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

The DOL intends to explore updates to this application to make it or similar versions compatible with other smartphone platforms, such as the Android and BlackBerry.

The DOL also has made available a printable work hours calendar for workers who do not own smartphones. This downloadable calendar allows workers to track their rate of pay, start and stop times, and arrival and departure times, and includes information about workers’ wage and hour rights and how to file a wage violation complaint. The new app poses several concerns for employers. First, the app has the potential to create confusion where, for instance, an employer has a permissible time entry rounding system in place. Because the app does not provide for rounding, in such instances, there may be discrepancies between the amount of time recorded by an employee (and the amount of wages calculated by the app to be due) and the employer's time records. Second, the app could potentially be abused by workers who “clock in” on the app before their actual start time, clock out after their actual stop time, or fail to accurately record non-compensable breaks. Employers should be mindful of these potential problems if an employee attempts to present data from the app as “evidence” of improper wage payment. In fact, the app itself includes a disclaimer of which employers and employees should be aware:

Disclaimer: This App is designed as a reference tool. It does not include every possible situation encountered in the workplace. Some situations not addressed in this App may yield a different result in the calculation of total pay. These include, but are not limited to, situations where, for example, the employee is not covered by the Fair Labor Standards Act or is exempt from the minimum wage and/or overtime pay requirements of the FLSA. Further, the conclusions reached by this App rely on the accuracy of the data provided by the user. Therefore, DOL make no express or implied guarantees as to the accuracy of this information.

Notwithstanding the potential issues raised by the app, employees should not be prohibited from using it at work, as its use may constitute protected activity under the Fair Labor Standards Act and similar state wage laws. However, employers may permissibly enforce existing information technology policies regarding the installation of the app on company-provided electronic devices.

Photo credit: Alex Slobodkin

Under the new rules, employers must pay terminated employees commissions or bonuses already earned, based on routine or practice or special agreement. An employee earns a commission or bonus when the employee has met all required conditions set forth in an agreement. The regulations state, however, that if an employer wishes to change the terms of such an agreement, it must do so in writing and with notice to the affected employee. In addition, the regulations provide that draws against commissions or bonuses may be recovered from an employee’s pay.

The regulations also provide guidance regarding loans to employees. For example, employers may only recoup employee loans using the written authorization described in Texas Labor Code §61.018 (pdf), unless it is a “wage advance.” Under the regulations, a wage advance is an advance that is recovered from the next regularly scheduled paycheck. Such an advance is not considered a deduction or withholdings under Texas Labor Code §61.018. The regulations further provide that, in recouping a loan, employers may count the loan repayment toward any minimum or overtime wages due.

The regulations also state that expense reimbursements paid to employees are not wages for purposes of the Texas Labor Code.

This entry was written by Harry Jones.

The plaintiff in Ziotas v. The Reardon Law Firm, P.C., 296 Conn. 579 (2010), was Angelo Ziotas, an associate at The Reardon Law Firm. He claimed he had been denied a bonus and sued his former employer, claiming both breach of contract and violation of Connecticut’s wage and hour statute. The trial court granted the defendant employer’s motion to strike the wage claim, noting that under certain circumstances, bonuses may be subject to the wage statutes. Such bonuses, however, are based solely on individual production or performance. In this case, the bonus was based on a number of factors, including the overall performance of the firm. The appellate court reversed the trial court’s decision.

In reversing the appellate court, the Supreme Court referenced its recent decision in Weems v. Citigroup, Inc., 289 Conn. 769 (2008), in which it held that bonuses awarded solely on a discretionary basis, and not linked solely to the ascertainable efforts of the particular employee, are not wages under Conn. Gen. Stat. § 31-71a. In his hair-splitting position in Ziotas, the plaintiff argued that Weems did not apply to his case because he was contractually entitled to a bonus and only the amount of the bonus was discretionary. The Supreme Court disagreed and held that even where an employee is contractually entitled to a bonus, if the amount of the bonus is indeterminate and discretionary, such a bonus does not constitute wages.

In reaching its decision, the court noted that although Conn. Gen. Stat. § 31-72 is remedial, it carries substantial criminal and civil penalties and any interpretation of the term “wages” that would allow for the imposition of such penalties when the amount of a bonus is indeterminate and discretionary would raise serious questions of fundamental fairness and due process.

Finally, in holding that a discretionary bonus is not subject to the wage statutes, the court noted that a plaintiff would still be able to pursue a breach of contract claim and indeed, Mr. Ziotas’ contract was enforced.

To the extent there was any ambiguity regarding the extent to which bonuses are not considered wages in Connecticut, this decision resolves the ambiguity and gives employers the assurance that discretionary bonuses are not wages subject to Connecticut’s wage statutes.

This entry was written by Patricia Reilly.

Under the FLSA, compensation for overtime need not be provided to “any employee...in the capacity as an outside salesperson.” 29 U.S.C. § 213(a)(1). To qualify as an outside salesperson, (1) the employee’s “primary duty” must be “making sales” or “obtaining orders or contracts,” and (2) he or she must customarily and regularly be engaged away from the employer’s place of business in performing such duty. 29 C.F.R § 541.500(a). Both parties agreed that PSRs met the second requirement, so the only disputed issue was whether their primary duty was making sales.

The FLSA defines sales as “any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” 29 U.S.C. § 203(k). Moreover, sales include “the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property.” 29 C.F.R. § 541.501(b). Whether an employee makes sales requires an objective analysis, and according to the U.S. Department of Labor (DOL) making sales includes “obtain[ing] a commitment to buy from the customer,” which resulted in the salesperson being “credited with the sale.” U.S. Department of Labor, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 69 Fed. Reg. 22122, 22162 (Apr. 23, 2004). According to the court, under the DOL regulations, there is no requirement that commitments be binding. All that is required is that a sale be made “in some sense.”

In Christopher, the PSRs argued that they did not make sales because they did not consummate transactions or take orders. Instead, they claimed they merely promoted products. Moreover, PSRs contended their activities did not constitute sales because the U.S. Food and Drug Administration expressly prohibited pharmaceutical companies from selling directly to physicians or patients. According to the PSRs, sales only occurred between the pharmaceutical company and wholesalers.

The court noted that opinions differed among the federal courts whether PSRs made sales. A federal court in Connecticut concluded that PSRs did not qualify for the exemption because they could not sell, and physicians could not buy, products. Ruggeri v. Boehringer Ingelheim Pharms., Inc., 585 F. Supp. 2d 254, 268 (D. Conn. 2008). However, a court in New York held that PSRs were exempt because they were credited with sales when physicians wrote prescriptions. In re Novartis Wage & Hour Litigation, 593 F. Supp. 2d 637, 648 (S.D.N.Y. 2009) (on appeal to the United States Court of Appeals for the Second Circuit). To determine whether PSRs qualified as outside salespeople, the court in Christopher looked to the rationale behind the outside sales exemption and also examined the position in the context of the pharmaceutical industry.

According to the court, the characteristics of PSRs justified exemption. PSRs were compensated well above the federal minimum wage (up to $100,000 per year), received fringe benefits like incentive bonuses in lieu of overtime, were unsupervised, and had better opportunities for advancement than non-exempt employees. Additionally, the kind of work they performed was “difficult to standardize to any time frame and could not be easily spread to other workers after 40 hours in a week, making compliance with overtime provisions difficult.” (quoting U.S. Department of Labor, 69 Fed. Reg. at 22124.)

The court observed that although the FLSA was enacted prior to the development of the pharmaceutical sales industry, it was intentionally broad to “address a multiplicity of industries found in the national economy and accordingly provide flexibility in the definition of a ‘sale.’” Moreover, the industry’s unique nature, i.e., the prohibition of direct sales, shifted the focus of sales efforts from the consumer to the physician, thereby making “[a] PSR’s ultimate goal [the] close [of] an encounter with a physician by obtaining a non-binding commitment from the physician to prescribe the PSR’s assigned product.” PSRs worked longer and irregular hours to generate sales in their territory for which they received compensation in the form of bonuses. The court concluded that PSRs “plainly and unmistakably fit within the terms of the exemption” because they engaged in “the functional equivalent of an outside salesperson and to hold otherwise is to ignore reality in favor of form over substance.”

The exempt status of pharmaceutical sales representatives continues to be litigated in courts across the country, and the issue is not settled. In the Novartis appeal referenced above, the U.S. Department of Labor filed an amicus brief arguing that pharmaceutical sales representatives do not qualify for the “outside sales” exemption. 

This entry was written by Robert Pritchard.

¹ Note: In the decision, SmithKlineBeecham is spelled as SmithKleinBeecham, which is an error.

Image credit: Alan Smithee

The Sixth Circuit held that the deductions made by the employer were improper because they were not made to recover irregular salary advances or payments mistakenly made by the payroll department. Rather, the company reduced guaranteed pay under a purposeful, incentive-driven bonus compensation plan, which is not allowed under the FLSA.

The Court held that the Auer test was applicable for the pay periods occurring before August 23, 2004. Because the employer’s pre-August 23, 2004, compensation plan did more than create a theoretical possibility of deduction, but instead laid out a policy under which Life Time Fitness would make future deductions, the Court held that the company was liable to those plaintiffs employed and subject to the compensation plan from January 1, 2004 through August 23, 2004.

The Court upheld the lower court’s application of § 541.603 to the pay periods following August 23, 2004, and affirmed the district court’s ruling that because improper deductions were only made during three pay periods in November and December 2005, only plaintiffs who worked in the appropriate job classification during those three pay periods (in which improper deductions were made) were entitled to overtime compensation.

The Baden-Winterwood decision is significant because the Court recognized that under the revised Regulations, only actual improper deductions will violate the salary basis requirements under the FLSA. Now, instead of employers focusing on whether their policies provide for the possibility of improper deductions from exempt employees’ salaries, they need only ensure that no improper deductions are actually made from exempt employees’ pay to jeopardize the exemption during each pay period.

This blog entry was authored by Jamie Kitces.

More specifically, per the California Division of Labor Standards Enforcement’s Enforcement Policies and Interpretations Manual (DLSE Manual), production bonuses are those “based on a percentage of production or some formula other than a flat amount [which] can be computed and paid with the wages for the pay period to which the bonus is applicable.” Because such bonuses are earned during straight time as well as overtime hours, the “regular rate” for such a bonus is calculated by dividing the bonus by the total hours worked (including overtime hours) during the period to which the bonus applies. The overtime premium due on the bonus is then calculated multiplying one-half of the regular rate for the bonus by the number of overtime hours worked during the period in which the bonus was earned.

In contrast, where the bonus at issue is a flat sum, such as $300 for continuing to the end of the season, or $5for each day worked, the DLSE Manual indicates that the regular bonus rate is determined by dividing the bonus by the maximum legal regular hours (i.e., straight time hours) worked during the period to which the bonus applies. According to the DLSE, such flat sum bonuses are “not designed to be an incentive for increased production for each hour of work; but, instead [are] designed to insure that the employee remain[s] in the employ of the employer.” Thus, “to allow [such a] bonus to be calculated by dividing by the total (instead of the straight time hours) would encourage, rather than discourage, the use of overtime.” Consequently, the DLSE Manual states that the premium due on flat sum bonuses is 1.5 times the regular rate of the bonus for each overtime hour worked during the time period at issue.

The court in Marin v. Costco held that the portion of the DLSE Manual governing “flat sum” bonuses is a void regulation under the reasoning of Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557. Specifically, that portion of the DLSE Manual is “a standard of general application interpreting the law the DLSE enforce[s],” and “not merely a restatement of prior agency decisions or advice letters.” Accordingly, it does not have the force of law.

The court then addressed the legality of the manner in which Costco was calculating overtime on the semi-annual bonus it was paying to its hourly employees. The bonus was paid each April and October to certain long-term employees and was calculated based upon the number of hours the individuals had worked during the six month period preceding the payout date. The maximum semi-annual base bonus amount varied from $2,000 for those with less than ten years of service to $3,500 for those with twenty or more years of service. To qualify for the maximum base bonus, the employee must have been paid for at least 1,000 hours in the six-month period preceding April 1 and October 1. Bonuses were prorated for those paid for less than 1,000 hours; the formula for the base bonus was thus hours paid up to 1,000/1,000 x maximum bonus amount.

Costco calculated the overtime owed on the bonus by dividing the employee’s maximum base bonus by the minimum number of paid hours required to achieve that maximum bonus (1,000). Using that number as the regular hourly bonus rate, Costco then multiplied the number of overtime hours worked during the bonus period by ½ of the regular bonus rate. In other words, Costco calculated overtime in accordance with the DLSE’s formula for production-based bonuses. Plaintiffs contended that the bonus was more akin to a flat sum bonus – such that Costco was required to calculate the regular bonus rate by dividing the base bonus by the number of straight time hours worked during the bonus period, and then multiply the number of overtime hours by 1.5 times the regular bonus rate.

The court concluded that the Costco bonus was a hybrid of the two types of bonuses identified by the DLSE. Because each hour worked up to the first 1,000 hours increased the amount of the bonus, Costco’s bonus functioned as a production bonus until the 1,000 hour threshold was met. As to hours worked after the 1,000 threshold, Costco’s bonus functioned like a flat sum bonus because the additional hours worked did not add to the amount of the bonus. Based on the DLSE’s position on the two types of bonuses, the court concluded that the Costco bonus did not “encourage imposition of overtime during the post-1,000 hour period in a way that would support the use of the DLSE’s flat sum bonus formula.” Accordingly, Costco was justified in using the production-bonus method of overtime calculation.

The court’s decision highlights how complicated it can be to correctly calculate bonus overtime under California law. However, the time and effort needed to get it right is time well spent since an employer that uses the wrong method for calculating bonus overtime is a prime candidate for a class action lawsuit that could lead to significant liability.

This blog entry was written by Marlene Muraco.