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

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

This entry was written by Jim Cuaderes.

Photo credit: BartCo

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

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

This entry was written by Milton Castro.

Photo credit: chestnutphoto
 

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

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

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

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

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

This entry was written by Patricia Reilly.

Background

Plaintiffs are former pharmaceutical sales representatives (“PSRs”) for Alpharma, Inc., a manufacturer of pain medication that is now owned by King Pharmaceuticals. On July 10, 2007, the plaintiffs filed a complaint alleging they are due unpaid wages and overtime pursuant to the FLSA. Thereafter, on March 24, 2009, the court granted Alpharma, Inc.’s motion to stay the proceedings pending the outcome of Smith v. Johnson & Johnson in the Third Circuit Court of Appeals. Following the Third Circuit’s decision in Smith, Alpharma filed a motion for summary judgment before the instant court.

Analysis

The court held that the former PSRs qualify for the administrative exemption and analyzed the three-prong test that the Secretary of Labor sets forth in the administrative regulations. Under the test, an administrative employee must (1) make no less than $455 per week; (2) perform “non-manual work directly related to the management or general business operations of the employer;” and (3) exercise sufficient “discretion and independent judgment with respect to matters of significance.”

With the weekly salary requirement conceded by the parties, the court held that the second prong of the administrative exemption test was met, reasoning that the PSRs were involved in “marketing” and “promoting sales.” The court recognized that federal statutes and regulations prohibit the sale of Alpharma’s prescription medication directly to the public. The PSRs “called on doctors and pharmacies to encourage them to prescribe or stock Alpharma’s products over the products of its competitors.”

Concerning the third prong, the court further examined federal regulations defining the exercise of discretion and independent judgment as involving “the comparison and evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered.”

Alpharma relied heavily on the Third Circuit’s holding in Smith that “a pharmaceutical sales representative was not entitled to overtime pay because she qualified for the administrative exemption under the FLSA.” The district court noted that the plaintiff in Smith “described herself as ‘the manager of her own business who could run her own territory as she saw fit.’”

The court stated that “the facts in Smith are startlingly similar to the case at bar.” The court identified the following similarities: the employer gave Smith a list of target doctors including “high-priority” doctors, set a minimum number of doctors to visit per-day, permitted Smith to determine the order of doctor visits each day, provided Smith with a prepared “message,” allowed Smith “some discretion when deciding how to approach the conversation,” provided Smith with visual aids and did not allow her to use other aids.

The PSRs here worked alone, developed business plans, decided their “routing” (i.e., when and where to travel), and determined the doctors to meet with each day “in order to effectuate the most business.” The court stated that the PSRs also had discretion to decide “how to approach the physician.”

On the other hand, the plaintiffs characterized Alpharma’s PSR supervisors as “micro managers,” and argued that the PSR in Smith was more of a “freelancer.” The plaintiffs also urged the court to examine the full list of factors set forth in the regulations for determining “whether or not an employee exercises the requisite discretion and judgment to fit within the exemption.”

The court reasoned that the plaintiffs satisfied the same two factors as the plaintiff in Smith. First, the court noted that the PSRs’ work “affects business operations to a substantial degree.” Second, the court stated that the PSRs “are ‘involved in planning long-or short-term business objectives’ related to the marketing of their products within their territories.”

In addition to satisfaction of these two factors, the court stated that its conclusions were “buttressed by the plaintiffs’ duties to write reports and business plans to determine where their business was coming from, to detect trends in the sales of the drug, and to generate ideas on how to grow the business.”

The plaintiffs submitted supplemental submissions to direct the court’s attention to other PSR misclassification cases: Jirak v. Abbott Laboratories, Inc. and In re Novartis Wage and Hour Litigation. The court found it unnecessary to discuss these cases in light of the Third Circuit’s decision in Smith and in a subsequent nonprecedential opinion.

This entry was written by Michael Harvey.

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

Outside Sales Exemption

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

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

Administrative Exemption

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

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

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

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

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

The regulations define “serious injury” as:

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

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

This entry was written by Stacey James.

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

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

This entry was written by Jennifer Ciralsky.

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

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

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

This entry was written by Jennifer L. Mora.

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

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

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

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

This blog entry was written by Michele Z. Stevenson.

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

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

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

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

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

This entry was written by Laurent Badoux.

Outside Sales

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

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

“Combination exemption”

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

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

This entry was written by Theresa Waugh.

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

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

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

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

This entry was written by Stephanie L. Hankin.

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

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

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

This entry was written by Steven Kaplan.

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

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

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

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

This entry was written by Steven Kaplan.

California

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

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

Illinois

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

New York

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

New Jersey

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

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

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

This entry was written by Michael McCabe.

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

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

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

This entry was written by Brian Mosby.

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

This blog entry was authored by Stephen C. Tedesco.

Arizona:

• New minimum wage $7.25 per hour.

Colorado:

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

Connecticut:

• New minimum wage $8.00 per hour.

Florida:

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

Missouri:

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

Montana:

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

New Mexico:

• New minimum wage $7.50 per hour.

Oregon:

• New minimum wage $8.40 per hour.

Vermont:

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

Washington:

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

This blog entry was authored by Stacey James.

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

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

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

Marlene Muraco authored this blog entry.

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

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

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

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

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

Tami Falkenstein-Hennick authored this blog entry.