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The court began its analysis by first explaining that the FLSA controls because New York’s overtime statute is defined and applied in the same manner as the FLSA. The court then explained how the FLSA exempts from its overtime requirements any employee whose primary duty is making sales, among other criteria. The court noted that although the determination of an employee’s primary duty must be based on all of the facts in a particular case, consideration is also given to certain “hallmark activities” such as whether the employee generates commissions for himself through his work; and the amount of work done away from the employer’s place of business.

In its analysis, the court first noted that the plaintiff’s case was almost identical to that of Chenensky v. New York Life Insurance Co., in which New York Life won summary judgment against a similarly situated plaintiff – although not a registered representative – whose primary duty was sales. The court declined to distinguish Gold’s case from Chenensky on this fact, declaring that “the fact that Gold’s employment is subject to certain regulatory requirements does not mean that compliance with the regulations is his primary duty under FLSA.” In other words, compliance with the FINRA regulations “[did] not convert a sales position into an advisory one.”

The court next highlighted the fact that the Gold had been paid solely on commission, received no compensation for pure financial advice in the absence of a sale, and consistently followed his employer’s six-step “Sales Cycle,” which involved mandated sales practices such as prospecting and closing the sale. In response, Gold cited case law in which courts found that a registered representative’s primary duty was something other than sales. The Gold court, however, distinguished these cases as inapplicable because, among other things, the FLSA’s “outside sales exemption” was not at issue in any of the cases. The court was similarly unpersuaded by Gold’s reliance on Department of Labor (DOL) opinion letters, one of which stated that a registered representative may qualify for the FLSA’s administrative exemption. Indeed, the court rejected the DOL letters as non-binding, and further held that because Gold’s duties did not involve managerial or promotional responsibilities, the FLSA’s administrative exemption did not apply.

Gold’s other claims, involving violations of New York’s minimum wage law and allegations of illegal deductions, either survived summary judgment or were allowed to move forward by the court. The case is significant in that it further solidifies insurance agents whose primary duty is sales as subject to the “outside salesman” exemption of the FLSA. The case also provides further support for application of the exemption even where an insurance agent has taken on arguably non-sales duties, such as due diligence, in order to comply with FINRA’s regulations.

Photo credit: Ed Bock Photography, Inc.

In reviewing the decertification motion, the court observed that the crux of the case was whether the MASMs were misclassified as exempt executive employees. Consequently, it was necessary for the court to review “the responsibilities and duties of a MASM” to determine whether that position qualified as exempt. The discovery conducted by Home Depot on this factor was critical to its successful decertification motion.

The court considered the MASMs’ deposition testimony, and concluded that “job responsibilities and duties varie[d] from MASM to MASM.” In reaching its conclusion, the court specifically relied upon the MASMs’ differing testimony about the following: (1) type of exempt work performed (directing and supervising employees, delegating work, planning work for employees, ordering inventory, and ensuring safety, security, and legal compliance within Home Depot stores); (2) authority over subordinate employees (hiring, promoting, evaluating, disciplining, and terminating employees); and (3) amount of time spent performing exempt work.

The court next identified three factors for consideration at the decertification stage: (1) disparate factual and employment settings; (2) defenses available to Home Depot; and, (3) fairness and procedural considerations. The court found all three factors for final collective action certification weighed in favor of decertification.

First, the court determined that there were substantial differences in the factual and employment settings of the MASMs, such that the court would be required to engage in numerous individualized determinations to discern whether each specific MASM qualified as an executive. The court also found that the plaintiffs could not rely on common proof evidence of Home Depot’s decision to classify all MASMs as exempt, Home Depot’s centralized corporate structure, the performance of non-exempt tasks by MASMs that overlapped with the responsibilities of non-exempt positions, or MASM compensation as compared to the nonexempt department supervisor’s compensation, because such factors did not establish the MASMs as similarly situated for FLSA purposes.

Second, the court recognized that Home Depot intended to present individualized evidence as to each MASM’s claims, and to raise contradictions between individual MASM’s written statements and deposition testimony. Third, the court noted its serious concerns about whether a collective action would be most efficient, and whether the court could “coherently manage” the collective action without prejudice to the parties, given Home Depot’s intention to explore individualized defenses. Accordingly, the court decertified the conditional collective action.

Finally, the court denied the MASMs’ request for subclasses for declaratory relief and training period claims. The court concluded that there was no authority supporting injunctive relief arising from Home Depot’s blanket policy of classifying all MASMs as exempt, without having first analyzed the appropriateness of the classification by testing the daily activities of the MASM position. In addition, the court noted that if the uniform classification of a position as exempt is not enough to establish similarly situated for FLSA purposes, as the court previously held in the decision, then it also does not support the creation of a subclass. The court also determined that the likelihood of dissimilarities during training would require an individualized case-by-case determination of whether each MASM was an executive during training.

This entry was written by Tracy Stott Pyles.

Photo credit: endopack

In affirming the trial court’s decision to deny class certification, the appellate court adopted the trial court’s reasoning. Noting that Labor Code section 226.7 states that “[n]o employer shall require any employee to work during any meal . . . period,” the court found that “a corollary to an employer’s obligation to ensure that its employees are free from its control for 30 minutes is the employer must not compel the employees to do any particular thing during that time – including, if employees so choose, not taking their meals.” Where the employer has a policy of making such meal periods available, and does not prevent its employees from taking those breaks, the court found the employer satisfied its legal obligation.

This decision provides employers with more hope that their obligation to “provide” meal breaks will be construed once and for all by the California Supreme Court to be limited—as the Tenet court found—to making such breaks “available,” without frustrating the employees’ ability to take breaks. While this decision is good news, employers cannot rest easy given that the state Supreme Court has accepted review of four other decisions addressing this very issue, including Brinker Restaurant Corp. v. Superior Court, but has yet to set oral argument in any of the cases. Further, the California Supreme Court recently denied review of another California court of appeal decision upholding certification of a class to resolve meal period claims. Given the lack of consistency in the various decisions, it remains to be seen how the California Supreme Court will ultimately resolve this issue.

This entry was written by Alison Hightower.
 

The U.S. District Court for the Northern District of Illinois, Eastern Division, granted conditional certification on the plaintiffs’ FLSA claims, but then denied the plaintiffs Fed. R. Civ. P. 23(b)(3) certification on their supplemental state-law claims based on the court’s finding that FLSA collective actions and state law class actions cannot be litigated together. The court reasoned that the plaintiffs could not satisfy Fed. R. Civ. P. 23(b)(3)’s superiority requirement because the FLSA collective action was now certified and proceeding. According to the court, allowing both types of actions to proceed would mean that some of the individuals included as part of the state-law classes (those who did nothing) would be excluded from the FLSA collective action (for failing to opt-in). The court thought that such a result would undermine congressional intent as expressed in the FLSA.

On appeal, the Seventh Circuit disagreed. First, the court found no categorical rule or case law against certifying a state-law class action in the same proceeding as an FLSA collective action. In addition, the court pointed to the familiar savings clause in the FLSA which states that no provision of the FLSA shall excuse non-compliance with any federal or state law establishing a higher minimum wage or a shorter maximum workweek. In other words, both FLSA collective actions and state-law class actions can peacefully co-exist in the same lawsuit.

On the issue of how to notify potential class members when both types of representative actions are certified (thus requiring opt-in and opt-out notices), the court acknowledged how the potential for confusion was a valid case-management consideration under Rule 23(b)(3)(D), but nonetheless failed to see how this notice problem was “any worse” than numerous other problems district courts face in managing class actions. According to the court:

It does not seem like too much to require potential participants to make two binary choices: (1) decide whether to opt in and participate in the federal action; (2) decide whether to opt out and not participate in the state-law claims.

Finally, the court noted that if an FLSA collective action were allowed to proceed separately in federal court while the state-law class action proceeded in state court, the situation would be much worse as the two courts would send uncoordinated notices to the putative classes. As a general rule, the court explained, it is preferable to have notice issued from a single court and in a unified proceeding.

This entry was written by Milton Castro.

In Jaimez, the plaintiff moved to certify a number of claims on behalf of a class of drivers, including alleged claims for misclassification of drivers as exempt from overtime, failure to provide meal periods to the drivers, failure to authorize and permit drivers to take rest breaks, and failure to provide drivers with compliant pay stubs. In support of his motion, the plaintiff submitted nine declarations from drivers who claimed that: (1) they had been reclassified from exempt to non-exempt, (2) they had not been paid overtime before or after reclassification, (3) their managers had pressured them to complete their route within eight hours, leaving insufficient time for them to take meal periods or rest breaks, and (4) their pay stubs were inaccurate. The defendant submitted 25 declarations from putative class members indicating that the drivers had been paid all overtime wages due, had routinely been provided meal periods and rest breaks, and had been provided accurate pay stubs. The trial court denied class certification, finding: the named plaintiff (a convicted felon) was not an adequate class representative; common questions of fact did not predominate the dispute; and class action procedure would not be superior to individualized litigation.

Despite the high degree of deference California appellate courts routinely give trial court class certification decisions, the Jaimez court: reversed the trial court's order denying class certification; ordered the trial court to certify the class claims; and, because the court agreed the named plaintiff was an inadequate representative, ordered the trial court to permit the plaintiff to find an adequate class representative. The appellate court held that conflicts in putative class members' declarations regarding whether they had been afforded the opportunity to take meal periods and rest breaks did not raise individualized questions of fact. Instead, the plaintiffs’ declarations alone were sufficient to corroborate a common theory of liability – that the defendant failed to provide meal periods and rest breaks – and the defendant's conflicting declarations simply meant the defendant's ultimate liability would be reduced.

Daiohs asked the California Supreme Court to review the appellate court decision, or to at least depublish it. On May 12, the California Supreme Court denied both requests. This decision could have significant ramifications on meal period and rest break practices in California and employers are encouraged to speak to their employment counsel to discuss these issues in detail.

This entry was written by Julie Dunne.
 

In Re Novartis is a consolidated class action brought by Pharmaceutical Sales Representatives (“Reps”) from California, New York and other states against Novartis Pharmaceutical Corporation, one of the largest drug manufacturers in the United States. Claiming that they were misclassified as exempt employees, the Reps seek overtime wages for hours worked in excess of 40 hours in a workweek.

The Meaning of “Sales”

In the first of two justifications for its defense judgment, the district court held that Novartis Reps met the requirements of the outside salesperson exemption. Under Section 13(a)(1) of the FLSA, “any employee employed . . . in the capacity of outside salesman” is exempt from the overtime pay requirement. 29 U.S.C. 213(a)(1). DOL regulations define “outside salesman” as any employee “whose primary duty is making sales” while “customarily and regularly engaged away from the employer’s place or places of business in performing such duty.” 29 C.F.R. § 541.500(A).

The parties do not dispute that Novartis Reps were employed “away from the employer’s place of business.” The real issue before the Second Circuit is the meaning of “sales.” The DOL’s brief draws a fine line distinction between the alleged promotional activities of the Reps and actual sales under the FLSA. The latter occurs only when consideration is paid by the client or customer, according to the DOL. Reps do join Novartis’ “sales force” and receive training in both sales techniques and pharmacology. However, FDA regulations bar Reps from selling drugs directly to physicians. Instead, Reps seek to persuade physicians to write prescriptions for Novartis products, ideally resulting in a “close,” i.e., obtaining a physician’s verbal commitment to prescribe Novartis drugs when appropriate. As part of Novartis’ incentive program, between 15% and 25% of the Reps’ salary comes from commission on the number of prescriptions written by physicians within the Reps’ territory. The average salary after incentives is $91,500. Though the DOL admits that the Reps’ duties “bear some of the indicia of sales,” it nevertheless objects to their classification as outside salespersons. In short, unless the Reps actually “make sales,” they do not qualify for the exemption, according to the DOL.

The Degree of “Discretion”

The lower court also held that that “even if [the Reps] are not outside salespersons, they are administrative employees and are still exempt.” In Re Novartis, 593 F. Supp. 2d at 640. The “administrative employee” exemption applies only to employees who exercise discretion and independent judgment with respect to matters of significance. 29 C.F.R. § 541.200(a)(3).

In challenging the lower court’s ruling on the “administrative employee” exemption, the DOL urges the Second Circuit to interpret “discretion and independent judgment . . . in the light of all the facts involved in the particular employment situation in which the question arises.” In so doing, the DOL stresses that Reps must follow a prepared script when contacting target physicians, and they are prohibited from deviating from the “core message” in the marketing pitch. Novartis limits dissemination methods to certain pre-approved materials, including drug samples, pamphlets, clinical studies, and visual aids. When presented with the same facts, however, the lower court criticized the plaintiff Reps for characterizing themselves as “mere ‘robots’ or ‘automatons.’” The lower court found that the Reps exercise sufficient discretion in deploying the core messages and supporting materials. For instance, Reps tailor their presentations to the physician’s schedule, patient base, prescribing habits, and even personality. They also set their own daily call schedules, and use personal entertainment budgets to host informational events for physicians on their target lists.

The DOL argues that the district court’s ruling on the administrative exemption is “unpersuasive in its attempt to ‘back-fit’ the FLSA regulations into the pharmaceutical industry’s practices.” However, as noted by the lower court, “[c]ourts routinely hold that employees may exercise discretion and independent judgment, even when they carry out their duties within the confines of a highly regulated industry.”

This entry was written by Michael Harvey.

Photo credit: Tom Varco

The court of appeal disagreed. Specifically, the court reasoned that "[W]ages are not 'due' if there is a good faith dispute as to whether they are owed"—as in Pick Up Stix, where the employer asserted its employees were exempt under California law and therefore not entitled to overtime pay. It follows that because wages are not "due," a release of claims to those wages does not implicate Section 206.5. Accordingly, the court found that the releases were valid and barred a subsequent lawsuit for overtime wages. In so ruling, the court emphasized that its decision does not alter the general premise that an employee may not waive his or her rights to overtime wages under Labor Code section 1194. But the court also made clear that "there is no statute providing that an employee cannot release his claim to past overtime wages as part of a settlement of a bona fide dispute over those wages."

Impact: while Labor Code section 206.5 generally prevents an employer from obtaining a valid release of claims for overtime pay, if the employer can articulate a bona fide dispute that any overtime pay is actually due to the employee, a subsequent settlement and release of that "disputed" pay is likely to be upheld by California courts.

This blog entry was authored by Matthew J. Sharbaugh.

This decision comes as a group of police officers from the City of Mesa, Arizona is currently pursuing an appeal to the Ninth Circuit of a similar decision issued in March 2008. That case, Bamonte et al. v. City of Mesa, in a decision issued by Judge Neil Wake, also found in favor of the employer, the City of Mesa. The Ninth Circuit is expected to rule on the Bamonte appeal later this year. To date, six district courts have addressed the issue of compensability for donning and doffing of police uniforms in extensive written opinions, with only one finding this activity compensable under the FLSA regardless of where it is performed.

The Impact: Although these cases arise in the context of police departments, they certainly have the potential for far wider reach. If any federal appellate court holds that time spent changing in and out of a uniform can be compensable regardless of where it takes place, employers that require employees to wear a uniform on the job can expect a significant number of similar claims to be made by employees in a variety of industries.

This blog entry was authored by Laurent Badoux.

Dismissing PAGA "Aggrieved Employees." Plaintiffs often bring claims for PAGA penalties against an employer on behalf of unnamed, unidentified "aggrieved employees." The Deleon court, however, identified the employee--and not the state--as the rights-holder of any PAGA claims. Based on Deleon, an employer can arguably move to dismiss from the action any purportedly "aggrieved employees" who have not expressly consented to have plaintiff represent them, as well as any unnamed or unidentified "aggrieved employees." At the very least, the employer can argue that employees should have the opportunity to "opt out" of plaintiff's representation, which at least one court had previously held could not be done because the PAGA plaintiff, as a "private attorney general," represents the state—not employees— in enforcing the Labor Code.

Motions for Summary Judgment. Finally, if an employer can force a PAGA plaintiff to identify who he or she is representing, and each of those allegedly "aggrieved employees" represents a separate source of liability against the employer, then the employer can arguably take discovery on those specific employees and move for summary judgment against their PAGA claims. Again, at least one superior court has held that an employer was not entitled to move for summary judgment as to specific employees because they were simply "witnesses" in an enforcement action.

This blog post was authored by Richard Rahm.

The Court held that California’s overtime laws apply to nonresident employees for those periods of time that the employees worked in California. The Court reasoned that California clearly intended its labor laws to apply to work done in California by nonresidents. 

The Court rejected the employer’s due process arguments, reasoning that the company had a sufficient presence in the state such that it could be required to comply with California law. The Court noted that principles of due process require “significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair.” In this case, the Court held that the employer had sufficient contacts with California (including that its headquarters and principal place of business were in California).

The one bright spot for employers was the Court’s holding that California’s Unfair Competition Law did not apply to acts based on alleged federal wage law violations that occur outside of the state.

Following the Court’s decision, multi-state employers who conduct business in California will have to determine whether they have a sufficient presence in California to require them to comply with that state’s Labor Code with respect to nonresidents who temporarily work in the state. Since California law is considerably more strict than federal law and the law of most other states with regard to the classification of employees as exempt or nonexempt, the right to receive daily overtime, and the provision of meal and rest breaks, among other things, the Sullivan decision could prove to be an administrative burden for employers whose employees are assigned to work on a temporary basis in California.

UPDATE: Following this decision, both parties submitted Petitions for Rehearing En Banc to the Ninth Circuit.  On December 5, 2008, the Court ordered both parties to file a response to the other’s Petition. 

Tami Falkenstein-Hennick authored this blog entry.