DOL Issues Several Interesting Opinion Letters

Last week, the federal Department of Labor issued several Opinion Letters concerning the FLSA, regular rate and bonuses, meal breaks, time clock rounding and extra pay for exempt employees.  Such letters indicate the DOL’s official position, but it is not binding on courts.  In the first, Op. FLSA2026-5, the DOL explained that an exempt nurse trainers could be paid an hourly rate for picking up staff nurse shifts outside their regular working hours without destroying their exempt status when their primary duties remained their exempt work and the extra non-exempt shifts constituted less than 50% of the hours worked that week. In the next Opinion Letter FLSA2026-6, the DOL explained that employers need not recalculate the regular rate each quarter when providing non-discretionary bonuses that are based on the employee’s total earnings (i.e., straight and overtime) in a way that does not dilute their overtime earnings.  In another Opinion Letter FLSA2026-7, the DOL explained that an employer need not pay its employees for 30 minute meal breaks during which the employee is relieved of work responsibilities even if that is insufficient time to depart a corporate campus to travel off-site for more than 15 minutes.    In the final Letter FLSA2026-8, the DOL questioned the employer’s practice of rounding employees’ work time to the beginning or end of their scheduled shift, whether it might not be compensating all employees for certain “integral and indispensable” pre-shift activities, and whether the founding was neutral de minimis, but agreed that the employer need not compensate employees for waiting to clock in and out as long as it was before or after their principal work activity.

In the first opinion, exempt Nursing Professional Development Specialists are involved in the professional development and training of staff.  While they may assist in their discretion patients and staff nurses, they are never the patient’s primary nurse.   Some of these exempt employees sometimes pick up one or two non-exempt Staff Nurse shifts outside their normal working hours (i.e., on weekends).  Staff Nurses are paid on a hourly basis and the Specialists are  paid this same hourly rate when they pick up Staff Nurse shifts.   The DOL observed that the FLSA regulations permit employers to pay exempt employees an extra hourly rate when they work extra hours outside their normal work schedule without losing the exemption.  Further, the DOL also observed that the FLSA regulations also permit exempt employees to perform some non-exempt work as long as their exempt duties remain their primary duties, or most important part of their job.  Typically, if the employees spends at least 50% of their time on their primary exempt duties, the position will remain exempt, but it remains possible that an employee will remain exempt even if their exempt duties take less than 50% of their time.  Thus, in this case, the Specialists still spent more than 50% of their time performing exempt work and were permitted to receive additional hourly compensation for their extra work. 

In the next Opinion, the DOL addressed a quarterly profit bonus paid to non-exempt employees that was based solely on their respective percentage of straight and overtime hours worked.  In other words, the $100K, was divided among the employees at the end of the quarter based on their respective, comparative percentage of hours worked (both straight time and overtime). Their overtime hours were not diluted by other types of compensation (such as discretionary bonuses, expenses, gifts, benefits, etc.). 

Nevertheless, recomputation of an employee’s regular rate and the resulting additional overtime pay are unnecessary for a “percentage of total earnings” bonus, although they may be required for other types of bonuses. Assuming “total earnings” is the sum of an employee’s total straight-time earnings and total overtime earnings, a percentage of total earnings bonus is a bonus payment that provides for “the simultaneous payment of overtime compensation due on the bonus” (i.e., its own required overtime compensation). 29 C.F.R. § 778.210; see also id. § 778.503. This is not an exception to the FLSA’s overtime pay requirement, but the Division’s longstanding recognition that a bonus that increases an employee’s total earnings by a fixed percentage “increases both straight time and overtime wages by the same percentage, and thereby includes proper overtime compensation as an arithmetic fact.” Id. § 778.503; see also id. § 778.210 (explaining that such percentage of total earnings bonuses “satisfy in full the overtime provisions of the Act and no recomputation will be required”); Brock v. Two R Drilling Co., 789 F.2d 1177, 1179 (5th Cir. 1986). Requiring additional overtime pay for such bonuses “would be to impose overtime upon overtime,” and, therefore, be inconsistent with the Act. Siomkin v. Fairchild Camera & Instrument Corp., 174 F.2d 289, 294 (2d Cir. 1949).

Employers generally calculate total earnings bonuses in one of two ways. The first, as described in 29 C.F.R. § 778.210, occurs when an employer applies a percentage to an employee’s total straight-time and overtime earnings directly without regard to how the employee’s earnings or hours compare to those of other employees. The second takes place when an employer uses earnings or hours to compare each employee participating in a bonus pool to all the employees participating in the bonus pool. . . . an employer may divide each employee’s total earnings by the total earnings of all employees participating in the bonus pool and then multiply that percentage by the bonus pool amount to determine each employee’s share.  Or, as provided in FOH 32c05a, an employer may divide the bonus pool amount by the participating employees’ total earnings and then multiply that percentage by each employee’s total earnings to determine his or her bonus payout. Either approach is acceptable.

Generally, an employer may consider additional factors (such as seniority, work location, job title, base pay, performance, or conduct) to determine the magnitude of an employee’s percentage increase. As long as the resulting percentage increase to each employee’s pre-bonus overtime earnings is no less than the percentage increase to their pre-bonus straight-time earnings, then the principle set forth in sections 778.210 and 778.503 applies even though different employees might receive different percentages. However, an employer may not use the percentage of total earnings bonuses “to evade the overtime requirements of the Act[,]” 29 C.F.R. § 778.210, such as where the percentage bonus “decrease[s] . . . in direct proportion to increases in the number of hours worked in a week in excess of 40.” See id. § 778.503.4 An employer also may not dilute an employee’s overtime earnings by either: (1) applying a higher percentage increase to the straight time earnings than the overtime earnings5 or (2) including items within an employee’s earnings that were previously excluded from the employee’s regular rate of pay, such as gifts, discretionary bonuses, expense reimbursements, or employer contributions to employee benefit plans.

In another opinion, the employees are given 30-minute unpaid lunch breaks where they are relieved of their job duties.  They apparently have a break room which they may use for such purpose.  However, it takes at least 5-10 minutes to get through security to leave the building and walk to the parking lot, and then another 10 minutes to get back through security and return from the parking lot, leaving little, if any time, to travel to nearby restaurants for lunch.   The DOL first observed that employers are not required by the FLSA to provide meal or rest breaks to adults.   Meal breaks need not be compensated, but they must be bona fide breaks from work. Typically, thirty minutes or more is sufficient to constitute a bona fide meal break.  The DOL has since at least 2004 indicated that employers can prohibit employees from leaving the premises during their meal breaks without having to compensate employees for the meal breaks. 

The Act does not require absolute freedom for a break to be bona fide and non-compensable. An employer may place certain limitations or conditions upon a bona fide meal period without having to compensate employees for such time, and courts have agreed that employees need not be permitted to leave the premises to receive a bona fide meal period. For example, in Ruffin v. MotorCity Casino, 775 F.3d 807 (6th Cir. 2015), the Sixth Circuit ruled that meal breaks for casino security guards were not compensable under the FLSA because even though they were not permitted to leave the premises and were required to monitor their radios, they were otherwise free to eat and socialize.

In the final letter, the employer had a practice of permitting employees to clock in or out up to seven minutes before or after their shift because of potential wait times at the time clock so that they would not be assessed with tardies or unauthorized overtime.  However, the employer also had a practice of rounding those employees’ work hours to the nearest shift.  For instance, if an employee clocked in at 6:53 for a 7:00 shift, he or she would only be credited with having worked at 7:00.     Similarly, if the employee clocked out at 7:07 when the shift ended at 7:00, the time would be rounded down to 7:00. However, and importantly, if an employee clocked in late or clocked out early, the employer did NOT indicate that it would round down to the nearest shift.  The employer admitted that some employees sometimes immediately began engaging in integral and indispensable pre-shift activities, even when they clocked in early.   The DOL did not think that the de minimis doctrine applied because the employer was capable of administratively capturing this pre-shift work and the rounding practice was not neutral (i.e., it always benefitted the employer).  “The de minimis doctrine “applies only where there are uncertain and indefinite periods of time involved of a few seconds or minutes duration, and where the failure to count such time is due to considerations justified by industrial realities.”  Further, “’[w]hether time is de minimis is a fact-specific analysis, considering the practical administrative difficulty of recording the time, the aggregate amount of compensable time involved, and the regularity with which the work occurs.”

The Department’s regulations explain that employers may practice time rounding, but only under specific conditions. Under 29 C.F.R. § 785.48, employers may round employee time to the nearest fraction of an hour (such as the nearest 5 minutes, 6 minutes, or quarter-hour). This practice, however, is only acceptable if it “will not result, over a period of time, in failure to compensate the employees properly for all the time they have actually worked.” 29 C.F.R. § 785.48(b). This means a rounding practice must both be neutral on its face and average out over time so it does not consistently favor the employer. . . .

When evaluating rounding practices to apply these principles, courts examine the aggregate impact over a period of time. While fluctuation from pay period to pay period is to be expected, a neutral rounding practice must “average out in the long term.” Corbin, 821 F.3d at 1077. For example, an employer’s rounding practices were found to be permissible where the pay records showed that “sometimes [the employee] gained minutes and compensation, and sometimes [the employee] lost minutes and compensation,” and the net difference between hours worked and hours compensated amounted to only 3 minutes and $15 over about a year. Id. at 1079. In contrast, an appeals court reversed a lower court’s conclusion that an employer’s practice was neutrally applied when evidence showed that its practices cost roughly 13,000 employees approximately 74,000 hours of uncompensated time over a 6-year period. Houston, 76 F.4th at 1152. Similarly, another court found an employer’s rounding policy was likely not neutrally applied when evidence showed that it favored the employer 94 percent of the time. Aguilar, 948 F.3d at 1288.

 . . .

To the extent that each day, employees are performing compensable work prior to their paid shifts commencing, such work is unlikely to be de minimis. In general, as noted above, “[a]n employer may not arbitrarily fail to count as hours worked any part, however small, of the employee’s fixed  . . . .

Conversely, to the extent that pre-shift compensable work is irregular, the practical administrative difficulty of recording the time may justify treating it as de minimis. Although the employer has a timekeeping system that is capable of documenting the time of arrival and departure, we cannot definitively say, based on the information provided, whether it is administratively feasible for the employer to record the actual time each employee performs their first principal activity—thus beginning their compensable workday—as opposed to engaging in personal activities such as getting coffee, socializing, checking phones, storing personal belongings, or simply waiting for their shift to start. Given, as noted above, the large number of hospital employees and the likely differences between the extent to which they are, or are not, on a consistent basis performing principal activities between clocking in and the formal start to their shift, we are unable to conclude that the time is—or is not—de minimis. . . .

Employers, including the hospital at issue here, should nonetheless be particularly careful about how and to what extent they apply the de minimis doctrine. Particularly given the technological advances that have made it possible for employers to track employees’ work time with increasing precision, employers should expect exacting scrutiny of de minimis claims where employees perform off-the-clock work with any degree of regularity.

In this case, the employer’s rounding always seemed to reduce the employees’ pay and was always in favor of the employer in rounding up or down. Thus, “the critical question under 29 C.F.R. § 785.48(b) is whether a rounding practice, evaluated over a period of time, is facially neutral and operates neutrally such that it does not systematically undercompensate employees for hours worked.”   The DOL could not definitely determine whether the employer was complying or not with the FLSA because of missing factual realities:

We note initially that a rounding policy for clock-in and clock-out time only affects the calculation of hours worked to the extent that employees are performing compensable work between the clock in/out time and the rounded time. As noted above, clocking in or out, by itself, is generally not considered compensable work. Likewise, the time between clocking in and beginning principal activities, and between completing principal activities and clocking out, is also not compensable. . . .

As to the beginning of the day, if employees are, in fact, performing compensable work—such as respiratory therapists receiving handoff reports—after clocking in but before their paid shifts, then based strictly on the information provided, the hospital’s rounding policy is not neutral pursuant to 29 C.F.R. § 785.48(b) because it both is not facially neutral and only ever benefits the employer without ever benefiting the employee. According to the facts presented, the employer’s only rounding practice is to round early check-ins to the scheduled shift time. As a result, employees  who perform compensable work during the up-to-7-minute early check-in period are always uncompensated for that time and are not afforded a chance for over-compensation to average that time. Accordingly, under these facts, the hospital’s rounding practice is inconsistent with section 785.48(b) and would result in a failure to properly record, as well as potentially to properly compensate for, all hours worked. If, however, the hospital’s rounding practice is facially neutral and operates such that employees can and actually do benefit from rounding in other circumstances—for example, if employees who clock in up to 7 minutes late are nonetheless credited with starting at their scheduled time and that practice averages out over time to offset any work time lost due to the rounding of early check-ins to the scheduled shift time—then the policy would likely comply with section 785.48(b).

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.

Ohio Court Enforces Repayment of Hiring Bonus

 Last week, the Cuyahoga County Court of Appeals affirmed the terms of an employer’s hiring bonus when the employee resigned less than a year after starting training and was required to repay the entire amount of the five figure hiring bonus.  CommuteAir, L.L.C. v. Bremer, 2025-Ohio-4843.  The Court rejected the defendant’s argument that he was constructively discharged because there was no evidence that his working conditions were intolerable.  He claimed that he could not complete training because of his wife’s illness and a death in the family, but could not refute the employer’s evidence that it attempted to reschedule his training without his cooperation in communication.  Finally, it rejected his argument that the hiring bonus was a non-forfeitable wage instead of a bonus that could be subject to conditions or that this breach of contract claim was preempted by the Railway Labor Act.

According to the Court’s opinion, the employer hired the defendant for its pilot training program.  He signed an agreement for a hiring bonus of $22K that he had to repay in full if he failed to complete his training or voluntarily resigned or was fired for cause in less than a year and half of the bonus if after one year, but less than two.  He delayed the commencement of his training by more than six months and then resigned less than a year later.  The agreement required him to repay the full amount, plus fees and costs. 

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.

Ohio Appellate Court Rejects Most of Employee’s Incentive Compensation Claims

Last month, the Ohio Court of Appeals mostly affirmed an employer’s summary judgment in a case where a former employee challenged the amount and payment of his incentive compensation.   Bollman v. Lavery Automotive Sales, 2019-Ohio-3879.  The employee never signed an incentive compensation agreement and, instead, relied on a chart that the employer distributed each year summarizing its compensation plan. The court found that the employer was free to change that chart and incentive plan at will.  Further, the court found that sales commissions do not constitute wages under Ohio’s prompt payment statute.  However, the court agreed with the employee that the employer had been unjustly enriched when it deducted $20/per car more from the bonus pool than it was being charged by GM for its incentive compensation system.


According to the Court’s opinion, the employee was employed at will as a sales consultant.  He was paid a salary plus a commission for every car he sold over 10 each month based on a bonus chart provided by the employer when he was hired.  After 6 years, the employee began participating in a GM incentive program that paid $100/car sold and required the employer to pay $25/car into the bonus pool.   This GM program was in addition to the commissions he received from his employer.  The employer informed its sales staff that it would deduct the GM $25/car charge from their bonus pool.  When GM increased the charge to $30/car, the employer began deducting $50/car from the bonus pool.  When the employees objected, the employer told them that they could resign.   The employee resigned a few years later and brought suit.

The Court rejected the employee’s breach of contract claim based on its deduction of the GM charge from the bonus pool.  The chart did not contain any explicit terms and he conceded that other incentive compensation plans were not documented either.  Further, employee admitted that the employer orally informed him that it would be deducting the GM charge from the bonus pool and that the employer continued to pay his base salary.  The employee objected, but continued to cash his paychecks.   The employer was free to change the compensation plans at will.

The Court also rejected the employee’s claim that the bonus deduction violated Ohio’s prompt wage payment statute: “The per vehicle dealer contribution charges Appellee withheld were deducted from Appellant’s commission. This Court has held the definition of the word “wage” as used in R.C. 4113.15 does not include commissions, which are not guaranteed pay or reimbursement for expenses.”


The Court, however, agreed with the employee that the employer may have been unjustly enriched by deducting $50/car from the bonus pool when GM was only charging it $30/car.

The doctrine of unjust enrichment “applies when a benefit is conferred and it would be inequitable to permit the benefitting party to retain the benefit without compensating the conferring party.” Garb–Ko, Inc. v. Benderson, 10th Dist. No. 12AP–430, 2013–Ohio–1249, ¶ 25 (Citation omitted). The elements of an unjust enrichment claim are: (1) the plaintiff conferred a benefit on the defendant, (2) the defendant knew of the benefit, and (3) it would be unjust to allow the defendant to retain the benefit without payment to the plaintiff.

While the Court had no problem with the employer offsetting the amount it was charged by GM from the employee’s sales commissions/bonus pool, it concluded that the employer “was unjustly enriched by deducting amounts which exceeded the per vehicle dealer contribution charge it paid to General Motors . . . “


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.

CEO Without Remedy Under ERISA When Deferred Comp Plan Fails to Comply with 409A

Last week, the Sixth Circuit Court of Appeals affirmed the dismissal of state law claims brought by a retired CEO who had been assessed tax penalties on account of deferring large amounts of his compensation under an executive deferred compensation plan without complying with IRC 409A on the grounds that the plan was covered by ERISA which, therefore, pre-empted the state law claims. Wilson v. Safelite Group, Inc. No. 18-3408 (6^th Cir. 7-10-19).  The Court found that deferred compensation plans which permitted distributions during periods of active employment as well as during retirement could still qualify as a pension plan under ERISA.  Further, because the plan permitted the deferral of both bonuses and annual salary, it was not exempt from ERISA under DOL regulations as a bonus plan.


According to the Court’s opinion, the employer created a bonus/incentive plan for five executives if they secured a buyer for the company.  When a likely buyer emerged, the company created a non-qualified deferred compensation plan to help most of those executives avoid adverse tax consequences from the incentive plan bonuses.   Under the deferred compensation plan, the executives could defer their regular annual salary and annual bonuses as well as the incentive bonuses.   The CEO make elections to deter his incentive bonus and large portions of his salary each year under the deferred compensation plan.  The plan’s default deferral provided for the payout to begin shortly after employment ended, but it could also be drawn out over as long as ten years and even permitted withdrawals before employment ended.  The CEO was audited by the IRS in 2014 and it determined that some of the deferrals did not comply with IRC 409A and he was assessed with taxes and penalties.  Two years later, the CEO sued his former employer for breach of contract and negligent misrepresentation.  The employer moved for partial summary judgment on the grounds that the deferred compensation plan was a pension plan governed by ERISA, which pre-empted the state law claims.  The trial court agreed, but permitted the CEO to amend his complaint to bring claims under ERISA.  The CEO declined and instead appealed the ERISA ruling.   The Sixth Circuit affirmed.


The parties disputed whether the deferred comp plan satisfied the ERISA requirements because it permitted withdrawals before retirement. “In essence, the question is whether a plan that allows for distributions both before and after termination can be an ERISA employee pension benefit plan.” The Court construed the statute to not require withdrawals to begin only after employment had ended:

Subsection (ii) does not specify deferral of income “until termination” or “to termination”; rather, it says “for periods extending to the termination.”  Thus, deferrals may occur for various “periods,” and those periods may last up to and/or beyond termination.  Subsection (ii) covers a wide array of plans and does not exclude plans that give participants the option to receive in-service distributions.

The employer’s deferred compensation plan presumed that distributions would not begin until after termination of employment, but permitted participants to elect earlier distributions.   It also stated that it was governed by ERISA.  As long as the plan provided for distributions after termination of employment, the requirements of ERISA were satisfied.


That being said, the DOL had published a regulation exempting certain deferred compensation plans which did not “systematically” defer the payment of “bonuses.” “By regulation, employee pension benefit plans do not include “payments made by an employer to some or all of its employees as bonuses for work performed, unless such payments are systematically deferred to the termination of covered employment or beyond, or so as to provide retirement income to employees.”  29 C.F.R. § 2510.3-2(c).”  In other words, the payment of a bonus is typically not a retirement program and would not be treated as a pension plan unless the payment of those bonuses were systematically deferred to termination of employment.  “A bonus plan may defer payment of bonuses and remain exempt, “unless such payments are systematically deferred to the termination of covered employment or beyond, or so as to provide retirement income to employees.”  29 C.F.R. § 2510.3-2(c) (emphasis added).”  Thus, deferred bonus compensation plans which do not systematically defer the payment of bonuses to post-employment periods are exempt from ERISA.


The court rejected the application of this exemption because the deferred comp plan did not relate exclusively to the incentive bonuses and also permitted the deferral of annual salary and regular annual bonuses.


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.

Franklin County Appeals Court Remands Incentive Compensation Claim and Dismisses Whistleblower and Reverse Discrimination Claims

Last week, a unanimous Franklin County Court of Appeals affirmed the dismissal on summary judgment of whistleblower and reverse race discrimination claims, but remanded the highly-compensated plaintiff’s equitable claims for a six-figure profit bonus on the grounds that the written bonus plan was unenforceable to bar his equitable claims because there was no evidence that the plaintiff knew about or had agreed to its terms and because the employer’s “promises” to award a bonus in its unfettered discretion were illusory. Pohmer v. JPMorgan Chase Bank, N.A., 2015-Ohio-1229 (3-31-15).  In affirming the dismissal of the race discrimination claim, the Court agreed that the plaintiff had not shown that the defendant employer was unusual in discriminating against the majority, that he was similarly situated to his supervisor, or that the explanation for his termination (violating the employer’s technology policy by inappropriate and personal use of his blackberry and email) was pretextual.  He could not prevail on his whistleblower claim because he could not prove that he had ever made any relevant complaints to his employer in writing and the trial court did not abuse its discretion in refusing to compel additional electronic discovery that was unlikely to reveal additional relevant evidence without exorbitant costs. 

According to the Court’s opinion, the plaintiff had received very favorable performance evaluations for over a decade, the most recent of which was in December 2011.  He had been assured in writing that he would be receiving a 4.5% profit bonus for 2011.  However, in a random review of his text messages and emails, the employer discovered that he had been sending inappropriate sexual-themed emails and messages to his children’s babysitter and co-workers in violation of the employer’s technology code of conduct.  He was soon terminated in mid-January 2012.  A few days later, the employer set the amount of discretionary incentive compensation and awarded bonuses to remaining employees a few weeks later.  The plaintiff filed suit and alleged, among other things, that he was subjected to reverse race discrimination because his supervisor also sent inappropriate emails and was not fired.  Second, he claimed that he had actually been fired in retaliation for reporting to his supervisor that one of the employer’s financial product campaigns was an illegal scam.  However, he could not produce any written evidence that he had ever made such an allegation prior to his termination despite the employer’s production of thousands of pages of emails and texts messages.  He also claimed that he was entitled to his profit bonus since he had earned it prior to his termination.

Incentive Compensation.  The trial court had dismissed his claim for his incentive compensation on the grounds that the employer’s Performance Based Incentive Compensation Plan (PBIC) was a binding implied-in-fact contract, thus barring any equitable claim under the theories of unjust enrichment or quantum meruit.   Pursuant to the terms of the PBIC, the Plaintiff was not entitled to any profit bonus or incentive compensation unless he was still employed on the date when the profit bonus was actually paid.  However, the Court of Appeals found that the PBIC could not be a contract since there was no evidence that the plaintiff even knew about the PBIC, let alone agreed to it.   All that the employer produced was an unsigned plan document and not any communications to the Plaintiff about the PBIC or indication that the Plaintiff’s employment and incentive compensation were subject to the PBIC.  Moreover, to the extent that the PBIC contained any promises, they were illusory (and thus, non-binding) since the employer retained “sole and absolute discretion” as to when, whether, and in what amount to award bonuses.  In contrast, the plaintiff produced evidence of a powerpoint presentation about the incentive compensation he was eligible to earn for that year and an email from his supervisor about the percentage of his profit bonus; neither exhibit made any reference to the PBIC or any requirement that he needed to still be employed on the date that the bonus was paid.

The doctrine of unjust enrichment “applies when a benefit is conferred and it would be inequitable to permit the benefitting party to retain the benefit without compensating the conferring party.” . . . A claim for quantum meruit shares the same essential elements as a claim for unjust enrichment, and both doctrines are equitable doctrines.  . . .  the two doctrines differ, however, when calculating damages.  The damages for unjust enrichment are " ' "the amount the defendant benefited," ' " while the damages for quantum meruit are " ' "the measure of the value of the plaintiff's services, less any damage suffered by the other party." ' "

 . . . 

"A contract is illusory only when by its terms the promisor retains an unlimited right to determine the nature or extent of his performance; the unlimited right, in effect, destroys his promise and thus makes it merely illusory." . . . . In deciding that the PBIC Plan is an illusory contract with respect to [the plaintiff], we do not mean to say that the PBIC Plan would be illusory under all circumstances. This is not a case where [the plaintiff] was made aware of the terms of the PBIC Plan and thereby assented to the PBIC's terms in exchange for his continued employment with JPMC.

Reverse Race Discrimination.  The Court of Appeals affirmed the dismissal of this claim because the Plaintiff failed to meet his prima facie case or show that the employer’s explanation was pretextual.  First, the Court adopted the heightened burden of proof for a reverse race discrimination claim, which requires evidence of “background circumstances supporting the inference that [the defendant employer] was the unusual employer who discriminated against non-minority employees.”  The plaintiff could not meet this burden, although he correctly argued that some courts have questioned the correctness of using a modified burden of proof in any race discrimination claim.    

In any event, the Court found that the Plaintiff did not identify any similarly situated non-white employees who were treated better.   The Plaintiff identified his supervisor for sending inappropriate personal emails because he only received a disciplinary warning, but the Court found him not to be similarly situated “in all respects” (i.e., “ 'all of the relevant aspects of his employment situation were "nearly identical" to those of the [comparable employee's] employment situation.'").  

Thus, to be deemed "similarly situated," "the comparables 'must have dealt with the same supervisor, have been subject to the same standards and have engaged in the same conduct without such differentiating or mitigating circumstances that would distinguish their conduct or the employer's treatment of them for it.'

They obviously did not report to the same supervisor.  “[A] supervisor's "position of authority within the company create[s] a meaningful distinction" that "explains [the employer's] different treatment of the two.” More importantly, the employer did not learn of the supervisor’s alleged misconduct until the plaintiff raised it after his termination (presumably during his deposition).  “Other factors may have been at play including a discrepancy in the volume, frequency, and level of inappropriateness contained in the emails of each of the two men.”  

Ultimately, the Court found that the plaintiff could not show that his termination for admittedly violating the employer’s code of conduct was pretextual.   He could not “demonstrate that the proffered reason ‘(1) has no basis in fact, (2) did not actually motivate the employer's challenged conduct, or (3) was insufficient to warrant the challenged conduct.’"  Importantly, he could not show that the employer knew of any other similar violations of the code of conduct (including that of his supervisor) at the time of the Plaintiff’s termination in January 2012.   

Whistleblowing.  The trial and appellate courts both concluded that the plaintiff could not prevail on his whistleblower claim because he could not satisfy the statutory requirement that the complaint be made in writing to the employer after first making a verbal report.  The employer had produced several thousand pages of documents in discovery, including emails and text messages.  The plaintiff insisted that he had texted and/or emailed his supervisor (in addition to personal conversations) about his objections to the legality of a product campaign.  However, his alleged objections were not reflected in the documents produced in discovery.  Therefore, he could not satisfy his statutory burden of proof under Ohio’s whistleblower statute.   

The Plaintiff filed a motion to compel a forensic examination of his email and text mail boxes to ensure that none of his messages were inappropriately deleted by the defendant employer.  However, the trial court denied that discovery motion on the grounds that it was “unlikely to lead to admissible evidence and disproportionately costly.”  The appellate court found this not to be an abuse of discretion in light of the thousands of pages produced in discovery.  Moreover, it noted that the Plaintiff’s  

argument has less to do with the adequacy of the discovery process and more to do with [his] dissatisfaction that he did not discover sufficient evidence to support his claims. The trial court noted it had made an effort throughout the case "to keep discovery proportionate to the issues, and to sensibly minimize the financial cost and time burden which electronic discovery might otherwise require."

Indeed, the supervisor denied ever receiving such a written report and the Plaintiff failed to mention any written objections about the product campaign in his own deposition.

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.

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.