl. at ¶ 2.) However, the incentive-based portion of Store Managers' compensation—bonuses, commissions, and spiffs—can vary widely from paycheck to paycheck. (Behrman Decl. at ¶ 6; see Randazzo Decl. at ¶ 2.) Bonuses are based on store performance and can be positive or "negative." (Behrman Decl. at ¶ 7; see Randazzo Decl. at ¶ 2.) A negative bonus occurs when a store fails to meet its budget or other performance goals. (Behrman Decl. at ¶ 7; see Randazzo Decl. at ¶ 2.)

Store Managers report to Regional Sales Managers ("Regional Managers") who each oversee 20–30 Store Managers. (Behrman Decl. at ¶ 5.) A single Regional Manager is responsible for calculating all Store Managers' bonuses, positive or negative, on a monthly basis and submitting that information "for review and approval" to the other Regional Managers. (Id. at ¶ 8.) However, The Tile Shop's centralized Human Resources Department "reviews [Store Managers' bonus] information and Human Resources—not the Regional Sales Managers—determines the amount of each Store Manager's compensation each pay period." (Id. ) Regional Managers have "no control or review" over payroll and "do not establish guidelines or policies for payroll administration." (Id. at ¶ 10.) They do not have the power to deduct negative bonuses from a Store Manager's salary. (Id. )

When a negative bonus is not offset by a Store Manager's commissions and spiffs, it is "flagged" by Human Resources "so that the negative bonus does not dip into the employee's salary." (Id. at ¶ 7.) Put another way, negative bonuses are offset against commissions and spiffs, but should "never" be offset against a Store Manager's fixed salary. (See id. ; Randazzo Decl. at ¶ 2.) The Tile Shop gave the following example of how deductions appeared on Store Managers' bi-weekly payroll statements:

Earnings

Regular	$3,400.00
Bonus	-$235.00
Commission	$335.00
Spiff	$2.50
Vacation	0
Gross Pay	$3,502.50

(Behrman Decl. at ¶ 9.)

In response to an order from the Court to supplement the record, (see Doc. No. 81), The Tile Shop conducted a payroll audit which showed that on at least twelve occasions during the relevant period, Store Managers' negative bonuses exceeded commissions and spiffs, but were not deducted from fixed salaries.² (Decl. of Marcy Rasmussen ("Rasmussen Decl.") [Doc. No. 87], Ex. A ("Supp. Payroll Audit") [Doc. No. 88].) The Tile Shop explained that the number of times negative bonuses were not taken from fixed salaries was actually higher because the audit did not account for instances where Human Resources adjusted negative bonuses so that they did not exceed commissions or spiffs before entering the data into the payroll system, or "backed out" a negative bonus before issuing the paycheck. (Rasmussen Decl. at ¶ 5.)

B. Plaintiffs, Their Claims, and the Improper Deductions

Plaintiff David Rebischke ("Rebischke") is a former Store Manager for The Tile Shop. (Compl. at ¶ 2 [Doc. No. 1].) On behalf of himself and all other Store Managers employed by The Tile Shop between March of 2011 and March of 2014 (collectively, "Plaintiffs"), Rebischke alleges that The Tile Shop violated the Fair Labor Standards Act ("FLSA") by not paying Plaintiffs for the overtime hours they worked. (Id. at ¶¶ 10, 36–37.) Specifically, Plaintiffs claim that they are nonexempt employees entitled to overtime under FLSA because The Tile Shop improperly deducted negative bonuses from their fixed salaries. (Seeid. at ¶¶ 19–20, 34–35.)

In August of 2013—before this lawsuit was brought—a Store Manager ("Krohn") sent The Tile Shop's Vice President for Human Resources and Compliance ("Behrman") an email showing that a negative bonus was deducted not just from his commissions and spiffs, but also his fixed salary. (Behrman Decl. at ¶ 13.) Krohn challenged this deduction. (Id. ) That same day, Behrman apologized and explained that the deduction from Krohn's salary was a mistake. (Id. at ¶ 14.) Krohn was reimbursed the full amount deducted from his fixed salary six days after he raised the issue. (Id. ) Behrman also informed Krohn that he had discovered a similar deduction from another Store Manager's fixed salary in an earlier pay period and had similarly corrected the error by reimbursing the improperly deducted amount. (Id. at ¶ 15.)

The Tile Shop contends that the next time the issue of improper salary deductions was brought to its attention was when this suit was filed. (Id. at ¶ 16.) Upon receiving the complaint, The Tile Shop conducted an audit of all Store Managers' payroll records for the preceding three years. (Id. ) "The audit spanned all 150 Store Managers, 78 payroll periods, and 4,737 checks issued to Store Managers totaling $21,243,784.68." (Id. ) The audit revealed that during the relevant time, there were twenty-two negative bonus deductions from the fixed salaries of sixteen Store Managers. (Seeid. ) Put another way, approximately 0.5% of payroll checks issued to Store Managers during that time contained improper salary deductions. These twenty-two deductions totaled $5,032.89. (Id. ) The Tile Shop promptly sent a letter to each Store Manager who experienced an improper salary deduction and reimbursed them the deducted amount. (Id. )

Plaintiffs agree that the twenty-two negative bonus deductions just described were taken from Store Managers' salaries during the relevant period. (See Pls.' Mem. in Opp. at 6–7 [Doc. No. 75].) However, they argue that "[t]his does not tell the whole story ...." (Id. ) Rather, they claim that a total of 109 improper deductions were taken from thirty-eight Store Managers' salaries. (Id. (citing Pl.'s Mem. in Opp., Ex. A ("Paycheck Deductions Spreadsheet") at 1–4 [Doc. No. 76–1] ).) To reach this number, Plaintiffs contend that commissions and spiffs are part of Store Managers' fixed salaries, and thus deductions from these amounts were also improper because The Tile Shop's Commissions and Spiffs Policy (the "Commissions and Spiffs Policy") did not explicitly allow for them. (Id. ) The Commissions and Spiffs Policy is silent on the subject of deductions. (See Pl.'s Mem. in Opp., Ex. G ("Commissions and Spiffs Policy") [Doc. No. 76–1].)

1. The Tile Shop's Alleged Policy or Practice of Improper Deductions

Plaintiffs allege that The Tile Shop has a long-standing policy or practice of making improper salary deductions. (See Pls.' Mem. in Opp. at 12–18.) They highlight four pieces of evidence they believe support this contention. First, Plaintiffs present an email sent by Regional Manager Dan Granados ("Granados") on July 31, 2013 to Store Managers in his region. (Pls.' Mem. in Opp., Ex. F ("Granados Email") [Doc. No. 76–1].) In the email, Granados notes that some stores are not on track to make their sales numbers. (Granados Email at 4896.³ ) He goes on to make the following threat:

If you are not going to hit plan, I'm going to hit your bonus' [sic] in relation to the % short you finish........

Many of you know in your hearts that I take care of you every month, no matter how bad you finish in some cases......

If I believe you could have done more than what you finish with, I "WILL" hit you with everything....

If that wipes out your bonus.. so be it....If it takes from your salary....

So be it.....................

I have never been so serious folks............

Look for Yourselves ......⁴

(Id. (all emphasis original).) Plaintiffs allege that this threat comports with threats they heard or received from other Regional Managers and The Tile Shop's Vice President ("VP") of Sales⁵ regarding salary deductions based on poor performance. (See Pls.' Mem. in Opp.,...