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

A few days ago, Daniel Schwartz posted in his Connecticut Employment Law Blog an article about a recent Second Circuit decision disapproving the use of the fluctuating work week (FWW) method of calculating overtime when employees misclassified as exempt are deemed to be non exempt.

In this case, Hasan v. GPM Investments, LLC, the employees were classified as exempt by their employer and then filed a collective action, seeking a determination that they were non-exempt.  The Second Circuit was ruling on the validity of a pre-trial motion to exclude the use of the FWW method to calculate damages if the workers were deemed non-exempt.

The Court held that the FWW method could not be used because the parties had never agreed to be paid at overtime rates that would vary with every week, depending on the number of hours they worked.  The Court also held that employees subject to FWW overtime should also receive their full salary for these weeks in which their hours totaled less than forty, but this never happened.  Indeed, the job description for these so-called Managers specified that they work fifty-two (52) hours per week.

David points out that this case highlights the potential dangers for employers in trying to minimize damages in an exemption case by arguing that the lower-paying FWW method should be used to determine damages.  I agree.  I have often counseled employers that misclassified workers will receive overtime at the FWW rate and other courts have approved this method of payment.  I have also seen the Departments of Labor, federal and state, use the FWW method when they determine that workers have been misclassified.

What this portends for the future is unsure.  A split in the Circuits usually means that at some point the US Supreme Court will decide the issue.

To be continued….
 

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When employees work for two ostensibly independent employers, and the aggregate hours worked exceeds forty, overtime must be paid if the employers are “sharing” the employee or both deriving benefits from that employee’s work.  That is the doctrine of “joint employer” status.  Now, in a recent holding, the Third Circuit has set forth a new test for determining when a joint employer relationship exists under the Fair Labor Standards Act.  In this case, the Court concluded that Enterprise Holdings Inc. was not a joint employer with its car rental subsidiaries' and therefore the plaintiff assistant managers could not seek relief against the parent company.  The case is entitled In re: Enterprise Rent-A-Car Wage & Hour Employment Practices Litigation.

The assistant managers claimed they were improperly classified as exempt.  The district court granted summary judgment to the employer on the joint employer issue and the plaintiffs appealed to the federal appellate court.  In its groundbreaking opinion, the Third Circuit enumerated a standard that involves examination of the putative employer’s: 1) ability to hire and fire the relevant employees; 2) ability to issue and implement work rules/assignments; 3) ability to establish conditions of employment for the workers; 4) involvement in day-to-day supervision of workers, notably the right to discipline; and, 5) actual control of employee records, such as payroll, insurance, or taxes.

The Court took pains to point out that these factors are not exclusive and should not be rigidly applied.  The Court emphasized that if other factors demonstrated that an entity exercised significant control over a group of employees, then that evidence, when coupled with the enumerated factors, might be persuasive on the issue of whether a joint employment relationship exists.

Applying the test to Enterprise, which is the sole stockholder of 38 domestic subsidiaries, the Third Circuit found that it was not a joint employer of its subsidiaries' assistant managers.  The parent company had no authority to hire or fire assistant managers, no authority to promulgate work rules or assignments, and no authority to set compensation, benefits, schedules, or rates or methods of payment, the Third Circuit said.  Enterprise was also not involved in employee supervision or employee discipline and did not exercise or maintain any control over employee records, the appeals court said.

The Court rendered this ruling, notwithstanding that the parent company provided some services to the other entities, such as business guidelines, rental reservation tools, a central customer contact service, insurance, technology, legal services and some human resources services.  Even with all of these administrative-type services provided, it was still insufficient to establish joint employer status.  The main focus of the joint employer analysis is the control and direction by the putative employer on the employees, not whether it provided these ancillary support services.

I think this is very good from a strategizing posture, as well as a defense posture.  Now, management side labor lawyers will be better able to advise their clients how far they can go in their interfacing with and interacting with related entities (e.g. subsidiaries) and yet not be found to be joint employers under the FLSA.
 

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In FLSA cases, the plaintiff will often sue not only the Company, but its owners and/or officers as well.  I know from personal experience in defending these cases that clients often are motivated to settle because they fear the specter of possible personal or individual liability.

The recent case involving the owner of Gristede’s Foods Incorporated illustrates this maxim in a graphic manner.  He has appealed to the Second Circuit Court of Appeals, arguing that he is not an “employer” under the Fair Labor Standards Act and thus should not be held liable for any portion of the $3.5 million settlement just arrived at to resolve overtime employees who were pursuing a class action.  The case is entitled Torres et al. v. Gristede's Operating Corporation.

The CEO, John Catsimatidis, argues that he should not be liable to payments to the more than five hundred Department Managers (who were allegedly misclassified as exempt) because the day-to-day operations were handled by his deputies and their deputies and so on.  Thus, he disclaimed any operational control at the level where the working conditions, job duties, and, most importantly, hours, of the employees were regulated and directed from.  A lower federal Court had ruled in September 2011 that he “retained” retained control of the daily operations of the various stores and thus he was an “employer” as defined under the FLSA.

The CEO’s appeal focuses its attack on the legal standard used by the District Court.  He urges that the district court had applied the wrong legal standard and should have used the so-called “economic reality” test, which is the test used to determine independent contractor status under the FLSA.  The CEO argues that this test would zero in on an owner’s “actual relationship” with employees.  The appeal papers urged that “the district court did not apply the 'economic reality' test or focus on Catsimatidis’ relationship with the store employees in question. Instead, it looked at Catsimatidis’ overall corporate control and supervision.”  The evidence showed that for over a decade, the CEO has not played a role in hiring or firing decisions, did not make payroll decisions and did not negotiate with the labor unions representing the employees.

An affirmance would pose a danger for employers because it would expose controlling shareholders to liability in scenarios in which they may exercise general oversight of Company operations but are not “on the ground” in a particular store or facility (where decisions about exempt status and work hours may be made).  The Company claims that the “FLSA does not contemplate such disdain for the corporate form.”  On the other hand, the buck (all three million of them) may stop at the top.

To be continued.
 

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In early January, I posted an entry regarding the exempt status of pharmaceutical sales representatives. In the past several months, there have been several significant developments with respect to this issue.

On February 14, 2011, the Ninth Circuit affirmed the District of Arizona’s ruling in Christopher, et al. v. SmithKline Beecham Corp., that a proposed class of pharmaceutical sales representatives (“Sales Reps”) were exempt from overtime pay pursuant to the “outside sales exemption.”

In affirming the District of Arizona's decision, the Ninth Circuit acknowledged that the duties of Sales Reps are the “functional equivalent” of making an outside sale in that they “makes sales by obtaining commitments to prescribe…drugs from physicians. They are credited with those sales and compensated accordingly by means of incentive payments.” The plaintiffs have filed a petition for rehearing to overturn the decision.

The Ninth Circuit’s decision in Christopher is in direct contradiction to the Second Circuit’s stance on the applicability of the “outside sales exemption” to Sales Reps. Indeed, in cases against Novartis and Schering Corp., the Second Circuit determined that Sales Reps do not fall within the “outside sales exemption” because they do not “sell” or make any “sales.” Rather, the Second Circuit held that the Sales Reps are responsible for promoting and marketing drugs rather than actually selling them. On February 28, 2011, the United States Supreme Court denied the petition by Novartis and Schering Corp. to review the decision.

This issue will likely have to decided by the United States Supreme Court due to the split in authority among circuit courts. Moreover, the exempt status of Sales Reps will likely become further muddled as there are cases pending in the Seventh Circuit, Connecticut, Florida, and Ohio.

In the meantime, drug companies should be wary about classifying Sales Reps as exempt if they do not “sell” or make any “sales.”
 

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An employee who was paid a salary, deemed exempt by her employer, filed a lawsuit claiming she was in fact non-exempt and won.  The calculation of her damages, however, was not to her liking as the court computed the overtime using the half-time method allowed by the Fair Labor Standards Act (“FLSA”) fluctuating work week (FWW) regulations for salaried non-exempt employees.  The employee has now filed a petition with the United States Supreme Court asking for a determination that this methodology was incorrect.  The case is entitled Urnikis-Negro v. American Family Property Services Incorporated and comes out of the Court of Appeals for the Seventh Circuit.

The employee earned a salary of $52,000 a year and claimed she usually worked in excess of forty hours per week, but was never paid overtime.  The defendant claimed that she was exempt as an administrative employee, but the district court rejected that position.  The court then applied the fluctuating workweek computation method, which had the effect of significantly reducing the damages to approximately $25,000.

The “fluctuating workweek” regulations govern the payment of overtime to non-exempt salaried employees.  When such employees work different numbers of hours on a weekly basis, the regular hourly wage, on which overtime is then computed, is calculated by dividing the weekly salary by the total number of hours worked, getting a regular rate for that particular week, dividing that by two to get the half time component and multiplying that half-time number by the number of overtime hours.

The employee wanted the calculation done by dividing her weekly salary by forty, getting a fixed hourly rate and then doing a time-and-one-half calculation on that hourly rate.  That second methodology would produce a much higher overtime/damages number.  The Seventh Circuit did agree that the pertinent regulations (29 CFR 778.114) did not apply to her position, but decreed that this method could be used for her damages computation based on an earlier Supreme Court decision.  The petition asserted that leaving the Seventh Circuit decision stand will give employers an undue advantage as they can classify employees as exempt, pay them a salary and if they are wrong, they will not be required to pay time-and-one-half overtime.

I believe the Seventh Circuit is correct here.  If a misclassification occurs, the FWW method should apply to the calculation of damages because there is no regulatory or statutory basis for converting the salary into an hourly rate, which would then generate the "usual" overtime calculation, such as would be paid a non-exempt hourly worker.  Assuming there was no nefarious intent by the employer to “intentionally” misclassify workers so as to get the “benefit” of a FWW calculation, the half-time calculation is proper.  My reading of the tea leaves is that the Supreme Court will not accept the case for its decision.

To be continued…
 

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In a FLSA collective action, a federal judge has denied conditional certification to a class of bus drivers and bus aides, who claimed overtime violations.  The denial was founded on the premise that the employees did not make even the modicum of a showing required for the obtaining of conditional certification.  This is usually an easy hurdle for the plaintiff(s) so this case becomes instructive for employers on how to fight such actions.  The case is White et al. v. Rick Bus Co. and was filed in the District of New Jersey

All that the plaintiffs produced/adduced were paycheck comparisons between the named plaintiff and his co-workers.  Even though the standard for conditional certification is a “modest factual nexus,” which is generally interpreted by federal judges to mean a variety of things, such as a few (identical) Affidavits, the evidence submitted here did not even reach that level.  The theory of the case is an overtime denial coupled with a contention that the Company’s record keeping system was faulty, thereby resulting in further wages owed to the employees.

The judge concluded that the plaintiff “provided mere generalizations and legal conclusions. ” The plaintiff also failed to “put forth any relevant facts for the court to consider, such as the names of any similarly situated employees.”  The judge did note there are two standards for conditional certification “dueling” in the Third Circuit in that some judges require no more than an allegation that the plaintiffs are subjected to the same company practice or policy.  Most judges, however, in the Third Circuit, require more than this and need some modicum of a showing of similarity between the named plaintiff and fellow class members.

The plaintiffs have also thrown in a “rounding” allegation, alleging that the Company practice of rounding down time was improper and also violated the FLSA.  Employers are allowed to round up and down, provided that, over time, employees are not short-changed.  This will be a tougher allegation for the plaintiffs to prevail upon.

I think this case sends a message on what is actually needed to secure even conditional certification.  I believe in those cases in which the plaintiff(s) submit only naked Affidavits, which nine times out of ten are identical, the Employer is better able to defeat a motion for conditional certification on the “modest factual showing” test, especially if the employer itself can demonstrate (i.e. deposition testimony) that there were “qualitative” differences between the named plaintiff and the others.
 

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In a September 16, 2010 posting in the New York Labor & Employment Report, John Ho wrote about the issue of joint employer status under the Fair Labor Standards Act (“FLSA”). These are potentially explosive situations, especially if employees work from one facility to another.  When employees float between ostensible joint employers, their hours must be aggregated, meaning that, oftentimes, overtime situations ensue, i.e. employer liability.  John’s posting can be found at http://www.nylaborandemploymentlawreport.com/2010/09/articles/wage-and-hour/jury-not-court-determines-whether-an-entity-is-a-joint-employer-under-the-flsa/index.html

There are a number of factors that a court analyzes to determine joint employer status.  These were enumerated in a Second Circuit case entitled Zheng v. Liberty Apparel Company in 2003.  In Zheng, the entire case turned on whether the entities were joint employers.  The jury found that they were and the employer appealed.

The thrust of the appeal was that since the federal judge in the district court should have been the “decider” in ascertaining whether the entities were joint employers, not the jury.  The Second Circuit has just recently ruled that the proper deciding body was the jury.

There is a bigger question here than just the procedural issue of whether this mixed question of law and fact should have been decided by a judge or jury.  Employers must be aware that if they have a relationship with another entity that is more than a vendor or supplier relationship there could be an issue of joint employer status.  The factors enunciated in Zheng were: 1) do the workers work predominantly for the joint employer; 2) the permanence or duration of the working relationship; 3) if the alleged joint employer’s premises/equipment are used by the employees; 4) the extent of control exercised by the joint employer; 5) whether the workers are an integral part of the business; and, 6) whether the workers had a business organization that could shift as a unit from one putative joint employer to another.

Although these factors were set down in the context of the garment industry, many of them are applicable to any other industry.  The point, as John Ho stated, is that every employer must examine its relationship with other affiliated entities, as well as temporary staffing agencies that it may work with.  It is with these staffing agencies that the biggest danger for a joint employer finding arises.
 

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I have written a number of times about the difficulty of proving that the administrative exemption applies to dispatchers in the transportation industry.  I have noted that most transportation employers consider these employees exempt because their job functions are critical to business operations.  Under the Fair Labor Standards Act, however, that is not the test. Rather, the employee must be paid a salary and perform certain kinds of duties.  In Rock v. Ray Anthony Int’l LLC, the Eleventh Circuit held that a crane dispatcher was not entitled to overtime compensation because he was an administrative employee.  This is a rare victory for employers on a difficult employee classification matter.

The appellate court agreed with the lower court that the employee “effectively managed” an entire department and did in fact exercise discretion and independent judgment, which is often the greatest obstacle to successful application of the exemption.  This is because the line between using “skill and experience” and discretion is often blurry and the regulations offer some guidance but not too much..

For example, the employee interfaced with customers in significant manners.  He was responsible for helping them select employees.  He also maintained crane rental records and helped facilitate projects by selecting materials, tools, and machinery to meet the needs and demands of certain projects.

The employee tried to denigrate his job responsibilities.  He portrayed himself as simply doing retail sales work or being a cog in an assembly line-type operation.  The Company countered that he was working in a capacity crucial to vital business operations.   The Court agreed with the company, concluding that what the employee performed work that was at the “heart of Sunbelt business.”

As stated above, the Court also agreed that the employee exercised discretion.  The employee possessed and exercised the ability to resolve a wide range of customer and technical issues. The court also found that the employee was “responsible for directing and overseeing all operators and truck drivers.  The Eleventh Circuit did caution, however, that ordinary dispatchers, such as many of those working in the trucking and bus industries, did not utilize discretion but were rather only following prescribed techniques and standards.
 

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In a January 21, 2010 posting in the New York Labor and Employment Law Report, Joseph Dole reported on a case entitled Young v Cooper Cameron Corporation, recently issued by the Second Circuit.  The case concerned the applicability of the professional exemption to an individual performing engineering design work on sophisticated equipment.  While he had twenty years of experience, he only had a high-school degree.  The court ruled that the employer incorrectly classified him as exempt.

 The issue rose and fell on the absence of a college or higher degree in a specialized field of training.  To me, this is the completely wrong result.  The proposed new professional regulations had sought to allow a claim of professional exemption even without the "degree," if experience and education were deemed to fit the exemption.

The final regulations stepped back from this and hearkened back to the old tests.  They do leave a crack open, attesting that there is the "possibility" that an individual may fit the professional exemption as an attorney, for example, even if he did not go to law school, like, for example, Supreme Court Justice William O. Douglas.  The regulations, however, envision this as a one in a million occurrence and I think, especially in the computer and technology fields,. experience of a professional nature is often supplanting the straight, "pure" education.

In fact, I understand that Bill Gates did not finish college.  Under the rationale of this case and the current FLSA regulations, this billionaire would be found to be non-exempt and entitled to overtime. 

Funny, ain't' it?

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