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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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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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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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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