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

In the course of their employment, the banquet sales managers received a handbook that stated that all contracts must be pre-approved by supervisors before the banquet sales managers could sign them. Additionally, prices were fixed by their supervisors, and “sales managers were not permitted to deviate or discount in any way without management approval.”

A number of banquet sales managers sued claiming that they were misclassified under the FLSA, as well as the wage and hour laws of Massachusetts and Rhode Island. The district court granted the employer’s motion for summary judgment, concluding that the banquet sales managers were exempt employees. The banquet sales managers then appealed to the First Circuit.

The First Circuit affirmed the district court’s decision, concluding that the banquet sales managers qualified as exempt administrative employees. The primary issue on appeal was whether the banquet sales managers exercised sufficient discretion and independent judgment to qualify for the exemption. The court rejected plaintiffs’ argument that they fell outside this exemption because they had no supervisory, policymaking, or financial decision-making authority. The court reasoned such authority “is a factor that the regulations instruct us to consider, it is not, however, a requirement.” According to the court, “working with a client to create a custom product, personalized to individual tastes and budgets” constitutes sufficient discretion and independent judgment to satisfy the requirements of the administrative exemption. Moreover, the court noted that “an employee’s discretionary action need not ‘have a finality that goes with unlimited authority and a complete absence of review.’”

Image credit: Tracy Hunter

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

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

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

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

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

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

This entry was written by Tracy Stott Pyles.

Photo credit: endopack

Before the trial court, and again on appeal, the managers contended that Costco’s calculation of their regular rate of pay violated California Labor Code section 515, which requires an employee’s regular hourly rate to be 1/40th of the employee’s weekly salary. Specifically, the managers argued that Costco should have calculated their regular rate of pay based upon what Costco had listed as their “reported salary” on its internal personnel forms, an amount that included the overtime premium pay.

The court of appeal disagreed. Finding for Costco, the court held that Costco’s method of calculating the managers’ regular rate of pay did not violate California’s Labor Code. The court rejected the managers’ argument that Costco was bound by the designation of reported salary on its internal personnel forms, reasoning that after the reclassification, Costco was free to set the managers’ base salaries at any amount, subject to minimum wage laws. Given that the revised managers’ salaries already included an anticipated five hours of overtime per week at the premium rate, the court noted that, “To accept appellants’ position would mean ancillary managers after reclassification would be paid overtime upon overtime.” Although the court’s decision is unpublished, the decision reaffirms the notion that an employer has discretion in setting an employee’s base salary, so long as the salary meets minimum wage requirements. The decision also demonstrates that an employee’s regular rate of pay may be calculated based upon an employee’s weekly salary, and need not include amounts incorporated as overtime compensation.

This entry was written by Michele Babb.

Photo credit: Matthew John Hollinshead

The plaintiffs requested the court take judicial notice of six state and federal court decisions which granted motions for class certification, and the defendant requested the court take judicial notice of two federal court cases denying class certification. The court granted the requests, but ultimately relied on two different federal court decisions: Vinole v. Countrywide Home Loans, 571 F.3d 935 (9th Cir. 2009) and In re Wells Fargo Home Mortgage, 571 F.3d 953 (9th Cir. 2009). In Vinole, the appellant sought to represent a class of external home loan consultants on the basis that the class was misclassified as exempt under the outside sales exemption. In Wells Fargo, the appellants were home mortgage consultants who claimed they were misclassified as administrative and outside salespersons.

In both cases, the Ninth Circuit court found that denial of class certification was proper because individual, not common, issues were likely to predominate. The court specifically noted that the issue as to an employee’s exempt or non-exempt status requires an individualized analysis of the way each employee actually spends his/her time, and not simply a review of the employer’s job description. Likewise, the court concluded that a defendant’s uniform exemption policy may not be used to satisfy predominance. The fact that an employer may classify a group of employees as exempt does not warrant a rule in favor of class certification given the necessity for individualized analyses.

In this case, the plaintiffs attempted to establish predominance by relying on the defendant’s staffing models and requirements for the position. The court noted that while the defendant’s staffing models and job requirements may prove susceptible to common proof, they do not establish predominance. Even if the defendant had some expectation based on staffing models as to how the branch managers would perform their daily tasks, the court concluded that this does not nullify the need for individualized inquiries as to how the branch managers actually spent their time. Citing Wells Fargo, the court noted that in wage and hour disputes where a defendant claims exemptions, like the administrative and outside salesperson exemptions, individualized inquiries about the actual hours worked, percentage of exempt versus non-exempt work performed, particular job experiences, and other inquiries are critical.

The court also pointed out that the plaintiffs’ own arguments weighed against class certification. The plaintiffs contended that the defendant had no expectation as to how branch managers met their goals, treated them as owners of their individual branches, and gave them nearly limitless discretion as to how to achieve company goals. The court noted that with substantial discretion as to how to operate one’s branch comes the likelihood of substantial differences—rather than common proof—as to how each purported class member spends his/her workday. Because the staffing models were recommendations as to how branch managers should perform their tasks and they were given nearly limitless discretion, the court concluded that individual issues are likely to predominate. Having failed to meet their burden under Rule 23(b), the plaintiffs’ motion for class certification was denied.

This blog entry was written by Michele Z. Stevenson.

With this announcement, Secretary Solis promised, "America's workers should rest assured that protecting worker rights is a top priority at the Department of Labor." Her press release warned, "[t]here is no excuse for employers who disregard federal labor standards--especially those that are designed to protect the most vulnerable in the workplace."

Broad Investigative Powers

The Department's Wage and Hour Division investigates allegations that employers failed to pay minimum wage or overtime, as well as alleged misclassification of employees as exempt or independent contractors.¹ DOL investigations can be triggered by complaints from employees, unions, or competitors, and routine audits also can be performed, often focusing on a particular industry or type of employer.

The Department has broad investigative powers, including the power to subpoena employment records. Assuming wage and hour violations are discovered, the Department will seek a settlement. If an out-of-court agreement is not reached, the Department can sue to enjoin an employer's violation of the law as well as to compel the payment of back pay to all employees. The Department also has the power to seek reinstatement with back pay of any individual employee who was discharged for attempting to enforce the law.

Should the Department bring suit and prevail, it will recover liquidated damages equal to the unpaid wages the employer owes, unless the employer can prove that it acted in good faith with a reasonable belief that its pay practices complied with the law. Interest and attorney's fees are likely to be awarded as well, even if liquidated damages are not.

Significant Settlements

The threat of such enforcement actions can result in employers agreeing to settlements that provide significant recoveries. For instance, in July 2009, the Department announced a settlement of almost $750,000 with a convenience store chain in nine states accused of failing to properly include performance-related bonuses in the regular rate used to calculate overtime pay.

The Department also is planning a "public awareness campaign" to inform workers of their "rights," which presumably also will assist the Department in finding errant employers to investigate and prosecute.

Wake-Up Call

The federal government's increased manpower and desire to enforce federal labor standards should be a wake up call to United States employers to ensure that their procedures and practices comply with federal labor laws.

Audits conducted by or through counsel can catch technical problems with pay practices, recordkeeping, and employee classification that can be corrected to reduce exposure. Training of managers in employment laws such as when overtime is required can avoid violations caused by managers' ignorance of legal obligations.

These proactive steps can save employers the expense and embarrassment of reacting to a government investigation or a costly class action.

This entry was written by Alison Hightower.

¹ The Wage and Hour Division also governs the hours and conditions for employment of children under 16 years old and it enforces the labor standards provisions of the Immigration and Nationality Act (INA) that apply to aliens authorized to work in the U.S. under certain nonimmigrant visa programs.

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

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

This blog entry was authored by Casey Kurtz.