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

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.

Under the FLSA, compensation for overtime need not be provided to “any employee...in the capacity as an outside salesperson.” 29 U.S.C. § 213(a)(1). To qualify as an outside salesperson, (1) the employee’s “primary duty” must be “making sales” or “obtaining orders or contracts,” and (2) he or she must customarily and regularly be engaged away from the employer’s place of business in performing such duty. 29 C.F.R § 541.500(a). Both parties agreed that PSRs met the second requirement, so the only disputed issue was whether their primary duty was making sales.

The FLSA defines sales as “any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” 29 U.S.C. § 203(k). Moreover, sales include “the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property.” 29 C.F.R. § 541.501(b). Whether an employee makes sales requires an objective analysis, and according to the U.S. Department of Labor (DOL) making sales includes “obtain[ing] a commitment to buy from the customer,” which resulted in the salesperson being “credited with the sale.” U.S. Department of Labor, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 69 Fed. Reg. 22122, 22162 (Apr. 23, 2004). According to the court, under the DOL regulations, there is no requirement that commitments be binding. All that is required is that a sale be made “in some sense.”

In Christopher, the PSRs argued that they did not make sales because they did not consummate transactions or take orders. Instead, they claimed they merely promoted products. Moreover, PSRs contended their activities did not constitute sales because the U.S. Food and Drug Administration expressly prohibited pharmaceutical companies from selling directly to physicians or patients. According to the PSRs, sales only occurred between the pharmaceutical company and wholesalers.

The court noted that opinions differed among the federal courts whether PSRs made sales. A federal court in Connecticut concluded that PSRs did not qualify for the exemption because they could not sell, and physicians could not buy, products. Ruggeri v. Boehringer Ingelheim Pharms., Inc., 585 F. Supp. 2d 254, 268 (D. Conn. 2008). However, a court in New York held that PSRs were exempt because they were credited with sales when physicians wrote prescriptions. In re Novartis Wage & Hour Litigation, 593 F. Supp. 2d 637, 648 (S.D.N.Y. 2009) (on appeal to the United States Court of Appeals for the Second Circuit). To determine whether PSRs qualified as outside salespeople, the court in Christopher looked to the rationale behind the outside sales exemption and also examined the position in the context of the pharmaceutical industry.

According to the court, the characteristics of PSRs justified exemption. PSRs were compensated well above the federal minimum wage (up to $100,000 per year), received fringe benefits like incentive bonuses in lieu of overtime, were unsupervised, and had better opportunities for advancement than non-exempt employees. Additionally, the kind of work they performed was “difficult to standardize to any time frame and could not be easily spread to other workers after 40 hours in a week, making compliance with overtime provisions difficult.” (quoting U.S. Department of Labor, 69 Fed. Reg. at 22124.)

The court observed that although the FLSA was enacted prior to the development of the pharmaceutical sales industry, it was intentionally broad to “address a multiplicity of industries found in the national economy and accordingly provide flexibility in the definition of a ‘sale.’” Moreover, the industry’s unique nature, i.e., the prohibition of direct sales, shifted the focus of sales efforts from the consumer to the physician, thereby making “[a] PSR’s ultimate goal [the] close [of] an encounter with a physician by obtaining a non-binding commitment from the physician to prescribe the PSR’s assigned product.” PSRs worked longer and irregular hours to generate sales in their territory for which they received compensation in the form of bonuses. The court concluded that PSRs “plainly and unmistakably fit within the terms of the exemption” because they engaged in “the functional equivalent of an outside salesperson and to hold otherwise is to ignore reality in favor of form over substance.”

The exempt status of pharmaceutical sales representatives continues to be litigated in courts across the country, and the issue is not settled. In the Novartis appeal referenced above, the U.S. Department of Labor filed an amicus brief arguing that pharmaceutical sales representatives do not qualify for the “outside sales” exemption. 

This entry was written by Robert Pritchard.

¹ Note: In the decision, SmithKlineBeecham is spelled as SmithKleinBeecham, which is an error.

Image credit: Alan Smithee

Upon the termination of her employment with Sears, Ericka Brown was presented with a separation agreement, which she voluntarily elected to sign.  That agreement entitled her to a severance package, and also precluded her from bringing certain waivable claims against the company.  Significantly, the agreement also required her to waive her right to bring, or participate in, a class action relating to her employment with the company.  Despite this agreement, Brown, in her lawsuit against the company, sought to recoup allegedly unpaid wages under a variety of state statutory and common law legal theories, and sought to proceed by way of both a Federal Rule of Civil Procedure 23 class action and a Federal Fair Labor Standards Act (FLSA) collective action.

The court agreed with Sears that even though employees such as Brown cannot waive the right to assert individual FLSA rights—including alleged entitlement to minimum wage, overtime and the recovery of liquidated damages—they can waive other causes of action for alleged non-payment of wages under other laws, including state claims for breach of contract, as well as the right to bring  any variety of class action (including an FLSA collective action) on behalf of others.  Specifically, the court reasoned that the waiver of the ability to bring an action on behalf of others does not diminish an employee’s ability to assert her own rights under the FLSA. This ruling provides protection to employers who have, for valuable consideration, procured these waivers.

This blog entry was authored by Laurent Badoux.

Further, HB 489 increases the criminal misdemeanor fine for violations of the Minimum Wage Act to $1,000 and increases the potential jail sentence to a period of up to one year. HB 489 also increases the civil monetary penalties to two times the amount of the unpaid wages. Finally, the bill provides for injunctive relief in civil actions, including requiring employers to post a notice describing the violations or a copy of the cease and desist order in the workplace.

Similarly, on April 8, 2009, the governor of Iowa signed House File 618 into law. HF 618 establishes new penalties for certain wage violations, increases other penalties and modifies provisions related to child labor.

First, HF 618 increases the civil penalty for failing to pay an employee’s wages from $100 to $500 per pay period.

With regard to child labor, HF 618 expands the types of documentation that can be used to show that a minor is 14 years old and therefore able to work with a work permit. The new law also loosens the standard for violations of child labor laws from “willfully” to “negligently” such that a parent, guardian, person or corporation violates the law by negligently permitting a child under 18 to work in violation of the law. HF 618 also increases certain child labor criminal penalties from simple to “serious” misdemeanors and deems other violations serious misdemeanors. Each person illegally employed and each day that a violation occurs counts as a separate offense. Lastly, HF 618 also creates a civil penalty for child labor violations of up to $10,000 and establishes procedures for the labor commissioner to administer these penalties.

This blog entry was authored by Lara K. Strauss.