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…

For the last several months, I have been talking to and advising clients on strategies to deal with the advent of the new FLSA salary regulations, i.e. the $913 per week commencing December 1, 2016.  Maybe all that was for naught?  This is because more than fifty business groups and twenty-one (21) States have filed lawsuits challenging these rule changes.  The theory is that the agency unconstitutionally exceeded its authority to establish a federal minimum salary level for exempt, white collar workers.  The cases are entitled Nevada et al. v. U.S. Department of Labor et al. and Plano Chamber of Commerce et al. v. Perez, both filed in federal court in the Eastern District of Texas

Courthouse pillars
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The States contend that the large increases in required salary levels would force many state and local governments (and private businesses) to dramatically increase their employment costs.  This could compel employers to cut services or lay off employees.  The States seek a declaratory judgment to the effect that the new rules unlawfully violate the Tenth Amendment by requiring a certain mode of payment for state employees.  On that same day, many business groups (e.g. US Chamber of Commerce, National Association of Manufacturers, National Retail Federation) also filed legal actions, claiming that the reasons proffered by the USDOL for the new salary threshold are not a proper construction of the FLSA.

The states also take issue with the policy behind the rule change, saying a worker’s salary level doesn’t reflect the kind of work an employee actually performs. The states argue the DOL regulation disregards the text of the Fair Labor Standards Act by imposing a salary threshold without regard to whether an employee is actually performing bona fide executive, administrative or professional duties.

The States also assert that the rule’s automatic indexing mechanism, which kicks up the minimum salary threshold every three years would not be illustrative of the nation’s economic conditions or the potential impact on public and private resources.  The plaintiffs contend that by compelling States to spend more from state funds on exempt employee salaries or overtime, the federal government is unilaterally depleting state resources and that violates the Constitution.

The business groups also allege that losing the overtime exemption for “frontline executives, administrators and professionals” would rob businesses of being able to flexibly manage their workforces.  Ostensibly, millions of employees nationwide would have to be reclassified to non-exempt hourly workers, which would result in their hours being cut back to avoid overtime and thereby “deny them opportunities for advancement and hinder performance of their jobs — to the detriment of their employers, their customers and their own careers.”

The Takeaway

The agency has raised the minimum salary level several times, the last time in 2004, without legal challenge, or, at least, a successful legal challenge.  I think the same result will obtain this time.  In any event, every employer should be going through the process of determining, under current salary levels, if all of their exempt people are truly exempt??

Get ready for December 1!

Quiz
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The TSheets Time Tracking Blog recently posted a quiz testing readers’ knowledge of the Fair Labor Standards Act (FLSA). It was a pleasure to assist in preparing the 9-question quiz, asking participants to correctly apply the FLSA to several hypothetical situations. Can you get a perfect score?

One thing about FLSA collective actions—right or wrong, win or lose, the legal fees for both sides mount up quickly and almost relentlessly.  I often counsel clients to try to get out early of such a case (especially if I perceive there to be a problem, where there usually is).  Well, the parties in a recently filed collective action have asked a federal judge to stay the proceedings in their case so they could pursue mediation.  The case is entitled Barnett v. EQT Production Co., and was filed in federal court in Western District of Pennsylvania.  This is the correct tactic for the employer.

Oil pump jack and oil tank silhouette
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The workers claim that they were misclassified as exempt, thereby denying them overtime.  In a joint motion, the parties requested that discovery be stayed and that the action be conditionally certified so that notice could be sent to potential class members.  That notice would allow workers to opt in.  The conditionally certified class would be comprised of any person who performed completions work for the Company but who were treated as independent contractors; such people are not “employees” under the FLSA.  (The mediation is scheduled for October 17).

The named plaintiff alleged that he and other employees on rigs routinely performed non-exempt work in excess of forty per week and were never paid overtime.  To evade this obligation, the plaintiff charges that the Company classified the workers as independent contractors.

The plaintiff charges also that the Company exercised sufficient control to label the workers as “employees” and therefore subject to the FLSA.  They allegedly took direction from the company as well as being managed and supervised by Company supervisors.  They provided regular reports to supervisors; they wore EQT uniforms, attended EQT training/orientation and lived in company-provided housing.  Those are several indicia of control, undermining the defense that the people are true independent contractors.

The Takeaway

This could be bad for the Employer.  By putting all your eggs in the basket of independent contractor status, the battle will be totally lost if the workers are not found to be independent contractors.  This is because if a worker is covered by the FLSA and is non-exempt and if they work beyond forty hours, they must get paid overtime.  End of story.  Then, all there is to quibble about is the number of hours worked and computation issues.

I applaud the action here, especially by the employer.  Get out of it early and save the escalating legal fees (on both sides, as this is a fee-shifting statute).  If there is something to be fixed or ameliorated, then do it.

And move on…

A group of hourly employees working for the pawnshop chain Gem Financial Services Inc. have been granted conditional certification in a Fair Labor Standards Act action; their allegation is (as usual) unpaid overtime.  The federal Judge ruled that the workers had presented sufficient evidence at this early juncture to show that a common compensation policy applied to them and it was arguably illegal.  The case is entitled Dalton et al. v. Gem Financial Services Inc. et al., and was filed in federal court in the Eastern District of New York.

Pawn Shop
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The Judge concluded that “courts in this circuit have routinely allowed for conditional certification where plaintiffs proffer precise and detailed information outlining the alleged mistreatment suffered by other similarly situated employees as a result of defendants’ compensation policies.”

The employer has twenty-eight retail locations throughout the New York area and in excess of 130 workers.  The employees allege that they were routinely shorted on overtime pay for weeks when they worked in excess of the statutory threshold of forty hours.  Added to the pure wage hour claims is the allegation by one of the three original plaintiffs, Diori Johnson, an accountant, who states that she was asked to falsify time records, make improper deductions from exempt employees’ salaries and continually not pay employees the proper amount.

An HR administrator, who visited company pawn shops, always heard complaints from employees that they were not paid overtime and saw (allegedly) rounding practices that always resulted in clocked hours being rounded down.  The Judge noted these employees’ experiences and observations as the basis for deciding to grant conditional certification.  The Court stated that “this type of consistent involvement in the day-to-day compensation realities of other Gem employees enabled plaintiffs to directly observe defendants’ alleged wage-denial scheme.”

Interestingly, the Court also concluded that the workers did not meet the Second Circuit standard for demonstrating sufficient similarities between non-exempt workers and other employees who were allegedly misclassified as exempt from overtime to be able to conditionally certify a collective action class including both groups.

The Takeaway

This case shows the best and the worst of results for the employer.  The Court (rather easily) granted certification on the one class of workers, where the Court believed that a common policy and practice applied to all of them.  Then, the Court refused to grant certification to a second requested class, where the allegation was that the workers were non-exempt.  On that component, the Court believed that not enough similarity or commonality had been shown.  That is the essence of a successful defense to a collective action.

On that first group, it seems an uphill climb…

Now that the new DOL exemption rules have issued, commentators have had time to reflect on what these changes may mean for business.  A few days ago, a House of Representatives committee heard that the new rules will hinder the ability of businesses to offer flexibility and advancement to newly overtime-eligible workers.  To the contrary, the head of the DOL championed the new rules as a great victory for middle-class employees.

Copyright: sergo / 123RF Stock Photo
Copyright: sergo / 123RF Stock Photo

Under Chairman Rep. John Kline, R-Minn., the House Education and the Workforce Committee was looking at the potential effects of the rules.  A management side attorney told the committee that the changes could lead to a host of potentially negative impacts from converting employees to non-exempt status.  He opined that there would be reduced flexibility for workers, limited career advancement opportunities and weakened employee morale.  He warned that there would also be more (as if we need it) FLSA litigation.

The lawyer noted that “in the short period of time since the revisions were published, it has become clear that it will be incredibly difficult for many employers to implement.  Complicating the analysis is the fact that the Department’s revisions would require employers to revisit these issues every three years, deciding whether continued classification of an employee as exempt is worth the new threshold salary increase.”

Another witness, a VP for HR from a major university, warned committee members that the overtime changes will be “difficult to absorb without significantly impacting university services.”  She also stated that the University would be forced to reclassify employees whose jobs were well-suited for exempt status.

The committee Chairman himself warned that the rule “will do more harm than good” and will adversely impact, to a greater extent, lower-income workers and younger Americans.  The Chairman stated that “this rule will disrupt the lives of countless individuals and do nothing to remove the regulatory landmines that are harmful to workers and employers.  He added that “workplaces are more dynamic and innovative than they have ever been, and the needs of today’s workers are much different than for those who worked when the [FLSA] was written more than 75 years ago.”

The Takeaway

I am not sure that these doomsday predictions are entirely accurate.  Businesses will lose some flexibility, but they may gain some certainty and peace of mind.  For those employees whose duties are currently borderline in terms of exemption, the salary changes make it “easier” for employers to now make them non-exempt and hourly and not have to worry about lawsuits challenging their exempt status.