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Wage & Hour – Developments & Highlights

To Highlight Recent and Noteworthy Developments In Cases And Regulations on Wage and Hour Laws That Affect Large and Small Businesses

New DOL Overtime Rules: Good or Bad For Employers?

Posted in Exemptions, Overtime Issues

On May 18, 2016, President Obama and the Secretary of Labor announced the publication of the Department of Labor’s final rule updating the overtime regulations, which is anticipated to make more than four million more workers overtime-eligible.

The Final Rule sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest wage Consensus Region, currently the South ($913 per week; $47,476 annually for a full-year worker).  It also sets the total annual compensation requirement for highly compensated employees (HCE) (who only have to perform a single exempt function to qualify) to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004)  It also established an automatic updating procedure; every three years salary levels may/may not be adjusted.

On a more positive note, the Final Rule will allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.  For employers to credit nondiscretionary bonuses and incentive payments (including commissions) toward a portion of the standard salary level test, such payments must be paid on a quarterly or more frequent basis.

Nondiscretionary bonuses and incentive payments (including commissions) are forms of compensation promised to employees to induce them to work more efficiently or to remain with the company.  Examples include bonuses for meeting set production goals, retention bonuses, and commission payments based on a fixed formula.

The effective date of the final rule is December 1, 2016.  Note that December 1 is a Thursday, so employers will have to make sure that the entire pay period is compliant with the new rule. Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.  Significantly, and thankfully, the new rule makes no changes to the duties test.  If an employee had duties that fell within the executive compensation, for example, they will still be exempt, provided that they make $913 per week.

The Takeaway

I am not of the school of thought that believes the sky is falling with the increase in exempt salary levels.  I have seen many employers agonize over whether someone making, say, $30,000 annually is exempt or not.  Now, instead of raising that person almost 20,000 dollars, that employer will make the “easier” choice to convert that person to hourly and pay them overtime or keep that worker (insofar as operationally possible) to no more than forty hours per week.

I think that by making the lines of exemption a good deal brighter, the new rule makes it easier for employers to comply and to stop agonizing.  There will still be some/many borderline calls but in demarcating the boundaries more clearly through this large jump in salary, the new rule serves a salutary purpose.

I think…

Paying Day Rates Does Not Alter FLSA Overtime Obligations

Posted in Overtime Issues

I am often asked by clients if paying non-exempt employees on a day rate or via some other form of compensation, rather than an hourly rate, somehow “frees” an employer of its obligation to pay overtime after forty hours of work.  The answer is, regretfully, no, as a recent case has highlighted.  In this case, a Houston, Texas-based foundation repair company (Allied Foundation Specialists, Inc.) has agreed to pay $682,000 in back wages as a settlement following a U.S. Department of Labor audit into the practice of paying a day rate instead of paying per hour worked and not paying overtime.

The Company is paying back 161 workers because it paid those workers a flat day rate and no overtime, regardless of how many hours they had worked.  The Regional Administrator for the agency issued a statement that this large settlement should put other employers on notice that they must pay workers what they have earned during the week instead of per diem or day rates.

She said that “construction workers know the value of hard-earned wages for long, tough days especially under a hot Texas sun.  This is not the first time we’ve seen construction industry employers illegally paying flat day rates with no overtime pay.”

The Company employs about 200 workers who perform foundation repair, house leveling, barrier root systems and sewer pipe replacements.  The agency investigation found that the workers averaged forty-five (45) hours for a five-day work week and fifty-three (53) hours for a six day week.  The Company tracked days worked, rather than hours worked, which is the key to overtime payment and compliance.

This investigation is part of a broader regional enforcement initiative targeting the construction industry in the State.  In 2015, the DOL secured more than $460,000 for more than 510 construction industry workers in Texas.

The Takeaway

Overtime runs off hours worked; the mode of payment is immaterial.  Paying on a day rate or a piece rate does not alter the employer’s obligation to pay overtime.  It may, actually, complicate it.  This is because the onus always remains on the employer to track hours.

If more than forty hours are worked, then, for employees paid on a day rate, the half-time method of calculating overtime is utilized.  The regular rate, for that particular week, is derived and then half-time overtime is paid.  The next week, if more than forty hours is worked, but the total is more/less than the previous week, another calculation, which will produce a different regular rate for that discrete week is used.  Some people call this “Chinese overtime.”

It may be “Greek” to some people as well, but the prudent employer will understand that compliance with the FLSA is a never-ending task that is often tedious and where the devil is in the details.

Supreme Court Hears Arguments On Exempt Status of Car Dealership Service Advisers

Posted in Exemptions

I have blogged on this topic before and I look forward with great interest as to what the ultimate decision will be.  Evidently, during the oral argument before it, the US Supreme Court seemed split as to whether Service Advisers at Encino Motorcars were exempt from overtime under the Fair Labor Standards Act.  The Justices seemed to be at odds with the issue of exemption for these employees.  The case is entitled Encino Motorcars LLC v. Hector Navarro et al.

The Court has before it the March 2015 Ninth Circuit decision finding that the Advisers are not exempt under FLSA.  The Ninth Circuit had concluded that the service advisers should not be exempt from overtime because the USDOL regulations only exempted salespeople and mechanics.  The attorney for the Company argued that the service advisers were salespeople and were engaged in servicing cars.  The lawyer stated that “under the plain and literal terms of the [FLSA] statutory overtime exemption, these individuals are exempt because the statute exempts any salesperson, mechanic or partsman who are primarily engaged in selling or servicing an automobile, a truck or a farm implement.”

The so-called liberal justices (e.g. Ruth Bader Ginsberg and Stephen Breyer) took strong issue with the Company’s lawyer, indicating their view that the service advisers were non-exempt.  Justice Breyer asked “if we’re only talking about those people who sell service and are not on commission, what basis is there for giving them an exception?”  The attorney responded that it “would be very disruptive” to remove service advisers from the overall service team — which also includes the partsman and the mechanics.

The attorney arguing for the employees countered by contending that service advisers neither sold nor serviced cars, but, rather, only did “paperwork.”  The Chief Justice reacted to that, positing the example of someone bringing in a car making “a funny noise,” the service adviser listening to the noise and sending it to a mechanic in the pipeline of the servicing process.  Justice Breyer also was concerned that the DOL did not adequately address its shifting interpretation after decades of supporting a different interpretation.

The Takeaway

We will see what happens here.  I think the argument that the Service Advisers do sell is a good one.  I know, when I go in to have my car serviced, the Service Adviser is always trying to sell me more stuff and tell me what else my car needs.  That is the epitome of selling.

Conditional Certification Granted In Zales FLSA Collective Action: The Danger of a Uniform Practice

Posted in Class Actions, Working Time

There is no industry or business that is immune to FLSA collective actions.  One might think that the a “high end” jewelry business would not be hit with such a suit, but a California federal judge has just certified a class of Zales employees who have alleged that their employer did not pay overtime properly; that FLSA class has been certified, nationwide.  The case is entitled Tapia v. Zale Delaware Inc. et al., and was filed in federal court in the Southern District of California.

The class includes 1,600 workers in a class limited to California workers.  The plaintiffs alleged that the Company rounded down time reflected on time cards.  The judge found it “easy” to certify the class as the Company’s uniform payroll policy showed that the workers were similarly situated.  The Court stated that “plaintiff established that defendant uses the same ‘point of sale’ computer system to record the time its hourly employees work at the stores.  Thus, plaintiff is able to determine from defendant’s time records — to the minute — the time every employee in the class clocked in and clocked out.”

The judge rejected Zales’ essentially legal argument that its “rounding” practice was legal.  The Court concluded that it was too early into the case to make that merits-based determination.  That was the (just) the California case.  The Court also granted conditional certification of a nationwide class of possibly 20,000 workers who worked at Zales since July 2010.  They alleged that the same rounding practices deprived them of overtime monies.  Again the Judge found commonality, stating that the “plaintiff has shown that there are other similarly situated employees because defendant uses the same payroll procedures at all of its stores.”

The named plaintiff, who was fired after less than one year, alleged that her time records were altered to show that she worked fewer hours than she actually did.  For example, if she worked nine hours and three minutes, the extra three minutes were automatically deducted.  She also claimed that a thirty minute lunch was deducted, whether she took her lunch or worked through it and she was not paid overtime.  The brevity of her employment may undermine her credibility.  The Company strongly denies the allegations and contends that the rounding system was in compliance with FLSA standards.

The Takeaway

This class was certified due to the overall, uniform practice of rounding employee time down (and, hopefully, up).  This is dangerous.  In many class actions, we defend by arguing that too much individualized scrutiny is called for and that is why the necessary commonality does not exist.  Here, where an overriding practice obtains, that argument goes away.  What the Employer is left with, it seems, is contending that the rounding practice comported with the FLSA.

All those eggs in a single basket?

I have a feeling it may hold them…

Miami Vice: Numerous FLSA Actions Are Filed In Florida

Posted in Class Actions

Although there are FLSA actions brought all over the country, the statistics show that the Southern District of Florida is the (dubious) leader in such suits.  Commentators attribute this disproportionate number to the “pervasive” existence of unsophisticated small businesses employing immigrant workers and, importantly, a skilled and aggressive plaintiffs’ bar that are knowledgeable in FLSA matters and eager to file suit.

Of the 8,960 FLSA actions filed in 2015, almost 1300 were filed in the Southern District of Florida alone; the Southern District of New York, with 947 suits, was a close second.  (There is a knowledgeable and aggressive FLSA plaintiffs’ bar there as well).

The simple fact is that FLSA suits have doubled in the last ten years.  In 2005, there were 4021 and that number doubled in 2015.  In that same time frame, the number of cases filed in the Southern District of Florida ranged between 1200-1400.  Notwithstanding this national uptick, South Florida still holds a sizable lead.

One commentator suggests that there is a “higher percentage of unscrupulous employers in South Florida.”  Perhaps a workforce with a large percentage of immigrants may be more vulnerable to workplace underpayment, as employers may see employees who are afraid of complaining to authorities.

The Takeaway

I do not believe, on balance, that for small businesses, it is greed that motivates them. Rather, I believe it is just failing to get necessary legal advice when implementing employee policies.  The FLSA is complex and nuanced.  Full compliance and corrective actions are best when done under counsel’s direction.  Even with good policies, employers could have lower level supervisors who do not understand the law and do or do not do, things that bind the company.

I believe strongly that the best course of action is a proactive one.  A complete audit of all compensation practices, e.g. exemptions, working time, etc.  Fix what is broken and move on.

Although there is an active plaintiffs bar in South Florida, they are all over (with many of them pooling resources).  Notwithstanding that, if there is nothing for them to “find” then it does not matter and internal audits accomplish that goal.

Then you can sit in the Florida sun…

Franchise Store Hit With Class Action: Can The “Parent” Be Brought In?

Posted in Class Actions

I have blogged about many off-the-clock cases; they can be troublesome to defend, especially in the absence of accurate time records.  Another example has emerged.  Three former employees of a 7-Eleven store have filed a proposed class action alleging the franchise unlawfully withheld overtime pay for hours beyond forty (40) and then retaliated against them by firing them when they complained.  The case is entitled Lopez et al. v. 7-Eleven Inc. et al., and was filed in state court in New Jersey.

The named plaintiffs contend there is a class of ninety (90) potential class members, located at other stores as well as the initial one (in Princeton, NJ).  The plaintiffs seek to go after the 7-Eleven stores either independently owned and operated, or directly owned and controlled, by the Texas corporation, within the same market.

The plaintiffs allege they performed numerous tasks, were paid $6-$6.50 an hour and were “paid in cash, and paid irregularly.”  Two of these workers claim they were terminated in retaliation for complaining to management at the end of December.  The third worker was fired after the lawyer representing the two plaintiffs (Roger Martindell, Esq.) communicated with the store regarding the workers’ claims.

The defendants include four store operators — Alpesh Patel, Nick Patel, Jenny Patel and Sanjiv Josh; the store is operated through a company controlled by Alpesh Patel and supposedly generated annual sales in excess of $250,000.  The plaintiffs in their eleven Count Complaint also allege claims of breach of contract, unjust enrichment and violation of public policy, and seek restitution, punitive damages and statutory penalties.

The Takeaway

This case is complicated because the time records of hours worked might not be accurate or even existent.  That potential problem pales to the retaliation charges, which would be very serious.  On the other hand, when suing a single franchised store like this, the plaintiff (and the lawyer) must be careful not to overreach.  What good does it do anyone to win a huge verdict at a jury trial (2-3 years from now) when there might well be an inability to collect on the judgment.  With that said, the deeper pocket is the huge corporate entity in Texas—if sufficient connections between the single store and that corporation exist, they might be a joint or single employer.  Then the landscape changes.

I know Roger Martindell; I have had cases with him and he is a savvy guy.  He will know this.  As far as the Complaint, however, a number of the Counts are preempted by wage hour law (such as the common law claims) and there is no ability for a private litigant to seek or secure “penalties.”  Only the NJ Department of Labor can do that.

Texas Case Poses Interesting Twist On FLSA Section 7(i) Commission Exemption

Posted in Exemptions, Overtime Issues, State Wage & Hour Laws

A Texas federal court handed a quick win Wednesday to a class of trainers claiming Gold’s Gym unfairly denied them overtime, ruling their pay did not comprise “bona fide commissions” under the Fair Labor Standards Act.  The case is entitled Casanova et al. v. Gold’s Texas Holdings Group Inc., and was filed in federal court in the Western District of Texas.

The issue was whether the payments received constituted commissions under the FLSA.  If ruled commissions, the employer could seek the protection and the exemption of Section 7(i) of the FLSA, the so-called commission exemption.  The Court ruled that the percentage of the fees paid by clients and given to the trainers were tied to one-hour class sessions and therefore were “wages” rather than commissions.  Thus, Section 7(i) was inapplicable.

The Court found that “the compensation system was not decoupled from time.  Instead, a one-to-one correlation existed between the hours a trainer worked and his or her compensation.  Such a compensation system reflects nothing more than an hourly wage, where the employee’s rate of pay changes based upon his or her qualifications.”

The trainers filed a collective action in December 2013, claiming they were misclassified and entitled to overtime.  The group was granted conditional class and 80 trainers opted in.  The trainers were paid in a two-part system that included a flat rate for “floor hours” or hours worked performing general tasks at the gym and some of the fees for individual and group training classes that the employees sell and conduct.  The employees were paid a set percentage of these fees based on certificates they earned and the number of classes they conducted.

The employer claimed these were commissions; the trainers claimed that the fees were proportional to and tied to hours worked, without performance-based fluctuations, and thus were not “commissions” as defined by the FLSA.  The Court noted that bona fide commissions were demarcated by several characteristics, including that the commissions were a percentage of the price passed on to the consumer and were separate and apart from actual hours worked so that the employees had an incentive to work more efficiently.  The payments failed to meet this second prong of the test, as employees could not work more quickly since the classes were a fixed length of time.

The Takeaway

The Section 7(i) exemption rests on receipt of at least 50% of commission compensation by the affected employees, as well as some other requirements, e.g. retail industry.  In that instance (and in those weeks) the employee is exempt.  The whole point of “commission,” however is that it seeks to incentivize people to work more quickly or efficiently, to churn up that commission.

Without the protection of 7(i), all of these extra payments must be calculated into the regular rate for any week in which any employee(s) worked overtime, thus inflating the regular rate by, in all likelihood, small amounts of money on a weekly basis.  If, however, a lawsuit is filed and it is a class action and eighty or so employees join in and computations are done for 2-3 years going back, then the wages are doubled, with attorney fees added in, it is plain that the exposure is geometric.

Much better to research and resolve the issue before the compensation (e.g. “commission”) system is implemented…

The Latest Developments in Rule 68 Law and Procedure for FLSA Actions

Posted in Class Actions

The recent US Supreme Court decision in Campbell-Ewald Co. v. Gomez, No. 14-587 (Jan. 20, 2016) resolved a split in holding that an unaccepted Rule 68 offer of judgment does not moot a class representative’s claims or the putative class action.  This was the first Supreme Court decision favoring class actions for quite a while.  The majority opinion adopted the reasoning from Justice Kagan’s dissent in Genesis Healthcare Corp. v. Symczyk, 133 S.Ct. 1523 (2013) (April 16, 2013), i.e., that a rejected offer is a “legal nullity” that leaves a plaintiff’s standing intact.

Given that unaccepted Rule 68 offers can no longer moot a case where the plaintiff “remained empty-handed,” some have speculated that new forms of “offers plus” could revive the classic pick-off strategy.  Indeed, the Campbell-Ewald Court reserved decision as to result “if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount.”

One court has recently rejected such a strategy, denying a motion to deposit funds with the court under Rule 67 as procedurally improper.  Brady v. Basic Research LLC, No. 213CV7169SFJARL, 2016, at *2 (E.D.N.Y. Feb. 3, 2016) (denying motion where defendants sought “to deposit funds into court to moot this case … not to relieve themselves of the burden of administering an asset”) (Law360 subscription required).  That court echoed “the Supreme Court directive that ‘a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.’”

But what happens if a class representative accepts a Rule 68 offer precertification that resolves that individual’s claims?  One district court posited that a named plaintiff could continue to represent a class even after accepting a Rule 68 offer, based on “the underlying logic that a class action is not mooted upon expiration of the named plaintiff’s transitory claims.  The Ninth Circuit has disagreed, holding, in Campion v Old Republic Protection Co., that the plaintiff lacked standing to appeal certification after accepting a Rule 68 offer because he had “no financial interest or other personal interest whatsoever in class certification.”  The court held that when the plaintiff voluntarily settles his or her individual claims, we have found no case that has held that the ‘private attorney general’ interest suffices; all cases look to whether the plaintiff has the requisite financial, or otherwise personal, stake in the outcome of the class claims.”

The Takeaway

As the Supreme Court has yet to address this precise issue, a class representative’s continued standing after resolving his individual claims may well hinge on the terms of the Rule 68 offer.  A defendant would be well advised to craft an offer that includes an unqualified release of class claims and eliminates the named plaintiff’s stake in any eventual class outcome, so no matter what happens on appeal, the plaintiff will anything more.  Plaintiffs will seek terms that protect the class, including by reserving a named plaintiff’s right to represent the class until another representative can be sotted in, as well as the right to appeal an adverse ruling on certification.

Discovery Delays Do Not Doom Cases Of Opt Ins In Off-The-Clock FLSA Suit

Posted in FLSA Retaliation, Working Time

Usually, when a party does not respond to discovery requests, it can face sanctions, including the dismissal of the case (if he/they are the plaintiff(s).  Well, that truism took a hit the other day when a New Jersey federal judge did not dismiss the claims of two opt-in plaintiffs in a FLSA collective action against General Electric Company, as the Court concluded that the delays in their responding to discovery by service technicians, who have charged they were not compensated for off-the-clock duties, did not mandate dismissal of their case.  The case is entitled Maddy et al. v. General Electric Co., and was filed in federal court in the District of New Jersey.

Although the plaintiffs had a lengthy history of delinquent discovery responses, including a year-long lack of response to certain discovery requests, the Judge refused to throw their claims out.  The Judge examined the so-called Poulis factors, the Third Circuit six-part standard  to determine whether to dismiss a case for failure to comply with discovery and concluded that, in their totality, the standards weighed against dismissal. The Court found that “the only factors which somewhat weigh in favor of dismissal are the extent of the parties’ personal responsibility and the history of dilatoriness.”

The Judge found no evidence to support the employer’s claim that it had been prejudiced by the discovery delay nor was there any evidence that the two opt-ins had acted in bad faith when eventually responded to the May 2014 request in September 2015.  Significantly, the Judge also found that the plaintiffs’ claims seemed meritorious (which is one of the Poulis factors) as the defendant had not filed a motion challenging the legal sufficiency of the claims.

The allegations were that employees were doing preliminary, off-the-clock work.  The employees charge that spent time on integrally connected tasks, including time spent logging in to the computer system in order to download jobs, responding to emails and travel time.  Importantly, they allege that their supervisors intimidated them when they tried to report the time worked on their timesheets.

The Takeaway

This case evidences the “leniency” with which courts allow plaintiffs to continue to press their claims, even in the face of dilatory (beyond words) conduct in responding to discovery.  It seems if the defendant had made some motion to dismiss or challenge the claims, on their own merits, the result might have been different.

The bigger issue is whether, in reality, the employees were working off-the-clock or performing tasks so directly connected to their primary jobs that those sideline activities became compensable.  If supervisors intimidated employees not to report the time, that is bad enough on its own and worse, it will fortify the allegations of how many hours they claimed they worked.

Bank Underwriters Fall Within Administrative Exemption: The Tension Between Use of Skill and Experience and Discretion/Independent Judgment

Posted in Class Actions, Exemptions

The grayest of the white collar exemptions (as I often have said) is the administrative.  In a 2-1 decision, the Sixth Circuit has again proven the truth of this maxim.  The Court upheld a district court dismissal of a FLSA class action in which underwriters working for a bank alleged that they were misclassified as exempt administrative employees.  The case is entitled Lutz v. Huntington Bancshares Inc., and was issued by the Sixth Circuit Court of Appeals.

The Court found that the duties of the residential loan underwriters directly related to the business operations of the Company.  The Court stated that “the job duties performed by underwriters resemble those duties performed by positions deemed administrative by the DOL regulations, including claims adjusters and employees in the financial services industry.”  Thus, the Court found that the employees performed “work directly related to assisting with the running or servicing of the business,” as opposed, for example, to those working on a manufacturing production line or selling a product in a store.”

The plaintiffs argued that they were merely pushing the “product” through the pipeline, in the “process,” but the court disagreed and held that the work was connected to the Company’s operations because of the analyses they undertook in order to determine/recommend whether the Company should make a loan.  Although the loan originators sold loans to customers, the underwriters’ work was akin to that of insurance claims adjusters because their work was essential for the Company to conduct its business.  In other words, the underwriters did not sell loans, but rather serviced the bank by advising whether it should accept the credit risk posed by the particular customer.

The Court also found that the underwriters exercise discretion and independent judgment.  This is where these cases usually go south for the employer/defendant.  Although the underwriters did utilize guidelines and manuals to judge the loans, the Court concluded that they had the authority and ability to sometimes waive or deviate from the guidelines.  As the Court aptly put it, “an employee who is directed by guidelines and manuals can still exercise discretion and independent judgment.  Huntington’s guidelines do not prevent its underwriters from acting outside its parameters.”  The discretion used herein assisted the underwriters to determine the risk the Company would or could accept for a particular loan and thus these decisions had significant impact on the business.

The Takeaway

There is a much nuanced line between skill and discretion.  This is especially so where the employees at issue work in a heavily regulated industry or where they always use guidelines to assist them in their work.  The key is to demonstrate that they are not bound by the guidelines and that they have discretion to deviate from them, using their subjective judgment.

Then, the ability to prove discretion is being used is greatly enhanced.  This is where these battles are joined.  Usually, the defendant is able to “get over” on the first prong, i.e. employee performs work connected to management or business operations.  It is that second one that is the tough one, but it can be overcome as well through careful and proactive planning.