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Groupon’s Trouble With FLSA

On the heels of G&A Partners’ latest webinar, “Understanding FLSA (Federal Labor Standards Act) and Employee Eligibility”, comes a real-world example of the damage misclassification can do to a company’s reputation and bottom line.


Groupon, the online daily deals site, is facing a class-action suit from 1000 former sales employees, alleging that they received no overtime pay from 2008-2011. In March of this year, executives were notified of the problem and promised the affected employees back pay in an effort to avoid a lawsuit. But after five months, employees have yet to see any of this compensation. Groupon also finally began paying overtime wages this year, but employees claimed it was at an “illegally low rate.” Ranita Dailey, a former Groupon employee, grew frustrated with the company’s apathetic attitude towards compliance and proceeded to file the class-action suit.

There is no explanation given in the suit as to why Groupon failed to adhere to FLSA regulations, but it is most likely due to executives misunderstanding federal overtime exemptions regarding commissioned employees. Often, employers mistakenly believe that employees who receive a salary/wage and a commission are exempt from receiving overtime. However, that is not the case. In reality, federal laws only exempt employees who make more than 1.5 times the minimum wage and who make more than half of their monthly income on commission.

News of the class-action suit was poorly timed for Groupon. The company is planning an IPO but recently postponed an investor road show, citing market volatility. The company has also come under recent scrutiny for its accounting practices and its heavy spending used to draw in new business. All of these elements could slow down if not derail the Groupon IPO.

As cited in the G&A Partners Webinar, “Understanding FLSA and Employee Eligibility”, 80% of employers are out of compliance with FLSA in some way. If you would like to learn more about FLSA and how it applies to your organization, check out the recording of our webinar here.


The Wall Street Journal

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