On Wednesday, an ex-sales representative filed a putative class action lawsuit against HubSpot. According to the Boston Business Journal, the employee, Albert McCormack, is suing on the claim that the local inbound marketing company failed to pay him for overtime hours.
McCormack filed the suit in mid-November, after leaving the role in early May of this year. The plaintiff, who had been with HubSpot since September 2012, states in the suit that he regularly worked 60 hours per week at the company – well over 40 hours per week.
According to the allegations, McCormack – and other unnamed HubSpot business development representatives – earned $30,000 annually, plus commission.
The suit argues that the company’s management was aware McCormack and the other representatives were clocking the extra hours, but failed to pay them for the time.
Additionally, the suit noted that HubSpot changed its pay practice on April 1st of 2013 to include pay for overtime to sales representatives.
Though the case is but in its early stages, BostInno spoke to Katy Rand of Pierce Atwood LLP to get an expert opinion on some of the intricacies of the Fair Labor Standards Act in regard to young companies and overtime exemptions.
Under federal law, all employers are required to pay overtime – or time and a half of what they would pay during regular hours – to employees that are not exempt from the Act.
“Even startups have to comply, there’s no decision or choice made. All businesses are always subject to it,” Rand told BostInno.
The exemptions which Rand refers are a handful of classifications of relatively common jobs that, in essence, dictate whether employees receive salaries or minimum wage, and/or get paid overtime, depending on the content of the job.
“If an employee meets one of the exemptions, you have to pay them on a salary,” explained Rand, noting that business professionals, such as executives, as well as computer IT employees and creative professionals, among others, fall into this classification.
“Oftentimes, cases around exemptions deal with a situation in which an employer chooses to call someone a manager and pay them a salary and not overtime, but in fact what they’re doing all day is not exempt work...it’s line level work,” said Rand. “Companies will misclassify employees as exempt and will treat a whole category of employees as salaried.”
One exemption that likely applies to HubSpot’s situation is that of Outside Sales Employees. In this exemption, the employer can pay a salary – without overtime – to a salesperson whose primary duty is making sales and who is customarily and regularly engaged away from the place of work. There’s also a long list of other criteria that a salesperson must meet to become an exempt employee.
If a sales employee doesn’t satisfy the aforementioned requirements for an outside sales exemption, he or she may still qualify for a different exemption under the Act as long as all the criteria for that exemption are met.
In HubSpot's case, McCormack and other business development representatives did not meet the criteria of the outside sales exemption. Explained Rand in an email:
Assuming the allegations in it are accurate and complete (and, as an attorney who primarily defends employers, I can say it is not safe to assume that)...They performed sales work, but it allegedly was not primarily away from their employer’s place of business (which is broadly defined). Salespeople who work primarily at their employer’s place of business — as opposed to in the field — do not meet the requirements of the outside sales exemption...So, the suit alleges that these folks were not exempt, yet were treated as exempt and therefore not paid overtime. It looks like a classic misclassification case.
Assuming HubSpot started paying them overtime in April (and calculated it properly, paid it on all hours worked over 40, etc.) the plaintiffs are seeking unpaid overtime (plus penalties, etc.) from the time they started working until April. The statute of limitations for these types of claims is two to three years under federal law, so employees can sue for unpaid overtime, even if the employer has changed its practice and is now paying overtime.
The incentive for businesses – especially startups – to pay employees in salaries is clear. Young companies – even prosperous ones with 650 people and $100 million in equity funding, like HubSpot – need employees willing to burn the midnight oil to get things done.
“Startups have a huge incentive to make everyone salaried because they just don’t have money A, to pay them, and B, to eat the overtime...Employees are often so invested in companies, they agree to take the salary because they agree that they hope that they’ll cash in on stock options later,” mused Rand.
While the potential of dollar signs a few years down the road is nice, I imagine that most employees at such companies aren't in it for the cash. Rather, they're in it for the pursuit of a [hopefully] promising passion, not the paycheck.
Image via Shutterstock
