Exemptions

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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.

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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…

I blogged about this the other day.  Well, the Fifth Circuit has acted with alacrity and has stated that it will hear the USDOL appeal of the lower court injunction blocking the new overtime regulations on an accelerated, expedited basis.  Indeed, the Court has ordered that briefs be submitted by the end of January, which, for legal proceedings, is very quick.  The case is entitled Nevada et al. v. U.S. Department of Labor et al., in the Court of Appeals for the Fifth Circuit.

Courthouse pillars
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The appellate Court has advised that it will schedule oral argument as soon as possible after briefs are submitted.

The successful (for the moment) plaintiffs are not at all cowed by this development.  The Nevada Solicitor has stated that “the Fifth Circuit’s willingness to expedite oral argument shows that it recognizes the national importance of this issue.   As we did in the district court, the states look forward to presenting how this new overtime rule is unlawful and presents a sweeping departure from over 75 years of past practice.”

The twenty-one States that had brought the suit opposed the fast-tracking of the appeal.  They asserted that such an expedited proceeding could conflict with the lower court’s ruling on their motion arguing for final judgment invalidating the DOL rule.  These plaintiffs also argued that if the lower court issued a new decision, that action would then moot the preliminary injunction and the Fifth Circuit would not have needed to rearrange its calendar and oral argument schedule.

The DOL countered by asserting that even if court below issued a final order, the Fifth Circuit would then consolidate the preliminary injunction appeal with the agency’s appeal from final judgment.  The DOL argued that this approach would be very efficient because the legal basis for the grant of a preliminary injunction would be the legal foundation for the summary judgment proceeding and Order.

The Takeaway

As they say, now the fun begins.

Anyone who tells you they know how this will turn out does not, really know at all.

The DOL filed an appeal of the lower court’s granting an injunction staying the implementation of the new overtime regulations.  Now, as expected, frankly, the agency has requested that the Fifth Circuit expedite these proceedings.  The agency claims that the delay has denied giving additional pay (i.e. overtime) to millions of workers.

Dollar signs
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The Department of Labor observed that the States themselves asked for an expedited argument and decision.  The agency’s theory is that the lower court decision should be reversed because the Judge incorrectly ruled that the FLSA did not provide the agency with the authority to use “a salary-level test” to gauge which workers would be exempt from overtime.

The DOL motion stated that “this court, however, reached the opposite conclusion in Wirtz v. Mississippi Publishers Corp. There, this court emphasized that ‘[t]he statute gives the secretary broad latitude to ‘define and delimit’ the meaning of the term ‘bona fide executive … capacity’,” and rejected the argument “that the minimum salary requirement is arbitrary or capricious.”

The DOL has also contended that the newly revised salary threshold is consistent with the salary levels established over the last seven decades.  It notes that the proposed minimum salary level for exempt employees is roughly three times the minimum wage for a 40-hour work week, which is equivalent to the multiplier utilized at the law’s inception, in 1938.

The Takeaway

I assumed this request would be made.  I also believe the request will be granted as this is an issue of national importance.

That does not mean the lower court decision will be overturned or that the new Administration will not roll back (in some part) the proposed salary level.

We will see…

On November 22, 2016, Judge Mazzant of the U.S. District Court for the Eastern District of Texas issued a nationwide injunction against the Department of Labor (DOL) blocking its Final Overtime Rule, which was set to go into effect on December 1, 2016.

The injunction “preserves the status quo while the Court determines the Department [of Labor]’s authority to make the Final Rule as well as the Final Rule’s validity.” Moving forward, the Final Rule may face an uphill battle as the Court found the states challenging the Final Rule showed a “substantial likelihood of success on the merits.”

Dollar signs
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This leaves many employers in a quandary.  Employers who had plans to implement those changes must decide whether to postpone, temporarily or otherwise, those initiatives, proceed with the changes or see what develops down the line.

I believe the following guidelines provide some reasoned basis for dealing with this injunction and the uncertainty that it brings with it:

  • Employers that have already implemented changes in anticipation of the new rules taking effect need to consider from a human resources standpoint the impact of reversing those actions. Taking away promised salary increases will inevitably lead to dissatisfied employees and employee relations problems. Employers need to weigh the “human” costs of that unhappiness against the cost of the salary increases.
  • Employers that have not implemented changes are better able to take a wait-and-see approach. The injunction could well be modified or even lifted.  If that happens, there is no way to know how long employers will have to comply with any revised standards.
  • Employers must still be mindful of the duties test of the “white-collar exemption,” which has not been altered. If employees are non-exempt, today, from a duties perspective, they will be non-exempt in the future, whatever the salary levels are raised or (or not raised to).
  • As always, employers must comply with state-specific requirements for overtime exemptions, which may well include salary thresholds more than $455 per week, e.g. California, New York.
  • Keep employees informed, whatever you do!

The Takeaway

In my humble opinion, I do not believe these new changes will be implemented, or, if they are, they might/will be diluted under the pro-business Administration that will be taking over in seven weeks.

To be continued…

I blogged about this a short time ago. More than fifty (50) business groups requested that a US District Court Judge render a fast decision in the case involving the constitutionality of the USDOL’s new overtime regulations, i.e. the doubling of the salary threshold.  The case is entitled Plano Chamber of Commerce et al. v. Perez and was filed in federal court in the Eastern District of Texas.

Courthouse pillars
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The theory is that the DOL exceeded its powers.  Also, they argue that the cost of compliance will be massive, forcing many small business owners to cut jobs or close.  The groups also want the date pushed back beyond December 1, 2016 so plaintiffs want oral arguments to be held as soon as possible and the rule vacated.  The plaintiffs argued that “this conclusion is compelled by the plain text of the statute and is further confirmed by over 70 years of administrative practice and judicial decisions left untouched by Congress.”

The suit was filed in late September, as were other similar cases by two dozen States.  These plaintiffs have this week filed a motion for preliminary injunction in their case.  The business groups have stated that they want their case adjudicated on the same timeline as the motion by the States.

The business groups have contended that the proposed changes are not merely limited to raising the salary level, but they, really, change the basis for determining whether or not employees are exempt.  The groups argue that the new DOL rule does not abide by the requirement that the duties of positions govern the exemption tests.

The motion papers, in this regard, state that “rather, they fundamentally alter the focus of the exemption analysis, shifting the test from one focused primarily on the functions identified by Congress in the FLSA to one that turns almost entirely on a salary threshold that is not a plausible proxy for those statutorily defined job functions.  And by automatically adjusting the salary threshold every three years in perpetuity, the rule ensures that this disconnect will only grow greater over time.”

The Takeaway

I am fascinated by these initiatives and I cannot wait to see how it plays out.  I think the motions are going to fail, because I think the DOL did have the regulatory power to make these changes.

I hope I’m wrong…