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?
A Texas federal court handed a quick win Wednesday to a class of trainers claiming Gold’s Gym unfairly denied them overtime, ruling their pay did not comprise “bona fide commissions” under the Fair Labor Standards Act. The case is entitled Casanova et al. v. Gold’s Texas Holdings Group Inc., and was filed in federal court in the Western District of Texas.
The issue was whether the payments received constituted commissions under the FLSA. If ruled commissions, the employer could seek the protection and the exemption of Section 7(i) of the FLSA, the so-called commission exemption. The Court ruled that the percentage of the fees paid by clients and given to the trainers were tied to one-hour class sessions and therefore were “wages” rather than commissions. Thus, Section 7(i) was inapplicable.
The Court found that “the compensation system was not decoupled from time. Instead, a one-to-one correlation existed between the hours a trainer worked and his or her compensation. Such a compensation system reflects nothing more than an hourly wage, where the employee’s rate of pay changes based upon his or her qualifications.”
The trainers filed a collective action in December 2013, claiming they were misclassified and entitled to overtime. The group was granted conditional class and 80 trainers opted in. The trainers were paid in a two-part system that included a flat rate for “floor hours” or hours worked performing general tasks at the gym and some of the fees for individual and group training classes that the employees sell and conduct. The employees were paid a set percentage of these fees based on certificates they earned and the number of classes they conducted.
The employer claimed these were commissions; the trainers claimed that the fees were proportional to and tied to hours worked, without performance-based fluctuations, and thus were not “commissions” as defined by the FLSA. The Court noted that bona fide commissions were demarcated by several characteristics, including that the commissions were a percentage of the price passed on to the consumer and were separate and apart from actual hours worked so that the employees had an incentive to work more efficiently. The payments failed to meet this second prong of the test, as employees could not work more quickly since the classes were a fixed length of time.
The Section 7(i) exemption rests on receipt of at least 50% of commission compensation by the affected employees, as well as some other requirements, e.g. retail industry. In that instance (and in those weeks) the employee is exempt. The whole point of “commission,” however is that it seeks to incentivize people to work more quickly or efficiently, to churn up that commission.
Without the protection of 7(i), all of these extra payments must be calculated into the regular rate for any week in which any employee(s) worked overtime, thus inflating the regular rate by, in all likelihood, small amounts of money on a weekly basis. If, however, a lawsuit is filed and it is a class action and eighty or so employees join in and computations are done for 2-3 years going back, then the wages are doubled, with attorney fees added in, it is plain that the exposure is geometric.
Much better to research and resolve the issue before the compensation (e.g. “commission”) system is implemented…
Here is another exemption misclassification lawsuit, but this time coming from a different angle. This time, it is a group of human resources employees who work for Lowe’s have filed a putative class action on the theory that they were misclassified as managers and are thus entitled to overtime. This is very dangerous because the suit comes from people who are supposed to help the employer in making exempt and non-exempt determinations. The case is entitled Lewis et al. v. Lowe’s Home Centers LLC and was filed in federal court in the Southern District of New York.
The five named plaintiffs, all Human Resource Managers (HRMs), allege that they worked at least fifty hours per week and were labeled exempt, even though their duties were not managerial in nature. They estimate there are possibly 250 possible opt-in members of the class. They seek damages that their attorney estimates could reach $15 million. The Complaint alleges that “the policy of underpayment was a business decision to purposefully evade the provisions of the New York Labor Law and applicable regulations and saved the defendants tens of millions of dollars.”
The plaintiffs claim (as in many of these cases) that all they did was process clerical paperwork for payroll, benefits and new hires; they allege they also worked in other departments, including sales, customer service and cleaning break rooms and bathrooms. They maintain that they had no supervisory responsibilities or decision-making authority. According to their lawyer “they are store-level, low-level personnel employees.”
Although the lawyer conceded that these individuals conducted interviews for job applicants, they could only ask a designated series of questions, very well defined and limited, and then grade the answers. He claims that they could not make recommendations on hiring decisions, but asserted rather cavalierly, that “a 10-year-old schoolgirl could ask these questions and mark down a score on the interview sheet.”
Significantly, a similar class action was filed against Lowe’s in Florida in 2012 and the Company settled that case for $3.5 million. There were 900 HRMs involved in that matter and they made identical claims of misclassification.
Human Resource Directors are clearly exempt under the administrative exemption (the toughest one to prove, by the way). However, people with HR type responsibilities, such as “personnel clerks,” or classifications like that, often times are non-exempt. The flashpoint issue is discretion and independent judgment, or lack of same. If these folks are simply following a prescribed script or menu and then just adding numbers, without being able to evaluate the candidates to any extent, that is problematic. The earlier, big, settlement does not help either!
I believe, however, that an employer can enhance the exempt duties of perhaps otherwise non-exempt employees, or that non-exempts can “evolve” into exempt employees. Some strategic, proactive planning can accomplish this worthy goal.
In most (if not all) FLSA cases I handle, whether single plaintiff or collective action, there is usually a State of New Jersey cause of action set forth as Count II, with the FLSA Count as the first one. The New Jersey Count is duplicative of the federal count to the extent that people (ultimately) opt-in to the federal case (but without the liquidated damages) but the state Count is governed by Rule 23 considerations, not the opt-in principles.
In Thompson v. Real Estate Mortgage Network, Inc., the plaintiff, Patricia Thompson, sued her former employers for allegedly failing to compensate for overtime work, in violation of the FLSA and the New Jersey Wage and Hour Law (“NJWHL”). Under FRCP Rule 12(b)(6), the Employer moved to dismiss the state Count on the pleadings, asserting that a claim for overtime was not cognizable under the New Jersey minimum wage law.
The Employer argued that the lack of a definition of the term “minimum fair wage” in the section of the NJWHL that conferred a private right of action precluded an overtime action from being brought. The defendants argued that, without a specific definition, a court could not expand that term to include overtime claims. The district court Judge began his analysis by observing that it was not” immediately apparent” to the Court that a “minimum fair wage” excluded overtime.
With that said, the Court then noted (as was quite plain) that the NJWHL’s statute of limitations section – titled “Limitations; commencement of action” – did refer explicitly to overtime compensation. Thus, the court reasoned that “if the State legislature did not intend to create a private right of action for overtime compensation, this language is inexplicable. The New Jersey legislature would not have prescribed a limitation period for a nonexistent cause of action.”
The Court also observed that the FLSA included a right of action to recover withheld overtime payments and that the principle of parallel construction suggested that the NJWHL should be interpreted the same way. Noting that these laws should be interpreted liberally, the Court found it “difficult to conclude that the NJWHL gives employees fewer or narrower rights than the FLSA.”
There is an old canon in the world of litigation—you don’t want your first motion, your first initiative before a Court (any court) to be a loser. To me, that was the entire reason for not doing this. The liberal construction given to wage hour also should have, by itself, precluded this approach.
Second, more importantly, reading the statute as a whole and noting that the statute of limitations explicitly included overtime claims in it should have been another red flag tip-off that this motion was destined for failure.
If the impetus for the motion was to buy time for the employer to come into compliance, that is one thing. But, if not, I am left to wonder the reason for doing it…
In November we reported on Wigdor v SoulCycle, which had been filed in New York Supreme Court, New York County. In that action a well-known plaintiff’s attorney, Douglas Wigdor, alleged that SoulCycle retaliated against him by banning him from the Company’s establishments because Wigdor had filed a putative wage and hour class action against SoulCycle.
This action reminded us of Jerry Seinfeld’s “Soup Man,” who would decline to serve customers that did not properly place a soup order. We had previously asked whether the owner of a store has a right to prevent counsel from entering, for example, to solicit business in their establishment. The answer is apparently: yes …. and no.
In Wigdor v SoulCycle, Mr. Wigdor asserted four claims: (1) retaliation under New York Labor Law (NYLL) § 215; (2) retaliation under California Labor Code (CLC); (3) prima facie tort; and (4) breach of an obligation of good faith and fair dealing. SoulCycle moved to dismiss all claims for failure to state a claim, and now the Court has issued a decision on that motion.
The Court dismissed three of the four claims – the retaliation claims under NYLL and CLC as well as the prima facie tort claim – but declined to dismiss the claim for good faith and fair dealing. See Wigdor v SoulCycle, Index 161572/2014 (Sup. Ct, NY County April 13, 2015). In dismissing the NYLL and CLC retaliation claims the Court recognized, as we noted in the November blog, that both statutes prohibit retaliation against an “employee.” Indeed, NYLL § 215 states: “No employer … shall discharge, penalize, or in any other manner discriminate against any employee because such employee has made a complaint to his employer….” id. (emphasis supplied). The CLC contains a similar provision. Yet neither statute references protection for the employee’s lawyer. The Court explained:
Contrary to the plaintiff’s contention, the text of Labor Law § 215 does not reveal a clear intent to authorize a claim where an employer retaliates against an attorney that represents a former employee of the employer. Indeed, neither the plain language of the statute nor its legislative history, as revealed by the 1967 bill jacket accompanying its enactment and the 1986 bill jacket accompanying its amendment, contemplates an action by someone other than an employee making complaints regarding a former employer.
Id. Additionally, the Court dismissed the claim for prima facie tort because “other than conclusory contentions, there are no facts supporting the assertion that defendants sole motivation for banning plaintiff from SoulCycle premises was intended to maliciously injure plaintiff.” Id. Thus, Seinfeld’s Soup Man would appear to be vindicated.
Unfortunately, the case took a turn for the worse for SoulCycle as the Court refused to dismiss the final claim for breach of good faith and fair dealing. A prerequisite for asserting such a claim under New York law is that a plaintiff must plead and prove that there was a contractual relationship between the plaintiff and defendant. SoulCycle argued that it never had a contractual relationship with Wigdor and therefore the claim should be dismissed. The Court disagreed concluding that when Wigdor plead that he had “electronically agreed to SoulCycle’s terms and conditions” he established, at least for the purpose of stating a claim, that a contractual relationship was created. Accordingly, the breach of good faith and fair dealing claim survives, for now.
Thus, it seems the Court’s ruling does give some guidance to our inquiry as to when a business owner has an appropriate say in deciding who should not be allowed to patronize his/her business. Certainly, had there been no prior business relationship between Wigdor and SoulCycle, and then this case would have been dismissed. Yet, apparently when there is some prior “contractual relationship” then the lines become a little cloudy as to when the business owner can decide whether someone should continue to patronize the business. We are now left to ask, merely because someone had patronized the business before and abided by the terms and conditions of the business owner, such as paying for the goods and services rendered, when can the business owner end that relationship? How long does the former patron get to ask, as Oliver Twist might – “Please Sir, can I have some more?”
It is no secret that most FLSA class action lawsuits settle. The costs of litigation, the fee shifting nature of the statute, plus the fact that oftentimes the merits/defenses are not that clear (or good) for the employer militate settlements being made. However, that is not the end of the story because the settlement then has to be approved by the Judge and that may be easier said than done, as the parties to a suit involving Ricoh Americas Corporation just were made to realize.
The Court would not approve a $325,000 settlement between the company and a class of 400 technicians, finding it was unfair and that insufficient information was provided to the Court to allow it to approve the settlement. The case is entitled Ramirez v. Ricoh Americas Corp. and was filed in federal court in the Southern District of New York.
U.S. District Judge Fox ruled that the lead plaintiff did not give enough details to support the validity of the settlement. The plaintiff failed to identify how much additional discovery was needed, e.g. number of class members to be deposed, what experts might be required and, most importantly, why “the instant litigation would be complex, expensive and time consuming.” The Judge also noted a dearth of evidence showing that putative class members supported the deal and he chided the plaintiff for only taking a single deposition in the seven months since the litigation commenced.
The plaintiff(s) were technicians and sued under the FLSA, the New York Minimum Wage Act and the overtime provisions of the New York Labor Law; the suit was filed in December 2013. However, the plaintiff did not explain what a comparable position to the position of technician meant and that the class definition (as set forth in the plaintiff’s memorandum of law) was inconsistent with the definition set forth in his notice of motion seeking conditional certification and there was no definition in the proposed settlement agreement.
The Court stated that “the inconsistency of the proposed class definition in the plaintiff’s notice of motion and the memorandum of law and the absence of a definition of the proposed class from the proposed settlement agreement and notices, makes it unclear to the court — as it will make it to anyone who would receive the plaintiff’s notices — who the putative class members might be.” That was enough, by itself, for the Court to reject the proposed settlement.
Both parties must take heed when they reach a deal to ensure that all details are addressed so the settlement will get court approval. The last thing either side wants is to get a deal shot down and then go back to the drawing board, i.e. engage in more protracted discovery, at more expense for both sides and then hope/pray that the settlement then gets approved. I have (on more than one occasion) had to “help” adversaries prepare and frame settlements so that they get court approval.
Sometimes easier said than done!
In an important decision, a New Jersey federal district court has ruled that the statute of limitations for claims under the New Jersey Wage Payment Act is six years, not the two year period that specifically governs overtime and other wage claims specified in the New Jersey Wage-Hour Law. In Meyers v. Heffernan, (Civ. No. 12-2434) the Plaintiffs were commissioned sales representatives for a now-defunct Mortgage Lenders Network USA, Inc., a mortgage banking company until approximately February 2007. The plaintiffs sought unpaid commissions.
The defendants argued that the Wage Payment Law (WPL) contained a two year statute limitations period and, as the claims were three years old, they were untimely. The Supreme Court of New Jersey had not yet considered the limitations period applicable to claims arising under the WPL. USDJ Cooper looked to an earlier NJ Appellate Division decision for guidance. Troise v. Extel Commc’ns, Inc., 345 N.J. Super. 231 (N.J. App. Div. 2001).
In Troise, the Court considered whether a two or six year limitations period applied to an employee’s private cause of action for underpayment of prevailing wages. The Appellate Division observed that where the Legislature creates a statutory cause of action without including a limitations provision the court should apply the general limitations provisions which governs that category of claims
The plaintiffs herein were seeking to vindicate their economic rights through recovery of unpaid, accrued commissions. As the nature of these injuries were more analogous to a breach of contract claim rather than an injury to the person, the Court concluded that the WPL is subject to the six-years statute of limitations that is provided by NJSA 2A:14-1 for breach of contract claims.
This is exciting news, so to speak. At least it (definitively) clarifies the statute of limitations, unless and until the state Supreme Court rules differently. Which it likely would not.
Sales employees are generally compensated with commission compensation structures. Sometimes a commission is paid in addition to a salary, other times its paid instead of salary. The tech industry employs so many sales reps, that they generally pay with the former compensation structure above (combo base and salary). For both the employer and the employee there are so many questions surrounding how commission structures work. Federal law addresses it, states have their rules own too. Here are some basic facts about commissions in New York:
- The Labor Law requires that a commission salesperson agreement must be in writing and signed by both the employer and the salesperson. It must contain:
- A description of how wages, salary, drawing accounts, commissions, and all other monies earned and payable will be calculated;
- How often the employee will be paid;
- The frequency of reconciliation (if the agreement provides for a revocable draw);
- Any other details pertinent to the payment of wages, salary, drawing accounts, commissions, and all other monies earned and payable when the employment relationship ends.
- The employer must provide the commission salesperson, upon written request, with a statement of earnings paid or due and unpaid.
- When is a commission considered “earned?” Commissions are earned at the time specified in the written employment agreement. If the agreement is silent, a commission is considered to be earned in accordance with the past dealings between the employer and commission salesperson. If none exist, then a commission is considered earned when the commission salesperson produces a person ready, willing, and able to enter into a contract upon the employer’s terms.
- Once a commission is “earned,” it is legally considered “wages” under the Labor Law and subject to all other provisions of the Labor Law regarding the payment of wages.
- Even if the employment relationship with the employer has ended, the commission is considered wages and still has to be paid to the employee. If the commissions have not yet been earned, the terms of the written employment agreement, which must include language addressing this situation, will control.
Commissions can be complicated. Employers should be extra cautious when using them, and should be educated on not only the federal requirements, but the state’s too. As you can see, New York’s Labor Law directly addresses many of the issues surrrounding Commissions.
Happy Valentine’s Day.
This January is an exciting month for several reasons: (1) it’s my birthday month and (2) the NJ DOL issued the new poster promulgated by the 2012 amendment to the NJ Equal Pay Act.
The Amendment was passed about one year ago, and employers have been standing-by, patiently waiting for the DOL to issue it. The Amendment requires employers with 50 or more employees to conspicuously post a form issued by the DOL a poster detailing the right to be free of gender inequity or bias in pay, compensation, benefits or other terms or conditions of employment under the Law Against Discrimination.”
The posting and distribution requirements were triggered yesterday (January 6, 2014) and now the following is required:
- Starting yesterday (1/6/14) employers with 50 or more employees must post conspicuously post the gender equity notice in a place accessible to all employees;
- For each employees who was hired on or before 1/6/14, the employer must provide each employee a notice by February 5, 2014;
- For each employee who was hired after 1/6/14, the employer must provide that employee with a written copy of the gender equity notice at the time of the employee’s hiring;
- The notice must be distributed annually on or before 12/31 of each year;
- If any employee requests the notice, the employer must provide it.
Employers additionally must obtain accompany the Notice with an acknowledgment form, that must be signed and returned to the employer within 30 days of its receipt.
Do employers need to pay employees for accrued vacation time upon termination? This is a question without a simple answer, and one that has been heavily litigated over the past several years. Unlike most wage and hour issues, the Fair Labor Standards Act does not address this concern. Rather, the payout of vacation time has been left to the states to regulate, and as can be expected, the results have widely varied. Below is a brief overview of the different ways in which states have handled the payout of overtime:
• Employees will be paid for accrued vacation time depending on the employer’s written vacation policy and/or procedures (New Jersey, Pennsylvania).
Based upon the varying state rules regarding vacation pay, employers need to carefully assess whether their vacation pay policies are permissible. In particular, employers should consider whether the applicable state law permits the company to restrict the payout of accrued vacation time. As Mark Tabakman stated in an earlier posting, “it is probably better to err on the side of conservatism in these matters (i.e. allowing payout) rather than risk a class action where the costs of defending and the possible costs of paying the plaintiffs’ legal fees will geometrically increase the payouts that otherwise would have been mandated.”