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Second, on her meal period class claim, the named plaintiff alleged that she never received an uninterrupted 30-minute lunch break, presented testimony of another employee who claimed he had been required to work through unpaid meal breaks, and described data from earlier litigation purporting to show that 23.1 percent of unpaid breaks were interrupted by work. Under California law, an employer must relieve its employees of all duty for an uninterrupted 30-minute period but need not actually ensure its employees take meal breaks and need only pay for interrupted or missed meal breaks when it knows or should have known that an employee was working through the meal period. Again, the district court found Comcast instructive, stating that while the plaintiff’s “evidence and method of proof was applicable to the class as a whole, it does not adequately tie [her] allegation . . . to a proper and reliable measure of damages for work done on those breaks,” particularly because of the requirement to prove the employer knew or should have known of the work during the unpaid meal periods.

The Forrand decision represents at least the fourth wage and hour decision applying Comcast’s requirement that plaintiffs establish “damages are capable of measurement on a classwide basis” and denying class certification for failure to satisfy Rule 23(b)(3)’s predominance requirement. As discussed in a prior post, two of these decisions were in district courts in the Second Circuit – Roach v. T.L. Cannon Corp., and Tracy v. NVR, Inc. – and one was in a district court in the Ninth Circuit – Ginsburg v. Comcast Cable Communications Management. In addition, on April 1, 2013, the U.S. Supreme Court vacated and remanded Ross v. RBS Citizens, N.A. for further consideration in light of Comcast. In Ross, the Seventh Circuit had affirmed the district court’s decision certifying a class action involving off-the-clock and misclassification claims.

However, in Martins v. 3PD, Inc., a federal district court in Massachusetts certified a wage and hour class action and distinguished Comcast on the grounds that the parties in Comcast had conceded that the individual damages calculations fell within the “Herculean task” category and therefore warranted denial of class certification under the predominance requirement. The court interpreted Comcast “not to foreclose the possibility of class certification where some individual issues of the calculation of damages might remain, as in the current case, but those determinations will neither be particularly complicated nor overwhelmingly numerous.”

These decisions are likely only the start of a potential flood of decisions discussing the application of Comcast to class certification decisions in wage and hour cases. We will keep you posted as significant developments occur.

*The case was litigated by Federal Express’s in-house legal department.

On appeal, the Seventh Circuit held that the clothes at issue in this case – flame-retardant pants and jacket, work gloves, work boots, a hard hat, safety glasses, ear plugs, and a hood – are clothes under section 203(o), and therefore the time spent putting on and taking off such items are not compensable. To the extent the hard hat, glasses, and ear plugs were not technically “clothes,” the court noted that putting on these items did not qualify as compensable “work” because the time spent in such activity was de minimis. Accordingly, U.S. Steel was not required to compensate its employees for the time spent changing into and out of work clothes.

The conclusion reached by the Seventh Circuit in Sandifer conflicts with Ninth Circuit authority holding that “special protective gear [is] different in kind from typical clothing” and is not “clothes” under section 203(o). Still, the Fourth, Sixth, Tenth, and Eleventh Circuits have adopted a different definition – one that includes anything one “wears,” including “accessories” such as ear plugs and safety glasses.

The time it takes for an individual employee to don or doff work related clothing may seem inconsequential, but when such time is aggregated in class and collective actions it can be significant. Thus, the Supreme Court’s resolution of what constitutes “changing clothes” in the context of section 203(o) may have a significant impact on employers nationwide.

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During Monday’s hour-long oral argument, the justices engaged in lively questioning over the application of the exemption in the pharmaceutical industry. One important point of discussion revolved around the PSRs’ ability to obtain assurances from doctors to prescribe their drugs. Attorney Thomas Goldstein represented the PSRs and argued that because PSRs do not receive binding or written commitments from physicians to prescribe medications, they do not engage in sales under Section 3(k) of the FLSA. While Chief Justice Roberts agreed that physicians merely tell the PSRs that they will consider using their products in relevant medical situations, Justice Scalia raised the point that the particularities of selling in the pharmaceutical industry should be taken into account, noting that “these people look like salesmen to me.” Respondent SmithKlineBeecham’s counsel, former Solicitor General Paul Clement, argued that the PSRs in fact are engaged in “sales” because they obtain binding commitments from doctors and that these commitments can be oral. Mr. Clement further argued that extending the DOL’s position to the industry as a whole would end in an illogical result as pharmaceutical sales representatives selling medical devices to doctors would be exempt, but representatives selling drugs would not.

Faced with massive and unexpected liability – estimated by many to be in the billions – the justices also expressed concerns over DOL’s use of amicus briefs to declare new policies. Justice Breyer questioned whether the Secretary of Labor even weighed in before the new position was advanced by the lawyers in the Solicitor’s Office of the DOL. He further indicated that the DOL should have first engaged in administrative notice-and-comment rulemaking, giving all affected parties notice before changing course on the exempt status of the PSRs. Justice Scalia asked whether it was the DOL’s policy making program to “run around the country” and make new regulations through amicus briefing. Department of Justice Deputy Solicitor General Malcolm Stewart, arguing on behalf of the United States, admitted that the DOL had received a request for an opinion letter in 2007, inquiring as to whether PSRs were outside salesmen, but that it never responded. Justice Scalia stated that he found it “extraordinary” that the DOL was going to come in – without engaging in any prior enforcement actions or issuing any agency guidance on the issue – and proclaim that 90,000 people are now owed retroactive overtime. One final point made by Mr. Clement – and echoed by Justice Ginsburg – was that, even if it is found that the PSRs do not meet the outside sales exemption requirements, the issue is not fully resolved as the position could still qualify for the administrative exemption under the FLSA. The application of the administrative exemption is not currently at issue before the Supreme Court.

This case has far reaching implications as there are over 90,000 PSRs employed by the pharmaceutical industry. In addition, the case will likely have a broader impact on the manner in which an agency can announce new positions. A decision is expected by the end of June. We will prepare a complete analysis of the decision once it is issued.

To learn more about the case and its potential implications for employers, please see Littler's ASAP, Supreme Court to Decide Significant Case on the Outside Sales Overtime Exemption, by Richard Black and Bradley Strawn.

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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 court determined the promotional work performed by the “sales” representatives was “not a duty directly related to Schering’s management or general business operations . . .,” adopting the Second Circuit’s analysis in In re Novartis Wage and Hour Litigation. Having already found that the “sales” representatives do not consummate sales, the court then concluded that, “neither do they design the promotional materials to be used in their sales calls . . . nor develop the ‘core message’ to be delivered during meetings with health care professionals . . . ." Likewise, while the sales representatives “helped drive Schering’s market share . . . they did so by promoting products to specific physicians in a set territory, not by marketing Schering products generally.” Schering’s representatives “use the core messages and promotional strategies developed by marketing teams; they do not develop those messages themselves or set overall market strategies.” For these reasons, their primary duty did not directly relate to Schering’s management or general business operations, and failed the second part of the test for the administrative exemption.

Schering’s sales representatives also came up short on the third part of the test for exempt administrative status according to the court. Relying once more on the Second Circuit’s decision in Novartis, supra, the trial court concluded that the discretion Schering permitted its sales representatives did not extend beyond “day to day duties” to “matters of significance.”

Thus, the sales representatives could adjust their interactions with individual physicians based on what they found to be the most effective approach. And they were not required to always deliver the same “core message” to each physician, nor to execute their sales calls according to a set script. But Schering did not permit sales representatives to present any information that had not been approved by and received from Schering. Nor were sales representatives allowed to develop their own core message, “but were instead instructed by Schering on how to deliver a core message that had been developed by a Schering marketing team . . . ." Schering set the overall market strategy for particular products, and while the sales representatives had the ability to call on doctors who were not on the target list generated by Schering, they were required to call on each doctor on that target list.

As a result of these constraints, “any discretion that Plaintiffs exercised fell within the bounds of the strategic plan and core message developed by Schering, rather than developed by Plaintiffs themselves; . . . they had no role in planning market strategy or the core message . . . ."

The court’s ruling is a further example of the unsettled state of the law on the status of pharmaceutical industry representatives. The Second Circuit’s Novartis case charts one course, determining that realities “on the ground” in the highly regulated pharmaceutical industry are insufficient to call for any industry specific analysis of what it means to make a “sale.” Meanwhile, the Ninth Circuit, in its decision in Christopher v. SmithKline Beecham, stakes out a different path with its conclusion that a “commonsensical” interpretation of the term “sale” in the pharmaceutical industry calls for a conclusion that sales representatives performing their jobs in ways much like that of their industry colleagues at Schering, qualify for the outside sales exemption.

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The Ninth Circuit Court of Appeals reversed. The court first concluded that the district court’s finding that plaintiffs could not fall under the professional exemption because they were unlicensed was “contrary to the exemption’s text and structure and would produce highly problematic precedent affecting several non-accounting professions.” The court examined the text of the two subsections of the Wage Order’s professional exemption. Subsection (a) allows the professional exemption to apply to an employee “[w]ho is licensed or certified by the State of California and is primarily engaged in the practice of one of the following recognized professions: . . .accounting. . .” Subsection (b) allows the professional exemption to apply to an employee “[w]ho is primarily engaged in an occupation commonly recognized as a learned or artistic profession.” The court found that simply because an accountant is unlicensed, and therefore not exempt under subdivision (a), does not mean that the accountant can not be exempt under subsection (b) if the accountant otherwise meets the test of that subsection. The two subdivisions are not mutually exclusive. The court found that to hold otherwise would mean that employees such as medical residents who were not yet licensed or first-year associates at a law firm waiting for bar exam results also could not qualify for the exemption. This was not the IWC’s intended result. The court then found there were disputes of material fact as to whether plaintiffs met the test of subsection (b) of the exemption.

The court also concluded that PwC proffered enough evidence to raise a triable issue of fact as to whether the administrative exemption applied. The court disagreed with the district court’s finding that all unlicensed accountants necessarily were subject to more than “general supervision,” and therefore could not be administratively exempt. The court stated that the authorities relied upon by plaintiffs did not distinguish general supervision from any other kind of supervision, and were not persuasive. There were numerous factual disputes in the record as to the nature and scope of PwC’s supervision of plaintiffs that only could be resolved by trial.

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A number of those seasonal workers subsequently filed a class action lawsuit, claiming that Bear Creek violated Oregon’s wage and hour laws. With regard to the minimum wage claim, the federal district court found that Bear Creek lawfully credited on-site housing costs toward the workers’ minimum wage according to Oregon’s minimum wage law, which allows Oregon employers to deduct the fair market value of lodging, meals or other facilities or services furnished by the employer for the private benefit of the employee from a worker’s minimum wage.

The Ninth Circuit reversed the district court’s decision and ruled in favor of the workers. In reaching its decision, the Ninth Circuit concluded that the deduction was not for the employees’ “private benefit,” as defined by the relevant statute, because the workers staying in on-site housing was necessary for Bear Creek to maintain an adequate workforce. Although Bear Creek had argued that three administrative decisions from the Oregon Bureau of Labor and Industries indicated that the statute applied only to on-call employees, the court determined that the rule is applicable in all instances in which an employer provides lodging because it is otherwise unable to meet its need for workers.

With regard to the workers’ other claim, the Ninth Circuit affirmed the district court’s determination that, in failing to pay all wages due on the last day of employment, Bear Creek had violated the statute regarding final payment of wages, which provides that “whenever employment terminates,” seasonal farmworkers are due “all wages earned and unpaid” immediately.

Oregon employers should evaluate their pay practices in light of this decision. Notably, the penalty for unpaid minimum wage in Oregon is calculated at the employee’s regular rate of pay x 8 hours per day x 30 days. In addition, prevailing plaintiffs are entitled to an award of attorneys’ fees and costs.

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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. 

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

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

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

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

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

This entry was written by Robert Pritchard.

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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.

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.

Texas-based EGL, Inc. retained delivery drivers in California for its freight forwarding, custom brokerage, and pickup and delivery lines of business. The contract that these delivery drivers signed provided that the parties intended to form a vendor/vendee relationship and recited that “[n]either Contractor nor any of its employees or agents shall be considered to be employees” of EGL. The contract further stated that the drivers “shall exercise independent discretion and judgment to determine the method, manner and means of performance of its contractual obligations.” Either party could terminate the agreement on 30 days notice, but otherwise the contract was automatically renewed. The contract also provided that any dispute between the drivers and EGL was to be decided under Texas law.

Undeterred by this language, some drivers sued EGL in California, seeking to apply various California Labor Code provisions applicable to employees to obtain, among other benefits, overtime, expense reimbursement, and meal break premium pay. EGL relied on the choice of Texas law provision in its contract and argued the parties’ relationship should be construed in line with the stated intention in the contracts. The district court agreed and granted the motion for summary judgment.

On appeal, the Ninth Circuit rejected the choice of law argument. According to the Court, the drivers’ claims did not arise out of the contract, did not involve interpretation of the contract terms, or otherwise require that any contract exist at all. Instead, the drivers’ claims simply arose out of the California Labor Code. Therefore, California law governed the question of whether the drivers were employees, even though the contract said otherwise.

Applying California law, the Ninth Circuit concluded that the drivers clearly were employees, not independent contractors. Among other things, the Court stated that the company told drivers what deliveries to make and when to show up each day for work, and exercised control over their vacations as well as any passengers who might ride along with them. Further, the drivers did not appear to work for multiple clients, but rather worked exclusively for EGL. Moreover, EGL’s own manuals informed the drivers that they had “the key role in the shipping process” and were EGL’s “largest sales force” – representations that underscored their essential role in the regular business of EGL.

Although this ruling does not prevent EGL from marshalling other facts to prove its case at trial, it does demonstrate the challenges businesses face when attempting to establish an independent contractor relationship. While a strong contract remains essential, businesses must pay equal attention to the reality of the relationship they establish to be sure that independent contractors are being given the discretion and freedoms necessary to meet the law’s requirements.

This entry was written by Alison Hightower.
 

Providing context for its decision, the court noted that Congress intended to exclude certain pre- and post-shift activities from work time when it enacted the Portal-to-Portal Act to amend the Fair Labor Standards Act. Under that amendment, as further stated in a persuasive 2006 DOL memorandum, changing clothes under usual circumstances is not compensable. In this case, the City had a policy of allowing officers to dress wherever they preferred, including at home, but required motorcycle officers to dress at home. The Court agreed that to the extent officers elected to dress at work, their decision was strictly a matter of employee convenience, and, as a result, their decision to change clothes at work did not render that time compensable.

The court recognized that previous decisions from the United States Supreme Court and the Ninth Circuit allowed compensation for donning and doffing, but in all those cases, changing clothes had to be performed on the employer's premises because of the nature of the work, a policy of the employer, or applicable law. Those cases provided the following three-part test to assess whether pre- and post-shift activities are compensable: (1) does the activity constitute "work"? (2) is the activity an "integral and indispensable duty" of the job?, and (3) is the activity so insignificant in scope and duration as to be excluded from compensability as de minimis?

The court expressed doubt whether the act of changing in and out of a uniform and gear constituted "work," but proceeded to the second prong of the test where the officers' argument "fatally falter[ed]." To be "integral and indispensable, a pre- or post-shift activity must be "necessary to the principal work performed and done for the benefit of the employer." Both the majority and the dissent deemed that the act of donning and doffing a uniform was not integral to the job and, therefore, was not compensable. The majority noted that, although there was no dispute that the uniform and gear was required, the process of donning and doffing was not required to occur at work, and was equally effective whether performed at home or work. There was no mutual obligation fulfilled by donning and doffing at work, and the ultimate decision was a matter of convenience to the employee, not the employer. The dissent also recognized that the uniform may connote authority but does "not assist the officers in making arrests, interviewing witnesses or writing reports," and, therefore, is not integral.

The majority considered the gear used by officers in the same context as (and as part of) their uniform and found it to be indispensable but not integral to the principal duty of law enforcement. The dissent reasoned that the police gear assisted officers in the performance of their principal duty, and, consequently, was both indispensable and integral. The dissent further noted that the time spent donning and doffing gear was most likely a matter of only "seconds, or a few minutes," which would make that time non-compensable as de minimis. The dissent concluded that the case should be remanded because the record does not contain evidence of the amount of time actually required for donning and doffing gear.

This decision is significant for private employers as well. To the extent any employer requires its employees to wear a uniform (or gear), this decision provides a framework for determining whether an employee is entitled to compensation. Although certain factors or set of facts may lead to variations, employers requiring its employees to don and doff uniform and gear at work are likely required to compensate employees for that time—provided it is not de minimis—but employees are generally not entitled to compensation if they have the right to change at home at the beginning and end of their workday.
 

This entry was written by Laurent Badoux.