Exemptions

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I have written a number of times about law firms that have been sued in FLSA actions. Another example. Employees have sued two Florida personal injury law firms, alleging that they were misclassified and not properly paid proper overtime wages in violation of the Fair Labor Standards Act. In fact, there are two class actions filed. The cases are entitled Durrett v. Disparti Law Group PA et al and Hinkle v. Jodat Law Group PA. et al. Both cases were filed in federal court in the Middle District of Florida.

Law books and justice scales
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The employees at issue in the Disparti suit are case managers; these are the same kind of employees whose status is at issue in the Jodat case.  The employees claim that their duties are non-exempt. The Durrett plaintiff alleged, “in most if not all work-weeks, plaintiff was paid for 40 hours but was not compensated time and half for hours worked over 40.” She alleged that the “defendant would pay plaintiff straight time by personal check for all hours over 40 in a workweek. This disguised method of compensation was implemented to circumvent the FLSA’s requirement for overtime compensation.”

The plaintiffs claim that the founders of the firm knew of these illegal payment practices and have named both of them as individual defendants. The suit also alleges that sometimes the defendant gave Durrett compensatory time and failed to pay Hinkle for her time spent delivering mail between the offices, although she asserted this was a routine part of her duties.  Hinkle claimed that the “defendants were able to avoid paying overtime by not paying plaintiff travel time when she would transport firm mail between office locations.

The women employees claim all they did was manage cases, keep clients informed of status of their cases, order supplies and organize files.  Ms. Durrett made a very (potentially) damaging allegation, i.e., that she was ordered to clock out and then keep working, many times in excess of fifty (50) hours per week. Naturally, the employees claim the violations were willful and that there are many other workers at these two firms with similar claims.

The Takeaway

Law firms, or doctor offices, are not immune to FLSA lawsuits, particularly on misclassification grounds. It is always the employer’s obligation to classify employees properly. It sounds like the employees at issue do mainly ministerial tasks, run-of-the-mill tasks that do not smack of exemption. Unless the plaintiffs (and possible opt-ins), supervise workers so they might possibly fit within the executive exemption, the only realistic possibility is the administrative exemption.

The grayest and toughest of the white-collar exemptions for the employer to prove…

There have been so many cases involving employees in the financial services industries and their exempt status or lack thereof. In another variation on this theme, Provident Savings Bank is seeking review by the US Supreme Court of a Ninth Circuit decision that gave new life to allegations that its mortgage underwriters are non-exempt and entitled to overtime. The bank asserts that these employees are exempt under USDOL regulations, i.e. the administrative regulations. The case is entitled Provident Savings Bank, FSB v. Gina McKeen-Chaplin, et al. and has been submitted to the U.S. Supreme Court.

Banking and Financial Services
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The bank had defended the lawsuit by asserting that these workers did qualify as exempt administrative employees because their duties involved the “servicing” and “running” of the bank’s business by analyzing and evaluating whether the bank should risk money by rendering loans to certain borrowers. The petition states “nothing in the FLSA’s text or purpose justifies interpreting the ‘administrative’ exemption with a heavy thumb on the scale against the employer. Perhaps for that reason, this court has pointedly refused to apply the canon in recent FLSA cases.”

The Ninth Circuit concluded that the job functions of these workers, i.e. reviewing loan applications using guidelines set down by the bank and investors, were not the back office functions relating to management or general business operations that the exemption requires. The named plaintiff had appealed a lower court decision that granted summary judgment to the Bank.

The district court had first granted conditional certification but then threw the case out because it concluded that the underwriters fit within the administrative employee exemption because major, primary functions included “quality control.”  That is one of the functions enumerated in the regulations as work related to the management or general business operations of the bank.

The Takeaway

This case highlights the confusion in the regulations concerning the financial services industry. If these workers are “simply” using established guidelines and standards to make decisions, well, that is not “discretion and independent judgment.” Although quality control is certainly a back-office type business function, this particular exemption still requires employees to use discretion.

That is where these kinds of cases usually go south for the employer.

I have blogged (somewhat incessantly, I admit) about manager FLSA class actions and what the line(s) of defense are for the employer in these cases, and how to defeat these cases. Another case in point. A federal judge has now decertified a collective class, following the Magistrate Judge’s recommendation against the class continuing in this overtime action. The case is entitled McEarchen et al. v. Urban Outfitters Inc., and was filed in federal court in the Eastern District of New York.

Retail clothing storeJudge Roslynn R. Mauskopf adopted the Magistrate Judge’s report and recommendations, concluding that there was no plain error in the Report. Moreover, the Managers had not lodged objections to the Report/Recommendations. Magistrate Judge James Orenstein had ruled that there were too many differences in duties, responsibilities and authority among the members of the class to allow the claims to proceed as a collective action.

The Managers stated that they agreed not to object to the Report if the Company gave the Managers more time to file, perhaps, individual lawsuits. The original lawsuit alleged misclassification, i.e. that the Managers did not fit the executive exemption, they were not true managers and therefore were non-exempt under the FLSA. The plaintiffs moved to certify a class of all current/former department Managers at the Company’s 179 stores. The plaintiffs argued that all of the Managers had similar job duties and lacked meaningful discretion. There were notices sent to 1,500 potential opt-ins, following the granting of conditional certification. More than two hundred opted in and several were deposed.

The Magistrate Judge found that there were major differences between the duties and experiences of the opt-in plaintiff and the named plaintiffs. The Judge found that the opt-ins seemed to be exempt, as opposed to the named plaintiffs. The named plaintiffs asserted that they had little say in hiring and firing decisions. To the contrary, many opt-ins “described being active participants in the hiring and firing process,” Judge Orenstein wrote. The named plaintiffs posited that they spent but little time training hourly workers, but many opt-ins testified to a broad range of training responsibilities.

The Takeaway

This is another lesson for employers, not only in these Manager type cases but also for all employers defending almost any kind of FLSA (or state) class/collective action.  Bang away at individual differences in the class. It sure helps if the opt-ins to the class give favorable testimony at the expense of their own self-interest (and wallet). The interesting twist is that the plaintiffs extracted more time for possible plaintiffs to file their own individual cases.

Maybe they know something…

Well, it finally happened. A Texas federal judge struck down the Obama Administration’s proposed changes to the FLSA overtime regulations, which would have made millions of more people eligible for overtime. The Court’s theory was that the U.S. Department of Labor used a salary level test that was excessive in determining whether workers should be exempt from overtime. The case is entitled State of Nevada et al. v. U.S. Department of Labor et al. and was filed in federal court in the Eastern District of Texas.

The Judge granted summary judgment to the Plano Chamber of Commerce and more than 55 other business groups. These entities had fought the proposed 2016 rule that highly elevated the minimum salary threshold necessary to be deemed exempt under the FLSA “white collar” exemptions, executive, administrative, and professional. The new level would have been more than $47,000 per year ($913 per week). The highly compensated exemption (HCE) would have gone from $100,000 to approximately $134,000.

The Judge opined that the “significant increase” would negate or totally undermine duties test, which is a critical component of the exemption analysis. The Judge stated that, “the department has exceeded its authority and gone too far with the final rule. The department creates a final rule that makes overtime status depend predominately on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.”

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
There is another case on this issue pending. The Fifth Circuit is simultaneously considering the government’s appeal of a preliminary injunction Judge Mazzant issued in November 2016, which stopped the rule from taking effect, but a few days before it would have been implemented. The Obama DOL appealed the ruling before the new Administration took over.

The judge noted that if the DOL proposal went through, then more than four million workers currently not eligible for overtime would automatically be eligible under the final rule, although their job duties had not changed. The Judge noted, “because the final rule would exclude so many employees who perform exempt duties, the department fails to carry out Congress’ unambiguous intent.” The Judge cautioned that he was not making any determination on the issue of the DOL’s authority to set a salary threshold.

The new Secretary of Labor, Alex Acosta, has advised lawmakers that the DOL wanted to revise the overtime rule, establishing the salary level somewhere between the “old” level and the very high level set in the Obama-DOL rule. Mr. Acosta stated that level was too harsh on businesses.

The Takeaway

In principle, I agree with the concept that the duties portion of the test is as important as the salary component and raising this salary in this extreme manner was too much for business to bear. I had clients make changes back in November 2016, in anticipation of the rule, and now they are living with (and paying for) those changes because they do not want to penalize their employees. With that said, I do believe the salary level will (ultimately) be raised.

No industry is immune to FLSA collective actions and the energy industry is seeing a significant uptick in these actions. In this regard, a class of workers employed by an oil field services company has just agreed to a $2.1 million deal to settle a Fair Labor Standards Act collective action alleging that the company did not pay them proper overtime wages. The case is entitled Meals v. Keane Frac GP LLC et al., and was filed in federal court in the Western District of Pennsylvania.

Oil pump jack and oil tank silhouette
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The employer advised the Court that a settlement had been reached with a class of “frac supervisor I’s” to settle a FLSA collective action, seeking overtime, on a misclassification theory. The agreement recited that both counsel believed the settlement was in the best interests of all the parties, given the costs to be incurred, the risks inherent in litigation, as well as the delays, when placed up against the benefits of the settlement.

The defendant, however, made sure to secure non-admissions language. The papers stated that the “defendant denies and continues to deny all of plaintiff’s allegations in the action. Defendant enters into this agreement expressly disavowing any fault, liability and/or wrongdoing.”

Importantly, there had been a grant of conditional certification in June to a class of current and former “frac supervisor I’s” and other like employees who were employed by the Company in the last three years. The plaintiffs alleged that these alleged supervisors performed primarily manual work, which precluded the application of the exemption. The plaintiffs also claimed that the Company has a policy of deliberately misclassifying these supervisors to save overtime costs (even though they received bonuses). The Complaint alleged that all of these supervisors were similarly situated because they shared common job duties, were all classified as exempt and all performed uncompensated work.

The Takeaway

This was the right move by the employer. Exemption cases are always tough to win—often, the entire class is held to be exempt, or, heaven forbid, non-exempt, especially if common policies apply to the affected workers. The issue now becomes whether to re-classify these workers, i.e. pay them hourly, or enhance their duties so they “evolve” into exempt employees.

A lot easier to re-classify.  A lot less (future) worry and aggravation…

It is difficult to defend a class action based on exemption, which explains why many of these cases (as herein) settle. This is because the employer-defendant is (usually) going to be completely right, or totally wrong. Either the class of workers (especially if the exemption at issue is professional or administrative) will meet the regulatory tests or they will fall short. That is the reason these cases often settle, because the employer does not want to test its theory at an expensive trial.

Artist at computer
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Case in point. A judge in California just gave final approval to a 1.5 million settlement to resolve class action allegations that a group of senior artists for a video game giant company were wrongly classified. The case is entitled Lee et al. v. Activision Blizzard Inc. et al., and was filed in Superior Court of the State of California, County of Los Angeles.

The Judge approved a settlement in this case, more than two years after the named plaintiff, John Lee, filed a suit alleging that the Company had misclassified the senior artists as exempt, salaried employees to avoid paying overtime. The Court approved the sum of $1.5 million for the class of 128 artists, as well as legal fees of $500,000.

The lawyer for the plaintiffs claimed they had a strong case on the classification issue. The Company maintained that the senior artists were properly classified and it had a basis for potentially wiping out all damages in the case. The Company had garnered several Affidavits from the class members themselves who asserted that they were properly classified. The Company asserted in the motion that “given that the makeup of the 128 member putative class consisted of approximately 80 percent individuals, who continue to be employed by the defendant, it was possible that at trial, any if not all of the currently employed class members might testify that they were properly classified during the class period or that they worked no overtime hours at all.”

The Takeaway

The exemptions at issue were the professional and possibly the administrative. The Company might have been well advised to settle, however, because the professional exemption virtually mandates a long, prolonged course of study in a field recognized as “professional.” The administrative exemption, as I have preached many times, is the most difficult of the white collar exemptions to defend, especially on the issue of discretion vs skills and experience, which may well have been the stumbling block in this case for the Employer.

You know, law firms are not immune from FLSA issues merely because they are law firms and may be allegedly endowed with some superior knowledge of laws. A recent case illustrates this maxim.  The name partner of a Los Angeles firm has been charged with misclassifying his legal secretary as exempt.  She now has won a jury verdict of $80,000 in overtime; her former boss had claimed that she was properly classified as an executive employee. The case is entitled Bernal v. Little PC et al. and was filed in state court in the Superior Court of California, County of Los Angeles.

Law books and justice scales
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Ms. Bernal alleges that she was promised a salary of $1,000 per week and no evening hours.  Her workload increased but Mr. Little refused to pay her overtime wages.  Her counsel told the jury to disregard Little’s assertion that they had an arrangement to pay the Plaintiff a set salary, because the lawyer explained that her position was not exempt from overtime.

Mr. Little claimed Bernal was exempt as manager, as she directed the work of two or more other employees, was responsible for HR and payroll duties and could establish her own hours and manage her own workload.  The plaintiff’s lawyer took strong issue with those assertions, telling the jury that she was primarily a legal secretary, including the taking of dictation.

The lawyer testified that Ms. Bernal had worked for him before and knew what the hours were and that there was no conversation about her having a set hourly schedule as she claimed.  He also asserted that Ms. Bernal knew it was a “salaried” position; he told the jury that she testified that the initial offer appealed to her because she would be paid for days she did not work.  The secretary countered by claiming that her job was all-consuming, sometimes working twenty-hour days and running personal errands for Little, as well as being required to respond to texts and calls on nights and weekends.

The Takeaway

Merely paying someone a salary does not mean that they could not eligible for overtime.  They must perform the duties required for the executive (or other) exemption.  This person’s job duties did not sound like that.  Nor does fancy title, if she had one, e.g. Office Manager, mean that she managed anything.

(Expensive) lesson learned…

I have blogged so many times about Assistant Manager class actions.  I never seem to get tired of it because there is a never-ending “supply” of them.  Guess what.  Another one.  A group of employees working for AC Moore, an arts, crafts and floral merchandise retailer, has petitioned a federal judge to approve an almost three-million dollar settlement that settles claims that they have been misclassified as exempt executive employees.  The case is entitled  Rossmeisl et al. v. A.C. Moore Arts & Crafts Inc., and was filed in federal court in the District of Massachusetts.

Arts & crafts items
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The plaintiffs asked for the court approval a bare two months after they filed their collective action.  Their theory was that they were misclassified as exempt.  They argued equally hard that the settlement should be approved because it was the right thing to do.  They stated that “the settlement was the result of extensive pre-suit investigation, discovery and substantial arm’s-length negotiations.  Recognizing the uncertain legal and factual issues involved, the parties reached the settlement pending before the court after private mediation before an experienced mediator.”

The lawyers for the plaintiffs advised the employer that they were alleging that the assistant general managers were misclassified as exempt in January 2016.  The parties then entered into pre-litigation discussions to ascertain if a settlement was possible.  The Complaint was nevertheless filed on February 8.  The court papers then capture the essence of why this settlement should be approved.

The court papers advised the Judge that “the settlement, which followed a thorough investigation and mediation with a former federal magistrate judge, Hon. Diane Welsh, satisfies the criteria for approval of a Fair Labor Standards Act collective action settlement because it resolves a bona-fide dispute, was reached after in-depth investigation and review of significant documentary evidence and payroll data, was the result of arm’s-length settlement negotiations assisted by a private mediator and between experienced counsel and provides good value to the workers it will benefit.”

The Takeaway

This is an interesting tactic employed by the lawyers for the plaintiffs.  Avoid litigation, but still get a nice settlement.  It might also be better for an employer but there might be, I fear, too ready a desire to settle at such an early stage, just to avoid the (rapidly) escalating legal fees associated with defending such a case.  Naturally, the merits, good or bad, dictate the employer’s strategic decision.

Corinne Burzichelli writes:

The issue of the exempt status of financial services employees has been explored in numerous cases for many years and in different parts of the country.  Now, there is a new chapter to add to this saga.  On February 28, 2017, Judge William J. Martini granted Morgan Stanley Smith Barney LLC’s motion for summary judgment, dismissing financial advisers’ claims that they were entitled to overtime under the FLSA and New Jersey law.  The case is entitled In re: Morgan Stanley Smith Barney LLC Wage And Hour Litigation and was filed in federal court in the District of New Jersey.

Banking and Financial Services
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The plaintiffs, consolidated from four cases originating in New Jersey, New York, Connecticut and Rhode Island, alleged that Morgan Stanley failed to pay overtime in violation of the FLSA.  The named plaintiff, Nick Pontilena, additionally claimed that Morgan Stanley violated New Jersey law by not paying him required overtime, making improper wage deductions, and failing to maintain required pay records.

The court rejected these claims and concluded that financial advisers were exempt from overtime  under the FLSA.  The Court concluded that the administrative exemption applied.  This is significant because many courts have rejected the identical defendant contentions/defenses.

Judge Martini determined that financial advisers met this standard by reviewing the USDOL regulations and case law directly addressing financial advisers as opposed to DOL guidance on mortgage loan officers.  Indeed, the Court chose to follow precedent from the Eastern District of Pennsylvania and the Northern District of California, and deferred to a 2006 DOL letter, all of which found that financial advisers were exempt from the FLSA.

Specifically, the Court agreed with the regulations and concluded that the financial advisers satisfied the administrative exemption because they primarily offered advice and analyzed client information in an independent manner and were not focused solely on making “sales.  That is a very momentous decision because the decisions that have gone the other way have found that these employees’ main job duty was selling.

The Takeaway

Employers in the financial services industry who are hit with these suits must focus on the analysis, rather than the selling, job duties of the employees.  If a court believes that the “sale” is the ultimate driving force for the employees’ work, they will be found to be non-exempt.  At least in New Jersey, financial advisers will be exempt from the FLSA.  Let’s now see if this trend carries through to other Circuits in the country.

Hopefully, it will…

Corinne Burzichelli is an associate in the Labor & Employment Department of Fox Rothschild LLP, resident in its Princeton office.

A group of sales representatives for a car dealership have requested conditional certification in a Fair Labor Standards Act case.  The employees allege that they were paid less than minimum wage and were not properly paid their commissions.  The case is entitled Hotaranu et al. v. Star Nissan Inc. and was filed in federal court in the Eastern District of New York.

Auto dealership row of cars
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The named plaintiffs contend that they only received a base rate of $100 per week for those weeks in which they did not earn commissions, thereby causing their compensation not to meet the minimum wage standards. The complaint (filed in September 2016) alleges that there were numerous times when a sales representative did not earn any commissions, or where the commission were insufficient to meet the minimum wage/overtime requirements of the FLSA.

The Complaint also claims that the dealer manipulated gross profits of sold cars that resulted in reductions of the commissions earned by the sales representatives.  The named plaintiffs allege that they received flat commissions regardless of the gross profit on the car sold.  This, they claim, was done, notwithstanding agreed-upon calculations in their commission agreements.

The motion for certification claims that the plaintiffs have met their burden for conditional collective certification because they have demonstrated that the sales representatives are subject to the same policies.  At the conditional certification stage, the burden is fairly low (in any event) and the plaintiffs note that they have produced an alleged “well-pled” complaint and four affidavits from Star Nissan employees.  This is sufficient, according to plaintiffs, for the motion to be granted.

The Takeaway

It seems that there is a good chance that the motion will be granted, as the burden on plaintiffs at this stage is low – some might say, ridiculously so.  With that said, there might be an out, a magic bullet for the employer.  If the auto dealership is defined as a “retail business” under Section 207(i) of the FLSA and if the commissions earned equaled or exceeded 50% of weekly income over a representative period, then the sales representative(s) would be exempt from overtime for those weeks under the so-called commission exemption of the FLSA.

Then, the whole thing (or a good chunk of it) goes away.

Worth looking into…