A purported class-action lawsuit filed last month by former Groupon employee Ranita Dailey accuses the couponing giant of underpaying overtime for sales employees.
The suit alleges that Groupon required non-exempt sales employees to work overtime and then incorrectly calculated the base rate on which overtime payments were to be made. According to the suit, overtime pay should be calculated based on the salary and commission paid to the employee, but Groupon was paying overtime only on the base salary. During some periods, Groupon stopped paying sales employees overtime altogether.
The suit seeks class action status and back pay plus punitive damages and attorney’s fees. Given that 40% of Groupon’s more than 9,600 employees are in sales, if the suit is successful, the damages could be significant.
I met with a likely class member in Chicago over the weekend. He told me that once the plaintiff started raising the issues around how overtime pay was calculated, Groupon stopped paying sales employees overtime entirely.
Several sources described the Groupon sales team as demoralized, with significantly less emphasis on working long hours to close deals. After the elimination of overtime pay, instead of working long hours, some Groupon sales employees are beginning to look for other opportunities.
In addition to the elimination of overtime pay, sources described a change to the commission structure that they believe will significantly lower sales commissions.
One thing that struck me in my conversations was that my sources still believed in the core Groupon concept of merchants using deals to attract new customers; they believed that a properly structured deal can create strong benefits for merchants, consumers and Groupon. They described a number of scenarios in which Groupon provided merchants with great results. They just think that Groupon has done terribly at executing on its own concept.
Sources described a focus on “GP” or gross profit — what Groupon gets from a given deal. New salespeople start in a small market and have to work their way to a bigger (and more lucrative) market. As a result, there is incentive to burn merchants with poorly structured deals to hit a big GP number. One source, a former salesperson, said “You had to fuck over businesses to get promoted.”
Sources said that in smaller markets, the much vaunted Groupon pipeline of merchants is small. Deals are often being sold only 7-14 days out.
By and large, Groupon salespeople do not have equity in the company. Any IPO (even in its weakened state) would not result in a financial windfall for them.
Former salespeople aren’t the only ones suing Groupon. The latest amendment to Groupon’s S-1 says that there are 16 purported class action lawsuits against the company. (This would make 17.) Merchants are suing Groupon alleging false advertising and consumers are suing alleging that Groupon violates gift card laws. In other legal trouble, Oregon’s chiropractors have banned Groupon as a disallowed fee-splitting agreement.
Note: Groupon has yet to reply to a request for comment. I will update if I hear from them.
If you are a Groupon employee and want to share your experience (good or bad), please email email@example.com.