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

The court concluded that, inasmuch as all of the meetings were scheduled at least four days in advance, and inasmuch as the class representative was paid for at least half of each scheduled meeting, no obligation to provide reporting pay was triggered. In the court’s opinion, no reference to the duration of the plaintiff’s usual day’s work day was appropriate inasmuch as all of the meetings were scheduled. Had the plaintiff been called in without any advance notice on a vacation day, reference to the usual day’s work might have been relevant.

The court applied a straightforward reading of the split shift premium formula to deny the first class representative additional wages. A split shift is any two work periods separated by non-working, non-paid periods other than bona fide meal or rest periods. The split shift premium formula calls for calculating whether any premium is due by adding one hour to the number of hours actually worked in the day, and multiplying the total hours by the minimum wage. That result would be subtracted from the employee’s wages for the day and any difference would then be due as a split shift premium. Inasmuch as the first class representative’s wage rate was substantially in excess of the minimum wage, the split shift formula did not result in additional wages being due. The court rejected the first class representative’s argument that the split shit premium should always result in an additional hour of pay, because the Wage Orders are clear and specific as to the appropriate wage rate reference.

The court found that the second class representative was not entitled to pursue her claims for reporting pay and split shift premiums because the employee had signed a release of claims in exchange for enhanced severance benefits. The court found that there was a bona fide dispute as to the plaintiff’s entitlement to any additional wages and, where such a dispute exists, an otherwise enforceable settlement agreement would not be invalid.

Finally, the court reversed the award of attorneys’ fees in favor of the employer. The court noted that section 1194 of the Labor Code provided for fees only to a prevailing plaintiff where the plaintiff’s claims concerned minimum wage or overtime. The court had no doubt that a claim for a split shift premium, which is calculated in relation to the minimum wage, was a minimum wage claim. Given the inter-related nature of the split shift and reporting pay obligations, the court concluded that a claim for reporting pay should also be considered to be a minimum wage-type claim. As fees could only be awarded to the prevailing plaintiff with respect to such minimum wage claims, no fees could be awarded to the defendant employer.

Photo credit: Pertusinas

With major support coming from the California Rural Legal Assistance Foundation, A.B. 240 was introduced as a solution to the perception of unequal remedies. The bill’s proponents argued that the current system discouraged employees from bringing their claims in the simpler and less-costly DLSE process, as that agency could not award liquidated damages for the subject claims as a court could. The bill’s supporters also included various labor organizations, while an array of business entities opposed the measure. The bill was based on a nearly identical measure passed by the Legislature in 2007, but vetoed by then-Governor Arnold Schwarzenegger.

Effective January 1, 2012, the difference in remedies between filing such a claim in court or before the Labor Commissioner will be eliminated, as A.B. 240 amends California Labor Code sections 98 and 1194.2. The amended statutes will allow the Labor Commissioner to award liquidated damages to a successful employee. The Labor Commissioner will also have the discretion, as the court now does, to award reduced or no liquidated damages if the employer proves that it acted in good faith and that it had reasonable grounds for believing that its act or omission was not a violation of any provision of the Labor Code relating to the minimum wage, or an order of the commission.

Photo credit: MBPhoto, Inc.

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.

While it may sound simple to determine what it means to “change clothes,” the issue is not so simple, particularly when the clothing also protects the employee. Is an apron “clothing”? Is a hardhat? What about mesh gloves? Or arm guards? Steel-toed shoes? Where to draw the line? The Wage and Hour Division of the Department of Labor has shifted its opinion three times. First, in 1997 it took the position that protective safety equipment worn over apparel was not “clothing.” Then, in 2002 it took a 180 degree turn, declaring that “changing clothes” applies to “the putting on and taking off of the protective safety equipment typically worn in the meat packing industry. . . .” In 2010 the Division completed the circle by concluding that changing clothes “does not extend to protective equipment worn by employees that is required by law, by the employer, or due to the nature of the job.”

In Salazar, unionized employees of a turkey processing plant in Colorado wore aprons, plastic sleeves, gloves, hard hats, earplugs, and some even wore mesh gloves, knife holders and arm guards. They sought compensation for their time “donning” or “doffing” these items each day. In affirming summary judgment for the employer, the Tenth Circuit declined to defer to the Wage & Hour Division’s most recent interpretation of the law, or any of its interpretations, because it had reversed course three times. Moreover, the court declared the agency’s current position is “not . . . particularly well-reasoned.”

Instead, the court took a common sense approach, finding that the ordinary meaning of “clothes” encompassed all of the items worn by these plant workers, and rejecting any distinction based on whether the items are “ordinary,” “street clothes,” or worn for safety or protective purposes, as not “particularly coherent or workable.” The court also discarded the approach taken by the Ninth Circuit—the one federal circuit court that has ruled to the contrary—that “generic” protective clothing, such as boots, frocks and hard hats, should be distinguished from “unique” protective clothing, such as mesh gloves or knife holders. The “unique” equipment worn by these turkey plant workers was not viewed as sufficiently cumbersome, heavy or complicated to fall outside of the definition of “clothes.”

With this latest ruling, we now have six federal appellate circuit courts finding that donning and doffing protective equipment is not compensable work time under these circumstances, and one going the other way. But the battle over what constitutes compensable time changing “clothes” no doubt will continue to rage, at least until more cases clearly delineate when employees must be paid for putting on or taking off their protective equipment.

Photo credit: Matt Collingwood

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

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

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

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

The trial court found that Arechiga’s supervisor had satisfied all of the requirements necessary to have an enforceable wage agreement under cases which pre-dated the passage of section 515(d). Those six factors are: (1) the employee was told the days he would work each week (six); (2) the number of hours he would work each day (eleven); (3) the guaranteed salary of a specific amount that the employee would be paid ($880 per week); (4) the basic hourly rate upon which his salary was based (true); (5) that his salary covered both his regular and overtime hours (true); and (6) the agreement was reached before the work was performed (also true). See Espinoza v. Classic Pizza, Inc., 114 Cal. App. 4th 968, 974 (2003); Ghory v. Al-Lahham, 209 Cal. App. 3d 1487, 1491 (1989); Hernandez v. Mendoza, 199 Cal. App. 3d 721, 725 (1988); Alcala v. Western Ag Enterprises, 182 Cal. App. 3d 546, 550–51 (1986). Arechiga’s straight-time rate of $11.14 and overtime rate of $16.71 totaled $880 for the 40 straight-time and 26 overtime hours in each of his workweeks.

The surprise was that the Court of Appeal found the agreement between Arechiga and his employer trumped California Labor Code section 515(d). That section provides: “For the purpose of computing the overtime rate of compensation required to be paid to a nonexempt full-time salaried employee, the employee's regular hourly rate shall be 1/40th of the employee's weekly salary.” Section 515(d) is commonly thought to incorporate the “Skyline Homes” rule. Skyline Homes v. Dep’t of Industrial Relations, 165 Cal. App. 3d 239 (1985). Under Skyline Homes, the overtime that is due an employee who was only paid a salary is determined for most employees by dividing the salary by forty hours. One and one half times the result of dividing a salary by 40 must be paid for each overtime hour of work.

The Court of Appeal’s finding that the wage agreement survived the passage of section 515(d) was not the subject of extensive analysis. The court concluded that overtime may not be waived, but that the basic hourly rate on which overtime is to be paid is still subject to agreement between the parties. The court set aside the portion of the Labor Commissioner’s Enforcement Policies and Interpretations Manual which condemned agreements such as Arechiga’s because the Manual had not been promulgated in accordance with the Administrative Procedure Act.

While Arechiga v. Dolores Press may provide a measure of comfort for some employers, some of the unarticulated exceptions to the decision should be noted. A wage agreement may include some overtime, but, if an employee works more hours than are included in the agreement, additional overtime will be due. A wage agreement may appear generous or even beneficial to an employee if the full salary is provided even when the employee works fewer than the expected hours. However, a salary that guarantees a nonexempt employee overtime, even if the employee does not work the overtime, has to meet the requirements of the federal Fair Labor Standards Act for employers who are subject to the FLSA. 29 U.S.C. §§ 201 et seq. Under the FLSA, a salary that includes overtime, whether overtime was worked or not, is only valid if it meets all of the requirements of section 7(f) of the FLSA. Section 7(f) includes a requirement that an employee’s hours vary for reasons beyond the employer’s control and that the guarantee not include more than 60 hours per week. 29 U.S.C. § 207(f). Furthermore, the United States Department of Labor and some courts would say that a fluctuating hours agreement (called a Belo agreement) is only valid if an employee’s hours vary both above and below 40 in a week. 29 C.F.R. § 778.406. Whether Arechiga made any claim under the FLSA, whether his employer was covered by the FLSA and whether all of the requirements of a BELO agreement were met are not addressed in the California Court of Appeal’s opinion. And, whether Arechiga ever worked more or fewer hours than those in his agreed schedule is not noted in the court’s opinion. The odds of an employee indefinitely working the same hours day in and day out are, however, limited. Once the employee works more hours, additional overtime must be paid. Once an employee works fewer hours, the requirements of section 207(f) must be met or the employee’s salary must be docked. Even if the requirements of section 207(f) are met, there is no specific accommodation of such plans under California’s Labor Code.

In sum, the California Court of Appeal’s conclusion that Arechiga’s wage agreement was enforceable despite the seeming hurdle imposed by section 515(d) of the Labor Code is a surprise, albeit a welcome one. Any employer thinking of using such an agreement must, however, consider the more likely restrictions of federal law before concluding that all of the employer’s overtime concerns have been resolved.

This entry was written by R. Brian Dixon.

Photo credit: MBPhoto, Inc.

Starbucks initially demurred and moved to strike Price’s allegations related to his claim for improper wage statements under California Labor Code section 226. The demurrer was sustained, thereby dismissing Price’s claim on the basis that he had not alleged sufficient injury as required by the statute.

The Court of Appeal agreed, noting that in order to recover under section 226, “an employee must suffer injury as a result of a knowing and intentional failure by an employer to comply with the statute,” and the injury required by this section “cannot be satisfied simply if one of the nine itemized requirements in section 226, subdivision (a) is missing from a wage statement.” Citing, Jaimez v. Daiohs USA, Inc., 181 Cal. App. 4th 1286, 1306 (2010); see also Elliot v. Spherion Pacific Work, LLC, 572 F. Supp. 2d 1169, 1181 (C.D.Cal. 2008). Although Price alleged a “mathematical injury,” the court found that because no computations were required in order for him to analyze whether the wages paid in fact compensated him for all hours worked, such allegations were insufficient. Moreover, Price’s “speculation” regarding possible underpayment was, according to the Court of Appeal, not sufficient to state a section 226 claim.

Following the successful initial ruling, Starbucks also moved for summary judgment on the remaining claims, arguing that Price had been appropriately paid reporting time pay when he was provided with two hours of pay for the termination meeting and that all remaining claims were derivative of the reporting time pay claim. California’s Wage Orders provide:

Each workday an employee is required to report for work and does report, but is not put to work or is furnished less than half said employee’s usual or scheduled day’s work, the employee shall be paid for half the usual or scheduled day’s work, but in no event for less than two (2) hours nor more than four (4) hours, at the employee’s regular rate of pay, which shall not be less than the minimum wage. Cal. Wage Order 5-2001, Section 5(A) (2007).

Both the trial court and Court of Appeal agreed with Starbucks, holding that an employee who comes in for a meeting, as opposed to a regular work shift, is owed only two hours of pay at his or her regular rate. Thus, even though Price regularly worked more than four hours per shift, and thus may have been owed more pay if he had been sent home early on a regular workday, he had no expectation of working a full shift on the day he reported for the “talk.” Accordingly, only the minimum payment rules applied and Starbucks appropriately compensated Price for the meeting.

This entry was written by Michelle Heverly.

Photo credit: Matthew John Hollinshead

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.

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.

Second, the General Assembly provided the Maryland Department of Labor, Licensing, and Regulation (“DLLR”) with the authority to investigate and adjudicate wage claims of up to $3,000. Upon receipt of a complaint from an employee, DLLR will send a copy to the employer and require a written response within 15 days. Following an investigation, DLLR may issue an order to pay the wages plus interest or dismiss the claim. Significantly, DLLR is not authorized to order attorney’s fees or treble damages, which would otherwise be available to an employee in court.

Within 30 days after receipt of an order to pay wages, an employer may request a de novo administrative hearing. If an employer is unsuccessful at an administrative hearing, it may appeal the decision to a circuit court. However, the court may overturn the administrative decision only if it “is unsupported by competent, material, and substantial evidence in light of the entire record as submitted; or is arbitrary or capricious.”

These changes become effective on October 1, 2010.

This entry was written by Steven Kaplan.

The court was again divided as to whether the time spent in the evening uploading a record of the day’s service activities was de minimis. That issue will also be resolved by the district court on remand in consideration of the amount of time spent in the activity, the difficulty of recording the time, and the cumulative amount of time involved in the activity. While the court did not resolve whether the uploading time was work time, the court did affirm its important finding that the uploading activity, which could take place at any time in the evening, would not turn the commute from the last service location to home, into work time. In this regard, the court rejected the plaintiff’s argument that the commute home from the last service location was part of a continuous work day and therefore work time because the commute was travel from a location where service work was performed to a site where uploading work was performed.

The court divided sharply as to whether the commute time would be work time under California law, given the requirement that employees go directly to and from service sites without undertaking any personal tasks along the way. California has no specific exclusion of commute time from work time similar to ECFA, apart from one exception for ride sharing. The California courts have, so far, focused on how much control an employer exercises over travel time when determining whether the travel time is work time or not. Whether the plaintiff’s commute time is work time under state law will be resolved on remand to the district court.

This entry was written by Brian Dixon and Gina Chang.

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.