I have blogged about and have long been concerned about working time issues and what constitutes compensable work hours. One of the thorniest of these issues is on-call time and when, if at all, on-call hours become working time. A recent case throws light on this issue, as a Court has held that an Admissions Director for a medical rehabilitation center may be eligible for overtime when she had to work more than forty hours in a week. The case is entitled Butler v. Ciena Health Care Mgt., Inc. and was filed in federal court in the Eastern District of Michigan.

Female doctor in white uniform writing on clipboard Although her title was “Director,” the employee may not have been an exempt employee, thereby making hours worked above forty to be overtime/compensable hours. The Court found that the employee might not have exercised independent judgment in the performance of her job. She “merely” followed admission guidelines and collected information that her boss then utilized to determine whether to admit a particular patient. In exemption issues, it is the duties performed, not the job title or the position description, that determines exempt status and whether someone is eligible for overtime.

The Court denied the defendant’s summary judgment motion and ordered a trial to determine if the employee was exempt. The Court, however, ruled that the worker was not entitled to compensation for the round-the-clock periods when she was required to be on call. The employee was on call twenty-four hours per day Monday-Friday and every other weekend. Workers will get paid for these on-call hours if they are impeded in the pursuit of their personal activities and personal pursuits.

This employee was home when she was on call and could not demonstrate that simply being in an on-call status had any “onerous impact” on her personal activities. The Court noted that the fact that a fraction of patient referrals came during non-work hours showed the Court that these interruptions were not burdensome.

The Takeaway

The great danger in a case like this is that if the employee is deemed non-exempt, so that overtime hours “matter,” the employer might face significant liability. The cure is to conduct an internal audit of all salaried positions, i.e. those normally classified as exempt and make pure up-and-down calls about exempt status.

Especially with the administrative exemption (as herein)…

There have been a great many intern cases recently, cases testing whether interns crossed the line into being statutory employees and therefore covered by the FLSA. I have blogged about these kinds of cases and have specifically blogged about beauty school cases. The Ninth Circuit has just affirmed a lower federal court’s dismissal of a lawsuit from three beauty school students, who allege they were employees while they studied for their degrees. The case is entitled Benjamin, et al v. B & H Education and issued from the Court of Appeals for the Ninth Circuit.

Hairdresser cutting young woman's hairApplying the test enunciated in Glatt v. Fox Searchlight Pictures, Inc., the Court agreed with the lower court’s conclusion that the students had not shown that the educational benefit they had received from attending B&H Education Inc.’s Marinello Schools of Beauty was not superseded by the amount of unpaid “work” that they performed. The Court stated that the “application of the Glatt factors establishes that students were the primary beneficiaries of their labors. Their participation in Marinello’s clinic provided them with the hands-on training they needed to sit for the state licensing exams.”

The Court also found that even if another, more restrictive test, i.e. the DOL factors, was applied, the students would still not be employees. The Court stated that even if it applied these DOL factors, “we view the training provided to plaintiffs to be in an educational environment, because state law requires students to clock hundreds of hours of instruction and practical training in order to qualify for taking the licensing exams.”

The issue was that as part of their educational training, the students at the school were expected to practice providing cosmetology services and, on occasion, some customers received these services. That gave the foundation for the students to allege that they were really “employees.” The Court was not convinced, finding that “as the district court noted in this case, schools typically exercise significant control over their students, but that does not make them employers.”

The Takeaway

There is a tension between the “moment” actual work may get performed and whether that alleged work is too integrally connected to the education to be called “work.”

The trick is knowing where that line gets crossed…

There has been a great deal of litigation about class action waivers in Employee Handbooks and use of arbitration mechanisms in Employee Handbooks to preclude judicial litigation. A recent New Jersey federal case sheds more light on this thorny issue, and the decision favors employers. The case is entitled Essex v. The Children’s Place and was filed in federal court in the District of New Jersey.

Pen on paperIn October 2014, the Company developed an arbitration program that applied to all Associates working at retail stores in the United States. The Company used an intranet portal to communicate with Associates. To gain access, Associates used an employee identification number and personal password. Since October 2014, the Portal included The Mutual Agreement to Arbitrate Claims.

When the Company introduced the arbitration program, it sent Associates already working for the Company received a message through the Portal, directing them to review the Arbitration Agreement. That message explained “it is important that you review the Arbitration Agreement carefully” and that “[w]e expect all Associates to review and sign the Arbitration Agreement. However, because it is not a mandatory condition of your employment, you may elect to opt out and not be subject to the Arbitration Agreement.” Associates hired after October 2014 reviewed the Arbitration Agreement following orientation. The Arbitration Agreement included a class, collective, and representation waiver.

An Associate who declined to accept the terms of the Arbitration Agreement filled out an Opt Out Form, which was also located on the Portal. Of the 377 Store Managers who filed consent to join the lawsuit, 209 of them signed and submitted the Arbitration Agreements. These employees were not required to participate in the arbitration program as a condition of employment and the Arbitration Agreement expressly provided that signing the Arbitration Agreement was not a mandatory condition of employment.

The Court ruled that the Arbitration Agreement had a clear “opt out” provision. The Court noted that numerous Plaintiffs who opted into the case first opted out of the Arbitration Agreement. Thus, it was clear that the arbitration agreement had an opt-out clause and that “[s]uch a provision can hardly be construed to interfere with, restrain, or coerce an employee into forfeiting the rights afforded by § 7 of the NLRA”).  The Defendant conceded that the forty-nine Plaintiffs who did opt out of the Arbitration Agreement were not subject to this motion to compel. Thus, the Court dismissed the case as concerned those Plaintiffs who did not opt out of the arbitration provision.

The Takeaway

This is a very instructive case for employers. The defense works! In how many of my postings am I talking about magic bullets or an easy, quick, cheap way out of a FLSA collective action (at least for many of the opt-in workers).

Well, here is a real good one…

I read an interesting post by Daniel Schwartz in the Connecticut Employment Law Blog. It concerned a recent Second Circuit decision that bodes well for employers in the never-ending fight against wage-hour class actions. The case is entitled Rodriguez-Depena v. Parts Authority, Inc. et al. and issued from the Court of Appeals for the Second Circuit.

Auto parts store shelvesThe Court therein ruled that the arbitration clause set forth in the employment agreement precluded the federal action.  Dan noted that the “clear logic” of the decision will be hard to overlook and I believe he is quite right. The Court relied upon an earlier decision that held that age discrimination claims could not be brought in court if a valid arbitration policy was in place.

The Court also examined the issue of whether the required judicial oversight of FLSA settlements would be a bar to arbitration of these claims. The Court held that it did not, as the guarantee of the fairness of a settlement of a claim filed in court did not mean that this right provided an ironclad right to file suit in court.

Dan notes that this “federal endorsement of arbitration provisions” will allow employers to adopt these provisions and provide themselves with another defense. It also provides yet another stratagem to be utilized in the early stages of a FLSA class action case.

The Takeaway

Maybe employers should consider utilizing such mandatory arbitration provisions. Arbitration is a much cheaper and faster litigation mechanism. I am a big advocate of taking the easiest way out of a class action federal court FLSA case and these kinds of provisions may be another weapon in that early dismissal arsenal.

Well done, Dan…

A class of equipment operators and trainees has asked a federal court to approve a $1.35 million settlement of their FLSA class action lawsuit alleging the Company did not fairly pay them their wages and used a gimmick to avoid doing so.  The case is entitled Elliott v. Schlumberger Technology Corp. et al., and was filed in federal court in the District of North Dakota.

The plaintiffs alleged that the Company violated the law by paying them under the “fluctuating workweek” method.   Interestingly (or maybe not so much), the settlement talks took place after U.S. District Judge Ralph R. Erickson granted the Company’s motion to decertify the class.   The Judge ruled that there was insufficient evidence to show that the workers were similarly situated. There are 138 people in the class.

The plaintiffs alleged that the Company paid equipment operators and trainees by the fluctuating-workweek (FWW) method.  That method allows employers to pay workers overtime at a half-time, as opposed to time and one-half, but certain conditions must be met.  The workers claimed that in order to validly use this method, the employees must be paid on a fixed salary, which they were not.

The Court had conditionally certified a collective class of equipment operators, trainees and other similar employees who were employed at the Company plant in Williston, North Dakota, and to whom the Company applied the fluctuating workweek method for at least one week during the three years preceding the lawsuit.

The Takeaway

This case presents a valuable lesson.  Attempted use of the FWW method of payment must have the employees receiving a fixed salary and an agreement, in advance of the work, that the employees understand what the payment arrangements and overtime protocols are going to be.  This allows the employer to pay half time for overtime instead of time and one-half.  Without these two requirements being met, any attempt to use the FWW method is doomed to failure.  Put differently, the FWW method can be the employer’s best friend, if done right.

If not, it is the employer’s worst enemy…

There has not been much litigation over the HCE, the so-called Highly Compensated Employee exemption under the FLSA. Recently, an interesting case explored the issue of whether commission payments can form the entirety of the required salary. In Pierce v. Wyndham Vacation Resorts, Inc., a federal court interpreted this exemption to determine this issue. The case was filed in federal court in the Eastern District of Tennessee.

Dollar signs
Copyright: sergo / 123RF Stock Photo

The court observed that the regulation allowed a highly compensated employee to be paid on a salary or a fee basis. The Court looked at related regulations and found that the highly compensated administrative or professional employees could be compensated on a salary or fee basis to comply with the exemption, but held that a highly compensated executive had to be paid on a salary basis, as the fee type of compensation did not apply to the executive exemption. Thus, the Court held that an exempt executive had to receive a salary of $455 per week, but that other forms of compensation could help satisfy the requirements of the highly compensated employee exemption.

The Court went on to explicate that even if the fee form of compensation applied to exempt executives, the Court held that the commissions paid to the plaintiffs were not a fee basis type of compensation. The Court stated explicitly that the Company’s argument was “illogical.” In that regard, the Court reasoned that if a commission could be considered a “fee basis,” “there would be no need for the Department of Labor to include the work ‘commission’ in the second sentence of the regulation” as an acceptable form of additional compensation to reach the $100,000 annual threshold.” Moreover, there was no showing that the commission paid to the plaintiffs were akin to a fee, as the commissions were founded on sales made and were linked to the results of the job.

The Court then examined a USDOL Opinion Letter in which employees were paid commissions but they also received a guaranteed salary. In this case, the employees did not receive any salary but were paid entirely by commissions. Therefore, they failed to satisfy the requirements of the highly compensated employee exemption.

The Takeaway

This is an unusual case but with a very valuable lesson. When deciding whether to classify an employee as exempt under the HCE exemption, a component of the aggregate compensation paid must be “pure” salary.  Even if that salary is the statutory minimum of $455 per week. The failure of the employer to do so in this case means that these employees, some making hundreds of thousands of dollars per year, will be entitled to overtime!

How is that for the law of unintended consequences?

I always look for the easiest way out of a FLSA lawsuit. I use the word “easiest” in the most generic sense, as no magic bullet defense is truly easy. However, there are times when you catch lightning in a bottle, i.e. the jurisdictional defense. In a recent case, the Company was able to use this defense/shield to dismiss a FLSA overtime suit. The case is entitled Zheng v. Best Food In Town, LLC et al and was filed in federal court in the District of New Jersey. The plaintiff alleged violations of the Fair Labor Standards Act (“FLSA”) and the New Jersey Wage and Hour Law (“NJWHL”).

Cooks in restaurant kitchenThe plaintiff alleged that he was a salaried employee and worked as a kitchen helper for Defendants with a fixed lump sum per month compensation. His duties included washing and cutting vegetables, frying and cooking rice, preparing meat, and cleaning. He separated employment in May 2015. The plaintiff alleged that his employer engaged in a widespread pattern and practice of not paying a class of employees proper minimum wage and overtime compensation.

The Court noted that to sustain a suit under the FLSA, an employee must work for an enterprise or business that “has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person.” 29 U.S.C. § 203(s)(1)(a). This enterprise must have annual gross sales or business “not less than $500,000.” Id.

On this point, the Company submitted individual and corporate tax returns to support the argument that the business did not reach this threshold. These documents included tax returns from 2013, 2014, and 2015; Defendants’ gross corporate annual revenue ranged from $385,420 to $428,856. The plaintiff countered by asserting that these income tax records did not account for all of Best Food In Town’s sales. The Court observed that, thus, the Plaintiff’s only evidence to rebut these documents was “an assertion of tax fraud.”

The Court concluded that this lack of evidence was fatal. In a summary judgment proceeding, the non-moving party must make some showing of evidence from which a reasonable jury might return a verdict in his favor. All the Plaintiff did here was make an assertion. That did not and could not carry the day. Thus, the Court ruled that the FLSA did not apply to the Company and dismissed the Complaint.

The Takeaway

How quick and effective! No jurisdiction because the dollar threshold was not met and the case is dismissed, early on. This will certainly not work in every case, but the moral of the story remains the same. Defense counsel should explore the possibility of a sure-fire, quick, easy way out. If you don’t look, you don’t find.

Always look…

I recently blogged about this possibility and now it has come to fruition. The House of Representatives has passed a proposal to walk back the Obama USDOL initiative to expand the doctrine of joint employer status/liability for violations of labor law. The vote was 242-181 and followed (mostly) party lines. The new law would amend the National Labor Relations Act and the Fair Labor Standards Act to state that one entity would be jointly liable for another entity’s labor law violations if that first entity had “direct control” of the second entity’s employees.

U.S. Capitol Building
Copyright: mesutdogan / 123RF Stock Photo

The National Labor Relations Board applied this direct control standard until 2015, when it changed the law in the now famous (or infamous) Browning-Ferris Industries decision. That case held that entities are joint employers under the NLRA when one of them has “indirect or potential control” over the other company’s workers. The USDOL issued guidance that tracked this decision (although the new Labor Secretary rescinded it a few months ago). The D.C. Circuit is now reviewing that case.

The main criticism of the Obama policies and case law was that companies would not enter into agreements with other entities or businesses due to concern over liability. Rep. Bradley Byrne, R-Ala., the bill’s sponsor, stated that these Obama policies have caused “deep uncertainty among job creators.” He asked “what does it mean to have ‘indirect or potential control’ over an employee?” I practiced labor and employment law for decades and I do not know what that means, so I can only imagine the confusion Main Street businesses have faced.”

The fact that the DOL has rescinded its guidance does not change the fact that the tenets in it are still being used and applied. There has been a dramatic increase in the number of lawsuits where joint employer allegations are raised. One management side attorney observes, “every time I’m faced with a wage and hour lawsuit where there’s a temporary agency involved, it’s a sure bet it’s not only going to be the temp agency that’s named as a defendant.”

The opposition takes the view that this law would allow large companies such as franchisors to shield themselves from liability for labor law violations. Representative Mark Takano, D-California, stated “workers and local businesses are on the losing end of today’s vote. The winners are the large corporations and their lobbyists and trade associations who already enjoy outsized power over the economy and the workplace, and whose contributions line the campaign coffers of the House members who voted for this bill.”

The Takeaway

This is a far tougher standard for an agency, whether NLRB or USDOL, to meet, in order to establish a joint employer relationship. I have myself seen, in many cases; these agencies take a very expansive view of this doctrine. This puts tremendous pressure on the entities involved to either litigate to the hilt or settle perhaps on unfavorable terms.

This is one body of law that could do with a little coming back to the middle…

I remember with fondness the Sonny & Cher song, “The Beat Goes On.” That song could be easily applied to the saga of the USDOL overtime rule, which continues. Although the proposed rule has been shot down by the Fifth Circuit, the USDOL will now request that the Fifth Circuit reverse a Texas federal court order blocking the new rule. That new rule would have doubled the salary threshold for employees to be exempt.

The DOL has stated that it would request that the appellate court hold the appeal in abeyance “while the Department of Labor undertakes further rulemaking to determine what the salary level should be.” The agency, however, gave no details at all in the simple appeal notice. The cases are entitled State of Nevada et al. v. U.S. Department of Labor and Plano Chamber of Commerce et al v. R. Alexander Acosta, both filed in federal court in the Eastern District of Texas.

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 District Court Judge, Amos Mazzant, had concluded that the USDOL exceeded its authority when it doubled the salary requirement for exempt status. The Judge stated that the DOL “exceeded its authority” by “creat[ing] a final rule that makes overtime status depend predominantly on a minimum salary level, thereby supplanting an analysis of an employee’s job duties.” The Obama DOL immediately appealed and although the Trump DOL initially followed up on the appeal, with the goal of having the Fifth Circuit affirm its power to set salary levels, the agency then requested that the Fifth Circuit dismiss the appeal prior to the grant of summary judgment.

One commentator observed “the appeal] is less about appealing Judge Mazzant’s decision to strike down the overtime regulations that had been proposed under President Obama’s administration and more about preserving the concept that the Department of Labor has the authority to modify the overtime rule to begin with.”

There is an expectation that the DOL will propose lifting the salary level to $30-35,000 per year. This would be what the 2004 level would now be, considering inflation. The Labor Secretary has given no indication of what the agency will do. He has, however, in the past, stated he might want to raise the salary level in that area.

The DOL issued a request for information in the summer, asking for public opinions on the manner in which the rule should be changed. Approximately 165,000 comments were submitted on different elements of any salary test, e.g. what level to set salary, whether geography should play a role.

The Takeaway

I believe the DOL has the authority to set salary levels, as it has done many times through the decades. The level that the agency chose, however, was unreasonable and would have been bad for business. I am also intrigued by the concept of making allowances for differences in salary level based on geography.

I think that makes good sense…

It is well-established that short rest breaks, so-called coffee breaks, are compensable under the Fair Labor Standards Act. In a variation on this age-old theme, in a unique set of circumstances, the Third Circuit has affirmed that employers must pay for breaks of up to twenty (20) minutes. In this case, the Company did not pay sales workers who logged off of their computers for more than a minute and a half. The case is entitled U.S. Department of Labor v. American Future Systems Inc. et al., and issued from the Third Circuit Court of Appeals.

Cup of coffee sitting on tableThe Court held that the FLSA mandates that employers compensate employees for all rest breaks of twenty minutes or less. The Court rejected the Company’s argument that courts should assess the compensability of break times depending on whether the particular break was intended to benefit the employer or the employee. The Company argued that if the break benefited the employee, then no compensation would be due.

The Court disagreed, concluding that this would be “contrary to the regulatory scheme and case law,” and would be “burdensome and unworkable.” The Court stated “employers would have to analyze each break every employee takes to determine whether it primarily benefited the employee or employer. This would not only be ‘an undesirable regulatory intrusion in the workplace with the potential to seriously disrupt many employer-employee relationships, but it would also be difficult, if not impossible, to implement in all workplace settings.”

The workers were paid an hourly wage and were given bonuses based on sales per hour when they were logged onto their computers. Before 2009, the Company’s policy was to give workers two 15-minute breaks each day. It then changed the policy to cut out paid breaks but employees were able to log off of their computers at any time, but the Company only paid them for the time that they were logged on. The Company denominated this as “flex time.” The Company only paid workers if they were logged off for less than 90 seconds, including time spent on bathroom or coffee breaks.

The Third Circuit held that this violated the spirit of the FLSA. Employees had to choose between going to the bathroom or getting paid “unless the employee can sprint from computer to bathroom, relieve him or herself while there, and then sprint back to his or her computer in less than 90 seconds.”

The Takeaway

This is an employee friendly decision but it makes sense if one is strictly analyzing the FLSA, both plain language and intent. The statute protects employees from having their wages withheld when they take short breaks to visit the bathroom, stretch their legs, get a cup of coffee, or simply clear their head after a difficult stretch of work. The Court is really looking towards the general well-being of the employees.

Probably a good thing…