Wage and Hour Law Update

Connecticut State Court Upholds Application of Fluctuating Workweek

Noel Tripp — Wed, 16 May 2012 13:27:53 -0800

As we consistently explain, state wage and hour laws do not always follow the FLSA in regard to determining exempt status and issues pertaining to calculation of overtime. State law is often unclear on these issues, and state courts and departments of labor often provide only limited guidance. In a new decision, one Connecticut state court has confirmed that the FLSA’s fluctuating workweek method of paying overtime pursuant to 29 C.F.R. § 778.114 complies with the state wage law. This decision is analyzed in detail here.

Despite Lack of Direct Care Duties, Case Managers Are FLSA Learned Professionals

Noel Tripp — Tue, 15 May 2012 09:03:19 -0800

As we frequently discuss in this space, application of the FLSA’s “learned” professional exemption is a frequent topic for litigation, including within the 9th Circuit. These disputes emanate not only from jobs not historically recognized by the DOL as learned professions, but even from within those areas, as exemplified by a new District Court decision in California. Rieve v. Coventry Health Care, Inc., 2012 U.S. Dist. LEXIS 58603 (C.D. Cal. Apr. 25, 2012).

Plaintiffs in Rieve held the position of Case Manager for Defendants’ business, which focused on assisting employers and insurers with reducing workers compensation related costs. The Case Manager position required candidates “to be a state-licensed RN and to have three or more years of case management experience” but did not entail duties involving “direct patient care.” Rejecting Plaintiffs’ claim that they were not learned professionals under the FLSA, the court observed that the Case Manager’s “role in the hierarchy of Defendants' business is quite closely aligned with the position occupied by a registered nurse, such that Plaintiff should be afforded the same treatment under the law as registered nurses engaged in the practice of nursing.” Thus, Plaintiffs were exempt learned professionals under the FLSA.

The court however then conducted a separate analysis under state law, reaching a different conclusion based on peculiarities of California law.

The technical nature of the exemption inquiry, coupled with the relative paucity of appellate authority (despite the now widespread nature of FLSA claims) provides fertile ground for litigation. A challenge may come from a profession not historically recognized as “learned,” from a Registered Nurse as in Rieve, or even from a budding lawyer. A review of wage practices and the legality of such under the FLSA and applicable state laws, and concomitant discussion of risk management strategies, is the only mechanism—apart from luck—for limiting liability.

7th Circuit Joins 3rd Circuit in Finding PSRs Exempt Administrative Employees

Noel Tripp — Fri, 11 May 2012 12:09:01 -0800

While the pharmaceutical industry is focused on the Supreme Court’s upcoming decision in Christopher, as to whether the work performed by pharmaceutical sales representatives (PSRs) for GlaxoSmithKline qualified for the outside sales exemption, another circuit court has weighed in on the duties of PSRs and their FLSA status in the context of the administrative exemption. The Seventh Circuit has joined the Third Circuit in finding that the PSRs’ work is administrative because it both qualifies as office or non-manual work related to the business operations of the pharmaceutical company, and requires the customary and regular exercise of discretion and independent judgment. Schaefer-Larose v. Eli Lilly & Co., 2012 U.S. App. LEXIS 9300 (7th Cir. 2012).

In the Seventh Circuit’s view, the work of Eli Lilly’s PSRs is related to the company’s general business operations because they are “the principal ongoing representatives of the company to the professional community that is in a unique position to make, or deny, a viable market for the company's product. They do not make individual sales of medications, but ensure, on a continuing basis, that the medical community is fully aware of the potential of the company's pharmaceutical products and that the same community is confident that the company's products will be effective tools in the practical setting of a medical practice.” Because the company required the PSRs to possess a “solid understanding of the message that they were delivering if they were to fulfill their roles as the company's representative to the community of practicing physicians,” their work clearly entailed discretion and independent judgment.

This favorable ruling, and the continually expanding body of legal decisions analyzing the exempt status of PSRs provides an interesting case study for both pharmaceutical industry employers as well as employers in other industries analyzing the exempt status of their sales force. Courts however continue to struggle with whether certain categories of sales and marketing work is “sales” work for purposes of the production/administration dichotomy and, if so, whether it can be administrative under DOL regulations. The Seventh Circuit has answered this question in the affirmative Id. at fn. 23.

California Supreme Court Rules Plaintiffs' Attorney Cannot Recover Fees Under Labor Code Fee Shifting Provision in California Meal and Rest Lawsuits

Noel Tripp — Thu, 03 May 2012 06:35:06 -0800

California’s Supreme Court has again spoken on meal and rest period litigation, this time holding neither employers nor employees may recover their attorney’s fees in cases requiring employers to provide meal breaks and rest breaks. In the wake of its highly publicized Brinker Restaurant Corporation decision, where the Supreme Court ruled California law requires employers to provide but not to ensure non-exempt employees take meal breaks, the Court’s April 30 unanimous decision in Kirby v. Immoos Fire Protection, Inc. holds neither employers nor employees may recover attorneys fees in claims brought under the meal and rest statute.

Labor Code section 226.7 requires employers to provide non-exempt employees with meal and rest breaks according to the terms of regulations issued by the California Industrial Welfare Commission. Labor Code section 218.5 calls for a trial court to award attorneys’ fees to the prevailing party “in any action brought for the non-payment of wages or fringe benefits, or health and welfare or pension fund contributions.” While typically California Labor Code provisions call for attorney fee awards to prevailing employees but not to prevailing employers, under section 218.5 the court may award fees to either employees or employer. Another statute, Labor Code section 1194, calls for attorney fee awards to prevailing employees only – not to employers – in claims for unpaid minimum wages.

The Supreme Court in Kirby ruled that neither section 218.5 nor section 1194 apply to claims to recover meal and rest period premiums under section 226.7. Although the Supreme Court held five years ago in Murphy v. Kenneth Cole Productions, Inc. that the extra-hour-of-pay premiums for unpaid meal and rest periods were wages for statute of limitation purposes, in Kirby the Court held section 226.7 “is primarily concerned with ensuring the health and welfare of employees by requiring that employers provide meal and rest-break periods as mandated” and is not a wage payment statute. Consequently, the Court said, the attorney fee provisions of sections 218.5 and 1194 do not apply to claims brought under section 226.7.

In Kirby, two plaintiffs sued corporate Defendant Immoos and a number of “John Doe” Defendants for various violations of the California Labor Code and related California law provisions, including the familiar claims under the Unfair Competition Law, Bus. & Prof. Code § 17200 et seq. Included among the seven causes of action was a meal and rest break violation claim under section 226.7. The two plaintiffs settled their claims with the individual defendants, and dismissed their claims against the corporate defendant Immoos. Immoos moved for attorneys’ fees as a prevailing party under section 218.5, asserting that because the meal and rest claims against it had been dismissed with prejudice, without any finding of liability, they were a prevailing party and section 218.5 should apply. The trial court granted attorneys’ fees to Immoos, and both parties appealed, with the Plaintiffs alleging they should receive attorneys fees on the meal and rest claim under section 1194.

The California Supreme Court reversed, finding “in light of the relevant statutory language and legislative history…neither section 1194 nor section 218.5 authorizes an order of attorneys’ fees to a party that prevails on a section 226.7 claim.” Because section 1194 referred explicitly to minimum wage and overtime claims, the court saw no reason to expand its language to include a meal and rest break violation. Because “non-payment of wages” did not in the court’s view constitute “the gravamen of a §226.7 violation,” the language of §218.5 also did not apply.

While Kirby prevents an employer from shifting fees to unsuccessful meal and rest plaintiffs, it “nevertheless constitutes a victory for employers,” observes Jackson Lewis partner Rob Pattison. “Plaintiffs’ counsel in meal and rest actions may be forced to rely on a contingency arrangement with their clients to recover fees as a portion of a judgment or settlement, or in the alternative charge their clients an hourly or flat fee rate for their services. The unavailability of fee-shifting can serve as motivation to resolve the claims.” However, “meal and rest actions almost always include claims under provisions of the Labor Code which do provide for fee-shifting under section 1194 as well as under PAGA, in addition to the fee-shifting available under the FLSA and other employment statutes.” PAGA, the California Labor Code Private Attorneys General Act, permits “aggrieved employees” to recover a portion of civil penalties in court that could have been awarded in administrative claims before the State Labor Commissioner. PAGA also provides for attorneys’ fee awards.

This space and Jackson Lewis’ California Workplace Law Blog will continue to provide analysis as California’s trial courts interpret and apply Brinker and Kirby.

New York Legislature Continues to Debate Proposed Minimum Wage Increase

Noel Tripp — Mon, 30 Apr 2012 12:42:58 -0800

New York has a long history of maintaining a state minimum wage higher than that provided for at the federal level under the Fair Labor Standards Act. However, New York State minimum wage has remained harmonized with federal law at $7.25/hour since July 24, 2009 (though New York’s “tip credit” minimum wage for the hospitality industry of $5.00 is substantially higher than that required under federal law). Now, following a long period of inactivity, the New York State legislature is considering a proposal to raise the state minimum wage to $8.50. Now, partisan legislators have looked to economists to bolster support for their respective positions as to whether such a hike hinders or bolsters the state economy. Recently, Democrats cited to the opinion of one third-party economist that “Raising the incomes of low-wage workers will help businesses with their own sales,” through a “multiplier effect.”

Watch this space for further developments.

Huffington Post Wins Victory In Bloggers' Compensation Suit

Noel Tripp — Tue, 24 Apr 2012 06:27:46 -0800

The FLSA does not expressly contemplate unpaid volunteer work. And, as we have previously noted, the DOL accepts the non-payment of “interns” only when certain constraints are met. From time to time, providers of online content to web sites, whether paid or unpaid, bring claims that the form of payment provided to them (or the complete lack thereof) violates the FLSA. Levinson v. About.com Inc., 2010 U.S. Dist. LEXIS 108922 (S.D.N.Y. Oct. 7, 2010)(addressing settlement of wage-and-hour class action brought by “guides” for about.com web pages). In a new decision, one Manhattan federal judge has rejected claims brought by three former bloggers for the popular website www.huffingtonpost.com that they were entitled to “assert a claim of unjust enrichment arising from the alleged failure of the defendants to compensate the plaintiffs adequately for adding value to, and thus boosting the purchase price of, The Huffington Post.” Tasini, et al. v. AOL, Inc., et al., S.D.N.Y., No. 11-cv-2472, 03/30/12.

Planitiffs in Tasini did not pursue statutory claims under the FLSA or New York law, rather, they alleged that the Huffington Post engaged in “deceptive business practice” under NY Gen Bus § 349, or, in the alternative, that they were entitled to recover in equity for services rendered. As to the latter claim, the Court, District Judge John G. Koeltl, observed that “Courts applying New York law require a plaintiff to allege some expectation of compensation that was denied in order to demonstrate that equity requires restitution.” Because the Plaintiffs understood the terms of the relationship with the Huffington Post, they could not so allege. As concerned the statutory claim, the Court rejected plaintiffs’ position that they were “consumers” entitled to the protection of the consumer protection law.

Tasini, while a victory for the employer, demonstrates the litigation risks associated with unpaid labor, the terms of which must always be analyzed for compliance with federal and state law.

California Supreme Court Issues Highly Anticipated Ruling Regarding Meal and Rest Breaks

Noel Tripp — Mon, 23 Apr 2012 09:27:56 -0800

Jackson Lewis coverage of the California Supreme Court’s long-awaited decision in Brinker Restaurant Corp. v. Superior Court (Hohnbaum), No. S166350 (Calif. Apr. 12, 2012), addressing the requirements of that State’s meal and rest break statute, California Labor Code § 226.7, is available here.

New York's Highest Court Addresses Liability for Bonuses

Noel Tripp — Thu, 12 Apr 2012 06:27:48 -0800

An unsettled fertile area of litigation in New York has been the circumstances under which various types of incentive compensation—such as bonuses—become “earned” as wages and thus entitled to the protections of the New York Labor Law, which provide greater remedies than common law claims for breach of contract. In a recent decision, New York’s Court of Appeals upheld a lower court’s finding that an employer’s failure to pay one such bonus was a failure to pay earned wages subject to a recovery under the Labor Law, along with the statutory attorney’s fees and interest. Ryan v Kellogg Partners Institutional Servs., 2012 N.Y. LEXIS 545 (N.Y. Mar. 27, 2012).

Ryan concerned an oral promise to pay a bonus to a broker-dealer employee, which a jury found to have been made despite the employer’s statements to the contrary. The Court then reasoned that because the bonus was earned, the failure to pay it violated New York Labor Law.

In finding the bonus claim actionable under the Labor Law, however, the court did not address the Labor Law’s exclusion of exempt executive, administrative or professional employees who earn over $900 per week from bringing Labor Law claims for unpaid wages. See e.g., Malinowski v. Wall St. Source, Inc., 2012 U.S. Dist. LEXIS 11575 (S.D.N.Y. Jan. 31, 2012). Nor did the Court address the potential application of Section 198-c of the Labor Law, which by its terms provides that an exempt executive, administrative or professional employee who earns over $900 per week may not assert a claim for a “wage supplement,” such as a bonus, under the Labor Law.

Entitlement to incentive compensation such as bonuses under New York law continues to be examined largely by reference to contract principals. However, while a claim for such a bonus will stand and fall based on whether a finding of contract is made, the remedies available for a breach are greatly expanded where Labor Law coverage is implicated, as the revised statute now provides for 100% of the amount of liquidated damages, along with attorneys’ fees and interest.

New York Limo Driver Exempt From Overtime Under Motor Carrier Exemption

Noel Tripp — Tue, 10 Apr 2012 13:53:02 -0800

The requirements of the FLSA’s motor carrier exemption have been historically difficult to apply. This is particularly true after the 2005 enactment of SAFETEA-LU, a federal transportation bill that unintentionally modified the definition of a qualifying motor carrier, and the subsequent passage of the 2008 Technical Corrections Act, an amendment to SAFETEA-LU clarifying the latter’s impact on the motor carrier exemption. But some issues are relatively clear. In Fox v. Commonwealth Worldwide Chauffeured Transp. of Ny, 2012 U.S. Dist. LEXIS 45675 (E.D.N.Y. Mar. 30, 2012), the key issue was whether the plaintiff, a full-time chauffeur who drove eight-plus passenger SUVs and vans, was “a worker whose duties directly affected the safety of operation of commercial vehicles used in interstate transportation,” a requirement for the exemption. The Court had little difficulty finding that he satisfied this requirement, as a driver directly affects the safe operation of vehicles on the road. While it has been well settled that “drivers” fall within the exemption, employers must ensure that all other requirements needed to establish the applicability of the exemption are met, navigating the maze of statutory amendments made to the motor carrier exemption since 2005.

EDNY Judge Rules Suggested Gratuity Did Not Factor Into Overtime Calculation and Upholds Validity of Auto-Deduct For Meal Periods

Noel Tripp — Wed, 28 Mar 2012 07:00:07 -0800

As discussed repeatedly in these pages and elsewhere, employers have faced innumerable lawsuits regarding their alleged failure to distribute amounts purported to be gratuities to service staff in their entirety. However, even distributing tip money dollar-for-dollar to service providers is not a panacea against wage claims, as highlighted in a new opinion issuing from the Eastern District of New York’s Brooklyn courthouse. Ellis v. Common Wealth Worldwide Chaueffuered Transp. of NY, LLC, 2012 U.S. Dist. LEXIS 40288 (E.D.N.Y. Mar. 23, 2012).

In Ellis, Judge Dora Irizarry ruled that a “suggested” gratuity paid to a chauffeur did not have to be included in the employee’s regular rate for the purposes of computing overtime under the FLSA or New York Labor Law. The Judge further ruled that the employer’s policy of automatically deducting 30 minutes from the employee’s pay for lunch, and requiring the employee to report any instances of being unable to take such a lunch break, was lawful.

In regard to the gratuity issue, plaintiff alleged that, because the company suggested each customer add a gratuity of 20%, any monies added were not a gratuity under DOL regulations, but rather analogous to a commission which must be incorporated into the regular rate of pay for purposes of computing overtime. The court analyzed the regulations and concluded that, because customers were free to vary from the suggested amount and the employer offered un-rebutted evidence that customers in fact did so, these payments were properly treated as voluntary gratuities, excludable from the regular rate calculation.

In regard to the auto-deduct, the court noted that plaintiff failed to proffer any evidence that he had to work through lunch or that he had notified any managerial employee that he had worked through lunch. Absence of this evidence, in connection with the employee’s signed acknowledgement of a policy requiring him to notify the employer if he did not receive a meal period, was fatal to his claim.

Ellis is a victory for employers, but also a cautionary tale regarding the many ways in which standard wage and hour practices, even those benevolent to employees, can give rise to wage and hour claims.

Debate Over Proposed Amendment to Homecare Exemption Rages On

Noel Tripp — Thu, 22 Mar 2012 09:25:10 -0800

The Department of Labor has extended for a second time the deadline for the public to submit comments regarding its proposed rulemaking relating to the “companionship exemption,” which would eviscerate the exemption from minimum wage and overtime applicable to many home care workers as affirmed and addressed by the Supreme Court in 2007. Currently, while state law may impose greater payment requirements, federal law does not require payment of minimum wage or overtime to home care workers providing companionship services even if they are employed by a third-party agency. The “thousands” of comments received by the Department reflect the tension between efforts to ensure appropriate minimum compensation is paid to such workers and the skyrocketing costs of care experienced by seniors and other recipients of such services, many of whom are reimbursed for such expenses in fixed amounts set by other federal programs.

After the revised notice and comment deadline passes, the Department will have an opportunity to digest the many varying viewpoints expressed through the commentary, and consider any additional revisions to the proposed regulations. “This is at-times difficult work that can require long hours in some circumstances,” observed Jackson Lewis partner and former Administrator of the Wage and Hour Division Paul DeCamp. “However, any rulemaking must take into account the fixed incomes and fixed reimbursement rates confronting retirees, many of whom may be disabled and wholly dependent on this care. The Department may need to consider a more flexible approach, apart from simply gutting the exemption.”

While there are numerous FLSA exemptions of paramount importance to single industries, many codified at 29 U.S.C. § 213(b), perhaps no other industry’s ability to survive financially is more tied to a specific exemption than the homecare industry vis-à-vis the companionship exemption. Watch this space for further developments on all proposed DOL rulemaking.

New York Federal Court Finds Questions of Fact Exist as to Whether "Assistant" or "Co" Managers at Drug Chain Are Properly Classified as Exempt Employees

Noel Tripp — Wed, 21 Mar 2012 11:04:52 -0800

The most recent installment in the continuing saga concerning the exempt status of various managerial titles in the retail industry involves a group of plaintiffs referred to by their employer (the drug chain Rite Aid) as “Co-Managers” and by plaintiffs as “Assistant Managers.” Judge Paul Gardephe of the United States District Court for the Southern District of New York, finding questions of fact as to the applicability of the exemption to this position, recently denied the Defendant’s motion for summary judgment. Gordon, et al. v. Rite AID Corp. et al., S.D.N.Y., No. 09-cv-07665, 03/12/12.

In a lengthy opinion, Judge Gardephe collected and reviewed recent Second Circuit authority regarding applicability of the executive exemption within the retail and food service industries, As to the first named Plaintiff Gordon, the Court concluded that the Defendant had not established the criteria for exempt status as a matter of law, namely “that Gordon’s primary duty was management, that she customarily and regularly directed the work of two or more employees, that she was authorized to hire and fire employees, or that her suggestions and recommendations as to the hiring or firing of employees were given particular weight.” Id. at 27. The Court conducted as separate analysis before arriving at the same conclusion with respect to a second named plaintiff. Id. at 30-31. The Court however rejected Plaintiffs’ request for an injunction preventing Defendant “from engaging in . . . the unlawful practices [alleged in the Complaint],” noting that Defendant had correctly observed that “an action for injunctive relief under the FLSA rests exclusively with the United States Secretary of Labor.”

Appellate guidance regarding the application of the executive exemption test to managers in the retail setting remains limited, and litigation remains a constant concern for retailers, especially in regard to assistant managers classified as exempt. An exemption review, including a periodic review of exempt employees’ actual job duties under federal and applicable state law, should be part of every retailer’s risk management program.

District Judge Finds Therapists to be Exempt Professionals

Noel Tripp — Fri, 16 Mar 2012 04:40:30 -0800

The FLSA “learned” professional exemption requires an individual to perform work requiring advance knowledge in a field of science or learning, and that such knowledge customarily be acquired through prolonged academic instruction. Challenges to the applicability of this exemption often arise in the healthcare industry relating to positions outside the classically recognized professions, e.g., doctors and nurses. Rejecting one such challenge, Judge David Larimer of the United States District Court for the Western District of New York recently ruled that a group of Primary Therapists “in the area of mental health counseling and therapy” for Defendant health system, all of whom were required to possess “a master's degree in social work, mental health counseling, marriage and family therapy, and/or creative arts therapy . . . [and also] secure and maintain state licensure,” properly qualified for the exemption. Levine v. Unity Health Sys., 2012 U.S. Dist. LEXIS 29902 (W.D.N.Y. Mar. 6, 2012).

Rejecting Plaintiffs’ claim that their “lack of authority to make diagnoses or dictate treatment plans took them outside “the realm of ‘learned professional,’” the Court observed that the “duties of PTs undisputedly . . . included direct patient contact and leadership of group therapy sessions.” Because in order to do this work the therapists were required to obtain the specific credentials identified (both the requisite degree and state licensure) the Court concluded that “the undisputed professional credentials that Unity demands of its [Therepists]” supported exempt status. In so ruling, the Court distinguished cases, such as Solis v. Washington, 2011 U.S. App. LEXIS 18668 (9th Cir. Sept. 9, 2011), where the employer was unable to establish that the combined educational, licensure and employer instruction requirements were “sufficiently specialized” to qualify for exempt status.

As we have previously discussed, courts will reject application of the learned professional exemption when a plaintiff demonstrates that she or he uses knowledge in their work acquired other than by prolonged academic instruction in a specialized area. Where a plaintiff cannot make such a showing, the exemption may stand, provided the employee exercises some discretion and independent judgment, a further requirement. As always, state law discrepancies must be considered, such as the New York Labor Law’s absence of a salary basis requirement for the professional exemption.

Ohio Federal Court: USDOL's "New" Interpretation of Loan Officer Status Was Proper

Noel Tripp — Wed, 14 Mar 2012 08:01:21 -0800

Much attention has been paid to the Department of Labor’s March 2010 Administrative Interpretation, which reversed prior DOL opinions and stated that mortgage loan officers do not qualify for the administrative exemption under the FLSA. The Mortgage Bankers Association has filed a lawsuit seeking to invalidate the interpretation as a violation of the Administrative Procedures Act. While that case remains pending in federal court in Washington, D.C, another federal court in Ohio has analyzed the validity of the Administrative Interpretation, at the behest of a defendant bank seeking to defend its exempt classification of loan officers. Lewis v. Huntington Nat'l Bank, 2012 U.S. Dist. LEXIS 32166 (S.D. Ohio Mar. 12, 2012).

In Lewis, the defendant bank proffered two bases, on a motion for summary judgment, for upholding the exempt status of the bank’s loan officers, though neither theory was premised on a ruling that their loan officers expressly met the exempt status test. First, the bank asked the court to rule that, even if loan officers are not ultimately exempt under the administrative exemption, the bank was entitled to rely in good faith on the DOL’s 2006 opinion letter finding loan officers exempt, pursuant to the FLSA’s “good faith” defense, 29 U.S.C. § 259. In the alternative, defendant asked the court to strike the DOL’s Administrative Interpretation as having been issued in violation of the Administrative Procedures Act. As to the first argument, the court found questions of fact existed as to the steps the bank had taken in originally classifying loan officers as exempt (a decision pre-dating the 2006 opinion letter), and also as to the question of whether the defendant’s “actual circumstances matched the circumstances described in the [2006] Letter.” In regard to the validity of the Administrative Interpretation, the court found that, under the APA, it was “well-within [the DOL’s] discretion to issue Opinion Letters and Administrator's Interpretations of the FLSA Regulations,” and also ruled that the Administrative Interpretation is not “inconsistent with the [DOL’s] administratively exemption [sic] regulation.”

The Lewis decision reflects the unfortunate circumstance in which employers of loan officers find themselves in the wake of conflicting guidance issued by the DOL under different administrations. Industry employers will continue to wrestle with classification decisions concerning loan officers and similar positions until clarity is provided by the appellate courts and if necessary the United States Supreme Court. Of course, state law also always must be analyzed in applying any exemptions.

Reminder: The Perils of Interns

Noel Tripp — Tue, 13 Mar 2012 13:07:38 -0800

Since the Fair Labor Standards Act contains no provision contemplating the concept of the unpaid intern, employers often find themselves defending their decision to classify someone who provides services to the company as being outside the protections afforded “employees” under the statute. Such a defense can be challenging, although one vocational school in Tennessee succeeded in just such a defense last year. A refresher on the federal standard for exclusion from “employee” protection as a “trainee” can be found on the Jackson Lewis web site, here.

New DOL Rulemaking Perpetuates Uncertainty Regarding Tips Under the FLSA

Noel Tripp — Fri, 09 Mar 2012 11:08:32 -0800

In 2010, the U.S. Court of Appeals for the Ninth Circuit ruled that if an employer is not taking a tip credit pursuant to 29 U.S.C. § 203(m), the FLSA does not create a property right in employee tips. Cumbie v. Woody Woo, Inc., et al., No. 08-35718 (9th Cir. Feb. 23, 2010). In so doing, the Ninth Circuit rejected DOL’s long-standing enforcement position that tips left for service employees must in fact be retained by those employees regardless of the wage paid to such employees. DOL responded quickly, issuing for public comment new regulations clarifying and bolstering its position with respect to tips. These regulations are the subject of an ongoing litigation in federal court in the District of Columbia concerning their implementation and the notice and comment period that proceeded it. National Restaurant Association, et al v. Solis, et al., D.D.C. Case No. 11-CV-1116.

Despite the pendency of this litigation, DOL has moved aggressively forward with its enforcement position as set forth in the regulations, and on February 29, 2012, issued a new field bulletin memorandum, rejecting the Ninth Circuit’s Woody Woo decision and vigorously reinforcing its position. The bulletin, from Deputy Administrator Nancy Leppink, declares that “The Wage and Hour Division will enforce nationwide the 2011 final rule explaining that a tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit, and that the employer is prohibited from using an employee's tips, whether or not it has taken a tip credit, except as a credit against its minimum wage obligations to the employee, or in furtherance of a valid tip pool.”

“This new DOL guidance simply reiterates the position set forth by the Department in response to the Woody Woo decision and the Ninth Circuit’s rejection of the Department’s interpretation of the FLSA’s tip credit provision,” observes Jackson Lewis partner and former Administrator of the Wage and Hour Division Paul DeCamp. “The disposition of employee tips under the FLSA remains an important issue, particularly in jurisdictions where state law does not create separate limitations on the distribution of gratuities.”

This continued attention to enforcement signals that there remains no end in sight for the beleaguered hospitality industry. Vigilant review of wage practices and constant supervision of their implementation, by managers and staff alike, remain essential to minimizing risk in this area. State law also always must be analyzed.

Fifth Circuit: Nightclub Part Owner's Theoretical "Control" Insufficient to Render Him an Employer

Noel Tripp — Thu, 08 Mar 2012 07:09:50 -0800

While courts analyzing whether or not an individual can be liable as an “employer” under the FLSA generally agree that the appropriate standard should be the “economic realities” of the employment scenario, consensus largely concludes there. While courts focus on whether the individual: (1) possessed the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records, there is a lack of clarity as to whether the alleged individual employer must take an active role in the activities set out by the test, or simply possess the authority to do so (whether exercised or not). In a new opinion, the Court of Appeals for the Fifth Circuit has joined those courts holding that such unexercised authority on the part of an owner does not make that individual an employer under the FLSA. Gray v. Powers, 2012 U.S. App. LEXIS 4111 (5th Cir. Feb. 29, 2012).

In Powers, Defendant Powers was a part owner of the nightclub where Plaintiff Gray was employed, and had supervised the remodeling of the club before it opened. In Plaintiff Gray’s FLSA lawsuit, he sought to hold Powers liable along with the corporate entity that operated the club. Although Plaintiff “admitted in a deposition that Powers was not involved in the club's day-to-day operations” and rarely visited it, he nevertheless alleged that Powers controlled his employment because he was an owner who “on one visit he did tell Gray that he was doing a ‘great job’ [and] . . . on two occasions . . . asked Gray to serve specific people while Powers was a patron at the club.” He further contended that Powers asked him to fill in as general manager after the prior general manager was terminated.

In affirming the dismissal of the claims against Powers on summary judgment, the Court rejected “a status-based inference of control” based on Powers’ position as an officer, and further observed that the “isolated events [of interaction with Powers were] too paltry to support an inference of control.” Since Powers did not set wage rates or maintain records (the third and fourth factors of the economic realities test), he was properly found not to be an “employer.” Id. at * 7-13.

Powers is a victory for employers, as the court recognized that the FLSA does not create unfettered license to pierce the corporate veil and reach individual owners of businesses in wage lawsuits. However, individual liability continues to create potential exposure to business owners, even within the jurisdiction of the Fifth Circuit.

Appeals Court: Bench Trial Findings Regarding Alleged Overtime Hours Were Proper

Noel Tripp — Fri, 02 Mar 2012 07:00:50 -0800

Ascertaining the actual “hours worked” by a plaintiff alleging uncompensated working time is one of a factfinder’s most thankless tasks, requiring the judge or jury to apply prevailing law regarding what constitutes compensable “work” to conflicting testimony regarding when, where and how the plaintiff performed that work, and how much work the plaintiff performed. Such determinations, where made by a judge following a so-called “bench trial”, are reviewed only for clear error, and are unlikely to be overturned on appeal. This deferential standard is evidenced in a new decision upholding a judicial determination that an FLSA Plaintiff did not work the unpaid overtime he alleged. Oldham v. United States Postal Serv., 2012 U.S. App. LEXIS 3784 (6th Cir. 2012).

In Oldham, the non-exempt postal worker Plaintiff asked the Court of Appeals for the Sixth Circuit to review the trial court’s assessment of the evidence and resulting conclusion that it did not establish that: 1) “he commenced work . . . before his scheduled "begin time" and worked beyond his scheduled "end time [during part of his employment]; or 2) the Defendant’s “timekeeping and payroll records [during another period] were inaccurate because he performed work that he was not compensated for during that time.” The appeals court reviewed the record and found that “[t]here was no corroborative testimony from any other . . . employee that suggests that Oldham would regularly arrive to start his workday [prior to the time indicated on his pay stubs]. Given the other testimony at trial, the district court did not clearly err in crediting the testimony of multiple non-party witnesses and the records of the USPS instead of Oldham's own uncorroborated testimony about his arrival time.” In regard to the second assertion, the Circuit ruled that the district court properly relied on Plaintiff’s internally inconsistent testimony regarding his work at multiple post offices during the period at issue, along with impeaching testimony from other witnesses, to conclude that he did not work uncompensated hours not reflected in his time and pay records, as he alleged.

Oldham demonstrates the lengths to which employers can be pushed to defend and literally disprove claims of off-the-clock overtime. The first step, as always, is implementation and enforcement of compliant time-tracking and overtime policies.

NY Senate Approves Repeal of Dreaded "Wage Theft Prevention Act" Annual Notification Requirement

Noel Tripp — Thu, 01 Mar 2012 06:59:26 -0800

Calling the New York Wage Theft Prevention Act’s annual notice requirement a waste of millions of dollars - and 51 million pieces of paper! – New York State Senators yesterday voted to repeal the Act’s annual notice requirement. This narrower repeal, which is limited to the notice provision (and not the other provisions of the Wage Theft Act) and was sponsored by Republican Sen. John DeFrancisco, replaces earlier proposals to repeal the Act in its entirety. The proposal must now be approved by the state Assembly before it can be considered by the Governor. Watch this space for further developments.

Sixth Circuit Clarifies: Salary Must Be Paid to Satisfy Salary Basis Test

Noel Tripp — Fri, 24 Feb 2012 07:35:03 -0800

While it may seem straightforward and not subject to dispute that an exempt employee paid the required “salary basis” must actually receive his or her salary to preserve exempt status, the law, as always, is not so clear cut. In fact, an employer had prevailed in arguing that the actual payment of the salary is not required by the FLSA (which typically concerns itself only with the payment of minimum wages and overtime), only to have that decision now reversed by the Court of Appeals for the Sixth Circuit. Orton v. Johnny's Lunch Franchise, 2012 U.S. App. LEXIS 3344 (6th Cir. 2012).

In Johnny’s Lunch, the administratively-exempt Plaintiff, who worked as Defendant’s Vice President of Real Estate and Site Selection, did not receive his salary for the last months of his employment in 2008, as Defendant suffered financial difficulties. He brought overtime claims under the FLSA, arguing that the failure to pay him any salary meant he was not paid on a salary basis and thus could not be exempt (regardless of his duties). The District Court disagreed, finding him to be an exempt employee based on the allegations contained in his complaint and the fact that he was paid on a salary basis while employed by the employer (even though not necessarily always paid). In reversing, the Sixth Circuit cited two principal errors made by the District Court: one, the USDOL’s 2004 revisions to the FLSA regulations clarified that “employment agreements are no longer the relevant starting point for whether an employee is paid on a salary basis,” and two, by granting Defendant’s motion to dismiss, the District Court failed to properly place the evidentiary burden on Defendant to prove the affirmative defense of exempt status.

It should come as no surprise to the employment community that an individual who is not paid anything for his work likely will be entitled to overtime protections, as set forth in Johnny’s Lunch. At least within the Sixth Circuit, employers will not be entitled to rely on the protection of exempt status (correctly identified by the Sixth Circuit as an affirmative defense, to be established by the employer), where no payments whatsoever have been made for specific workweeks.