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Finding that the settlement payment waived the technicians’ right to file suit, the Fifth Circuit affirmed summary judgment for Spring Break Louisiana. In doing so, the court relied heavily on the holding and analysis set forth in Martinez v. Bohls Equipment Company, a Western District of Texas decision that thoroughly examines the history of the FLSA, its amendment by the Portal-to-Portal Act of 1947, the Fair Labor Standards Amendments of 1949, and subsequent interpretative case law, ultimately holding that “parties may reach private compromises as to FLSA claims where there is a bona fide dispute as to the amount of hours worked or compensation due.” (quoting Martinez). Applying that same rationale, the Fifth Circuit determined that the payment offered to and accepted by the technicians pursuant to the union’s settlement agreement operated as “an enforceable resolution . . . predicated on a bona fide dispute about time worked and not as a compromise of guaranteed FLSA rights themselves.”

Finally, although the Fifth Circuit recognized that its holding directly contravened the Eleventh Circuit’s 30-year-old decision in Lynn’s Food Stores, the court distinguished that case by noting that the plaintiffs in Lynn’s Food Stores were unaware at the time of the settlement of their FLSA rights, had not consulted with an attorney, and, in some cases, could not speak English. The lighting and rigging technicians, on the other hand, had already retained an attorney and filed suit by the time they received and cashed their settlement checks. Thus “[t]he money [the technicians] received and accepted, pursuant to the settlement agreement, for settlement of their bona fide dispute did not occur outside the context of a lawsuit, [and] hence the concerns the Eleventh Circuit expressed in Lynn’s Food Stores are not implicated.”

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In that case the plaintiff worked as a medical technologist for Bostwick Laboratories. The plaintiff claimed that she and several coworkers met with the company’s chief operating officer to report that their supervisor was altering their timesheets to reflect that they had not worked the overtime that they had recorded, when they had worked the overtime hours. According to the plaintiff, the chief operating officer told them that he would look into the issue, but rather than resolving it, her employment was terminated on the following Monday. The plaintiff sued Bostwick Laboratories in the Eastern District of Virginia, claiming FLSA retaliation, among other things. Bostwick Laboratories moved to dismiss the complaint on the ground that an employee’s informal internal company complaint regarding a possible FLSA violation was not protected activity under the FLSA. The district court agreed, based on the then-precedential Fourth Circuit decision in Ball v. Memphis Bar-B-Q Co., and without having the guidance yet of the U.S. Supreme Court’s decision in Kasten, and dismissed the complaint. The plaintiff appealed.

The Fourth Circuit reversed, holding that “filed any complaint” includes internal company complaints, joining the First, Third, Sixth, Seventh, Eighth, Ninth, Tenth and Eleventh Circuits and leaving the Second Circuit’s minority position on this issue in doubt. In reaching its decision, the Fourth Circuit reasoned that protecting internal company complaints would further the remedial purposes of the FLSA and was consistent with agency enforcement positions.

While some circuits are still split on the issue of whether the FLSA retaliation protections apply to internal complaints, employers should investigate and remedy oral or written internal complaints regarding wage and hour violations, and strictly prohibit retaliation against those who make such complaints. For more information on FLSA retaliation, see the DOL’s recently posted Fact Sheet on FLSA retaliation.

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Between the time the plaintiff filed her complaint and the jury rendered its verdict, the Massachusetts legislature amended the Massachusetts Payment of Wages Law and other state wage and hour laws, including the law requiring payment of overtime. Prior to the amendment, a judge had discretion in determining whether to award treble damages to a prevailing plaintiff under these laws. A judge could award treble damages if the defendant’s conduct was outrageous, because of the defendant’s evil motive or the employer’s reckless indifference to the rights of others. The 2008 amendment, however, required that a court award treble damages to a prevailing plaintiff.

After the trial, and in light of the 2008 amendment, the superior court ruled that the plaintiff in Rosnov was entitled to mandatory treble damages and in doing so, applied the mandatory treble damages provision retroactively. On appeal, the Supreme Judicial Court overturned the lower court’s decision.

In reaching its decision, the Supreme Judicial Court reiterated the basic presumption that statutes operate prospectively. The court went on to discuss the existing case law, which provides that a statute applies retroactively only if the legislature indicates an intent that the statute apply retroactively or if the statute does not affect substantive rights. The court found no evidence that the legislature intended the 2008 amendment to apply retroactively. Moreover, the court concluded that the 2008 amendment affected the defendant’s substantive rights because it created “a marked increase in the liability a defendant faces.” Accordingly, the court vacated the prior treble damages award and remanded the case to the superior court for a determination of whether a discretionary treble damages award was appropriate under the circumstances.

The 2008 amendment led to a significant increase in wage and hour litigation in Massachusetts. Although the mandatory treble damages provision remains in effect (despite numerous attempts in the legislature to repeal or amend it), the Rosnov decision is welcome news for employers. In light of Rosnov, employers are not subject to mandatory treble damages awards for alleged wage and hour violations that pre-date the 2008 amendment.

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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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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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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In affirming the trial court’s decision to deny class certification, the appellate court adopted the trial court’s reasoning. Noting that Labor Code section 226.7 states that “[n]o employer shall require any employee to work during any meal . . . period,” the court found that “a corollary to an employer’s obligation to ensure that its employees are free from its control for 30 minutes is the employer must not compel the employees to do any particular thing during that time – including, if employees so choose, not taking their meals.” Where the employer has a policy of making such meal periods available, and does not prevent its employees from taking those breaks, the court found the employer satisfied its legal obligation.

This decision provides employers with more hope that their obligation to “provide” meal breaks will be construed once and for all by the California Supreme Court to be limited—as the Tenet court found—to making such breaks “available,” without frustrating the employees’ ability to take breaks. While this decision is good news, employers cannot rest easy given that the state Supreme Court has accepted review of four other decisions addressing this very issue, including Brinker Restaurant Corp. v. Superior Court, but has yet to set oral argument in any of the cases. Further, the California Supreme Court recently denied review of another California court of appeal decision upholding certification of a class to resolve meal period claims. Given the lack of consistency in the various decisions, it remains to be seen how the California Supreme Court will ultimately resolve this issue.

This entry was written by Alison Hightower.
 

Relying on the “for each work day” language of the statute, employers have long argued that under California law, an employer is only obligated to pay a maximum of one premium payment per work day regardless of the number of missed meal and rest periods occurring on a given work day. Following the recent federal court decision in Marlo v. United Parcel Service, Inc., 2009 U.S. Dist. Lexis 41948 (C.D. Cal. May 5, 2009), the court however, disagreed.

In reaching its decision, the court looked to the language of the IWC Wage Orders, noting that the Wage Orders treat meal periods and rest periods in separate sections, and each section provides for an additional hour of pay per work day for the designated type of violation. The court reasoned that permitting the recovery of two premium payments under Section 226.7 would draw consistency between Section 226.7 and the applicable Wage Orders. The court further reasoned that allowing recovery of two premium payments per work day would further the intent behind Section 226.7 of providing “an incentive to employers to comply with labor standards and compensate employees when those standards are violated.”

While the ruling will likely be appealed, employers should evaluate their pay practices with respect to missed meal and rest periods to comply with the ruling until further authority is established.

This entry was written by Karin Cogbill.

Photo credit: skodonnell
 

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.

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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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Tip Sharing and Tip Pooling: Employers now may require tip pooling and set the percentages for each position. The regulations clarify that, in order to be eligible to receive shared tips or a distribution from a tip pool, employees must perform, or assist in performing, personal service to patrons at a level that is a “principal and regular part of their duties and is not merely occasional or incidental.” Employers who operate a tip sharing or tip pooling system must also maintain records for six years.

Service Charges: Any added charge for service or the like is presumed to be a gratuity and must be distributed to the food service workers who provided the service. To avoid having a mandatory charge purport to be a gratuity, administrative charges, overhead fees, operations charges or similar charges in connection with a banquet or special function must be clearly identified as such, and customers must be specifically notified that the charge is not a gratuity or tip. Adequate notification must include a statement in the banquet or event agreement, and on any menu or bill listing practices, that the fee is not purported to be a gratuity and will not be distributed as a gratuity to the employees who provide service to guests. The notice must appear, at least, in font size similar to surrounding text, and must immediately follow the disclosure of the charge.

Written Notice of Pay Rates, Tip Credit and Pay Day: Prior to the start of employment, and any time an employee’s hourly rate of pay is changed, an employer must give an employee written notice of the: (1) regular hourly pay rate; (2) overtime hourly pay rate; (3) the amount of tip credit taken, if any; and (4) the regular pay day. The notice must also state that extra pay is required if the employee’s tips are ever insufficient to bring the employee up to the basic minimum hourly rate. The notice must be provided in English and any other language spoken by the employee as his or her primary language. Employers must obtain an acknowledgement of receipt from their employees of this notice, and such acknowledgment must be retained by the employer for six years.

This entry was written by Andrew Marks.

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 plaintiff alleged that the defendant’s failure to provide her with a seat in violation of Section 14 constituted a violation of Labor Code § 1198, which provides in relevant part that “The employment of any employee for longer hours than those fixed by the [Wage] order or under conditions of labor prohibited by the [Wage] order is unlawful.” The plaintiff alleged that because the defendant violated Section 1198, she was entitled to recover the PAGA civil penalties provided for by Labor Code § 2699(f). Labor Code § 2699(f) establishes a “default” civil penalty for violations of the Labor Code when a civil penalty has not otherwise been specifically provided for. The penalty provided for by Labor Code § 2699(f) is one hundred dollars ($100) for each aggrieved employee per pay period for the initial violation and two hundred dollars ($200) for each aggrieved employee per pay period for each subsequent violation.

On demurrer, the trial court ruled that a failure to provide suitable seats under Section 14(A) of the Wage Order does not constitute a violation of Labor Code § 1198 because such failure is not a condition of labor “prohibited” by the Wage Order. The trial court additionally held that even if a violation of the seats provision constituted a violation of Labor Code § 1198, the default penalties provided by Labor Code § 2699(f) were not recoverable by the plaintiff because Section 20 of the Wage Order already provided for civil penalties for all violations of the Wage Order, including Section 14. Section 20 of the Wage Order provides that in addition to any other civil penalties provided by law, any employer who violates the provisions of this order shall be subject to $50.00 for each underpaid employee for each pay period during which the employee was underpaid for an initial violation and $100.00 for each subsequent violation. Since the plaintiff did not allege she was underpaid, the trial court held she could not state a claim for relief and the demurrer was sustained without leave to amend.

Court of Appeal Reverses, Finding Suitable Seats Provision Enforceable Through PAGA

On appeal, the Second Appellate District, reversed the decision of the trial court in its entirety. First, the appellate court held that the “suitable seats” provision of the Wage Order is a condition of labor encompassed by Labor Code § 1198. Accordingly, the court found that Labor Code § 1198 renders unlawful violations of Wage Order 7-2001, Section 14.

Second, disagreeing with the trial court, the appellate court held that the penalties provided for by Section 20 of the Wage Order do not apply to violations of the suitable seats requirement, as such penalties relate solely to wage order violations for underpaid employees. Additionally, the court held that no provision of the Labor Code specifically provided a penalty for a violation of Labor Code § 1198. As such, the court concluded that Labor Code § 2699(f)’s civil penalties are available for a violation of Labor Code § 1198 premised on the failure to comply with Wage Order 7-2001, Section 14.

Harris v. Home Depot USA

In a case raising the same legal issues, plaintiffs Devon Harris and Lawrence Winston filed suit against their employer, Home Depot, alleging that as cashiers they were not provided with seats despite their allegation that the nature of the work they performed reasonably permitted the use of seats. On demurrer, Home Depot raised the same legal challenges that were addressed by the trial court in Bright. Home Depot’s demurrer was overruled, and it subsequently filed a petition for writ of mandate with the California Court of Appeal, Second Appellate Division. On July 30, 2010, the court of appeal issued an Order to Show Cause to the trial court as to why a peremptory writ of mandate should not issue ordering the trial court to vacate the order overruling Home Depot’s demurrer and to make a new and different order sustaining the demurrer without leave to amend. Oral argument is presently scheduled for December 10, 2010.

Going Forward

Although the appellate court in Bright has ruled that the plaintiff may legally continue to pursue her claim for PAGA penalties, the court offered no opinion as to what it means to provide employees with suitable seats and the circumstances under which such seats are required. Employers are encouraged to contact counsel with further inquiries and questions regarding the applicability of the Seats provision to their specific work environment.

This entry was written by Karin Cogbill.

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Factual and Procedural Background

The plaintiff, Rogelio Hernandez, an hourly, nonexempt restaurant employee, brought a class action against the Chipotle fast food restaurant chain, charging that the company denied him meal and rest periods. Chipotle subsequently brought a motion to deny class certification, relying on written policies that require managers to provide all employees with meal and rest breaks. Chipotle also introduced evidence that it pays employees for the time they take breaks even though they are relieved of all duties and are free to leave the restaurant. Lastly, Chipotle submitted declarations from a number of employees who attested that they had received all meal and rest breaks, but occasionally had forgotten to record them.

Hernandez brought his own motion for class certification, offering declarations from a number of employees attesting that managers had denied or interrupted their breaks, to varying degrees. Hernandez also relied on a report submitted by his expert suggesting that missed breaks were widespread.

The trial court denied class certification, holding that although Hernandez had established the factors of numerosity, ascertainability of the class, typicality of Hernandez’s claims and adequacy of representation, he had failed to demonstrate that common issues predominated over individual issues; consequently, class treatment was not superior to individual actions. In reaching this conclusion, the trial court recognized the vacuum created by the California Supreme Court’s decision to review Brinker Restaurant Corporation v. Superior Court¹(pdf), but nonetheless concluded that the court was likely to decide that California employers are only required to provide employees with the ability to take breaks, not to ensure that breaks are actually taken. This appeal followed.

Court of Appeal Adopts ‘Provide’ Standard, Affirms Denial of Class Certification

Rather than shy away from the trial court’s embrace of the ‘provide’ standard, the court of appeal expressly affirmed the trial court’s analysis of the meal/rest period issue. It launched its own evaluation of the relevant statutes and regulations, concluding, as the trial court had, that “[i]t is an employer’s obligation to ensure that its employees are free from its control for thirty minutes, not to ensure that the employees do any particular thing during that time.”

In reaching this conclusion, the court limited the holding previously reached by another appellate court in Cicairos v. Summit Logistics, Inc. (pdf), 133 Cal. App. 4th 949 (2005), which some have argued had suggested that the “ensure” standard was the appropriate test. The court noted that the Division of Labor Standards Enforcement withdrew the opinion letter on which the Cicairos court based its analysis. Additionally, in Cicairos, the employer had established a system by which its driver employees were pressured to make a certain number of trips per today, a practice which effectively deprived drivers of the ability to take breaks. Hernandez could not point to any such practice implemented by Chipotle. “Thus,” the court concluded, “although the Supreme Court has yet to decide the issue, we hold that the trial court used the correct legal analysis with respect to meal breaks.”

Perhaps more importantly, the appellate court affirmed the trial court’s ability to address the legal issue, even in the vacuum created by the California Supreme Court’s review of Brinker. It noted that the California Supreme Court has not foreclosed trial courts from examining a legal issue at the class certification stage. Nor did another recent appellate decision, Jaimez v. Daiohs USA, Inc. (pdf), 181 Cal. App. 4th 1286 (2010), alter the trial court’s analysis. In Jaimez, the court determined that the defendant’s employment practices presented predominant common factual issues as to the plaintiff’s meal and rest break claims. In Hernandez, however, individual issues predominated. The court noted that some employees declared they always missed meal breaks, while others declared that they received meal breaks but not rest breaks. Still others declared that they were not denied meal breaks, while others simply declared their breaks were simply delayed. Hernandez himself had testified at deposition that he almost always was provided with breaks at one location where he worked, while managers at another location regularly denied him breaks.

Lastly, the court also seized upon the inherent unreliability of the punch data offered by Hernandez. Because Chipotle paid its employees for meal and rest breaks, there was no incentive for employees to accurately record their break time.

This fact, plus various logical flaws in the analysis conducted by Hernandez’s statistical expert, persuaded the court that individual issues predominated over common ones, thereby warranting a denial of class certification. As the court itself noted, “the evidence before the trial court suggested that in order to prove Chipotle violated break laws, Hernandez would have to present an analysis restaurant-by-restaurant, and perhaps supervisor-by-supervisor. Given the variances in the declarations, Hernandez did not demonstrate a common practice or policy.”

Court Certifies Opinion for Publication

The court injected further energy into the meal/rest period debate on October 28, 2010, when it issued an order certifying its opinion for publication. Consequently, it is currently citable and available as precedent.

This decision could have significant ramifications on meal period and rest break practices in California and employers are encouraged to speak to their employment counsel to discuss these issues in detail.

This entry was written by Ryan Eskin.

Photo credit: skodonnell

¹ On October 22, 2008, the California Supreme Court granted review of Brinker to address the proper interpretation of California statutes and regulations governing an employer's duty to provide meal and rest breaks to hourly workers.

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).

Although the City of Austin's new ordinance is narrow in scope (i.e., it applies only to construction industry employers and only to those employees engaged in strenuous construction activities on a construction site), it presents a new development in Texas law. For the most part, employers in Texas are not required to give employees rest breaks. To our knowledge, this is the first time a state or local government entity has mandated employee breaks in Texas. Nonetheless, this may portend of things to come. Will the law eventually be expanded to cover other industries? Will other cities in Texas follow suit? Or will the Texas legislature intervene in an attempt to preserve uniformity throughout the state?

This new ordinance also illustrates the need for employers to remain vigilant of changes in the law. An employer, in particular an out-of-state employer, may look at Texas law in general and see that there is no state-wide mandate on employee rest breaks. The employer may overlook or simply not drill down far enough to realize that local laws may require more of employers than generally applicable state or federal laws.

This entry was written by Jim Cuaderes.

Photo credit: BartCo

In particular, Senate Bill 3568 empowers the Illinois Department of Labor (IDOL) to establish a streamlined administrative procedure for processing “small” wage claims (those under $3,000), which constitute 75% of all wage claims filed each year. Most notably, SB 3568 expressly grants employees the right to pursue their wage claims in either a private civil action or in a class action on behalf of others similarly situated. The employee may not, however, pursue both a claim with IDOL and a civil action.

With SB 3568, Illinois joins a number of states who have passed tougher legislation to address wage and hour violations, which, according to the bill’s advocates, is a growing problem. “Illinois workers deserve every penny they have earned, on-time and in-full,” said Governor Quinn “This important legislation will help Illinois workers recover unpaid wages faster and will further crack down on wage theft throughout our state.”

This entry was written by Milton Castro.

Photo credit: chestnutphoto
 

The plaintiff in Ziotas v. The Reardon Law Firm, P.C., 296 Conn. 579 (2010), was Angelo Ziotas, an associate at The Reardon Law Firm. He claimed he had been denied a bonus and sued his former employer, claiming both breach of contract and violation of Connecticut’s wage and hour statute. The trial court granted the defendant employer’s motion to strike the wage claim, noting that under certain circumstances, bonuses may be subject to the wage statutes. Such bonuses, however, are based solely on individual production or performance. In this case, the bonus was based on a number of factors, including the overall performance of the firm. The appellate court reversed the trial court’s decision.

In reversing the appellate court, the Supreme Court referenced its recent decision in Weems v. Citigroup, Inc., 289 Conn. 769 (2008), in which it held that bonuses awarded solely on a discretionary basis, and not linked solely to the ascertainable efforts of the particular employee, are not wages under Conn. Gen. Stat. § 31-71a. In his hair-splitting position in Ziotas, the plaintiff argued that Weems did not apply to his case because he was contractually entitled to a bonus and only the amount of the bonus was discretionary. The Supreme Court disagreed and held that even where an employee is contractually entitled to a bonus, if the amount of the bonus is indeterminate and discretionary, such a bonus does not constitute wages.

In reaching its decision, the court noted that although Conn. Gen. Stat. § 31-72 is remedial, it carries substantial criminal and civil penalties and any interpretation of the term “wages” that would allow for the imposition of such penalties when the amount of a bonus is indeterminate and discretionary would raise serious questions of fundamental fairness and due process.

Finally, in holding that a discretionary bonus is not subject to the wage statutes, the court noted that a plaintiff would still be able to pursue a breach of contract claim and indeed, Mr. Ziotas’ contract was enforced.

To the extent there was any ambiguity regarding the extent to which bonuses are not considered wages in Connecticut, this decision resolves the ambiguity and gives employers the assurance that discretionary bonuses are not wages subject to Connecticut’s wage statutes.

This entry was written by Patricia Reilly.

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.

When the case was considered by the district court, it dismissed the plaintiffs’ claims, finding the Reps were exempt employees under both the “outside sales” and “administrative” exemptions set forth in the FLSA. Analyzing first the outside sales exemption, the district court concluded that even though the Reps “may not ‘sell’” in a “technical[ ]” sense, they do “make sales in the sense that sales are made in the pharmaceutical industry” and therefore they meet the “spirit and the letter” of the outside sales exemption. The district court also found that the Reps meet the administrative exemption, because they “exercise discretion and independent judgment with respect to matters of significance” when they meet with physicians, provide them with information about the company’s products, and attempt to get commitments to prescribe the products. The Second Circuit reversed and held that the Reps do not meet either exemption.

Outside Sales Exemption

The Second Circuit concluded that the Novartis Reps do not meet the requirements of the outside sales exemption because they do not “make sales.” The court relied heavily on the Secretary of Labor’s amicus curiae position that a “sale” requires an exchange of consideration between buyer and seller and that, at best, Reps simply seek a positive affirmation from physicians that they will prescribe Novartis’s products in the future.

Although Novartis argued that the preamble to the regulations accompanying the FLSA provides that “commitments to buy” may constitute “making sales” under the exemption, the court rejected the argument as applied to this case. It held that “[t]he type of ‘commitment’ the Reps seek and sometimes receive from physicians is not a commitment ‘to buy’ and is not even a binding commitment to prescribe.”

Administrative Exemption

The plaintiffs also challenged the application of the administrative exemption based on the degree of discretion the Novartis Reps have in the performance of their duties. The Second Circuit again deferred to the Secretary of Labor’s interpretation of the regulations and her position regarding their application to the facts of the case. It noted that, despite the importance of the Reps’ efforts to promote the company’s products, there was “no evidence in the record that the Reps have any authority to formulate, affect, interpret, or implement Novartis’s management policies or its operating practices, or that they are involved in planning Novartis’s long-term or short-term business objectives, or that they carry out major assignments in conducting the operations of Novartis’s business, or that they have any authority to commit Novartis in matters that have significant financial impact.” Instead, the Second Circuit accepted the plaintiffs’ claim that they do “low-level discretionless marketing work, strictly controlled by Novartis” and concluded that they did not exercise sufficient discretion and independent judgment to satisfy the administrative exemption. 

This entry was written by Lori Alexander, Michael Harvey, and Theresa Waugh.

¹ On the same day the In re Novartis ruling was issued (July 6, 2010), the Second Circuit also issued a summary order in Kuzinski v. Schering Corp., 2d Cir. No. 09-1945-cv, affirming the district court’s denial of summary judgment in a similar case.

Additionally, a new penalty provision was added for violations causing death or serious injury to an employee under the age of 18. Accordingly, violators can be subject to a maximum civil penalty of:

• $50,000 for each violation; or
• $100,000 for repeated or willful violations.

The regulations define “serious injury” as:

• permanent loss or substantial impairment of one of the senses (sight, hearing, taste, smell, tactile sensation);
• permanent paralysis or substantial impairment of the function of a bodily member, organ, or mental faculty, including the loss of all or part of an arm, leg, foot, hand, or other body part; or
• permanent paralysis of substantial impairment that causes loss of movement or mobility of an arm, leg, foot, hand or other body part.

The new regulations and penalties will take effect July 19, 2010.

This entry was written by Stacey James.

The bill also authorizes the DWD to require an employer to provide proof of maintaining proper employee records, including wage and hour information, and sufficient worker's compensation coverage for its employees. Failure to provide the requested information may result in the DWD serving a notice on the employer of the DWD's intent to issue an order requiring the employer to stop work at the locations specified in the notice. The employer will then have three business days to provide the requested information. Failure to do so may result in the issuance of an order requiring the employer to stop work at the location identified in the order. The employer may appeal the order.

The second piece of legislation -- Assembly Bill 929 -- provides that employers engaged in the painting or drywall finishing of buildings or other structures who willfully misclassify or attempt to misclassify employees, with the intent to evade the unemployment insurance laws, worker’s compensation laws, income tax laws or discrimination laws, shall be fined $25,000 for each violation. This bill amends a current law providing the same penalty for willful misclassifications in other trades in the construction industry. The DWD is required to promulgate rules defining what constitutes willful misclassification of an employee.

This entry was written by Jennifer Ciralsky.

As a general rule, the DOL has taken the position that interns providing services to for-profit employers are employees who are covered by the minimum wage and overtime provisions of the FLSA. However, the DOL has recognized that there are situations where individuals who participate in certain “for-profit” private sector internships or training programs may do so without being compensated for their work. According to the new Fact Sheet, for an individual to be considered an unpaid “intern,” the following six criteria must be met:

1. The internship, even though it includes actual operation of the facilities of the employer, must be similar to training which would be given in an educational environment. According to the Fact Sheet, “the more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience.”
2. The internship experience must be for the benefit of the intern.
3. The intern must not displace regular employees. Rather, the intern must work under close supervision of existing staff.
4. The employer that provides the training must not derive any immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded.
5. The intern is not necessarily entitled to a job at the conclusion of the internship. In this regard, the internship should not be used as a “trial period” to determine whether the individual is suitable for continued employment.
6. The employer and the intern must understand that the intern is not entitled to wages for the time spent in the internship.

As the DOL notes in the Fact Sheet, the intern exclusion is “quite narrow” given that most individuals performing work for an employer are deemed to be employed under the FLSA’s extremely broad definition of “employ.” As a result, for-profit employers who intend to utilize interns without paying them minimum wage or overtime must carefully evaluate the realities of the situation to determine whether a bona fide intern relationship exists. 

This entry was written by Jennifer L. Mora.

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.

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.

Outside Sales

Noting that the FLSA regulations define “an ‘outside salesperson’ as an employee (1) whose ‘primary duty’ consists of ‘making sales’ or ‘obtaining orders or contracts for
services’ and (2) who is ‘customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty,’” and “primary duty” to be the “principal, main, major, or most important duty that the employee performs,” the Seventh Circuit found that the undisputed facts showed that the plaintiff’s primary duty was outside sales.

In reaching this decision, the Seventh Circuit noted that the plaintiff spent four to eight hours a day outside of the office making in-person sales calls. She came into the office on only about half of her workdays and even when in the office, the plaintiff spent much of her time on work relating to sales. The plaintiff maintained a database of customers, which formed the basis for her collections and commission payments. The Seventh Circuit found that this work related directly to her outside sales work and was therefore itself exempt work. Similarly, the plaintiff spent about ten hours a week developing marketing plans and performing promotional work, and an additional five to six hours promoting the company outside of the office, including at chamber of commerce meetings. Aside from the plaintiff, only the company’s president made direct sales; therefore, the Seventh Circuit found that most of the “fruits” of the plaintiff’s promotional efforts were realized in her own sales. As a result, the Seventh Circuit concluded that the additional hours the plaintiff spent performing this promotional work also counted as exempt outside sales work.

“Combination exemption”

The Seventh Circuit also agreed with the district court that even if the plaintiff did not qualify for the outside sales exemption, she qualified as exempt under the FLSA’s “combination exemption.” Under this exemption, employees “who perform a combination of exempt duties” set forth in the regulations for the outside sales and administrative exemptions may be exempt from the FLSA. The Seventh Circuit found that to the extent the plaintiff’s work was not related to outside sales, it was primarily exempt administrative work. Specifically, the Seventh Circuit viewed the plaintiff’s work developing advertising and marketing plans, managing customer complaints, administering the customer database, and dealing with issues during the president’s absence that the president would have dealt with if he was in the office (e.g., approving orders of parts for broken machinery), as work directly related to the management and general operations of the company.

Rejecting the plaintiff’s argument that the president (her sole supervisor) micromanaged her work, the Seventh Circuit found persuasive that the plaintiff negotiated with customers over price and service credits, placed advertisements, created marketing campaigns, collected from accounts, and set her own schedule.

This entry was written by Theresa Waugh.

In Administrator’s Interpretation No. 2010-1, the DOL focused on the “production versus administrative” dichotomy in determining that mortgage loan officers are production workers whose primary duty is making sales, as opposed to administrative workers whose work is directly related to the management or general business operations of their employer or their employer’s customers. See 29 C.F.R. § 541.200.

The DOL relied on the following factors in reaching its conclusion:

• The primary job duties of mortgage loan officers – including collecting financial information from customers, entering it into the computer program to determine what particular loan products might be available to that customer, and explaining the terms of the available options and the pros and cons of each option, so that a sale can be made – constitute the production work of an employer engaged in selling or brokering mortgage loan products;
• Mortgage loan officers are paid primarily by commissions;
• Employers often train their mortgage loan officers in sales techniques and evaluate their performance on the basis of their sales volume;
• Many employers defend against FLSA lawsuits brought by mortgage loan officers by arguing that they are exempt as outside sales employees, thus conceding that their primary duty is sales; and
• Courts have repeatedly held that mortgage loan officers who work inside their employer’s place of business have a primary duty of sales.

The Wage and Hour Division announced that its new Administrator Interpretations “will set forth a general interpretation of the law and regulations, applicable across-the-board to all those affected by the provision in issue. Guidance in this form will be useful in clarifying the law as it relates to an entire industry, a category of employees, or to all employees.” Although the DOL will continue to respond to requests for opinion letters, such responses will be limited to providing references to relevant statutes, regulations, interpretations and cases and will no longer include an analysis of the specific facts presented.

This entry was written by Stephanie L. Hankin.

The employees principally argued that Section 203(o) was inapplicable because the union did not “affirmatively” bargain away potential compensable donning and doffing time during negotiations and, therefore, the company could not have a “custom or practice under a bona fide collective bargaining agreement.” In particular, the employees relied on Kassa v. Kerry, Inc., 487 F. Supp. 2d 1063 (D. Minn. 2007), where the court “identified three elements as essential to determine the existence of a ‘custom or practice‘ under § 203 (o): time, knowledge, and acquiescence.” In Kassa, the district court found that the employer’s custom and practice did not meet these requirements because the record only established non-payment by the company for six years. In contrast, in Allen, the company had not compensated its employees for changing time since 1965. Moreover, the court noted that the employees knew that they were not being compensated for that time, and whether they were aware of their legal rights under the FLSA was not a relevant consideration. Consequently, the court affirmed summary judgment.

The court also rejected the employees’ contention that Section 203(o) should be characterized as an “exemption” under the FLSA, thereby shifting the burden of proof to the employer to establish the exemption as an affirmative defense.. The court reasoned that Section 203 “is a list of definitions and subsection (o) addresses how to define and calculate ‘hours worked,’ in contrast to Section 213, which is titled ‘Exemptions.’”

The Fifth Circuit is now in accord with the Third and Eleventh Circuits, which also have concluded that it is not necessary to raise the issue of compensation for donning and doffing time in negotiations. Anderson v. Cagle's, Inc., 488 F.3d 945, 958-59 (11th Cir. 2007); Turner v. City of Philadelphia, 262 F.3d 222, 226 (3rd Cir. 2001). Notably, only the Ninth Circuit has characterized Section 203(o) as an exemption. See Alvarez v. IBP, Inc., 339 F.3d 894, 905 (9th Cir. 2003), aff’d on other grounds, IBP, Inc. v. Alvarez, 546 U.S. 21 (2005); cf. Anderson, 488 F.3d at 957.

This entry was written by Steven Kaplan.

The employees were required to wear steel-toe shoes, a smock, plastic apron, safety glasses, ear plugs, bump cap, hair net, rubber gloves and sleeves, and arm shields. In addition to donning and doffing these items at the beginning and end of each work day, employees were also required to sanitize their gear by dipping their gloves into a tank, splashing the liquid solutions onto their aprons, and stepping through a footbath before and after working and during extended breaks. The company had a long standing practice of paying its employees for time on the production line only.

In 2002, the union proposed that its members be paid for twelve minutes of donning and doffing time per day. The company rejected the union’s offer and continued to pay its employees for production line work only. In 2007, three production employees filed a putative collective action in which they were joined by approximately 250 current and former production workers.

The employees argued that Section 203(o) was inapplicable because the items were not “clothes” and the act of donning and doffing them was not “changing.” For example, they argued that “clothes” encompassed “regular undergarments and outerwear,” i.e., street clothes, and excluded protective safety items in the workplace. The court found the employees’ “cramped” and “narrow” definition of “clothes” and “changing” unpersuasive, reasoning that the purpose behind Section 203(a) was to leave such donning and doffing activities to the collective-bargaining process.

The court noted that Congress recognized that employers and unions are in a better position than either courts or agencies to “thresh out” how much compensable time should be allocated for “changing clothes.” Additionally, the court observed that collective bargaining allows employers and unions to reach agreements that leave both sides more satisfied than a government or court-imposed solution and that unions may be willing to trade higher wages, enhanced benefits, or improved working conditions in exchange for compensation for changing clothes. Notably, in stark contrast to this decision, the Ninth Circuit reached a different result in Alvarez v. IBP, Inc., 339 F.3d 894 (9th Cir. 2003), aff’d on other grounds, 546 U.S. 21 (2005), holding that protective items worn in the beef and pork industries are not “clothes” within the meaning of Section 203(o).

This entry was written by Steven Kaplan.

California

A November 3, 2009 California Division of Labor Standards Enforcement (DLSE) memo indicated that the overtime exemption rates for licensed physicians and surgeons, and computer software employees in California will remain unchanged for the period beginning January 1, 2010.

Also, an August 19, 2009 DLSE opinion letter withdrew a 2002 opinion letter that precluded partial week furloughs of exempt employees, and in the process conformed California law on furloughing exempt employees to federal law. For more information, please see our previous entry and ASAP.

Illinois

HB 3634, effective August 14, 2009, amended Illinois’ Equal Pay Act and now requires that an employer preserve personnel records for a specified period of time. Additionally, an action to collect a wage claim must be brought within one year from the date of underpayment.

New York

SB 3357, effective October 26, 2009, requires that employers provide employees with written notice at the time of hire of their regular and overtime hourly wage rates, and to obtain a written acknowledgement of receipt of this notice. Although no particular form is required, the New York Department of Labor has created a form that employers can use to ensure compliance.

New Jersey

New Jersey Administrative Code § 12:55-2.1 was amended, effective September 21, 2009, to permit employers to withhold or divert a portion of an employee's wages for health club membership fees or for child care service. The deduction must be authorized either in writing by the employee, or under a collective bargaining agreement. For more information, please see our previous entry.

If this decision is upheld and/or adopted by state courts in California or elsewhere, staffing companies may face claims for unpaid wages for time spent by their employees interviewing with their clients for assignments. Unless a staffing company can show that its employees are not under their control in connection with the interview process or that they do not "suffer or permit" such activity by their employees, they will face potential liability, at least minimum wage, for the time the employee's spend interviewing. This could result in staffing companies not allowing, or limiting, the ability of candidates to interview with clients in advance of the commencement of assignments, or require staffing companies to increase the rates charged to its customers for this added expense.

For an in-depth discussion and guidance on this development, see Littler ASAP, "Staffing Companies Face Potential Exposure for Interview Time."

This entry was written by Michael McCabe.

The court’s decision is comprised of two separate findings. First, the court found that the drivers’ intrastate transportation was a part of the “practical continuity of movement” that resulted in the recyclable material crossing state lines between the point of origin and the point of destination. The plaintiffs argued that the continuity of movement was interrupted when the recyclable materials were processed, which took place in Indiana. The court found otherwise. Crucial to the court’s finding was the fact that the recyclable material at issue—unlike the meat scraps at issue in Goldberg v. Faber Indus., Inc., 291 F.2d 232 (7th Cir. 1961)–was not transformed to a new good when it was processed. The court also relied on Bilyou v. Dutchess Beer Distributors, Inc., 300 F.3d 217 (2d Cir. 2002) (delivery drivers who collected empty beer bottles for recycling center that sold recycled glass to clients out-of-state were exempt under Motor Carrier exemption). Additionally, the court found relevant the policy of the Interstate Commerce Commission (ICC) that the practical continuity of movement is not interrupted by repackaging or reconfiguring, but may be interrupted where a good is substantially modified. Finding that the recyclable materials that the plaintiffs transported were not substantially modified, the court held that the practical continuity of movement was uninterrupted.

Second, the court found that the defendants had a fixed and persisting intent to ship a majority of the recyclables that the plaintiffs transported to out-of-state destinations. Again, the court looked to the ICC. The ICC policy provides that a fixed and persisting intent may exist where a shipper has a factual basis for projecting out-of-state sales. The defendants sold more than 50% of the recyclable material transported by the plaintiffs to out-of-state recipients that executed advance purchase agreements. These facts led the court to conclude that the defendants had the necessary fixed and persisting intent.

The intrastate activities of the plaintiffs were part of a practical continuity of movement across state lines and the defendants had a fixed and persisting intent to ship the recyclables in interstate commerce when the shipment began. Consequently, the plaintiffs’ intrastate activities constituted participation in interstate commerce as required by the Motor Carrier Act exemption to the FLSA. The plaintiffs were therefore not entitled to damages under the FLSA.

This entry was written by Brian Mosby.

Under the California Constitution, a chartered city is exempt from general state laws where its local laws conflict with the general state law over a purely municipal affair, unless the state law is a matter of statewide concern. California Federal Savings and Loan Association v. City of Los Angeles (1991) 54 Cal.3d 1. In City of Vista, the Court of Appeal reviewed the many exceptions and caveats to California’s prevailing wage law and ruled that California’s prevailing wage law does not address matters of “statewide concern.” The court held that the limitations and exceptions to the prevailing wage law “persuade us that municipal public works projects do not have such an extramural dimension as would warrant legislative intervention in an otherwise strictly municipal affair.” This decision was reached over the dissent of one justice. The dissent reached the conclusion that the prevailing wage law was of “statewide concern” and that chartered cities are not exempt from the prevailing wage law. It is likely that one of the losing parties will petition for review at the Supreme Court and it would not be surprising to see the California Supreme Court grant review and address the issue that it avoided in the City of Long Beach case.

This blog entry was authored by Stephen C. Tedesco.

Arizona:

• New minimum wage $7.25 per hour.

Colorado:

• New minimum wage $7.28 per hour. 
• Tipped employees must be paid at least $4.26 an hour starting on January 1, 2009, and tips plus cash wages must equal at least $7.28 an hour.

Connecticut:

• New minimum wage $8.00 per hour.

Florida:

• New minimum wage $7.21 per hour.
• Tipped employees must be paid a direct wage equal to the minimum wage of $7.21 minus $3.02 (the tip credit under the federal Fair Labor Standards Act), or $4.19 per hour effective January 1, 2009.
• State minimum wage will increase again effective on July 24, 2009, when the federal minimum wage increases to $7.25, employers must pay the higher federal minimum wage.

Missouri:

• New minimum wage $7.05 per hour.
• Tipped employees must be paid by their employer at least 50% of the minimum wage rate and tips plus cash wages must equal at least $7.05 per hour as of January 1, 2009.
• Effective July 24, 2009 the federal minimum wage will be $7.25, and employers must pay the higher federal minimum wage.

Montana:

• New minimum wage $6.90 per hour.
• State law prohibits employers from using tips as a credit against the minimum wage owed the employee.
• State minimum wage will increase again effective on July 24, 2009, when the federal minimum wage increases to $7.25, employers must pay the higher federal minimum wage.

New Mexico:

• New minimum wage $7.50 per hour.

Oregon:

• New minimum wage $8.40 per hour.

Vermont:

• New minimum wage $8.06 per hour.
• Tipped employees must be paid at least $3.91 per hour, and cash wages plus tips must equal at least $8.06 per hour. If they do not, the employer is required to make up the difference. 

Washington:

• New minimum wage $8.55 per hour.
• Washington law prohibits employers from using tips as a credit against the minimum wage owed the employee. 

This blog entry was authored by Stacey James.

The court of appeal reversed the punitive damages award on two grounds. First, the court held that the Labor Code statutes regulating pay stubs (§ 226), minimum wages (§ 1197.1), meal breaks (§ 512) and rest breaks all create new rights and obligations not previously existing in the common law. Those statutes also established detailed remedial schemes for the rights they created. Accordingly, the court concluded that those Labor Code provisions fell within the long-standing “new right-exclusive remedy” doctrine, which provides that “where a statute creates new rights and obligations not previously existing in the common law, the express statutory remedy is deemed to be the exclusive remedy available for statutory violations, unless it is inadequate.” The plaintiff did not raise, and the court did not address, the question of under what circumstances a statutory remedy would be deemed inadequate. 

The court also noted that punitive damages are ordinarily limited to actions “for the breach of an obligation not arising from contract.” Although the plaintiff’s claims for unpaid wages, failure to provide meal/rest breaks and improper wage statements were all based upon statutory provisions, the statutory provisions apply only when the parties have entered into an employment contract and are therefore obligations “arising from the employment contract.” Accordingly, the court viewed the defendant’s violation of the Labor Code provisions as a breach of obligations arising from its employment contract with the plaintiff for which punitive damages were not available.

The good news for employers is that the court’s reasoning can be applied to a wide variety of Labor Code provisions, many of which apply only in the context of the employment relationship. 

Marlene Muraco authored this blog entry.

The Court held that California’s overtime laws apply to nonresident employees for those periods of time that the employees worked in California. The Court reasoned that California clearly intended its labor laws to apply to work done in California by nonresidents. 

The Court rejected the employer’s due process arguments, reasoning that the company had a sufficient presence in the state such that it could be required to comply with California law. The Court noted that principles of due process require “significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair.” In this case, the Court held that the employer had sufficient contacts with California (including that its headquarters and principal place of business were in California).

The one bright spot for employers was the Court’s holding that California’s Unfair Competition Law did not apply to acts based on alleged federal wage law violations that occur outside of the state.

Following the Court’s decision, multi-state employers who conduct business in California will have to determine whether they have a sufficient presence in California to require them to comply with that state’s Labor Code with respect to nonresidents who temporarily work in the state. Since California law is considerably more strict than federal law and the law of most other states with regard to the classification of employees as exempt or nonexempt, the right to receive daily overtime, and the provision of meal and rest breaks, among other things, the Sullivan decision could prove to be an administrative burden for employers whose employees are assigned to work on a temporary basis in California.

UPDATE: Following this decision, both parties submitted Petitions for Rehearing En Banc to the Ninth Circuit.  On December 5, 2008, the Court ordered both parties to file a response to the other’s Petition. 

Tami Falkenstein-Hennick authored this blog entry.