Wage & Hour Counsel

Pharmaceutical Sales Reps Are Exempt Administrative Employees, Seventh Circuit Holds

Wage and Hour Practice Group — Wed, 16 May 2012 09:28:22 -0800

The Seventh Circuit has weighed in on the employers’ side of the pharmaceutical sales representative exemption issue, finding that pharmaceutical sales representatives at Abbott Laboratories, Inc. and Eli Lilly & Company were properly classified as exempt under the administrative exemption to the overtime requirements of the Fair Labor Standards Act (FLSA). In Schaefer-LaRose v. Eli Lilly & Co., the Seventh Circuit issued a consolidated opinion in two cases in which the district courts had reached opposite results, with one court ruling in favor of the plaintiffs and the other ruling against. To read more about the Seventh Circuit's decision and its implications for employers, please continue reading at Littler's Healthcare Employment Counsel.

Seventh Circuit Concludes that "Travel Time" Following Clothing Change Is Not Compensable, Setting Up a Circuit Split

Wage and Hour Practice Group — Tue, 15 May 2012 14:00:31 -0800

By Andrew Voss

In a case that explicitly acknowledges a consequential circuit split, the Seventh Circuit Court of Appeals has concluded that the time that an employee spends walking from the locker room to his work station after changing into work clothes is not compensable if the applicable collective bargaining agreement does not require compensation for the time spent changing clothes. Sandifer v. United States Steel Corporation, Nos. 10-1821, 10-1866 (7th Cir. May 8, 2012). The Seventh Circuit’s decision acknowledges a contrary holding in Franklin v. Kellogg Co., 619 F.3d 604 (6th Cir. 2010), but concludes that the Sixth Circuit was “clearly wrong.” The Seventh Circuit also considered and rejected the Department of Labor’s position, as articulated in recent opinion letters and in a brief filed as amicus curiae on the plaintiffs’ behalf, finding that the Department’s “gyrating agency letters” offered little to assist the court in its deliberations other than a political perspective on the law, and therefore were entitled to no deference.

The case focuses on the impact of Section 3(o) of the federal Fair Labor Standards Act, 29 U.S.C. § 203(o), which excludes “any time spent in changing clothes or washing at the beginning or end of each workday” from working time, if such time is excluded by the express terms or by custom or practice under a bona fide collective bargaining agreement. U.S. Steel’s hourly employees complained that they were owed additional wages for time spent putting on and taking off protective gear in a locker room, and walking to and from the locker room to their work stations. The applicable collective bargaining agreements did not require compensation for changing clothes, and the district court found that the exclusion under Section 3(o) applied. The court determined that the travel time to the employees’ work stations may be compensable, however, but certified the issue for appeal. The Seventh Circuit accepted the appeal.

In its opinion, the Seventh Circuit first concluded that the district court correctly decided that the protective gear worn by U.S. Steel employees consisting of flame-retardant pants and jacket, work gloves, work boots, a hard hat, safety glasses, ear plugs and a hood, were plainly work clothes for the most part, and therefore “clothes” under the Act. To the extent the hard hat, glasses, and ear plugs were not technically “clothes,” the court summarily dismissed an argument that putting on this particular equipment qualified as compensable “work” because the time spent in such activity was de minimis. Accordingly, U.S. Steel was not required to compensate its employees for the time spent changing into and out of work clothes.

If clothes-changing time was not compensable, the Seventh Circuit decided that to require the employer to pay for the travel time – walking between the locker room and the work station – was “puzzling and paradoxical.” The court noted that the Portal-to-Portal Act, 29 U.S.C. § 254, rendered time spent “walking, riding, or traveling” to and from the place an employee performs his “principal activity” non-compensable. If Section 3(o) had not applied, thereby making clothes-changing time compensable as a principal activity, the travel time would likewise have been compensable. But here, the employer and union had decided that clothes-changing time was not work time, and therefore need not be compensated. Therefore, changing clothes could not be a “principal activity” that the employee was employed to perform.

The Seventh Circuit noted the Supreme Court’s decision in Steiner v. Mitchell, 350 U.S. 247 (1956), holding that when an employer requires an employee to don and doff work clothes at the workplace, then donning and doffing are integral and indispensable to the employee’s primary duty, and therefore compensable under the Act. The Supreme Court’s decision in IBP, Inc. v. Alvarez, 546 U.S. 21 (2005), extended this holding to conclude that time spent walking from a principal activity (changing clothes) to a work station is likewise compensable, and not within the exemption created by the Portal-to-Portal Act. But the Steiner Court noted the significance of the fact that there was no collective bargaining agreement in place that would make clothes-changing time non-compensable in that case. Section 3(o) permitted the parties by agreement to take clothes-changing time outside the scope of the employee’s “principal activity,” which is exactly what U.S. Steel and its unions had done. Because clothes-changing was non-compensable and not a “principal activity,” walking to the employees’ work stations was likewise non-compensable under section 254. The Seventh Circuit further grounded its analysis in the stated legislative purpose for enacting the Portal-to-Portal Act in 1947, and Congress’s concern with the disruption of the workplace caused by a series of Supreme Court decisions that had forced employers to compensate for travel time and clothes-changing time.

Finally, the Seventh Circuit acknowledged the shifting positions articulated by the U.S. Department of Labor on the meaning of the term “clothes” in Section 3(o) of the Act, and the compensability of travel time under these circumstances. During the Clinton Administration, the Department took a narrow view of the term, but broadened its definition in a subsequent opinion letter issued during the Bush Administration. After the change in administrations in 2009, the Department reverted to its earlier position, and also rejected the Bush Administration’s position on “principal activity.” Although “[s]uch oscillation is a normal phenomenon of American politics,” the Seventh Circuit found nothing in the Department’s position that could assist the court in determining the legal question – other than an echo of the plaintiff’s arguments and a noted disagreement with the previous administration’s position. Under these circumstances, the court concluded that it owed no deference to the Department’s interpretation of the statute.

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Tennessee Allows Tipped Employees to Waive Meal Breaks

Wage and Hour Practice Group — Tue, 01 May 2012 14:20:32 -0800

By Christopher Anderson

The Tennessee General Assembly recently amended the state’s meal and rest break law to require meal breaks for tipped employees in the food and beverage industry. Fortunately, the new law also allows tipped employees to waive their right to meal breaks as long as employers follow a very specific process.

Under Tennessee law, employers must grant employees a 30-minute unpaid meal break unless the nature of the business provides “ample opportunity [for employees] to take an appropriate meal break.” Before the recent amendment, Tennessee employers in the food and beverage industry were not obligated to grant rest breaks to their tipped employees. In the interest of providing regulatory guidance to employers in the industry, the Tennessee Department of Labor determined that waiters and waitresses fall within the exception to the meal break requirement because, by the nature of the business in which they work, there is ample opportunity to take a meal break. As a result of the Tennessee DOL’s guidance, employers in the food and beverage industry were able to avoid disruptions in service caused by meal breaks and provide the uninterrupted attention that is vital to customer satisfaction.

The recent amendment, however, supersedes the Tennessee DOL’s guidance and requires employers in the industry to provide meal breaks to all tipped employees in the service of food or beverages to customers. Realizing that unpaid meal breaks may be unpopular in the industry, the Tennessee General Assembly inserted a provision in the new law that allows tipped employees to waive their rights to unpaid meal breaks by signing a waiver request form. To obtain a valid meal break waiver, an employer must develop a waiver request form that acknowledges an employee’s right to an unpaid meal break and allows the employee to knowingly and voluntarily waive that right.
In addition to providing a valid waiver request form, the employer also must post in at least one conspicuous place in the workplace a reasonable policy that permits employees to waive their meal breaks subject to the demands of the work environment. The employer’s meal break waiver policy must contain the employer’s waiver form, must identify the length of time the waiver will be effective, and outline the procedure for rescinding the waiver agreement. For a waiver to be valid, the employee must submit the waiver request knowingly and voluntarily and both the employer and employee must consent to the waiver. In other words, the employer cannot coerce the employee into waiving a meal break.

The amendments become effective on May 16, 2012, and directly and significantly impact industry employers whose tipped employees may wish to waive their rights to meal breaks.

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The Supreme Court Weighs Overtime for Pharmaceutical Representatives

Wage and Hour Practice Group — Mon, 16 Apr 2012 15:46:31 -0800

By Libby Henninger

The U.S. Supreme Court heard oral arguments today in Christopher v. SmithKline Beecham Corp., a case to determine whether pharmaceutical sales representatives (PSRs) qualify for the outside sales exemption under the federal Fair Labor Standards Act (FLSA). The Supreme Court’s opinion will settle a split between the Second and Ninth Circuits in which the Second Circuit held that PSRs are not making sales under the FLSA and – in the underlying case – the Ninth Circuit held that they are, qualifying them as outside sales employees. A broader issue to be decided by the Court is the level of deference owed to a regulatory agency that announces new substantive positions through amicus curiae filings. Here, the Second Circuit’s opinion was largely based on a position taken by the Department of Labor (DOL) through an amicus brief where it advocated that the PSRs do not qualify for an exemption to the FLSA’s overtime requirements. The Ninth Circuit rejected the DOL’s position, finding it need not be afforded deference under Auer v. Robbins, 519 U.S. 452 (1997).

During Monday’s hour-long oral argument, the justices engaged in lively questioning over the application of the exemption in the pharmaceutical industry. One important point of discussion revolved around the PSRs’ ability to obtain assurances from doctors to prescribe their drugs. Attorney Thomas Goldstein represented the PSRs and argued that because PSRs do not receive binding or written commitments from physicians to prescribe medications, they do not engage in sales under Section 3(k) of the FLSA. While Chief Justice Roberts agreed that physicians merely tell the PSRs that they will consider using their products in relevant medical situations, Justice Scalia raised the point that the particularities of selling in the pharmaceutical industry should be taken into account, noting that “these people look like salesmen to me.” Respondent SmithKlineBeecham’s counsel, former Solicitor General Paul Clement, argued that the PSRs in fact are engaged in “sales” because they obtain binding commitments from doctors and that these commitments can be oral. Mr. Clement further argued that extending the DOL’s position to the industry as a whole would end in an illogical result as pharmaceutical sales representatives selling medical devices to doctors would be exempt, but representatives selling drugs would not.

Faced with massive and unexpected liability – estimated by many to be in the billions – the justices also expressed concerns over DOL’s use of amicus briefs to declare new policies. Justice Breyer questioned whether the Secretary of Labor even weighed in before the new position was advanced by the lawyers in the Solicitor’s Office of the DOL. He further indicated that the DOL should have first engaged in administrative notice-and-comment rulemaking, giving all affected parties notice before changing course on the exempt status of the PSRs. Justice Scalia asked whether it was the DOL’s policy making program to “run around the country” and make new regulations through amicus briefing. Department of Justice Deputy Solicitor General Malcolm Stewart, arguing on behalf of the United States, admitted that the DOL had received a request for an opinion letter in 2007, inquiring as to whether PSRs were outside salesmen, but that it never responded. Justice Scalia stated that he found it “extraordinary” that the DOL was going to come in – without engaging in any prior enforcement actions or issuing any agency guidance on the issue – and proclaim that 90,000 people are now owed retroactive overtime. One final point made by Mr. Clement – and echoed by Justice Ginsburg – was that, even if it is found that the PSRs do not meet the outside sales exemption requirements, the issue is not fully resolved as the position could still qualify for the administrative exemption under the FLSA. The application of the administrative exemption is not currently at issue before the Supreme Court.

This case has far reaching implications as there are over 90,000 PSRs employed by the pharmaceutical industry. In addition, the case will likely have a broader impact on the manner in which an agency can announce new positions. A decision is expected by the end of June. We will prepare a complete analysis of the decision once it is issued.

To learn more about the case and its potential implications for employers, please see Littler's ASAP, Supreme Court to Decide Significant Case on the Outside Sales Overtime Exemption, by Richard Black and Bradley Strawn.

Photo credit: Schulte Productions

California Employers Win on Interpretation of Their Duty "To Provide" Meal Periods

Wage and Hour Practice Group — Thu, 12 Apr 2012 11:38:01 -0800

By Julie Dunne and Alison Hightower

The California Supreme Court’s much-anticipated decision regarding how employers are supposed to manage meal periods and rest breaks is finally here! The unanimous decision in Brinker Restaurant Corporation v. Superior Court was issued today, and it is largely a win for California employers. Littler will sponsor webinars providing a detailed analysis of the decision on April 17, 2012, from 10 to 11 a.m. PST, and on April 26 from 10 to 11 a.m. PST. In the meantime, here are the highlights.

Duty to Relieve Employees of Duty

The California Supreme Court held that an employer must relieve employees of all duty during their meal period, with the employee thereafter at liberty to use the meal period for his or her own purpose. Importantly, the court rejected the plaintiffs' argument that the California Wage Order requires employers to ensure that no work is done during an employee’s meal period. If an employee continues to work after the employer relinquishes control, the employer will be liable for straight pay only when it knew or reasonably should have known that the worker was working through the authorized meal period. The court thus clarified that premium pay (an extra one hour’s wage) is not owed when the employer relinquishes control and the employee nevertheless continues to work.

Timing of Meal Periods

The California Supreme Court further held that employers must provide meal periods in accordance with the applicable Wage Order within the first five hours of a work shift. The court rejected the plaintiffs' argument that a meal must be provided every rolling five hours of work. Consequently, the first meal must be afforded no later than the end of the employee’s fifth hour of work (or no later than the start of an employee’s sixth hour of work), and a second meal period no later than the end of an employee’s 10th hour of work.

Rest Breaks

Regarding rest breaks, the Brinker court held that a “major fraction” of a four-hour work period is anything more than two hours over and above the prior four-hour work period. Consequently, the rest break rules now mean: an employee who works a shift of only 3.5 hours or less is entitled to no rest break; an employee who works 3.5 to 6 hours is entitled to one 10-minute rest break; an employee who works more than 6 and up to 10 hours is entitled to two 10-minute rest breaks, and an employee who works more than 10 and up to 14 hours is entitled to three 10-minute rest breaks.

In terms of the timing of rest breaks, the court sided with Brinker, holding that employers are “subject to a duty to make a good faith effort to authorize and permit rest breaks in the middle of each work period, but may deviate from that preferred course where practical considerations render it infeasible.” The court rejected the plaintiffs' contention that the rest period must in all situations be provided before the meal period.

Class Certification

The California Supreme Court clarified the trial court’s approach to determining whether to certify meal period and rest break claims. The court found it was error for the Court of Appeal to reverse class certification on the basis that rest breaks can be waived because Brinker’s uniform policy itself was alleged to violate the law. As for the meal period class, the court remanded to the trial court to reconsider its certification. Because the trial court used a class definition that assumed that Brinker was required to provide a meal period for every rolling five hours of work, the trial court must now reconsider whether the meal period claims should be certified in light of the clarification of the law now provided.

As a result, under certain circumstances class claims of meal and rest break violations may be certifiable. However, because it is now clear that employers must only make an off-duty meal period available and must simply authorize and permit rest breaks, meal period and rest breaks claims should be much more difficult to certify because of the individualized questions of fact those claims raise, assuming that the employer has legally compliant policies.

Compliance is Key

Importantly, the California Supreme Court did not address whether its decision should be applied on a prospective basis only, apparently leaving the argument open for parties to litigate in their individual cases. Employers should therefore immediately review their meal period and rest break policies and make any modifications necessary to reflect the Brinker court’s rulings today, and train their employees about the meal period and rest break policies as soon as possible.

For an even more detailed examination of the Brinker decision and its implication for employers, please see Littler’s ASAP, California Supreme Court Clarifies Employer Meal & Rest Period Duties, by Julie Dunne and Alison Hightower.

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Briefs Filed in Supreme Court Case Concerning Outside Sales Exemption

Wage and Hour Practice Group — Thu, 22 Mar 2012 11:16:24 -0800

Earlier this week, GlaxoSmithKline PLC, formerly known as SmithKline Beecham Corporation, filed its brief in the U.S. Supreme Court in Christopher v. SmithKline Beecham Corporation, one of the only Supreme Court cases to address the overtime exemptions under the Fair Labor Standards Act, and the first to address the criteria for the outside sales exemption. At issue is whether pharmaceutical sales representatives qualify for the outside sales exemption because pharmaceuticals are generally purchased by end-users at pharmacies, which purchase from wholesale distributors. The Court's decision may have far-reaching implications, not only for the pharmaceutical industry, but also for other industries that depend on representatives to call on customers at their place of business to generate sales, although the actual sales orders are placed by customers through a centralized order and distribution center or similar process. The case is also significant because it may determine the extent to which courts are required to defer to U.S. Department of Labor's changing interpretations of federal employment statutes and regulations. To learn more about the case and its potential implications for employers, please continue reading Littler's ASAP, Supreme Court to Decide Significant Case on the Outside Sales Overtime Exemption, by Richard Black and Bradley Strawn. To learn more about how the case progressed through the courts, please see our previous posts on the trial court decision, the appellate court decision, and the Supreme Court agreeing to review and resolve the matter.

New Jersey Restores Its Exemption for Commissioned Sales Employees

Wage and Hour Practice Group — Fri, 09 Mar 2012 11:19:00 -0800

By Jeanne Barber

As we reported earlier, the New Jersey Department of Labor and Workforce Development (DLWD)amended its wage and hour regulations in September 2011 to eliminate inconsistencies between state and federal overtime law. In so doing, the DLWD inadvertently omitted the exemption for commissioned sales employees, commonly referred to as the “inside sales” exemption, from the amendment. The DLWD’s mistake, which it acknowledged was inadvertent, potentially put employers at risk for misclassification lawsuits.

Now, however, the DLWD has corrected its error, and on February 21, 2012, the exemption was fully restored. The regulation now defines “administrative” employee to include an employee whose: (1) primary duty is sales; (2) total compensation is comprised of at least 50% commissions; and (3) total compensation is $400 or more per week.

Notably, the restored New Jersey “inside sales” exemption differs from the exemptions available under federal law. As a result, employers should carefully analyze whether their commissioned sales employees qualify as exempt under both state and federal law.

U.S. Department of Labor Releases Bulletin on Tip Credit Regulations

Wage and Hour Practice Group — Tue, 06 Mar 2012 14:33:16 -0800

According to a recently-released Field Assistance Bulletin, the Department of Labor’s Wage and Hour Division (WHD) has advised its staff to uniformly enforce a rule that became effective on May 5, 2011 governing ownership of employee tips under the Fair Labor Standards Act (FLSA). In many states employers are permitted to take a “tip credit,” or pay employees less than the minimum wage so long as the employees receive sufficient tip income to make up the difference. The new WHD tip rule stipulates, among other things, that tips are the property of the employee regardless of whether the employer has taken a tip credit under section 3(m) of the FLSA, and that an employer is prohibited from using an employee’s tips for any reason other than as a tip credit or in furtherance of a legitimate tip pool. The bulletin sent to WHD regional administrators and district directors emphasizes that this rule will be enforced in all states, even the nine states under the jurisdiction of the Ninth Circuit. To learn more about the bulletin and its potential implications for employers, please continue reading at Littler's Washington D.C. Employment Law Update.

Massachusetts Court Permits No-Tipping Policy

Wage and Hour Practice Group — Tue, 28 Feb 2012 15:59:51 -0800

By Chris Kaczmarek

In a case of first impression, a Massachusetts Superior Court judge recently held that an employer may adopt a policy prohibiting employees from accepting tips from customers without violating the Massachusetts Tips Law. Any such policy, however, must clearly and conspicuously be announced to customers, such that a reasonable customer would understand that any money left by the customer would not be given to employees as a tip.

In Meshna v. Scrivanos, a number of employees who worked at Dunkin’ Donuts franchises sued the owner/operator of those franchises, claiming that the stores’ no-tips policy violated Massachusetts law. The policy required employees to return tips to customers. According to the complaint, if the employee was unable to return a tip to a customer, then the employee was required to put the tip in the register to be retained by management.

The defendant moved for judgment on the pleadings, arguing that Massachusetts law permits employers to have a no-tipping policy. The court agreed with the defendant’s argument in principle, holding that the Massachusetts Tips Law does not prohibit “a no-tipping policy that is clearly and conspicuously announced” to customers such that a reasonable customer would understand that any money left by the customer would not be given to employees as a tip.

However, the court denied the defendant’s motion because the complaint alleged that customers routinely left, or attempted to leave, tips. The court reasoned that this practice supported an inference that many customers believed that the money they left would go to employees as a tip for services rendered. This practice, coupled with the allegation that any money left by customers would be retained by management, cast doubt on whether the policy in place had been clearly and conspicuously announced to customers.

The court concluded by noting that if “an employer chooses to prohibit tipping, it must take responsibility for communicating that policy to its customers effectively. If it does, so that customers could not reasonably expect money left on the counter to be treated as tips, the conclusion may follow that such money is not received by or given to employees as tips.” Under these circumstances, a no-tipping policy would not violate the Massachusetts Tips Law.

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The Fourth Circuit Holds that Intra-Company Complaints Are Protected Activity Under the FLSA's Anti-Retaliation Provision

Wage and Hour Practice Group — Mon, 13 Feb 2012 10:22:35 -0800

By Martha Keon

The Fair Labor Standards Act (FLSA) provides that an employer may not: “discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to [the Act], or has testified or is about to testify in such proceeding, or has served or is about to serve on an industry committee.”

The meaning of the phrase “filed any complaint” was recently clarified by the U.S. Supreme Court in Kasten v. Saint-Gobain Performance Plastics Corp. to include unwritten, oral complaints as long as “a reasonable, objective person would have understood the employee to have put the employer on notice that the employee is asserting statutory rights under the Act.” While the Supreme Court seemed to have decided by implication whether “filed any complaint” includes internal complaints to the employer, the majority in Kasten stated that it was declining to reach the conclusion, leaving the circuit split on that issue unresolved. The Fourth Circuit took up the issue of “internal complaints” in Minor v. Bostwick Laboratories Inc.

In that case the plaintiff worked as a medical technologist for Bostwick Laboratories. The plaintiff claimed that she and several coworkers met with the company’s chief operating officer to report that their supervisor was altering their timesheets to reflect that they had not worked the overtime that they had recorded, when they had worked the overtime hours. According to the plaintiff, the chief operating officer told them that he would look into the issue, but rather than resolving it, her employment was terminated on the following Monday. The plaintiff sued Bostwick Laboratories in the Eastern District of Virginia, claiming FLSA retaliation, among other things. Bostwick Laboratories moved to dismiss the complaint on the ground that an employee’s informal internal company complaint regarding a possible FLSA violation was not protected activity under the FLSA. The district court agreed, based on the then-precedential Fourth Circuit decision in Ball v. Memphis Bar-B-Q Co., and without having the guidance yet of the U.S. Supreme Court’s decision in Kasten, and dismissed the complaint. The plaintiff appealed.

The Fourth Circuit reversed, holding that “filed any complaint” includes internal company complaints, joining the First, Third, Sixth, Seventh, Eighth, Ninth, Tenth and Eleventh Circuits and leaving the Second Circuit’s minority position on this issue in doubt. In reaching its decision, the Fourth Circuit reasoned that protecting internal company complaints would further the remedial purposes of the FLSA and was consistent with agency enforcement positions.

While some circuits are still split on the issue of whether the FLSA retaliation protections apply to internal complaints, employers should investigate and remedy oral or written internal complaints regarding wage and hour violations, and strictly prohibit retaliation against those who make such complaints. For more information on FLSA retaliation, see the DOL’s recently posted Fact Sheet on FLSA retaliation.

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AutoZone Store Managers Found to Be Exempt Executive Employees

Wage and Hour Practice Group — Mon, 13 Feb 2012 10:01:14 -0800

By Laurent Badoux

On January 27, 2012, the United States District Court for the District of Arizona granted AutoZone’s motion for summary judgment in a case brought on behalf of a nationwide class of current and former store managers seeking overtime pay under the Fair Labor Standards Act (FLSA). In so ruling, the court rejected the store managers’ argument that they were not bona fide executive employees under the FLSA.

The store managers contended they spent as much as 90% of their time working on manual (i.e., non-managerial) tasks that required rote compliance with AutoZone’s detailed, standardized policies and procedures. Therefore, the store managers contended, they were not exempt executive employees.

The court, however, rejected the store managers’ contention that their primary duty was customer service and satisfaction. Instead, the court recognized that AutoZone placed significant responsibilities on its store managers: they were the only store-level employees who conducted staff evaluations and hiring interviews; they were the only employees (with the exception of the customer sales manager) eligible for a bonus based on store performance; they were responsible for the completion of manual tasks and coordinating employee scheduling; and how (and when) they completed even manual tasks had an impact on overall store performance, a fact reflected in AutoZone’s criteria for evaluating their performance. The court also rejected the argument that AutoZone had such extensive standardized processes and policies that only their manual labor mattered to store operations, pointing out that the essence of supervisory work is ensuring compliance with corporate policies.

The court noted that even though some store managers may perform manual tasks more than 50% of the time, that factor did not weigh significantly in this matter since many agreed they performed other tasks simultaneously with their manual tasks and retained overall managerial responsibility for store operations while performing manual tasks. The court deemed the store managers to be “relatively free from direct supervision,” pointing out that, regardless of the varying amount of time that district managers spent monitoring stores remotely, “they were the eyes and ears of the [District Managers]” and that they were present and supervising the work in their stores “by their own calculations for hundreds of hours a month without the physical presence of a District Manager.”

Ultimately, the court found that AutoZone had properly classified the store managers as exempt executives, stating in its conclusion that the alleged “lack of creativity and overwork may be an undesirable by-product of working for a national chain in a struggling economy, but this does not entitle plaintiffs to overtime pay.”

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California Appellate Court Overturns $15 Million Overtime Class Action Judgment

Wage and Hour Practice Group — Fri, 10 Feb 2012 15:43:44 -0800

In Duran v. U.S. Bank National Association, the California Court of Appeal, First Appellate District, overturned a $15 million judgment against U.S. Bank ("USB") entered in a case tried before Alameda County Superior Court Judge Robert Freedman. In its lengthy and very detailed opinion, the court shredded all the major trial management and evidentiary rulings made by the trial court, holding that its use of flawed statistical evidence and refusal to admit relevant testimony in support of USB's defense of exempt status denied USB its right to due process. In the first California appellate decision to apply the U.S. Supreme Court's 2011 Wal-Mart Stores v. Dukes decision, the court determined that the trial management plan was a fatally flawed exercise in "Trial by Formula." As a final repudiation of the trial court's rulings, the Duran court also ruled that the class should be decertified. To learn more about the decision and its potential implications for employers, please continue reading Littler's ASAP, "Trial by Formula" Rejected and $15M Overtime Judgment Overturned, by Diane Kimberlin.

Federal Court in New Jersey Refuses to Approve Confidentiality for Wage and Hour Settlement

Wage and Hour Practice Group — Fri, 03 Feb 2012 14:36:45 -0800

By Gregory B. Reilly

Employers faced with wage and hour litigation often seek to condition settlement on the agreement of plaintiffs to keep the settlement and its terms confidential. Confidentiality is often an important condition of settlement because employers may hope to avoid “copycat” claims by other employees and face the possibility that disclosure of a wage and hour settlement may be viewed by the public as an “admission” of liability.

Recently, in an unpublished decision, Brumley v. Camin Cargo Control Inc., the U.S. District Court in New Jersey refused an employer’s unopposed request to seal the terms of a Fair Labor Standards Act (FLSA) lawsuit settlement. The court stated that there is a “presumption” in favor of public access to the settlement terms so that the public knows such cases are fairly resolved.

While it is still possible, depending upon the circumstances, that employers can confidentially resolve FLSA wage and hour lawsuits, it is becoming increasingly clear that courts, as in the Brumley case, are hesitant to do so. Moreover, when an FLSA lawsuit involves a sizable number of plaintiffs, the public’s interest in disclosure of the settlement terms seems more likely to be implicated. In this respect, we note that the settlement in Brumley involved 112 plaintiffs.

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Santa Fe Local Ordinance Sets Country's Highest Minimum Wage Requirement

Wage and Hour Practice Group — Wed, 01 Feb 2012 12:16:33 -0800

By Joseph Lazazzero

On March 1, 2012 the minimum wage for employers in Santa Fe, New Mexico will increase to $10.29 per hour. The rate will exceed San Francisco’s $10.24 requirement, becoming the highest minimum wage in the country. The reason for the increase is a city ordinance that ties wage requirements to the consumer price index for the western United States. The consumer price index for the region saw a marked increase, as the cost of living in Santa Fe is 18 percent higher than the national average.

California Court of Appeal Finds Employees Are Exempt Under California's Commissioned Sales Exemption

Wage and Hour Practice Group — Mon, 30 Jan 2012 15:11:03 -0800

By Diane Kimberlin

On January 24, 2012, the California Court of Appeal, Fourth Appellate District, issued an important decision providing new and needed guidance on the commissioned sales exemption. In Muldrow v. Surrex Solutions Corporation, the court concluded that a class of “senior consulting service managers” was exempt from overtime pay requirements.

Although California courts require an employee be “involved principally” in “selling” in order to qualify for the commissioned sales exemption, there has been very little guidance on the meaning of this requirement. Muldrow supplies that guidance. It also addresses another previously unanswered question: must a commission be based solely on the price of goods or services sold, or may it include other factors?

The plaintiffs were employed by Surrex to locate candidates to fill job orders placed with Surrex by its client companies. They used an internal database, made cold calls, and used other resources to find suitable candidates. They worked to convince the candidate that the job was desirable and convince the client company that the candidate was a good fit for the job. The plaintiffs were required to “nail down” the client’s rate, the candidate’s rate and to make sure that deals held together. Surrex was paid only when a placement was complete.

Some candidates were retained by Surrex as consultants, and their services were leased to Surrex’s clients. The plaintiffs’ compensation for this type of placement was a percentage of the “adjusted gross profit” earned by Surrex. The starting point of this calculation was the rate received from Surrex’s client for the services of the consultant. From this, Surrex subtracted the costs of employing the particular consultant – typically the consultant’s pay, benefits, and expenses as well as an overhead adjustment factor. Commissions were paid as a percentage of the resulting “adjusted gross profit.”

The plaintiffs argued that only time spent finding new client companies was time spent selling, and contended that none of their work to identify and recruit candidates was sales activity. The court rejected this argument. Finding that the plaintiffs’ “primary duty was to recruit ‘candidates’ for employer ‘clients,’” the court agreed with the trial judge that ignoring all the activity that must be done before the actual point in time when a sale is made “perceives the word sales in a vacuum contrary to the job description of any salesman.” The tasks associated with identifying job candidates were “essential prerequisites necessary to accomplishing the sale.” Finding these activities to be sales related, the court concluded that the plaintiffs were “employed principally in selling a product or service.”

The plaintiffs also argued that pay earned as a percentage of the “adjusted gross profit” could not qualify as a commission because the formula was “far too complex” and was not based solely on the price of services sold. They contended that California courts require that a “commission” be based solely on a percentage of price. The Muldrow court rejected this argument, branding it an “excessively narrow and wooden application” of prior cases, neither of which had any occasion to address the question.

The court also distinguished decisions cited by the plaintiffs because the employees in those cases increased the profitability of their companies by increasing revenue, while plaintiffs’ efforts affected not only the revenue received by Surrex, but the costs incurred. A compensation plan based solely on price would reward the plaintiffs’ efforts to increase profits by increasing revenue, but do nothing to reward those who helped Surrex achieve greater profits by limiting costs. Referencing older cases addressing commission disputes, the court noted that “a commission based on profits is hardly a concept foreign to California law.” The court concluded that “Surrex’s commissions were sufficiently related to the price of services sold to constitute commissions for purposes of the commissioned employees exemption (Cal.Code. Regs., tit. 8, § 11070, subd. (3)(D)).”

The Muldrow decision applies a dose of common sense in answering some fundamental questions that had not been answered before. In the future, however, employers should consult counsel before relying on Muldrow, to be certain that it has not been taken up for review before the California Supreme Court. Once review is granted, as those who are “waiting for Brinker” are well aware, a case cannot be cited or relied upon in court proceedings. Because it provides new answers, Muldrow is a potential candidate for review.

Is Rounding of Employee Time Entries Legal in California?--California Supreme Court Orders Appellate Court to Decide

Wage and Hour Practice Group — Mon, 30 Jan 2012 09:38:15 -0800

By Mary Walsh

In a matter of significance for California employers, in See’s Candy Shops, Inc. v. Superior Court of San Diego, the California Supreme Court recently ordered the California Court of Appeal, Fourth Appellate District, to review a trial court decision holding that rounding employee time entries violated California law.

Last year, in an unprecedented ruling, the San Diego Superior Court held that See’s Candy Shops, Inc. (“See’s") violated California law by rounding employee time entries to the nearest six minutes. The court granted the plaintiff’s motion for summary adjudication on two of See’s rounding affirmative defenses, finding them at odds with sections of the California Labor Code dealing with the timing of wage payments.

See’s filed a writ of mandate with the Court of Appeal, Fourth Appellate District, which was denied. See’s subsequently petitioned for review with the California Supreme Court. That petition was supported by amicus curiae letters from numerous employer groups including the California Chamber of Commerce, Employer’s Group, California Retailers Association, and California Employment Law Council. Those groups urged the California Supreme Court to review the decision because of its importance to California employers, who now face uncertainty with respect to their timekeeping practices.

California employers long have relied on the position taken by the federal Department of Labor (“DOL”), and expressly adopted by the California Division of Labor Standards Enforcement (“DLSE”), that rounding to the nearest one-tenth or one-quarter of an hour is permissible as long as, over a period of time, it does not fail to compensate employees for all hours worked. (See 29 C.F.R. § 785.48(b); DLSE Manual §§ 47.1 and 47.2). In these circumstances, no California appellate court has found rounding to be unlawful, and other federal and state trial courts have upheld the practice.

In briefing, both See’s and employers’ groups warned that if the high court did not intervene, employers would find themselves fighting against a wave of class action lawsuits challenging the validity of rounding practices that employers had in good faith believed were lawful. This would force employers to eliminate rounding practices or face the risk of litigation, which frequently results in large settlements because of the high costs of such litigation.

The California Supreme Court’s order requiring appellate review of the trial court’s decision is welcome news for employers. The issue is one of first impression for the California appellate courts, and the hope is that the Court of Appeal's ruling will clarify for employers whether rounding employee time entries is legal in California.

The opening brief in the Court of Appeal is due on March 5, 2012, with a responsive brief and applications to file amicus curiae briefs due by April 4, 2012.

Photo credit: Ipso frato

Insurance Company Special Investigators are Exempt Under Federal and State Laws, Ohio District Court Rules

Wage and Hour Practice Group — Thu, 12 Jan 2012 12:53:40 -0800

By James Oh, Andrew Voss and Tracy Stott Pyles

After a trial to the court in September 2011, the United States District Court for the Southern District of Ohio entered judgment on January 5, 2012 in favor of Defendant Nationwide Mutual Insurance Company, on all claims alleged against it by a nationwide class of Special Investigators who claimed they were misclassified as exempt from the overtime requirements of the FLSA and New York and California state wage laws.

The case was initially filed in September 2007 in federal court in California, and venue was transferred to the Southern District of Ohio, where Nationwide is headquartered. Notice to opt-in was issued nationwide to current and former Special Investigators, and ninety-one joined the action.

Nationwide continuously maintained that Special Investigators were properly classified as exempt administrative employees under federal and state wage and hour law. To qualify for the FLSA’s administrative exemption, employees must be compensated at a rate not less than $455 per week; their “primary duty” must be the “performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers;” and the primary duty must include “the exercise of discretion and independent judgment with respect to matters of significance.” In March 2010, the court found that Nationwide had satisfied the first two elements of the administrative exemption test, but determined that material issues of fact existed as to the third element.

In September 2011, a two-week trial commenced before U.S. District Judge Edmund A. Sargus Jr. on the remaining issue of whether the Special Investigators’ primary duty includes the exercise of discretion and independent judgment. The parties called sixteen witnesses to testify at the trial, submitted testimony from two additional witnesses via deposition transcript, and admitted dozens of exhibits into evidence. The court ultimately concluded that the Special Investigators’ primary duty is to conduct investigations into suspicious claims for the purpose of resolving indicators of fraud present in those claims. The court further concluded that this primary duty includes the exercise of discretion and independent judgment with respect to matters of significance in at least two ways: Special Investigators: (1) are tasked with resolving indicators of fraud; and (2) have nearly unilateral discretion to refer claims to law enforcement or the National Insurance Crime Bureau (“NICB”).

While the plaintiffs contended that resolving indicators of fraud was merely the gathering and reporting of facts, the court disagreed. The court concluded that the Special Investigators determine the truth about what happened on a suspicious claim, which “necessarily requires judgment and discretion.” The court noted that nearly all of the Special Investigators who testified at trial characterized their investigations as searches for the truth and that “A doctorate in philosophy is not required to realize that the ‘truth’ is not an entirely objective concept. Determining truth requires ‘factual findings,’ a process that necessarily requires judgment and discretion.” In addition, because the Special Investigators’ resolution of fraud indicators can have an influence on a claims adjuster’s decision to pay or deny a claim, they exercised discretion and independent judgment on matters of significance.

The plaintiffs also claimed that referrals to law enforcement and NICB are automatic. However, the court noted that such referrals are made when the Special Investigator is unable to resolve the indicators of fraud. Accordingly, the judgment and discretion that is inherent in the resolution of fraud indicators also attaches to the decision to make a referral. In addition, because these referrals can subject individuals to criminal prosecution, they pertain to matters of significance.

Finally, because the parties stipulated that the New York claims would rise or fall with the FLSA claims, the court awarded judgment to Nationwide on those state claims, and also awarded judgment to Nationwide on the California state law claims after determining that the Special Investigators satisfied the California Labor Code requirement that they are “primarily engaged in the duties that” meet the administrative exemption, and “customarily and regularly exercise[] discretion and independent judgment in performing” those duties.

Photo credit: MBPhoto, Inc.

California Appellate Court Holds Insurance Agents Not Employees Under California Law

Wage and Hour Practice Group — Wed, 11 Jan 2012 14:32:38 -0800

By William Hays Weissman

In Arnold v. Mutual of Omaha Insurance Company, a California appellate court issued a published decision holding that insurance agents are not employees under the California Labor Code. This appears to be the first time the court has addressed the status of insurance agents.

The plaintiff filed a putative class action asserting that she was misclassified as an independent contractor and therefore denied reimbursement of business related expenses under Labor Code section 2802, and was not paid all wages in a timely fashion. She also asserted that failure to pay business expenses constituted an unfair business practice.

The trial court granted the defendant summary judgment, finding that the plaintiff was an independent contractor under the common law standard set forth in S. G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341 (1989), and therefore not entitled to business expense reimbursement or timely payment of wages.

The plaintiff appealed, asserting it was error to apply the common law standard rather than the broader statutory standard under Labor Code section 2750. The court rejected the plaintiff’s contention, stating that “section 2750 does not supply such a definition of ‘employee’ that is clearly and unequivocally intended to supplant the common law definition of employment for purposes of Labor Code section 2802.”

The court then upheld the determination that the plaintiff was an independent contractor under the common law. It found that Mutual’s managers made themselves available to assist agents, but did not supervise them, offered training, but did not make it mandatory, and offered software as a “best practice.” Facilities were offered to agents, who paid a fee for use. While paid at regular intervals, there was no guarantee of compensation. Her appointment was non-exclusive, and she was free to sell other companies’ policies. She was engaged in a distinct occupation requiring licensing by the Department of Insurance, paid all her own expenses, provided her own tools, and the parties believed they were forming an independent contractor agreement. Also, the court noted that while the contract was “at-will,” such clauses could be included in independent contractor agreements. The court thus concluded that there was sufficient evidence to support the trial court’s grant of summary judgment.

Photo credit: Ed Bock Photography, Inc.

U.S. Department of Labor Releases Fact Sheet on Retaliation under FLSA

Wage and Hour Practice Group — Wed, 04 Jan 2012 15:43:47 -0800

The Department of Labor’s Wage and Hour Division has issued three new fact sheets on unlawful retaliation. One fact sheet discusses retaliation under the Fair Labor Standards Act (FLSA). The FLSA makes it a violation for any person to “discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to this Act, or has testified or is about to testify in any such proceeding, or has served or is about to serve on an industry committee.” To learn more about the FLSA fact sheet and its implications for employers, please continue reading at Littler's Washington D.C. Employment Law Update.

California Supreme Court Finds the "Administrative/ Production Worker Dichotomy" Not Dispositive in Determining Insurance Claims Adjusters Exempt

Wage and Hour Practice Group — Tue, 03 Jan 2012 10:06:06 -0800

By Alison S. Hightower

In a long-awaited decision, the California Supreme Court unanimously gave California employers a holiday present in an opinion that follows the majority of federal courts in finding that insurance claims adjusters are exempt administrative employees.

At issue in Harris v. Superior Court was the exempt status of a certified class of Liberty Mutual insurance claims adjusters who the California Court of Appeal found did not satisfy the requirements of the administrative exemption as a matter of law. Under California law exempt administrative employees must receive a minimum compensation of not less than two times the minimum wage, and also (1) perform office or non-manual work “directly related to management policies or general business operations of his/her employer or his/her employer’s customers,” and (2) “customarily and regularly exercise discretion and independent judgment.”

The administrative exemption has been one of the most hotly-contested and litigated of California’s overtime exemptions. This decision provides more clarity on the application of the exemption, and the role of the “administrative/production worker dichotomy” as an analytical tool in assessing exempt status.

In Harris, the California Supreme Court overruled the Court of Appeal, which held that the claims adjusters were “production” workers because their work “ investigating claims, determining coverage, setting reserves, etc. is not carried on at the level of policy or general operations, so it falls on the production side of the dichotomy.” Thus, the lower appellate court concluded, they did not perform in a role that was “directly related to management policies or general business operations” and were therefore not exempt administrative employees. The California Supreme Court disagreed.

First, the court rejected the Court of Appeal’s almost exclusive reliance on the administrative/production worker dichotomy analysis. The rigid application of this analysis, the court stated, ignores the limitations of the dichotomy and results in a “strained attempt to fit the operations of modern-day post-industrial service-oriented businesses into the analytical framework formulated in the industrial climate of the late 1940s.” The court clarified, however, that it was not holding that “the dichotomy can never be used as an analytical tool. We merely hold that the Court of Appeal improperly applied the administrative/production worker dichotomy as a dispositive test.”

Second, the court clarified that under the federal regulations California looks to for guidance in applying state exemption classifications, work that is “directly related to management policies or general business operations” includes “advising management, planning, negotiating, and representing the company.” The court admonished the Court of Appeal for interpreting this prong of the administrative exemption too narrowly. In other words, work may be directly related to management policies or general business operations even if it is not performed at the corporate policy level. In this regard the court pointed out that the Ninth Circuit and other federal courts, applying recent applicable federal regulations, have determined claims adjusters satisfy the administrative exemption under the Fair Labor Standards Act “if they perform activities such as interviewing witnesses, making recommendations regarding coverage and value of claims, determining fault and negotiating settlements.”

Third, the court emphasized the importance of assessing the language of the relevant statutes and wage orders as applied to the particular facts of each case, noting “the difficulty in relying on the particular role of employees in one enterprise to deduce a rule applicable to another kind of business.”

The Harris decision therefore is a victory for Liberty Mutual, but it is also a good reminder to California employers of the importance of reviewing the particular circumstances and actual job duties of their exempt administrative employees – as well as their other exempt employees – not just relying on their job descriptions to determine that the exempt classifications are appropriate.

Photo credit: Digiphoto