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In Harris, the California Supreme Court overruled the Court of Appeal, which held that the claims adjusters were “production” workers because their work “ investigating claims, determining coverage, setting reserves, etc. is not carried on at the level of policy or general operations, so it falls on the production side of the dichotomy.” Thus, the lower appellate court concluded, they did not perform in a role that was “directly related to management policies or general business operations” and were therefore not exempt administrative employees. The California Supreme Court disagreed.

First, the court rejected the Court of Appeal’s almost exclusive reliance on the administrative/production worker dichotomy analysis. The rigid application of this analysis, the court stated, ignores the limitations of the dichotomy and results in a “strained attempt to fit the operations of modern-day post-industrial service-oriented businesses into the analytical framework formulated in the industrial climate of the late 1940s.” The court clarified, however, that it was not holding that “the dichotomy can never be used as an analytical tool. We merely hold that the Court of Appeal improperly applied the administrative/production worker dichotomy as a dispositive test.”

Second, the court clarified that under the federal regulations California looks to for guidance in applying state exemption classifications, work that is “directly related to management policies or general business operations” includes “advising management, planning, negotiating, and representing the company.” The court admonished the Court of Appeal for interpreting this prong of the administrative exemption too narrowly. In other words, work may be directly related to management policies or general business operations even if it is not performed at the corporate policy level. In this regard the court pointed out that the Ninth Circuit and other federal courts, applying recent applicable federal regulations, have determined claims adjusters satisfy the administrative exemption under the Fair Labor Standards Act “if they perform activities such as interviewing witnesses, making recommendations regarding coverage and value of claims, determining fault and negotiating settlements.”

Third, the court emphasized the importance of assessing the language of the relevant statutes and wage orders as applied to the particular facts of each case, noting “the difficulty in relying on the particular role of employees in one enterprise to deduce a rule applicable to another kind of business.”

The Harris decision therefore is a victory for Liberty Mutual, but it is also a good reminder to California employers of the importance of reviewing the particular circumstances and actual job duties of their exempt administrative employees – as well as their other exempt employees – not just relying on their job descriptions to determine that the exempt classifications are appropriate.

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Under section 3(k) of the FLSA, a “sale” includes “any sale, exchange, contract to sell, consignment for sale, shipment for sale or other disposition.” The DOL’s regulations elaborate that sales “include the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property.”

Another relevant DOL regulation distinguishes sales work from “promotion work.” Under the regulations, promotion work is a type of activity:

often performed by persons who make sales, which may or may not be exempt outside sales work, depending upon the circumstances under which it is performed. Promotional work that is actually performed incidental to and in conjunction with an employee’s own outside sales or solicitations is exempt work. On the other hand, promotional work that is incidental to sales made, or to be made, by someone else is not exempt outside sales work. An employee who does not satisfy the requirements of this subpart may still qualify as an exempt employee under other subparts of this rule.

There has been a split among the courts, most notably the Ninth and Second Circuits, as to whether pharmaceutical representatives’ activities constitute sales because PSRs are prohibited by law from directly selling pharmaceuticals to physicians. The DOL has consistently taken the position that PSRs do not qualify for the outside sales exemption because they do not transfer ownership or property. The Second Circuit relied heavily on and agreed with the DOL’s interpretation and assessment in a 2010 decision.

In contrast, in Christopher v. SmithKline Beecham Corp., the Ninth Circuit declined to give deference to the DOL’s “current interpretation of the regulations.” In addition to noting the district court’s refusal to consider the DOL’s interpretation because it was “inconsistent with the statutory language and its prior pronouncements, [and] [] also def[ying] common sense," the Ninth Circuit reviewed prior Supreme Court decisions on the issue and stated, among other things, that the Secretary’s interpretation of an unambiguous statute by “an opinion letter, enforcement guidelines, or the like . . . is merely ‘entitled to respect’ to the extent the interpretation has the ‘power to persuade’ the court.”

The DOL’s amicus brief did not persuade the Ninth Circuit, which concluded that PSRs did, in fact, qualify for the outside sales exemption. Specifically, the Ninth Circuit reasoned that:

Plaintiffs' contention that they do not "sell" to doctors ignores the structure and realities of the heavily regulated pharmaceutical industry. It is undisputed that federal law prohibits pharmaceutical manufacturers from directly selling prescription medications to patients. Plaintiffs suggest that despite being hired for their sales experience, being trained in sales methods, encouraging physicians to prescribe their products, and receiving commission-based compensation tied to sales, their job cannot "in some sense" be called selling. This view ignores the reality of the nature of the work of detailers, as it has been carried out for decades.

As for the DOL’s distinction between “selling” and “promoting,” the appellate court stated that such a distinction “is only meaningful if the employee does not engage in any activities that constitute ‘selling’ under the Act.” The court further reasoned that:

PSRs are driven by their own ambition and rewarded with commissions when their efforts generate new sales. They receive their commissions in lieu of overtime and enjoy a largely autonomous work-life outside of an office. The pharmaceutical industry's representatives — detail men and women — share many more similarities than differences with their colleagues in other sales fields, and we hold that they are exempt from the FLSA overtime-pay requirement.

The Supreme Court’s decision is expected to not only resolve the numerous class and collective actions that have challenged the outside sales exemption in the pharmaceutical industry, but also to provide clarity as to the appropriate deference owed to the DOL’s opinions as expressed in amicus briefs and similar interpretive position statements.

The FLSA Part 541 regulations define the exemptions in Section 13(a)(1) of the Act – executive, administrative, professional, computer and outside sales employees. Part 541 does not cover the FLSA Section 7(i) exemption for commissioned sales employees of a retail or service establishment. The New Jersey regulations no longer define the administrative exemption to include “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” – and neither do the FLSA Part 541 regulations. Thus, it appears that New Jersey no longer recognizes an exemption for commissioned inside sales employees at all.

A representative from the New Jersey Department of Labor and Workforce Development has confirmed that this change was inadvertent, and that they are doing everything possible to expedite a fix to the problem. However, because reversing the change will require notice and comment rulemaking, the exemption may be unavailable in New Jersey for six months or more.

Although it is unlikely that the New Jersey Labor Department will begin citing employers for misclassifying commissioned inside sales employees as exempt, employers may soon be facing private lawsuits. Thus, we recommend that any employer relying on the Section 7(i) exemption for New Jersey employees should quickly assess whether such employees continue to remain exempt.

*Tammy McCutchen, a shareholder resident in the Washington, D.C. office, was the primary author of the 2004 revisions to the FLSA Part 541 regulations while serving as Administrator of the DOL’s Wage and Hour Division.

The employer in Norceide v. Cambridge Health Alliance invoked the Klinghoffer rule in response to claims brought by current and former employees. Those employees alleged that their employer failed to compensate them for the time they worked during meal breaks and before and after shifts. The employer then sought to dismiss those claims because the total weekly average wage paid to the employees divided by the hours they actually worked equaled or exceeded the applicable minimum wage.

Judge Gertner, in a decision issued shortly before she retired from the bench, rejected the Klinghoffer rule. In reaching this conclusion, Judge Gertner stated that, when enacting the FLSA, Congress sought to protect workers and ensure that they received “a fair day’s pay for a fair day’s work.” Judge Gertner indicated that this purpose could not be served by looking at all of the hours worked during a workweek; instead, each hour must be given significance. Accordingly, the employees could seek the minimum wage for any hours for which they were not paid. If other courts follow this conclusion, employer liability for wage and hour violations will increase, since each hour an employee works unpaid could give rise to a minimum wage violation.

Despite these serious responsibilities, the federal Department of Labor sued the DSHS, contending that some of the DSHS social workers did not qualify for the learned professional exemption. The district court disagreed as a matter of law, granting summary judgment for the DSHS. On appeal, the Ninth Circuit reversed that victory.

The Ninth Circuit held that the touchstone to the “learned professional” exemption was whether the DSHS required the social workers to have completed a “prolonged course of specialized intellectual study.” This was where DSHS came up short. If the social worker applicant had a degree within one of a broad range of fields—including anthropology, criminal justice, education and gerontology—DSHS did not inquire further into what specific courses the applicant had taken. This practice thus suggested that DSHS required only general academic training, even though “apprenticeship and experience might develop the advanced skills necessary for effective performance as a social worker.” Neither the requirement of 18 months' experience in social work nor a six week mandatory training program were sufficient to put DSHS over the hump toward the learned professional exemption.

As a result, the court found that DSHS had not met its burden of proving that its social workers had a prolonged course of specialized instruction, and thus they did not prevail, at least not yet. DSHS will proceed to trial and perhaps marshal more helpful facts to establish that its social workers in fact had received sufficiently specialized instruction to qualify for the “learned professional” exemption.

DSHS’ loss demonstrates the importance of scrutinizing your requirements for hiring persons sought to fall within the learned professional exemption. Particularly when the employee has only a bachelor’s degree, employers should delve deeper than the applicant’s college major to ensure that the coursework completed demonstrates that the employee has the requisite “prolonged course of specialized instruction,” even if they already have experience in the field. Requiring specific courses or narrowing the majors deemed acceptable may also assist in qualifying such persons for the learned professional exemption. 

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In affirming the district court’s decision, the Fourth Circuit observed that the minimum wage and overtime provisions and the anti-retaliation provision of the FLSA protect “employees,” and the term “employee” is not defined “in a vacuum,” but in relationship to an employer, i.e., “any individual employed by an employer.” The court noted that the FLSA's enforcement provision provides that “any employer” who violates the anti-retaliation provision is liable for legal and equitable remedies, and an action may be maintained against “any employer.” The court thus reasoned that an employee is given remedies for violation of the anti-retaliation provision as to his or her employer, and Dellinger could only state a claim if she could show that she was an employee and that SAIC was her employer. Because Dellinger was only an applicant whose application had been approved on a contingent basis and she never began work, the court concluded that she could not be an employee under the FLSA, which defines “employ” as “suffer or permit to work.”

Dellinger, the Secretary of Labor and the dissenting judge raised a number of arguments, all of which the court rejected. The court first rejected the argument that because the anti-retaliation provision prohibits “any person” from discharging or discriminating against “any employee” for filing or instituting an FLSA complaint or enforcement proceeding, Dellinger could sue “any person” for retaliation. While the court acknowledged that anti-retaliation provision does prohibit all “persons” from engaging in certain acts, including retaliation against employees, it noted that the enforcement provision does not authorize employees to sue “any person.” The court further noted that the use of the term “person” in the anti-retaliation provision is attributable to the fact that this section prohibits other acts not performed by employers, i.e., transporting hot goods, which is punishable by a criminal penalty, not a civil action.

The court also rejected the argument that the enforcement provision includes the remedies of “employment” and “reinstatement,” indicating that the FLSA protects prospective employees. The court reasoned that the remedy of “employment” could be afforded to a former employee hired back to a different position.

The court likewise rejected the argument that it should apply Robinson v. Shell Oil Co., which held that the definition of “employee” in Title VII included former employees, to extend the FLSA to applicants and prospective employees. The court considered Robinson to be inapposite because there was no dispute that the FLSA applied to former employees; rather, the issue here was whether the FLSA could extend to someone who had never worked for the employer.

The court also rejected the argument that Dellinger could sue SAIC because she was “any employee” insofar as she was her predecessor’s employee and SAIC was “any employer.” The court held that the purpose and text of the statute were consistent with the interpretation that it was referring only to an employer’s own employees. The court also declined to adopt the argument that Dellinger could be considered an “employee” of SAIC under the FLSA because, as the recipient of a contingent offer of employment, “there was no legitimate impediment between her and the imminent assumption of her job duties.”

While the court was sympathetic to Dellinger’s argument that prospective employers should not be able to discriminate against prospective employees for exercising their FLSA rights in the past, it held that it was not free to broaden the scope of the statute whose scope is clearly defined. In distinguishing other statutory frameworks, the court observed that the Secretary of Labor had not promulgated a regulation under the FLSA interpreting the term “employee” to include prospective employees and applicants.

We will continue to follow and report on legal developments on this important issue.

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While it may sound simple to determine what it means to “change clothes,” the issue is not so simple, particularly when the clothing also protects the employee. Is an apron “clothing”? Is a hardhat? What about mesh gloves? Or arm guards? Steel-toed shoes? Where to draw the line? The Wage and Hour Division of the Department of Labor has shifted its opinion three times. First, in 1997 it took the position that protective safety equipment worn over apparel was not “clothing.” Then, in 2002 it took a 180 degree turn, declaring that “changing clothes” applies to “the putting on and taking off of the protective safety equipment typically worn in the meat packing industry. . . .” In 2010 the Division completed the circle by concluding that changing clothes “does not extend to protective equipment worn by employees that is required by law, by the employer, or due to the nature of the job.”

In Salazar, unionized employees of a turkey processing plant in Colorado wore aprons, plastic sleeves, gloves, hard hats, earplugs, and some even wore mesh gloves, knife holders and arm guards. They sought compensation for their time “donning” or “doffing” these items each day. In affirming summary judgment for the employer, the Tenth Circuit declined to defer to the Wage & Hour Division’s most recent interpretation of the law, or any of its interpretations, because it had reversed course three times. Moreover, the court declared the agency’s current position is “not . . . particularly well-reasoned.”

Instead, the court took a common sense approach, finding that the ordinary meaning of “clothes” encompassed all of the items worn by these plant workers, and rejecting any distinction based on whether the items are “ordinary,” “street clothes,” or worn for safety or protective purposes, as not “particularly coherent or workable.” The court also discarded the approach taken by the Ninth Circuit—the one federal circuit court that has ruled to the contrary—that “generic” protective clothing, such as boots, frocks and hard hats, should be distinguished from “unique” protective clothing, such as mesh gloves or knife holders. The “unique” equipment worn by these turkey plant workers was not viewed as sufficiently cumbersome, heavy or complicated to fall outside of the definition of “clothes.”

With this latest ruling, we now have six federal appellate circuit courts finding that donning and doffing protective equipment is not compensable work time under these circumstances, and one going the other way. But the battle over what constitutes compensable time changing “clothes” no doubt will continue to rage, at least until more cases clearly delineate when employees must be paid for putting on or taking off their protective equipment.

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In affirming the lower court’s decision in favor of the employer, the Seventh Circuit rejected the plaintiff’s claims that her primary duty was not “the performance of office or non-manual work directly related to the management or general business operations of the employer of the employer’s customers,” specifically noting that the Department of Labor’s regulations provide that an employee’s work may be directly related to a “customer’s business,” thus satisfying the primary duty requirement.

Indeed, the court noted that the plaintiff is “a picture perfect example of a worker for whom the Act’s overtime provision is not intended” because she performed duties such as serving as the intermediary between employees of advertising agencies and the software developers at MediaBank, training staff in the use of software, answering questions from customers, and showing the customer how to implement those answers in MediaBank software.

In summary, the plaintiff’s primary duty was to identify customers’ needs, translate them into specifications to be implemented by the developers, and assist the customers in implementing the solutions. The court found that these tasks constituted work exempt from the FLSA overtime provisions pursuant to the administrative exemption.

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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.

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.

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B.                 New York Labor Law Section 195

1.                  What?

The most recent version of Labor Law Section 195 became effective April 9, 2011. Section 195 requires employers to distribute written notice to employees containing: (1) the employee’s regular and overtime rates of pay: (2) basis of payment (e.g., by the hour); (3) any allowances claimed; (4) the regular pay day; (5) the name of the employer; (6) any “doing business as” names used by the employer; (7) the physical address of the employer’s main office or principal place of business and a mailing address if different; (8) and the employer’s telephone number.

2.                  Who?

The notice required by Section 195 must be given to all exempt and non-exempt employees in New York. This includes managers and commissioned sales-people. 

3.                  When?

In addition to providing this notice at the time of hiring, Section 195 requires that employees be provided with the required notice on or before February first of each year. The notice must also be provided at least seven calendar days prior to the time of any change in information, unless such changes are reflected on the employee’s wage statement. Note that this “wage statement” exception is not included in the Hospitality Regulations.

4.                  How?

Like the notice required by the Hospitality Regulations, the Section 195 notice must be prepared in English and the employee’s primary language. However, if the Commissioner does not prepare a template in an employee’s primary language, an employer will comply with the law by providing an English-language notice and acknowledgment. Currently, the New York Department of Labor website provides templates for several common types of pay agreements in Chinese, Haitian-Creole, Korean, Polish, Russian and Spanish. 

See ASAP titled Lame Duck Reform: New York’s Wage Theft Prevention Act and our blog post NY Department of Labor Releases Wage Theft Prevention Act Notice Templates for more information about Section 195 requirements and potential concerns with the forms provided by the Department of Labor.

The employer must obtain from each employee a signed and dated written acknowledgment in English and in the primary language of the employee. The acknowledgment must be preserved for six years. Such acknowledgment must include an affirmation by the employee that the employee accurately identified his or her primary language to the employer, and that the notice provided by the employer to such employee was in the language so identified.

C.                 Fair Labor Standard Acts Regulations

1.                  What?

The U.S. Department of Labor, Wage and Hour Division, recently published final amendments to regulations interpreting the FLSA. In order for an employer to take a tip credit, the regulations now require the employer to notify the employee: (1) of the amount of the cash wage that is paid by the employer (i.e., at least $2.13 under federal law); (2) of the amount of tips credited as wages; (3) that all tips received by the employee must be retained by the employee except for tips contributed to a valid tip pool limited to employees who customarily and regularly receive tips; (4) any required tip pool contribution amount; and (5) that the tip credit shall not apply to any employee who has not been informed of the requirements of the FLSA’s tip credit requirements.

See our ASAP titled Final Amended FLSA Regulations Make Significant Changes to Tip Credit Processes and Proposed Fluctuating Work Week Rules for more information about the recent amendments to the FLSA.

2.                  Who?

The notice requirements set forth in the FLSA regulations apply to all employers who take a tip credit against any of their employees’ wages. The notice must be given to all employees for whom a tip credit is taken.

3.                  When?

The new regulations, including this notice requirement, go into effect on May 5, 2011. 

4.                  How?

The regulations do not require that this notice be provided in writing. However, a written notice, signed by each employee, will provide more definitive proof of compliance in cases where the adequacy of the notice is challenged. 

While the regulations do not require that the notice be provided in an employee’s primary language, at least one recent court decision in the Southern District of New York implies that an English-only notice to employees who are not proficient in English is insufficient to satisfy the notice requirement of the FLSA. To avoid this risk, it is recommended that notice be provided to employees in their primary language, at least to those employees who can reasonably assert that they do not read or write English.

Whether verbal, posted, or distributed, this notice must be put into effect by May 5. 

Employers may find it easier to incorporate the federal and state law requirements into one notice that is distributed: (1) to current employees by May 5, 2011; (2) to all new employees at hire; (3) at the time of any change in required information; and (4) every year by February 1. Although this may result in employees receiving more overall notice than is required, it will significantly reduce the administrative burden of providing separate notices and reduce the risk of noncompliance.

Target moved for summary judgment, arguing that the employee qualified for the administrative exemption to the FLSA. In response, the employee argued, among other things, that her work was not directly related to assisting with Target’s general business operations and that she was heavily supervised and therefore did not exercise sufficient discretion and independent judgment to qualify for the exemption.

The court ultimately concluded that investigators “serviced Target’s retail operations by investigating and preventing theft and fraud” and that, although she was supervised and trained in her duties, the employee exercised professional judgment in selecting cases and developing strategies for carrying out subsequent investigations. Further, the court concluded that the employee exercised discretion and independent judgment with regard to matters of significance because her investigations had the potential to result in the recovery of substantial Target assets.

Based on these findings, the court held that there was no genuine issue as to whether the employee was an exempt administrative employee and entered summary judgment for Target. Having granted summary judgment, the court also denied the plaintiff’s motion to certify the case as a collective action.

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Next, the court considered whether the prohibition of a class action voided the agreement. Notably, the Fourth Circuit in Adkins v. Labor Ready, Inc. had already addressed the issue and held that an arbitration agreement precluding class actions, and specifically a collective action under the FLSA, is not per se unlawful in light of the clear federal directive in support of arbitration. In this case, however, the court found that, in conjunction with the fee splitting provision, it would likely be that “no individual suits” would be brought except as a collective action under the FLSA.

Lastly, the court found that the provision truncating all statutes of limitations to one year would prevent Plaintiffs from vindicating their statutory rights, although the court recognized that some limitation periods may be shortened by agreement. Relying on Ninth Circuit precedent in Davis v. O’Melveny & Myers, the court held that a strict one year limitation period for employment-related statutory claims is oppressive in an arbitration context.

This case suggests that an employer may include one of the above provisions in an arbitration agreement, but not all three. In addition, the court left open the question of whether parties could agree to a two-year statute of limitations on some claims. 

Photo credit: Logan Simmons
 

The final regulations reflect the DOL’s reaction to comments received during the 2008 proposed rules’ notice period, including comments submitted to the Department by Littler Mendelson. Citing comments it received, the DOL explained its decision not to include some language contained in amendments it originally proposed in 2008 and stated the final amendments update only those sections it determined “required change to reflect statutory enactment or outdated examples contained in the regulations.” The final rules also include changes to regulations concerning tipped employees that the DOL says are designed to bring its tip credit regulations in line with the Wage and Hour Division’s “long-standing and settled policies” concerning tipped employees.

The amendments to the DOL’s tip credit regulations are the regulations’ first changes in more than 44 years. The DOL’s original tip credit regulations were promulgated in 1967, one year after the 1966 FLSA amendment which enacted section 3(m) and created the tip credit provision. Although section 3(m) was amended in 1974 and again in 1996, the tip credit regulations remained unchanged. The DOL attempted to bridge the differences between the 1967 regulations and the amended Act through positions and policy expressed in opinion letters and its Field Operations Handbook. Courts, however, have not consistently adopted these DOL positions and policies, creating considerable uncertainty in this area.

Specifically, the final tip credit regulations clarify that:

• An employer is prohibited from using an employee’s tips for any reason other than as a tip credit to make up the difference between the minimum wage and required tip credit cash wage, or in furtherance of a legitimate tip pool.
• An employer must notify employees of any required tip pool contribution amount, but there is no maximum contribution percentage on valid mandatory tip pools.
• An employer must advise an employee in advance of its use of the tip credit pursuant to the provisions of section 3(m) of the FLSA (i.e., the amount of the cash wage that is to be paid to the tipped employee; the amount by which the wages of the tipped employee are increased on account of the tip credit; that all tips received by the employee must be retained by the employee except for tips contributed to a valid tip pool; and that the tip credit shall not apply to any employee who does not receive the notice).

Notably, the DOL rejected a position urged by many commenters that employers should be required to provide written notice of an employer’s intent to use the tip credit. Instead, the DOL adopted the position advocated by Littler Mendelson in its comment to the 2008 proposed rule that verbal notice was sufficient.

Other changes included in the final amendments to the regulations include:

• Incorporation of the language from the Employee Commuting Flexibility Act of 1996 into the regulations.
• Revising regulations concerning the Youth Opportunity Wage (a temporary sub-minimum wage paid to workers under age 20) to cite provisions of the Small Business Job Protection Act of 1996.
• Modifying regulations concerning agricultural workers on water storage/irrigation projects to be consistent with the 1997 Departments of Labor, Health and Human Services, Education, and Related Agencies Appropriations Act.
• Revising regulations pertaining to volunteers at private non-profit food banks to include exemptions included in the Amy Somers Volunteers at Food Banks Act of 1998.
• Changing the regulatory definition of an “employee . . . in fire protection activities” to be consistent with a 1999 amendment to the FLSA that defines the term.
• Revising overtime regulations concerning calculations of the “regular rate” of pay to include provisions from the Worker Economic Opportunity Act of 2000 that exclude the value of stock options from the regular rate calculation.
• Addition of language to regulations pertaining to the exempt status of salesmen, partsmen, or mechanics of automobiles, trucks, or farm implements that reflects a 1974 amendment to section 13(b)(10) of the FLSA.
• Updating the regulations with “technical amendments” to reflect the increase in the amount of the minimum wage and other outdated threshold amounts, and eliminating outdated references in the regulations to former minimum wage rates.

The final amendments also reflect the DOL’s decision to abandon certain 2008 proposed changes. The DOL elected not to make proposed substantive changes to regulations regarding: compensatory time (continuing to allow public employees to use compensatory time on a date requested absent undue disruption to the employer); the fluctuating workweek (making only editorial revisions to these regulations); and meal credits (determining that further study concerning the impact of dietary or religious restrictions and whether employees had adequate time to eat was warranted before proposed changes were adopted). While the DOL amended language of its regulations pertaining to automobile salesmen, partsmen, or mechanics, it decided not to change its regulations concerning industry service advisors or writers, rejecting a proposed rule change that would have provided these employees with exempt status.

For more information, see Littler's ASAP, Final Amended FLSA Regulations Make Significant Changes to Tip Credit Processes and Proposed Fluctuating Work Week Rules.

In light of the Circuit split, the U.S. Supreme Court granted review of the Seventh Circuit’s decision in Kasten v. Saint-Gobain Performance Plastics Corp., and has now issued its opinion.

The Kasten case involved an unwritten, oral complaint to the employer, thus implicating both issues (1) and (2) above. Kevin Kasten worked at a Saint-Gobain manufacturing plant in Wisconsin. Kasten claimed that on several occasions he complained to his supervisors and a Human Resources generalist that the location of the time clocks was illegal because it prevented employees from being paid for time spent donning and doffing their required protective gear, and said that he might file a lawsuit. After frequently being warned about not recording his comings and goings on the time clock, Kasten was terminated. He sued Saint-Gobain, claiming that his employment was terminated in retaliation for his complaints in violation of the FLSA. The Western District of Wisconsin dismissed Kasten’s case, holding that unwritten, oral complaints are not protected activity under the FLSA’s anti-retaliation provision. The Seventh Circuit affirmed, holding that while internal complaints to an employer are protected under the FLSA, such complaints must be in writing because the term “filed” implies a writing. The court thus affirmed the dismissal of Kasten’s complaint.

In light of the circuit split surrounding the interpretation of the phrase “filed any complaint,” the Supreme Court granted review. The Court vacated the Seventh Circuit’s decision, holding that unwritten, oral complaints are protected. Justice Breyer (joined by Justices Roberts, Kennedy, Ginsburg, Alito and Sotomayor, with Kagan not taking part) held that while the meaning of the phrase “filed any complaint” was ambiguous, considering the purpose and context of the statute, it should be interpreted to include unwritten, oral complaints. The Court reasoned that excluding oral complaints would: (1) undermine the FLSA’s enforcement scheme as the anti-retaliation provision enables employees to report substandard conditions without fear of economic retaliation, (2) disadvantage those with difficulty making requests in writing such as the illiterate, less educated and/or overworked, (3) prevent government agencies from using hotlines, interviews and other oral methods of receiving complaints, and (4) discourage private employers from using informal workplace grievance procedures to secure compliance.

In order to ensure fair notice to the employer, the Court held that the phrase “filed any complaint” contemplates “some degree of formality, certainly to the point where the recipient has been given fair notice that a grievance has been lodged and does, or should, reasonably understand the matter as part of its business concerns.” The Court articulated the following standard: a complaint is “filed” when “a reasonable, objective person would have understood the employee to have put the employer on notice that the employee is asserting statutory rights under the Act.” The complaint “must be sufficiently clear and detailed for a reasonable employer to understand it, in light of both the content and context, as an assertion of rights protected by the statute and a call for their protection.”

Surprisingly, the Court declined to comment on whether the FLSA protected only complaints filed with the government or whether complaints to an employer are also protected. The Court reasoned that, while the issue was addressed by the Seventh Circuit, it was not raised by the Company in its opposition to Kasten’s petition for certiorari and there was no need to resolve it in order to decide the oral/written issue. In his dissent, Justice Scalia (joined by Thomas) criticized the majority’s approach, noting that the issue was fairly encompassed within the Company’s opposition to the petition for certiorari, and would have been more logically addressed first. Justice Scalia would have affirmed the dismissal of the complaint on the ground that the plain meaning of “filed any complaint” and its context make clear that the anti-retaliation provision contemplated an official grievance filed with a court or agency, not oral or written complaints to an employer. Thus, the circuit split on whether a complaint must be filed with the government to be protected remains. However, employers are cautioned to tread carefully and be mindful that a majority of the circuit courts have extended the FLSA’s protection to internal company complaints.

The defendant owner argued that the language, context, and legislative history of the FLSA compels a conclusion that an owner can be both an employer and employee for purposes of the tip pool provision. The court disagreed, stating that “it would be an anathema to the purpose behind the FLSA to simultaneously allow [an owner] to take tips from a collective tip pool that was set up to allow him to pay his employees at a rate substantially below the minimum wage” and that a contrary finding “would broaden the FLSA’s tip credit provisions to a point where they would become meaningless.”

The court also held that the defendant owner violated the Maryland Wage and Hour Law (MWHL), the state equivalent of the FLSA, by improperly participating in the tip pool. However, the court ruled that the bartender employees who sued were not entitled to recover overtime wages under the MWHL because the law specifically exempts restaurants from its overtime provision. MD. CODE ANN. LAB. & EMPL. § 3-415.

This entry was written by Steven E. Kaplan.

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The court’s reliance on Amex was surprising considering the Supreme Court’s recent order vacating and remanding the judgment in that case to the Second Circuit for reconsideration in light of Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp, 130 S. Ct. 1758 (2010) (“Stolt-Nielsen”). In Stolt-Nielsen, the Supreme Court held that class arbitration is not permitted unless the parties agree to it. The district court determined, however, that Amex remained persuasive authority and analyzed Sutherland’s case using the factors articulated there.

Based on this analysis, the district court determined that the arbitration agreement at issue was unenforceable. Specifically, the court found that Sutherland’s maximum potential recovery of approximately $1,867.02, was “too meager to justify” her expenses, which were likely to exceed $200,000. The court reasoned that under these circumstances, Sutherland was unlikely to find an attorney willing to represent her. By contrast, if Sutherland was permitted to aggregate her claim with similarly situated individuals, “she would have no difficulty in obtaining legal representation.” Finally, the court asserted that enforcement of the class waiver provision would grant E&Y effective immunity from labor laws. Therefore, the court denied defendant’s motion to dismiss and compel arbitration and permitted plaintiff’s class action to proceed.

This entry was written by Sarah Green.

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The trial court found that Arechiga’s supervisor had satisfied all of the requirements necessary to have an enforceable wage agreement under cases which pre-dated the passage of section 515(d). Those six factors are: (1) the employee was told the days he would work each week (six); (2) the number of hours he would work each day (eleven); (3) the guaranteed salary of a specific amount that the employee would be paid ($880 per week); (4) the basic hourly rate upon which his salary was based (true); (5) that his salary covered both his regular and overtime hours (true); and (6) the agreement was reached before the work was performed (also true). See Espinoza v. Classic Pizza, Inc., 114 Cal. App. 4th 968, 974 (2003); Ghory v. Al-Lahham, 209 Cal. App. 3d 1487, 1491 (1989); Hernandez v. Mendoza, 199 Cal. App. 3d 721, 725 (1988); Alcala v. Western Ag Enterprises, 182 Cal. App. 3d 546, 550–51 (1986). Arechiga’s straight-time rate of $11.14 and overtime rate of $16.71 totaled $880 for the 40 straight-time and 26 overtime hours in each of his workweeks.

The surprise was that the Court of Appeal found the agreement between Arechiga and his employer trumped California Labor Code section 515(d). That section provides: “For the purpose of computing the overtime rate of compensation required to be paid to a nonexempt full-time salaried employee, the employee's regular hourly rate shall be 1/40th of the employee's weekly salary.” Section 515(d) is commonly thought to incorporate the “Skyline Homes” rule. Skyline Homes v. Dep’t of Industrial Relations, 165 Cal. App. 3d 239 (1985). Under Skyline Homes, the overtime that is due an employee who was only paid a salary is determined for most employees by dividing the salary by forty hours. One and one half times the result of dividing a salary by 40 must be paid for each overtime hour of work.

The Court of Appeal’s finding that the wage agreement survived the passage of section 515(d) was not the subject of extensive analysis. The court concluded that overtime may not be waived, but that the basic hourly rate on which overtime is to be paid is still subject to agreement between the parties. The court set aside the portion of the Labor Commissioner’s Enforcement Policies and Interpretations Manual which condemned agreements such as Arechiga’s because the Manual had not been promulgated in accordance with the Administrative Procedure Act.

While Arechiga v. Dolores Press may provide a measure of comfort for some employers, some of the unarticulated exceptions to the decision should be noted. A wage agreement may include some overtime, but, if an employee works more hours than are included in the agreement, additional overtime will be due. A wage agreement may appear generous or even beneficial to an employee if the full salary is provided even when the employee works fewer than the expected hours. However, a salary that guarantees a nonexempt employee overtime, even if the employee does not work the overtime, has to meet the requirements of the federal Fair Labor Standards Act for employers who are subject to the FLSA. 29 U.S.C. §§ 201 et seq. Under the FLSA, a salary that includes overtime, whether overtime was worked or not, is only valid if it meets all of the requirements of section 7(f) of the FLSA. Section 7(f) includes a requirement that an employee’s hours vary for reasons beyond the employer’s control and that the guarantee not include more than 60 hours per week. 29 U.S.C. § 207(f). Furthermore, the United States Department of Labor and some courts would say that a fluctuating hours agreement (called a Belo agreement) is only valid if an employee’s hours vary both above and below 40 in a week. 29 C.F.R. § 778.406. Whether Arechiga made any claim under the FLSA, whether his employer was covered by the FLSA and whether all of the requirements of a BELO agreement were met are not addressed in the California Court of Appeal’s opinion. And, whether Arechiga ever worked more or fewer hours than those in his agreed schedule is not noted in the court’s opinion. The odds of an employee indefinitely working the same hours day in and day out are, however, limited. Once the employee works more hours, additional overtime must be paid. Once an employee works fewer hours, the requirements of section 207(f) must be met or the employee’s salary must be docked. Even if the requirements of section 207(f) are met, there is no specific accommodation of such plans under California’s Labor Code.

In sum, the California Court of Appeal’s conclusion that Arechiga’s wage agreement was enforceable despite the seeming hurdle imposed by section 515(d) of the Labor Code is a surprise, albeit a welcome one. Any employer thinking of using such an agreement must, however, consider the more likely restrictions of federal law before concluding that all of the employer’s overtime concerns have been resolved.

This entry was written by R. Brian Dixon.

Photo credit: MBPhoto, 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.

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The court found that the visa, travel, and recruitment expenses primarily benefited the employer and that, as per U.S. Department of Labor regulations, the employer must reimburse the workers for those costs if the workers would otherwise effectively receive sub-minimum wage compensation. See 29 C.F.R. §§ 531.3(d), 531.35.

The court relied heavily on the fact that a 2009 Department of Labor Field Assistance Bulletin declared that employers must reimburse H-2B visa workers for the costs of transportation, obtaining a visa, and third-party recruiters whose services the employer retains. The Field Assistance Bulletin reasoned that the costs of transporting H-2B workers and of obtaining an H-2B visa primarily benefit the employer because the H-2B visa program provides “greater-than-normal” benefits to the employer, since such workers are available to an employer only if it attests that no comparable domestic workers are available. In concluding that the recruitment costs primarily benefited the employer, the district court emphasized that the employer had retained the third-party recruiter’s services.

The courts have been divided on this issue. The Eleventh Circuit has similarly ruled that travel and visa expenses must be reimbursed when a worker’s effective wage received would otherwise be below minimum wage. See Morante-Navarro v. T&Y Pine Straw, Inc., 350 F.3d 1163, 1166 n.2 (11th Cir. 2003). The Fifth Circuit, however, has held to the contrary. See Castellanos-Contreras v. Decatur Hotels, 622 F.3d 393 (5th Cir. 2010) (en banc).

This entry was written by Bruce Millman and Nicholas Ortiz.

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A vacation or sick leave buy-back program typically affords an employee the opportunity to cash-out his or her unused vacation or sick leave benefits. Such programs incentivize employees to work rather than take unnecessary vacation or sick leave (in order to retain the pay benefits). Employers also utilize these programs to save on the cost of overtime and per-diem workers. In Chavez, the City’s employees were subject to such a vacation and sick leave buy-back program. However, when the City would determine its employees’ overtime rate by calculating the employees’ regular rate to include “straight time” and add-on payments, it did not include vacation or sick leave buy-backs.

In its analysis, the Tenth Circuit first noted that pay for vacation and sick leave actually taken is not part of the FLSA’s regular rate calculation. Regarding the issue that arises when an employee works instead of taking his of her vacation or sick leave day, the court agreed with the Department of Labor’s position on the matter – vacation buy-back is not part of the regular rate, but sick leave buy-back is. According to the Department, vacation leave pay should not be included in the regular rate because it is not compensation for actual work, whereas sick leave pay should be included in the regular rate because it is analogous to an attendance bonus.

There is somewhat of a circuit split as to whether sick leave buy-backs should be included in the regular rate. For instance, the Sixth Circuit has held that sick leave buy-backs should not be included because “awards for nonuse of sick leave are similar to payments made when no work is performed due to illness...” Featsent v. City of Youngstown, 70 F.3d 900, 905 (6th Cir. 1995). Thus, Chavez represents the Tenth Circuit’s split from the Sixth Circuit, and joining with the Eighth Circuit and Department of Labor, in holding that sick leave buy-backs should indeed be included in an employer’s calculation of the FLSA regular rate.

This entry was written by Milton Castro.

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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.

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.

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In contrast, in 2007, in Long Island Care at Home, Ltd, v. Evelyn Coke, the U.S. Supreme Court held that Fair Labor Standards Act (FLSA) regulations exempted home care agencies from having to pay overtime to its employees who worked in clients' homes. The Pennsylvania Supreme Court, however, rejected Bayada’s argument that it should be subject to the exemption standards under the FLSA, not Pennsylvania Minimum Wage law.

The decision means that, in Pennsylvania, home health agencies must now pay overtime to aides who work more than 40 hours in a workweek. The decision also has broader implications for any employer relying on the domestic services exemption. To come within the domestic services exemption: (1) the worker must be providing domestic services in or about a private home; and (2) the work must be performed in the home of the employer, not a third party. Employers in the state should carefully review their overtime exemptions and be sure that they are not erroneously relying on FLSA provisions where there are differing Pennsylvania requirements.

This entry was written by Thomas Benjamin Huggett.
 

Courtney Gordon, the Plaintiff-Appellant, was hired under this agreement, and resigned after only one year of service. On the day of Gordon’s resignation, the City informed her it was entitled to recover $6,400 (eighty percent of $8,000) in training costs. Accordingly, the City withheld income from Gordon’s final paycheck, but only in partial satisfaction of Gordon’s debt. As a result, Gordon received at least minimum wage income in her final paycheck, but was still accountable to the City for the remaining balance of her training costs.

Gordon then filed a class action lawsuit, seeking damages and declaratory relief under the Fair Labor Standards Act (“FLSA”), 42 U.S.C. § 1983, and various California state laws. At issue was whether the City’s paycheck deduction for training cost reimbursement constituted a “kickback” in violation of FLSA regulations (29 C.F.R. § 531.35: “The wage requirements of the Act will not be met where the employee ‘kicks-back’ directly or indirectly to the employer ... the whole or part of the wage delivered to the employee.”). The district court found that because Gordon’s paycheck still exceeded the minimum wage, despite the deduction, the City’s reimbursement demand did not violate the FLSA. The Ninth Circuit Court of Appeals affirmed.

Gordon is significant because it marks the latest Circuit Court of Appeals to uphold a training cost reimbursement agreement under the FLSA. Following the Seventh Circuit’s reasoning in Heder v. City of Two Rivers, Wisconsin, 295 F.3d 777, 781-82 (7th Cir. 2002), the Ninth Circuit called the City’s reimbursement agreement “a voluntarily accepted loan, not a kick-back.” Thus, the court explained, the cost of the training was a loan the City made to its officers, repayment of which was forgiven after five years of employment. And as long as the City paid its departing officers at least the statutory minimum wage, it could collect the training costs as any other ordinary creditor could, without violating the FLSA.

This entry was written by Milton Castro.

Kevin Kasten worked at a Saint-Gobain manufacturing plant in Wisconsin. He was issued three warnings for failing to properly clock in and out, and was suspended and then terminated in connection with a fourth incident. He claimed that at the time of his warnings and suspension, he told his supervisors and a Human Resources Generalist that the location of the time clocks was illegal because it prevented employees from being paid for time spent donning and doffing their required protective gear, and suggested to one supervisor that he might file a lawsuit. Following his termination, he sued Saint-Gobain, claiming that his employment was terminated in retaliation for his complaints in violation of the FLSA.

The Western District of Wisconsin dismissed the case, holding that unwritten oral complaints are not protected activity under the FLSA’s anti-retaliation provision. The Seventh Circuit Court of Appeals affirmed. The Seventh Circuit first held that “the plain language of the statute indicates that internal, intra-company complaints are protected,” based on the use of the word “any” before “complaint,” joining the majority of Circuit Courts that have considered the issue. 570 F.3d at 838.¹ However, the court then reasoned that the use of the term “filed” implies a writing and held that unwritten oral internal complaints are not protected activity under the FLSA. 570 F.3d at 839. The court rejected the argument made by Kasten and the Secretary of Labor in an amicus brief that “filed” should be interpreted as “to submit.” Id. The court also reasoned that when Congress wants to protect retaliation more broadly, it knows how to do so, for example in Title VII, which prohibits retaliation because one has “opposed any practice.” 570 F.3d at 840. The court thus affirmed the dismissal of the Complaint.

The Supreme Court granted review to address the Circuit split on the interpretation of “filed any complaint.” At oral argument today the Court did not allow much in the way of argument, peppering the attorneys with hypotheticals, and hinting at several possible outcomes:

• Several Justices raised the possibility that the Court could hold that internal complaints are not protected at all, siding with the minority of Circuit Courts on that issue.
• If internal complaints can constitute protected activity, Justice Ginsburg credited the argument that every other time the word “file” is used in the FLSA, it refers to a writing and allowing oral internal complaints would deviate from the standard meaning of the term in the statute at issue. This would be a reason to affirm the Seventh Circuit’s decision, holding that only written internal complaints are protected.
• If internal oral complaints can constitute protected activity, the Justices asked the parties to identify a standard to qualify an oral complaint as protected activity. They used the example of an oral complaint to a supervisor at a cocktail party and seemed uncomfortable with the possibility that this could be protected activity. Justices Alito and Sotomayor probed whether “filed any complaint” may incorporate whatever complaint procedures the company has. Alternatively, Justice Breyer focused on the extent of the formality of the complaint, expressing a concern that a tap on the shoulder raising a complaint could go unnoticed by a supervisor. In response, an objective standard was proposed: “whether a reasonable person would have understood the employee to have submitted a complaint.”

In sum, it appears that if the Court allows internal oral complaints to qualify as protected activity, it is likely to impose a standard that ensures that employers have sufficient notice of the complaint. Stay tuned!

This entry was written by Martha Keon.
 

¹ But see Ball v. Memphis Bar-B-Q, Co., Inc., 28 F.3d 360, 364 (4th Cir. 2000) (the FLSA’s “statutory language clearly places limits on the range of retaliation proscribed by the act.”); Lambert v. Genesee Hosp., 10 F.3d 46, 55 (2d Cir. 1993) (The plain language of this provision limits the cause of action to retaliation for filing formal complaints, instituting a proceeding, or testifying, but does not encompass complaints made to a supervisor”).

The employee and Petitioner argued that these issues were important for the Court to resolve because there is a conflict among the circuits and district courts. Most notably, the Ninth Circuit in Alvarez v. IBP, Inc., 339 F.3d 894 (9th Cir. 2003), aff’d on other grounds, 546 U.S. 21 (2005), held that that protective items worn in the beef and pork industries are not “clothes” within the meaning of Section 203(o), and, therefore, employees are required to be paid for this time, which is in direct conflict with the Fourth Circuit’s opinion.

In opposition to the petition for review to the Supreme Court, the employer and Respondent, Allen Family Foods, Inc., distinguished Alvarez v. IBP, Inc., noting that the meat packing and poultry industries use different protective gear, and that the Petitioner oversimplified the facts in the case. In addition, the employer noted that, after the petition was filed, the U.S. Department of Labor issued an opinion letter stating that the term “clothes” in Section 203(o) does not apply to the protective gear worn by meat packing employees, but distinguished the heavy protective gear worn in meat packing plants from the lighter gear worn in poultry plants. Administrator’s Interpretation No. 2010-2 (June 16, 2010).

The employee also presented the issue of whether the requirement that exemptions from the FLSA are to be narrowly construed also applies to Section 203(o). In response, the employer argued that Section 203(o) is not an exemption, because it does not exempt any employee from the minimum wage or overtime provisions of the Act, and, therefore, ordinary statutory interpretation should apply.

Employers should not read too much into the Court’s refusal to hear this case. It is possible the Court prefers that other circuits weigh in on the issue before accepting review, particularly in light of the Department of Labor’s recent Administrator’s Interpretation.

This entry was written by Steven Kaplan.

Polycarpe was a consolidated appeal of six Florida cases in which the district courts found that the FLSA did not apply because of insufficient interstate commerce. Each court’s finding was based on the fact that the employer had purchased its “goods” and “materials” intrastate. Some of the courts also held that the employees had not handled the necessary types of goods or materials. According to the Eleventh Circuit, however, each of these findings resulted from an “erroneous” interpretation of the FLSA. The case is notable for the court’s rejection of the “coming to rest” doctrine and interpretation of “materials” under the FLSA.

Rejecting the “Coming to Rest” Doctrine

The Fair Labor Standards Act  applies to two types of employers: 1) those with employees engaged in interstate commerce or in the production of goods for commerce; and 2) those with employees “handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person.”¹ In Polycarpe, the lower courts further limited the FLSA’s scope by following the “coming to rest doctrine,” which states that the FLSA does not apply to those employees who handle goods or materials that , prior to the employer’s acquisition, have already come to rest within the state. The Eleventh Circuit, however, found that the “coming to rest doctrine” was inconsistent with the FLSA as currently amended and thus held that, on remand, the district court in each case must decide whether the goods or materials were “at any time” produced in or moved interstate.

Defining “Materials”

Because some of the lower courts’ decisions in Polycarpe were based on interpretation of and the interplay between “goods” and “materials,” the court discussed each term at length and provided guidance on how lower courts should distinguish between the two. Of particular note is the court’s discussion of “materials,” given that the FLSA contains no definition of the term. Consulting the FLSA’s legislative history, Department of Labor regulations, and even Webster’s Dictionary, the Eleventh Circuit concluded that “materials” means “tools or other articles necessary for doing or making something.” Additionally, the court held that determining whether an item may be included in the term “materials” requires a 2-part test: “1) whether, in the context of its use, the item fits within the ordinary definition of ‘materials’ under the FLSA; and 2) whether the item is being used commercially in the employer’s business.” Discussing the first part of its test, the court gave the example of china plates which, if used by a caterer at a client’s banquet, would count as “materials,” but if simply sold as stand-alone items, would count as “goods.” As for the second part of the test, the court explained that the item must have a “significant connection” to the employer’s business. Thus, china plates would have a significant connection to a caterer’s business, but the same plates would not count as “materials” if used by an accounting firm as objects of decoration.

This entry was written by Milton Castro.

¹Both of these scenarios assume a $500,000 annual gross volume of sales. 29 U.S.C. § 203(s)(1)(A).

Background

Plaintiffs are former pharmaceutical sales representatives (“PSRs”) for Alpharma, Inc., a manufacturer of pain medication that is now owned by King Pharmaceuticals. On July 10, 2007, the plaintiffs filed a complaint alleging they are due unpaid wages and overtime pursuant to the FLSA. Thereafter, on March 24, 2009, the court granted Alpharma, Inc.’s motion to stay the proceedings pending the outcome of Smith v. Johnson & Johnson in the Third Circuit Court of Appeals. Following the Third Circuit’s decision in Smith, Alpharma filed a motion for summary judgment before the instant court.

Analysis

The court held that the former PSRs qualify for the administrative exemption and analyzed the three-prong test that the Secretary of Labor sets forth in the administrative regulations. Under the test, an administrative employee must (1) make no less than $455 per week; (2) perform “non-manual work directly related to the management or general business operations of the employer;” and (3) exercise sufficient “discretion and independent judgment with respect to matters of significance.”

With the weekly salary requirement conceded by the parties, the court held that the second prong of the administrative exemption test was met, reasoning that the PSRs were involved in “marketing” and “promoting sales.” The court recognized that federal statutes and regulations prohibit the sale of Alpharma’s prescription medication directly to the public. The PSRs “called on doctors and pharmacies to encourage them to prescribe or stock Alpharma’s products over the products of its competitors.”

Concerning the third prong, the court further examined federal regulations defining the exercise of discretion and independent judgment as involving “the comparison and evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered.”

Alpharma relied heavily on the Third Circuit’s holding in Smith that “a pharmaceutical sales representative was not entitled to overtime pay because she qualified for the administrative exemption under the FLSA.” The district court noted that the plaintiff in Smith “described herself as ‘the manager of her own business who could run her own territory as she saw fit.’”

The court stated that “the facts in Smith are startlingly similar to the case at bar.” The court identified the following similarities: the employer gave Smith a list of target doctors including “high-priority” doctors, set a minimum number of doctors to visit per-day, permitted Smith to determine the order of doctor visits each day, provided Smith with a prepared “message,” allowed Smith “some discretion when deciding how to approach the conversation,” provided Smith with visual aids and did not allow her to use other aids.

The PSRs here worked alone, developed business plans, decided their “routing” (i.e., when and where to travel), and determined the doctors to meet with each day “in order to effectuate the most business.” The court stated that the PSRs also had discretion to decide “how to approach the physician.”

On the other hand, the plaintiffs characterized Alpharma’s PSR supervisors as “micro managers,” and argued that the PSR in Smith was more of a “freelancer.” The plaintiffs also urged the court to examine the full list of factors set forth in the regulations for determining “whether or not an employee exercises the requisite discretion and judgment to fit within the exemption.”

The court reasoned that the plaintiffs satisfied the same two factors as the plaintiff in Smith. First, the court noted that the PSRs’ work “affects business operations to a substantial degree.” Second, the court stated that the PSRs “are ‘involved in planning long-or short-term business objectives’ related to the marketing of their products within their territories.”

In addition to satisfaction of these two factors, the court stated that its conclusions were “buttressed by the plaintiffs’ duties to write reports and business plans to determine where their business was coming from, to detect trends in the sales of the drug, and to generate ideas on how to grow the business.”

The plaintiffs submitted supplemental submissions to direct the court’s attention to other PSR misclassification cases: Jirak v. Abbott Laboratories, Inc. and In re Novartis Wage and Hour Litigation. The court found it unnecessary to discuss these cases in light of the Third Circuit’s decision in Smith and in a subsequent nonprecedential opinion.

This entry was written by Michael Harvey.

In Collins, drivers working for a wholesale importer and distributor of wine picked up the wine from its employer’s warehouse in Chicago and delivered the wine to retail stores in Chicago and other areas of Illinois. Although the employees never made deliveries outside of Illinois, their employer controlled the wine from the time its independent contractors picked up the wine from the state or country of origin until the time its drivers (the plaintiffs) ultimately delivered the wine to a retail outlet in Illinois. The wine did not undergo any alteration on its trip from the vineyard to a retail store, nor was it subject to any processing, deliberate aging, adding of preservatives, or re-labeling. Rather, “[w]hen the wine arrives at the warehouse, it is taken off the shrink-wrapped pallets on which it is delivered and shelved in the warehouse, period.”

In concluding that the drivers were engaged in interstate commerce bringing them within the Motor Carrier Act exemption from overtime, the Seventh Circuit found that the drivers’ delivery of wine exclusively within Illinois amounted to the last segment of an uninterrupted single interstate shipment originating from the locations where the wine had been produced. According to the Seventh Circuit:

“It seems to us that when a shipper transports his product across state lines for sale by him to customers in the destination state, and the product undergoes no alteration during its journey to the shipper’s customer, and interruptions in the journey that occur in the destination state are no more than the normal stops or stages that are common in interstate sales, such as temporary warehousing, the entire journey should be regarded as having taken place in interstate commerce within the meaning of the Motor Carrier Act’s exemption from the [FLSA]."

As a result, the court affirmed the district court's holding that the drivers were engaged in interstate commerce and, therefore, exempt from overtime under the FLSA.

While at first blush the decision in Collins appears to be favorable to employers, the Seventh Circuit’s conclusion that the drivers were engaged in interstate commerce was limited to the facts before it. Accordingly, employers with drivers who deliver goods within a single state must evaluate the overall process for delivery of goods from start to finish before concluding that the Motor Carrier Act exemption applies.

This entry was written by Jennifer L. Mora.

Photo credit: MobiusDaXter
 

In addition, the proposed regulations would “modernize” certain recordkeeping requirements by allowing for “automated and electronic recordkeeping systems and methods to take the place of mandatory paper records that are currently required in some instances for employees” who work from home.

The DOL anticipates issuing a notice of proposed rulemaking in August of 2010.

This entry was written by Christopher Kaczmarek.

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

Upon the termination of her employment with Sears, Ericka Brown was presented with a separation agreement, which she voluntarily elected to sign.  That agreement entitled her to a severance package, and also precluded her from bringing certain waivable claims against the company.  Significantly, the agreement also required her to waive her right to bring, or participate in, a class action relating to her employment with the company.  Despite this agreement, Brown, in her lawsuit against the company, sought to recoup allegedly unpaid wages under a variety of state statutory and common law legal theories, and sought to proceed by way of both a Federal Rule of Civil Procedure 23 class action and a Federal Fair Labor Standards Act (FLSA) collective action.

The court agreed with Sears that even though employees such as Brown cannot waive the right to assert individual FLSA rights—including alleged entitlement to minimum wage, overtime and the recovery of liquidated damages—they can waive other causes of action for alleged non-payment of wages under other laws, including state claims for breach of contract, as well as the right to bring  any variety of class action (including an FLSA collective action) on behalf of others.  Specifically, the court reasoned that the waiver of the ability to bring an action on behalf of others does not diminish an employee’s ability to assert her own rights under the FLSA. This ruling provides protection to employers who have, for valuable consideration, procured these waivers.

This blog entry was authored by Laurent Badoux.

In addition to the FIL Training guide, the Department also produced copies of the handwritten employee interview summaries prepared by the investigator on the Department’s “Employee Personal Interview Statement” (WH-31) form. Together, these materials provide a fascinating glimpse into the Department’s internal thinking and strategies on how to conduct employee interviews during FLSA investigations. Some of the key points emphasized in the FIL Training guide include:

• The importance of including the Department’s legal counsel, the Solicitor of Labor (SOL), in the investigation process and consulting with the SOL on “the kind and amount of information needed from interviews in order to resolve the issues presented.” In other words, employers should always assume that the Department is actively consulting with its attorney and preparing for potential litigation during the course of an FLSA investigation.

• The method for determining how many employee interviews should be conducted by the investigator in order to produce a “representative sample.” As explained in the FIL Training guide, with a “small number of affected employees (10 or less), it is reasonable to interview all of them.” By contrast, the guide recommends that with a “large number of employees (100 or more), interview about 20%.”

• Specific suggestions on interview techniques and styles that Department investigators can use to put “an employee at ease” and facilitate “the free flow of pertinent information.”

• The Department’s preferences on interview locations and methods (“[p]ersonal face-to-face interviews are the best method,” while “[t]elephone interviews are acceptable” and “[m]ail interviews are the least desirable”).

• The suggested form and substance of the signed employee interview statements each investigator is required to prepare and obtain at the conclusion of employee interviews.

• The requirement that investigators “evaluate the demeanor, articulateness, self-confidence, and other appropriate characteristics of each witness,” and document that evaluation for future use by the SOL to “determine which employees will be the best witnesses” against the employer in any future litigation.

Each year the Department receives 25,000-30,000 new employee wage complaints under the FLSA. Although only about one percent of these complaints end up in court, the Department’s FIL Training guide shows that the Department conducts each investigation with the understanding that it may result in contested litigation. Given this policy, and the detailed training materials and methods used by the Department to prepare for the possibility of litigation, employers need to ensure that they devote the same time and effort to preparing their response to FLSA wage and hour investigations.

This blog entry was authored by Douglas E. Smith.
 

The court next determined that the plaintiffs’ activities – even though primarily intrastate in nature – constituted “interstate commerce” as that term is used in the MCA because they were part of the continuous stream of interstate travel. Specifically, ACLM’s airport-to-seaport routes “share a practical continuity of movement with the interstate or international travel of the cruise lines and their passengers ... [f]or cruise ship passengers arriving at the airport or seaport, ACLM’s shuttle rides would be part of the continuous stream of interstate travel that is their cruise vacation.” 2009 WL 2182419, at *6.

Finally, the court rejected the plaintiffs’ arguments for limiting the Secretary of Transportation’s jurisdiction over their work-related activities, concluding that: (1) neither the plain language of the MCA, nor the plain language of the FLSA, limit the Secretary of Transportation’s jurisdiction solely to transportation that actually crosses state lines; (2) the MCA’s “incidental-to-air” exemption, 49 U.S.C. § 13506(a)(8)(A), did not divest the Secretary of Transportation’s jurisdiction over ACLM with respect to regulation of maximum hours of work; and (3) to the extent a through-ticketing arrangement was required for ACLM’s airport-to-seaport routes to constitute interstate commerce, ACLM demonstrated that such an arrangement in fact existed.

This blog post was authored by Jeffrey Timmerman.

Employers should note that not all chefs and cooks may participate in tip-pooling arrangements. Only those who have regular customer contact may do so. Similarly, servers, bellhops, bus persons, counter persons and service bartenders may participate in tip-pooling arrangements. Dishwashers, for example, cannot participate in tip pools. Employers also should note the variations in state laws regulating tip-pooling arrangements. See, e.g., California Division of Labor Standards Enforcement Opinion Letter dated 9/8/05 (tip pool should include only “those employees who contribute in the chain of the service bargained by the patron,” and should exclude any supervisory employee “with the authority to hire or discharge any employee or supervise, direct, or control the acts of employees”).

This blog entry was authored by Tyler Paetkau.

In misclassification litigation under the FLSA, plaintiffs often argue that the foregoing “fluctuating workweek” method of calculating overtime should not be permitted. These plaintiffs contend that the “clear mutual understanding” required by § 778.114 must include an understanding that overtime premiums will be calculated using the “half-time” method. Of course, in misclassification cases, overtime was not paid at all, so the parties necessarily did not have any understanding as to how overtime premiums would be calculated. If the plaintiffs prevail on this argument, therefore, the “fluctuating workweek” method could never be used in misclassification cases, and plaintiffs in misclassification cases would be awarded overtime damages using the “time and one-half” method (pursuant to which their weekly salary would be divided by 40 hours or some other fixed number of hours, and the resulting hourly rate would be multiplied by 1.5 and then paid for all overtime hours).

The method used for calculating overtime can have a significant impact on the potential exposure in litigation. For example, if an employee was paid a weekly salary of $1,000, overtime liability for a week in which the employee worked 50 hours would be: (a) $100 using the “fluctuating workweek” method ($1,000 ÷ 50 x 0.5 x 10); but (b) $375 using the “time and one-half” method ($1,000 ÷ 40 x 1.5 x 10).

In Clements v. Serco, Inc. the Tenth Circuit held that in order to take advantage of the “fluctuating workweek” method of calculating overtime in a misclassification case, the employer must prove only that the parties had a “clear and mutual understanding” that the employees would be paid a fixed salary for all hours worked.530 F.3d 1224 (10th Cir. 2008).

The Clements decision provides some welcome relief to employers faced with misclassification litigation. But it also provides a valuable lesson for all employers. In order to establish the existence of a “clear and mutual understanding” that the employees would be paid a fixed salary for all hours worked, offer letters and other documentation regarding an exempt employee’s weekly salary should not suggest that the salary is compensation for a fixed number of hours per week or for a fixed weekly schedule. Rather, the documentation should confirm that the salary is intended to compensate the employee for all hours worked each workweek, whether many or few.

For more comprehensive coverage of this issue, see our article on Littler.com.

Robert Pritchard authored this blog entry.