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

What a strange turn of events, a Department of Labor being cited for not paying the prevailing wage. Yet this is exactly what has happened in Delaware. A Delaware state court has refused to dismiss a lawsuit alleging that the state’s Department of Labor has misclassified workers on public works construction products and has improperly enforced the state prevailing wage statute. The case is The Roofers, Inc. d/b/a Tri-State The Roofers v. Delaware Department of Labor and is being heard in the Superior Court in Delaware.

The judge rejected the Delaware DOL’s contention that the company failed to exhaust its administrative remedies before taking the matter into the Delaware courts. The controversy centered around disputed wage classifications.  On public works projects, workers are classified by trades and paid according to the rate for that trade.  Initially, the DOL has the responsibility to assign certain work to certain trades, but a contractor may challenge that determination and that was what happened herein.

The state DOL tried to mount a procedural defense to the judicial action.  The agency argued that the contractor had not appealed its decision “in writing.” Yet, the employer had met with the Secretary of Labor to rebut the allegations, which the court ruled (quite correctly) was the equivalent of sending the required notice to the DOL.  The matter arose when the DOL alleged that the contractor did not pay the rate for sheet metal workers, but rather paid the roofer or carpenter rate (a lower rate) for the work at issue.

In July 2009, the state DOL notified the contractor of the alleged violations, but the letter did not alert the contractor to its right to appeal.  The agency then ordered the prime contractor to withhold funds from the contractor, against the liabilities for the alleged underpayments.  The contractor then filed he lawsuit, which challenged the DOL’s classification system as not complying with the Administrative Procedures Act.  This gimmicky, procedural tactic launched by the DOL has now failed and the case will proceed.  For once, it is a DOL that will be obliged to prove the propriety of its classification procedures.

What goes around, comes around.
 

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The US Department of Labor has resolved a legal action against a Texas company, Flour Enterprises Inc. for its failure to pay relief workers who participated in the Katrina clean up and rehabilitation efforts. The company will pay one million dollars to 154 workers. The case is entitled Solis v. Universal Project Mgmt., Inc., and was filed in the Southern District of Texas.

The DOL had also secured a default judgment against another Houston, Texas company for wages due workers which arose from the same investigation. That case is entitled Solis v. Universal Project Mgmt., Inc., and was filed in the same federal court..

Fluor, an engineering and construction firm, functioned as the General Contractor when it contracted with the Federal Emergency Management Agency after the devastation caused by Hurricane Katrina.  In turn, Fluor Enterprises subcontracted the work of inspecting trailers for the displaced people who were left homeless by the disaster to Universal Project Management.

The field investigation conducted by the DOL revealed that the companies did not pay time and one-half overtime, but rather (and against the law) paid only straight time for overtime hours.  A DOL official explained that “some employees involved in the inspection of trailers during the hurricane recovery worked up to 84 hours in a week without the required overtime compensation for hours worked over 40 in a workweek.”.

The Secretary of Labor observed that “workers who help rebuild our communities and secure the safety of local residents following natural disasters should be fairly and legally compensated for the work they perform.”

It is shameful that these employers should disregard such a basic tenet of wage-hour law, i.e. paying proper overtime, especially to workers who were likely not earning that high of an hourly wage to begin with. The mind boggles. I often take issue with Departments of Labor when defending/representing clients, but I applaud this use of the agency’s investigative and enforcement powers.
 

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The Second Circuit Court of Appeals has reversed a lower court and held that a regional director of advertising sales for the Elite Traveler magazine was non-exempt under the Fair Labor Standards Act. The Court rejected the contention that the employee fell within the administrative exemption. The case is entitled Reiseck v. Universal Communications of Miami Inc.

In the 1990s, there was a rash of cases involving inside sales people and whether they fit within the administrative exemption. Courts have held that such employees are “white collar production employees” in that they are really only “producing” the goods of the employer and not engaging in the ancillary, back-office kinds of duties that are deemed administrative under the FLSA. In this case, the Second Circuit continued that line of reasoning.

The Court found that as the primary duty of the employee was selling advertisements to individual customers and not promoting sales generally, the employee was only a producer, not an administrative employee.

The magazine was free and thus advertising sales made up the predominant component of its revenue. There were salespeople who sold advertising space and, significantly, a marketing staff that was charged with the primary function of creating promotional material to increase advertising sales. The Court determined that the employee was not involved with the market creation work, as she was selling specific advertising space and advertising sales were a critical source of revenue, the Court therefore concluded that advertising space was the Company’s “product.”

As the employee’s primary duty was the sale of that product, she was a sales employee, not an administrative employee. This was the Court’s conclusion notwithstanding that there was evidence that Ms. Reiseck developed new clients with the goal of increasing advertising sales generally. Her primary duty remained selling specific advertising space to clients.

I have often commented on the grayness of the administrative exemption. There is a continuing, if you will, eternal, tension between whether an employee is merely producing goods (whatever those good may be) or is performing the more esoteric duties that support and comprise the business. Those duties are administrative, but precise definitions are difficult to come by. Fair warning to the employer----if you choose the administrative exemption, be prepared to defend it (probably in court).
 

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John Ho, in the New York Labor and Employment Law Report, writes that in difficult economic times, employers may resort more to the use of so-called independent contractors, to avoid all personnel/administrative costs affiliated with bringing statutory employees on board.  I agree that this will continue to be a flashpoint in the coming year, but one that hearkens back to longstanding problems for putative employers.

He notes that different statutes have different tests.  There are two things, however, that remain constant throughout all of these different statutory tests--control and proof of an independently established business.  I know, in New Jersey, which uses the A-B-C test, the "C" element, i.e. independent business, is the one that most employers get into trouble on.  The putative contractor must be shown to be in his own business, such as evidencing that the business is incorporated, having liability insurance, business cards, advertising and, most importantly, doing work for more than just one employer. 

If there is not a spread of work done for a number of different employers, a Department of Labor and its sub-divisions, such as Unemployment, and Wage-Hour,  will, in knee-jerk fashion, assert that the person or persons are employees.  That leads not only to demand for payment of back-due premiums, but also, more dangerously, assessment of penalties, which could, under many state constructs, be escalated geometrically.

John's piece can be viewed at  http://www.nylaborandemploymentlawreport.com/articles/wage-and-hour/ 

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Under the Fair Labor Standards Act, there is no law requiring employees receive a lunch period or break times. However, when the employer gives time for lunch, the employees must receive at least thirty minutes and the time must be uninterrupted. Put differently, the employees must be completely relieved from duty. When employees are not so relieved, they must then be compensated for that time, i.e. the half-hour, which all becomes “converted” into working time.

This is what the DOL found happened in this investigation, which ultimately included 4000 nurses. Some of the nurses answered phones while on lunch and others performed “some” duties. The result, however, is the same---all of the time is converted.

The hospitals also had an automatic deduction policy, by which one-half hour was automatically deducted from the nurses’ time for that day, on the assumption that the lunch was taken. Although the hospitals had a policy about not working during lunch (i.e. not carrying the hospital-provided phones during meal breaks) and also had a policy that allowed nurses to cancel the automatic deduction if they performed actual, productive work. The hospitals claimed that the nurses did not follow the policy. The result was a supervised settlement providing for 1.7 million dollars to be paid to the affected employees.

I have clients who have these automatic deduction systems for lunch time. As this makes clear, the automatic is not so automatic. There must still be supervisory oversight and intervention in issues where employees may have worked through lunch, to ensure that proper payment is made. The employer must have a system where employees can report that they worked through lunch and the employees, in my view, must be given training on the system, so all productive time is paid for and the DOL does not come knocking on the door.

In sum, a policy, a piece of paper, will not provide a defense to claims of uncompensated working time. More is required of the employer.
 

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In a ground-breaking decision, the Ninth Circuit Court of Appeals has set a path down for defendant-employers in Fair Labor Standards Act (“FLSA”) class actions that is breathtaking in its simplicity and conclusive effect. In Vinole v. Countrywide Home Loans, the Court ruled that an employer need not wait until the close of discovery (which is very expensive and time-consuming) to file a motion seeking to deny class certification before the plaintiff moves to have the class certified.

The plaintiffs, External Home Loan Consultants, alleged that they had been misclassified as exempt outside sales employees, resulting in an illegal failure to pay them overtime. The Company, relying on California Wage Orders and the language in the FLSA regulations, had in fact classified these workers as exempt as outside sales people.

Before the pretrial motion deadline and discovery deadlines ensued, the Company filed a motion to deny class certification under Federal Rule of Civil Procedure 23. The plaintiffs opposed the motion, claiming that it was premature because they had not yet filed their class certification motion and further contending that class certification was appropriate, based on the evidence that they had adduced.

In affirming the lower federal court’s denial of class certification, the Ninth Circuit held that too much individual analysis of what the employees did, e.g. outside sales work or lack thereof, was required. As I have written about many times, individuality is the death knell of a class action, as plaintiffs must prove commonality, i.e. a common policy, plan or practice applicable to the entire class.

This can be the start of a trend that might push back on the multiplicity and veritable explosion of class actions. In giving employers a weapon to use offensively, the Ninth Circuit (usually, a fairly liberal, pro-employee Circuit) has signaled that, as Bob Dylan wrote four decades ago, the “times, they are a changin’”
 

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