Fifth Circuit Upholds Private Settlement of FLSA Claims Where Bona Fide Dispute of Liability Exists

By David Jordan and Sarah Morton

For nearly 30 years, courts and the U.S. Department of Labor (DOL) have instructed parties to seek judicial or DOL approval to effectuate a settlement of claims under the Fair Labor Standards Act (FLSA). See Lynn’s Food Stores, Inc. v. United States, (concluding that “[t]here are only two ways in which back wage claims arising under the FLSA can be settled or compromised by employees:” payment supervised by the DOL or judicial approval of a stipulated settlement after an employee has brought a private cause of action). Last month the Fifth Circuit surprisingly reversed course in Martin v. Spring Break ’83 Productions, L.L.C., holding that parties may privately settle and release wage claims that include a bona fide dispute as to liability.

Martin involved a group of lighting and rigging technicians in the filmmaking and video productions industry who filed grievances against their employer, Spring Break Louisiana, alleging that the company failed to pay them wages for all hours worked while filming the movie Spring Break ’83. The technicians’ union representative investigated the grievances but could not determine whether the technicians had actually worked the hours alleged. The union subsequently entered a settlement agreement with Spring Break Louisiana over the disputed hours, agreeing on behalf of the technicians to accept settlement payments in exchange for the union’s agreement that the union and technicians would not file suit. Prior to receiving (and cashing) their settlement payments, the technicians filed suit regardless, arguing that, without judicial or DOL supervision, the union’s agreement was unenforceable.

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.”

Photo credit: MBPhoto, Inc.

U.S. Department of Labor Releases Bulletin on Tip Credit Regulations

According to a recently-released Field Assistance Bulletin, the Department of Labor’s Wage and Hour Division (WHD) has advised its staff to uniformly enforce a rule that became effective on May 5, 2011 governing ownership of employee tips under the Fair Labor Standards Act (FLSA). In many states employers are permitted to take a “tip credit,” or pay employees less than the minimum wage so long as the employees receive sufficient tip income to make up the difference. The new WHD tip rule stipulates, among other things, that tips are the property of the employee regardless of whether the employer has taken a tip credit under section 3(m) of the FLSA, and that an employer is prohibited from using an employee’s tips for any reason other than as a tip credit or in furtherance of a legitimate tip pool. The bulletin sent to WHD regional administrators and district directors emphasizes that this rule will be enforced in all states, even the nine states under the jurisdiction of the Ninth Circuit. To learn more about the bulletin and its potential implications for employers, please continue reading at Littler's Washington D.C. Employment Law Update.

The Fourth Circuit Holds that Intra-Company Complaints Are Protected Activity Under the FLSA's Anti-Retaliation Provision

By Martha Keon

The Fair Labor Standards Act (FLSA) provides that an employer may not: “discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to [the Act], or has testified or is about to testify in such proceeding, or has served or is about to serve on an industry committee.”

The meaning of the phrase “filed any complaint” was recently clarified by the U.S. Supreme Court in Kasten v. Saint-Gobain Performance Plastics Corp. to include unwritten, oral complaints as long as “a reasonable, objective person would have understood the employee to have put the employer on notice that the employee is asserting statutory rights under the Act.” While the Supreme Court seemed to have decided by implication whether “filed any complaint” includes internal complaints to the employer, the majority in Kasten stated that it was declining to reach the conclusion, leaving the circuit split on that issue unresolved. The Fourth Circuit took up the issue of “internal complaints” in Minor v. Bostwick Laboratories Inc

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.

Photo credit: Diego Cervo

Santa Fe Local Ordinance Sets Country's Highest Minimum Wage Requirement

By Joseph Lazazzero

On March 1, 2012 the minimum wage for employers in Santa Fe, New Mexico will increase to $10.29 per hour. The rate will exceed San Francisco’s $10.24 requirement, becoming the highest minimum wage in the country. The reason for the increase is a city ordinance that ties wage requirements to the consumer price index for the western United States. The consumer price index for the region saw a marked increase, as the cost of living in Santa Fe is 18 percent higher than the national average. 

Massachusetts High Court Rules Wage Act's Mandatory Treble Damages Provision Does Not Apply Retroactively

By Christopher Kaczmarek and Jeanne Barber

Massachusetts Supreme Judicial CourtIn July 2008, Massachusetts amended its state wage and hour laws to provide for mandatory awards of treble damages for plaintiffs who prevailed under those statutes. Since then, lawyers have disagreed as to whether this treble damages provision should apply retroactively. On August 31st, the Massachusetts Supreme Judicial Court resolved this dispute by unanimously holding that the treble damages provision does not apply retroactively.

In Rosnov v. Molloy, the plaintiff, an attorney, filed a complaint on April 17, 2007, claiming that her former partner withheld commissions from her in violation of the Massachusetts Payment of Wages Law. A jury found in favor of the plaintiff in March of 2009.

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.

Divided Fourth Circuit Holds FLSA's Anti-Retaliation Provision Does Not Protect Applicants

By Martha Keon

In Dellinger v. Science Applications Internal Corporation, the Fourth Circuit Court of Appeals affirmed the dismissal of an applicant’s FLSA retaliation claim, holding that only current or former employees can sue for retaliation under the FLSA and that an applicant is not an employee.

Natalie Dellinger was offered a job with Science Applications International Corporation (“SAIC”), contingent on the transfer of her security clearance, among other things. Dellinger accepted the offer and filled out a form to transfer her security clearance. The form required her to disclose any non-criminal court actions to which she was a party, and she disclosed a Fair Labor Standards Act (“FLSA”) lawsuit that she had filed against her former employer. Shortly thereafter, SAIC withdrew its contingent offer of employment.

Dellinger sued SAIC, claiming that the withdrawal of the offer violated the FLSA’s anti-retaliation provision. SAIC moved to dismiss the complaint on the ground that the FLSA’s anti-retaliation provision only protects employees, and not applicants. The United States District Court for the Eastern District of Virginia agreed and dismissed the case. Dellinger appealed, with the Secretary of Labor filing an amicus brief supporting her arguments.

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.

Photo credit: White Shade Photos

Arizona Allows Employers to Mandate Electronic Payment of Wages

By William Hays Weissman

Effective on July 20, 2011, employers in Arizona can mandate electronic payment of wages. Employees that do not elect direct deposit may be paid by payroll debit card, which now can be treated as the default option.

HR 2151 amends Ariz. Stat. sections 23-350 and 23-351 by allowing employers to choose one of four methods of payment of wages: (1) cash; (2) check; (3) if elected by the employee, direct deposit into a financial institution of the employee’s choice; or (4) if an employee does not designate a financial institution for direct deposit, by payroll debit card.

If an employer chooses to pay wages by payroll debit card, the employee must be entitled to withdraw his or her full wages without fee at least one time per pay period, but not more than once per week. The employer must also provide the employee with a list of all potential fees an employee may incur. Also, if the employee is paid by direct deposit or payroll debit card, the employer must furnish the employee with a written or electronic statement of the employee’s earnings and withholdings.

Payroll cards can be a win-win option for both employers and employees. Employers are given greater flexibility in methods of paying wages at reduced cost, and with greater security than cash or traditional checks. Employees no longer have to incur check cashing fees, and also have protection against lost cash. While it is not clear that Arizona’s bill represents any kind of trend by the states toward mandating electronic payment of wages, Arizona’s law should definitely be welcome by Arizona employers.

Photo credit: MBPHOTO, INC.

The California Supreme Court Rules Employees Working in California Are Protected By California Overtime Laws in Sullivan v. Oracle

By Jim Hart

On June 30, 2011, the California Supreme Court in Sullivan v. Oracle Corporation (S170577) considered a claim by three nonresidents of California. The plaintiffs brought claims of unpaid overtime against Oracle, a Delaware corporation with its headquarters in California. The three plaintiffs traveled to California from Colorado and Arizona for periods of time ranging from several weeks to several months to instruct customers on Oracle products. The California Supreme Court issued rulings concerning the reach of California's overtime laws to employees temporarily working in the state:

  • First, California's overtime laws were found to apply to the non-resident plaintiffs for the time they were temporarily working in California, particularly since Oracle was a California-based employer and the employees worked at least a full day in the state;
  • Second, the court also found that the plaintiff's temporary work in California provided a basis to seek overtime compensation under California's unfair competition law; and
  • Third, the court found making a decision in California to classify the plaintiffs and others as exempt did not, standing alone, justify applying California's unfair competition law to alleged violations that occurred outside the state.

For more information about the decision and its implications for employers, please continue reading Littler's ASAP, California Supreme Court Finds Out-of-State Employees Working in California Are Protected by California Overtime Laws.

DOL Launches Smartphone "App" to Track Employee Time and Compute Wages

By Josh Kirkpatrick

On May 9, 2011, the U.S. Department of Labor announced the launch of its first smartphone application, an electronic timesheet employees can use to track their hours of work, including breaks. According to a DOL press release, the information tracked through this application “could prove invaluable during a Wage and Hour Division investigation when an employer has failed to maintain accurate employment records.” The app, currently available in English and Spanish and only for iPhone, iPad and iPod Touch devices, allows users to input their hourly rate of pay and calculates the amount of wages due to the worker. Additionally, through the app, users can add comments related to their work hours; view a summary of work hours in a daily, weekly and monthly format; and email the summary of work hours and gross pay as an attachment. A glossary, limited information regarding wage and hour laws, and contact information for the DOL are accessible through the app. The agency stated it will pursue the development of updates that allow employees to track their tips, commissions, bonuses, deductions, holiday pay, pay for weekends, shift differentials and pay for regular days of rest, among other pay information.
 

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.

Photo credit: Alex Slobodkin

Wisconsin Federal Court Holds that Gap Time Claims Are not Cognizable Under the FLSA

By Tracy Stott Pyles

A federal district court judge in Wisconsin recently held that the FLSA does not provide a cause of action for “gap” time claims. “Gap” time generally refers to uncompensated, non-overtime hours. Courts are divided as to whether the FLSA permits such claims.

In Espenscheid v. DirectSat USA, LLC, the employer argued that the plaintiffs could not pursue their claims for gap time because the hours in question were not overtime hours and the plaintiffs’ total compensation for any work week divided by the hours worked during that period did not fall below the minimum wage. The court began its analysis by noting that “most” courts prohibit pure gap claims, i.e., claims for straight time in weeks in which the employee worked no overtime. The court also noted that some courts permit gap time claims for weeks in which the employee worked more than 40 hours and the relevant employment agreement does not expressly or implicitly compensate for all non-overtime hours.

The court ultimately granted the employer’s motion for summary judgment on the gap time issue, holding that the FLSA does not provide a cause of action for gap claims “of any kind.” In reaching its conclusion, the court noted that: (1) the failure to pay for non-overtime hours diminishes the employee’s overall compensation, but there is no language in the FLSA creating a cause of action for diminished overall compensation; (2) the FLSA itself only requires the payment of minimum wages and overtime wages; (3) the FLSA not does expressly prevent an employer from requiring employees to work some hours below the overtime threshold for free, provided the employees’ average wage exceeds the minimum wage; (4) the “prohibited acts” listed in Section 215 of the FLSA do not include failure to pay straight or gap time wages; and (5) the FLSA does not provide an avenue for the recovery of straight time pay.

Photo credit: MBPhoto, Inc.

Ninth Circuit Holds Oregon Employer Cannot Credit Housing Costs Toward Minimum Wage

By Jennifer Nelson

Earlier this week, the Court of Appeals for the Ninth Circuit held that an employer violated Oregon’s wage and hour law by (1) crediting the cost of seasonal workers’ on-site housing toward the Oregon minimum wage, and (2) paying its workers on the day after their last workday instead of on the last workday itself.

The employer in this case, Bear Creek Orchards, Inc., operates peach and pear orchards in Medford, Oregon. The company hires approximately 350 seasonal workers for its month-long harvest. Bear Creek recruits the majority of its workforce from the San Luis, Arizona, area, and offers those workers on-site housing and meals as part of their compensation. Bear Creek charged workers between five and seven dollars a day for the housing, deducted this amount from the workers’ paychecks, and credited that amount toward its minimum wage obligation under Oregon law. In addition, the company generally provided these employees with their final paychecks on the morning after their last day of work.

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.

Photo credit: Sven & Manuela

California Court of Appeal: Employers Must Simply Make Meal Periods Available To Employees, Not Ensure They Are Taken

UPDATE: On May 18, 2011, the California Supreme
Court granted review of the Tien decision.

In the same week that one California court held that employees are entitled to two hours pay for any day in which they did not receive required meal and rest breaks, employers received welcome news from another California appellate court, which found employers do not have to ensure employees receive their meal breaks to avoid class claims for extra pay.

California’s Labor Code requires employers to “provide” meal periods to employees, but the precise obligation that provision imposes has been the subject of conflicting court opinions. Employees contend that the employer must ensure that they actually receive a break of at least 30 minutes, whereas employers argue that the word “provide” means that employers must merely make meal periods available to employees.

A California court of appeal has now agreed with employers, holding that the word “provide” should be construed according to its dictionary meaning of “to supply or make available.” In Tien v. Tenet Healthcare, an employee sought to certify a class of hourly non-exempt employees who supposedly were denied 30-minute meal periods and ten-minute rest breaks. The trial court waffled, first certifying several classes, then reversing itself, eventually agreeing with the employer.

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.
 

Missed Meal and Rest Periods Just Got Twice as Expensive for California Employers

A California Court of Appeal rendered a potentially significant blow to California employers on Wednesday. In the first reported decision of its kind from a California appellate court, the court in United Parcel Service, Inc. v. Superior Court, held that California Labor Code section 226.7 permits an employee to recover up to two premium payments per work day: one for failure to provide a meal period and another for failure to provide a rest period.

Labor Code section 226.7 provides:

(a) No employer shall require an employee to work during any meal or rest period mandated by an applicable order of the Industrial Welfare Commission.

(b) If an employer fails to provide an employee a meal period or rest period in accordance with an applicable order of the Industrial Welfare Commission, the employer shall pay the employee one additional hour of pay at the employee’s regular rate of compensation for each work day that the meal or rest period is not provided.

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
 

California Court of Appeal Affirms Costco's Calculation of Regular Rate of Pay

On February 10, 2011, the California Court of Appeal for the Second District affirmed summary judgment in favor of Costco Wholesale Corporation (Costco), in Head v. Costco Wholesale Corp., case number B222841, finding that Costco properly calculated the regular rate of pay of its salaried, nonexempt ancillary managers.

In 2001, Costco reclassified its ancillary managers from salaried exempt to salaried non-exempt, using a conversion formula to ensure that their incomes would remain the same after the reclassification. Specifically, Costco calculated the managers’ regular rates of pay using their salaries prior to the reclassification, based upon a 40-hour workweek, which resulted in reduced hourly pay rates for the managers. The reduced hourly pay rates were listed on the managers’ wage statements as their regular rates of pay. Costco then calculated new salaries for the managers based on this regular rate of pay, adding as additional compensation an anticipated five hours of overtime pay per week at the premium rate, as such overtime hours were expected of these employees. The revised salaries were listed on Costco’s internal personnel forms as the managers’ reported salaries. After reclassification, an ancillary manager would receive the revised salary for hours worked up to 45, plus overtime compensation for any hours worked beyond 45 per week.

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

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

This entry was written by Michele Babb.

Photo credit: Matthew John Hollinshead

Maine Governor Abolishes Joint Task Force On Employee Misclassification

Maine Executive Order 10 FY 11/12On January 20, 2011, the Governor of Maine, Paul R. LePage, issued an Executive Order abolishing the State’s Joint Task Force on Employee Misclassification. The Task Force was established by former Governor John Baldacci in 2009 to address concerns that employers allegedly were misclassifying employees as independent contractors to avoid obligations under federal and state laws, including laws governing wage and hour issues. According to the Executive Order issued by Governor LePage, the Task Force added an unnecessary “extra layer of bureaucracy, to take actions on a matter within the shared jurisdiction of the Legislature, the Executive Department and the Judicial Department.” The Executive Order also notes that future legislation could negate or alter the Task Force’s determinations and that the Task Force has created uncertainty within the business community. Governor LePage has expressed concern that the various definitions and rules governing independent contractors under state and federal law have gone “too far” and caused some businesses to virtually eliminate their use of independent contractors. Accordingly, the Governor asked his staff to draft legislation addressing the varying classification standards and establishing the same definition of “independent contractor” for all agencies and businesses.

This entry was written by Sarah Green.

Snow Days

Its that time of year again. Freezing rain and snow making daily commutes difficult and dangerous; school closings keeping parents at home to care for their kids; businesses deciding to close operations. Thus, it may be a good time to review your inclement weather policy to ensure compliance with the Fair Labor Standards Act (FLSA).

For non-exempt employees, compliance under federal law is simple. Non-exempt employees must only be paid for time actually worked. The FLSA does not require non-exempt employees to be paid when they do not come to work due to inclement weather. However, employers do need to be cognizant that although federal law has no such requirements, some states have "reporting time pay" laws that require non-exempt employees be paid whenever the employee reports to work as required or requested by the employer, even if no work is available. (See our ASAP on reporting time pay).

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.

Photo credit: Randen Pederson

New Jersey Adopts Federal "Rounding" Rules

State Flag of New JerseyThere is good news for New Jersey employers who utilize rounding. The New Jersey Department of Labor and Workforce Development has reconsidered its prior rejection of federal "rounding" rules. After a public comment period, the Department formally adopted a new rule which adopts, verbatim, the federal regulation regarding the use of time clocks and rounding practices. Under the new rule, rounding is lawful under New Jersey law so long as it "averages out ... over a period of time." This development means that New Jersey employers no longer need to assess the impact of rounding on a week-to-week basis. While this is a welcome development, employers who utilize rounding should remain vigilant to ensure that rounding is not "one sided" and that it does, in fact, average out over time.

This entry was written by Robert W. Pritchard.
 

DOT Issues Proposed Rule Revising Hours of Service Requirements for Commercial Drivers

The Department of Transportation’s Federal Motor Carrier Safety Administration (FMCSA) has released a proposed rule amending the hours of service requirements for drivers of property-carrying commercial motor vehicles (CMVs). As discussed in a news release, the proposal would keep the “34-hour restart” provision allowing drivers to restart the clock on their weekly 60 or 70 hours by taking at least 34 consecutive hours off-duty, but that period would have to include two consecutive off-duty periods from midnight to 6:00 a.m. Drivers would be allowed to use this restart only once during a seven-day period. To learn more about the proposed rule and its implications for employers, please continue reading at Littler's D.C. Employment Law Update blog.

New York Enacts Wage Theft Prevention Act

New York law has long prohibited employers from paying workers less than the minimum wage or failing to pay proper overtime. This newly enacted piece of legislation, the Wage Theft Prevention Act, now adds strict new penalties for failure to comply with minimum wage and overtime laws. The new law also amends current wage notification requirements for employers.

Under the Wage Theft Prevention Act, in the event of a wage payment violation, an employer may be liable for up to twice the amount that was due as wages as well as other penalties and legal fees. The law also prohibits retaliation against employees who exercise their rights under the statute.

Additionally, the new law requires notifications to be provided to employees in their native language at the time of hire and on or before each February 1st. Previously the law required such a notification to include the rate of pay and regular paydays. The new law adds several additional requirements to the contents of the notification, including more detail on the basis of pay (i.e., whether the employee is paid on a salary, hourly, piece or commission basis, etc.) and information regarding the employer, such as its address and phone number. There are also new detailed requirements concerning the acknowledgment of the required notification, and a new records retention requirement of 6 years.

New York Hospitality Wage Orders Revised

The long-awaited revisions to New York's hospitality industry wage regulations have finally become official. They go into effect January 1, 2011, but full compliance is not required until March 1, 2011. Here are some highlights:

Minimum and Overtime Wage: The tip credit rate for food service workers is increased from $4.65 to $5.00 per hour. The new overtime rate for tipped food service workers will be $8.63. All nonexempt employees who work in the hospitality industry, including office workers employed by a hotel or restaurant, must be paid by the hour: shift pay, weekly salary or other non-hourly rate bases will no longer be permitted.

Spread of Hours: All nonexempt employees are eligible for spread of hours pay (i.e., an additional hour of pay at the minimum wage) if the time between the beginning and end of their workday exceeds ten hours.

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.

Ninth Circuit Upholds Training Cost Reimbursement Agreement

Seal of the Ninth Circuit Court of AppealsThe Ninth Circuit Court of Appeals has recently held that the City of Oakland, California did not violate the Fair Labor Standards Act (“FLSA”) when it required its police officers to repay the City for the cost of their training if they voluntarily resigned before completing five years of employment. (Gordon v. Oakland, No. 09-16167 (9th Cir. Nov. 19, 2010)).

In Gordon, the City and the bargaining unit for its police officers had entered into an agreement which required police officers to repay the City a pro rata share of their police academy training costs if they voluntarily separated from the City’s employment prior to completing five years of service. For example, a police officer who resigned after one year of service would have to repay 80% of the training costs whereas a police officer resigning after four years of service would only have to repay 20%. A police officer who resigned after five years of service would owe nothing to the City for training cost reimbursement. The agreement further provided that any repayment would be due at the time of the officer’s separation and that the City could deduct amounts due from the officer’s final paycheck.
 

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.

California Court of Appeal Permits Plaintiff to Proceed with Claim for Suitable Seats

ChairIn a case of first impression, a California court of appeal held in Bright v. 99¢ Only Stores, No. B220016 (Cal. Ct. App. Nov. 12, 2010) that the “suitable seats” provision of Wage Order 7-2001 may be enforced through the Private Attorneys General Act of 2004, California Labor Code § 2698 et seq. (PAGA).

Plaintiff’s Complaint and Procedural Background

The plaintiff, Eugina Bright, filed a class action complaint against her former employer 99¢ Only Stores. The plaintiff alleged that while employed as a cashier at 99¢ Only Stores she was not provided with a seat despite her contention that the nature of her work as a cashier reasonably permitted the use of a seat. The plaintiff based her claim for a seat on Wage Order 7-2001, Section 14 (entitled “Seats”), which provides:

A. All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.

B. When employees are not engaged in the active duties of their employment and the nature of the work requires standing, an adequate number of suitable seats shall be placed in reasonable proximity to the work area and employees shall be permitted to use such seats when it does not interfere with the performance of their duties.

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.

Photo credit: tamergunal

Kaiser Settles Misclassification Class Action for $2.91 Million

A California federal court gave final approval to a $2.91 million settlement between Kaiser Foundation Hospitals and approximately 500 information technology employees who alleged they were misclassified as exempt under both the Fair Labor Standards Act and California law, and denied overtime for working through meal periods and working in excess of 40 hours per week, 8 hours per day or on the 7th consecutive day of a workweek. To learn more about the case, please continue reading at Littler's Healthcare Employment Counsel blog.

Photo credit: Bartek Szewczyk

California Court of Appeal Adopts "Provide" Standard in Meal and Rest Case

Clock in meal settingA California Court of Appeal has upped the ante in the ongoing legal debate concerning meal and rest period obligations in California (pdf), unambiguously asserting that an employer is only obligated “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.” This holding is all the more notable given the court’s subsequent order certifying its opinion in Hernandez v. Chipotle Mexican Grill, Inc. (pdf), No. B216004, as suitable for publication. Consequently, it is currently citable and available as precedent.

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.

U.S. Supreme Court Refuses to Hear Donning and Doffing Case

The United States Supreme Court recently declined to accept review of the decision in Sepulveda v. Allen Family Foods, Inc., a case in which the Fourth Circuit Court of Appeals held that time spent donning and doffing protective gear at a unionized poultry processing plant constituted “changing clothes” within the meaning of Section 203(o) of the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. (“FLSA”) and, thus, was not compensable time for which the employees must be paid. The former employee who filed the lawsuit in the first place and filed the petition before the Supreme Court presented the following question for review by the Supreme Court: “When calculating compensable time under the FLSA, does section 203(o)’s exclusion of ‘time spent in changing clothes’ apply to time spent donning and doffing protective equipment that is put on over unchanged clothes - a question on which multiple circuits have split.”

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.

Oregon's Minimum Wage to Increase in 2011

State Flag of OregonOregon’s Bureau of Labor & Industries (BOLI) announced that, effective January 1, 2011, the state minimum wage will increase by ten cents, to $8.50 per hour. Oregon employers are required to post the revised minimum wage poster, which BOLI will make available for download. Oregon is one of ten states whose minimum wage is adjusted annually based on inflation and the Consumer Price Index. In 2010, no increase occurred because the cost of living decreased.

Bill Would Target Independent Contractor Misclassification

Senator John Kerry (D-MA) and Rep. Jim McDermott (D-WA) have introduced a bill that would curtail the use of a federal “safe harbor” that allows businesses to treat workers as independent contractors for federal employment tax purposes, regardless of the employee’s actual status under the common law test. The Fair Playing Field Act of 2010 (pdf) (H.R. 6128, S. 3786) would, among other things, require the Secretary of the Treasury to issue prospective guidance on worker classification for federal employment tax purposes. The safe harbor provided under section 530 of the Revenue Act of 1978 would continue to be available until the date an individual’s employment status is reclassified. The worker’s reclassification date would be the earlier of (a) the first day of the first calendar quarter beginning more than 180 days after the date of an employee classification determination by the Secretary of the Treasury; or (b) the effective date of the “first application final regulation” issued by the Secretary of the Treasury with respect to such individual (or if later, the first day of the first calendar quarter beginning more than 180 days after such regulation is issued). To learn more about the bill and its potential implications for employers, please continue reading at Littler's Washington, D.C. Employment Law Update blog.

Photo credit: SchulteProductions

Eleventh Circuit: FLSA May Apply to Employees of Primarily Intrastate Businesses if Materials Used Moved Interstate at Any Time

Eleventh Circuit Court of Appeals' SealIn a recent opinion, Polycarpe v. E & S Landscaping Serv. Inc., No. 08-15154 (11th Cir. Aug. 31, 2010), the Eleventh Circuit held that employees of primarily intrastate businesses may nonetheless be covered under the Fair Labor Standards Act (FLSA) if they can show that, in their employment, they utilized “materials” that had moved at any time in interstate commerce. “This decision makes it easier for low-wage workers to vindicate their rights under the FLSA by permitting workers to prove that they worked for covered enterprises,” said Steven J. Mandel, the Department of Labor’s Deputy Solicitor for National Operations.

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).

Fifth Circuit Holds Staff Leasing Company May Assert Motor Carrier Exemption

In Songer v. Dillon Resources, Inc., No. 09-10803 (Sept. 3, 2010), a unanimous panel of the Fifth Circuit issued two holdings, both favorable to employers attempting to establish the Motor Carrier Act exemption to the Fair Labor Standards Act (FLSA). The first issue was whether an employee staff-leasing company may assert the Motor Carrier Act exemption embodied in the FLSA. In Songer, one of the defendants was an employee staff-leasing company that hired drivers and assigned them to various interstate trucking companies. In that case, the plaintiffs were assigned to two different trucking companies that hauled aggregate used in the cement and concrete industries. Sometimes the aggregate was hauled across state lines, but in some instances the aggregate was only hauled within the state of Texas. The Fifth Circuit held that a staff-leasing company was entitled to the Motor Carrier Act exemption because it provided drivers to interstate trucking companies. The Fifth Circuit also held that all of the truck drivers were subject to the Motor Carrier Act exemption, even if some of them drove primarily intrastate. The court held that each truck driver did not have to personally participate in interstate commerce but, rather, only had to have a reasonable expectation that he/she could be called upon to drive across state lines. In Songer, all of the truck drivers could reasonably be expected to engage in interstate commerce because the dispatcher randomly assigned trips, some of which crossed state lines; no truck driver had a dedicated route; and all of the drivers had to meet DOL requirements, such as completing DOT logs and drug tests.

This entry was written by Shawn Oller.

Photo credit: MobiusDaXter

Third Circuit Holds Flat-Rate Commissions May Qualify for Retail Commission Exception to FLSA's Overtime Requirements

In Parker v. NutriSystem, Inc., No. 09-3545 (Sept. 8, 2010), a divided panel of the Third Circuit held a system of flat-rate compensation for each sale that an employee makes may qualify for the retail commission exception to the overtime requirements of the federal Fair Labor Standards Act. In so ruling, the majority rejected the Department of Labor's argument that commissions must be linked to the sales price. To learn more about the decision and its implications for employers, please continue reading Littler's ASAP "Third Circuit Holds that Flat-Rate Commissions May Qualify for Retail Commission Exception to FLSA's Overtime Requirements" by Matthew Hank.

City of Austin, Texas Passes A Mandatory Employee Rest Break Ordinance

Construction Workers on BreakThe City of Austin, Texas recently passed an ordinance requiring that employers in the construction industry give employees a rest break of no less than 10 minutes for every four hours worked. The rest break must be scheduled as near as possible to the midpoint of the work period, and an employee may not work more than 3.5 hours without a rest break. Narrow in scope, the new ordinance applies only to employees performing construction activities at a construction site. An employee is not entitled to a rest break if he or she works less than 3.5 hours or spends more than half of his or her time engaged in non-strenuous work in a climate-controlled environment. Employers must post a sign (in English and Spanish) describing the rest break requirements in a conspicuous place or in areas where notices to employees are customarily posted. An employer that fails to give the required rest break or that fails to post the required sign can be found guilty of a Class C misdemeanor. The ordinance also provides for civil fines of $100 to $500 for each day a violation occurs. The ordinance does not expressly provide for a private right of action. Enacted on July 29, 2010, the ordinance amends Title 4 of the Austin City Code and becomes effective immediately upon enactment.

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

Illinois Gets Tough on Wage Violations

On July 30, 2010, Illinois Governor Pat Quinn signed Senate Bill 3568, the most extensive change to the state’s wage theft statute in decades. The amendment to the Illinois Wage Payment and Collection Act, which goes into effect on January 1, 2011, focuses on the following:

  • Broader coverage;
  • Efficient enforcement mechanisms;
  • Enhanced civil and criminal penalties; and
  • Increased protection from retaliation.
     

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
 

Connecticut Supreme Court Holds Discretionary Bonus Not Wages

State Flag of ConnecticutThe Connecticut Supreme Court recently issued a decision in which it unanimously concluded that a year-end bonus, the amount of which is discretionary, does not constitute wages under Connecticut’s wage and hour statute, Conn. Gen. Stat. § 31-71a. Therefore, Connecticut’s private right of action for wages, Conn. Gen. Stat. § 31-72, which provides for double damages and attorney’s fees, does not pertain to claims for discretionary bonuses.

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.

New Hampshire Amends Law to Permit Certain Deductions from Wages

State Flag of New HampshireNew Hampshire recently amended its wage and hour law to permit employers to make deductions from employees’ wages for “legal plans and identity theft plans without financial advantage to the employer when the employee has given his or her written authorization and deductions are fully recorded.” The amendment becomes effective on August 13, 2010.

Although this amendment is modest in nature, it does clarify an issue that previously had confused many New Hampshire employers. Prior to this amendment, the New Hampshire Department of Labor had taken the position that employers could not make deductions from employees’ wages for legal services plans or identity theft plans, even though employees had voluntarily enrolled in those plans and authorized the requisite deductions, because these plans were not identified as permissible deductions under the state’s wage and hour law. This law makes clear that such deductions are now permissible.

This entry was written by Christopher Kaczmarek.

Bill Would Apply Minimum Wage, Overtime to Home Care Workers

Nurse and PatientThis week, Rep. Linda Sanchez (D-CA) introduced legislation that would extend the federal minimum wage and overtime protections of the Fair Labor Standards Act (FLSA) to most home care workers, improve federal and state data collection and oversight with respect to the direct care workforce, and create a grant program to help states recruit and train direct care workers. Specifically, the Direct Care Workforce Empowerment Act (H.R. 5902) would limit the “companionship services” FLSA exemption to those who work 20 or fewer hours per week. To learn more about the bill, please continue reading at Littler's D.C. Employment Law Update blog.

Photo credit: AlexRaths

Non-Exempt Pharmaceutical Sales Reps Sue for Overtime

Prescription SymbolFollowing a Connecticut district court’s denial of summary judgment to the employer in Ruggeri v. Boehringer Ingelheim Pharmaceuticals, Inc., a collective action brought by pharmaceutical sales representatives who claimed the were improperly classified as exempt employees, the pharmaceutical company has been hit with another putative collective action by sales representatives seeking overtime wages. But in this new case, Lopez-Lima v. Boehringer Ingelheim Pharmaceuticals, filed on July 21, 2010 in the federal District Court for the Southern District of Florida, plaintiffs allege that Boehringer hired them as “non-exempt commission-paid pharmaceuticals sales representative[s].” To learn more about the case, please continue reading at Littler's Healthcare Employment Counsel blog.

DOL Issues Fact Sheet on Nursing Breaks for Employees

Breast PumpThe Department of Labor’s Wage and Hour Division (WHD) has released a fact sheet to help employers comply with the lactation break time obligations established by the new health care law. The Patient Protection and Affordable Care Act (“Affordable Care Act”) amends section 7 of the Fair Labor Standards Act (FLSA) to require employers to provide rest breaks and suitable space for employees who are nursing mothers to express breast milk for up to one year after the child’s birth. To learn more about the fact sheet, please continue reading at Littler's Washington D.C. Employment Law Update blog.

Photo credit: camilla wisbauer
 

New Jersey Federal District Court Holds Pharmaceutical Sales Reps Exempt

Prescription SymbolOn July 19, 2010, in Jackson v. Alpharma Inc., the United States District Court for the District of New Jersey held that Alpharma, Inc.’s pharmaceutical sales representatives qualify as exempt administrative employees under the Fair Labor Standards Act (“FLSA”). The court’s unpublished opinion relies in part on the Third Circuit’s holding in Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir. 2010).

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.

Second Circuit Finds Pharmaceutical Sales Representatives Non-Exempt

Prescription SymbolOn July 6, 2010 the Second Circuit Court of Appeals ruled in In re Novartis Wage and Hour Litigation (“In re Novartis”)1 that Novartis Pharmaceuticals Corporation’s pharmaceutical sales representatives (“Reps”) did not meet the requirements of the administrative or outside sales exemptions under the Fair Labor Standards Act (FLSA) and therefore were incorrectly classified as exempt employees. In so doing, the Second Circuit reversed a decision by the district court for the Southern District of New York and reached a conclusion contrary to that reached by the Third Circuit in the recent Smith v. Johnson & Johnson case.

In support of its decision, the Second Circuit found the following facts: In visits typically lasting no more than five minutes, the Reps provide physicians with information about the benefits of Novartis pharmaceuticals and encourage them to prescribe the products to their patients. Reps may give physicians reprints of clinical studies about the pharmaceuticals, identify the Novartis products for which insurers will pay, organize meals and programs to promote particular products, give physicians samples of drugs, and in many instances get physicians to say they will prescribe Novartis products in the future. Although physicians cannot purchase drugs directly from the manufacturer, the Reps seek verbal commitments from physicians to prescribe Novartis’s drugs to their patients.

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.

DOL Increases Penalties for Child Labor Violations

On May 19, 2010, the U.S. Department of Labor announced the publication of final regulations concerning child labor. Included in the regulations are increased penalties for child labor violations.

The maximum penalty for repeatedly or willfully violating the Fair Labor Standard Act’s minimum wage and maximum hours provisions, relating to wages, increased from $1,000 to $1,100 per violation.

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.

Wisconsin Governor Signs Employee Misclassification Bills into Law

State Flag of WisconsinOn May 12, 2010, Wisconsin Governor Jim Doyle signed into law two pieces of legislation regarding the misclassification of employees. Senate Bill 672, which will become effective January 1, 2011, requires the Department of Workforce Development (DWD) to establish a system ensuring the proper classification of workers under unemployment insurance, worker’s compensation and labor standards laws. Specifically, the DWD is required to educate employers, employees and the public about the proper classification of persons performing services for an employer; receive and investigate complaints alleging misclassification; conduct investigations on its own initiative; inform other state or local agencies of misclassification of employees; and appoint attorneys to conduct hearings and issue decisions as appeal tribunals.

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.

United States Department of Labor and California's Division of Labor Standards Enforcement Clarify Rules Governing Compensation for Interns

In April 2010, the U.S. Department of Labor (DOL) issued a new Fact Sheet discussing the circumstances under which “interns must be paid the minimum wage and overtime under the Fair Labor Standards Act (FLSA) for services that they provide to ‘for-profit’ private sector employers.” At the same time, California’s Division of Labor Standards Enforcement (DLSE) stated in an opinion letter that it will apply the same rules that the DOL has applied in the past and will continue to apply as described in the Fact Sheet.

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.

Bill Would Target Contractor Misclassification

Legislation introduced in both the House and Senate would impose new record-keeping requirements on employers that hire independent contractors, and impose stricter penalties for misclassification. Introduced by Rep. Lynn Woolsey (D-CA) and Sen. Sherrod Brown (D-OH), the Employee Misclassification Prevention Act (H.R. 5107, S. 3254) would amend the Fair Labor Standards Act (FLSA) to require employers to keep records on and notify workers of their employment or independent contractor classification and their right to challenge that classification. For more information on the legislation and its implications for employers, continue reading at Littler's D.C. Employment Law Update blog.

Federal Court Rules Plaintiffs Seeking Class Certification May Not Rely on Employers' Job Descriptions and Uniform Exemption Policies to Satisfy Predominance of Issues

On March 25, 2010, the central district court of California denied class certification in two consolidated cases, Spainhower v U.S. Bank and Williams v. U.S. Bank, a decision that could impact plaintiffs’ attempts to certify future misclassification cases in federal court. In their motion, the plaintiffs sought certification of all in-store branch managers whom they claim were misclassified as exempt under the executive, administrative, and outside sales exemptions. Although the plaintiffs’ motion sought class certification under Rule 23(b)(2) or (b)(3), their supporting points and authorities only argued for certification under Rule 23(b)(3). The court found that the plaintiffs failed to meet their burden under Rule 23(b)(3) because individualized factual inquiries would inevitably consume the majority of a trial and overwhelm the adjudication of common issues.

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.

FLSA Amended to Require Breaks for Mothers to Express Breast Milk

While the most recent change to the Fair Labor Standards Act (FLSA) and the attention it may receive might seem small in comparison to Health Care Reform, the FLSA Amendment is significant. The Amendment, which now provides break time to nursing mothers, imposes a new requirement under the FLSA. For further analysis on the Amendment and its implications for employers, continue reading at Littler's D.C. Employment Law Update blog.

Officers Not Entitled to Pay For Donning And Doffing Uniforms, Ninth Circuit Rules

In a case of great significance to public employers, the Ninth Circuit issued a decision holding that the time spent putting on and taking off required uniforms and gear does not constitute compensable work for police officers. In Bamonte v. City of Mesa (9th Cir. 08-16206) the claimants were current and former police officers of the City of Mesa who contended that they ought to be paid for the time it took them to put on and take off their uniforms and gear at the beginning and end of their shift, a process referred to as donning and doffing. The City argued that although it required every patrol officer to wear a proper uniform, the City imposed no restriction on where each officer put on or took off that uniform and gear. Therefore, because officers were not required to don and doff exclusively at work, the City had no legal obligation to pay for the time devoted to donning and doffing. The trial court agreed and granted summary judgment to the City. On March 25, a panel of the Ninth Circuit affirmed the lower court's decision in a 2-1 opinion. Officers in many other law enforcement agencies throughout the West filed similar lawsuits, but the Bamonte case is the first to be the subject of a substantive decision by the Ninth Circuit.

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.

Further Analysis on DOL Reversal re: Exempt Status for Mortgage Loan Officers

In a development that may have significant implications for mortgage lenders and other financial services employers, the Department of Labor has issued a new Administrator's Interpretation finding that mortgage loan officers do not qualify as exempt administrative employees under the FLSA, reversing its prior position and withdrawing previous opinion letters concluding to the contrary. To continue reading about this development, see Littler's ASAP Department of Labor Reverses Course: Mortgage Loan Officers Do Not Meet the Administrative Exemption's Requirements by Robert W. Pritchard, R. Brian Dixon and Andrew J. Voss.

Seventh Circuit Affirms Ruling that "Account Representative" Is Exempt Under FLSA's Outside Sales and "Combination" Exemptions

In Schmidt v. Eagle Waste & Recycling Inc., the Seventh Circuit Court of Appeals affirmed the district court’s grant of summary judgment to a Wisconsin waste removal company and agreed that the defendant properly classified its former “account representative” as exempt under the Fair Labor Standards Act (FLSA). The plaintiff had been hired as a “sales representative,” but had adopted the title “account representative,” with the defendant’s permission. Several months after the plaintiff’s employment ended, she sued the defendant under the FLSA for failing to pay her for overtime. The district court granted the defendant’s motion for summary judgment, concluding that the plaintiff’s sales and marketing duties rendered her exempt under both the outside sales and “combination” exemptions to the FLSA. On appeal, the Seventh Circuit agreed.

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.

 

DOL Changes Course On Exempt Status Of Mortgage Loan Officers

In its first Administrator Interpretation Letter, the Wage and Hour Division of the U.S. Department of Labor (DOL) announced today that mortgage loan officers do not qualify as bona fide administrative employees under section 13(a)(1) of the Fair Labor Standards Act (FLSA). In reversing its prior stance on the issue, the DOL withdrew two opinion letters issued on September 8, 2006 and February 16, 2001, in which it previously had found that loan officers were exempt administrative employees.

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.

New York to Revise, Combine Restaurant & Hotel Industry Wage Orders

The New York State Department of Labor ("NY DOL") is in the process of combining separate restaurant and hotel industry minimum wage orders into a single wage order which will be called the Hospitality Industry Wage Order. Although the NY DOL has not yet issued regulations for this consolidated wage order, a Labor Commissioner Order dated November 5, 2009 foretells the major changes in store for non-exempt employees in the hospitality industry. For more information on the changes, see Littler’s ASAP Here’s A Tip: New York is Overhauling the Restaurant and Hotel Industry Wage Orders by Gerald T. Hathaway and Lisa M. Brauner.

Fifth Circuit Rules Employers Do Not Have to Pay for Donning and Doffing Time Despite Failure to Address Issue in Collective Bargaining Negotiations

In Allen v. McWane, the Fifth Circuit considered whether an employer is required to pay for pre- and post-shift donning and doffing of protective gear under Section 203(o) of the Fair Labor Standards Act (FLSA) where the company and the union never discussed the issue, and where the employees (and union representatives) attested that they were not even aware that changing time could potentially be compensated under the FLSA. Section 203(o) of the FLSA provides that an employer does not have to pay its employees for time “changing clothes or washing at the beginning or end of each workday ... by custom or practice under a bona fide collective bargaining agreement.” 29 U.S.C. § 203(o).

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.

Fourth Circuit Finds Employers Do Not Have to Pay for Donning & Doffing Time That Was Subject to Collective Bargaining

In Sepulveda v. Allen Family Foods, Inc., the Fourth Circuit held that the company does not have to pay its employees for time spent donning and doffing because it was the subject of collective bargaining between the union—the United Food and Commercial Workers Local 27—and the company. Specifically, the issue in this case was whether time spent donning and doffing protective gear at a unionized poultry processing plant constituted “changing clothes” within the meaning of Section 203(o) of the Fair Labor Standards Act, 29 U.S.C. § 201 et seq. This section provides that that an employer does not have to pay its employees for time “changing clothes or washing at the beginning or end of each workday ... by the express terms of or by custom or practice under a bona fide collective bargaining agreement.” 29 U.S.C. § 203(o).

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.

Developments in State Law from July 1 - December 31

Several new wage and hour bills made it through various state legislatures during the second half of the year. Below is a wrap up of some new developments (including regulatory updates) from July 1st through December 31st. Click here to read our post on changes to state minimum wages.

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.

Staffing Companies Face Potential Exposure For Interview Time

In a putative class action pending in the Northern District of California filed by Catherine Sullivan against Kelly Services, Inc. (Case No. C 08-3893 CW), Judge Claudia Wilken ruled in a summary judgment motion that the time spent interviewing by Kelly Services' employees seeking temporary work assignments with Kelly Services' clients is compensable under California law. However, Judge Wilken also ruled that the time spent preparing for and commuting to the client interviews was not compensable, and that Kelly Services was not required to reimburse the employees for expenses incurred in attending the interviews. Judge Wilken found that under the facts of this case, the employees were "subject to the control" of Kelly Services and that Kelly Services "suffered or permitted" the employees to work in connection with the interviews. She rejected the defense argument that the client interviews were "voluntary," finding that the failure to interview would prevent the employee from being considered for 50% of the job assignments . She also rejected the defense argument that the interviews were not time worked as the employees were not employed in between work assignments, finding this latter argument inconsistent with the position taken by the employer in a prior action between the parties.

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.

Indiana District Court Applies Federal Motor Carrier Exemption to Former Employees Who Never Crossed State Lines

Intrastate haulers and slingers of trash and recyclables are exempt under the federal Motor Carrier Act according to a recent decision by the United States District Court for the Southern District of Indiana, Indianapolis Division. Craft, et al. v. Ray’s LLC and Donald Matthews, 1:08-cv-627-RLY-JMS (S.D. Ind.). The FLSA mandates that employers pay employees one and a half times their regular rate for each hour worked in excess of forty during a work week. 29 U.S.C. § 207(a)(1). Several exceptions to this rule exist, including one for employees “over whom the Secretary of Transportation has power to establish qualifications and maximum hours of service.” 29 U.S.C. § 213(b)(1).The Motor Carrier Act exemption specifically applies to drivers, drivers’ helpers, loaders, and mechanics who participate in interstate commerce within the scope of their employment. 29 C.F.R. § 782.2(b)(2).

In Craft, the plaintiffs transported full containers from customer locations to Ray’s Recycling or a transfer location owned by Ray’s, within Indiana state lines. Trash and recyclables are sorted, with trash being taken by a Ray’s driver to an in-state landfill or incinerator. Recyclable material is shredded, compacted or baled in preparation for delivery to end recipients. Ray’s Recycling does not process recyclable scrap metal. Instead, a Ray’s driver transports scrap metal from Ray’s Recycling or a transfer station to Farnsworth Metals, Inc., an Indiana company owned by the majority shareholder of Ray’s. Ray’s Recycling, the transfer stations, and Farnsworth typically received advance purchase orders and shipping instructions from end recipients. Over 50% of the end recipients are out-of-state.

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.

State Building and Construction Trade Councils of California, AFL CIO v. City of Vista Court of Appeal Decision

This most recent on the city charter exemption in State Building and Construction Trade Council of California, AFL-CIO v. City of Vista (4/28/09) D052181 (PDF), is a favorable one for city contractors who might do work for chartered cities. The court held that chartered cities are exempted from the requirements of the prevailing wage statute, Labor Code section 1720, et seq. under the municipal affairs clause of the California Constitution. The victory may be short-lived, given the number of amicus on this appellate decision, including California’s Attorney General, which filed a brief in support of the Building Trade Councils. The “municipal affairs exemption” is ripe for Supreme Court review. Those following prevailing wage cases will recall that many anticipated a decision from the California Supreme Court in City of Long Beach v. Department of Industrial Relations (2004) 34 Cal.4th 942 on the municipal affairs exemption but were disappointed when the California Supreme Court reached a decision on other grounds and failed to address the exemption.

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.

2009 Minimum Wage Increases

The start of a new year often brings with it changes in governing wage and hour legislation. Effective January 1, 2009, eleven states will increase the minimum wage for employers subject to state wage and hour laws. In addition to noting the wage increase, employers should ensure that they are properly displaying a copy of the state’s current minimum wage poster in a conspicuous location in the workplace that notes the wage increase, even if the increase will not affect hourly employees at any particular workplace.  The following states have increased their state minimum wage, effective January 1, 2009:

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.

California Court of Appeal Holds No Punitive Damages Available for Wide Variety of Labor Code Violations

For the past several years, plaintiffs have routinely sought punitive damages in their wage and hour actions under the California Labor Code. A December 3, 2008 decision by the California Court of Appeals for the Fourth Appellate District may put a stop to that practice.

The plaintiff in Brewer v. Premier Golf Properties sued her former employer for denying her meal and rest breaks, failing to pay her minimum wage for all hours worked, and not providing her with accurate itemized wage statements. The jury awarded the plaintiff $26,300 in unpaid wages and penalties and, after finding that the defendant employer had engaged in malice, awarded the plaintiff an additional $195,000 in punitive damages.

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.

Federal Court Finds California Law Applies to Out Of State Workers

The Court of Appeals for the Ninth Circuit recently held that California’s Labor Code applies to work performed in California by non-residents of California. Sullivan v. Oracle Corporation (08 Cal. Op. Serv. 13,881) (Nov. 6, 2008).

The three Oracle plaintiffs were Colorado and Arizona residents who traveled to California to work for periods ranging from several weeks to several months.  The plaintiffs brought a wage and hour class action against their employer, a Delaware corporation headquartered in California, seeking unpaid overtime on behalf of all out-of-state employees who worked complete days in California. The plaintiffs also brought a claim under California’s Unfair Competition Law (aka/ Business and Professions Code § 17200 et seq.), both for violations that occurred in California and throughout the United States.

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.