Wage & Hour Counsel

Miami-Dade County Enacts New Wage Theft Law

Wage and Hour Practice Group — Thu, 11 Mar 2010 11:13:16 -0800

The County of Miami-Dade in Florida recently enacted a "Wage Theft " ordinance which makes it a crime for an employer to "fail to pay any portion of wages due to an employee, according to the wage rate applicable to that employee, within a reasonable time from the date on which that employee performed the work for which those wages were compensation."

The law defines the term "reasonable time" to mean within 14 days, unless the employer and employee agree in a writing signed by the employee to extend the deadline for payment up to 30 days from the original date . Under the new law, employees owed $60 or more in wages may file a complaint with the county. The county will then serve the employer with notice of the claim and a hearing officer will determine the amount of past wages owed and assess liquidated damages equivalent to double the amount of past wages owed. The new law became effective on February 28, 2010.

This entry was written by Paula Steele.

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

Wage and Hour Practice Group — Mon, 01 Mar 2010 16:01:07 -0800

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

2011 Budget Targets Independent Contractor Misclassification

Governmental Affairs Team — Tue, 02 Feb 2010 15:00:24 -0800

The fiscal year 2011 federal budget (pdf) released on Monday contains provisions to combat misclassification of employees as independent contractors. Included in this $3.8 trillion spending measure is a proposal to be jointly administered by the Departments of Labor and the Treasury to eliminate legal incentives for employers to misclassify their employees. Continue reading about this development on Littler's Washington D.C. Employment Law Update blog.

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

Wage and Hour Practice Group — Wed, 13 Jan 2010 16:23:12 -0800

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

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

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

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

This entry was written by Steven Kaplan.

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

Wage and Hour Practice Group — Wed, 06 Jan 2010 14:36:12 -0800

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

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

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

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

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

This entry was written by Steven Kaplan.

Seventh Circuit Finds Intrastate Drivers Making Wine Deliveries Are Exempt From Overtime

Wage and Hour Practice Group — Tue, 05 Jan 2010 09:30:50 -0800

In Collins v. Heritage Wine Cellars Ltd. (7th Cir., No. 09-1181, Dec. 21, 2009), the Seventh Circuit Court of Appeals analyzed the extent to which drivers who delivered wine exclusively within the State of Illinois were engaged in interstate commerce and, therefore, not entitled to overtime under the Motor Carrier Act exemption to the Fair Labor Standards Act. Specifically, this exemption from overtime applies to employees of a motor carrier if “property ... [is] transported by [the] motor carrier between a place in a State and a place in another State,” provided the employees “engage in activities of a character directly affecting the safety of operation of motor vehicles in the transportation on the public highways of passengers or property in interstate or foreign commerce within the meaning of the Motor Carrier Act.” As the court noted, “[t]he shipment itself must be in some sense interstate commerce (transportation between a place in a state and a place in another state).”

In Collins, drivers working for a wholesale importer and distributor of wine picked up the wine from its employer’s warehouse in Chicago and delivered the wine to retail stores in Chicago and other areas of Illinois. Although the employees never made deliveries outside of Illinois, their employer controlled the wine from the time its independent contractors picked up the wine from the state or country of origin until the time its drivers (the plaintiffs) ultimately delivered the wine to a retail outlet in Illinois. The wine did not undergo any alteration on its trip from the vineyard to a retail store, nor was it subject to any processing, deliberate aging, adding of preservatives, or re-labeling. Rather, “[w]hen the wine arrives at the warehouse, it is taken off the shrink-wrapped pallets on which it is delivered and shelved in the warehouse, period.”

In concluding that the drivers were engaged in interstate commerce bringing them within the Motor Carrier Act exemption from overtime, the Seventh Circuit found that the drivers’ delivery of wine exclusively within Illinois amounted to the last segment of an uninterrupted single interstate shipment originating from the locations where the wine had been produced. According to the Seventh Circuit:

“It seems to us that when a shipper transports his product across state lines for sale by him to customers in the destination state, and the product undergoes no alteration during its journey to the shipper’s customer, and interruptions in the journey that occur in the destination state are no more than the normal stops or stages that are common in interstate sales, such as temporary warehousing, the entire journey should be regarded as having taken place in interstate commerce within the meaning of the Motor Carrier Act’s exemption from the [FLSA]."

As a result, the court affirmed the district court's holding that the drivers were engaged in interstate commerce and, therefore, exempt from overtime under the FLSA.

While at first blush the decision in Collins appears to be favorable to employers, the Seventh Circuit’s conclusion that the drivers were engaged in interstate commerce was limited to the facts before it. Accordingly, employers with drivers who deliver goods within a single state must evaluate the overall process for delivery of goods from start to finish before concluding that the Motor Carrier Act exemption applies.

This entry was written by Jennifer L. Mora.

Photo credit: MobiusDaXter

Developments in State Law from July 1 - December 31

Wage and Hour Practice Group — Tue, 22 Dec 2009 10:25:44 -0800

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

California

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

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

Illinois

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

New York

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

New Jersey

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

State Minimum Wages in 2010

Wage and Hour Practice Group — Mon, 21 Dec 2009 12:11:04 -0800

The federal minimum wage remains unchanged at $7.25/hr. However, various states will either increase or decrease their state minimum wages come January 1, 2010, whereas other states have elected not to change their current rate.

States that are increasing their minimum wage

Alaska
$7.75/hr. Effective January 1, 2010 the minimum wage must be at least fifty cents more than the federal minimum wage. Alaska Statutes, §23.10.065.

Connecticut
$8.25/hr. Effective January 1, 2010, the Connecticut minimum wage will increase from $8.00/hr to $8.25/hr. General Statutes of Connecticut, §31-58.

Kansas
$7.25. Effective January 1, 2010, Kansas’s minimum wage increases from $2.65/hr to $7.25/hr. Kansas General Statutes § 44-1203.

States where the minimum wage will decrease

Colorado

$7.24/hr. The minimum wage is adjusted every January 1st based on the increase in the cost of living. Due to a drop in the cost of living the state minimum wage was decreased from $7.28/hr. Const. of the State of Colorado, Art. XVIII, § 15; Colorado Minimum Wage Order No. 26.

States that have elected not to change their minimum wage

Arizona

$7.25/hr. The minimum wage is increased every January 1st based on the increase in the cost of living. Due to a decrease in the cost of living, there will be no increase for 2010. Arizona Revised Statutes, §23-362.

Florida

$7.25/hr. The Florida minimum wage is recalculated annually on September 30 based on the Consumer Price Index, and is effective the following January 1st. The new Florida minimum wage takes effect unless the Federal rate is greater. Due to a drop in the CPI, the Florida minimum wage remained at the current Federal minimum wage for 2010. Constitution of the State of Florida, Article X, section 24.

Missouri

$7.25/hr. State law requires payment of the above amount or the federal minimum wage, whichever is greater. The minimum wage is increased every January 1st based on the increase in the cost of living. Due to a decrease in the cost of living, there will be no increase for 2010. Missouri Revised Statutes §290.502

Montana

$7.25/hr. State law requires payment of the above amounts or the federal minimum wage, whichever is greater. The minimum wage is increased every January 1st based on the increase in the cost of living. Due to a decrease in the cost of living, there will be no increase for 2010. Montana Code § 39-3-409

Ohio

$7.30/hr. The minimum wage is increased every January 1st based on the increase in the cost of living. Due to a decrease in the cost of living, there will be no increase for 2010. Constitution of the State of Ohio, Art. II, § 34a.

Oregon

$8.40/hr. The minimum wage is increased every January 1st based on the increase in the cost of living. Due to a decrease in the cost of living, there will be no increase for 2010. Oregon Revised Statutes, 653.025.

Vermont

$8.06/hr. The minimum wage is increased every January 1st based on the increase in the cost of living. Due to a decrease in the cost of living, there will be no increase for 2010.
Vermont Statutes Annotated, Tit. 21, § 384.

Washington

$8.55/hr. The minimum wage is increased every January 1st based on the increase in the cost of living. Due to a decrease in the cost of living, there will be no increase for 2010.
Washington Revised Code, §49.46.020(4).

U.S. DOL Intends to Revise FLSA Recordkeeping Requirements

Wage and Hour Practice Group — Mon, 21 Dec 2009 09:30:16 -0800

The federal Department of Labor (DOL) recently announced its intent to revise the regulations governing the recordkeeping requirements imposed on employers by the Fair Labor Standards Act. Specifically, the DOL’s Wage and Hour Division intends to propose revised regulations that would require employers to disclose how many hours were worked in a pay period, how pay has been computed, what deductions are being made, and whether proper time and one-half overtime pay has been included for overtime hours worked for each pay period.

In addition, the proposed regulations would “modernize” certain recordkeeping requirements by allowing for “automated and electronic recordkeeping systems and methods to take the place of mandatory paper records that are currently required in some instances for employees” who work from home.

The DOL anticipates issuing a notice of proposed rulemaking in August of 2010.

This entry was written by Christopher Kaczmarek.

Termination for Good Faith but Mistaken Belief of Overtime Entitlement Violates Public Policy

Wage and Hour Practice Group — Tue, 08 Dec 2009 17:19:31 -0800

In Barbosa v. IMPCO Technologies, Inc., the California Court of Appeals for the Fourth District held that terminating an employee for exercising his statutory right to overtime wages out of a reasonable, good faith belief of entitlement to it, (notwithstanding the subsequent discovery that he was wrong), was contrary to California public policy.

Manuel Barbosa worked as a cell leader supervising a group of up to eight carburetor assemblers for IMPCO Technologies, Inc. After receiving complaints of missing overtime hours from employees he supervised, Barbosa believed he too was owed overtime and informed the company’s payroll administrator about the discrepancy. Barbosa told payroll administrators that he thought there must be something wrong with the time clock. The employees and Barbosa were then credited the overtime hours they sought. Approximately two weeks later, the payroll administrator examined the time cards and determined that no overtime had actually been due. The company’s human resources manager also compared the time cards to a gate scan report and found that employees could not have worked overtime as represented by Barbosa.

Subsequent to the determination that there was nothing wrong with the time clock, human resources, payroll administration and the operations manager called a meeting to discuss the issue of overtime. At the meeting, Barbosa reiterated that he and his employees had in fact worked the extra overtime that he claimed. A week later, Barbosa was terminated for falsifying time records. None of the other employees who received disputed wages was similarly terminated.

In his lawsuit, Barbosa alleged he was terminated because he had made a good faith, albeit mistaken, claim to overtime, not because he had falsified time records. The trial court sided with IMPCO Technologies and found that there was no public policy protecting a mistaken but good faith claim to overtime wages. On appeal, the Fourth District Court of Appeal reiterated that an at-will employee can raise a viable legal claim when his termination violated public policy. The court of appeal then acknowledged that the duty to pay overtime was “a well-established fundamental public policy” and emphasized that an allegation of employer wrong-doing need not be correct to sustain a wrongful termination action.¹ In reversing the trial court’s granting of non-suit to the employer, the court of appeal concluded that Barbosa had presented sufficient evidence (e.g., coworkers’ beliefs that they were owed overtime and errors with previous timekeeping system) to demonstrate that he possessed a reasonable, good faith belief of entitlement to overtime. Accordingly, the court ruled that Barbosa was entitled to a jury determination of whether he had been terminated for asserting his mistaken yet good faith belief that he had a statutory right to overtime or for falsifying time cards.

This entry was written by Stacey James.

¹ Collier v. Supreme Court, 228 Cal. App. 3d 117 (1991) (employee’s good faith but mistaken belief offered protection from employer retaliation in whistleblower context); Green v. Ralee Engineering Co., 19 Cal. 4th 66 (1998) (employee only needed to prove that termination was due to reasonably based suspicions of illegal activity).

Pharmaceutical Sales Reps Qualify for FLSA "Outside Salespeople" Exemption According to Federal Court in Arizona

Wage and Hour Practice Group — Tue, 08 Dec 2009 13:51:36 -0800

In Christopher v. SmithKline Beecham,¹ 2009 U.S. Dist. LEXIS 108992 (D. Ariz. Nov. 20, 2009), a federal district court in Arizona held that pharmaceutical sales representatives (PSRs) were “outside salespeople” and therefore exempt from the overtime provisions of the Fair Labor Standards Act (FLSA).

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

Employers Beware: DOL Investigation and Enforcement Increasing by 33 Percent

Wage and Hour Practice Group — Tue, 01 Dec 2009 14:40:09 -0800

Employers beware! This is the message emanating loud and clear from the Obama Administration's Department of Labor. Secretary of Labor Hilda Solis recently announced that the Department is dramatically increasing its enforcement of federal employment laws with an additional 250 new wage and hour investigators. This influx of new investigators boosts the departmental investigative staff by a full one third.

With this announcement, Secretary Solis promised, "America's workers should rest assured that protecting worker rights is a top priority at the Department of Labor." Her press release warned, "[t]here is no excuse for employers who disregard federal labor standards--especially those that are designed to protect the most vulnerable in the workplace."

Broad Investigative Powers

The Department's Wage and Hour Division investigates allegations that employers failed to pay minimum wage or overtime, as well as alleged misclassification of employees as exempt or independent contractors.¹ DOL investigations can be triggered by complaints from employees, unions, or competitors, and routine audits also can be performed, often focusing on a particular industry or type of employer.

The Department has broad investigative powers, including the power to subpoena employment records. Assuming wage and hour violations are discovered, the Department will seek a settlement. If an out-of-court agreement is not reached, the Department can sue to enjoin an employer's violation of the law as well as to compel the payment of back pay to all employees. The Department also has the power to seek reinstatement with back pay of any individual employee who was discharged for attempting to enforce the law.

Should the Department bring suit and prevail, it will recover liquidated damages equal to the unpaid wages the employer owes, unless the employer can prove that it acted in good faith with a reasonable belief that its pay practices complied with the law. Interest and attorney's fees are likely to be awarded as well, even if liquidated damages are not.

Significant Settlements

The threat of such enforcement actions can result in employers agreeing to settlements that provide significant recoveries. For instance, in July 2009, the Department announced a settlement of almost $750,000 with a convenience store chain in nine states accused of failing to properly include performance-related bonuses in the regular rate used to calculate overtime pay.

The Department also is planning a "public awareness campaign" to inform workers of their "rights," which presumably also will assist the Department in finding errant employers to investigate and prosecute.

Wake-Up Call

The federal government's increased manpower and desire to enforce federal labor standards should be a wake up call to United States employers to ensure that their procedures and practices comply with federal labor laws.

Audits conducted by or through counsel can catch technical problems with pay practices, recordkeeping, and employee classification that can be corrected to reduce exposure. Training of managers in employment laws such as when overtime is required can avoid violations caused by managers' ignorance of legal obligations.

These proactive steps can save employers the expense and embarrassment of reacting to a government investigation or a costly class action.

This entry was written by Alison Hightower.

¹ The Wage and Hour Division also governs the hours and conditions for employment of children under 16 years old and it enforces the labor standards provisions of the Immigration and Nationality Act (INA) that apply to aliens authorized to work in the U.S. under certain nonimmigrant visa programs.

Staffing Companies Face Potential Exposure For Interview Time

Wage and Hour Practice Group — Wed, 04 Nov 2009 17:12:12 -0800

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

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

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

This entry was written by Michael McCabe.

The U.S. Department of Labor Urges Second Circuit to Deny FLSA Overtime Exemptions to Pharmaceutical Sales Representatives

Wage and Hour Practice Group — Fri, 23 Oct 2009 14:48:40 -0800

On October 14, 2009, the U.S. Department of Labor (“DOL”) filed an amicus brief in a case pending before the Second Circuit Court of Appeals, In Re Novartis Wage and Hour Litigation, arguing for a stricter interpretation of “outside salesperson” and “administrative employee” exemptions under the federal Fair Labor Standards Act, as applied to pharmaceutical sales representatives. In its brief, the DOL maintains that pharmaceutical sales representatives neither “make sales” nor exercise sufficient discretion to qualify for the exemptions from overtime compensation, urging the Court of Appeals to reverse the district court’s defense judgment below. See In Re Novartis Wage and Hour Litig., 593 F. Supp. 2d 637, 640 (S.D.N.Y. 2009).

In Re Novartis is a consolidated class action brought by Pharmaceutical Sales Representatives (“Reps”) from California, New York and other states against Novartis Pharmaceutical Corporation, one of the largest drug manufacturers in the United States. Claiming that they were misclassified as exempt employees, the Reps seek overtime wages for hours worked in excess of 40 hours in a workweek.

The Meaning of “Sales”

In the first of two justifications for its defense judgment, the district court held that Novartis Reps met the requirements of the outside salesperson exemption. Under Section 13(a)(1) of the FLSA, “any employee employed . . . in the capacity of outside salesman” is exempt from the overtime pay requirement. 29 U.S.C. 213(a)(1). DOL regulations define “outside salesman” as any employee “whose primary duty is making sales” while “customarily and regularly engaged away from the employer’s place or places of business in performing such duty.” 29 C.F.R. § 541.500(A).

The parties do not dispute that Novartis Reps were employed “away from the employer’s place of business.” The real issue before the Second Circuit is the meaning of “sales.” The DOL’s brief draws a fine line distinction between the alleged promotional activities of the Reps and actual sales under the FLSA. The latter occurs only when consideration is paid by the client or customer, according to the DOL. Reps do join Novartis’ “sales force” and receive training in both sales techniques and pharmacology. However, FDA regulations bar Reps from selling drugs directly to physicians. Instead, Reps seek to persuade physicians to write prescriptions for Novartis products, ideally resulting in a “close,” i.e., obtaining a physician’s verbal commitment to prescribe Novartis drugs when appropriate. As part of Novartis’ incentive program, between 15% and 25% of the Reps’ salary comes from commission on the number of prescriptions written by physicians within the Reps’ territory. The average salary after incentives is $91,500. Though the DOL admits that the Reps’ duties “bear some of the indicia of sales,” it nevertheless objects to their classification as outside salespersons. In short, unless the Reps actually “make sales,” they do not qualify for the exemption, according to the DOL.

The Degree of “Discretion”

The lower court also held that that “even if [the Reps] are not outside salespersons, they are administrative employees and are still exempt.” In Re Novartis, 593 F. Supp. 2d at 640. The “administrative employee” exemption applies only to employees who exercise discretion and independent judgment with respect to matters of significance. 29 C.F.R. § 541.200(a)(3).

In challenging the lower court’s ruling on the “administrative employee” exemption, the DOL urges the Second Circuit to interpret “discretion and independent judgment . . . in the light of all the facts involved in the particular employment situation in which the question arises.” In so doing, the DOL stresses that Reps must follow a prepared script when contacting target physicians, and they are prohibited from deviating from the “core message” in the marketing pitch. Novartis limits dissemination methods to certain pre-approved materials, including drug samples, pamphlets, clinical studies, and visual aids. When presented with the same facts, however, the lower court criticized the plaintiff Reps for characterizing themselves as “mere ‘robots’ or ‘automatons.’” The lower court found that the Reps exercise sufficient discretion in deploying the core messages and supporting materials. For instance, Reps tailor their presentations to the physician’s schedule, patient base, prescribing habits, and even personality. They also set their own daily call schedules, and use personal entertainment budgets to host informational events for physicians on their target lists.

The DOL argues that the district court’s ruling on the administrative exemption is “unpersuasive in its attempt to ‘back-fit’ the FLSA regulations into the pharmaceutical industry’s practices.” However, as noted by the lower court, “[c]ourts routinely hold that employees may exercise discretion and independent judgment, even when they carry out their duties within the confines of a highly regulated industry.”

This entry was written by Michael Harvey.

Photo credit: Tom Varco

Mortgage Lender's Reasonable Reliance on DOL Opinion Letter Constitutes Good Faith

Wage and Hour Practice Group — Tue, 13 Oct 2009 13:50:35 -0800

On September 30, 2009, the United States District Court for the Eastern District of Michigan, in Henry v. Quicken Loans, Inc., 2009 WL 3199788, held that a mortgage lender-employer acted in good faith when it demonstrated that it had reasonably relied upon the September 2006 U.S. Department of Labor Opinion Letter when determining whether its loan officers qualified for the “administrative exemption” to the Fair Labor Standard Act and were therefore ineligible for overtime.

As discussed previously, the issue was initially determined in July by a federal magistrate judge who ruled that an employer’s reasonable reliance on the September 2006 DOL Opinion Letter, as established through affidavit testimony of corporate executives, constituted good faith as a matter of law. This ruling, contained in the magistrate’s report and recommendation, was adopted and confirmed by the district court and, therefore, the employer faces no liability for potentially misclassifying its loan officers from the date of the DOL letter, September 8, 2006, onward. The court also adopted the magistrate’s decision denying the parties’ cross-motions for summary judgment on the merits of the employer’s affirmative defense, based upon the exemption.

This entry was written by Andrew Voss.

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

Wage and Hour Practice Group — Thu, 08 Oct 2009 13:58:39 -0800

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

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

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

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

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

This entry was written by Brian Mosby.

New Jersey Department of Labor Authorizes Deductions for Health Club Memberships and Child Care Services

Wage and Hour Practice Group — Wed, 07 Oct 2009 12:08:45 -0800

Effective September 21, 2009, the New Jersey Department of Labor and Workforce Development, Division of Wage and Hour Compliance, adopted a new rule allowing employers to make payroll deductions for health club membership fees or for child care services if payment is authorized in writing by an employee or pursuant to a collective bargaining agreement and approved by the employer. In promulgating this new rule, the Department of Labor amended New Jersey Administrative Code § 12:55-2.1, which sets forth the very limited circumstances in which an employer may make a payroll deduction.

New Jersey also permits employers to make payroll deductions that are:

authorized by state or federal law;
authorized in writing by the employee or pursuant to a collective bargaining agreement as contributions to welfare, insurance, hospitalization, medical, pension, retirement, and profit-sharing plans, etc., on behalf of the employee, his or her spouse, or both;
authorized as contributions either in writing by the employee or under collective bargaining agreement for payment into company-operated thrift plans, or security options, or security purchase plans to buy securities of the employing corporation or other corporations, provided the securities are listed on the stock exchange or are marketable over the counter;
approved by the employee as payment into the employee’s personal savings account, credit union, saving fund society, savings and loan or building and loan association, and payments to banks for Christmas, vacation, or other savings funds, provided all deductions are approved by the employer;
owed as payments for company products or loans, payments for safety equipment, purchase of U.S. government bonds, and/or payments to correct payroll errors, provided all deductions are approved by the employer;
authorized as contributions to recognized charities, provided deductions are approved by the employer;
authorized by the employee or collective bargaining agent as payments for rental, laundering, or dry cleaning of work clothing or uniforms, provided all deductions are approved by the employer;
permitted as union dues, initiation fees, or other charges;
authorized in writing by the employee, pursuant to collective bargaining agreement to a political committee, continuing political committee, or both, established by the employee’s labor union for the purpose of making contributions to aid or promote nomination, election, or defeat of any candidate for public office of a state or of a county, municipality, or school district, or passage or defeat of any public question;
authorized in writing by the employee to any political committee or continuing political committee, for purposes of making contributions to aid or promote the nomination, election, or defeat of any candidate for public office of a state or of a county, municipality, or school district, or passage or defeat of any public question (administrative expenses in making a payroll deduction shall be borne by the committee, at the option of the employer);
authorized by the employee for employer-sponsored programs for purchase of insurance or annuities on a group or individual basis, if otherwise permitted by law; or
authorized as a deduction by Commissioner of Labor, by regulation, if approved by the employer.

This entry was written by Michael Grosso.

Update: California Supreme Court Will Not Review Starbucks' Appellate Victory in $86 Million Tip Case

Wage and Hour Practice Group — Tue, 15 Sep 2009 17:13:58 -0800

On September 9, 2009, the California Supreme Court declined to review an appellate court order reversing an $86 million trial award against Starbucks. As discussed in detail in our earlier blog entry, in Jou Chau v. Starbucks Corporation, the court of appeal reversed the trial court's award to a certified class of Starbucks "baristas" who had challenged Starbucks’ tip policy on the ground that certain service employees, known as “shift supervisors,” had improperly shared in the customer tips left in a collective tip box. Since a denial of review by the California Supreme Court is done without comment, it is hard to predict what this means for other tip pooling cases. However, it is important to remember that the appellate court made a clear distinction between a collective tip box and service companies that pool tips. According to the appellate court, the Starbucks policy passed muster because (1) “shift supervisors” were part of the “team” of employees who provided service to the customers (along with baristas) and (2) a collective tip box was used.

This blog entry was authored by Matthew Marca.

Massachusetts Court Ruling Expands the Scope of Damages Available to Employees Misclassified as Independent Contractors

Wage and Hour Practice Group — Thu, 03 Sep 2009 13:04:31 -0800

On August 21, 2009, the Massachusetts Supreme Judicial Court unanimously ruled that a worker who has been misclassified as an independent contractor may seek damages from his former employer even if the employer establishes that the worker would have been paid less had he been classified as an employee.

The plaintiff in Somers v. Converged Access , 454 Mass. 582 (2009) worked for a software company as a quality assurance engineer. He was classified as an independent contractor and, as a result, did not receive overtime, vacation pay, or benefits. The company paid him at a rate of $65 per hour. The plaintiff initially agreed to work for a sixty-day term. He later agreed to a ninety-day extension of that term.

The plaintiff subsequently applied for a permanent quality assurance engineer position. After the company did not select him for the position, the plaintiff brought suit claiming, among other things, that he had been misclassified as an independent contractor.

The trial court granted the employer’s motion for summary judgment on all counts. On the misclassification claim, the trial court judge found that there was a genuine issue of material fact as to whether the plaintiff had been classified properly as an independent contractor. The employer argued however, that the plaintiff had not suffered any damages because if it had hired the plaintiff as an employee, he would have received a far lower hourly rate of pay than the $65 per hour that he received as a contractor. The employer argued that unless the court subtracted the compensation the plaintiff had received as an independent contractor from the compensation he would have received had he been hired as an employee, the plaintiff would receive a “windfall.” The trial court agreed with the employer’s argument and concluded that the plaintiff had not suffered any damages. Accordingly, the court entered summary judgment for the employer.

On appeal, the question before the Massachusetts Supreme Judicial Court was how to measure the damages available to an employee who has been misclassified as an independent contractor. In a unanimous opinion written by Judge Gants, the court’s newest member, the court held that the trial court erred when it concluded that the plaintiff had not suffered any damages. Indeed, the court specifically rejected the employer’s argument that the damages incurred by an individual who has been misclassified as an independent contractor should be measured by subtracting the compensation the individual received as an independent contractor from the compensation the individual would have received had he been hired as an employee. In rejecting this argument, the court noted that the independent contractor law is a “strict liability statute” and, therefore, the employer’s intent in classifying a worker is irrelevant.

Instead, according to the court, the damages incurred by the plaintiff “equal the value of wages and benefits he should have received as an employee, but did not.” As a result, the plaintiff can recover the value of the holiday pay, vacation pay, and other benefits that he would have been entitled to as an employee. Further, unless the employer can establish that the plaintiff was exempt from the overtime requirements of state and federal law, the plaintiff is entitled to recover overtime “based on his hourly wage of sixty-five dollars.” Thus, the decision effectively expands the scope of damages available to those who have been misclassified as independent contractors under Massachusetts law.

For an in-depth discussion and guidance on this development, see Littler ASAP, Massachusetts Court Ruling Expands the Scope of Damages Available to Employees Misclassified as Independent Contractors.

This blog entry was authored by Christopher Kaczmarek.

DLSE Agrees California's Partial-Week Furlough Options Are Coextensive With Federal Law

Wage and Hour Practice Group — Tue, 01 Sep 2009 14:35:55 -0800

An important new opinion letter from the California Division of Labor Standards Enforcement (DLSE), issued on August 19, 2009, conforms California’s approach to furloughing salaried “white collar” exempt employees with the federal approach. The opinion approved an employer’s request to reduce its exempt employees’ scheduled work days from five to four days per week, along with a corresponding reduction in salary. This approach was designed to address the employer’s significant but temporary economic difficulties, with the expectation that as soon as business conditions permitted, the employer would restore the full five-day work schedule and the full salaries of its exempt employees. This opinion withdraws a prior DLSE opinion that had concluded that federal and California law “precludes an employer from reducing the salary of an exempt employee during a period when a company operates a shortened workweek due to economic conditions.” DLSE Opinion 2002.03.12 at p. 5.

For an in-depth discussion and guidance on this development, see Littler ASAP, DLSE Agrees California’s Partial-Week Furlough Options Are Coextensive With Federal Law.

This blog entry was authored by Dan Thieme and Alison Hightower