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

The financial services industry has been and will continue to be, in my view, hard hit by wage-hour class actions.  The attack will be and has been that these employees are non-exempt and therefore entitled to overtime.  These employees also, typically, work much more than forty hours in a week.  A bad mix for a class action.  This is what has just happened (again) to JP Morgan.

Loan officers filed suit in federal court in New York City.  They claim that as commission employees, they cannot be exempt under federal and state wage-hour law.  One of the fundamental tenets of classifying someone as exempt is paying him on a salary basis.  If the facts show that they were solely commission based, they are, in fact, correct that they are non-exempt.  They could arguably fit within the commission exemption of the FLSA, under Section 207(i) of the Act, but they would not fit the Part 541 exemption tests of the federal regulations.

This attack is but one of many coming against financial houses.  Under the revised FLSA regulations, financial people who have selling as their primary duty are non-exempt.  Although the regulations do enumerate many functions performed by financial people that are exempt, e.g., analyzing information regarding a customer''s income, investments, assets and debts, advising the customer regarding the advantages and disadvantages of certain financial products, once the conversation turns to sales, which it almost inevitably must, that is non-exempt selling work. 

Where bright lines will be drawn in this area is anyone's guess and I believe there really are no bright lines.  Given the hours worked by many, if not all, of these folks and the compensation that many of them earn, the overtime exposure is astronomical.  Employers in this industry are duty-bound to make a careful analysis of the "true" job duties of financial service employees so re-classifications of wrongly classified employees can take place.  Or, cut the hours they work to forty (if operationally possible).  Put bluntly and simply---get out in front of it!

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How does an employer control overtime costs and ensure that the employees do not take it upon themselves to work overtime when there is no need for it or, more to the point, it has not been authorized.  I have counseled clients for years that they should implement a policy that requires employees to get prior authorization before they work overtime and if they do not, the overtime is unauthorized and will not be paid.

Sounds good, makes common sense and is reasonable, that is until recently when the Second Circuit Court of Appeals issued the decision in Chao v Gotham Registry, Inc.  In this case, a nursing staffing agency had just such a rule and refused to pay employees for overtime they worked that was unauthorized  The Court held that when an employee works overtime, he must be paid for it, notwithstanding that no permission was received to work the overtime under the policy.  This may well create a big boondoggle for employees and will make the employer's task in policing the working of overtime that much more onerous.

I still maintain that such policies should be maintained and enforced, but perhaps in a slightly different manner.  One approach is to discipline the employee for insubordination and/or failure to follow company rules, at the same time paying the employee the overtime.  Concomitant to this is the employer's eternal obligation to be vigilant about the working of overtime and ensure that employees are informed at time of hire, with periodic reinforcement or refreshers, that overtime is not to be worked without prior authorization.

The key is that if the employer has knowledge that an employee is working overtime, or is coming in early and/or leaving late and doing productive work during those times, the employer has, under the law "suffered" and "permitted" the work to be done.  Accordingly, that time must be paid.  This tenet has been part of the FLSA regulations for sixty years and is nothing new.  What is new is the anti-employer tweak that the Second Circuit has placed on this tenet.

Employers--Keep on top of this, or it will fall on top of you.

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There are more than twenty (20) exemptions from overtime enumerated in the Fair Labor Standards Act.  Mostly, employers only are concerned with the three so-called white-collar exemptions (executive, administrative, professional).  There is, however, an exemption for truck drivers, bus drivers and other individuals who drive for a living and who cross state lines.  This is called the Motor Carrier Exemption and there must be an element of interstate commerce involved.

Interstate commerce is easy to understand if a driver crosses state lines.  But, what if the driver does not cross state lines and drives entirely within one state.  That movement can still be considered interstate commerce under the doctrine known as "practical continuity."  If there is such a practical continuity of movement for the shipment, such that the intent of the shipper was to have that shipment pass through interstate commerce, in a single, unified trip, then the interstate nature of the trip also continued.  The otherwise intrastate driving truckers would nevertheless be exempt from overtime under the Motor Carrier exemption.  Thus, the drivers working for an intrastate beer distributor were found to be exempt from overtime because the beer they drove, which had been imported from out-of-state, was originally destined for the in-state customers by the shipper in the distant state.

Further, concerning bus drivers,  if an passenger can buy a ticket which is good for both an intrastate trip and then an interstate trip, this is known as "through-ticketing" and also is considered part of the continuous stream of interstate commerce.  Similarly, where a Colorado ski resort contracted with a limousine service to provide transportation from the Denver airport to the ski resort, those drivers were found to be in interstate commerce because they completed the last leg of the interstate trip  It should be highlighted that the amount of interstate traffic to qualify for the exemption is rather minimal. 

For employers of drivers, this exemption must be considered.  It could save thousands of dollars in overtime costs.

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A group of San Francisco police officers has filed a class action, seeking compensation for time they allege was working time that occurred before their shifts.  They claim that they should be paid for putting on their uniforms and taking care of their equipment.  The class has been conditionally certified, meaning that the defendant City will have the ability to try to de-certify the class in the coming months.  It is problematic, however, if that endeavor will succeed.

In opposing the conditional certification, the City had also argued that a two-year, rather than three-year, statute of limitations should control but the Court refused to decide that issue at this juncture in the proceeding.  This is a crucial issue to the case, because if the employer's conduct is deemed "willful," the extra, third year is added on to the calculations, significantly increasing the potential liability.  At the end of the case, following trial, the issue of willfulness is decided.  That may be too long to wait, because by the time a trial commences and ends, thousands of more legal dollars have been expended in the defense.

The issue in these working time, preliminary/postliminary cases, always defaults back to the elements of employer compulsion, if any, and the connection between the preliminary activity and the main, primary job.  It is incumbent upon every employer to determine whether it forces employees to come in early to perform any activity even tenuously related to their job.  If so, the employer must make a determination regarding compensability.  Or, allow the employees to first clock in and then get dressed or attend to the other preliminary duties.

Just don't ignore the situation.

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When a FLSA class is certified, the defendants then have the opportunity to decertify the class at a later date.  The employer argues that the people who opted in to the class are dissimilar to those who started the suit and should be eliminated.  Thus, the employer hopes to fragment the class and have the court declare it a nullity.

Recently, Starbucks tried to decertify a class in an action brought by a group of assistant managers who claimed they were improperly denied overtime.  In this case, notice had been sent to 11,000 putative class members and 355 opted into the collective action.  The Company claimed the opt-ins were dissimilar and would require too much individualized examination, which is the antithesis of a "class" action proceeding.

The federal judge held that the individuals worked under the same job title and job description.  They all reported to the same supervision chain of command.  The Company had argued that the workers were employed under different immediate managers and worked at widely dispersed locations in thirty states.  The plaintiffs also had evidence that they were compelled to work off the clock.

Starbucks also argued that the small number of opt-ins showed that there was no common, overall policy relating to off-the-clock.  The court brushed that aside, finding that people have many reasons for not wanting to opt into an action.

Thus, employers will have two bites at the apple in defending a class action.  First, the employer argues, at the conditional certification stage, that no "class" of similarly situated people exists.  Second, the employer can then seek to decertify.  The best argument is dissimilarity, but some significant showing must be made in this regard or the class will stay as a whole, to the considerable financial detriment of the employer. 

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