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

The long-term import of this decision for healthcare employers is unclear. As noted by the court in a footnote, on August 15, 2011, the regulation at issue in the case was superseded. Since the parties did not argue that the newly-adopted regulations applied, however, the court decided that it “need not determine whether nurses similarly situated as plaintiffs will in the future be entitled to overtime compensation.” The recently-enacted regulation adopts the provisions of the federal regulations regarding overtime exemptions (with certain exceptions not applicable here). Unlike the previous New Jersey regulations, the federal regulations contain detailed definitions of “salary basis” and “fee basis.” Further, Fact Sheet #17N by the U.S. Department of Labor's Wage and Hour Division advises that in order for nurses to qualify for the learned professional exemption, they “must be compensated on a salary or fee basis (as defined in the regulations).”

Thus, the most important lessons from Anderson are: (a) employers must remain vigilant in consistently monitoring both federal and state wage and hour laws; and (b) employers who are relying on an agency’s interpretation of applicable exemptions should be aware that courts may not always defer to the agency’s interpretation. While the employer in this case benefited from the court’s deference to the New Jersey Division of Wage and Hour Compliance’s longstanding interpretation of the exemption, other courts in other contexts have refused to defer to agency interpretations when they do not find support in the express terms of the statute or regulation.

The Department’s most substantial addition to the Act, by way of these emergency rules, is the establishment of a formal administrative procedure (so-called “formal default hearings”) for the adjudication of wage claims under $3,000 (which reportedly constitute 75% of all wage claims filed each year). Here are some of the key developments: scheduling and notice requirements for formal default hearings are outlined and explained; consolidation/severance of hearings is possible; the Department is empowered to issue subpoenas to compel the attendance of a witness and/or production of documents; and non-waivable administrative fees and statutory penalties may be assessed upon a finding against the employer.

These emergency rules appear to be an attempt by the Department to increase its enforcement power, while at the same time creating more informal procedures that will allow it to take on more claims per year. The Department is now taking comments on the emergency rules, which will remain effective for 150 days, or until July 22, 2011. On that date, any of the rules that have not been adopted will be nullified. However, it is likely that the emergency rules will, in large part, be ratified as they presently exist.

For more information on the Illinois Wage Payment and Collection Act and its recent amendments, please see our ASAP.

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.

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

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

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

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

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

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

This blog entry was written by Jane Ann Himsel.