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.

Supreme Court: Employers Need Not Recalculate Pension Contributions Following 1978 Passage of Pregnancy Discrimination Act.

Today, in a long-awaited decision, the Supreme Court – in a 7-2 opinion – ruled that AT&T need not recalculate the pension credits or benefits awarded to female retirees based on maternity leave taken prior to the 1978 passage of the Pregnancy Discrimination Act. Hulteen v. AT&T. The Court ruled that the PDA was not retroactive and did not affect pension calculations and pension credits already made to female employees and retirees before its passage. Rather, the pre-PDA pension credits were not discriminatory under § 703(h) of Title VII – which creates a safe harbor for compensation plans based on bona fide seniority systems. Moreover, the Court also ruled that the recently passed Ledbetter Fair Pay Act similarly did not render discriminatory pension credits and pension benefits calculated before the passage of the PDA.

According to the Court’s opinion, AT&T—like many employers -- for many years awarded fewer pension credits to women for pregnancy/maternity leave than it did for other types of medical leave. In the 1960’s and early 1970’s, employees on disability leave received full pension credit, but employees on personal leave or pregnancy leave only received up to 30 days of pension credit. In 1976, the Supreme Court ruled in Gilbert v. General Electric that pension plans which provided less credit for pregnancy leave than other disability leaves did not constitute unlawful sex discrimination under Title VII. The following year, Congress amended Title VII by enacting the Pregnancy Discrimination Act to provide that it constituted sex discrimination to treat pregnancy less favorably than other medical conditions. AT&T immediately amended its pension plans so that all maternity leaves following the PDA’s passage would receive the same pension credits as other disability leaves. However, AT&T did not go back and retroactively award pension credits to current female employees who had previously taken maternity leave under the former pension plan and did not increase the pension benefits of retired female employees who had taken maternity leave under the former pension plan prior to the passage of the PDA.

Lawsuits and EEOC charges ensued against AT&T and the “baby bell companies.” The Courts of Appeal split on this issue (with the Seventh and Sixth Circuits ruling in favor of the employers). In the present case, four women – three retirees and a current employee – filed EEOC Charges because they were disadvantaged by two to six months in the calculation of their pension benefits on account of maternity leaves which they took prior to the passage of the PDA. The EEOC found probable cause of discrimination and issued right-to-sue letters. They filed suit in California and the Ninth Circuit Court of Appeals ultimately ruled that AT&T’s refusal to issue retroactive pension credits violated Title VII and the PDA. The Supreme Court reversed.

The Court found that the pension plan was part of a bona fide seniority system which AT&T had utilized since approximately 1914. “As we have said, ‘[a] ‘seniority system’ is a scheme that, alone or in tandem with non-‘seniority’ criteria, allots to employees ever improving employment rights and benefits as their relative lengths of pertinent employment increase.” California Brewers Assn. v. Bryant, 444 U. S. 598, 605–06 (1980).” Even though it would violate the PDA to have such a seniority system today, “a seniority system does not necessarily violate the statute when it gives current effect to such rules that operated before the PDA. “[S]eniority systems are afforded special treatment under Title VII[‘s]” § 703(h):

“Notwithstanding any other provision of this subchapter, it shall not be an unlawful employment practice for an employer to apply different standards of compensation, or different terms, conditions, or privileges of employment pursuant to a bona fide seniority . . . system . . . provided that such differences are not the result of an intention to discriminate because of race, color, religion, sex, or national origin . . . .” 42 U. S. C. §2000e–2(h).

“Benefit differentials produced by a bona fide seniority based pension plan are permitted unless they are “the result of an intention to discriminate.” TWA v. Hardison, 432 U. S. 63, 81 (1977). The Court declined to treat pregnancy discrimination differently from race, age or national origin discrimination under § 703(h). The Court noted that it had reached a similar decision regarding the arguably racist calculation of pension benefits before the passage of Title VII in Teamsters v. United States, 431 U. S. 324 (1977). Moreover, because Gilbert had already ruled that such pension plans did not violate Title VII, the Court declined to now reverse that decision and find that the pre-PDA pension plan was discriminatory on its face. (This holding effectively also rejected the plaintiffs’ argument that the pension plan also violated the Ledbetter Fair Pay Act.). In addition, because there was nothing in the PDA to indicate that Congress intended a retroactive application of the Act and the general rule is that legislation applies only prospectively, the Court declined to give retroactive affect to the PDA to cover pension calculations made before the passage of the Act. Finally, the Court concluded that it would read § 703(h) out of Title VII to destroy the safe harbor anytime new legislation was enacted.

Justice Ginsburg dissented on the grounds that, among other things, Gilbert had been wrongly decided (based on prior Court of Appeals decisions and EEOC guidelines).

Insomniacs may read the full Supreme Court opinion at http://

Pittsburgh Hospital Agrees to Pay $100,000 to Settle ADA Lawsuit Brought by EEOC.

Yesterday, the EEOC announced that “a Pittsburgh hospital has agreed to pay $100,000 and furnish other equitable relief to settle a disability discrimination lawsuit brought by” the EEOC which “had charged the hospital with firing an employee because she had cancer.” The lawsuit suit was filed at Civil Action No. 08-1358, filed in U.S. District Court for the Western District of Pennsylvania. According to the EEOC’s lawsuit, the plaintiff “needed a reasonable accommodation for her disability after she had surgery for cancer and underwent chemotherapy. [She] was a longstanding employee of LifeCare Hospitals of Pittsburgh or its predecessor and had a good performance record.”

According to the EEOC’s allegations, the defendant employer “initially provided a reasonable accommodation to” the plaintiff. However, “in about August 2007 the regional director of finance suddenly stopped accommodating [her] disability and demanded that she return to work full-time with no restrictions.” After she “returned to work full-time, the supervisor discriminated against her because of her disability, including substantially increasing her workload, removing her full-time staff assistant, and subjecting her to unwarranted work scrutiny.” Ultimately, “the hospital fired [the plaintiff] because of her disability.”

The EEOC announced that “the consent decree resolving the lawsuit prohibits the hospital from engaging in disability discrimination and retaliation. As part of the settlement, the hospital will also train all employees regarding the ADA’s prohibitions against disability discrimination. LifeCare did not admit liability in the consent decree, which is pending judicial approval. . . . During Fiscal Year 2008, disability discrimination charges rose to 19,453 -- an increase of 10 percent from the prior fiscal year and the highest number of disability bias charges filed with the EEOC in 14 years.”

Insomniacs can read the full press release at http://www.eeoc.gov/press/5-12-09.html.

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.

Sixth Circuit: Not Religious Discrimination to Require Religious Objector to Union Dues to Pay Full Dues to Charity Instead of Merely Agency Fee.

Today, a divided panel of the Sixth Circuit Court of Appeals affirmed the dismissal of a religious discrimination claim brought by a former union member against the UAW. Reed v. UAW, No. 07-2505 (6th Cir. 5/7/09). According to the Court’s opinion, the plaintiff “claims that UAW, in violation of Title VII of the Civil Rights Act of 1964, failed to provide a reasonable accommodation for his religious objection to financially supporting the union.” The Court affirmed dismissal of this claims on the grounds that the plaintiff could not show an actionable employment action merely from the fact that religious objectors were required to make a charitable donation in any amount of the full union membership dues instead of the lesser amount of the agency fee charged to non-union members (which was 22% less than regular union member dues).

According to the Court’s opinion, the UAW constitution, “grants both members and non-member agency fee payers ‘the right to object to the expenditure of a portion of his/her dues money for activities or causes primarily political in nature’ and to receive a rebate for that portion. UAW and AM General also are parties to a letter agreement that allows any employee with a bona fide religious objection to joining or supporting a labor union to satisfy his union security obligation by making a payment equal to full membership dues to one of three charities mutually designated by UAW and AM General.” After the plaintiff resigned his union members based on religious objections (which was supported by a letter from his pastor), the union began deducting the agency fee from his pay (which was less than the amount of full union dues he had been paying). When the plaintiff objected to paying even the agency fee, the union responded that it would refund the agency fees deducted from this paycheck if he paid an amount equal to the amount of full union dues to an approved charity. The plaintiff did so and then filed a Charge and lawsuit objecting to being required to pay to the charity an amount equal to full union dues instead of just the lesser amount of the agency fee charged to non-members. The plaintiff claimed that being required to pay the charity an amount equal to the regular union dues instead of the lesser agency fee amount was not a reasonable accommodation of his religion.

The majority agreed with affirming the dismissal of the claim, but for different reasons. In the lead opinion, the judge found that there was not a material adverse employment action in that the plaintiff was not disciplined or discharged. The judge did not believe that the plaintiff could prove a prima facie case by complaining about a minor difference in pay deductions (i.e., the 22% difference between the agency fee charge non-members and the amount of union dues charged to full members and to religious objectors). The concurring opinion, on the other hand, found that the union’s action was a sufficient accommodation of the plaintiff’s religious beliefs.

Insomniacs can read the full opinion at http://www.ca6.uscourts.gov/opinions.pdf/09a0166p-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.

DOL Issues FMLA Opinion Letter Formally Killing 1995 Two-Day Rule for Employees to Give Notice of Need for FMLA Leave.

Yesterday, in Letter Opinion FMLA2009-1-A (1/6/09), the Department of Labor published on its website an Administrator Letter Opinion which formally withdrew Letter Opinion FMLA-101 from January 1999 which barred employer attendance policies that required employees taking intermittent FMLA leave to report within one hour after the start of their shift. The requesting employer complained that the 1999 Letter Opinion prevented employers from “applying internal call-in policies, disciplining employees under the no call/no show policies or disciplining employees who call in late, as long as the employees provide notice within two business days that the leave FMLA-qualifying, regardless of whether they could have practicably provided notice sooner.”

The FMLA itself requires employees to provide “such notice as is practicable” when the need for leave is not foreseeable 30 days in advance. However, the 1995 regulations essentially interpreted “as soon as practicable” to mean within two business days. This interpretation was formalized in the 1999 Letter Opinion. The DOL noted that the FMLA regulations were substantially revised in November 2008 and became final on January 16, 2009 because the “one to two business days time frame set forth in the 1995 regulations had been misinterpreted as permitting employees to business days from learning of their need for leave to provide notice to their employers regardless of whether it would have been practicable to provide notice more quickly.” In the Notice of Proposed Rulemaking, the DOL explained the proposed rule change because it “expected that it will be practicable for the employee to provide notice of the need for leave either the same day (if the employee becomes aware of the need for leaving during work hours) or the next business day (if the employee becomes aware of the need for leave after work hours.)” Thus, “absent unusual circumstances, employees may be required to follow established call-in procedures (except one that imposes amore stringent timing requirement than the regulations provide) and failure to properly notify employers of absences may cause a delay or denial of FMLA protection.”

In particular, “[i]t generally should be practicable for the employee to provide notice of leave that is unforeseeable within the time prescribed by the employer’s usual and customary notice requirements applicable to such leave. . . . In both situations, employees must comply with their employers’ usual and customary notice and procedural requirements for requesting leave, absent unusual circumstances.”

The Department recognizes that call-in procedures are routinely enforced in the workplace and are critical to an employer’s ability to ensure appropriate staffing levels. Such procedures frequently specify both when and to whom an employee is required to report an absence. The Department believes that employers should be able to enforce non-discriminatory call-in procedures, except where an employer’s call-in procedures are more stringent than the timing for FMLA notice . . . . In that situation, the employer may not enforce the more stringent timing requirement of its internal policy. Additionally, where unusual circumstances prevent an employee seeking FMLA-protected leave from complying with the procedures, the employee will be entitled to FMLA-protected leave so long as the employee complies with the policy as soon as he or she can practicably do so.

Therefore, “where an employer’s usual and customary notice and procedural requirements for requesting leave are consistent with what is practicable given the particular circumstances of the employee’s need for leave, the employer’s notice requirements can be enforced. . . . Thus, . . . [if] an employer policy require[es] employees to call in one hour prior to their shift to report absences and an employee who is absent on Tuesday and Wednesday, but does not call in on either day and instead provides notice of his need for FMLA leave when he returns to work on Thursday, it is our opinion that unless unusual circumstances prevented the employee from providing notice consistent with the employer’s policy, the employer may deny FMLA leave for the absence. “

Insomniacs can read the full opinion letter at http://www.dol.gov/esa/whd/opinion/FMLA/2009/2009_01_06_1A_FMLA.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. 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.