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Sill v. Avsx Technologies, LLC

United States District Court, D. South Carolina, Columbia Division

March 17, 2017

BRYON SILL and DANIEL YARBOROUGH, Plaintiffs,
v.
AVSX TECHNOLOGIES, LLC and BOBBY JOHNSON, Defendants.

          ORDER AND OPINION

          Hon. Margaret B. Seymour, Senior United States District Court Judge

         On December 23, 2015, Plaintiffs Bryon Sill and Daniel Yarborough (“Plaintiffs”) sued Defendant AVSX Technologies, LLC (“AVSX”) and Bobby Johnson (“Defendants”) for violations of South Carolina Wage Payment Schedule, South Carolina Code Annotated §§ 41-10-50 et seq., and Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201 et seq. ECF No. 1-1 ¶¶ 17-28. Plaintiffs claim that they are entitled to unlawfully withheld “holdbacks” and “overrides” under the South Carolina Wage Payment Schedule. ECF No. 1-1 ¶¶ 17-23. Plaintiffs' second claim is that they were unlawfully characterized as independent contractors rather than statutory employees pursuant to the FLSA. Id. at ¶¶ 24-28. Plaintiffs' FLSA claims assert that they were damaged by failure to provide benefits and increased taxes. Id.

         Defendants removed to federal court on February 24, 2016, under 28 U.S.C. § 1441. ECF No. 1 at 1. Defendants moved for summary judgment on October 7, 2016. ECF No. 16. Plaintiffs responded on November 18, 2016. ECF No. 24. Defendants replied on December 1, 2016. ECF No. 27. Defendant AVSX filed a motion in limine on December 7, 2016. ECF No. 28. Plaintiffs filed a motion in limine on December 7, 2016. ECF No. 29. With the consent of Plaintiffs, on January 19, 2017, the court granted Defendants' motion for summary judgment on the FLSA claims. Further, Plaintiff's consented to dismissing the claims against Defendant Johnson.

         I. FACTUAL BACKGROUND

         Defendant AVSX “is engaged in the business of selling, installing, and servicing home security systems, ” which are then monitored by another company, Vector Security, Inc. (“Vector”). ECF No. 16-1 at 3. Plaintiffs were part of a group of individuals employed by Defendant AVSX to sell the home security systems. Id. Another group of individuals install and service the home security system. Id. Plaintiffs worked at a competitor of Defendant AVSX, Palmetto Alarm, but moved to Defendant AVSX with one of the owners of Palmetto Alarm, Jamie Wilson (“Wilson”), in April 2011. Id. at 3. The sales team is structured like a triangle, Wilson is at the top of the triangle and receives commissions for all of the sales made; next are Plaintiffs, who receive commissions for all of the salespeople below them; and so on.

         From August 2012 through May 2014, Plaintiffs were employed under an independent contractor contract. Plaintiffs' August 2012 employment contracts “acknowledg[e] that they were independent contractors rather than employees.” ECF Nos. 16-5 (Plaintiff Yarborough), 16-6 (Plaintiff Sill). Further, Plaintiffs' employment agreement states that “[Plaintiff] agrees and understands that he/she is an authorized agent of [Defendant AVSX], but not an employee for Federal and State Income Tax purposes . . . . [Plaintiff] is considered an Independent Contractor . . . .” ECF Nos. 16-5 at 2, 16-6 at 2. From May 2014 through December 2014, Defendant AVSX employed Plaintiffs under a contract stating that they were W-2 employees. ECF Nos. 16-7 (Plaintiff Yarborough), 16-8 (Plaintiff Sill). The main differences in the terms of the April 2011 signed contract and the May 2014 signed contract are a two-page addendum in the May 2014 contract explaining the override policy and the May 2014 contract identifying Plaintiffs as “employee[s]” rather than “affiliate[s].” See id.

         Plaintiffs were paid on commission for the number of home security systems that they sold, regardless of classification as employee or affiliate. Customer would “make an initial payment which covered the cost of the equipment and installation as well as Plaintiffs' commission and agreed to make monthly payments thereafter to compensate Defendant [AVSX] for providing ongoing security services.” ECF No. 24 at 1. Vector would retain ten percent of the initial payment in case of “chargebacks.” A “chargeback” occurs when a customer fails to keep a contract for the full year. A “chargeback” is the “amount paid by Vector to Defendant AVSX to fund the contract initially, ” and would be “charged back” to the individual if the customer canceled within the first twelve months. Defendant AVSX retained ten percent of the commission payment, called a “holdback, ” in case of a “chargeback.” Id.; ECF No. 16-1 at 3. Ten percent is an industry standard. Id. The “holdback” protects Defendant AVSX from a customer default within the first twelve months. Id. If the customer does not default, Plaintiffs would be paid the ten percent the thirteenth month unless the salesperson's “holdbacks” was exceeded by “chargebacks.” ECF 16-1 at 3. The contract contains various other items that a salesperson could be charged for, including charges for “no shows or cancel[lations] at the door”; if the salesperson has too many accounts with a credit score below 650; and if a client cancels a contract, for installation and removal of the equipment along with equipment costs. Id. at 1. As stated in the contract, employees were required to keep a $1, 000 reserve in the event that “charge backs” remain on their account at the time the employee leaves. Id. Plaintiffs did not pay any money back to Defendant AVSX when they left. Plaintiffs' contracts were slightly different from others. The usual practice was that “holdbacks” would go to team leaders in the thirteenth month, not the salespeople. However, as part of their contracts Plaintiffs were supposed to be given their “holdbacks” when they were salespeople and also as team leaders. ECF No. 36 at 55.

         From April 2011 through August 2012, Defendant AVSX paid Wilson and Wilson paid Plaintiffs through his personal checking account. ECF No. 16-1 at 4. Defendant AVSX paid Plaintiffs directly from August 2012 through the end of their employment in December 2014. See Id. at 1. Wilson left Defendant AVSX in November 2013 and Plaintiffs took over as sales team leaders.

         From April 2011 to August 2012, Wilson provided IRS Form 1099-Miscellaneous Income (“Form 1099”) to each Plaintiff. ECF No. 16-2 at 3-4. From August 2012 through November 2013, Defendant AVSX provided Form 1099 to each Plaintiff. Id. at 4.

         Plaintiff's employment contract states that an employee is not required to be exclusive but there is a $100 bonus for exclusivity and an exclusive employee “cannot contract for a period of 36 months with Alarm Accounts outside [Defendant AVSX's] relation for any services, referrals, nor solicit any Alarm Accounts.” ECF Nos. 16-5 at 2; 16-6 at 1. If an employee agrees to exclusivity, he also agrees to a “non-compete” clause, which states he will not provide “substantially similar services” within the territory the employee served under Defendant AVSX. The non-compete clause does not include an end date. Id. at 4. Plaintiff Yarborough's 2011 contract states that the affiliate can only sell contracts within a 60 mile radius of his or her home base (i.e., city the affiliate is based in), regardless of exclusivity.[1] ECF No. 16-5 at 5. As stated at the hearing held on January 19, 2017, both Plaintiffs agreed to exclusivity. See ECF No. 40.

         Defendant AVSX did not provide Plaintiffs with dedicated offices. Id. at 2. Plaintiffs set their own hours, identified and solicited their own customers. Id. Defendant AVSX provides a “company identification badge, business cards, and staff shirt.” ECF 16-5 at 3. Each Plaintiff was required to present his identification badge “so that clients can identify [Plaintiff] as an authorized agent for [Defendant AVSX].” Id. Defendant AVSX also provided marketing materials. Id. Plaintiffs were given work cellphones and iPads. While company policy states only team leaders drive company cars, Plaintiffs drove company cars prior to their status as team leaders. See ECF No. 36 at 67.

         In early 2014, Plaintiffs were told that if they did not change their status to W-2 employees, they would not be allowed to be team leaders, drive company vehicles, or go into certain areas to work. Id. at 68-69. Plaintiffs agreed to become W-2 employees. When Plaintiffs became W-2 employees, Defendant AVSX reduced their commissions by ten percent. ECF No. 16-1 at 6.[2] Plaintiffs assert that they did not receive any new benefits when they became W-2 employees. ECF No. 36 at 73. Both the August 2012 and May 2014 employment contracts automatically renewed every thirty days and Defendant AVSX retained the right to terminate the contracts with twenty-four hour notice. ECF Nos. 16-5 at 2, 16-7 at 2.

         II. SUMMARY JUDGMENT STANDARD

         The court shall grant summary judgment if “there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56. The judge does not weigh evidence but determines if there is a genuine issue for trial. Anderson v. Liberty Lobby, 477 U.S. 242, 249 (1986). The party seeking summary judgment bears the initial burden of coming forward and demonstrating an absence of genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met its burden, the nonmoving party must affirmatively demonstrate that there is a genuine issue of material fact for trial. Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The court should grant summary ...


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