Zara Agrees to $1.25M Settlement in Overtime Pay Dispute

Posted by: Brian Schaffer

Zara agreed to a $1.25 million settlement to resolve allegations that it failed to include commissions in overtime pay calculations for approximately 500 employees. The agreement required approval from a New York federal judge.

What Did the Zara Overtime Lawsuit Allege?

The lawsuit alleged that Zara didn’t properly include commissions when calculating overtime pay under the Fair Labor Standards Act. The case was certified as a collective action covering certain hourly employees who worked overtime during the relevant period.

Why Can Commissions Affect Overtime Calculations?

Nearly 480 workers joined the collective action before settlement. The proposed agreement provides for distribution of the remaining settlement funds to affected employees after approved fees and other deductions.

Who Joined the Zara Collective Action?

The dispute illustrates why commissions and other forms of compensation can matter when determining an employee’s regular rate for overtime purposes.

An inquiry doesn’t establish that a claim exists, guarantee that the firm can accept the matter, or create an attorney-client relationship. This page provides general information, not legal advice. Don’t send confidential or time-sensitive information through an online form. Prior results don’t guarantee a similar outcome.

FREQUENTLY ASKED QUESTIONS

Do commissions have to be included when calculating overtime pay?

They’re often relevant for covered nonexempt employees. Under the FLSA, the regular rate generally includes remuneration for employment unless a statutory exclusion applies. Commissions can therefore increase the regular rate used to calculate overtime. Specialized exemptions and rules apply for some commissioned employees, so the result isn’t identical in every job. The Zara lawsuit alleged that commissions were improperly excluded from the overtime calculation for hourly retail employees.

How can a commission change an hourly employee’s overtime rate?

If a commission belongs in the regular rate, it can increase the hourly figure on which the overtime premium is based. The calculation can become more complicated when commissions are paid after the workweek in which they were earned, because the payment may need to be allocated back to the relevant period. An employee can therefore receive overtime at time-and-a-half of a base rate and still be underpayed if qualifying commissions weren’t properly incorporated.

Are commissioned retail employees always entitled to overtime?

No. Some employees of retail or service establishments can qualify for the FLSA’s Section 7(i) overtime exemption if they meet all statutory conditions, including requirements concerning the employee’s regular rate and the proportion of earnings that consists of commissions. If those conditions aren’t met, the exemption doesn’t apply. Job title or the mere fact that a worker receives commissions isn’t enough by itself to establish an overtime exemption.

What does it mean to opt in to an FLSA collective action like the Zara case?

An FLSA collective action generally requires an eligible worker to affirmatively file consent to join. Opting in makes the worker a participant in the federal wage claim, subject to the case’s scope and later rulings or settlement terms. In the Zara matter, hundreds of workers opted into the certified collective. Workers receiving notice should review the covered positions, dates, claims, deadlines, and release language rather than assuming participation is automatic.

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