Wage & Hour Counsel : Wage & Hour Lawyer & Attorney : Littler Mendelson Law Firm : Employment Law, Labor Relations

By Bill Allen

On May 8, 2013, in Wang v. Hearst Corp., the U.S. District Court for the Southern District of New York denied certification under Rule 23 of a class of unpaid interns at Hearst Magazines.

First, the court found that Rule 23(a)(2)’s commonality requirement was not satisfied under the Supreme Court’s standard in Dukes v. Wal-Mart Stores, Inc. because the plaintiffs could not “show anything more than a uniform policy of unpaid internship.” The plaintiffs’ evidence of a corporate-wide policy of classifying the proposed class members as unpaid interns was insufficient to establish commonality because the duties of the interns varied greatly from each other and from magazine to magazine. The court acknowledged that even after Dukes, “courts of this district have routinely found commonality in analogous misclassification cases,” but distinguished this case because the plaintiffs were not able to show a company-wide policy regarding their duties in addition to a company-wide policy regarding their classification. The court rejected the interns’ argument that the court should look to "the nature of the work that interns performed" to find commonality, stating that the “glaring problem” is that there is no common proof from which the court could determine the "nature" of the interns' work.

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By Stephen Fuchs

In a welcome decision for employers, Tracy v. NVR Inc., the federal District Court for the Western District of New York granted the employer’s motion to decertify a collective action under the FLSA and denied the plaintiffs’ motion to certify a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure. The case involved a putative class of Home Sales and Marketing Representatives (SMRs) who claimed they were misclassified as exempt outside sales representatives.

The key issue in the case was whether the SMRs satisfied the outside sales exemption requirement that they work away from the employer’s business for the requisite period of time each week. In denying certification of the Rule 23 state law class action, the Tracy court cited the U.S. Supreme Court’s recent decisions in Comcast Corp. v. Behrend, which held that class certification requires a classwide method of measuring damages, and Dukes v. Wal-Mart Stores Inc., which held that commonality requires not only common questions, but also common answers to those questions. Applying these principles, the court found that because the SMRs worked in different locations, under different supervisors, and performed duties outside of their offices in varying degrees and in different ways, their claims “as well as any determinations to be made concerning damages – are too highly individualized to form the basis for a class action.” Moreover, the court concluded, “the interests of judicial economy would not be served by the hundreds of fact-intensive ‘mini-trials’ that a class action of this nature would require.”

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By Matthew Hank

In Carmody v. Kansas City Board of Police Commissioners, the Eighth Circuit Court of Appeals addressed the standard of proof in a wage and hour case when an employer fails to maintain accurate timekeeping records. The court held that, even under the “relaxed standard” established by the U.S. Supreme Court in Anderson v. Mt. Clemens Pottery Co., plaintiffs in a wage and hour case must still provide evidence of actual damages.

Carmody involved a group of police officers who sued the Kansas City Board of Police Commissioners, claiming they were given flextime instead of overtime wages as required by the Fair Labor Standards Act (FLSA). Neither the officers nor the city tracked the accrued flextime. In response to discovery requests, the officers failed to provide information about the number of uncompensated hours they claimed to have worked or the amount of money they alleged was owed. Only after the close of discovery, and after the defendants moved for summary judgment, did the officers come forth with evidence of damages: the officers’ affidavits containing precise estimations, week by week, of unpaid hours worked.

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By Bill Allen and Steven Kaplan

Relying on AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740 (2011), the U.S. Court of Appeals for the Fourth Circuit held on April 1, 2013 that an arbitration provision in a franchise agreement prohibiting signatories from participating in class and collective actions is lawful in light of the clear federal directive in support of arbitration. In Muriithi v. Shuttle Express, Inc., the Fourth Circuit further found that: (1) an agreement that provides for a split in the cost of arbitration must be analyzed on a case-by case basis; and (2) a truncated statute of limitations contained outside of the arbitration clause should be reviewed by the arbitrator. The court’s decision overturned the District Court of Maryland’s March 2011 pre-Concepcion ruling that the arbitration agreement was “so permeated by substantively unconscionable provisions” that it was unenforceable. The plaintiff, a driver for a passenger shuttle service, had alleged that he and other putative class members were improperly classified as “franchisees” or “independent contractors,” and were therefore entitled to minimum wage and overtime pay under the FLSA.

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By Bill Allen

In Martin v. Citizens Financial Group, Inc., No. 2:10-cv-00260 (E.D. Pa. Mar. 27, 2013), Judge Goldberg of the Eastern District of Pennsylvania decertified an FLSA collective action involving 843 opt-in plaintiffs who had worked in a variety of hourly positions at over 1,000 bank branches in nine states. The plaintiffs alleged that the defendant’s unlawful practices included prohibiting employees from recording all time worked in excess of 40 hours in a week, erasing or modifying employees’ time records to eliminate or reduce overtime hours, providing “comp time” in subsequent weeks in lieu of paying overtime, and requiring employees to work during unpaid breaks. The district court held that the plaintiffs had failed to establish they met the FLSA’s “similarly situated” requirement.

Although the court found the plaintiffs’ evidence tended to establish that the putative class members may have been denied overtime, the plaintiffs were unable to produce “substantial evidence of a single decision, policy, or plan” that affected employees in the same way. Rather, the plaintiffs reported that the overtime denial decisions were made independently, either at the branch or regional level, and were in direct conflict with the company’s written policy requiring compliance with all state and federal overtime compensation rules. The court noted that the 435 declarations submitted by the plaintiffs themselves showed frequent disparities in the methods in which the plaintiffs alleged they were denied overtime.

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By Jennifer Ciralsky and Sophia Behnia

In Wang v. Chinese Daily News, Inc., on remand from the U.S. Supreme Court, the Ninth Circuit Court of Appeals applied the Supreme Court’s decision in Dukes v. Wal-Mart to reverse and remand a federal district court decision certifying a California state wage law class action. Like Dukes, Wang has had a somewhat protracted history. Following certification as an FLSA collective action, and prior to the Supreme Court’s decision in Dukes, the district court certified the plaintiffs’ state wage law claims as a class action under Rule 23(b)(2) of the Federal Rules of Civil Procedure (FRCP) or, in the alternative, under Rule 23(b)(3). Following a 16-day jury trial, the plaintiffs were awarded over $2.5 million. The company appealed and the Ninth Circuit affirmed. On appeal to the U.S. Supreme Court post-Dukes, the Court vacated the Ninth Circuit decision and remanded for reconsideration in light of its decision in Dukes.

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In Lundy v. Catholic Health System of Long Island, Inc., 2013 U.S. App. LEXIS 4316 (2d Cir. Mar. 1, 2013), the Second Circuit Court of Appeals recently held for the first time that the Fair Labor Standards Act (FLSA) does not provide a claim for uncompensated "gap" time wages even when employees work overtime, provided the alleged uncompensated time does not drop employees' wages below the minimum wage. Gap time is time worked under 40 hours in a week. For example, an employee may work 39 hours in a week but be paid for only 35, in which case she has four hours of uncompensated gap time. If she works 42 hours in a week but is paid for only 38, she has two hours of uncompensated gap time (hours 39 and 40) and two hours of unpaid overtime (hours 41 and 42). In Lundy, the Second Circuit held that employees must plead "some" amount of uncompensated but compensable time worked over 40 in a week, but left open the possibility, depending on the case, that employees may need to also plead an approximation of overtime hours to establish a plausible claim. The decision also bolsters employers' arguments that district courts may exercise supplemental jurisdiction to decide state law claims even where the court dismisses all federal law claims.

To learn more about the decision, please see Littler's ASAP, Second Circuit Rejects FLSA Gap Time Claims and Explores FLSA Pleading Requirements, by Bradley Strawn.

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Building upon a growing body of case law finding automatic-deduction meal break claims are not suitable for class or collective action treatment, an Ohio federal judge decertified a collective action against a national system of medical and rehabilitation care facilities by registered nurses, licensed practical nurses, certified nursing assistants, and admissions coordinators who claimed they were not paid for missed or interrupted meal breaks that were automatically deducted from pay. In Creely v. HCR ManorCare, Inc., Littler attorneys convinced the court that the employees’ experiences were too diverse to allow the case to proceed as a collective action under the Fair Labor Standards Act. To learn more about the decision, see Littler's Healthcare Employment Counsel blog.

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The Massachusetts Supreme Judicial Court (the “SJC”) recently answered two important questions that have vexed lower courts, and employers, in recent years. First, the SJC concluded that employees may release claims under the Massachusetts Payment of Wages Law, Mass. Gen. Laws Chch. 149, § 148 (the “Wage Act”), provided that the release is “stated in clear and unmistakable terms” and specifically refers to the Wage Act. Second, the SJC held that, although plaintiffs may pursue claims for overtime under the Wage Act, which has a longer statute of limitations than the state overtime law, a plaintiff only may recover the straight-time value of such claims, not the premium rate provided for by the overtime law. To learn more about the decision, please see Littler's ASAP, Massachusetts High Court Permits Employees to Release Wage Claims, by Christopher Kaczmarek and Jeanne Barber.

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On Monday, December 10, 2012, the U.S. Supreme Court declined to review a Fifth Circuit Court of Appeals decision, Martin v. Spring Break ’83 Productions, L.L.C., which held that parties may privately settle and release wage claims that result from a bona fide dispute as to liability rather than a compromise of guaranteed FLSA rights. Martin, as we previously discussed, stands in sharp contrast to the Eleventh Circuit Court of Appeals decision in Lynn’s Food Stores, Inc. v. United States, which held that FLSA disputes could only be settled if either the U.S. Department of Labor supervised payment or a court approved a settlement after an employee filed a private lawsuit.

This is positive news for employers that operate within the Fifth Circuit, which includes Texas, Louisiana, and Mississippi. Whether district or other appellate courts will follow the Fifth Circuit’s lead, in light of the Supreme Court allowing the Martin decision to stand, remains uncertain. However, employers who operate within the Eleventh Circuit, which includes Florida, Georgia, and Alabama, are still bound by the Lynn’s Food decision.

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In White v. Baptist Memorial Health Care Corporation, 2012 U.S. App. LEXIS 22752 (6th Cir. 2012), the U.S. Court of Appeals for the Sixth Circuit held that, if an employer establishes a reasonable process for an employee to report work performed during unpaid breaks, it is not liable for non-payment if an employee fails to report the work performed through the established process. This is a welcome decision for employers, who increasingly are targeted with claims that they “should have known” about unreported off-the-clock work allegedly performed by employees. To learn more about the decision, please continue reading at Littler’s Healthcare Employment Counsel.

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Washington's highest court has ruled that missed paid rest breaks count as "hours worked" that trigger overtime obligations for employers. According to the court, employers must add missed rest break time to their employees' hours actually worked, and pay an overtime premium for any resulting hours over 40 in a workweek. Thus, an employee who works 40 hours in a workweek and misses a required 10-minute paid rest break is owed compensation at the overtime rate of one and one half times the regular rate for the missed 10-minute rest break. To learn more about the decision, please see Littler's ASAP, Washington State Supreme Court Orders Overtime Payment for Missed Breaks, by Daniel Thieme and Breanne Sheetz.

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For the first time since July 2009, the Missouri minimum wage will exceed the federal rate. The Missouri Department of Labor & Industrial Relations announced that, effective January 1, 2013, the state minimum wage for non-exempt employees will increase from $7.25 to $7.35 per hour. Moreover, the minimum wage that tipped employees must receive increases from $3.63 to $3.68 per hour, and the maximum tip credit employers may take increases from $3.62 to $3.67 per hour. The Missouri announcement comes a few days after Vermont announced an increased 2013, and shortly after a host of other states announced higher minimum wage obligations for employers in 2013.

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The Vermont Department of Labor has announced that, effective January 1, 2013, the state minimum wage will increase from $8.46 to $8.60 per hour for non-exempt employees. Additionally, the minimum wage for tipped employees increases from $4.10 to $4.17 per hour. Moreover, the maximum tip credit employers may take increases from $4.36 to $4.43 per hour. For a list of states that will also increase their minimum wage in 2013, please see out previous post.

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California Labor Code sections 515.5 and 515.6 provide that certain computer software employees, as well as licensed physicians and surgeons, are exempt from state overtime requirements if they receive a minimum hourly, monthly, or yearly rate. The rate is determined annually based upon changes to the California Consumer Price Index for Urban Wage Earners and Clerical Workers. Because the Index experienced a 2.6% increase from August 2011 to August 2012, the California Division of Labor Standards Enforcement (DLSE) adjusted the rates these individuals must be paid to be considered overtime-exempt.

Computer Software

Effective January 1, 2013, the DLSE announced a $1.01 increase in the hourly rate for computer professionals, from $38.89 to $39.90 per hour. The monthly rate increases $175.56, from $6,752.19 to $6,927.75 per month. Finally, the annual salary increases $2,106.68, from $81,026.25 to $83,132.93 per year.

Licensed Physicians or Surgeons

Effective January 1, 2012, DLSE announced a $1.84 increase in the hourly rate for licensed physicians and surgeons, from $70.86 to $72.70 per hour.

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By Wayne Hersh and Cori Garland

In Abshire v. Redland Energy Services, LLC,  five current and former employees filed a complaint against Redland Energy Services, LLC, a servicer of natural gas wells, alleging the company violated the Fair Labor Standards Act (FLSA) by failing to properly pay overtime. The employees’ claims arise from a change to their defined workweek under the FLSA and the impact on their overtime hours as a result.

The employees at issue, operators of Redland’s two drilling rigs, initially worked 12-hour shifts for seven consecutive days and then would be off for the next seven days. While these employees were subject to a Tuesday-to-Monday workweek for calculating overtime, all other Redland employees had a Sunday-to-Saturday workweek. Then, in May 2009, Redland changed the drilling rig employees’ workweek to Sunday-to-Saturday. The memo announcing the change stated: “There will be no adjustment of your work week, which will remain from Tuesday-Monday [but] you will begin to have a reduction in overtime hours as your work week will be split into 2 payroll periods.” Redland explained that the workweek change saved significant resources because it streamlined payroll and reduced overtime pay.

The impacted employees claimed the change to their workweek violated the FLSA because Redland adjusted their workweeks to decrease overtime compensation.

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In Rindfleisch v. Gentiva Health Services, Inc., five former home healthcare clinicians brought claims on behalf of a class of thousands of registered nurses, physical therapists, and occupational therapists for alleged overtime violations, asserting they were misclassified as exempt employees and therefore denied overtime compensation for hours worked over 40 in a workweek. A federal district court recently denied class certification of the plaintiffs’ state law misclassification claims, finding the claims were too individualized and that proceeding as a class action would render the case unmanageable. To learn more about the decision, please continue reading at Littler’s Healthcare Employment Counsel.

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By Brian Dixon

The favorable outcome for some employers in Arechiga v. Dolores Press, 192 Cal. App. 4th 567 (2011), which we previously discussed, has been undone by the California Legislature. In Arechiga, a California Court of Appeal ruled that a non-exempt employee’s salary could provide compensation for more than 40 hours of work in a week. This result, however fortuitous for employers, was difficult to reconcile with section 515(d) of the California Labor Code, which stated in fairly specific terms that the hourly rate of a salary-paid, non-exempt employee was the salary divided by 40. Whatever latitude there may have been for the conclusion reached by the court in Arechiga under the statute has been banished by Governor Brown’s signing Assembly Bill  2103 into law on September 30, 2012. That bill adds section 515(d)(2) and slightly revises section 515(d)(1) of the Labor Code with the stated intent to overrule Arechiga. Section 515(d)(2) now states that “Payment of a fixed salary to a nonexempt employee shall be deemed to provide compensation only for the employee’s regular, non-overtime hours, notwithstanding any private agreement to the employer.” For the typical non-exempt employee, section 515(d)(2) will mean that any salary will not extend beyond providing compensation for five, eight-hour days per week. The amendments to the Labor Code will take effect January 1, 2013. 

Photo credit: Asilvero

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A recent decision by a Texas federal court, in Chapman v. ASUI Healthcare of Texas Inc., underscores the importance for healthcare entities of carefully assessing the nature of their relationship with workers to determine whether they may be classified as independent contractors.

After having worked at ASUI for a number of years, the plaintiffs brought suit for unpaid wages and overtime under the FLSA, claiming they were misclassified as independent contractors instead of employees. To determine whether the plaintiffs were properly classified as independent contractors, the district court used the traditional five-factor “economic realities” test, assessing: (1) the degree of control exercised by ASUI; (2) the extent of the relative investments of the plaintiffs and ASUI; (3) the degree to which the plaintiffs’ opportunity for profit or loss was determined by ASUI; (4) the skill and initiative required in performing the job; and (5) the permanency of the relationship. The court found that each of these factors reflected that the plaintiffs were employees under the FLSA, not independent contractors.

To learn more about the decision and its potential implications for employers, please continue reading at Littler's Healthcare Employment Counsel blog.

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By Robert Pritchard

In a pair of recent decisions, the United States District Court for the Western District of Pennsylvania held that the “fluctuating workweek” method of calculating overtime is not lawful under Pennsylvania law when the employer pays an overtime premium of one-half of the employee’s regular hourly rate, in addition to the employee’s salary. Foster v. Kraft Foods Global, Inc., 2012 U.S. Dist. LEXIS 121282 (W.D. Pa. Aug. 27, 2012); Cerutti v. Frito Lay, Inc., 777 F. Supp. 2d 920 (W.D. Pa. 2011). While these cases do not necessarily represent the last word on the subject (indeed, the Foster case is still pending in district court), employers who utilize the fluctuating workweek method in Pennsylvania should take note of these developments.

Under federal law, the fluctuating workweek method allows an employer to pay an employee a fixed weekly salary for all hours worked, so long as the employer also pays an overtime premium equal to one-half of the employee’s regular hourly rate for hours worked in excess of 40 per week. In order to determine the employee’s regular hourly rate, the employee’s salary is divided by all hours worked during the week. Because the employee has already been paid (by the salary) at that regular rate for all hours worked (including the overtime hours), the employee is only owed an additional “one-half” the regular rate for the overtime hours. This method of calculating overtime is expressly authorized under the federal Fair Labor Standards Act (FLSA). 29 C.F.R. § 778.114.

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By Brian Mosby

Plaintiffs seeking class certification in a wage and hour employment case must do more than simply allege that members of the proposed class are similarly situated, especially where the plaintiffs propose a very broad class. In Farnsworth v. Welspun Tubular LLC, 2012 U.S. Dist. LEXIS 115398 (E.D. Ark. Aug. 16, 2012) (Marshall, J.), the plaintiffs moved to certify a class of “all current and former Welspun employees in Arkansas who were classified as salaried at some point during the three years before this case was filed.”

The plaintiffs in Farnsworth never made it past the notice stage. At that stage, the court conducts a lenient review of the proposed class to determine whether the members of the proposed class are similarly situated. Here, the plaintiffs argued the proposed class members were similarly situated because: (1) many of the proposed class members were reclassified from exempt to non-exempt even though their job duties did not change and, thus, the employer originally misclassified the employees; and (2) Farnsworth identified a number of employees, across departments and job duties, who he thought were similarly situated. The court rejected both arguments for the same reason – a lack of evidentiary support.

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Following a growing trend among courts in FLSA collective actions, a federal judge in the District of Columbia refused to certify a broad group of employees asserting claims in connection with an automatic meal break deduction policy. In Dinkel v. Medstar Health, Inc., the plaintiffs, who worked at one of the nine hospitals within Medstar Health’s network, sought to certify a class of all employees subject to automatic meal break deductions at all nine Medstar Health hospitals. The plaintiffs claimed that the auto-deduct policy, which allowed employees to request payment for missed meal breaks, “was coupled with a common practice of imposing limitations on, discouraging, and ignoring efforts to recover pay for missed meal breaks.” To learn more about the decision and its potential implications for employers, please continue reading at Littler's Healthcare Employment Counsel.

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On August 6, 2012, Governor Deval Patrick of Massachusetts signed into law Senate Bill 2400, "An Act improving the quality of healthcare and reducing costs through increased transparency, efficiency and innovation." The law is primarily intended as a healthcare cost containment measure and has received some fanfare for that aspect. What has received considerably less attention are two provisions of the law that apply to hospitals as employers, one of which prohibits mandatory overtime for nurses. To learn more about the law and its potential implications for hospital employers, please continue reading Littler's ASAP, Massachusetts Healthcare Bill Bans Mandatory Overtime for Nurses and Limits Spending to Oppose Unionization, by John Doran and Carie Torrence.

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By Mhairi Whitton

In a consolidated decision in three actions against Bayer Corporation, Wyeth Pharmaceuticals, and Roche Laboratories, the Ninth Circuit Court of Appeals affirmed summary judgment for the pharmaceutical companies, holding that their pharmaceutical sales representatives (PSRs) were properly classified as administratively exempt under California law.

Specifically, the court found that:

• The employees’ duties involved “the performance of . . . non-manual work directly related to management policies or general business operations” of their employers, in that they were involved in representing their respective employers and “promoting sales of prescription drugs within their assigned territories.”
• In terms of the so-called “administrative/production worker dichotomy,” the court found that the sales representatives were not involved in developing or manufacturing pharmaceuticals and therefore fell squarely on the administrative side of the dichotomy.
• The duties they performed, which included improving market share and generating a large amount of business for the company, were of “substantial importance to the management or operations of the business.” The court found it “not determinative” that the PSRs did not participate in the formulation of their employers’ sales and promotional policies at the corporate level.
• he PSRs “customarily and regularly” exercised “discretion and independent judgment,” in applying their training, customizing their messages based on their knowledge of individual physicians, and distinguishing their products from those of their competitors.
• The sales representatives performed their functions under only general supervision, controlling how they spent their time, and the work they did required specialized sales training.

As the plaintiffs did not contest the fact that they earned more than twice the California minimum wage, the Ninth Circuit concluded that they satisfied each aspect of the administrative exemption.

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By Brian Mosby

In welcome news for employers who treat “team leaders” as exempt pursuant to the executive exemption, the Second Circuit Court of Appeals, in Ramos v. Baldor Specialty Foods, Inc., held that a “team” of workers can qualify as a “customarily recognized subdivision or department” for purposes of determining whether their supervisor can qualify for the executive exemption.

The plaintiffs worked as night shift “captains” in the company’s warehouse department. Captains oversaw teams of pickers. Captains made sure the pickers arrived to work on time and performed their duties as expected. Captains could assign work depending on the captain’s trust of the picker, or the picker’s speed and productivity. Captains prepared the team’s distinct work area for the shift. At the end of the shift, captains, who report to the night warehouse manager, prepared a productivity report for each picker. The reports impact whether the night warehouse manager will award the picker a productivity bonus. Captains have the ability to request pickers transfer to a different team. The night warehouse manager typically grants these requests. Captains recommend pay raises, issue warnings, and have the authority to fire pickers. For their work, captains earn $700 per week.

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By Martha Keon

The Third Circuit recently clarified the test for joint employer status under the Fair Labor Standards Act in the context of a holding company providing shared services to its subsidiaries in In re: Enterprise Rent-a-Car Wage & Hour Employment Practices Litigation, 2012 U.S. App. LEXIS 13229 (3d Cir. June 28, 2012).

At all times relevant, Enterprise Holdings, Inc. was the parent company and sole stockholder of 38 domestic subsidiaries operating rental car agencies in different states. The same three individuals who were the holding company’s directors – the Chairman and CEO, the President and COO, and the Executive Vice President and CFO – were also the only Board members of each of the subsidiaries. The holding company provided shared services to its subsidiaries, which were optional in the discretion of the subsidiary and paid for via dividends and management fees. The shared services included: employee benefit plans, rental reservation tools, a central customer contact service, insurance, technology, legal services, business guidelines, and human resources services. The human resources services provided by the holding company included providing job descriptions, best practices, training materials, performance review forms, and compensation guidelines. There was evidence that during 2005, representatives of the holding company recommended that the subsidiaries not pay overtime wages to assistant managers who were employed by subsidiaries outside of California.

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UPDATE: On July 5, 2012, the Governor signed the 8/80 bill (HB 1820). While the legislature’s action was certainly welcome news for Pennsylvania employers who had been using the 8/80 method, the amendment is prospective only, so employers may continue to face litigation over this issue for prior use of the 8/80 method. Also, this incident stands as a stark reminder to all Pennsylvania employers that wage and hour compliance is not just a federal issue. Where Pennsylvania law differs from the FLSA (and there are many such differences, even now that the 8/80 issue has been reconciled), employers must be aware of their obligations under both federal and state law.

In what would bring an end to a recent rash of class actions aimed at healthcare employers, the Pennsylvania Legislature presented Governor Corbett with a bill on June 28 that would amend the Pennsylvania Minimum Wage Act (PMWA) to specifically allow healthcare employers to pay employees overtime on a 14-day workweek, as opposed to a 40-hour workweek. The amendment would bring the PMWA into compliance with a provision of the Fair Labor Standards Act (FLSA) that permits medical facilities to pay employees overtime for hours worked in excess of 8 hours per day or 80 hours in a 14-day period. To learn more about the legislation and its potential implications for employers, please continue reading at Littler's Healthcare Employment Counsel blog.

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Today the U.S. Supreme Court issued its highly anticipated opinion in Christopher v. SmithKline Beecham Corp., one of the only U.S. Supreme Court cases to address overtime exemptions under the Fair Labor Standards Act (FLSA), and the first to address the criteria for the application of the “outside sales” exemption. In a 5-4 decision written by Justice Samuel Alito, the Supreme Court held that pharmaceutical sales representatives who were employed by GlaxoSmithKline PLC, formerly known as SmithKline Beecham Corp., were primarily engaged in “sales,” and therefore were properly classified as exempt under the FLSA’s outside sales exemption. To learn more about the decision and its implications for employers, please continue reading at Littler's Healthcare Employment Counsel.

Additionally, for a more detailed analysis of the decision, please see Littler's ASAP, U.S. Supreme Court Holds Pharmaceutical Sales Representatives Are Exempt Outside Sales Employees and Rebukes DOL's Efforts to Regulate Via Amicus Filings, by Lisa Schreter, Richard Black, and Libby Henninger.

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Last week a number of bills were introduced in the U.S. House of Representatives and Senate that seek to amend the Fair Labor Standards Act (FLSA) and prevent an FLSA-related regulation from moving forward. Some measures would toughen the statute by adding stronger pay discrimination nonretaliation provisions and increasing the minimum wage, while others target the FLSA’s minimum wage and overtime exemption provisions. To learn more about the bills and their potential implications for employers, please continue reading at Littler's Washington D.C. Employment Law Update.

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Last week, in Cash v. Winn, a California Court of Appeal flatly rejected an exception to the personal attendant exemption from overtime for individuals who provide in-home “health care services.” Under California Industrial Welfare Commission Wage Order No. 15-2001 (“Wage Order”). individuals employed as “personal attendants,” defined to mean employees who “supervise, feed, or dress” the client, are exempt from overtime pay requirements. However, if the caretaker performs a “significant amount of work” in addition to these tasks, the caretaker is not exempt from overtime pay requirements. In addition, with certain exceptions, if the caretaker is a registered nurse employed to engage in the practice of nursing in the home, the nurse is not exempt from overtime pay requirements.

The issue the court addressed in Winn was whether there exists an additional exception to the personal attendant exemption rule if a caretaker, who is not a licensed nurse, performs any form of health care related services for an elderly client. After conducting a thorough analysis of the relevant case law and statutory authority, the Fourth District Court of Appeal concluded that such an exception was inconsistent with the spirit and letter of the Wage Order. To learn more about the decision and its potential implications for employers please continue reading at Littler’s Healthcare Employment Counsel.

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The Seventh Circuit has weighed in on the employers’ side of the pharmaceutical sales representative exemption issue, finding that pharmaceutical sales representatives at Abbott Laboratories, Inc. and Eli Lilly & Company were properly classified as exempt under the administrative exemption to the overtime requirements of the Fair Labor Standards Act (FLSA). In Schaefer-LaRose v. Eli Lilly & Co., the Seventh Circuit issued a consolidated opinion in two cases in which the district courts had reached opposite results, with one court ruling in favor of the plaintiffs and the other ruling against. To read more about the Seventh Circuit's decision and its implications for employers, please continue reading at Littler's Healthcare Employment Counsel.

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By Libby Henninger

The U.S. Supreme Court heard oral arguments today in Christopher v. SmithKline Beecham Corp., a case to determine whether pharmaceutical sales representatives (PSRs) qualify for the outside sales exemption under the federal Fair Labor Standards Act (FLSA). The Supreme Court’s opinion will settle a split between the Second and Ninth Circuits in which the Second Circuit held that PSRs are not making sales under the FLSA and – in the underlying case – the Ninth Circuit held that they are, qualifying them as outside sales employees. A broader issue to be decided by the Court is the level of deference owed to a regulatory agency that announces new substantive positions through amicus curiae filings. Here, the Second Circuit’s opinion was largely based on a position taken by the Department of Labor (DOL) through an amicus brief where it advocated that the PSRs do not qualify for an exemption to the FLSA’s overtime requirements. The Ninth Circuit rejected the DOL’s position, finding it need not be afforded deference under Auer v. Robbins, 519 U.S. 452 (1997).

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Earlier this week, GlaxoSmithKline PLC, formerly known as SmithKline Beecham Corporation, filed its brief in the U.S. Supreme Court in Christopher v. SmithKline Beecham Corporation, one of the only Supreme Court cases to address the overtime exemptions under the Fair Labor Standards Act, and the first to address the criteria for the outside sales exemption. At issue is whether pharmaceutical sales representatives qualify for the outside sales exemption because pharmaceuticals are generally purchased by end-users at pharmacies, which purchase from wholesale distributors. The Court's decision may have far-reaching implications, not only for the pharmaceutical industry, but also for other industries that depend on representatives to call on customers at their place of business to generate sales, although the actual sales orders are placed by customers through a centralized order and distribution center or similar process. The case is also significant because it may determine the extent to which courts are required to defer to U.S. Department of Labor's changing interpretations of federal employment statutes and regulations. To learn more about the case and its potential implications for employers, please continue reading Littler's ASAP, Supreme Court to Decide Significant Case on the Outside Sales Overtime Exemption, by Richard Black and Bradley Strawn. To learn more about how the case progressed through the courts, please see our previous posts on the trial court decision, the appellate court decision, and the Supreme Court agreeing to review and resolve the matter.

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By Jeanne Barber

As we reported earlier, the New Jersey Department of Labor and Workforce Development (DLWD)amended its wage and hour regulations in September 2011 to eliminate inconsistencies between state and federal overtime law. In so doing, the DLWD inadvertently omitted the exemption for commissioned sales employees, commonly referred to as the “inside sales” exemption, from the amendment. The DLWD’s mistake, which it acknowledged was inadvertent, potentially put employers at risk for misclassification lawsuits.

Now, however, the DLWD has corrected its error, and on February 21, 2012, the exemption was fully restored. The regulation now defines “administrative” employee to include an employee whose: (1) primary duty is sales; (2) total compensation is comprised of at least 50% commissions; and (3) total compensation is $400 or more per week.

Notably, the restored New Jersey “inside sales” exemption differs from the exemptions available under federal law. As a result, employers should carefully analyze whether their commissioned sales employees qualify as exempt under both state and federal law.

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By Laurent Badoux

On January 27, 2012, the United States District Court for the District of Arizona granted AutoZone’s motion for summary judgment in a case brought on behalf of a nationwide class of current and former store managers seeking overtime pay under the Fair Labor Standards Act (FLSA). In so ruling, the court rejected the store managers’ argument that they were not bona fide executive employees under the FLSA.

The store managers contended they spent as much as 90% of their time working on manual (i.e., non-managerial) tasks that required rote compliance with AutoZone’s detailed, standardized policies and procedures. Therefore, the store managers contended, they were not exempt executive employees.

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In Duran v. U.S. Bank National Association, the California Court of Appeal, First Appellate District, overturned a $15 million judgment against U.S. Bank ("USB") entered in a case tried before Alameda County Superior Court Judge Robert Freedman. In its lengthy and very detailed opinion, the court shredded all the major trial management and evidentiary rulings made by the trial court, holding that its use of flawed statistical evidence and refusal to admit relevant testimony in support of USB's defense of exempt status denied USB its right to due process. In the first California appellate decision to apply the U.S. Supreme Court's 2011 Wal-Mart Stores v. Dukes decision, the court determined that the trial management plan was a fatally flawed exercise in "Trial by Formula." As a final repudiation of the trial court's rulings, the Duran court also ruled that the class should be decertified. To learn more about the decision and its potential implications for employers, please continue reading Littler's ASAP, "Trial by Formula" Rejected and $15M Overtime Judgment Overturned, by Diane Kimberlin.

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By Gregory B. Reilly

Employers faced with wage and hour litigation often seek to condition settlement on the agreement of plaintiffs to keep the settlement and its terms confidential. Confidentiality is often an important condition of settlement because employers may hope to avoid “copycat” claims by other employees and face the possibility that disclosure of a wage and hour settlement may be viewed by the public as an “admission” of liability.

Recently, in an unpublished decision, Brumley v. Camin Cargo Control Inc., the U.S. District Court in New Jersey refused an employer’s unopposed request to seal the terms of a Fair Labor Standards Act (FLSA) lawsuit settlement. The court stated that there is a “presumption” in favor of public access to the settlement terms so that the public knows such cases are fairly resolved.

While it is still possible, depending upon the circumstances, that employers can confidentially resolve FLSA wage and hour lawsuits, it is becoming increasingly clear that courts, as in the Brumley case, are hesitant to do so. Moreover, when an FLSA lawsuit involves a sizable number of plaintiffs, the public’s interest in disclosure of the settlement terms seems more likely to be implicated. In this respect, we note that the settlement in Brumley involved 112 plaintiffs.

Photo credit: YanC

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By Diane Kimberlin

On January 24, 2012, the California Court of Appeal, Fourth Appellate District, issued an important decision providing new and needed guidance on the commissioned sales exemption. In Muldrow v. Surrex Solutions Corporation, the court concluded that a class of “senior consulting service managers” was exempt from overtime pay requirements.

Although California courts require an employee be “involved principally” in “selling” in order to qualify for the commissioned sales exemption, there has been very little guidance on the meaning of this requirement. Muldrow supplies that guidance. It also addresses another previously unanswered question: must a commission be based solely on the price of goods or services sold, or may it include other factors? 

The plaintiffs were employed by Surrex to locate candidates to fill job orders placed with Surrex by its client companies. They used an internal database, made cold calls, and used other resources to find suitable candidates. They worked to convince the candidate that the job was desirable and convince the client company that the candidate was a good fit for the job. The plaintiffs were required to “nail down” the client’s rate, the candidate’s rate and to make sure that deals held together. Surrex was paid only when a placement was complete.

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By Mary Walsh

In a matter of significance for California employers, in See’s Candy Shops, Inc. v. Superior Court of San Diego, the California Supreme Court recently ordered the California Court of Appeal, Fourth Appellate District, to review a trial court decision holding that rounding employee time entries violated California law.

Last year, in an unprecedented ruling, the San Diego Superior Court held that See’s Candy Shops, Inc. (“See’s") violated California law by rounding employee time entries to the nearest six minutes. The court granted the plaintiff’s motion for summary adjudication on two of See’s rounding affirmative defenses, finding them at odds with sections of the California Labor Code dealing with the timing of wage payments.

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By James Oh, Andrew Voss and Tracy Stott Pyles

After a trial to the court in September 2011, the United States District Court for the Southern District of Ohio entered judgment on January 5, 2012 in favor of Defendant Nationwide Mutual Insurance Company, on all claims alleged against it by a nationwide class of Special Investigators who claimed they were misclassified as exempt from the overtime requirements of the FLSA and New York and California state wage laws.

The case was initially filed in September 2007 in federal court in California, and venue was transferred to the Southern District of Ohio, where Nationwide is headquartered. Notice to opt-in was issued nationwide to current and former Special Investigators, and ninety-one joined the action.

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By William Hays Weissman

In Arnold v. Mutual of Omaha Insurance Company, a California appellate court issued a published decision holding that insurance agents are not employees under the California Labor Code. This appears to be the first time the court has addressed the status of insurance agents.

The plaintiff filed a putative class action asserting that she was misclassified as an independent contractor and therefore denied reimbursement of business related expenses under Labor Code section 2802, and was not paid all wages in a timely fashion. She also asserted that failure to pay business expenses constituted an unfair business practice.

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By Alison S. Hightower

In a long-awaited decision, the California Supreme Court unanimously gave California employers a holiday present in an opinion that follows the majority of federal courts in finding that insurance claims adjusters are exempt administrative employees.

At issue in Harris v. Superior Court was the exempt status of a certified class of Liberty Mutual insurance claims adjusters who the California Court of Appeal found did not satisfy the requirements of the administrative exemption as a matter of law. Under California law exempt administrative employees must receive a minimum compensation of not less than two times the minimum wage, and also (1) perform office or non-manual work “directly related to management policies or general business operations of his/her employer or his/her employer’s customers,” and (2) “customarily and regularly exercise discretion and independent judgment.”

The administrative exemption has been one of the most hotly-contested and litigated of California’s overtime exemptions. This decision provides more clarity on the application of the exemption, and the role of the “administrative/production worker dichotomy” as an analytical tool in assessing exempt status.

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By Jim Hart

On December 13, 2011, the Ninth Circuit Court of Appeals reconsidered the case, Sullivan v. Oracle Corp., after the California Supreme Court had decided several certified questions of law. The Ninth Circuit had previously delayed ruling, and instead asked the California Supreme Court to decide three questions of California law, including whether a company with its principal place of business in California was required to pay out-of-state employees temporarily working in California according to California’s daily overtime rules. The California Supreme Court took up the issue, and according to the Ninth Circuit, “[t]he California Supreme Court agreed with the answers we had given in our original opinion to these three questions” – that Oracle was required to pay daily overtime to its instructors temporarily working in California. The Ninth Circuit took up the case again after the California Supreme Court’s ruling, and considered several constitutional arguments raised by Oracle. Oracle argued that applying California’s daily overtime rules to out-of-state employees temporarily in the state violates the Due Process Clause of the Fourteenth Amendment and the Dormant Commerce Clause of the United States Constitution. The Ninth Circuit rejected these arguments and remanded the case to the district court.
 

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By Milton Castro

In a recent “off-the-clock” case, the Seventh Circuit Court of Appeals affirmed an Indiana district court decision and held that the time an employee spends before his or her shift in preparation for the shift is not compensable – even if such time is in excess of 10 minutes and to the significant benefit of the employer – if the employer does not know or have reason to know that the employee is regularly working this off-the-clock time.

In the case, Plaintiff Susan Kellar alleged that she regularly arrived at Defendant Summit Seating Inc.’s (“Summit”) worksite between 15 and 45 minutes before the start of her shift. According to the plaintiff, she would then typically spend:

• 5 minutes unlocking doors, turning on lights, turning on equipment, and punching into the time clock;
• 5 minutes preparing coffee for herself and the rest of the employees;
• 5-10 minutes (or longer) gathering material and distributing it to her subordinates’ workstations; and
• 5 minutes taking a coffee / smoking break.

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On December 15, 2011, the Department of Labor’s Wage and Hour Division (WHD) issued its much-anticipated proposed rule that could make more than a million domestic caregivers eligible to receive minimum wage and overtime pay under the Fair Labor Standards Act (FLSA). According to the WHD, the home healthcare industry has changed since the FLSA regulations governing home care employees were enacted more than 35 years ago. To that end, the proposal seeks to revise the FLSA’s companionship and live-in worker regulations to limit the types of duties that render a home caregiver exempt from FLSA requirements, clarify the type of activities and duties that may be considered “incidental” to the provision of companionship services, amend the recordkeeping requirements for live-in domestic workers, and specify that the exemption is limited to care givers employed by the individual, family or household using the services only. Third-party employers, including in-home staffing agencies, would not be entitled to claim the exemption even if the worker is jointly employed by the third party and the family/household. To learn more about the proposed rule and its implications for employers, please continue reading at Littler's Washington D.C. Employment Law Update.

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By Christopher Kaczmarek and Joseph Lazazzero

The First Circuit Court of Appeals recently held that banquet sales managers qualified for the administrative exemption to the Fair Labor Standards Act (FLSA). The court reached this holding in the case of Hines v. State Room, Inc. even though the banquet sales managers were bound by a price schedule established by their employer and therefore had virtually no authority to make financial decisions.

In this case, the banquet sales managers were responsible for contacting potential clients, assisting clients in selecting the appropriate venue, and designing a function so as to meet the client’s objectives and budgetary constraints. The “vast majority” of their work involved “unscripted conversations” with current and potential customers regarding the details of the event.

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By Alison Andolena

On November 16, 2011, the New Jersey Appellate Division affirmed a finding that registered nurses who were paid on an hourly basis were exempt from the overtime requirements of the New Jersey Wage and Hour Law (“NJWHL”), even though the regulation applicable at the time only extended the “professional” exemption to employees compensated on a “salary or fee basis.”

In Anderson v. Phoenix Health Care, Inc., the court explained that while the regulation specifically provides that exempt professionals must be paid on a salary or fee basis, for the past 40 years the New Jersey Division of Wage and Hour Compliance’s enforcement policy had been “consistently administered” to extend the exemption to professionals paid on an hourly basis so long as their total weekly compensation exceeded the minimum set forth in the regulation. Deferring to the Division’s longstanding interpretation, the court stated that a change to such a longstanding policy must come from an amendment of the regulation or through the legislative process. In addition, the court found that the good faith exception would have applied even if the exemption was held not to apply to hourly-paid nurses. 

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The U.S. Supreme Court has agreed to resolve in Christopher v. SmithKline Beecham Corp. (11-204) whether the Fair Labor Standards Act’s (FLSA) outside sales exemption applies to pharmaceutical sales representatives (PSRs). The Court also will consider whether deference is owed to the Secretary of Labor's own interpretation of the FLSA exemption and related regulations. At stake is not only how an estimated 90,000 PSRs are to be paid under the FLSA, but also the deference to be paid to amicus briefs filed by the Department of Labor (DOL).

The FLSA’s outside sales exemption relieves from the Act’s overtime requirements “any employee employed . . . in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the Secretary).” Specifically, the regulations explain that an employee who works as an outside salesman is one:

(1) Whose primary duty is: (i) making sales within the meaning of section 3(k) of the Act; or (ii) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and (2) Who is primarily and regularly engaged away from the employer's place or places of business in performing such primary duty.

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As previously discussed, in recent amendments to its overtime regulations, New Jersey had inadvertently eliminated the exemption for sales employees paid on commission, which closely tracked an exemption in Section 7(i) of the Fair Labor Standards Act (sometimes known as the "inside sales" exemption).

After Littler assisted in drawing attention to this issue, the New Jersey Department of Labor and Workforce Development published on November 21, 2011, a proposed amendment to its regulations designed to restore the exemption. A public hearing on the proposed amendment is scheduled for Tuesday, December 13, 2011, and written comments are due by January 20, 2012. Final regulations, then, could issue as early as February.

To learn more about the proposed amendment and its implications for employers, please continue reading Littler's ASAP, New Jersey Issues Proposed Regulations to Restore Its Exemption for Commissioned Sales Employees, by Tammy McCutchen.

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Under the California Labor Code, certain computer software employees, as well as licensed physicians and surgeons, are exempt from state overtime requirements if they receive a minimum hourly, monthly or yearly rate. The rate is determined annually based upon changes to the California Consumer Price Index for Urban Wage Earners and Clerical Workers. Because the Index experienced a 2.5% increase over the past year, the California Division of Labor Standards Enforcement (DLSE) adjusted the rates these individuals must be paid to be considered overtime-exempt.

Computer Software Employee

Effective January 1, 2012, DLSE announced a 95-cent increase in the hourly rate for computer professionals, from $37.94 to $38.89 per hour. The monthly rate increases $164.69, from $6,587.50 to $6,752.19 per month. Finally, the annual salary increases $1,976.25, from $79,050 to $81,026.25 per year.

Licensed Physicians or Surgeons

Effective January 1, 2012, DLSE announced a $1.73 increase in the hourly rate for licensed physicians and surgeons, from $69.13 to $70.86 per hour.

Photo credits: arakonyunus and Inkastudio

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Bipartisan legislation introduced in the Senate last week would update the Fair Labor Standards Act’s (FLSA) computer employee exemption. Section 13(a)(17) of the FLSA establishes minimum wage and overtime exemptions for computer systems analysts, computer programmers, software engineers, or other similarly skilled workers provided that these employees’ specific job duties and compensation meet certain requirements. To learn more about the legislation and its potential implications for employers, please continue reading at Littler's Washington D.C. Employment Law Update blog.

Photo credit: PressFoto

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By Tammy McCutchen*

There has been an important change in New Jersey law which may require employers to take immediate action: In recent amendments to its overtime regulations, New Jersey eliminated the exemption for sales employees paid on commission, which closely tracked an exemption in Section 7(i) of the Fair Labor Standards Act (sometimes known as the “inside sales” exemption). Because New Jersey law is now more protective than the FLSA, at present, it appears likely that employers cannot classify commissioned inside sales employees as exempt from overtime pay.

Like the FLSA, the New Jersey overtime pay statute includes exemptions for executive, administrative, professional and outside sales employees. See New Jersey Statutes § 34:11-56a4. Although the New Jersey statute does not contain an exemption similar to the FLSA Section 7(i), the New Jersey regulations had defined “administrative” employees as including “an employee whose primary duty consists of sales activity and who receives at least 50 percent of his or her total compensation from commissions and a total compensation of not less than $400.00 per week.” N.J.A.C. § 12:56-7.2(b).

New Jersey recently amended 12:56-7.2 of their regulations so that it simply adopts the federal regulations at 29 C.F.R. Part 541; the regulation now states: “Except as set forth in (b) below, the provisions of 29 CFR Part 541 are adopted herein by reference.”

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By Alison Hightower

A social worker required to hold a bachelor’s degree in social or human services, behavioral science or an allied field does not necessarily qualify as a “learned professional,” properly exempt from overtime under the Fair Labor Standards Act, the Ninth Circuit recently held in Solis v. State of Washington DSHS (No. 10-35590 (Sept. 9, 2011).

The social workers in question were public employees of the State of Washington’s Department of Social and Health Services (DSHS), tasked with identifying the needs of children and their families and arranging for services to assure the children’s safety and well-being. Their obligations included investigating child abuse and neglect, developing treatment plans and recommending such plans to the courts, evaluating the progress children and families made in following those treatment plans, making placement decisions, and even recommending whether parental rights should be terminated.

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By Michael Gregg

A federal district court recently issued a decision in Hernandez v. Alpine Logistics, LLC, that requires employers to pay overtime compensation to employees who are otherwise exempt from overtime under the Motor Carrier Act for any workweek that the employee operates a vehicle weighing 10,000 pounds or less.

The primary issue in Alpine Logistics was whether employees who drove both larger vehicles (10,001 pounds or more) and smaller vehicles (10,000 pounds or less) were exempt from overtime under the Motor Carrier Exemption. The court pointed to Department of Labor Wage and Hour Division Fact Sheet # 19 in support of its holding that employees who drove both larger and smaller vehicles during the same workweek were entitled to overtime compensation. The court held that the Motor Carrier Exemption does not apply to an employee during workweeks in which the employee operates a smaller vehicle even if the employee also operates a larger vehicle during the same week.

Employers with a mixed fleet of vehicles should review their classification decisions and/or vehicle assignments to assess any potential exposure the Alpine Logistics decision may present.

To learn more about the decision and its implications for employers, please continue reading Littler's ASAP, Employers that Operate a Mixed Fleet of Vehicles May Lose the Motor Carrier Overtime Exemption.

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In Zelasko-Barrett v. Brayton Purcell, LLP, No. A130540 (Aug. 17, 2011), California's First District Court of Appeal affirmed the trial court's order granting summary judgment in favor of the employer, Brayton Purcell. The appellate court held that California's professional overtime exemption applied to the plaintiff during the period of time he was employed as a law clerk at Brayton Purcell and had not yet passed the California Bar Examination. To learn more about the decision and its implications for employers, please continue reading Littler's ASAP, California Court Finds Professional Overtime Exemption Applies to Law Clerks, by Alan Levins, Kurt Bockes and Rachelle Wills.

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By Diane Kimberlin

In Kuzinski v. Schering Corp, the U.S. District Court for Connecticut has dealt another blow to Schering Corporation’s efforts to prove that its pharmaceutical representatives are not entitled to overtime pay under the federal Fair Labor Standards Act. In ongoing litigation, the court had already rejected Schering’s argument that its pharmaceutical representatives were exempt outside sales employees. Schering tried another tactic, arguing that its sales representatives qualified as exempt from overtime under the administrative exemption. The plaintiffs filed their own motion for summary judgment. Acting on these cross motions for summary judgment, the court issued a decision on August 5, 2011, finding that the sales representatives are not exempt administrative employees.

Employers seeking to apply the FLSA’s administrative exemption must prove that: (1) the employees are paid a salary of at least $455 a week; (2) their “primary duty” is “the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers;” and (3) the employees’ “primary duty” includes the “exercise of discretion and independent judgment with respect to matters of significance.” According to the district court, Schering’s sales representatives did not meet the second or third parts of this test.

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By Ryan L. Eddings

A federal judge in California held this week that employers may lawfully deduct amounts owed by employees on their employer-guaranteed credit cards from the employees’ final pay. In Ward v. Costco Wholesale Corporation, a group of former employees claimed that Costco’s deduction of outstanding amounts owed by these former employees on their Costco-sponsored credit cards from the employees’ final paychecks violated the Fair Labor Standards Act and California minimum wage and overtime legal requirements.

Like many employers, Costco provided a guaranteed credit card program to some employees, guaranteeing the credit card to the issuer in the event of an employee’s default. Each employee signed an authorization permitting Costco to deduct an amount equal to the employee’s credit card then-outstanding balance from the employee’s final paycheck. Each terminating employee received a final paycheck that included pay for all hours worked during the final pay period, as well as accrued vacation and sick leave pay. Costco then deducted an amount equal to the outstanding balance of the employer-sponsored credit card from the employees’ final pay.

At trial, the group of former employees argued that only gross wages for hours worked could be considered in determining whether Costco satisfied its obligation to pay minimum and overtime wages. The court rejected this argument, holding that it could also consider the pay for non-work, such as accrued vacation and sick leave pay. Using this figure, the court concluded that none of the nineteen former employees “had an amount withheld high enough to invade minimum or overtime wages.” Accordingly, the court entered judgment in favor of Costco, holding that plaintiffs failed to prove a violation of the FLSA and California wage and hour laws.

Photo credit: Matthew John Hollinshead

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By Jeanne Barber

On July 28, 2011, the Eleventh Circuit Court of Appeals in Dionne v. Floormasters Enterprises, Inc. held that an employer is not required to pay a plaintiff’s attorneys’ fees and costs if it denies liability under the Fair Labor Standards Act (FLSA) and tenders the full amount claimed by the employee, thereby rendering the employee’s claim moot.

The plaintiff, a warehouse clerk for Floormasters Enterprises, filed a complaint to recover overtime compensation under the FLSA, as well as liquidated damages, and reasonable attorneys' fees and costs. Floormasters filed a motion to dismiss the complaint, arguing that although it “vigorously den[ied] all of Plaintiff’s allegations,” it paid the plaintiff his total estimated damages. The plaintiff conceded that his claim thus became moot, but nonetheless requested that the court award him attorneys' fees and costs on the ground that he was the prevailing party in the action. The district court granted the employer’s motion and denied plaintiff’s request for attorneys' fees.

On appeal, the Eleventh Circuit held that the FLSA plainly requires that the plaintiff receive a judgment in his favor to be entitled to attorneys’ fees. The court found that there was no judgment in this case because the district court played only a minimal role and did not approve any agreement or enforce any settlement order. To hold otherwise, the court cautioned, would encourage plaintiffs to file meritless lawsuits and allow them to still recover attorneys’ fees. 

Photo credit: MBPhoto, Inc.

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By Alison Hightower

“It’s not what you wear—it’s how you take it off,” an anonymous author exclaimed. Whether employees must be paid for taking off and putting on a variety of items, from aprons to mesh gloves, continues to spark controversy. In the latest pronouncement on the subject, in Salazar v. Butterball, the Tenth Circuit recently concluded that the Department of Labor’s (DOL) viewpoint on what constitutes non-compensable “time spent changing clothes” should receive no weight.

The issue that has divided the courts and the DOL is what constitutes “clothes” under Section 203(o) of the Fair Labor Standards Act (FLSA) which excludes from compensable time any time spent “changing clothes” if that time is non-compensable under either the express terms or custom and practice of a collective bargaining agreement (CBA). In other words, if a union member is covered by a CBA in which, either by express language or custom and practice, time spent changing clothes is not paid, then the employer does not have to pay for that time under the FLSA. 

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By Jim Hart

On June 30, 2011, the California Supreme Court in Sullivan v. Oracle Corporation (S170577) considered a claim by three nonresidents of California. The plaintiffs brought claims of unpaid overtime against Oracle, a Delaware corporation with its headquarters in California. The three plaintiffs traveled to California from Colorado and Arizona for periods of time ranging from several weeks to several months to instruct customers on Oracle products. The California Supreme Court issued rulings concerning the reach of California's overtime laws to employees temporarily working in the state:

• First, California's overtime laws were found to apply to the non-resident plaintiffs for the time they were temporarily working in California, particularly since Oracle was a California-based employer and the employees worked at least a full day in the state;
• Second, the court also found that the plaintiff's temporary work in California provided a basis to seek overtime compensation under California's unfair competition law; and
• Third, the court found making a decision in California to classify the plaintiffs and others as exempt did not, standing alone, justify applying California's unfair competition law to alleged violations that occurred outside the state.

For more information about the decision and its implications for employers, please continue reading Littler's ASAP, California Supreme Court Finds Out-of-State Employees Working in California Are Protected by California Overtime Laws.

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By Sarah Green

In a case of first impression, the Ninth Circuit recently held that “house parents” at a home for mentally troubled children are not entitled to the overtime protections of the Fair Labor Standards Act (FLSA).

Plaintiffs were a married couple formerly employed by Family Centered Services of Alaska (FCSA), a non-profit organization that provides housing for “severely emotionally disturbed” children. Plaintiffs claimed that they often worked almost 100 hours per week and filed suit, asserting that the FCSA was subject to the overtime requirements of the FLSA because it was operating “an institution primarily engaged in the care of the . . . mentally ill or defective who reside on the premises of such an institution.” The district court agreed, granting summary judgment on the issue, and the defendant appealed.

The Ninth Circuit reversed, finding that FCSA was not covered by the statute for two primary reasons. First, the court held that the homes were not “primarily engaged” in the type of “care” contemplated by the statute. The court noted that the FCSA’s main function was to provide the children with housing, not treatment. While children “presumably benefited from Plaintiffs’ ‘care’ as house parents,” they received their psychological and medical treatment almost exclusively outside the home. In addition, the court determined that the FCSA was not the type of “institution” contemplated by the statute, which refers to hospitals and nursing homes. The court further observed that both legislative history and interpretive guidance from the Department of Labor was consistent with its ruling. As such, the court remanded for further proceedings consistent with its decision. 

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By Mary Walsh

In Campbell v. PricewaterhouseCoopers, LLP, the Ninth Circuit Court of Appeals held that unlicensed accountants in California were not ineligible, as a matter of law, from being exempt from overtime under either the professional or administrative exemptions.

Two former unlicensed accountants in a subdivision of PricewaterhouseCoopers (PwC) filed a class action lawsuit alleging that PwC violated California wage and hour laws by improperly classifying them as exempt from overtime. Plaintiffs claimed they performed predominately routine and menial work and that strict instructions, computer software, and a work review-system precluded them from exercising any significant degree of discretionary judgment or analytical thinking. PwC argued that plaintiffs performed work integral to PwC’s services and to the extent that they did not exercise discretion and independent judgment, they were failing to meet the firm’s expectations. Both parties filed motions for partial summary judgment on whether plaintiffs were exempt under the professional, executive, and administrative exemptions. The district court granted plaintiffs’ motion for partial summary judgment, finding that as a matter of law, PwC could not classify plaintiffs as exempt from overtime under the applicable IWC Wage Order on the grounds that: (1) unlicensed accountants categorically are ineligible for the professional exemption; and (2) PwC had not established an issue of triable fact on whether plaintiffs’ work was performed “under only general supervision,” an essential element of the administrative exemption.

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By Gregory Iskander

Making new law on what qualifies as a “commission” for purposes of the overtime exemption for salespeople, a California Court of Appeal upheld a pay plan that compensates sales employees at a fixed rate for each product sold as opposed to relying on a percentage of the sales price.

In Areso v. CarMax, Inc.¹ a former sales consultant of CarMax filed a class action against the company alleging that CarMax violated the California Labor Code by classifying her and other sales consultants in California as exempt and failing to pay her overtime. CarMax utilized a compensation plan for its sales consultants, who sold used vehicles, warranty plans, and vehicle accessories, with a uniform dollar payment for each sale of a vehicle or service plan. Concerned with the applicability of the California salesperson overtime exemption, CarMax modified its pay plan for California employees and used a formula which took into account the number of vehicles sold and the average price of the vehicles – such that a sales consultant would earn approximately the same uniform payment per vehicle sold. CarMax used this uniform payment based on the number of vehicles sold instead of a percentage of the sales price so that its salespeople did not push higher priced cars.

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By Whitney Ferrer

In Verkuilen v. MediaBank LLC, the U.S. Court of Appeals for the Seventh Circuit held that an account manager for a company that provides computer software to advertising agencies qualified for the administrative exemption to the Fair Labor Standards Act and was therefore exempt from overtime.

The plaintiff in this case worked as an account manager for MediaBank LLC. In this position, she acted as a “bridge” between the software developers at MediaBank and its customers. As account manager, the plaintiff was responsible for determining the customer’s needs, relaying those needs to the software developers in order to facilitate the customization of the software, and helping the customer use the customized software.

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By Milton Castro

In a collective and putative class action under New York’s overtime and minimum wage laws, the U.S. District Court for the Southern District of New York recently held that the act of being a registered representative pursuant to the Financial Industry Regulatory Authority (FINRA) does not in itself absolve an insurance agent from the “outside salesman” exemption under the Fair Labor Standards Act (FLSA). Gold v. New York Life Insurance Co.  In Gold, the plaintiff worked for New York Life Insurance Co. as an insurance agent. During his employment, the plaintiff was compensated on a purely commission basis and received no remuneration based on the number of hours he worked. In addition to selling traditional “fixed” insurance policies and annuities, the plaintiff also obtained “Series 6” and “Series 63” licenses, which permitted him to sell “registered” products, including variable life insurance policies and other products regulated by FINRA. With these licenses, Gold became a “registered representative” – a title which requires enhanced duties to clients under FINRA, such as the “Know Your Customer Rule” and the “Suitability Rule.” It was based on these enhanced duties that Gold, in an attempt to escape summary judgment, argued that he should not be considered an “outside salesman” under the FLSA, but rather a financial advisor. The court disagreed.

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By R. Brian Dixon

The time period for the California Supreme Court to grant review of Arechiga v. Dolores Press, 192 Cal. App. 4th 567 (2011), has expired without review being granted. This is mixed news for employers, as the result in Arechiga, while favorable to employers, does not resolve the questions posed by the Court of Appeal’s decision.

In Arechiga, the court concluded that an employer can include overtime in a fixed salary amount. The court found that each of the requirements for doing so under older California case law was met as the employer had, before the work at issue was performed, specified: (1) the days that the employee would work each week; (2) the number of hours the employee would work each day; (3) the specific amount of the guaranteed salary; (4) the hourly rate on which the salary was based; and (5) that the salary covered both regular and overtime hours.

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By Wayne Hersh and Heather Peck

In February 2011, the California Court of Appeal rejected an employer’s use of an "artificial" workweek where the workweek ran from 12:00 a.m. on Monday to 11:59 p.m. the following Sunday and where the employees worked a 14-day shift from Tuesday to Tuesday.¹ In its opinion, the court held that while an employer "may designate any workweek it wishes" it cannot "require its employees to work one workweek, such as from Tuesday noon to Tuesday noon, and designate another workweek, such as Monday to Sunday night, for the purposes of calculating overtime compensation."²

The employer subsequently filed a motion for reconsideration, which was granted, and the court re-issued its opinion on April 14, 2011.³ In its re-issued opinion, the court affirmed its prior decision, rejecting the artificial workweek utilized by the employer.⁴ The court’s reasoning, however, was significantly modified. Rather than flatly rejecting the artificial workweek, the court acknowledged that an employer may designate a workweek which differs from the work schedules of the employees if it has a bona fide business reason for doing so, "which does not include the primary objective of avoiding the obligations of overtime."⁵

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Pursuant to California law, a non-exempt employee is usually entitled to premium pay on the seventh day of work in any one workweek. For example, where an employee works six consecutive days within a workweek, she must be compensated at time and a half for the first eight hours worked and double time for any additional hours worked on the seventh day. A “workweek” is defined as “any consecutive days, starting with the same calendar day each week. ‘Workweek’ is a fixed and regularly recurring period of 168 hours, seven consecutive 24-hour periods.”

Prior to the court’s recent ruling in Seymore v. Metson Marine, Inc., it was presumed that employers had flexibility in defining the “workweek” as applied to their employees. However, in Seymore v. Metson Marine, Inc., the plaintiffs argued that they were entitled to unpaid overtime because the defendant artificially created a workweek to circumvent premium pay requirements. The workweek, as defined by the employer, ran from 12:00 a.m. on Monday to 11:59 p.m. the following Sunday. The plaintiffs worked a 14-day on/14-day off schedule that ran from Tuesday to Tuesday, which resulted in a single seventh day premium at the end of the second week.

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A recent decision by the U.S. District Court for the Southern District of New York illustrates the impact of class waiver provisions in employment agreements. In Sutherland v. Ernst & Young LLP, plaintiff, a former accountant, brought a class action against Ernst and Young (“E&Y”) under the Fair Labor Standards Act and New York law, alleging that she and putative class members were unlawfully denied overtime compensation. E&Y moved to dismiss and compel arbitration of Sutherland’s claims on an individual basis pursuant to the parties’ arbitration agreement which included a class waiver provision.

In denying defendant’s motion, the court relied on In re American Express Merchants’ Litigation, 554 F.3d 300 (2nd Cir. 2009) (“Amex”). There, the Second Circuit invalidated a class waiver provision in an arbitration agreement, finding that it precluded plaintiffs from vindicating their statutory rights. The Amex court held that the enforceability of a class waiver provision should be determined by referencing several factors, including: (1) the provision’s fairness; (2) the individual plaintiff’s cost-to-recovery ratio; (3) the ability to recover attorneys’ fees and costs and thus obtain legal representation; and (4) the waiver’s effect on the company’s “ability to engage in unchecked market behavior.”

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Ten years ago, in Bell v. Farmers Insurance Exchange, 87 Cal. App. 4th 805 (2001), the California Court of Appeal held that insurance claims adjusters in that case were nonexempt administrative employees and, consequently, were entitled to overtime pay. That decision lead to a $90 million dollar judgment against the defendant and a slew of copycat lawsuits. Since then, a number of federal courts have gone in the opposite direction and held that claims adjusters are exempt from overtime. See e.g., Palacio v. Progressive Insurance Company, 244 F. Supp. 2d 1040 (C.D. Cal. 2002); McAllister v. Transamerica Occidental Life Insurance Company, 325 F.3d 997 (8th Cir. 2003); Cheatham v. Allstate Insurance Company, 465 F.3d 578 (5th Cir. 2006); In re Farmers Ins. Exch., Claims Representatives’ Overtime Pay Litig., 466 F.3d 853 (9th Cir. 2006); Roe-Midgett v. CC Services, Inc., 512 F.3d 865 (7th Cir. 2008); Robinson-Smith v. Gov’t Employees Ins. Co., 590 F.3d 886 (D.C. Cir. 2010). In Hodge v. Aon Insurance Services, the California Court of Appeal followed this trend and held that Aon’s claims adjusters were properly classified as exempt administrative employees. In doing so, the court in Hodge limited the holding issued 10 years ago in Bell.

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Carlos Arechiga may have been, as the trial court found, ecstatic when he was first told that he would earn $880 per week as a custodian, but he certainly was dismayed after working six 11-hour days per week for several years and never receiving a separate payment for overtime. Arechiga was undoubtedly more dismayed when the California Court of Appeal, in Arechiga v. Dolores Press, affirmed the trial court’s conclusion that his salary included his overtime compensation and he was due no additional wages. The Court of Appeal concluded that Arechiga’s employer had sufficiently spelled out the six factors needed to have, under California law, an enforceable wage agreement that included all required overtime. Perhaps surprisingly, the Court of Appeal also ruled that the wage agreement prevailed over section 515(d) of the Labor Code, which seemingly outlawed such agreements.

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On February 15, 2011, the U.S. District Court for the District of New Jersey decertified a class of approximately 1,500 Home Depot merchandising assistant store managers (MASMs) who brought claims under the Fair Labor Standards Act (FLSA) against Home Depot. In Aquilino v. Home Depot, U.S.A., Inc., the plaintiffs were MASMs, who were the second-highest ranking employee in a Home Depot, subordinate only to the store manager. The MASMs claimed that they were improperly classified as executive employees who were exempt from the overtime requirements of the FLSA, and sued Home Depot for failing to pay them overtime wages.

In 2006, the court conditionally certified the class of MASMs, but expressly stated that certification “may be revisited . . . if it later appears, after appropriate discovery, that the additional plaintiffs who opt in the lawsuit are not similarly situated.” Notice was sent to approximately 12,728 current and former MASMS – 1,747 initially joined the litigation, and 1,502 remained in the litigation. Home Depot later moved to decertify the conditional collective action, arguing that the plaintiffs could not establish that they were similarly situated to the proposed class.

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On February 22, 2011, the U.S. Supreme Court declined to review a decision from the Seventh Circuit Court of Appeals which had approved the use of the “half time” method of computing unpaid overtime compensation in a misclassification case under the FLSA. Urnikis-Negro v. American Family Property Services, 616 F.3d 665 (7th Cir. 2010), cert. denied, No. 10-745 (Feb. 22, 2011).

Pursuant to the “half time” method, when an employee agrees to receive a fixed weekly salary as payment for all hours worked, the employee’s “regular rate” for any particular workweek is determined by dividing the employee’s weekly salary by the number of hours actually worked in that week. If it is later determined that the employee was misclassified as exempt, the amount of unpaid overtime compensation due for that week is equal to half of the employee’s regular rate times the number of overtime hours worked.
 

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In Christopher v. SmithKline Beecham, the Ninth Circuit issued a strong rebuke to the Department of Labor (and cemented a circuit split) in a remarkable decision upholding the “outside sales” exemption for Pharmaceutical Sales Representatives (PSRs).

The plaintiffs were employed as PSRs for SmithKline Beecham Corporation. The PSRs were classified by their employer as exempt “outside salesmen” under the FLSA and were not paid overtime compensation. The district court granted the employer’s motion for summary judgment, and the PSRs appealed.

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In a very favorable decision for healthcare employers facing the onslaught of wage and hour class and collective actions, in Wolman v. Catholic Health System of Long Island, a federal district court in New York dismissed the plaintiffs’ Fair Labor Standards Act (FLSA) claims for failure to provide sufficient facts to state a claim, and declined to exercise supplemental jurisdiction over plaintiffs’ state wage law claims. To learn more about the decision and its implications for employers, please continue reading at Littler's Healthcare Employment Counsel blog. 

Photo credit: MSRPhoto

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As we wrote last month, the New York State Department of Labor has issued amended wage regulations for restaurants and hotels effective January 1. The DOL has now issued a notification to employees that the employer must post the regulation’s requirements in a conspicuous place in the establishment. Note that the poster is somewhat misleading with respect to the overtime rate for tipped employees. Overtime for tipped employees is one and one half times the minimum wage less the tip credit.

The poster also mentions call-in pay and spread-of-hours pay. Call-in pay is additional hours at minimum wage owed to employees who are sent home early. Spread-of-hours pay is an additional hour of pay at minimum wage owed to any employee when the length of the interval between the beginning and end of his or her workday exceeds ten hours. It should be kept in mind that while employers will have until March 1, 2011, to implement the required changes, the changes must be retroactive to January 1, 2011. Therefore, it is imperative that employers begin keeping thorough records of hours worked and wages and tips paid.

This entry was written by Andrew Marks.

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In a significant victory for Massachusetts healthcare employers, on December 20, 2010, the Massachusetts federal court applied the state overtime exemption available to hospitals, nursing homes, and certain other healthcare employers, and dismissed all 13 state wage-law claims in Cavallaro v.UMass Memorial Health Care. Plaintiffs in the case, a class action filed on behalf of 13,000 current and former employees of UMass Healthcare and its subsidiaries, claimed the hospital did not compensate them for time worked: (1) during meal breaks that were automatically deducted from wages; (2) before and after scheduled shifts; and (3) time spent in training sessions. To learn more about the Cavallaro decision and its implications for employers, please continue reading at Littler's Healthcare Employment Counsel blog.

Photo credit: MSRPhoto

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New York law has long prohibited employers from paying workers less than the minimum wage or failing to pay proper overtime. This newly enacted piece of legislation, the Wage Theft Prevention Act, now adds strict new penalties for failure to comply with minimum wage and overtime laws. The new law also amends current wage notification requirements for employers.

Under the Wage Theft Prevention Act, in the event of a wage payment violation, an employer may be liable for up to twice the amount that was due as wages as well as other penalties and legal fees. The law also prohibits retaliation against employees who exercise their rights under the statute.

Additionally, the new law requires notifications to be provided to employees in their native language at the time of hire and on or before each February 1st. Previously the law required such a notification to include the rate of pay and regular paydays. The new law adds several additional requirements to the contents of the notification, including more detail on the basis of pay (i.e., whether the employee is paid on a salary, hourly, piece or commission basis, etc.) and information regarding the employer, such as its address and phone number. There are also new detailed requirements concerning the acknowledgment of the required notification, and a new records retention requirement of 6 years.

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The long-awaited revisions to New York's hospitality industry wage regulations have finally become official. They go into effect January 1, 2011, but full compliance is not required until March 1, 2011. Here are some highlights:

Minimum and Overtime Wage: The tip credit rate for food service workers is increased from $4.65 to $5.00 per hour. The new overtime rate for tipped food service workers will be $8.63. All nonexempt employees who work in the hospitality industry, including office workers employed by a hotel or restaurant, must be paid by the hour: shift pay, weekly salary or other non-hourly rate bases will no longer be permitted.

Spread of Hours: All nonexempt employees are eligible for spread of hours pay (i.e., an additional hour of pay at the minimum wage) if the time between the beginning and end of their workday exceeds ten hours.

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Pennsylvania’s Minimum Wage law requires that employees who work in excess of 40 hours in a workweek be paid overtime at the rate of 1½ times the worker’s regular rate of pay. The law exempts “ [d]omestic services in or about the private home of the employer” from the minimum wage and overtime requirements. According to regulations enacted by the PA Department of Labor and Industry (“DOLI”), however, the exemption applies only to the services of aides who are hired directly by the householder, not to the services of aides who work for a third party agency. On November 17, 2010, in Bayada Nurses, Inc v. Department of Labor and Industry, the Pennsylvania Supreme Court unanimously upheld DOLI regulations as consistent with the intent of state law and held that a home health agency cannot rely on the “domestic services” exemption to avoid paying overtime to its home health aides because it is a third party agency employer.

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A California federal court gave final approval to a $2.91 million settlement between Kaiser Foundation Hospitals and approximately 500 information technology employees who alleged they were misclassified as exempt under both the Fair Labor Standards Act and California law, and denied overtime for working through meal periods and working in excess of 40 hours per week, 8 hours per day or on the 7th consecutive day of a workweek. To learn more about the case, please continue reading at Littler's Healthcare Employment Counsel blog.

Photo credit: Bartek Szewczyk

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On July 7, 2010, Alaska enacted a law restricting the amount of overtime nurses can work at private and public health care facilities. Many of the law’s provisions do not take effect until 2011. The law does provide, however, that a health care facility must file a report with the Alaska Department of Labor and Workforce Development’s Division of Labor Standards and Safety prior to February 1, 2011. The report, which covers the time period from July 2010 through December 31, 2010, must identify, for each nurse employed by the health care facility or under contract with the health care facility, the number of overtime hours worked and the number of hours the nurse was on call. The Department just recently made the required form available on its web site. 

Health care facilities whose nurses have not worked overtime hours and have not been on call during the reporting period may simply indicate on the form that there are no reportable hours.

This entry was written by Christopher Kaczmarek.
 

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Senator John Kerry (D-MA) and Rep. Jim McDermott (D-WA) have introduced a bill that would curtail the use of a federal “safe harbor” that allows businesses to treat workers as independent contractors for federal employment tax purposes, regardless of the employee’s actual status under the common law test. The Fair Playing Field Act of 2010 (pdf) (H.R. 6128, S. 3786) would, among other things, require the Secretary of the Treasury to issue prospective guidance on worker classification for federal employment tax purposes. The safe harbor provided under section 530 of the Revenue Act of 1978 would continue to be available until the date an individual’s employment status is reclassified. The worker’s reclassification date would be the earlier of (a) the first day of the first calendar quarter beginning more than 180 days after the date of an employee classification determination by the Secretary of the Treasury; or (b) the effective date of the “first application final regulation” issued by the Secretary of the Treasury with respect to such individual (or if later, the first day of the first calendar quarter beginning more than 180 days after such regulation is issued). To learn more about the bill and its potential implications for employers, please continue reading at Littler's Washington, D.C. Employment Law Update blog.

Photo credit: SchulteProductions

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In a recent opinion, Polycarpe v. E & S Landscaping Serv. Inc., No. 08-15154 (11th Cir. Aug. 31, 2010), the Eleventh Circuit held that employees of primarily intrastate businesses may nonetheless be covered under the Fair Labor Standards Act (FLSA) if they can show that, in their employment, they utilized “materials” that had moved at any time in interstate commerce. “This decision makes it easier for low-wage workers to vindicate their rights under the FLSA by permitting workers to prove that they worked for covered enterprises,” said Steven J. Mandel, the Department of Labor’s Deputy Solicitor for National Operations.

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In Songer v. Dillon Resources, Inc., No. 09-10803 (Sept. 3, 2010), a unanimous panel of the Fifth Circuit issued two holdings, both favorable to employers attempting to establish the Motor Carrier Act exemption to the Fair Labor Standards Act (FLSA). The first issue was whether an employee staff-leasing company may assert the Motor Carrier Act exemption embodied in the FLSA. In Songer, one of the defendants was an employee staff-leasing company that hired drivers and assigned them to various interstate trucking companies. In that case, the plaintiffs were assigned to two different trucking companies that hauled aggregate used in the cement and concrete industries. Sometimes the aggregate was hauled across state lines, but in some instances the aggregate was only hauled within the state of Texas. The Fifth Circuit held that a staff-leasing company was entitled to the Motor Carrier Act exemption because it provided drivers to interstate trucking companies. The Fifth Circuit also held that all of the truck drivers were subject to the Motor Carrier Act exemption, even if some of them drove primarily intrastate. The court held that each truck driver did not have to personally participate in interstate commerce but, rather, only had to have a reasonable expectation that he/she could be called upon to drive across state lines. In Songer, all of the truck drivers could reasonably be expected to engage in interstate commerce because the dispatcher randomly assigned trips, some of which crossed state lines; no truck driver had a dedicated route; and all of the drivers had to meet DOL requirements, such as completing DOT logs and drug tests.

This entry was written by Shawn Oller.

Photo credit: MobiusDaXter

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In Parker v. NutriSystem, Inc., No. 09-3545 (Sept. 8, 2010), a divided panel of the Third Circuit held a system of flat-rate compensation for each sale that an employee makes may qualify for the retail commission exception to the overtime requirements of the federal Fair Labor Standards Act. In so ruling, the majority rejected the Department of Labor's argument that commissions must be linked to the sales price. To learn more about the decision and its implications for employers, please continue reading Littler's ASAP "Third Circuit Holds that Flat-Rate Commissions May Qualify for Retail Commission Exception to FLSA's Overtime Requirements" by Matthew Hank.

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On August 31, 2010, just in time for Labor Day, New York Governor David Paterson signed into law the “Domestic Workers Bill of Rights” (“Bill of Rights”), which grants certain employment protections to household domestic workers such as nannies, caregivers and housekeepers. The Bill of Rights, which takes effect on November 29, 2010, is the first of its kind in the nation and amends New York Labor Law, in addition to other statutes, to entitle domestic workers to receive overtime pay, one day of rest per week or overtime pay when they work on their day of rest, and three days of paid time off after one year of employment. To learn more about the law and its implications for employers, please continue reading Littler's ASAP, "New York Enacts Bill of Rights for Domestic Workers," by Stephen A. Fuchs.

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This week, Rep. Linda Sanchez (D-CA) introduced legislation that would extend the federal minimum wage and overtime protections of the Fair Labor Standards Act (FLSA) to most home care workers, improve federal and state data collection and oversight with respect to the direct care workforce, and create a grant program to help states recruit and train direct care workers. Specifically, the Direct Care Workforce Empowerment Act (H.R. 5902) would limit the “companionship services” FLSA exemption to those who work 20 or fewer hours per week. To learn more about the bill, please continue reading at Littler's D.C. Employment Law Update blog.

Photo credit: AlexRaths

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Following a Connecticut district court’s denial of summary judgment to the employer in Ruggeri v. Boehringer Ingelheim Pharmaceuticals, Inc., a collective action brought by pharmaceutical sales representatives who claimed the were improperly classified as exempt employees, the pharmaceutical company has been hit with another putative collective action by sales representatives seeking overtime wages. But in this new case, Lopez-Lima v. Boehringer Ingelheim Pharmaceuticals, filed on July 21, 2010 in the federal District Court for the Southern District of Florida, plaintiffs allege that Boehringer hired them as “non-exempt commission-paid pharmaceuticals sales representative[s].” To learn more about the case, please continue reading at Littler's Healthcare Employment Counsel blog.

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On July 19, 2010, in Jackson v. Alpharma Inc., the United States District Court for the District of New Jersey held that Alpharma, Inc.’s pharmaceutical sales representatives qualify as exempt administrative employees under the Fair Labor Standards Act (“FLSA”). The court’s unpublished opinion relies in part on the Third Circuit’s holding in Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir. 2010).

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The Ninth Circuit Court of Appeals recently rejected a Texas corporation’s argument that drivers who performed services for the company were independent contractors—and therefore not subject to the requirements of the California Labor Code—because their contracts with the company contained a Texas choice of law provision. In Narayan v. EGL, Inc., the Ninth Circuit reversed the district court’s decision to grant the company’s motion for summary judgment and instead remanded the case for trial. In so holding, the Ninth Circuit demonstrated the heavy burden imposed on companies seeking to establish an independent contractor relationship, even when the company has a written contract designating the workers as independent contractors.

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On July 6, 2010 the Second Circuit Court of Appeals ruled in In re Novartis Wage and Hour Litigation (“In re Novartis”)¹ that Novartis Pharmaceuticals Corporation’s pharmaceutical sales representatives (“Reps”) did not meet the requirements of the administrative or outside sales exemptions under the Fair Labor Standards Act (FLSA) and therefore were incorrectly classified as exempt employees. In so doing, the Second Circuit reversed a decision by the district court for the Southern District of New York and reached a conclusion contrary to that reached by the Third Circuit in the recent Smith v. Johnson & Johnson case.

In support of its decision, the Second Circuit found the following facts: In visits typically lasting no more than five minutes, the Reps provide physicians with information about the benefits of Novartis pharmaceuticals and encourage them to prescribe the products to their patients. Reps may give physicians reprints of clinical studies about the pharmaceuticals, identify the Novartis products for which insurers will pay, organize meals and programs to promote particular products, give physicians samples of drugs, and in many instances get physicians to say they will prescribe Novartis products in the future. Although physicians cannot purchase drugs directly from the manufacturer, the Reps seek verbal commitments from physicians to prescribe Novartis’s drugs to their patients.

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A court recently held that the Massachusetts overtime law, Mass. Gen. Laws Ch. 151 § 1A, may apply to work performed outside of Massachusetts by employees of a Massachusetts company. This is a significant ruling, given that the overtime law provides for mandatory awards of treble damages and attorneys’ fees to successful plaintiffs.

The plaintiff in Gonyou v. Tri-Wire Engineering Solutions, Inc. (pdf) lived in Massachusetts. He worked as a “technician supervisor” at the company’s facility in Danbury, Connecticut. After the company terminated his employment, the plaintiff sued, alleging that the company failed to pay him overtime while he worked in Connecticut.

After removing the case to federal court in Massachusetts, Tri-Wire moved to dismiss the plaintiff’s claim under the Massachusetts overtime law. Specifically, Tri-Wire argued that there is a presumption against extra-territorial application of statutes and the place of employment is the crucial factor in determining which state’s law is applicable. The plaintiff responded by arguing that nothing in the language of the statute compels such a result and that his proposed approach “does no more than ask this employer to stay abreast of the employment laws of its own home state.”

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The Oregon Bureau of Labor and Industries (BOLI) has amended its administrative rules pertaining to minimum wage, overtime, and working conditions effective June 1, 2010. Generally speaking, the amendments (pdf) conform Oregon’s minimum wage and overtime exemptions to federal law and clarify the rules for meals and rest periods.

First, the amended rules provide that individuals employed in domestic service positions who provide companionship services for individuals who are elderly or infirm (and therefore unable to care for themselves), are not required to be employed by the individual for whom they provide such services in order to be exempt from minimum wage.

Second, under the amendments, Oregon law is consistent with federal law by providing that certain computer system analysts, computer programmers, software engineers, or other similar skilled workers must be paid the equivalent of $27.63 per hour for each hour worked (although not necessarily on an hourly basis).

Third, the amendments state that, except as otherwise provided in the administrative rules, employees who are not relieved of all duties for 30 continuous minutes during their meal period must be paid for the entire 30-minute meal period.

These rules became effective as of June 1, 2010.

This entry was written by Janice Kim.

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In April 2010, the U.S. Department of Labor (DOL) issued a new Fact Sheet discussing the circumstances under which “interns must be paid the minimum wage and overtime under the Fair Labor Standards Act (FLSA) for services that they provide to ‘for-profit’ private sector employers.” At the same time, California’s Division of Labor Standards Enforcement (DLSE) stated in an opinion letter that it will apply the same rules that the DOL has applied in the past and will continue to apply as described in the Fact Sheet.

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The Maryland General Assembly recently amended the Maryland Wage Payment and Collection Law (MWP&CL) in two significant ways. The MWP&CL governs the timing of payment and payment of wages (such as salary, bonus or commissions) upon the termination of employment.

First, the General Assembly added “overtime wages” to the definition of “wage.” Accordingly, if a court now finds that an employer withheld overtime wages, other than as a result of a bona fide dispute, the employee may be entitled to treble damages. This represents a change from existing court precedent, which provided that an employee could sue for overtime wages only under the Fair Labor Standards Act and the Maryland Wage and Hour Law, but not under the MWP&CL. Notably, the new law fails to provide any guidance to courts about how the conflicting penalty sections of these statutes should be reconciled.

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On March 25, 2010, the central district court of California denied class certification in two consolidated cases, Spainhower v U.S. Bank and Williams v. U.S. Bank, a decision that could impact plaintiffs’ attempts to certify future misclassification cases in federal court. In their motion, the plaintiffs sought certification of all in-store branch managers whom they claim were misclassified as exempt under the executive, administrative, and outside sales exemptions. Although the plaintiffs’ motion sought class certification under Rule 23(b)(2) or (b)(3), their supporting points and authorities only argued for certification under Rule 23(b)(3). The court found that the plaintiffs failed to meet their burden under Rule 23(b)(3) because individualized factual inquiries would inevitably consume the majority of a trial and overwhelm the adjudication of common issues.

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In a case of great significance to public employers, the Ninth Circuit issued a decision holding that the time spent putting on and taking off required uniforms and gear does not constitute compensable work for police officers. In Bamonte v. City of Mesa (9th Cir. 08-16206) the claimants were current and former police officers of the City of Mesa who contended that they ought to be paid for the time it took them to put on and take off their uniforms and gear at the beginning and end of their shift, a process referred to as donning and doffing. The City argued that although it required every patrol officer to wear a proper uniform, the City imposed no restriction on where each officer put on or took off that uniform and gear. Therefore, because officers were not required to don and doff exclusively at work, the City had no legal obligation to pay for the time devoted to donning and doffing. The trial court agreed and granted summary judgment to the City. On March 25, a panel of the Ninth Circuit affirmed the lower court's decision in a 2-1 opinion. Officers in many other law enforcement agencies throughout the West filed similar lawsuits, but the Bamonte case is the first to be the subject of a substantive decision by the Ninth Circuit.

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In a development that may have significant implications for mortgage lenders and other financial services employers, the Department of Labor has issued a new Administrator's Interpretation finding that mortgage loan officers do not qualify as exempt administrative employees under the FLSA, reversing its prior position and withdrawing previous opinion letters concluding to the contrary. To continue reading about this development, see Littler's ASAP Department of Labor Reverses Course: Mortgage Loan Officers Do Not Meet the Administrative Exemption's Requirements by Robert W. Pritchard, R. Brian Dixon and Andrew J. Voss.

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In Schmidt v. Eagle Waste & Recycling Inc., the Seventh Circuit Court of Appeals affirmed the district court’s grant of summary judgment to a Wisconsin waste removal company and agreed that the defendant properly classified its former “account representative” as exempt under the Fair Labor Standards Act (FLSA). The plaintiff had been hired as a “sales representative,” but had adopted the title “account representative,” with the defendant’s permission. Several months after the plaintiff’s employment ended, she sued the defendant under the FLSA for failing to pay her for overtime. The district court granted the defendant’s motion for summary judgment, concluding that the plaintiff’s sales and marketing duties rendered her exempt under both the outside sales and “combination” exemptions to the FLSA. On appeal, the Seventh Circuit agreed.

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In its first Administrator Interpretation Letter, the Wage and Hour Division of the U.S. Department of Labor (DOL) announced today that mortgage loan officers do not qualify as bona fide administrative employees under section 13(a)(1) of the Fair Labor Standards Act (FLSA). In reversing its prior stance on the issue, the DOL withdrew two opinion letters issued on September 8, 2006 and February 16, 2001, in which it previously had found that loan officers were exempt administrative employees.

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The U.S. Court of Appeals for the Ninth Circuit applied the First Amendment’s “ministerial exception” to the claim of a Catholic seminarian, affirming the district court’s Rule 12(c) dismissal of the plaintiff’s claim for overtime pay under the Washington Minimum Wage Act (WMWA). In Rosas v. Corp. of the Catholic Archbishop of Seattle, the Ninth Circuit adopted a new test for determining whether a person is a “minister” for purposes of the ministerial exception.

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In Collins v. Heritage Wine Cellars Ltd. (7th Cir., No. 09-1181, Dec. 21, 2009), the Seventh Circuit Court of Appeals analyzed the extent to which drivers who delivered wine exclusively within the State of Illinois were engaged in interstate commerce and, therefore, not entitled to overtime under the Motor Carrier Act exemption to the Fair Labor Standards Act. Specifically, this exemption from overtime applies to employees of a motor carrier if “property ... [is] transported by [the] motor carrier between a place in a State and a place in another State,” provided the employees “engage in activities of a character directly affecting the safety of operation of motor vehicles in the transportation on the public highways of passengers or property in interstate or foreign commerce within the meaning of the Motor Carrier Act.” As the court noted, “[t]he shipment itself must be in some sense interstate commerce (transportation between a place in a state and a place in another state).”

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In Barbosa v. IMPCO Technologies, Inc., the California Court of Appeals for the Fourth District held that terminating an employee for exercising his statutory right to overtime wages out of a reasonable, good faith belief of entitlement to it, (notwithstanding the subsequent discovery that he was wrong), was contrary to California public policy.

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In Christopher v. SmithKline Beecham,¹ 2009 U.S. Dist. LEXIS 108992 (D. Ariz. Nov. 20, 2009), a federal district court in Arizona held that pharmaceutical sales representatives (PSRs) were “outside salespeople” and therefore exempt from the overtime provisions of the Fair Labor Standards Act (FLSA).

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On October 14, 2009, the U.S. Department of Labor (“DOL”) filed an amicus brief in a case pending before the Second Circuit Court of Appeals, In Re Novartis Wage and Hour Litigation, arguing for a stricter interpretation of “outside salesperson” and “administrative employee” exemptions under the federal Fair Labor Standards Act, as applied to pharmaceutical sales representatives. In its brief, the DOL maintains that pharmaceutical sales representatives neither “make sales” nor exercise sufficient discretion to qualify for the exemptions from overtime compensation, urging the Court of Appeals to reverse the district court’s defense judgment below. See In Re Novartis Wage and Hour Litig., 593 F. Supp. 2d 637, 640 (S.D.N.Y. 2009).

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Intrastate haulers and slingers of trash and recyclables are exempt under the federal Motor Carrier Act according to a recent decision by the United States District Court for the Southern District of Indiana, Indianapolis Division. Craft, et al. v. Ray’s LLC and Donald Matthews, 1:08-cv-627-RLY-JMS (S.D. Ind.). The FLSA mandates that employers pay employees one and a half times their regular rate for each hour worked in excess of forty during a work week. 29 U.S.C. § 207(a)(1). Several exceptions to this rule exist, including one for employees “over whom the Secretary of Transportation has power to establish qualifications and maximum hours of service.” 29 U.S.C. § 213(b)(1).The Motor Carrier Act exemption specifically applies to drivers, drivers’ helpers, loaders, and mechanics who participate in interstate commerce within the scope of their employment. 29 C.F.R. § 782.2(b)(2).

In Craft, the plaintiffs transported full containers from customer locations to Ray’s Recycling or a transfer location owned by Ray’s, within Indiana state lines. Trash and recyclables are sorted, with trash being taken by a Ray’s driver to an in-state landfill or incinerator. Recyclable material is shredded, compacted or baled in preparation for delivery to end recipients. Ray’s Recycling does not process recyclable scrap metal. Instead, a Ray’s driver transports scrap metal from Ray’s Recycling or a transfer station to Farnsworth Metals, Inc., an Indiana company owned by the majority shareholder of Ray’s. Ray’s Recycling, the transfer stations, and Farnsworth typically received advance purchase orders and shipping instructions from end recipients. Over 50% of the end recipients are out-of-state.

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It’s not often that employers get the chance to “peek behind the curtain” into the U.S. Department of Labor’s internal techniques and strategies for conducting wage and hour investigations under the Fair Labor Standards Act (FLSA). The Department usually keeps its investigation methods confidential, and takes the position that such information is protected from disclosure under the Freedom of Information Act and the investigation privilege.

Recently, employers got a rare chance to look inside the Department’s policies and procedures in an FLSA overtime case brought by the Department against the Washington State Department of Corrections (DOC). In Solis v. State of Washington, Case No. 08-5362RJB (W.D. Wash.), the Department brought suit against the DOC for failing to keep proper records and failing to pay overtime wages to 872 state corrections officers. In response to the Department’s claims, the DOC asked the Department to produce its investigation files and records. Surprisingly, as part of its response to the DOC’s discovery requests, the Department produced a copy of its internal “Introduction to Full Investigation and Litigation (FIL) Training.” The Department uses the FIL Training guide to teach wage and hour investigators how to conduct effective investigations. As explained in the guide:

Our goal is to improve our ability to complete quality, full investigations that will convince employers that they have no choice but to change their violative behavior, or failing that, to provide a winning litigation case to the SOL [Solicitor of Labor].

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The Obama administration recently increased commuter tax benefits making them more appealing to employers. State legislatures are also considering laws requiring employers to provide transit subsidies to employees. If an employer decides to provide commuter benefits to its employees, or such benefits are required by state law, the employer must also consider its wage and hour obligations. Most employers are, unfortunately, not aware that commuter subsidies must be included when calculating an employee’s regular rate for overtime purposes.

The federal Fair Labor Standards Act (FLSA) explicitly includes commuting expenses in the regular rate. "An employee normally incurs expenses in traveling to and from work, buying lunch, paying rent, and the like. If the employer reimburses him for these normal everyday expenses, the payment is not excluded from the regular rate". 29 C.F.R. § 778.21.

There is only one reported decision, under either federal or state law, that addresses this issue. The facts of the case are simple. The Montana Department of Transportation agreed in a collective bargaining agreement to pay its employees’ commuting expenses, but did not include these expenses in their regular rate calculations when computing overtime. See Montana Public Employee’s Association v.Dep’t of Transportation, 954 P.2d 21 (Mont. 1998). The union alleged that the state had violated the FLSA and the Supreme Court of Montana agreed, finding that the commuting expenses should have been included in the regular rate.

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On July 17, 2009, a federal magistrate judge sitting in the Eastern District of Michigan issued two significant rulings on pending motions for summary judgment in Henry v. Quicken Loans, Inc. The plaintiffs in Henry were employed as mortgage loan consultants (or “mortgage bankers”) for Quicken Loans, a large on-line mortgage lender. Quicken Loans classified its loan consultants as exempt from the overtime obligation imposed by the FLSA, in reliance upon the administrative exemption. The plaintiffs claimed, relying upon Quicken Loans’ hiring, training, and process documentation, as well as internal email, that they were primarily responsible for “selling” mortgage loans. If their primary duty was “sales,” the plaintiffs argued, they could not be considered exempt administrative employees.

In his first report and recommendation on cross-motions for summary judgment on the administrative exemption defense, the magistrate judge found an issue of fact regarding the loan consultants’ primary duty. The plaintiffs relied heavily upon internal corporate documents which emphasized the loan consultants’ role in the sale of mortgage loans. Quicken Loans, however, pointed to the U.S. Department of Labor’s September 2006 opinion letter, which found that mortgage loan officers qualified for the administrative exemption if their duties included such activities as working with customers to identify and secure a loan that is appropriate for the customers’ financial circumstances, collecting and analyzing customer financial information, and advising the customer regarding the risks and benefits of loan alternatives. According to the magistrate judge, a jury would have to decide whether the plaintiffs fall within the scope of the opinion letter, or whether they were primarily responsible for sales.

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Texas will soon join a growing list of more than a dozen states that have imposed mandatory overtime restrictions on hospitals, including California, Connecticut, Illinois, Maryland, Minnesota, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Washington, and West Virginia. Effective September 1, 2009, Texas hospitals can not, with limited exceptions, require registered or licensed vocational nurses to work mandatory overtime, nor can hospitals use on-call time as a substitute for mandatory overtime. Nurses are expressly authorized to refuse to work mandatory overtime and any such refusal does not constitute patient abandonment or neglect. Nothing in the law prohibits nurses from voluntarily working overtime.

Mandatory overtime means a requirement that a nurse work hours or days that are in addition to the hours or days scheduled, regardless of the length of a scheduled shift or the number of scheduled shifts each week. Pre and post-shift documentation and communication activities regarding a patient’s status, as well as prescheduled on-call time, are not included in making an overtime determination.

The new law contains four exceptions under which hospitals may require nurses to work mandatory overtime, including natural disasters in the hospital’s county or a contiguous county; governmental declarations of emergency in the hospital’s county or a contiguous county; emergencies or other infrequent, unforeseen events that hospital management could not have prudently anticipated that increase staffing needs; and ongoing medical or surgical procedures that necessitate the nurse’s continued attendance for patient care reasons. In the case of emergencies or unforeseen events, hospitals must first, to the extent possible, make a good faith effort to satisfy staffing needs through voluntary overtime, including calling per diems and agency nurses, assigning floats, or requesting an additional day of work from off-duty personnel.

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On November 6, 2008, the Ninth Circuit Court of Appeal, issued an opinion in Oracle v. Sullivan, 547 F.3d 1177 (9th Cir. 2008), which came to three important conclusions regarding the reach of California law, including the following:

First, California's overtime laws may apply to nonresident employees (in the case itself, individuals from Arizona and Colorado were involved) for those periods of time that the employees temporarily work in California;

Second, the court found that a company that has a sufficient presence in the state, such as Oracle, can be required to comply with California law without violating that employer's due process rights; and

Third, the court found that California's unfair competition law does not apply to acts based on alleged federal wage law violations that occur outside of the state.  

This opinion was reported in our earlier blog posting, Federal Court Finds California Law Applies to Out Of State Workers.

 

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Pursuant to an annual adjustment required by the Nevada Constitution, Governor Jim Gibbons has announced the 2009 minimum wage and overtime rates.

Nevada has a two-tiered minimum wage rate dependent on whether an employer offers qualifying health benefits. As of July 1, 2009, the minimum hourly wage for employees who receive qualified health benefits from their employer will be $6.55. For all other employees, the minimum wage will be $7.55 per hour.

In Nevada, employers must pay one and one-half times an employee's regular rate of pay when an employee: (1) is paid less than one and one-half times the applicable minimum wage rate and (2) works more than 40 hours in any workweek or more than eight hours in any workday, unless otherwise exempted by Nevada Revised Statutes 608.018. Therefore, effective July 1, 2009, the daily overtime may apply if the employee to whom qualifying health benefits have been offered by the employer is paid less than $9.825 per hour. For an employee who is not offered health benefits, daily overtime may apply if the employee is paid less than $11.325 per hour.

This blog entry was authored by Roger Grandgenett.

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In the last days of the Bush administration, the Department of Labor (DOL) issued an opinion letter, recognizing that insurance agents might qualify for the FLSA’s outside sales exemption and/or the administrative exemption. In its letter, which came in response to a request from a trade association representing life insurance companies, the DOL cautioned that such a determination would depend on the specific facts of the particular case. FLSA2009-28.

With respect to the outside sales exemption, the DOL noted that insurance agents who are responsible for making sales and obtaining orders for life insurance and other financial products could qualify for the exemption. In general, to qualify for the outside sales exemption, the agent must “normally and recurrently” – meaning every workweek – meet with clients face-to-face and engage in sales or solicitations away from their employer’s place of business. The performance of some activities at the employer’s workplace, such as sending e-mails, making telephone calls and preparing for meetings, will not jeopardize the exemption, provided this work is merely incidental to and in conjunction with the qualifying outside sales activity.

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The Wage & Hour Division of the U.S. Department of Labor recently issued an opinion letter that could produce substantial savings for employers who have misclassified employees as exempt from the overtime provisions of the FLSA and who need to retroactively compensate those employees for unpaid overtime.

An employer may pay its employees a fixed salary. But, when a non-exempt employee works more than forty hours in any workweek, the Fair Labor Standards Act (FLSA) requires his or her employer to pay overtime at one and one-half times the regular rate of pay. 29 U.S.C. section 207(a)(1).

If an employer and a non-exempt salaried employee have a “clear mutual understanding” that the employee’s salary is compensation for all hours worked each week (whether many hours or few), then the FLSA permits the employer to use the “fluctuating workweek” method to calculate overtime. Applying this method, the employee’s salary is deemed to constitute straight-time pay for each hour of work (including overtime hours), and the employer must pay the employee only the additional “half time” premium for each overtime hour. 29 C.F.R. § 778.114.

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The California Court of Appeal recently confirmed the right of an employer to secure a release from claims for unpaid overtime where there exists a bona fide dispute over whether overtime wages were actually due. In Chindarah v. Pick Up Stix, Inc., two former employees of Pick Up Stix brought a proposed class action lawsuit against their former employer asserting claims for unpaid overtime, alleging they were misclassified as exempt from overtime pay. The employer was able to obtain settlements with over two hundred putative class members in exchange for their execution of a general release, wherein the employee acknowledged that he or she spent more than 50% of their time performing managerial duties and released Pick Up Stix from all claims for unpaid overtime and any other Labor Code violations during the relevant time period. Thereafter, the plaintiffs challenged the validity of these releases and argued that the settlement agreements violated Labor Code section 206.5, which provides: "An employer shall not require the execution of a release of a claim or right on account of wages due, or to become due, or made as an advance on wages to be earned, unless payment of those wages has been made. A release required or executed in violation of the provisions of this section shall be null and void as between the employer and the employee."
 

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UPDATE: On February 17, 2009, the Ninth Circuit withdrew its decision in Sullivan v. Oracle and remanded the case back to the California Supreme Court for reconsideration.  The Ninth Circuit asked the California Supreme Court to consider the following issues:

First, does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week?

Second, does California Business and Professions Code section 17200 apply to the overtime work described in question one?

Third, does section 17200 apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case if the employer failed to comply with the overtime provisions of the FLSA?

This blog update was authored by Jim Hart.
 

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On Tuesday, February 10, 2009, Rep. Cathy McMorris Rodgers (R-WA) reintroduced the Family-Friendly Workplace Act (H.R. 933), a bill that would amend the Fair Labor Standards Act (FLSA) to permit private-sector employees to chose compensatory leave in lieu of cash wages for overtime hours worked. This “comp time” option has long been available to public sector employees, and has proven to be very popular. Continue reading on Littler's Washington DC Employment Law Update blog.

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The Eleventh Circuit Court of Appeals rules that the “outside sales” exemption to the FLSA overtime requirements was properly applied to an executive for a title insurance company whose primary duty was conducting “promotional work” with the company’s clients, even though the employee did not finalize sales herself. According to the court, the executive, who was credited with sales through commission-based compensation, was conducting “sales in some sense.”

For more information about this development, see Littler's ASAP "Eleventh Circuit Holds Title Insurance Executive Who Conducts 'Promotional Work' Exempt Under the FLSA 'Outside Sales' Exemption" by Angelo Spinola and Matthew Laflin.

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On January 21, 2009, the California Court of Appeals denied the plaintiffs' motion for rehearing in the Marin v. Costco Wholesale Corporation case which addressed how to calculate overtime on a bonus. The court modified its opinion to clarify that the only controlling California authority on the issue is the directive that overtime hours be compensated at a rate of no less than one and one-half times the regular rate of pay. The December 23, 2008 opinion, with the January 21, 2009 revisions, was certified for publication.  Marin v. Costco was discussed in further detail in our previous post.

This blog entry was authored by Sandra Dermody.

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The Wage and Hour Division of the Department of Labor (DOL) recently released to the public three December 2008 opinion letters that addressed inquiries regarding FLSA exemption issues.

The first letter (FLSA2008-11) concluded that Assistant Athletic Instructors at an institution of higher education are exempt from the minimum wage and overtime requirements of the Act as bona fide professionals, since their primary responsibility (occupying more than 50% of their time) is teaching student-athletes.

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Many employers do not know that paying a non-discretionary bonus to non-exempt employees will require the payment of additional overtime. The California Court of Appeal’s decision in Marin v. Costco Wholesale Corporation is a good reminder of the need to pay overtime on such bonuses and of the fact that the method for calculating overtime on a bonus depends upon whether it qualifies as a “production bonus” or a “flat rate bonus.”

As a general matter, the payment of a non-discretionary bonus (one that is not discretionary in either the fact that it will be paid or in the formula for calculating it) to non-exempt employees triggers an additional overtime obligation because it retroactively increases the regular rate of pay for the employee receiving the bonus for the time period covered by the bonus. A non-exempt employee is entitled to be paid overtime at 1.5 times (or double, in some cases) the regular rate of pay for each overtime hour worked. With some specific exceptions not relevant here, the regular rate of pay for overtime purposes includes all compensation earned during the workweek. Thus, an employee who is paid a quarterly bonus has received additional compensation that was not included in the regular rate of pay when he or she was paid overtime for hours worked during the quarter at issue. An employer is required to resolve this issue by calculating a “regular rate” of pay on the bonus itself and then paying some portion of that regular bonus rate for each overtime hour worked during the period in which the bonus was earned. The precise method for calculating the overtime due on a bonus depends upon whether the amount of an employee’s bonus increases with each hour worked (in which case it is a “production bonus”) or whether the amount of the bonus is fixed independent of the hours worked (in which case it is a “flat rate bonus”).

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While large insurance companies reportedly have paid over $100 million each to settle overtime claims brought by claims adjusters, insurance brokerage giant Aon rolled the dice and won a significant trial victory last week. Aon prevailed in an eleven-day trial against a certified class of 1,024 current and former claims adjusters employed by Aon’s wholly-owned subsidiary, Cambridge Integrated Services, Inc. As in most of these cases brought by claims adjusters, Aon’s adjusters sought overtime pay, and Aon successfully relied upon the administrative exemption to justify its failure to pay overtime in a bench trial before retired judge Ronald Sabraw. Since the California Court of Appeal previously rejected the applicability of the administrative exemption to insurance claims adjusters in Bell v. Farmers Ins. Exch. (2001) 87 Cal.App.4th 805, Aon’s adjusters here might have expected a cake walk. But little went their way this time.

Aon had four significant hurdles to overcome to avoid liability. To prove the adjusters were correctly classified exempt, Aon had to prove that: (1) the claims adjusters’ duties involved the performance of office or non-manual work directly related to management policies or general business operations of Aon or its customers; (2) the claims adjusters customarily and regularly exercised discretion and independent judgment; (3) the claims adjusters performed under only general supervision work requiring special training, experience or knowledge; and (4) the adjusters spend at least 50 percent of their time performing these exempt duties. Aon cleared every one of these hurdles.

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A federal district court judge granted partial summary adjudication to SkyWest Airlines, Inc., holding that a former employee’s claims under California wage and hour laws are pre-empted by federal law. Specifically, the court found that the former employee is not entitled to California’s daily overtime and meal and paid rest periods because they conflict with federal law – Railway Labor Act (RLA), 45 U.S.C. § 151-88.

Tiffany Blackwell, a former customer service representative for SkyWest, sought relief for multiple alleged violations of state law including claims that SkyWest failed to compensate her for daily overtime hours and provide her with meal and paid rest periods. SkyWest countered that Ms. Blackwell was a member of SkyWest Airlines’ Frontline Association (SAFA) and was subject to SkyWest-SAFA’s negotiated collective employee contract, which governed the terms of her employment.

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California Labor Code section 515.5 exempts certain employees in the computer software field from the state overtime requirements provided certain criteria are met. Historically, this exemption was only available for employees whose compensation exceeded a minimum hourly rate, which was set annual by the Division of Labor Statistics and Research (DLSR). Effective September 10, 2008, Assembly Bill 10 took effect, which expanded the exemption to include employees who are paid on a salary basis, as long as the salary exceeds certain monthly and annual amounts.

The DLSR has announced the applicable minimum rates for employees to qualify for California’s computer professional exemption. Effective January 1, 2009, the new hourly rate for computer software employees is $37.94 and the minimum annual salary exemption is $79,050.00, which must be paid in amounts no less than $6,587.50 per month. To qualify for the exemption, an employee’s compensation must equal or exceed these amounts and the employee must satisfy each of the elements set forth in section 515.5 of the Labor Code. The employee must be:

• Primarily engaged in duties that consist of at least one of the following: (1) application of system analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; (2) the design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; and (3) the documentation, testing creation, or modification of computer programs related to the design of software or hardware for computer systems; and
• Highly skilled and proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering.

This blog entry was authored by Stacey James.
 

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The Court of Appeals for the Ninth Circuit recently held that California’s Labor Code applies to work performed in California by non-residents of California. Sullivan v. Oracle Corporation (08 Cal. Op. Serv. 13,881) (Nov. 6, 2008).

The three Oracle plaintiffs were Colorado and Arizona residents who traveled to California to work for periods ranging from several weeks to several months.  The plaintiffs brought a wage and hour class action against their employer, a Delaware corporation headquartered in California, seeking unpaid overtime on behalf of all out-of-state employees who worked complete days in California. The plaintiffs also brought a claim under California’s Unfair Competition Law (aka/ Business and Professions Code § 17200 et seq.), both for violations that occurred in California and throughout the United States.

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In a decision that could lead to significant litigation cost savings for employers, the United States Court of Appeals for the Tenth Circuit recently endorsed the so-called “fluctuating workweek” method of calculating back pay awards for misclassified, salaried employees in lawsuits arising under the Fair Labor Standards Act (FLSA).

The FLSA provides that non-exempt employees are generally entitled to overtime pay at a rate of one and one-half times their regular rate of pay for all time worked in excess of 40 hours per week. 29 U.S.C. § 207(a)(1). When a non-exempt employee is paid a fixed salary and there is a “clear mutual understanding” that the salary is compensation for all hours worked each workweek (whether many or few), then: (a) the regular rate of the employee may be determined each workweek by dividing the salary by the number of hours worked in that week; and (b) payment for overtime hours at one-half that rate will satisfy the overtime pay requirement (because such hours have already been compensated at “straight time” via the salary itself). 29 C.F.R. § 778.114.

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