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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

Second Circuit Reverses on Lawyer Professional Exemption Case: What in the World Is Happening?

Posted in Class Actions, Exemptions, Overtime Issues

I have blogged about this matter several times, all the while applauding the lower court decision and employer’s legal position in the case, as I believed what these temporary lawyers were doing did constitute the practice of law.  The Second Circuit has now disagreed.   The Court has ruled that document review work does not equal, automatically, the practice of law.  The case is entitled Lola v. Skadden Arps Meagher Slate & Flom LLP in the Second Circuit Court of Appeals.

The Second Circuit agreed with the district Judge that the state law of North Carolina, where Lola worked, was the proper law to analyze, but concluded that the judge erred when he ruled that document review was “per se” the practice of law.  The Court noted that a “fair reading of the complaint in the light most favorable to Lola is that he provided services that a machine could have provided.  The parties themselves agreed at oral argument that an individual who, in the course of reviewing discovery documents, undertakes tasks that could otherwise be performed entirely by a machine cannot be said to engage in the practice of law.”

Thus, the law firm’s motion to dismiss victory was overturned.  There will now have to be the usual discovery and subsequent motions (e.g. summary judgment?) focusing on the question (as urged by the plaintiff) whether the “mechanical” document review work he performed was not the practice of law because it didn’t require any legal knowledge, skill or training,  according to the plaintiff.

The district court Judge concluded that as any kind of document review was deemed the practice of law in North Carolina, the claim had to be dismissed.  The Second Circuit disagreed and relied upon a North Carolina State Bar ethics opinion that stressed that there had to be “the exercise of at least a modicum of independent legal judgment” for it to be considered legal work.  Judge Poole, writing for the Court, noted that “moreover, many other states also consider the exercise of some legal judgment an essential element of the practice of law.”

The Takeaway

Maybe an en banc hearing is necessary for the “right” result to issue?   I believe that document review of the kind at issue here, does involve some exercise of discretion and independent judgment.  Such document review does involve some level of and demand for the worker being required to “think like a lawyer.”

I think this decision is wrong.  Maybe it will now go to trial?  Maybe it will now be settled, leaving the issue for another court and another day?

Maybe it will end up in the U.S. Supreme Court…

USDOL Proposes New Independent Contractor Regulations: Another Bright Line

Posted in Independent Contractor

I have defended and litigated dozens of independent contractor cases and have found these matters to be intensely fact sensitive and tilted, in large part, towards a finding of employee status by both the agencies and the courts.  I had also noted in a recent post that the US Department of Labor would be issuing new proposed guidelines for these determinations.

Well, the DOL has issued those guidelines; they are targeted towards “curbing” the allegedly wholesale misclassification of employees as independent contractors.  The thrust of the regulations is to include many (think, millions) more workers as statutory employees.  This is because improperly classified people do not receive minimum wage protection and overtime pay.

The proposed regulations will focus upon/emphasize the fundamental issue of whether the person is truly in an independent and self-sustaining business for himself, as opposed to being economically dependent on the particular employer.   Within that general umbrella, there are “economic realities factors” that will inform the classification determination.

The agency posits that these should not be “should analyzed mechanically or in a vacuum,” nor should any single factor be accorded an excessive amount of weight.  The DOL also added that the economic realities that courts utilize to decide independent contractor issues and the FLSA “suffer or permit” test have a wider reach than the common-law control test that Congress rejected when it enacted the FLSA.

The head of the Wage Hour Division stated that “whether a worker is an employee under the Fair Labor Standards Act is a legal question determined by the economic realities of the working relationship between the employer and the worker, not by job title or any agreement that the parties may make.”  He added that “the Labor Department supports the use of legitimate independent contractors — who play an important role in our economy — but when employers deliberately misclassify employees in an attempt to cut costs, everyone loses.”

The Takeaway

These proposals, similar to the exemption regulation proposals, draw a bright line between employees and independent contractors.  Employers will find, if these proposals are adopted as written (or nearly so), that treating anyone as a non-employee is going to be very difficult.  That might not be such a bad thing!

The most important criterion for someone to be an independent contractor is whether they are in a business that would survive the termination of a particular “employment” relationship.  The putative employer must ensure, insofar as possible, that the contractor has the “outward” indicia (web site, business address, incorporated, etc) of a “business,” but more importantly, that the contractor actually derives some business income from other sources.

Also, if the work at issue is further away from, rather than closer to (i.e. integral) the main business of the putative employer, the more likely that the person is an independent contractor.  The landscaper engaged by a trucking company is more likely to be deemed an independent contractor than a dispatcher engaged by that same company.

Interns Deemed Non-Employees By Second Circuit

Posted in Class Actions

I have been following the protracted saga developing in the Second Circuit concerning whether interns are employees.  Recently, this Circuit overturned a lower court decision that granted conditional certification to an intern (and the putative class) alleging that they were statutory employees. That case is entitled Glatt et al. v. Fox Searchlight Pictures Inc.  Concomitantly, in Wang v. The Hearst Corp., the Second Circuit upheld a ruling that denied certification in another intern case.

The appellate court concluded that the “primary beneficiary test” should be utilized to determine if the plaintiffs were employees, rather than the test espoused by the plaintiffs, which was the individuals would be deemed employees if their “employer” derived some immediate benefit from their work.

The Second Circuit would not defer to the USDOL’s six-part test set forth in a 2010 fact sheet offering guidance as to what constituted an “unpaid internship,” concluding that this “test” was essentially derived from the almost seventy-year old US Supreme Court Portland Terminal Company decision and further opined that the DOL did not possess a “special competence or role” when it came to interpreting court rulings. The Court chided the DOL test for being “too rigid.”

The Court sided with the defendants who asserted that the correct analysis was whether the intern or the employer was the primary beneficiary of their relationship; the defendants urged scrutiny of seven non-exhaustive factors in that determination.

Those factors include: 1) if there is a clear understanding that there is no expectation of compensation; 2) whether interns receive training similar to what they would get an educational environment; and, 3) to what the extent the internship is tied to a formal education program. Even though the Court rejected the six factor DOL fact sheet, the Court did not express an opinion on the result in a “new” case brought under the primary beneficiary test.

The Takeaway

There certainly is an issue with possibly abusive internships involving what is commonly referred to as “grunt work.” These workers should be entitled to the protection of the FLSA, i.e. minimum wage and overtime. There are, however, a great many internships that people strive mightily to secure and which fit the criteria enumerated by the Second Circuit.

As is the case with so many wage-hour/personnel issues, a policy, clearly outlining the terms and conditions of the internship, will go a long way to establishing to a court (if need be) that the particular internship fits within these new guidelines.   Maybe new guidance will issue from the DOL.

Maybe the US Supreme Court will ultimately decide the issue…

The New FLSA Exemption Salary Proposal: It Don’t Worry Me!

Posted in Class Actions, Exemptions, Overtime Issues

The news is out that the US Department of Labor has (finally) proposed the long-awaited revisions of the FLSA regulations.  In a bold initiative, the agency proposed to raise the salary threshold to almost $1000 per week (to $50,440 annually).  This is more than double the current minimum salary level of $455 per week, or $23,660.  Under this proposal, it is estimated that five million more workers would be overtime-eligible.

The proposal will be published in the Federal Register and then the 60-day comment period will follow.   The DOL further proposed to build into the threshold an automatic escalator provision that will keep the salary level “current,” whatever that may mean.

The agency is also seeking input on whether changes should be made to the duties test, especially whether the federal regulations should adopt the California model, where to be exempt, a minimum of at least 50 percent of worker time must be spent performing exempt duties to qualify for an exemption.

There is some sentiment that the new salary threshold will lessen litigation.  Interestingly, this comes from Justin Swartz, a plaintiff side wage-hour attorney who commented that “employees and employers should welcome the new rules because the salary basis threshold is a clear line that’s easy to interpret and will cut down on misclassification lawsuits.”

The counter to that comes from the National Retail Federation which states that “the administration seems to be under the distorted impression that they can build the middle class by government mandate. Turning managers into rank-and-file hourly workers takes away the career opportunities offered by private sector entrepreneurs and job creators that are the true path to middle-class success.”

The Takeaway

Ironic as it is for me to agree with an adversary, I welcome this proposal because it will decrease litigation because a very bright line will be established.  Many FLSA collective actions involve assistant managers and other first-level supervisory personnel who make just more than the current minimum and whose job duties may or may not meet the primary duty test of the regulations.  Now, those cases will go away.

Conversely, an employer paying an employee $1000 per week is likely having them work at a job that will be deemed exempt if scrutinized.  I also believe (strongly) that an employer’s labor costs need not rise due to a possible “wholesale” re-classification of employees.  The correct hourly rate can be computed or arrived at so that, even with the overtime hours worked, at the time and one-half rate, the aggregate outlay for the employer will be the same as before.

On balance, so far,—a good thing.  With that said, now let’s see what happens with the duties tests revisions.

That may be a wilder ride!

Preemption Defense In Federal Court Dooms NJ State Overtime Claim

Posted in FLSA Retaliation, Working Time

When a FLSA case (or a state law wage hour case) is filed against a unionized client, the first line of defense for me is to ascertain if we can argue that the court has no jurisdiction because the wage hour claims are preempted by federal labor law and must be decided pursuant to federal labor contract law.  Preemption is also appropriate where the state-based cause of action is “inextricably intertwined” with the collective bargaining agreement.  In Johnson v. Langer Transport Corporation, filed in federal court in New Jersey, this doctrine has recently been given renewed vitality.

The plaintiff claimed that he was not paid regular or overtime wages, that the Company failed to accurately record wages and hours and then retaliated against him when he made complaints regarding his allegations of unpaid wages. The Company argued that this would necessarily require the Court to examine and interpret the labor contract to determine the worker’s pay rate, how hours were reported and tracked, the Company timekeeping policies, and its policies for reporting errors in pay.

The plaintiff contended that there was no dispute about the labor contract, what it says, or anyone’s rights under the contract. Instead, the plaintiff argued that he was not paid for hours he worked with the Company because it “manipulated” the time clock and refused to pay him. This, according to the plaintiff, did not require an analysis of the contract’s terms.  He argued that the factual determination of the amount of time worked, and the legal determination regarding whether this time is compensable under the applicable wage law did not depend on a reading of the terms of the labor contract.

The Court concluded that the claims for unpaid wages under the New Jersey Wage Hour Law were preempted under the Labor Management Relations Act because such claims, at their core, required an analysis and interpretation of the contract.  While the Court recognized that not every dispute tangentially involving a provision of a collective bargaining agreement is preempted, because that would be inconsistent with congressional intent, the core allegations of this Complaint were founded directly on rights created by the labor contract, specifically the Plaintiff’s right to be paid in accordance with labor contract provisions.

The Takeaway

If the labor contract provision at issue violates an explicit state wage hour law, then the wage claim is not preempted.   For example, in New Jersey the minimum wage is $8.38 per hour; if management and labor agreed to pay a starting rate of $8.00 per hour, such an explicit violation would exist and preemption would not be appropriate.

If, on the other hand, an arguable contention can be made that the dispute requires interpretation of contract terms, or explicitly addresses a matter agreed to by management and labor negotiators and codified in the contract (sometimes for years), the case for preemption becomes that much stronger.  If faced with a state court or NJDOL proceeding involving such an issue, the defendant (i.e. Employer) should strongly consider moving for a declaratory judgment in federal court.

A Bumpy Ride: Uber Driver Ruled Employee, Not Independent Contractor

Posted in Independent Contractor

The Uber phenomenon has been catching fire over the last few years with many people jumping on it as a means to make a living or extra money.  I have some friends who have signed up to be Uber drivers, just as a means to make some extra money.  I always thought these people to be independent contractors but this view, this world, may have just been totally turned upside down.

This is because the California Labor Commission has ruled that an Uber driver is an employee, not an independent contractor and thus the Company’s entire business model is thrown into turmoil.  The case is entitled Uber Technologies Inc. v. Berwick, filed in the Superior Court of California, as an appeal from the Commission decision.  The ruling (awarding the plaintiff payment for business expenses, e.g. tolls, mileage) may mean that Uber might have to give these “employees” health insurance and other benefits, which could radically disrupt the manner in which Uber does business.

The Company argued that it did not control the individual and she could work or not, as she pleased.  The Commission ruled that the Company acted like an employer when it supplied the person with an iPhone to be able to access Uber’s smartphone app.  The Company also screened potential drivers.  The Commission found that the Company held itself “out as nothing more than a neutral technological platform, designed simply to enable drivers and passengers to transact the business of transportation.  The reality, however, is that defendants are involved in every aspect of the operation.”

The Company asserted that this decision conflicted with another Commission decision finding an Uber driver was not an employee and it also conflicted with similar positive decisions in Georgia, Pennsylvania, Colorado, Texas and Illinois.

The Takeaway

The element of control is not the only factor considered in the totality of the circumstances analysis that is the independent contractor test.  For example, if an individual (as could be argued by the Commission herein) is performing a service integral to the business, this is an indicator that the worker is an employee.

A commentator has suggested that perhaps there will emerge from this cauldron is a hybrid form of employment relationship, not a true employee, not a true independent contractor, but somewhere in the middle.  In this regard, there are also currently class actions against Uber pending in federal court, so (assumedly) the federal courts will have input on this crucial issue.

I am not sure about the hybrid definition, unless it emanates from Congress, so as to ostensibly apply to the entire country.  These independent contractor cases are extremely fact sensitive and the Commission or a court can reach different decisions on different individuals.   For employers engaging so-called independent contractors, my advice is to try to ensure that they are in their own business, that they have the indicia or trappings of being in their own business (e.g. incorporated, have other customers/clients, etc.) in addition to not being controlled by the putative employer.

Easier said than done…

USDOL To Issue Official Independent Contractor Guidance in Administrator Interpretation

Posted in Independent Contractor

I have recently blogged about new exemption regulations being proposed.  Well, that is not the only regulatory initiative coming down the pike.  The USDOL is about to release guidance on the very confusing and thorny issue of when an individual is an independent contractor.  The agency will be issuing another of its “famous” white papers or an “administrator interpretation.”

The head of the WH Division, David Weil, stated that the interpretation will contain “a very clear set of criteria.” He intimated that the criteria will examine (as do federal courts on these issues) “a careful consideration of the economic realities and multiple aspects of the relationship.”  No specific time frame was announced but it appears that the guidance will come out in the summer.

The “problem” for the agency is that misclassified workers are not covered by the FLSA protections of minimum wage or overtime.  The agency believes that this is a “serious problem” not only for these people but for the entire economy.

The agency, for years, would issue opinion letters in response to factual scenarios and posed legal questions (which provide an astronomical amount of instructive guidance) but ceased doing that in 2010 when it started issuing administrator interpretations and announced it would no longer provide responsive opinion letters.

The agency now believes that issuing these interpretations provides more definitive guidance than answering fact specific questions posed in requests for opinion letters.  Through so doing, the agency collects the various cases that have issued on the topic, as well as looking at the Opinion Letters that have issued, and comes to a “reasoned” overview of the DOL stance on a given topic.  Fact-based responses to individual requests might produce skewed results, in the DOL’s view.

The Takeaway

I daresay that the administrative interpretation will mirror the abundant case law on “economic realities,” which is the doctrine that federal courts have utilized for decades in analyzing these questions.  That is probably a good thing, as opposed to analyzing it through the prism of, say, the A-B-C test which is a more mechanical approach.

The most crucial element to be set forth in the interpretation, I bet you, will be whether the alleged independent contractor has other business/clients.  In “economic reality” terms, this means that the putative contractor can survive the termination of any particular, discrete relationship and that the economic reality is that he is not dependent on the alleged employer under scrutiny.

If that is the case, then really nothing will have changed, because in the IC cases I handle/defend, that is always the focus!

USDOL Revisions to White Collar Rules Will Issue This Month: Lots of Changes Ahead

Posted in Exemptions, Overtime Issues

I have blogged before on the “eagerly” anticipated DOL revisions to the white collar exemption regulations.  This initiative is designed to narrow the white collar exemptions to the Fair Labor Standards Act and would make possibly millions of additional employees overtime eligible.

The proposed rule is now expected this month, but its expected content is still vague.   Two things are certain—the salary threshold for exemption (now set at $455 per week) will be significantly raised and there will likely be a “quantitative test,” meaning the setting of a definite/specific percentage of time that workers must spend performing exempt work to qualify for one of the exemptions.

One thing is even more definite—there will be a spike in the already large volume of misclassification lawsuits that already fill judicial dockets.  This is because there will continue to be publicity concerning the new proposals and employees may have new reason to question (or think about) their current classification status.   Concomitant to this will be the increase attributable to plaintiff-side lawyers scrutinizing the regulations and probing for weakness, meaning opportunities, in the employer/business community.  Note that after the revised regulations took effect in 2004, there was a significant rise in FLSA cases.

As to the salary increase, one view might be that this is a good thing, as the line of demarcation between exempt and non-exempt would be made automatically brighter and employers would know, off the bat, that if they refused or could not pay workers the enhanced salary, those workers were non-exempt.  In other words, by raising the salary threshold, large groups of workers would be non-exempt, meaning there would be fewer groups for lawyers to fight about. That would be a good thing.

The bigger issue or threat may be the second potential change, which would set a minimum percentage of time that exempt work must be performed.  California currently uses such a quantitative standard, i.e., 50%.  Now, under the FLSA, an employee can be exempt even if they perform less than 50% exempt work because a worker’s “primary duty” means the “principal, main, major or most important duty that the employee performs.”  Setting a definite percentage might, by itself, spur litigation because evidence that 50% (or more) exempt work is being performed may be tough to demonstrate.

The Takeaway

If the proposed regulations will change the primary duties test for these exemptions, then, depending on how extensive those changes are, there would/will be a significant increase in litigation.  Part of the underlying issue is for the DOL, the Congress and the courts to try to apply a Depression-era piece of legislation to the modern, technology-driven workplace.

Implementing a quantitative duties test will be at first a spur to litigation but it may also make employers much more careful (that is, conservative) in their classification decisions.  That may, ultimately, be a good thing for the business world.

Survey Shows Corporate Counsel Especially Fear Class Actions: With Good Reason!

Posted in Class Actions, Exemptions, Overtime Issues, Working Time

A recent survey shows that class actions are the biggest worry for US corporate counsel.  This is based on a polling of approximately 800 corporate counsel where the results were that 25% of those polled labeled class actions as their biggest fear and that almost two of five answered that they have endured such an action in the last year.

This fear is well founded.  A big reason for this is United States laws have developed in a manner that, if they do not make these suits more likely, they have made such suits very dangerous and prohibitively expensive for employers to defend, much less, prevail upon.

Employment class actions are a major concern within this genre.  Two of five companies dealing with class actions were sued for employment causes of action.  Included in this subset are the wage hour/FLSA actions.  These are of particular concern because they are fee-shifting laws, which make a full-blown, lengthy defense very risky and potentially financially devastating.  Added to this is that conditional class certification is often (far too) easily granted, which forces the employer to put all of its eggs in the effort to de-certify the class or hope that not too many people opt in.  Motions to de-certify are expensive, especially for a result that is, at best, problematic.

I have found, however, that the biggest concern in FLSA class actions is the fact that often employers are not, in fact, complying with the laws, and not out of any design or intent to do avoid proper compliance. Many of these issues (e.g. working time, preliminary, off-the-clock work, exemption issues) are filled with gray.  If the employer has, in good faith, made certain determinations, it may feel compelled to defend those decisions to the hilt and then forced to pay for it!

That is why so many of these cases settle.

The Takeaway

No employer can control if/when it will be sued, or where—state court, federal court, state DOL, federal DOL.  What the employer can try to control, however, is the factual foundation on which such a lawsuit will be fought.  Scrutiny of all existing compensation practices (everything from classification to vacation, commission and bonus plans) and the fixing of what may be broken is the way of covering the flank in these situations.  Fix what is wrong and then let time erode away the statute(s) of limitation.

“Suffer or Permit” Case Again Shows Danger Of Implicitly Requiring Overtime

Posted in Overtime Issues

I have often warned clients that simply having a policy against working unauthorized overtime does not immunize an employer against a successful lawsuit claiming payment for off-the-clock work.  A recent case (yet again) proves this maxim.

An appellate court has now held that a group of nurses working for the US Department of Veterans Affairs need not have been “expressly directed” to work overtime in order for them to receive overtime compensation.   The case is entitled Mercier v. United States and issued from the Federal Circuit Court of Appeals.

The nurses alleged that the VA required them to work overtime by imposing increased scrutiny, including a greater risk of discipline, on those who would not work.  The nurses claimed that the VA knew the nurses were working overtime “on a recurring and involuntary basis.”  The Federal Circuit concluded the work could be considered “officially ordered and approved,” as required by the statute and that the nurses had been “induced” to work overtime, but then the agency avoided paying for the overtime by contending that the work had not been ordered or approved. Thus, the Court concluded that work that was “induced” but not specifically required was nonetheless “ordered or approved.”

The Court succinctly stated that “we therefore hold that Anderson’s interpretation of [the Federal Employee Pay Act], namely that overtime is ‘officially ordered or approved’ where it is induced by one with the authority to order or approve overtime but not expressly directed, remains good law.”

The plaintiffs stated that the overtime was necessary to discharge the tasks known as “View Alerts,” which were described as time-sensitive requests for information related to patient care.  They contended that their supervisors, who had the power to order or approve the overtime, required the extra work and then threatened them with more enhanced scrutiny and the threat of disciplinary action.

The Takeaway

Employers cannot condone employees working or making the employees believe that they must perform certain tasks and then defend an overtime claim by asserting the “I did not order it” defense.  That is the essence of “suffering and permitting” work to be done and then seeking to avoid paying for it.

If employees believe they will be disciplined or can reasonably face discipline if they do not perform the off-the-clock work and the activity at issue is sufficiently connected to the job, then the activity will be considered “work” for which compensation is owed.