Wage & Hour - Development & Highlights : New Jersey Labor and Employment Lawyer & Attorney : Fox Rothschild LLP Law Firm : Serving Essex County, Sussex County, Roseland, New Jersey

Employers cannot only think of job duties when it comes to ensuring that exemptions are maintained. Improper deductions from salary can undermine exempt status and, even with the revised FLSA regulations in place, which allow for corrections to be made without jeopardizing exempt status, mistakes can still be made. The danger is that if a common or system-wide “policy” exists, then all exempt employees are in danger of having their exempt status destroyed.

For example, in Baden-Winterwood v. Life Time Fitness Inc., the Sixth Circuit Court of Appeals held that deductions made by a health and fitness center employer from the base salaries of department heads to recoup portions of paid bonuses when the employees’ performance fell below a certain prescribed level caused the workers to lose their exempt status under the Fair Labor Standards Act.

The Sixth Circuit affirmed the ruling of the lower court, which had concluded that that the employees were not paid on a salaried basis, due to the improper deductions made from their salaries during a two-month period in 2005. Thus, without any examination of whether their duties fit the duties prong of the exempt test, the employees were adjudged to be non-exempt, thereby entitled to overtime.

If the salary issue is the bone of contention and the employer loses on that, everything else becomes moot. The employee could hire and fire, prepare employee evaluations, determine who gets raises and promotions and who does not, in short, all manner of supervisory duties and the employee will still be non-exempt. Employers must be extra vigilant in ensuring not only that exempt employees receive the proper salary (under the FLSA at least $455, but individual states might be higher) and always watching out that improper deductions, meaning, primarily partial day deductions are not made. The consequences could be quite serious for failure to adhere to these guidelines, with but very little recourse by or defense for the employer.
 

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In a proposed overtime class action against mortgage lender Ocwen Loan Servicing LLC, the United States District Court for the Southern District of Florida denied the plaintiffs' request to conditionally certify a lawsuit as a collective action and notify potential class members. The court denied the request on the grounds that the plaintiffs failed to sufficiently show that other similarly situated employees exist.

The suit accused the residential mortgage loan provider of failing to pay its inside sales representatives overtime wages in violation of the federal Fair Labor Standards Act.

According to plaintiffs, the case should have been certified because three opt-in plaintiffs had demonstrated that their job requirements were similar and that they were subject to similar pay provisions and they had indicated that other individuals might also want to opt-in on the action.

The court disagreed with this reasoning. Indeed, the court found that the affidavits filed by two of the opt-in plaintiffs were too vague and too speculative to show that other similarly situated employees actually existed. The affidavits were vague in that no individuals were named and their statements were noncommittal. The court found this to be insufficient. Judge Zloch, who rendered the decision, stated “it gives the court nothing to make a finding upon but the fact that plaintiffs are aware of others. Who these others are, whether they are similarly situated and whether they are actually interested in joining in this suit is all left to guess-work.” If other similarly situated employees did exist but were too scared to come forward, the plaintiffs' counsel could have ensured their names were not disclosed through “a myriad of different devices,” such as filing under seal or asking for a protective order, Judge Zloch said.

The decision reflects the court's aggravation with these cases that are brought so frequently as attempted class actions without evidence, or indication from other employees, that they have also suffered they same. 

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A federal judge in California has certified five sub-classes of drivers alleging FedEx Corp. bilked them of pay for missed meal periods, off-the-clock work and working split shifts. The Judge found that common issues, a requirement of class-action certification, predominated in the five sub-classes of workers.

Three of the sub-classes relate to meal periods. The first sub-class consists of workers not paid for meal periods lasting less than 30 minutes. The second sub-class consists of workers alleging they were not’t paid for missed or untimely meal periods between April 14, 2006, and March 25, 2007. The third meal-period sub-class, meanwhile, consists of drivers alleging FedEx did not’t pay them for meal breaks taken after four and a half hours of work but before five and a half hours of work between March 6, 2007, and the present. The fourth sub-class approved by the judge alleges they never received the extra hour of pay that was due to them for working a split shift. The final approved sub-class consists of workers claiming they performed approved preliminary and postliminary work (i.e. before and after the shift) without pay.

The FedEx drivers’ meal claims relate to a California statute currently in dispute. The law requires employers who fail to provide a meal or rest period to pay the worker for an additional hour of work at their regular rate of pay. California’s wage law also requires employers who fail to provide meal or rest breaks in accordance with certain procedures – such as giving employees a 30-minute meal period for every five hours worked – also must compensate workers for their time.

Two California courts of appeal have ruled that “provide” only means employers must make meal breaks available and not ensure workers take them. However, the California Supreme Court has recently granted review of the two cases.

The point is that one large class can be broken down into component parts. In such an instance, workers are deemed similarly situated to other workers within the overall class, but need be similar to all of the workers in the class.
 

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As I have written, employees need not file class actions in a court in order to band together to seek overtime monies. Arbitration is a distinct possibility. In the recent case of Franco v Athens Disposal Company, Inc., a California appeals court has held that a trial court erred when it held that a class-action waiver in a company’s arbitration agreement was enforceable. The Company had initially defended by asserting that the employee, a truck driver, was exempt from overtime under the motor carrier exemption, but the Court ruled that this was also for the arbitrator to decide.

The trial court also misinterpreted a decision of the California Supreme Court finding that a class-arbitration waiver was unconscionable when prohibition of relief for all of the putative class members would undermine vindication of the employees’ statutory rights to overtime, which they could not legally waive. The trial court had held that this holding did not apply to a driver’s state-law claims against his employer for not providing meal and rest periods or pay additional compensation for missed meal/rest periods.

The employer had contended the meal and rest period “rights” were subject to waiver. The appeals court held that, as state law required employers to comply with provisions of state Wage Orders, which mandated meal and rest breaks and since the law stated that no provision of law could be set aside by a private agreement, the statutory right to meal and rest periods could not be waived.

In sum, the court ruled that the class-arbitration waiver in the company’s arbitration agreement was unenforceable, where the driver (and other employees) alleged violations of California law regarding meal and rest periods. The court believed that class arbitration would be a more effective way of vindicating the employees’ statutory rights than individual arbitrations, given that the size of the potential individual recovery was small. Finally, the court held that a possible award of attorneys’ fees would not provide a sufficient incentive for an attorney to take an individual case, especially since the allegation was that all hourly employees were subject to the same unlawful conduct.

The lesson is that simply because an employer builds into arbitration agreements (whether found in employee handbooks or freestanding) a waiver of wage-hour (or other) class actions, there is a good chance they will be found unenforceable.
 

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Not every allegation of FLSA violation or class action must weave its way through the courts for a resolution. Union members who feel aggrieved may challenge alleged improper pay practices through arbitration. In these settings, the Arbitrator will apply and incorporate federal laws, such as the FLSA, in order to render a decision on the alleged labor contract violations.

That is exactly what just happened in National Council of EEOC Locals No 216, AFGE and Equal Employment Opportunity Commission, Case No. 0761012-00226, in which Arbitrator Steven Wolf ruled that the agency violated the FLSA rules on payment of overtime. The Arbitrator also found that the violations were willful and also that the grievants were entitle to liquidated (i.e. double) damages. These last two findings represent a direct application of FLSA statutory remedies to the arbitration forum.

What prompted this case was the agency’s reclassification of many individuals to exempt status, following the recommendations of an outside consultant. When these employees then worked overtime, the agency did not give them the choice between cash overtime and compensatory time, as it was obligated to do.

Another issue was the ostensible failure of the employees to work overtime that was “authorized.” The Arbitrator resolved this by applying the long-established maxim that work that is “suffered or permitted” to be done is work that must then be compensated, whether or not the employees had formalized permission. That is what happened here.

There are many ways for a plaintiff or group of plaintiffs to come after an employer and it need not be in a court proceeding. These working time cases are particularly perilous. They become more dangerous when there is a triggering event, such as a reclassification of employees from non-exempt to exempt so people that used to receive overtime are, all of a sudden, not receiving it.

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I have often addressed the issue of Department of Labor Opinion Letters and how they provide very good guidance on the myriad wage-hour issues that employers must deal with. They are useful because they highlight the DOL’s thinking on any given issue, which, if then followed by an employer, gives that employer a “safe harbor” from any allegation that it has violated the Fair Labor Standards Act.

In Wage and Hour Opinion Letter FLSA 2009-6 (January 14, 2009), the issue was whether jet and helicopter pilots for a corporation were exempt as executives or professionals. Although the DOL could not definitively answer the particular question, since the company did not provide enough information for the agency to make a determination, the DOL reaffirmed its position of “non-enforcement” relating to pilots performing who flew aircraft as business or company pilots. This means that, essentially, the DOL will not investigate overtime claims by such employees and will “treat” these workers as exempt.

This company employed eight full-time pilots. They transported executives, customers, and guests to meetings/company facilities. All of the pilots held commercial pilot licenses and they all met/exceeded the Federal Aviation Administration requirements for acting as a pilot in command. The DOL tried to consider whether the “chief pilot” would be exempt under the executive exemption, but the FLSA regulations mandate that an exempt executive have, as his “primary duty” the management of an “enterprise or a customarily recognized department of subdivision thereof.” Thus, the chief pilot would not neatly fit this cubbyhole.

The Opinion Letter also noted that the DOL has long considered pilots to be non-exempt as learned professional employees, but nevertheless took a position of “non-enforcement” as far as certain pilots were concerned. This non-enforcement view applies to pilots and co-pilots who: 1) possess a FAA airline transport certificate or commercial certificate 2) receive compensation on a salary or fee basis of at least $455 per week; and, 3) engage in one of nine categories of aerial work, such as test flights, aerial photography, and meteorological research. One of the categories covered by the agency’s non-enforcement policy is “flying of aircraft as business or company pilots.”

The point here is that sometimes the DOL will simply back away from determination of the exempt status of a particular classification, especially if it is gray area and if the employees at issue are sufficiently well compensated so the DOL believes that “overtime” may not be a real issue for them.
 

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A federal court has ruled that an airline was not required under the Fair Labor Standards Act to compensate a prospective flight attendant for the periods of time that she attended a full-time training program that lasted five weeks. Interestingly, during this period, the trainee received free housing and an allowance for meals. The case was brought in federal court in Washington and was docketed as Ulrich V. Alaska Airlines Inc.

The court dismissed the case because the judge determined that the training was of benefit to the trainee. It enabled her “to qualify for employment by Alaska” Airlines and to gain “first-hand experience in the type of customer service provided by Alaska.” Of equal significance was the concomitant finding that the airline-employer “received no immediate benefit” from her work “serving passengers on board the training flights, because the airline still had to staff the airplane with a full complement of regular flight attendants.” This element, i.e. the employer deriving benefit, meaning productive work, is a key component of the analysis.

Also, the airline made no representation that the trainee would in fact receive a position with it following the completion of the training (although the majority of trainees did receive job offers)

The United States Department of Labor has, through issuance of numerous Opinion Letters, adopted a six-part test for determining whether an individual engaged in a training program is an employee and unless all six factors are satisfied, the person is deemed an “employee” and must receive compensation for his endeavors/efforts for that employer.

The factors are: (1) whether the training, even though it includes actual operation of the employer’s facilities, is similar to that which would be given in a vocational school; (2) whether the training is for the trainees’ benefit; (3) whether the trainees displace regular employees and work under close observation; (4) whether the employer derives an immediate advantage from the trainees’ activities;(5) whether the trainees are entitled to a job after completing training; and (6) whether the employer and the trainees understand that the trainees are not entitled to wages for the training time.

Under the “benefit” test, the court made clear that the benefit to the employer must be “immediate” and cannot be speculative or in the future. Indeed, the court observed that the airline may even have lost money in the training process, because the trainees took up seats that otherwise would have gone to paying passengers. The airline was also required to have a flight fully staffed with regular flight attendants, notwithstanding that the trainees may have performed some minor tasks on the flight, such as service cart work and trash pick-up.” In sum, the employer-airline did not derive the benefit, although the regular flight attendants may have been relieved of some of their usual (tedious) duties.

As with all of these issues, an employer must closely scrutinize the tests applicable to determining employee, as opposed to trainee, status. An incorrect answer will could mean thousands of dollars in potential liability.
 

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Most of my postings about class actions have concerned white collar, service or retail sales occupations and whether employees fit within certain FLSA exemptions. A few have concerned working time (e.g. donning and doffing) in factories. None has concerned so exotic an occupation as loggers, or, as the TV show likes to label them, “Ax Men.”

A FLSA class action lawsuit, entitled Maudlin v. Johnny Kynard Logging, Inc., has been filed by a logger who claims he always worked from about 5AM-6PM, without being paid the required premium rate (i.e. time and one-half) for overtime hours. In an important victory for him and other putative plaintiffs, his case has been granted collective action certification, which means that more plaintiffs will throw their axes in with this gentleman and seek overtime.

Judge Kristi K. DuBose of the U.S. District Court for the Southern District of Alabama granted the plaintiff’s motion for class certification, as well as an Order facilitating notice to other loggers who may wish to join the suit. Evidently, according to the plaintiff’s attorney, there have been a number of suits filed against logging companies and this industry is rife for other overtime suits.

The attorney asserted that failing to pay loggers proper overtime is “somewhat of a common practice” among logging companies. For example, in this case, it is claimed that the employees were all paid on a flat per-day or per-week basis that did not account for the actual number of hours the employees worked, with an appropriate overtime calculation then made. Such a calculation would be based on the total remuneration received (i.e. adding all of the day rate monies) divided by the total hours worked in the week to arrive at a regular rate. Half-time overtime would then computed on that week’s regular rate.

The named plaintiff and the opt-in plaintiffs in this action worked as loggers cutting, gathering and delivering timber. The lesson here is that no occupation, business or industry is immune from these kinds of overtime suits, albeit based on different theories.

If a tree falls in the forest and no one is there, does it make a sound? If the tree is felled by a logger not being paid proper overtime, it will indeed---a big one.
 

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Sales representatives of Novartis Pharmaceutical Corporation who brought a class action have been determined to be exempt employees under the Fair Labor Standards Act, thus bringing an abrupt end (for the plaintiffs) to the litigation. Federal district court Judge Paul Crotty, sitting in the Southern District of New York, has ruled that these employees were “outside salespersons” and exempt under that provision. Then (although it did not have to reach the issue), the court also found that they were “administrative” employees, also exempt from overtime requirements.

The representatives argued that they did not make “sales” as that term is defined under the law. Note that there is a very technical, precise meaning given to the term “sales.” The judge rejected that argument, finding that they made sales by “obtaining commitments” to prescribe Company drugs from the physicians that they solicited. The judge noted that the workers were credited with sales and were compensated by incentive payments. Thus, under the FLSA (and New York State law), they were exempt outside salespersons.

The representatives contended they were not administrative employees because they lacked the requisite discretion and independent judgment. The judge rejected that as well, finding that their work directly related to general business operations and, in contrast to the contention, that the representatives did utilize discretion and independent judgment, with regard to matters of significance, the FLSA requirement.

There are 500 potential plaintiffs. They have vowed to appeal.

This is a tremendous victory for this employer and for employers in general. It shows that the administrative exemption can be successfully argued, as applicable to a class of workers. It demonstrates that perhaps the courts are viewing the discretion/independent judgment component of the exemption test with some real-world flexibility. That is precisely the necessary prescription.
 

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