Showing posts with label exempt status. Show all posts
Showing posts with label exempt status. Show all posts

Wednesday, June 12, 2019

FLSA Cases Keeping Sixth Circuit Court Occupied


In the past month, the Sixth Circuit has issued a number of FLSA decisions affecting employers and employees.  Last week, the Court rejected objections to a class action settlement on behalf of exotic dancers.  Jane Does 1-2 v. Déjà Vu Consulting, Inc., No. 17-1801 (6th Cir. 6-3-19).  In another, the Court rejected claims for overtime compensation by certain Fire Battalion Chiefs on the grounds that they were exempt employees and were not entitled to extra standby pay.  Holt v. City of Battle Creek, No. 18-1981 (6th Cir. 6-3-19).   In another, the Court affirmed the trial court judgment imposing liability for unpaid overtime compensation for employees of a small lumber company, but remanded for a redetermination of the amount of damages due which did not include time spent on bona fide meal breaks or commuting to and from work.  Secretary of Labor v. Timberline South, LLC, No. 18-1763 (6th Cir. 5-29-19).  In that case, the Court also refined the test for enterprise coverage for employers which only purchase and use equipment locally, but that which is manufactured out of state.  It also rejected the employer’s good faith defense for seeking incomplete advice from a non-expert.  Finally, the Court affirmed the dismissal of a FLSA retaliation claim where the plaintiff failed to show that she had ever communicated any complaints about unpaid overtime.   Rogers v. The Webstraurant Store, Inc., No. 18-6229 (6th Cir. 5-23-19). Her “vague, non-adversarial conversations about staying late are not sufficiently “serious occasion[s]” to be considered complaints under the FLSA.”


Déjà Vu Consulting involved the settlement of class claims (brought under both Civil Rule 23 and FLSA § 216(b)) that exotic dancers had been misclassified as independent contractors to avoid paying minimum wages  and been subject to illegal wage deductions.  It was similar to prior litigation which involved many of the same dancers and defendants.  Many, if not all, of the 28,177 class members had signed agreements with the defendants containing arbitration clauses with prevailing parties being entitled to recover attorney’s fees, etc.   Accordingly, the Court found it was not an abuse of discretion for the trial court to affirm the settlement reached in light of the risk to the plaintiffs of being compelled to individually arbitrate their claims and possibly be financially liable to the defendants.   The Court also found that formal discovery was not necessary in light of the extensive discovery conducted in the prior case involving many of the same type of claims and parties.  The settlement provided for both injunctive and financial relief.   The financial settlement of $6.5M was divided among $1M in cash payments, $4.5 attributed to a secondary settlement pool that could be claimed while working at the defendant clubs in the future and $900K to class counsel.  The dissent would have remanded for a recalculation of the counsel fees because she characterized a requirement of the settlement – that the plaintiff dancers work at a defendant club to receive a financial benefit from the secondary pool of monetary relief – as a “coupon” under Class Action Fairness Act which can only be considered for purposes of evaluating attorney’s fees based on the coupons redeemed instead of merely the pool of money set aside.


Holt involved claims for unpaid overtime and standby time by two Fire Battalion Chiefs, the second in command in the Fire Department hierarchy. Their primary job duties involved management and administration.   They received an extra 1.5 hours of pay for each day when they were on call during the night shift (in addition to overtime if they were actually called back to work) and were required to monitor the radio and pager while on call.   They could not leave town or drink alcohol when on call because they might be called to a fire scene.


In evaluating their exempt status, the Court rejected the plaintiff’s argument that a narrow reading of exemptions should be given in light of the Supreme Court’s prior Encino Motorcar decision. The trial court found that Battalion Chief’s primary duty was managerial in nature because they
were required to directly supervise lower-ranking officers and personnel, evaluate personnel, administer and enforce department policy, and coordinate the day-to-day operations of the department . . . .  the battalion chiefs were expected to “take charge and operate as the incident commanders at the scene of a fire.”  

Further, one “was ‘in charge’ of all suppression personnel and [the other] was ‘in charge’ or ‘oversaw’ the training division.  Approximately 27 lieutenants and captains directly reported to [one] who monitored their adherence to standards.  Moreover, Chief [Hausman] testified that if any fire fighter ‘had a problem[,]’ he or she would take it to plaintiff Holt.”  In addition,  although the trial “court recognized that Plaintiffs did not have independent authority to hire, fire, or suspend fire fighters, it credited certain testimony as showing that Plaintiffs’ “suggestions and recommendations as to hiring, firing, advancement, promotion or any other change of status of other employees were given ‘particular weight.’”  The FLSA regulations do “not require courts to ask whether an employee’s recommendations as to personnel decisions were accepted every single time—instead, it presents the question of whether those recommendations were given “particular weight,” which is precisely what the district court found.”


In light of their management exempt status, the Court decline to evaluate whether they were also exempt administrative employees and whether their standby restrictions were so onerous as to require extra compensation.


Timberline concerned a small lumber company that harvested and transported lumber only inside the state of Michigan and bought and sold only from Michigan companies.   The operations manager consulted with an accountant and believed that some the employees were exempt agricultural workers and the transportation were exempt under the Motor Carrier Exemption Act, but did not consult with an attorney or explain why the office employees would be considered exempt.   The employer kept track of working hours for the hourly employees, but not the salaried employees.  Following a DOL investigation, the DOL filed a lawsuit and was awarded summary judgment in the amount of $439,437.42 in back pay and liquidated damages for unpaid overtime owed to 50 employees.


The first issue to be considered was whether the employer was a covered enterprise under the FLSA.  The employer argued that its equipment, though manufactured outside of the state,  was purchased locally and, as the end user of that equipment, could not be considered for purposes of §203(s)(1)(A)(1) of the FLSA that covers employers which have “employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person.”  The Court ultimately adopted the test utilized by the Eleventh Circuit to evaluate whether equipment used by an employer to create its product constituted goods or materials under the FLSA enterprise test.   The Eleventh Circuit considered an amendment to the FLSA to include “materials” as well as “goods” and the exception for “goods” when the employer was the ultimate enduser of the goods.  It cautioned that


the same items could be goods in one case, materials in another, and neither goods nor materials in still another case, depending on the use of the item in the context of each case.  “Where a catering business uses the china plates at a client’s banquet, the plates count as part of the ‘materials’ necessary for serving a catered meal.  But, where a department store sells the same china plates as stand-alone items, the plates count as ‘goods’ for that retailer.”  Id.  Those same plates hung as decorations on the lobby wall of an accounting firm, however, constitute neither goods nor materials “because the plates have no significant connection to the business’s accounting work.”

                 . . .

Applying the definition of “materials” from Polycarpe, the logging and harvesting equipment used by Timberline’s employees plainly constitute “materials” because the equipment is necessary to cut down trees and transport the timber, which in turn have a significant connection to Timberline’s commercial activities of harvesting and selling timber.


The Court rejected the employer’s argument that this would effectively impose the FLSA on every business which purchases computers that are all manufactured overseas and pens that are manufactured out of state because the DOL has never sought such broad enforcement.  The Court also noted that Polycarpe specifically mentioned that incidental and internal consumption of an item would not satisfy the requirement that the materials be used in the employer’s commercial activity.  “[C]overage here is not premised on employees’ incidental use of office items; rather, it is premised on employees’ regular and recurrent use of logging and harvesting equipment that is used to carry out the company’s commercial activity of harvesting timber.”


The Court next rejected the employer’s Motor Carrier exemption because its drivers never left the State of Michigan even though they held CDLs and had DOT registration numbers:


The dispositive inquiry here is not whether Timberline’s employees held commercial driver’s licenses or whether its trucks had DOT registration numbers; rather, the dispositive inquiry is whether Timberline’s drivers transport goods in interstate commerce, thus rendering Timberline a motor private carrier.  49 U.S.C. § 13102(15); Vaughn, 291 F.3d at 904.  Courts have consistently interpreted this to mean that drivers must travel or transport the goods across state lines, or transport the goods in a “‘practical continuity of movement’ across State lines from the point of origin to the point of departure.”

Further, the employer failed to show that its timber was used by its buyers in interstate commerce.   On the contrary, it disclaimed knowledge of what use was made of the timber it sold.


Third, as for calculating back pay, the DOL had argued that employees’ regular rate include the compensation that they had received for their meal and commuting time – which otherwise is not considered working hours for purposes of the FLSA – because the employer traditionally and customarily paid employees for such time and the Portal-to-Portal Act referred to including such time of customarily compensated.  Neither the DOL nor the Court had made any effort to determine how many of the employees’ paid hours constituted such commuting or meal break time.  The Court rejected that argument:


Although the plain language of the Portal-to-Portal Act suggests that home-to-work commutes are deemed compensable if the employer has a custom or practice of compensating for such work, 29 C.F.R. § 785.34 explains that “ordinary travel from home to work (see § 785.35) need not be counted as hours worked even if the employer agrees to pay for it.”  And, 29 C.F.R. § 785.35 says plainly that “[n]ormal travel from home to work is not worktime.”  The reason is that the FLSA only requires overtime compensation for “actual work or employment,” Tenn. Coal, Iron & R. Co., 321 U.S. at 597, “[a]nd even where there is a contract, custom, or practice to pay for time spent in such a ‘preliminary’ or ‘postliminary’ activity, section 4(d) of the Portal Act does not make such time hours worked under the Fair Labor Standards Act, if it would not be so counted under the latter Act alone,” . . . “The general rule . . . is and always has been that the FLSA does not treat ordinary home-to-job-site travel as compensable.”  Kuebel v. Black & Decker Inc., 643 F.3d 352, 360 (2d Cir. 2011).  The same is true of “bona fide meal periods.”  29 C.F.R. § 785.19; see also Ruffin v. MotorCity Casino, 775 F.3d 807, 811-15 (6th Cir. 2015) (examining whether meal periods were compensable under the FLSA as “work”).

The Court remanded for the DOL and trial court to calculate how many hours the employees had been paid for commuting and meal breaks and to deduct that from the damages calculation.  Nonetheless, “Defendants may not use the amounts paid for those otherwise non-compensable work periods as an offset against the amounts owed.”


Fourth, the Court also rejected the employer’s argument that liquidated damages should not be awarded or should at least be reduced because it acted in good faith in consulting with its accountant about the agricultural exemption and in paying its employees well above the industry average.  An employer is required to show that it took affirmative steps to comply with the FLSA, but nonetheless violated it.   The employer did not provide sufficient information to the accountant about all of the employees and the accountant did not profess to be a FLSA expert.  Further, the employer knew that not all of the employees would qualify under the agricultural exemption and did not take reasonable steps to investigate the status of the other workers.  It did not even convincingly argue the agricultural exemption before the trial court and did not appeal that issue to the Sixth Circuit.  As for the generous compensation, that matter is irrelevant for purposes of FLSA compliance in the absence of good faith and reasonable grounds for non-compliance.


The plaintiff in Rogers had failed to demonstrate appropriate customer service skills and had been placed on a performance improvement plan.  She alleged that she had been terminating for complaining about unpaid overtime, but she failed to show that she had made any such complaints that could be objectively perceived as a complaint.  Her first “complaint” was really an apology for being late and asking whether she could attribute the 15 minutes that she worked past her shift the prior evening towards the 25 minutes that she had been late.  Her second “complaint” related to the tone of her voice when asking if she was supposed to work on her PIP outside of regular work hours.    Her third “complaint” related to notes that she sent her manager about how she was engaging in “self-reflection” outside of work hours and that she had been told to do this on “her own time.”  Indeed, he manager contacted her about whether she was working unauthorized overtime in order to give her back time that she had worked.  The plaintiff then admitted that she had not been recording all of her time working, but did not think that would be a concern.


Even if the allegations were true, the Court found that they could not constitute “complaint” under the FLSA that could support a retaliation claim. “The Supreme Court has said that the act of filing an FLSA complaint must contain ‘some degree of formality,’ such that a reasonable employer would understand it ‘as an assertion of rights protected by the statute and a call for their protection.’” However, “none of them even indicated that Rogers was complaining  or used any synonym or similar expression.”  Moreover, it is not clear that the employer could have realized that she was making a complaint.


While an employee need not explicitly mention the FLSA, she must do something to give fair notice that she is actually complaining about overtime or a lack of fair compensation, i.e. the core things the FLSA protects.  Kasten, 563 U.S. at 14.  Rogers’s vague, non-adversarial conversations about staying late are not sufficiently “serious occasion[s]” to be considered complaints under the FLSA.

                 . . . .

Not every grumble or “expression[] of concern or discomfort or frustration” by an employee constitutes an FLSA complaint.  Robinson v. Wal-Mart  Stores, Inc., 341 F. Supp. 2d 759, 763 (W.D. Mich. 2004).  Instead, an employee’s expressions  must be “sufficiently clear and detailed” to count as a complaint.  Kasten, 563 U.S. at 14.  Rogers’s allegations provide no information on how a mere tone of voice can be that clear.  Moreover, no required inference can save her lawsuit from that lack of clarity.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Monday, June 20, 2016

Supreme Court Rejects Obama FLSA Regulation


This morning, in a curious decision, a divided Supreme Court rejected a 2011 FLSA regulation on a relatively narrow overtime pay exemption at 29 U.S.C. §213(b)(10)(A) for car dealership service advisors – those employees who meet with you when your car is making a strange noise and sell repair services to you at an extraordinary price.  Eninco Motorcars LLC v. Navarro, No. 15-415 (U.S. 6-20-16).
 
The statute covered  any salesman, parts-man, or mechanic primarily engaged in selling or servicing automo­biles” at a covered dealership.  Even though no formal regulation had ever been enacted by the DOL on this provision, its initial 1970 interpretation at 29 C.F.R. §779.372(c)  – that service advisors (who do not sell cars or service cars) were non-exempt – was rejected by the federal courts. In 1978, an opinion letter conceded that services advisors could be exempt.   In 1987, the W&H Field Operations Manual stated that DOL would no longer challenge the service advisor exemptions.
 
 In 2008 – 21 years after the statute was passed, the DOL began formal notice-and-comment rulemaking and indicated that it would formally adopt the judicial interpretation of § 213(b)(10)(A).  However, with almost no explanation, the regulation ultimately adopted in 2011 took the same position as in 1970 – that service advisors were non-exempt because they did not sell cars.  29 C.F.R. §779.372(c)(1). The Supreme Court ruled that this 2011 regulation was not entitled to any judicial deference because the DOL failed to explain why it was changing a long-standing interpretation upon which numerous employers and employees had relied.  Accordingly, the case was remanded to the Court of Appeals to revisit the case, interpreting only the statute and not the regulation.  The dissent agreed that the regulation was procedurally deficient and would have reached the final question and interpreted the statute.
 
NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Tuesday, June 30, 2015

DOL Releases Long-Awaited Regulatory Proposals Governing Overtime Compensation Exemptions and the New Salary Basis Test

This morning, the Department of Labor released its long-awaited proposals to revise the Fair Labor Standards Act regulations governing the entitlement to exemption from overtime compensation.  As expected, the DOL proposes to increase the minimum salary which would qualify a position for an overtime exemption (i.e., exempt jobs) from $455/week (or $23,660/year, which is beneath the poverty rate for a family of four) to $921/week (or $47,892).  (Interestingly, the DOL’s website indicates that the new annual salary would be $50,440 and not the amount listed in its proposed regulations).   Thereafter, and somewhat like Ohio minimum wage law, the DOL proposes to peg the minimum salary amount to “the 40th percentile of weekly earnings for full-time salaried workers” so that the minimum salary level would increase annually.   The DOL also proposes to raise the exempt salary rate for highly compensated workers from $100,000/year to $122,148/year (with a similarly escalator clause pegged at the 90th percentile), but proposes no other changes to the highly compensated exempt worker regulations.  While the DOL is not currently proposing to modify the duties test for exempt positions, it is inviting comments on whether it should do so in order to further limit the amount of non-exempt work which may be performed by exempt employees.

The DOL discusses for many pages why it substantially increased the minimum salary.  In short, it contends that the 2004 FLSA regulations combined the lower salary level for the traditional long duties test with short duties test (which typically required a higher minimum salary level) to create the standard duties test and, therefore, short-changed many exempt employees.  It also criticizes how the 2004 salary level was set differently than in past years and that it relied on regional instead of national data.  The current proposal also chose a salary level that made the minimum wage approximately same ratio to the minimum exempt salary as it had been in 1958 and 1970.
The DOL notes that many employers prefer to pay their salaried employees a significant portion of their compensation through non-discretionary bonuses and incentive payments to give the employees a sense of ownership in their work and to improve their performance.  Historically, the FLSA regulations have not considered these payments as part of the salary basis test (except for highly compensated employees).  However, the DOL is considering including these bonus and incentive payments into the new salary basis test, so that employers do not entirely eliminate these pay-for-performance systems.  However, if it were to adopt such revisions, the DOL would only permit 10% of such bonuses to be considered as part of the mandated $921 weekly salary amount needed to meet the overtime exemption and would require that such bonuses be paid out weekly or monthly, instead of merely annually or quarterly as most of them currently are.  (This, of course, reflects that most of the bureaucrats making the rules have been paid by the government with steady tax income so long that they have no understanding of how the real world works in the private sector).   The DOL also would not permit “catch up payments” as are currently permitted for highly compensated exempt employees.

Likewise, the DOL seeks comments about whether to include commission payments in the salary level test on the grounds that they are similar to nondiscretionary bonuses.
The proposed new regulation still would not consider discretionary bonuses as part of the salary level test and would still exclude room and board, etc. from the calculation.  It would similarly exclude “payments for medical, disability, or life insurance, or contributions to retirement plans or other fringe benefits.”  It also maintains separate tests for the movie industry and American Samoa.  In addition, certain professions remain outside the salary basis tests, including lawyers, judges, physicians and academic administrative personnel.

All in all, the only surprise in the proposed regulations was that the DOL did not modify the 2004 standard duties test for exempt positions.  The proposed minimum salary rate has been whispered in employment law sectors and the news media for many months.  However, employers should remain vigilant in case the DOL changes its position about the duties test and whether and how it will permit incorporation of bonuses, commissions and incentive payments into the salary basis test.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Monday, March 9, 2015

Supreme Court Upholds DOL Interpretation of Non-exempt Status of Mortgage Loan Officers from APA Procedural Objection

This morning, a unanimous Supreme Court upheld a 2010 administrative interpretation from the Department of Labor explaining that the white collar FLSA administrative exemption regulation excluded most mortgage loan officers and found that administrative interpretations – which are not binding on courts – do not need to satisfy the notice and comment provisions applicable to regulations, or rules, under the Administrative Procedures Act.  Perez v. Mortgage Bankers Ass’n., No.13-1041 (U.S. 3-9-15). Contradictory administrative interpretations had been issued by the DOL in 1999, 2001, 2006 and 2010.  When 2010 interpretative opinion was released, litigation ensued and the appellate court concluded that the interpretative rule could not be changed without prior notice and comment.  The Supreme Court reversed.  “Because an agency is not required to use notice-and-comment proce­dures to issue an initial interpretive rule, it is also not required to use those procedures when it amends or re­peals that interpretive rule.”

According to the Court’s opinion, in 1999, 2011 and 2010, the DOL issued administrative opinion letters that mortgage loan officers did not satisfy the FLSA regulation for the administrative employee exemption.    In 2004, the administrative employee exemption regulation was updated and specifically noted that “an employee whose primary duty is selling financial products does not qualify for the administrative exemption.” However, in 2006, the DOL issued an administrative opinion letter that mortgage loan officers would generally satisfy the regulatory exemption.  That letter was withdrawn in 2010 in favor of a W&H Administrator’s Interpretation which concluded that mortgage loan officers were non-exempt. This litigation ensued.  Without analyzing the substance of the 2010 W&H interpretation, the D.C. Court of Appeals ultimately found that the DOL could not change its administrative interpretation of its own regulation without going through the APA’s notice and comment procedures.  The Supreme Court reversed on the grounds that the notice-and-comment procedures do not apply to administrative interpretations of its own regulations.

The APA define rules broadly to include “statement[s] of general or particular applicability and future effect” that are designed to “implement, interpret, or prescribe law or policy.” Certain rules must go through a notice and comment procedure before being adopted by a government agency.  “Section 4(b)(A) of the APA provides that, unless another statute states otherwise, the notice­ and-comment requirement “does not apply” to “interpreta­tive rules, general statements of policy, or rules of agency organization, procedure, or practice.”  Without defining precisely what constitutes an interpretative rule (vs. a legislative rule), the Court noted that the critical feature of interpretive rules is that they are “issued by an agency to advise the public of the agency’s construction of the statutes and rules which it adminis­ters.”  While “the absence of a notice-and-comment obligation makes the process of issuing interpretive rules comparatively easier for agencies than issuing legislative rules, . . . interpretive rules “do not have the force and effect of law and are not accorded that weight in the adjudicatory process.”  Accordingly, the appellate court erred in not applying the exception in §4(b) of the APA to the W&H Administrator’s Interpretation of the FLSA administrative employee exemption issue.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Monday, May 5, 2014

Sixth Circuit: First Level Supervisors May Lose FLSA Exemption if Recommendations Are Disregarded

On Thursday, the Sixth Circuit Court of Appeals reversed summary judgment entered in favor of an employer on FLSA overtime claims brought by a group of first-level supervisors who claimed that they had been misclassified as exempt executive employees.   Bacon v. Eaton Corp., No. 13-1816 (6th Cir. 5-1-14).   The Court found there to be a factual dispute as to whether the plaintiffs had sufficient control over personnel decision so as to fit within the exemption’s definition. “As a matter of law, an employee who merely carries out the orders of a superior to effectuate a change of status is not performing exempt executive duties.” 

The Department of Labor (“DOL”) has established a four-part test to determine whether or not an employee has been appropriately classified under the executive exemption. See 29 C.F.R. 541.100. An employee who is an exempt executive is one who is “(1) [c]ompensated on a salary basis at a rate of not less than $455 per week . . . ; (2) [w]hose primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof; (3) [w]ho customarily and regularly directs the work of two or more other employees; and (4) [w]ho has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight.”
The plaintiffs only disputed the fourth prong and the Court determined that the employer was entitled to judgment if it could show “that Plaintiffs were instrumental in other employment status changes such as reassignments or changes in benefits or pay.” The plaintiffs disputed that their personnel responsibilities were given any weight.  For instance, the plaintiffs disputed that their evaluation of probationary employees was given any weight since the probationary employees were generally hired as a matter of course and the evaluations were often turned in only after the employee’s probationary period had been completed.   Moreover, they did not participate in job interviews and were never trained to do so.  Their job descriptions also lacked any indication that they made suggestions about hiring, firing or other personnel actions.   They also presented evidence that their recommendations about personnel actions were frequently disregarded and that all decisions were made by their managers and directors. 

This Court has defined a change of status as a tangible employment action that constitutes “a significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.” . . . Furthermore, temporary reassignments that do not cause pay or benefit reductions are not changes of status, as a matter of law.
The DOL provides the following three-prong test for determining whether an employee has significant influence over other employees’ “changes of status”: “[1] whether it is part of the employee’s job duties to make such suggestions and recommendations; [2] the frequency with which such suggestions and recommendations are made or requested; and [3] the frequency with which the employee’s suggestions and recommendations are relied upon.” See 29 C.F.R. 541.105. Occasional suggestions and recommendations do not suffice to demonstrate that an employee had significant influence over other employees’ changes of status.
The Court concluded that the employer could not demonstrate undisputed facts concerning the plaintiff’s level of personnel responsibilities:  “As a matter of law, an employee who merely carries out the orders of a superior to effectuate a change of status is not performing exempt executive duties.”  While the employer argued that the plaintiff first-level supervisors implemented progressive disciplinary actions, the plaintiffs produced evidence that their disciplinary actions were removed from personnel files and given the same level of punishment for repeated rule violations.  

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Friday, October 11, 2013

FLSA Expands in 2015 to Cover Most Home Care Workers

[Editor's Note:  The D. C. District Court temporarily enjoined on December 22, 2014 and January 2, 2015 certain provisions of the new rule, including the definition of "companionship services" and the differing treatment of individuals/families and home health care agencies.]

As the federal government shut down on October 1, the Department of Labor published in the Federal Register the final regulation expanding coverage of the Fair Labor Standards Act to reach most home care/domestic service workers beginning on January 1, 2015. Although the revisions to domestic service worker regulations take only one page in the Federal Register, the DOL’s explanation for the changes takes 104 pages.  Among the most important changes are that the FLSA exemption for individuals providing “companionship services”  will no longer be available to cover individuals employed by third-party employers OR who spend more than 20% of their working time performing personal care services (such as housekeeping, cooking, dressing, bathing, managing finances, grooming, or transportation, etc.).  This means that FLSA coverage could now extend to families which employ a home care worker to care for grandma when that individual spends more than 20% of his or her time each week cooking, cleaning or driving grandma on her errands or to medical appointments, etc.

In 1974, Congress created a FLSA exemption for live-in domestic service workers and those workers who provided companionship services.  29 U.S.C. §213(a)(15) and (b)(21).  These exceptions provide that the minimum and overtime wage provisions do not apply to

·        any employee employed on a casual basis in domestic service employment to provide babysitting services, or

·        any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves

Likewise, the overtime provisions do not apply to “any employee who is employed in domestic service in a household and who resides in such household.”  Since that time, the home care industry has changed considerably and the DOL felt it was necessary to update its 1975 regulations.

Because the regulations are so short, here are a few of the material changes:

·        Domestic service employment. The term domestic service employment means services of a household nature performed by an employee in or about a private home (permanent or temporary). The term includes services performed by employees such as companions, babysitters, cooks, waiters, butlers, valets, maids, housekeepers, nannies, nurses, janitors, laundresses, caretakers, handymen, gardeners, home health aides, personal care aides, and chauffeurs of automobiles for  family use. This listing is illustrative and not exhaustive.

·        Companionship services. As used in [the FLSA]  the term companionship services means the provision of fellowship and protection for an elderly person or person with an illness, injury, or disability who requires assistance in caring for himself or herself.

o   The provision of fellowship means to engage the person in social, physical, and mental activities, such as conversation, reading, games, crafts, or accompanying the person on walks, on errands, to appointments, or to social events.

o   The provision of protection means to be present with the person in his or her home or to accompany the person when outside of the home to monitor the person’s safety and well-being.

o   Persons who provide care and protection for babies and young children who do not have illnesses, injuries, or disabilities are considered babysitters, not companions.

·        The term companionship services also includes the  provision  of care if the care is provided attendant to and in conjunction with the provision of fellowship and protection and if it does not exceed 20 percent of the total hours worked per person and per workweek.

o   The provision of care means to assist the person with activities of daily living (such as dressing, grooming, feeding, bathing, toileting, and transferring) and instrumental activities of daily living, which are tasks that enable a person to live independently at home (such as meal preparation,  driving, light housework, managing finances, assistance with the physical taking of medications, and arranging medical care).

o   The term companionship services does not include domestic services performed primarily for the benefit of other members of the household and does not include the performance of medically related services provided for the person. The determination of whether services are medically related is based on whether the services typically require and are performed by trained personnel, such as registered nurses, licensed practical nurses, or certified nursing  assistants; the determination is not based on the actual training or occupational title of the individual performing the services.

·        Third party employers of employees engaged in companionship services and of live-in domestic service employees may not avail themselves of the minimum wage and overtime exemptions for such employees even if the employees are jointly employed by an individual, family or household (who remains entitled to claim the exemption) using the services.

·        Employers are required to maintain records of hours worked by each covered domestic service employee. However, the employer may require the domestic service employee to record the hours worked and submit such record to the employer.

·        No records are required for casual babysitters.

The FLSA exemption for babysitters remains unchanged by these changes, but I thought it might be interesting for readers to be reminded that a regulation for babysitters exists:

§ 552.104  Babysitting services performed on a casual basis.

·        Employees performing babysitting services on a casual basis, as defined in § 552.5 are excluded from the minimum wage and overtime provisions of the Act. The rationale for this exclusion is that such persons are usually not dependent upon the income from rendering such services for their livelihood. Such services are often provided by (1) Teenagers during non-school hours or for a short period after completing high school but prior to entering other employment as a vocation, or (2) older persons whose main source of livelihood is from other means.

·        Employment in babysitting services would usually be on a “casual basis,” whether performed for one or more employees, if such employment by all such employers does not exceed 20 hours per week in the aggregate. Employment in excess of these hours may still be on a “casual basis” if the excessive hours of employment are without regularity or are for irregular or intermittent periods. Employment in babysitting services shall also be deemed to be on a “casual basis” (regardless of the number of weekly hours worked by the babysitter) in the case of individuals whose vocations are not domestic service who accompany families for a vacation period to take care of the children if the duration of such employment does not exceed 6 weeks.

·        If the individual performing babysitting services on a “casual basis” devotes more than 20 percent of his or her time to household work during a babysitting assignment, the exemption for “babysitting services on a casual basis” does not apply during that assignment and the individual must be paid in accordance with the Act's minimum wage and overtime requirements. This does not affect the application of the exemption for previous or subsequent babysitting assignments where the 20 percent tolerance is not exceeded.

·        Individuals who engage in babysitting as a full-time occupation are not employed on a “casual basis.”
NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Tuesday, August 7, 2012

Ohio Court of Appeals Rejects Retaliation Claim Based on FLSA and Ohio’s Prompt Wage Payment Act

Last week, the Ohio Court of Appeals in Cuyahoga County rejected the claim of a home health worker that she was fired for complaining about not receiving overtime pay or paid vacation. Hurd v. Blossom 24 Hour We Care Ctr., Inc., 2012-Ohio-3465. The Court found that the plaintiff was exempt under the companionship exemption from overtime pay under the FLSA and, thus, was not protected by the FLSA for complaining about a failure to pay overtime pay. Interestingly, the Court found the plaintiff’s good faith belief in making the complaint was irrelevant because the “good faith belief standard” only applied in Title VII claims. It also found that she was similarly unprotected for complaining about the failure to provide her with a paid vacation because she had a pending breach of contract action covering that very issue. Ohio law does not require employers to provide a paid vacation and without showing the existence of a prior agreement for paid vacation, she could not prevail on a wage payment claim. Therefore, a public policy claim was unnecessary in this case, according to the Court. What seemed to be a more significant motivating factor was that the employer apparently had a legitimate reason to terminate her employment based on a prior criminal record and her failure to timely submit to a background check.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Monday, June 18, 2012

Divided Supreme Court Upholds Exempt Status of Pharmaceutical Sales Reps



This morning, a divided Supreme Court upheld the outside sales exemption that has traditionally applied to pharmaceutical sales representatives. Christopher v. SmithKline Beecham Corp., No. 11–204 (6-18-12). The pharmaceutical sales reps (aka detailers) focus their sales and promotional efforts on physicians who prescribe medications because the medications cannot be obtained by consumers from pharmacies or pharmaceutical companies without a prescription. Their “primary objective was to obtain a nonbinding commitment from the physician to prescribe those drugs in appropriate cases.” They typically worked 40 hours/week calling on physicians and another 10-20 hours attending special events, reviewing product information, etc. They are typically paid a base salary and incentive pay based on sales in their sales territories. The DOL recently took the position in 2009 that because title to the medications did not transfer from the sales rep to the physician, there was no sale. In other words, the exemption required the consummation of a sale. Therefore, the DOL had argued that the detailers were not entitled to the exemption that applies to outside sales representatives and should be paid overtime for simply providing and promoting information about the medications. However, the Court’s majority concluded that the detailer’s activities constituted sales activity. Moreover, the Court refused to defer to the DOL’s recent interpretation of its regulations as creating “unfair surprise” to an industry practice that had existed for decades. The exemption regulations apply to a variety of activities, including consignment relationships, which do not require the transfer of title. Ultimately, the Court noted that obtaining a nonbinding commitment from a physician to prescribe one of the employer’s drugs is the most that the detailers may legally do to ensure the eventual disposition of the employer’s medical products and constitutes an “other disposition” of the employer’s products for purposes of the outside sales exemption regulation and statute at 29 U. S. C. §203(k). The Court also found it relevant that the detailers were handsomely compensated, obviating a need for overtime wages.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney

Wednesday, February 22, 2012

Sixth Circuit: Failure to Pay Any Salary to Exempt Employee Can Violate the FLSA

This morning the Sixth Circuit issued an interesting, yet concise, FLSA decision, which is no small feat. Orton v. Johnny’s Lunch Franchise, LLC, No. 10-2044 (6th Cir. 2-22-12). In this case, the plaintiff former-executive alleged in his complaint that his former employer and the company’s president (also deemed an employer under the FLSA) failed to pay him any salary or reimburse him for expenses in the last five months that he worked in 2008 because of cash-flow problems. The defendants moved to dismiss the complaint on the grounds that the president was not an employer and on the grounds that the plaintiff was exempt. Ultimately, the district court dismissed the complaint and refused the plaintiff leave to amend on the grounds that he was an exempt employee and cannot assert a claim for back wages under the FLSA. The court held that the employer’s failure to pay any salary to the plaintiff for five months was insufficient to convert him to a non-exempt employee (who was owed minimum wages and overtime). The Sixth Circuit reversed and remanded on the grounds that the district court improperly placed the burden of proving the exemption on the plaintiff and that the employer was required to prove under the 2004 FLSA regulations that its deductions from salary actually received were permissible under the salary-basis regulations. This obviously could not be done at the 12(b)(6) stage without an evidentiary record.


First, the Sixth Circuit noted that an employee’s exempt status is an affirmative defense that must be plead in the employer’s answer and proven by evidence. Although the court was critical of the district court for overlooking this significant issue, there may have been some confusion in that the plaintiff may have conceded that his position would be exempt in normal circumstances and did not challenge the court’s finding on appeal.


Second, the Court found the 2004 amendment to the FLSA regulations modified the law on whether a failure to pay any salary is actionable under the FLSA. The former regulation provided in relevant part that:



“An employee will be considered to be paid ‘on a salary basis’ within the meaning of the regulations if under his employment agreement he regularly receives each pay period . . . .” 29 C.F.R. § 541.118(a) (1973) (emphasis added).


However, the 2004 regulation changed this to:



An employee will be considered to be paid on a “salary basis” within the meaning of these regulations if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed . . . . 29 C.F.R. § 541.602(a) (2004) (emphasis added).

The Sixth Circuit previously addressed the impact of the 2004 changes on the salary-basis test in Baden-Winterwood v. Lifetime Fitness, Inc., 566 F.3d 618, 627-28 (6th Cir. 2009). “The new regulation now “focus[es] on pay received,” rather than the terms of the employment agreement, but the regulation still requires that a defendant show that the plaintiff was paid: “(1) a predetermined amount, which (2) was not subject to reduction (3) based on quality or quantity of work performed.” The district court improperly relied on decisions applying the pre-2004 regulation, which had made the employee’s employment agreement the starting place for any analysis.



The new (2004) regulations, which all parties correctly agree are applicable in this case, establish that employment agreements are no longer the relevant starting point for whether an employee is paid on a salary basis. Baden-Winterwood, 566 F.3d at 627. The question is therefore not what Orton was owed under his employment agreement; rather, the question is what compensation Orton actually received.

In this case, the plaintiff alleged that he was not paid any salary or wage from August until he was laid off in December 2008. The complaint also mentioned that this was because the defendants had trouble making payroll. “Whether Orton’s allegations “suggest” one reason for the deduction in salary is irrelevant; his allegations do not preclude multiple reasons for the deduction, and it was the defendants’ burden—not the plaintiff’s—to establish that the reason for the deduction was proper.” In any event, this allegation does not meet the employer’s burden for proving that the alleged deduction was permissible under the FLSA.




For example, a company experiencing cash-flow issues cannot claim the exemption if the company prevents an otherwise salaried employee from coming in three days a week and then pays him less accordingly. Such a deduction in pay would undeniably be due to an absence occasioned by the employer, see 29 C.F.R. § 541.602(a), even though the employer decided to take the action due to cash flow problems. The regulation makes no exception for deductions in pay just because they were motivated by cash flow shortages. . . ..


That is not to say a company with cash flow issues is left with no recourse. Nothing in the FLSA prevents such an employer from renegotiating in good faith a new, lower salary with one of its otherwise salaried employees. The salary-basis test does not require that the predetermined amount stay constant during the course of the employment relationship. Of course, if the predetermined salary goes below a certain amount, the employer may be unable to satisfy the salary-level test, which explicitly addresses the amount an employee must be compensated to remain exempt.


The Court also found no legal significance in a complete reduction in pay rather than a partial reduction – as existed in pre-2004 case law because of a focus on the terms of the employment agreement. “ Therefore, to the extent these cases are at all instructive regarding the new regulations, they support the general principle that the reasons for the reductions in pay are dispositive, not the amount.”

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Thursday, April 28, 2011

Sixth Circuit: Students Who Are Actually Learning Are Not Employees Under the FLSA


This morning, the Sixth Circuit Court of Appeals issued a rather rare child-labor decision. In it, the Court was required to decide whether students at a vocational school were student-learners or employees due minimum wage for the "work" they performed at the school (in a nursing, farming, maintenance or other workplace setting). The Court rejected the Department of Labor employee-trainee test in favor of one that determines whether the individual or the school primarily benefits from the services performed. In other words, "the proper approach for determining whether an employment relationship exists in the context of a training or learning situation is to ascertain which party derives the primary benefit from the relationship." In particular, the Court agreed that the students primarily benefitted from the work because the students were not displacing regular employees in performing essential services. Indeed, all of the work could be performed by the instructors without the assistance of the students if that were the defendant school's aim. Moreover, the education received by the students was effective at teaching necessary skills. Solis v. Laurelbrook Sanitarium and School, Inc., No. 09-6128.



NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Thursday, June 17, 2010

Ohio Appeals Court Holds Community Support Specialist Is Not Exempt from Overtime as An Administrator or Professional


Last week, the Court of Appeals for Cuyahoga County reversed summary judgment in favor of a non-profit community mental health center employer on a claim for unpaid overtime brought by a Community Support Specialist (CSS) formerly employed by the center. White v. Murtis M. Taylor Multi-Serv. Ctr., 2010-Ohio-2602. The trial court had found that the plaintiff was exempt from overtime under both the Fair Labor Standards Act and Ohio Revised Code § 4111.03 law as an administrative and/or learned professional employee. Both courts agreed that Ohio law follows the same standards as the FLSA in evaluating an employee's exempt status and that the burden was on the employer to justify by clear and affirmative evidence that the employee was exempt from overtime pay when working more than 40 hours in a week. However, the appellate court concluded that his job duties did not fit within the administrative exemption; he did not exercise enough independent judgment or discretion to fit within either exemption; and his job did not require a specialized academic degree as required to fit within the learned professional exemption.


According to the Court's opinion, the plaintiff filed suit in January 2008 -- just over three years after he left the non-profit employer -- seeking compensatory and punitive damages. While the employer contended that the plaintiff's job required him to perform managerial duties, the Court found that the employer failed to present any evidence to support its argument. The plaintiff denied that he possessed any authority over other employees. The Court then examined the regulatory examples of duties at 29 CFR §541.201(b) which typically would be performed by an administratively exempt employee and concluded that they indicated policy-making responsibilities which were not reflected in the plaintiff's job. Moreover, the employer failed to present evidence showing that the plaintiff's job required the exercise of judgment and independent discretion over matters of significance.





The exercise of independent judgment requires "the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered. . . .[The plaintiff] simply assisted his clients in learning and completing everyday tasks, such as grocery shopping and locating community resources. Clearly, these are not matters of significance as contemplated by the FLSA. [The plaintiff] did not exercise independent judgment in the general business operations of [the non-profit employer]. He did not supervise anyone, nor did he perform any administrative functions such as human resources procurement or management decisions.


The Court rejected evidence that he was not required to routinely seek his supervisor's approval and that he sometimes worked unsupervised because " he was still required to submit all of his notes and case plans to [his supervisor] for approval." While most of his case plans were approved, his supervisor still impliedly rejected "some" of them.




Similarly, the Court concluded that the plaintiff did not fit within the learned professional exemption:



The first element [the employer] must satisfy to establish that [the plaintiff] is a learned professional, is that [the plaintiff] performs work that requires advanced knowledge. The work must either require advanced knowledge, or be of an artistic or creative nature. Specifically, the work is as follows:



"[P]redominately intellectual in character, and which includes work requiring the consistent exercise of discretion and judgment, as distinguished from performance of routine mental, manual, mechanical, or physical work. An employee who performs work requiring advanced knowledge generally uses the advanced knowledge to analyze, interpret, or make deductions from varying facts or circumstances. Advanced knowledge cannot be attained at the high school level." . . .


29 CFR § 301(b). "While a degree is not always required, a degree is the best prima facie evidence that an employee is a learned professional." However, the plaintiff's job description did not require any advanced knowledge or education. Rather, it only required:





some course work in social work, counseling, psychology,or related disciplines beyond high school. Bachelor's degree in Social Work, Counseling, Psychology, or related field preferred. At least one year of experience in a mental health organization with a background in substance abuse[,] abuse treatment and/or prevention essential.


"Thus, the evidence showed that the employer did not require a specialized academic degree or experience. " Indeed, the job did not require the applicant to possess any degree.




The Court found that the trial court had erred by placing "significant weight on the actual education [a bachelors degree in research biology and theology] and training [that the plaintiff] has obtained, when the proper inquiry is the education that is actually required of the position." Although the plaintiff possessed experience and training "in chemical dependency and addiction counseling, he was instructed not to provide clients with counseling; therefore, such training was similarly irrelevant to his position as a CSS 1. Courts have concluded that highly trained individuals [ like pilots] who do not possess an academic degree are not learned professionals."




Moreover, the plaintiff testified that "his work included accompanying clients to appointments and referring them to community resources" and "he did not provide treatment to his clients." His duties also





consisted of teaching daily living skills to his clients. He accompanied them on legal and medical appointments, and assisted them in completing everyday tasks such as managing their finances and grocery shopping. Such duties clearly do not fall into the category of science and learning, as these duties do not require any specialized knowledge.


His employment offer letter also "clearly indicated that [his] position as a CSS 1 was a level 1, primary support position." The Court concluded that "[s]uch a vague description does not merit the type of specialized knowledge required of a learned professional."




Finally, the Court examined an opinion letter from the Department of Labor which indicated that social worker positions which require a master's degree in social work are exempt while case workers who were not required to have a specific degree were not. "The Ohio Supreme Court has previously recognized that opinion letters are persuasive authority in interpreting federal statutes and regulations."




NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Tuesday, May 19, 2009

Sixth Circuit: Managers’ Exempt Status Was Destroyed by Employer’s Recoupment of Overpayment of Incentive Bonuses.

Today, a unanimous Sixth Circuit addressed the Fair Labor Standards Act exempt status regulations in a class action lawsuit brought in Columbus alleging that the employer violated the salary basis regulations and owed the Plaintiffs overtime compensation. Baden-Winterwood v. Life Time Fitness, Inc., Nos. 07-4437/4438 (6th Cir. 5/19/09). The Court addressed compensation paid both before and after the revised FLSA regulations were issued by the Department of Labor in August 2004. The Plaintiffs were paid a mix of base salary and incentive bonuses. The Plaintiffs challenged employer policies which permitted the employer to recoup prior overpayments of incentive bonuses from employee salaries and actual deductions made from employee salaries in 2005 to recoup such incentive bonus overpayments. The employer’s compensation plan changed in 2006 to “hold back” 20% of potential incentive bonuses for possible future recoupment. The Sixth Circuit agreed with the district court that the actual deductions for “bonus recoupment” impermissibly reduced the Plaintiffs’ base salaries in 2005 due to the quality or quantity of their work and was not a permissible recoupment of an overpayment or advancement of wages or other compensation.

On July 10, 2007, District Judge Frost “granted in part Plaintiffs’ motion for summary judgment, finding “that the deductions from the salaries of eight Plaintiffs were deductions resulting from ‘variations in the quality or quantity of the work performed,’ in violation of the salary-basis test.” Baden-Winterwood v. Life Time Fitness, No. 2:06-CV-99, 2007 U.S. Dist. LEXIS 49777, at *42 (S.D. Ohio July 10, 2007) (quoting 29 C.F.R. § 541.602(a)).. . . . In his review of Plaintiffs’ overtime claims, the district court undertook a thorough three-part analysis. First, the district court determined the effect of the” DOL’s August 2004 salary-basis regulations in which “only an “actual practice of making improper deductions demonstrates that the employer did not intend to pay employees on a salary basis.’” Id. at *22 (quoting 29 C.F.R. § 541.603(a)). This meant that Plaintiffs’ claims covering the period of time before August 23, 2004 would be analyzed under the” Supreme Court’s 1997 opinion in Auer v. Robbins, 519 U.S. 452 (1997), which held that “the salary-basis test denies exempt status “if there is either an actual practice of making . . . deductions [based on variations in quality or quantity of work performed] or an employment policy that creates a ‘significant likelihood’ of such deductions.” Claims involving pay periods after August 2004 were to be governed by the DOL’s new regulation. Second, the district court determined that the employer did not violate the Auer test. Finally, the district court determined that the deductions from plaintiffs’ salaries in 2005 “specifically related to the quality or quantity of work each Plaintiff had performed” and that the Plaintiffs worked overtime during those pay periods. However, the district court limited Plaintiffs’ recovery to overtime pay for the three pay periods in 2005—the periods ending November 9, November 23, and December 9—during which Life Time Fitness took actual deductions from Plaintiffs’ salaries.” Both sides appealed.

On appeal, the Sixth Circuit rejected the Plaintiffs’ argument that Auer applied to all pay periods at issue, and instead, agreed with the district court’s decision to apply Auer only to pre-August 2004 pay periods and the “new” DOL regulation to pay periods after August 2004. Nonetheless, the Court reversed the district court’s decision that the employer complied with the Auer test and found that the employer’s pre-August 2004 policies impermissibly subjected the Plaintiffs’ salaries to the risk of deduction. Finally, the Court affirmed the district court’s decision that the employer made impermissible deductions from the employees’ salaries during three pay periods in 2005. Unlike other situations where an employer is permitted to recoup from salary prior advancement of wages or loans to employees,


Life Time Fitness did not provide loans to its employees. To be sure, it did make advance bonus payments. However, to recover overpayments, Life Time Fitness impermissibly dipped into Plaintiffs’ guaranteed salaries. Unlike the situation in both DOL letters [permitting recoupment of wage advances and loans], Life Time Fitness knowingly made salary deductions as part of a pre-designed bonus compensation plan. . . . The deductions were not made to recover irregular salary advances or payments mistakenly made by the payroll department. See id. The plain language of 29 C.F.R. § 541.602 provides, “[s]ubject to the exceptions provided in [section 541.602(b)], an exempt employee must receive the full salary for any week in which the employee performs any work . . . .” 29 C.F.R. § 541.602(a). Section 541.602(b) provides, generally, that deductions may be made for absenteeism, sick leave (in certain circumstances), penalties imposed in good faith for infractions of safety rules, unpaid disciplinary suspensions, and, under the DOL letters described above, for mistaken overpayments. But, there is no support for the contention that the FLSA allows for the reduction of guaranteed pay under a purposeful, incentive-driven bonus compensation plan.” (emphasis added).

The Court also rejected the employer’s argument that the incentive bonuses were not based on individual employee performance, but rather, were based on departmental performance, including a number of factors like “her supervisees’ performance, the size and location of a particular club, club-usage volume,” etc. As noted by the district court, “it is strange for Defendant to argue that individual performance was mainly irrelevant to the computation of bonus payments. [Life Time Fitness] offered, after all, that it created the bonus plans ‘[a]s a means for providing incentives for certain of its employees.”

Perhaps if the recoupment deductions had been limited to future bonus payments and had not invaded the employees’ base salaries, the employer would have avoided violating the FLSA.

Insomniacs can read the full opinion at http://www.ca6.uscourts.gov/opinions.pdf/09a0177p-06.pdf

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Monday, March 9, 2009

DOL Releases New FLSA Opinions from Bush Era Including Letters Addressing Mandatory Use of Vacation or PTO During Temporary Shutdowns

On Friday, March 6, the Wage and Hour Division of the federal Department of Labor announced that it would be posting on its website 36 Administrator opinion letters (as well as and four Non-Administrator opinion letters) that were signed prior the January 21 Obama inauguration. Half of the posted Administrator opinion letters (which are designated with asterisk on the website) were not mailed before the inauguration and are, therefore, being withdrawn for further consideration by the Obama administration (even though they are being made available to the public for review on the website). This site will publish further details about some of the 18 Administrator letters which were both signed and mailed before the Obama inauguration. Today, this will include describing two of the Opinion Letters which address employers mandating use of vacation or Paid Time Off (PTO) during a temporary shutdown or closure of operations as a cost-savings measure during this recession.

In the first letter (FLSA Op. Ltr. 2009-2), the DOL addressed whether an employer “may require exempt employees to use accrued vacation time during a plant shutdown of less than a workweek without violating the salary basis test and thereby affecting their exempt status. The DOL indicated that this practice was permissible and had been approved as early as 2005:


Since employers are not required under the FLSA to provide any vacation time to employees, there is no prohibition on an employer giving vacation time and later requiring that such vacation time be taken on a specific day(s). Therefore, a private employer may direct exempt staff to take vacation or debit their leave bank account . . . , whether for a full or partial day’s absence, provided the employees receive in payment an amount equal to their guaranteed salary.

Wage and Hour Opinion Letter FLSA2005-41 (Oct. 24, 2005); see also 29 C.F.R. §§ 541.600, 541.602(a); 69 Fed. Reg. 22,122, 22,178 (Apr. 23, 2004) (“[E]mployers, without affecting their employees’ exempt status, may take deductions from accrued leave accounts.”). Therefore, the DOL opined “that the employer may require exempt employees to use accrued vacation time for any absence, including one resulting from a plant shutdown, without affecting their exempt status, provided that employees receive a payment in an amount equal to their guaranteed salary.” Notably, however, if “an exempt employee . . . has no accrued [vacation] benefits . . . or has a negative balance . . . [the employee must] still must receive the employee’s guaranteed salary for any absence(s) occasioned by the employer or the operating requirements of the business.” Wage and Hour Opinion Letter FLSA2005-41. In other words, exempt employees are entitled to be paid an amount equal to their full salary for every workweek in which they perform any compensable work (even just a few hours), and that payment may come from their accrued vacation/PTO bank or the employer’s payroll. Thus, if an employer wishes to avoid paying exempt salaries, the exempt employees must be furloughed in full week increments.

Insomniacs can read the full opinion letter at http://www.dol.gov/esa/whd/opinion/FLSA/2009/2009_01_14_02_FLSA.htm.

In contrast to the employer which mandated the use of vacation/PTO during brief plant shutdowns, the next employer sought clarification about whether it could “occasionally reduc[e] the hours worked by exempt employees due to short-term business needs (e.g., low patient census). In such cases, the employer [proposed to] offer[] “voluntary time off” (VTO) [on a first-come-first-served basis], where employees may, at their option, use paid annual, personal, or vacation leave, but continue to accrue employment benefits. . . . If there [were] insufficient volunteers for VTO, the employer [would] require[] “mandatory time off” (MTO) under a seniority-based rotational method. Exempt employees required to take MTO [could] use accrued paid leave or take unpaid MTO. If the employee elect[ed] not to use accrued paid leave or [did] not have sufficient accrued paid leave to cover the VTO or MTO, the employer [would] deduct[] the amount equal to the VTO or MTO from the employee’s salary, if it is shorter than one workweek. . . . [T]he employer does not pay [any] salary for [any] pay period [where the unpaid VTO or MTO lasts an entire workweek]. Salaried exempt employees may take VTO or be assigned MTO in one-day increments.”

The DOL noted that under 29 C.F.R. § 541.602(a), “[a]n employee will be considered to be paid on a 'salary basis' . . . if the employee regularly receives each pay period . . . a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. . . . An employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.” (emphasis added).

According to the DOL, “salary deductions due to a reduction of hours worked for short-term business needs do not comply with § 541.602(a) because they result from 'the operating requirements of the business.' 29 C.F.R. § 541.602(a). Thus, '[i]f the employee is ready, willing and able to work, deductions may not be made for time when work is not available.' Id . Deductions from the fixed salary based on short-term business needs are different from a reduction in salary corresponding to a reduction in hours in the normal scheduled work week, which is permissible if it is a bona fide reduction not designed to circumvent the salary basis requirement, and does not bring the salary below the applicable minimum salary. See Field Operations Handbook § 22b00; Wage and Hour Opinion Letter FLSA2004-5 (June 25, 2004) (“[R]ecurrent changes in the normal scheduled workweek . . . more likely would appear to be designed to circumvent the salary basis requirement.”). Unlike a salary reduction that reflects a reduction in the normal scheduled work week and is not designed to circumvent the salary basis requirement, deductions from salary due to day-to-day or week-to-week determinations of the operating requirements of the business are precisely the circumstances the salary basis requirement is intended to preclude. Therefore, in this instance, salary deductions due to MTO lasting less than a workweek violate the salary basis requirement and may cause the loss of exempt status. The employer is not, however, required to pay the salary for MTO of a full workweek. See 29 C.F.R. § 541.602(a) (“Exempt employees need not be paid for any workweek in which they perform no work.”).” (italics added).

Of course, as already discussed above, “[f]or employees on MTO, the 'employer[], without affecting [the] employees’ exempt status, may take deductions from accrued leave accounts' [i.e., vacation or PTO] provided employees receive their guaranteed salary.” In short, for MTO, as long as the employer pays an amount equal to the employee’s full salary, the employer may make deductions from the MTO employee’s accrued vacation and/or PTO bank without jeopardizing the employee’s exempt status. The employer may not, however, reduce the MTO employee’s salary if s/he has not accrued vacation or PTO.

The DOL also reminded the employer that “[s]ection 541.602(b)(1) states that ‘[d]eductions from pay may be made when an exempt employee is absent from work for one or more full days for personal reasons.' Salary deductions, therefore, may be made when exempt employees voluntarily take time off for personal reasons, other than sickness or disability, for one or more full days. For instance, an exempt employee paid $500 per week on a salary basis may take VTO for personal reasons for four days in a workweek and receive one fifth of the salary. The employee’s decision to take VTO, however, must be completely voluntary and not “occasioned by the employer or by the operating requirements of the business.” 29 C.F.R. § 541.602(a).” (emphasis added). Therefore, if the employee’s decision to take VTO is entirely voluntary and is not the result of pressure from the employer based on business conditions, the employer may – in addition to taking deductions from the employee’s accrued vacation and/or PTO bank – also make deductions from salary in full-day increments if the employee does not have any accrued vacation or PTO.

Insomniacs can read this opinion letter in full at http://www.dol.gov/esa/whd/opinion/FLSA/2009/2009_01_15_14_FLSA.htm.

If employers shorten an exempt employee’s workweek, the employer could argue that a reduction in salary is permissible. The DOL has approved such realities since at least 1988. (“[W]e have consistently taken the position that a bona fide reduction in an employee’s salary does not preclude salary basis payment as long as the reduction is not designed to circumvent the requirement that the employees be paid their full salary in any week in which they perform work. . . . Consistent with this position, we have stated that a fixed reduction in salary effective during a period when a company operates a shortened workweek due to economic conditions would be a bona fide reduction not designed to circumvent the salary basis payment.“).

However, there are risks with this as reflected in last October’s decision in Archuleta v. Wal-Mart Stores, Inc. 543 F.3d 1226 (10th Cir. 2008). In that case, Wal-Mart shortened some pharmacists’ workweek during the slow periods each year (i.e., summer) and correspondingly shortened their salary. More problematic, however, was that some store managers informally reduced the workweeks of some pharmacists in order to save money. The District Court entered summary judgment for the employer, but the Court of Appeals reversed as to two plaintiffs in October on the grounds that it was a factual issue whether the store managers were as attempting to evade those two employee’s exempt status by basing their “salary” on hours worked.

The Court of Appeals had earlier held that “an employer could prospectively change its employees’ salaries without defeating the exemption for professionals . . . unless the purported ‘salary’ becomes a sham—the functional equivalent of hourly wages. . . . “If . . . the salary changes are so frequent as to make the salary the functional equivalent of an hourly wage, [the court] will treat the ‘salary’ as a sham and deny the employer the FLSA exemption for professional employees.”

According to the court’s opinion:


“in response to Plaintiffs’ theory—that Wal-Mart prospectively changed their base hours, on which their salary was calculated, with such frequency so as to make them, in effect, hourly employees—Wal-Mart presented a report summarizing the number of times it changed Plaintiffs’ base hours during the time period relevant to this case. That report indicated that 75% of the 573 Plaintiffs, or 432, did not experience any change in their base hours.8 Of the Plaintiffs who did experience a change in their base hours, 99 Plaintiffs, or just over 17%, experienced only one such change. Twenty-four Plaintiffs, or 4.2%, experienced two changes. But “the average length” of time “over which those two changes occurred was four years and seven months,” and the “average time between those two changes was 11.3 months. The shortest time between those two changes was eight weeks (for two pharmacists).” Aplt. App. at 269. Two such changes during this time frame are not sufficient to defeat an otherwise valid exemption. . . .
.
Wal-Mart’s report indicated that it had changed the base hours for eight Plaintiffs three times during the relevant time period. But “[t]he average length” of time over which these changes occurred “was four years and five months,” and “[t]he average length of time between those changes was 10.3 months.” Aplt. App. at 270. “The shortest time between those changes was six weeks (for one pharmacist).”

In addition, two Plaintiffs experienced four changes in their base hours. “[T]he average length” of time over which these four changes occurred, however, “was four years and six months,” and “[th]e average time between those four changes was 7.8 months. The shortest time in between those changes was ten weeks (for one pharmacist).” Id. For that one pharmacist, the report indicated that, after employing that pharmacist from August 29, 1993 through February 5, 1998, Wal-Mart changed the pharmacist’s base hours on January 6, 1995; January 5, 1996; March 15, 1996; and October 26, 1997. “For the other pharmacist who experienced four base hour changes during his relevant period (four years and eight months), the time between each of those changes was 12 weeks or longer.” Id. at 271. We conclude that the frequency of these prospective changes was not sufficient to create a factual dispute as to whether Wal-Mart was, in fact, treating these pharmacists as hourly employees.


However, “there were many other instances in which Wal-Mart ‘informally’ or verbally changed a pharmacist’s base hours. In support of this allegation, Plaintiffs offered the affidavits of twenty-one plaintiff-pharmacists. Only eight of these twenty-one pharmacists specifically mentioned experiencing one or, at most, two changes in their base hours. This evidence is insufficient to create a factual dispute as to whether Wal-Mart was treating these pharmacists as hourly, rather than salaried, employees.”

Insomniacs can read the court’s full opinion at http://www.ca10.uscourts.gov/opinions/07/07-1065.pdf. Insomniacs can review the index of all of the 2009 FLSA opinion letters at http://www.dol.gov/esa/whd/opinion/flsa.htm.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with an attorney.