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

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.

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Plaintiffs have urged courts to reject the “half time” method in favor of the so-called “time and a half” method, which results in much larger damages awards. The “time and a half” method divides the employee’s weekly salary by a fixed number of hours (typically 40) to determine a fixed weekly regular rate. The employee is then awarded 1.5 times that rate for all hours worked each week in excess of that fixed number.

While some district courts have accepted plaintiffs’ arguments in favor of the “time and a half” method, the Supreme Court’s decision not to disrupt the Seventh Circuit’s endorsement of the “half time” method was not surprising. Four other circuit courts and the U.S. Department of Labor have approved the “half time” method, and no circuit court has taken a contrary position. See Desmond v. PNGI Charles Town Gaming, LLC, 2011 U.S. App. LEXIS 702 (4th Cir. Jan. 14, 2011); Clements v. Serco, Inc., 530 F.3d 1224 (10th Cir. 2008); Valerio v. Putnam Assocs., Inc., 173 F.3d 35 (1st Cir. 1999); Blackmon v. Brookshire Grocery Co., 835 F.2d 1135 (5th Cir. 1988); Wage and Hour Opinion Letter, FLSA 2009-3 (Jan. 14, 2009).

This entry was written by Robert W. Pritchard.

The PSRs were supported in their appeal by an amicus filing by the U.S. Department of Labor, in which the Secretary argued that PSRs could not meet the “outside sales” exemption because they do not “make sales.” The DOL argued that as a result of the highly regulated nature of the pharmaceutical industry, PSRs merely promote pharmaceutical products to physicians, but those products are only thereafter purchased by a patient from a pharmacy. Thus, according to the DOL, the PSR does not “in any sense” make the sale of the product. In 2010, the Second Circuit accepted the DOL’s position and held that PSRs could not qualify for the outside sales exemption. In re Novartis Wage & Hour Litig., 611 F.3d 141 (2d Cir. 2010).

The Ninth Circuit was not impressed with this reasoning, concluding that it owed “no deference” to the DOL’s position. The court first expressed frustration that the DOL’s regulations merely paraphrased the statutory language (i.e., a “sale” means a “sale”) without setting forth a particular test for “sale” or instructing employers to look for indicia of sales. Then, the court criticized the DOL’s attempt “to draft a new interpretation of the FLSA’s language” in an amicus brief, noting that giving controlling deference to interpretations expressed for the first time in case-by-case amicus filings would effectively authorize the bypassing of the notice-and-comment rulemaking requirements of the Administrative Procedures Act.

After resoundingly rejecting the DOL’s approach to this issue, the court of appeals took the final step and held that the DOL’s position was plainly erroneous. The court viewed the term “sale” in the FLSA in a “commonsensical” fashion, noting that in light of the “structure and realities of the heavily regulated pharmaceutical industry” PSRs do, in fact, make sales. The court concluded that in this industry, the “sale” is the non-binding commitment from the physician to prescribe the PSR’s assigned product when medically appropriate. Thus, PSRs make “sales” and qualify for the outside sales exemption.

Finally, the court took note of the DOL’s “acquiescence” to the classification of PSRs as exempt for more than seventy years. Quoting Judge Posner, the court reasoned that while it is “possible for an entire industry to be in violation of the [FSLA] for a long time without the Labor Department noticing[, the] more plausible hypothesis is that the ... industry has been left alone” because DOL believed its practices were lawful. The court criticized that the DOL’s “about-face” position, “expressed only in ad hoc amicus filings, is not enough to overcome decades of DOL nonfeasance and the consistent message to employers that a salesman is someone who ‘in some sense’ sells.” The court concluded that the DOL’s argument “fails to account for industry customs and emphasizes formalism over practicality.”

The court’s holding regarding the status of PSRs under the FLSA’s outside sales exemption was significant in its own right. But the court’s strong rebuke of the DOL’s attempt to express its position on a critical wage and hour issue for the first time in an amicus filing may have far greater implications. Employers who have been concerned about the DOL’s recent policy shifts on a variety of issues, announced in amicus filings and “Administrator Interpretations,” now have an unlikely ally in the Ninth Circuit Court of Appeals. In light of the conflicting opinions on the exempt status of PSRs, however, it may only be a matter of time before the Supreme Court agrees to resolve this dispute once and for all.

This entry was written by Robert Pritchard.

Photo credit: Two Humans

The rules are a bit more complex for exempt employees, however, who must be paid on a salary basis. The general rule is that exempt employees must be paid their full salary for any week in which they perform any work, unless a deduction is specifically permitted under 29 C.F.R. § 541.602(b). Section 541.602(b)(1) allows deductions for full-day absences taken for “personal reasons.” But, is a snow day a “personal reason”?

The U.S. Department of Labor (DOL) addressed this issue in two Opinion Letters issued in 2005. DOL Opinion Letter FLSA2005-46 provides that deductions may be made from an exempt employee’s salary if the employer is open for business and the employee chooses not to report to work: "The Department of Labor considers an absence due to adverse weather conditions, such as when transportation difficulties experienced during a snow emergency cause an employee to choose not to report for work for the day even though the employer is open for business, an absence for personal reasons.” The DOL cautioned, however, that such “personal reasons” deductions “must be in full-day increments (not partial day deductions).”

Further, “[n]o deductions from salary can be made if the employer closes operations – this is considered an impermissible deduction "for absences occasioned by the employer or the operating requirements of the business."

Even when an employer closes operations, however, employees can be required to use accrued paid leave, such as paid vacation or a paid leave bank. DOL Opinion Letter FLSA2005-41 states that, since employers are not required under the FLSA to provide any paid leave to employees, “there is no prohibition on an employer giving vacation time and later requiring that such vacation time be taken on a specific day(s).” Therefore, an employer may direct exempt employees “to take vacation or debit their leave bank account” when the office or operations are closed due to inclement weather or other disasters, “whether for a full or partial day’s absence, provided the employees receive in payment an amount equal to their guaranteed salary.”

Cutting through the fog, the DOL’s guidance can be summarized in three simple rules:

1. Non-exempt employees need not be paid when they do not work due to inclement weather or a disaster under the FLSA.
2. If the company is open for business, an employer may make deductions, in full-day increments, from the salary of exempt employees who do not come to work due to inclement weather or a disasters.
3. If the company closes operations, the employer cannot make deductions from salary, but can require the employee to use accrued paid leave, either in partial-day or full-day increments.

This entry was written by Tammy McCutchen.

Photo credit: Randen Pederson

FLSA2009-14 addresses deductions during voluntary and mandatory reduced workweeks and complete weeks off. First, it examines whether an employer risks destroying exempt status by seeking volunteers to take partial weeks off and allowing the volunteers to choose to take a salary deduction or to be paid with accrued vacation or personal time. If an employee chooses to use accrued time and receives the equivalent of his regular salary, then all is well. The problem arises if the employee chooses salary deduction. The DOL acknowledges that 29 CFR § 541.602(b)(1) allows deductions from an exempt employee’s pay if the employee is voluntarily absent for one or more full days for personal reasons. However, it then states, “the employee’s decision to take [voluntary time off] . . . must be completely voluntary and not ‘occasioned by the employer or by the operating requirements of the business.’” (emphasis added). The underlined text suggests an employer who relies on “volunteers” to work reduced workweeks and allows the volunteers to choose salary deduction does so at its peril. Should the employee decide after the fact that he was coerced into taking the reduced weeks, the employer will bear the very difficult burden of proving the “voluntary” nature of the decisions. This may not be a risk worth taking.

The letter next determines that an employer risks destroying exempt status by mandating partial weeks off and allowing employees to choose whether to take a salary deduction or use accrued vacation or personal time to be paid. If an employee uses the accrued time and receives the equivalent of full salary, there should be no problem. If, however, a salary deduction occurs, then exempt status will be destroyed. Under 29 CFR § 541.602(a), “[a]n employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business.” The DOL advises that “salary deductions due to a mandatory reduction of hours worked for short-term business needs” are exactly the sort of activities encompassed in the phrase “by the operating requirements of the business.” Any deduction in this situation – even one an employee chooses – destroys the exemption.

Third, FLSA2009-14 addresses whether an employer places exempt status at risk by mandating, or seeking volunteers to take, an entire week off. The letter quotes 29 CFR § 541.602 (a): “Exempt employees need not be paid for any week in which they perform no work.” So an employer does not harm exempt status by not paying exempt employees’ salaries for any week in which the employees do no work – regardless of whether employees volunteer to take the week off or the employer mandates the week off.

FLSA2009-18 combines issues addressed in the first two letters with slightly different twists. The letter first determines that an employer does not jeopardize employees’ exempt status by requiring use of PTO in periods where workload mandates reduced hours on certain work days. Consistent with Letter 2009-2, the DOL takes the position that requiring employees to use PTO for time off due to reduced workload is acceptable – even for mandated absences of less than a day – so long as employees receive an amount equal to their guaranteed salaries for any week in which they perform work.

Finally, FLSA2009-18 indicates that an employer will destroy exempt status if it occasionally reduces exempt employees’ working hours in times of low business volume and makes corresponding salary deductions. The letter contrasts two situations. In the first, an employer decides to run a plant only four days a week instead of five, makes a long-term scheduling change for all employees from 40- hour weeks to 32-hour weeks, and reduces salaries by a fifth. In the second, an employer makes short term reductions in scheduled hours depending on the day-to-day needs of the business. According to the DOL, the first situation does not circumvent the salary basis requirement. Employees are still receiving a fixed salary for each week in which they perform work. In contrast, the second situation – like the deductions for mandatory partial weeks off addressed in FLSA 2009-14 – circumvents the salary basis requirement and destroys the exemption because “deductions from salary due to day-to-day or week-to-week determinations of the operating requirements of the business are precisely the circumstances the salary basis test is intended to preclude.”

These letters should raise employers’ comfort levels when requiring employees to use accrued paid leave time during business downturns. However, the letters leave little doubt that while hour reductions based on day-to-day or week-to-week operating needs of a business are acceptable, any resulting deductions from exempt employees’ salaries will quickly destroy the employees’ exempt status. These letters also only interpret federal wage and hour law as it applies to these situations. Employers should take care to ensure compliance with individual state wage and hour laws, some of which differ from the federal law, as well.

This blog entry was written by Jane Ann Himsel.

In the second letter (FLSA2008-17), the DOL concluded that a school district’s Certified Occupational Therapist Assistants (COTAs), who assist occupational therapists in providing therapeutic educational programs for students, are not exempt from the minimum wage and overtime requirements. The DOL reasoned that (1) the 60-credit certification program required to become a COTA does not qualify as “a prolonged course of specialized intellectual instruction” under the professional exemption; (2) COTAs specifically do not meet the DOL’s definition of a “registered or certified medical technologist” under the same exemption; and (3) COTAs do not qualify for the administrative exemption for educational institutions because their jobs relate to the “health of . . . students,” and not academic instruction or training.

In the final opinion letter (FLSA2008-19), the DOL stated that store managers who otherwise satisfy the requirements of the Act's executive exemption do not lose that exemption when they participate in a seven-week training program aimed at preparing them for promotion to a similarly exempt area sales manager position. Despite the fact that the managers do not perform exempt work during some of the weeks of training, the DOL emphasized that the training does not change the character of the manager’s job as a whole – their “primary duty” under the executive exemption remains that of an exempt store manager.

This blog entry was authored by Casey Kurtz.

The court accepted Aon’s argument that the duties described in its claims adjuster job description qualify as exempt work. The court emphasized that there was no indication in the job description that these significant activities were closely supervised and these activities “entail[] specialized training, experience and knowledge.”

A job description may—or may not—accurately describe the work performed by any group of persons covered by that job description. But Aon succeeded in showing—based primarily on testimony of the class representatives themselves—that the work actually performed by the adjusters also constituted non-manual office work “directly related to the general business operations” of Aon/Cambridge and its customers. Of significance to the court were the class representatives’ admission that their decisions whether to accept a workers’ compensation claim directly affected the amount of money expended by their clients. Moreover, the adjuster’s responsibility to set reserves for each claim required clients to set aside cash to cover these potential liabilities, and in the aggregate, claims adjusters established reserves as high as $50 million dollars. The failure to set adequate reserves properly can have dire consequences for clients, including causing insolvency and even bankruptcy. The court rejected plaintiffs’ contention that this reserve-setting process did not fulfill a critical role for clients in discharging the client’s obligation to comply with the state workers’ compensation laws.

The court also found that the adjusters “customarily and regularly” exercised discretion and independent judgment in handling workers compensation and other liability claims. The “relative uniformity” of the testimony in describing the spectrum of issues impressed the court. While the adjusters argued that the company’s “best practices manual” curtailed their exercise of independent judgment or discretion, Judge Sabraw agreed with Aon that the manual was merely a “guideline” or “resource” for adjusters, not “a rigid template for how to handle every claim.”

Plaintiffs’ argument that these adjusters were analogous to non-exempt “inspectors” did not carry the day either. The court found that adjusting workers’ compensation claims requires far more discretion than that exercised by inspectors, noting that one class member admitted that 75 to 80 percent of her daily decisions were made without supervision, another plaintiff conceded that the process “is not rote work,” and a third noted that different claims adjusters can reach different conclusions evaluating the same medical evidence.

Although the adjusters showed they were required to obtain supervisor approval for certain decisions such as denying a claim or setting a reserve above the adjuster’s authority level, the court next determined that the adjuster operated under only general supervision. Critical to the court’s decision was its conclusion that adjusters were largely unsupervised and free to work independently. Once again, key admissions from plaintiffs themselves were critical to Aon’s success, such as one adjuster’s observation that, “I don’t need someone looking over my shoulder for me to get my job done.” Further, adjusters needed specialized education because each must pass a state-mandated certification test, obtain continuing education credits, and stay current with changes in the laws impacting workers’ compensation coverage.

Finally, to qualify as exempt, Aon/Cambridge had to prove that the adjusters spent more than one-half of their work time engaged in exempt duties. According to Judge Sabraw, little evidence was offered at trial to show that class members spent anything approaching less than half of their time performing the exempt duties outlined in the company’s job description. The class representatives themselves admitted to performing exempt duties as often as 100 percent of the time.

Since there was no dispute that the adjusters were paid well above twice the minimum wage, the court concluded that the class as a whole met each of the criteria for the administrative exemption, and that Cambridge did not violate minimum wage laws, nor engage in any unlawful or unfair conduct proscribed by Business and Professions Code section 17200.

Interestingly, the court nevertheless provided its analysis of plaintiffs’ request for the equitable remedy of restitution, apparently to avoid a retrial should plaintiffs overturn the judgment on appeal. If the plaintiffs were to prevail on the issue of exempt status, then the court found the statistical evidence offered by competing experts sufficient to award lost overtime of 4.35 hours per week to the class. Sorting through the evidence based on depositions of 187 class members, the court found more reliable the testimony of current as opposed to former adjusters, noting that former adjusters reported nearly twice the weekly overtime as current adjusters (8.23 hours compared to 4.35 hours). The court commented that the farther back in time the adjuster was asked to estimate the amount of overtime worked, the higher the overtime hours reported. The court thus opined that if the plaintiffs were to prevail on liability, the court would accept the average of 4.35 overtime hours per week in order to calculate lost overtime, albeit calibrated to reflect different pay rates at different times.

Aon’s victory comes after a long legal battle. The first trial before a jury in 2005 resulted in a mistrial. Plaintiffs already have announced their intention to appeal Judge Sabraw’s decision. Whatever the final outcome, this case illustrates that insurance companies and other employers can establish the applicability of California’s administrative exemption, even when employees receive general guidance from manuals and supervisors.

Alison Hightower authored this blog entry.

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.