On Second Thought, Court Holds Underwriters Qualify For Administrative Exemption

Applicability of the technical FLSA exemptions can sometimes turn on subtle distinctions, a frustrating proposition for FLSA litigants. A new opinion highlights these subtleties, as, on a motion for reconsideration made ahead of a bench trial, a court reversed its earlier ruling denying summary judgment to defendant bank as to the applicability of the administrative exemption to the bank’s underwriters, and granted summary judgment in defendant’s favor. McKeen-Chaplin v. Provident Sav. Bank, FSB, 2015 U.S. Dist. LEXIS 106245 (E.D. Cal. Aug. 12, 2015).

In McKeen-Chaplin, the bank urged the Court to reconsider its conclusions regarding the discretion underwriters exercised not only in seeking “exceptions” from loan protocols, but also in electing not to do so, and either move loans forward or reject them without such an application. Wrote the court,: “Provident has shown Plaintiffs’ duty to make decisions about when—and when not—to decline to approve a loan that met the lending criteria, and when to request an exception to the lending criteria, were part of Plaintiffs’ primary duty in performance of their underwriting function.”

Underwriters, like a number of other positions within financial services, continue to be a source of wage-and-hour litigation. McKeen is a positive ruling for employers and provides a roadmap for laying out arguments in favor of exempt status.

DC Circuit Upholds DOL’s End to Companionship Exemption for Third-Party Agencies

The U.S. Court of Appeals for the D.C. Circuit today ruled that the U.S. Department of Labor’s decision to  reverse its prior position and extend the FLSA’s minimum wage and overtime protections to employees of third-party agencies who provide companionship services and live-in care within a home was a reasonable interpretation of the law.  The change rendering the FLSA’s so-called “companionship exemption” unavailable to companions and live-ins employed by third-party agencies was scheduled to take effect January 1, 2015 before several trade associations challenged it.  The challenge was initially successful as the district court both vacated the “third-party employment” regulation and rejected and vacated the DOL’s attempt to narrow the definition of “companionship services.”  Reversing the lower court, however, the D.C. Circuit found the DOL provided a reasoned explanation for its position that the existing regulation misapplied congressional intent, and justified its shift in policy based on what the DOL coined a “dramatic transformation” of the home care industry since the third-party employer regulation was promulgated in the 1970s when most private homecare workers were employed directly by a member of the household and not a third-party agency as is the mostly the case today.  The decision stands to bring monumental changes to the business model in the industry.  While further appeal to the U.S. Supreme Court is possible if not likely, industry employers again are urged to consult with counsel to develop their short and long-term compliance strategy.

“Yelping” Does Not Entitle You To Minimum Wage

Another Court has joined those holding providers of content to online portals are not employees within the meaning of wage-and-hour laws. Joining a decision from the Court of Appeals for the Second Circuit, which rejected a claim brought by Huffington Post bloggers several years ago, Judge Richard Seeborg of the Northern District of California has rejected the FLSA complaint of individuals who claimed they were employees based on their writing of reviews contained on popular local restaurant review service Yelp. Jeung v. Yelp, Inc., 2015 U.S. Dist. LEXIS 107427 (N.D. Cal. Aug. 13, 2015).

Judge Seeborg observed that while “the statutory definition [of ‘employee’] is exceedingly broad . . . it does have its limits,” and ruled Plaintiffs’ “conclusory allegations that they were ‘hired’ and ‘fired’ by Yelp, and given ‘employee type direction,’ were insufficient to state a cause of action. However, he provided plaintiffs one final opportunity to “allege in good faith facts sufficient to show any type of employment relationship, or other basis on which they can pursue a claim for compensation for reviews submitted to Yelp.”

Individuals who voluntarily provide services sometimes claim to be employees so businesses accepting the services of volunteers (including those providing written content) should take steps to ensure these volunteers don’t morph into “employees.”

Court Rejects Nurses’ Generalized Claim of “8 to 12” Uncompensated Hours Based on Employer’s Time Keeping Protocols

The best defense for employers confronted with claims of “off-the-clock”, (i.e., unrecorded) work under the FLSA are accurate contemporaneous time records created by employees based on clearly communicated time keeping practices. The effectiveness of such records was recently demonstrated in Roberts v. Advocate Health Care, 2015 U.S. Dist. LEXIS 103631 (N.D. Ill. Aug. 7, 2015).

In Roberts, the plaintiff nurse alleged that she worked for a hospital “8 to 12 hours of unpaid overtime each workweek,” reiterating this allegation repeatedly in her deposition. However, the hospital demonstrated that plaintiff was responsible for submitting her own timesheets and was paid for hundreds of hours of overtime work during the period in question. Rejecting plaintiff’s assertion that the supervisor with whom she would meet at the end of her shift should have known that she was off-the-clock when they met and further should have known that she did not correct her timesheets after those meetings to ensure that all work time was captured, the court observed that the supervisor had 40 to 50 subordinate employees and it was not reasonable to expect him to be aware of who was on the clock and when. Rather, it was plaintiff’s duty to report her work time.

Defending hours worked allegations in FLSA litigation in the absence of time records is a frustrating and time consuming process. Development and enforcement of proper procedures is essential.

Second Circuit: MLB “Fanfest” Properly Treated as Exempt Recreational Establishment

Last year, Judge John G. Koeltl of the Southern District of New York ruled that individuals who served as volunteers at the 2013 Major League Baseball All Star Weekend FanFest, a four-day event centered around the All Star Game, were not entitled to minimum wage because they were “employed by an establishment which is an amusement or recreational establishment . . . [which did] not operate for more than seven months in any calendar year.”  On Friday, the Court of Appeals for the Second Circuit affirmed that decision.   Chen v. Major League Baseball, 2014 U.S. Dist. LEXIS 42078 (S.D.N.Y. Mar. 25, 2014).

The appeals court’s ruling focused on what constituted the operative “establishment” for purposes of applying the exemption: Major League Baseball conceded that if the “establishment” included the league along with FanFest, MLB did not meet the criteria. Citing Supreme Court precedent interpreting the now-repealed “retail or service” exemption, the Court concluded that an establishment for purposes of the seasonal amusement or recreational exemption is a “distinct physical place of business.” Because the Complaint conceded that FanFest took place at New York City’s Javits Center, and not at MLB’s offices or any other physical place controlled by MLB, that “physical separation [wa]s determinative.” Having established FanFest as the operative “establishment”, the Court ruled that Plaintiff’s Complaint itself clearly established the two exemption criteria: FanFest operated for not more than 7 months and was “amusement or recreational nature.” As to the latter, Plaintiff’s characterization of FanFest as a “theme park” established its qualifying nature.

Chen is a highly technical ruling, but instructive to employers having multiple establishments potentially qualifying for the exemption. The opinion, like Judge Koeltl’s below, declined to address Plaintiff’s claim that if the amusement or recreational exemption was inapplicable Plaintiff was entitled to minimum wage for all hours worked and could not be treated as an unpaid volunteer.

Second Circuit Affirms “Supervision” Doctrine Vis a Vis FLSA Settlements

Bringing some degree of clarity to the murky question of whether parties can dismiss a pending FLSA lawsuit on their own volition, the Court of Appeals for the Second Circuit has ruled that any dismissal with prejudice requires “the approval of the district court or the DOL to take effect.” Cheeks v. Freeport Pancake House, 2015 U.S. App. LEXIS 13815 (2d Cir. Aug. 7, 2015).

On appeal in Cheeks, both the employer and employee, parties to a settlement in the district court, urged that they were and should remain free to file a stipulation of dismissal with prejudice following their private settlement of an FLSA action. As part of its analysis, the Circuit Court elicited a letter brief from the Department of Labor, which took the view that courts must scrutinize all such settlements. The court adopted this view, calling the FLSA a “uniquely protective statute.” In a footnote, the court declined to address whether its analysis would have been any different based on a stipulation of dismissal without prejudice.

FLSA litigation in New York, one of the states within the Second Circuit’s jurisdiction, continues to be legion. Parties must consider the supervision doctrine in determining whether to settle and in structuring settlements.

New York Federal Court: Employee at Parts Company Is Exempt Outside Salesperson

An employee for an automotive and truck parts company is an exempt outside salesperson under the FLSA and the New York Labor Law, despite allegations that he was only a service technician, the Court for the Eastern District of New York rules. Domenech v. Parts Auth., Inc., 2015 U.S. Dist. LEXIS 101214 (E.D.N.Y. Aug. 3, 2015).

Because the parties did not dispute the plaintiff customarily and regularly worked away from the office (one prong of the two-pronged exemption test for the outside sales exemption), the court focused on the other prong of the exemption: whether the plaintiff’s “primary duty” was to make “sales.” Although the plaintiff claimed his customer visits were in the capacity of a technician, the court found his admissions in deposition testimony that he worked in sales, and his entries in the employer’s sales management system, “highly probative” of the issue of his sales employee status. The Court found that “[p]laintiff clearly functioned as a salesperson, albeit one whose technical expertise informed his sales.” The court discounted plaintiff’s reliance on his responsibility for installation of automotive lifts, finding that such was not integral to his duties as a salesman and, overall, was a minor responsibility. The court further found that the plaintiff’s freedom from direct supervision – including the fact that he spent most of his time driving, at times would not return to the office after his customer visits, and had the discretion to determine when to visit customers within a certain time period – weighed in favor of finding that his outside sales duties were his primary ones.

Applicability of the outside sales exemption, made notorious through a decade-long dispute regarding pharmaceutical sales representatives, must focus on both aspects of the legal test: performance of sales duties, and “customary and regular” sales activity away from the employer’s place of business. State law considerations also must be reviewed.

The Confusing Array of Wage Hour Developments Impacting New York State Employers’ Wage and Hour Compliance

In prior posts, we have summarized the New York State Department of Labor’s most recent rulemaking processes, comprised of two separate wage boards. The first, in 2014, addressed the hospitality industry as a whole, while more recently, in 2015, another highly publicized wage board addressed the subset of that industry deemed “fast food.” Employers should be aware of the cascade of new rules flowing and likely continuing to flow from these wage boards. “Wage Boards” are authorized to make recommendations to the Commissioner of Labor regarding changes in regulations, which the Commissioner can either accept or reject.

Below are some changes, either made by the legislature, or recommended by a wage board, that are looming:

  • The minimum wage for New York State for all employers will increase to $9.00 on December 31, 2015, and the “salary basis” for the executive and administrative exemptions under New York law will increase to $675/week;
  • The 2014 Wage Board, which announced a reduction in the available tip credit against minimum wage, is scheduled to issue proposed regulations in time for the new tip credit minimum wage of $7.50 for all hospitality service employees effective December 31, 2015. As of this writing, those regulations have not been released;
  • The 2015 Wage Board announced its proposed scheduled increase for the “fast food” industry along with recommended definitions identifying employers covered by the “fast food” regulations. As proposed, changes to the fast food industry minimum wage also would begin on December 31, 2015;
  • The U.S. Department of Labor has indicated its intent to increase the salary basis for all FLSA-covered employers (including those in New York) to $921/week by some date in 2016. The comment period on these proposed regulation is ongoing; and,
  • Mayor De Blasio has expressed an interest in a municipal minimum wage for New York City, notwithstanding ambiguity in the law concerning his authority to set such a minimum wage.

All of these proposed rules, save the already-enacted increase to the New York State minimum wage, remain subject to continued agency rulemaking, public comment and political lobbying. All New York employers, not limited to those in New York City or those operating in a food service sector, must pay close attention to wage-and-hour compliance.

Joining Ninth Circuit, Fourth Circuit Rejects Cause of Action to Recover Gratuities Under FLSA When No Tip Credit Taken

In accordance with the Ninth Circuit and several other federal court rulings, the Court of Appeals for the Fourth Circuit yesterday held that an employee cannot bring a claim for wages based on allegedly misappropriated gratuities under the FLSA unless the employer used the tip credit set forth in 29 U.S.C. § 203(m). Trejo v. Ryman Hospitality Props., 2015 U.S. App. LEXIS 13204 (4th Cir. July 29, 2015).

In Trejo, the plaintiffs were servers for hotels and restaurants at a complex in Prince George’s County, Maryland. The businesses required the plaintiffs to take part in a tip-pooling agreement, which redistributed tips received by the servers to bartenders, server assistants, busboys, and food runners. The plaintiffs alleged that the employers violated the FLSA by “not paying Plaintiffs all their earned tips,” and limited their requested relief to, among other things, the amount of “tip wages” allegedly taken by their employers. They did not allege that the employers paid them below the minimum wage or that they were forced to work overtime without proper pay. Rather, the servers conceded their “base salary” always remained above the minimum wage, even absent tips. The district court dismissed the plaintiffs’ FLSA claims, concluding that because the servers were paid above the minimum wage, the FLSA’s tip credit provision, 29 U.S.C. § 203(m), had no bearing on the case.

The Fourth Circuit affirmed, holding that the servers had no private right of action under 29 U.S.C. § 216(b) because they conceded that they were not seeking damages for unpaid minimum wages, and the tip-credit provision of 29 U.S.C. § 203(m) do not create a free-standing right to bring a claim for lost “tip” wages. Thus, as a matter of law, the inclusion of improper employees within a tip pool and/or failure to notify employees of a tip-pooling policy does not give rise to a private cause of action under the FLSA when employees seek only the recovery of the tips, unrelated to a minimum wage or overtime claim. The Court explained that Section 203(m), when read in context of the minimum wage and overtime provisions of the FLSA as a whole, could give rise to a cause of action “only if the employer was using tips to satisfy the minimum wage requirements.” Though the court touched upon the issue in a footnote and a separate concurrence from Judge Pamela Harris, the opinion did not squarely address whether the DOL’s 2011 regulations regulating the disposition of tips, which provide that such claims are not limited to employees for whom a tip credit is taken, potentially could impact its analysis of the statutory provisions, which the Court found clear.

Litigation challenges to tip practices remain frequent, and legislation regulating wage practices in the hospitality industry continues. Industry employers must stay abreast of changes to the law in their jurisdictions.

Ninth Circuit Finds That Insurance Claims Adjusters Are Exempt Administrative Employees Under California Law

Applying California’s administrative exemption test, the U.S. Court of Appeals for the Ninth Circuit recently concluded an insurance company properly classified its claims adjusters (who handled and processed disability claims) as exempt from the overtime provisions of the California Labor Code, notwithstanding the clerical duties the adjusters performed and their characterization of their work as “routine”. See Bucklin v. Zurich Am. Ins. Co., 2015 U.S. App. LEXIS 12497 (9th Cir. July 20, 2015).

The Court concluded the adjuster Plaintiffs “primarily performed work directly related to Zurich’s management policies or general business operations,” insofar as the Plaintiffs “developed a plan of action for resolving each claim and represented Zurich while investigating claims, setting reserves, directing litigation and negotiating settlements.” Further, the Court found the Plaintiff’s “exercised discretion and independent judgment” by setting reserve amounts, which involved considering the nature and extent of the claimed injury and the likelihood of the claimant’s permanent disability. Additionally, the Plaintiffs operated under limited direct supervision and earned more than twice the state minimum wage. Rejecting Plaintiffs assertion, the Court concluded that Plaintiffs performance of “some” routine clerical duties, and the requirement that they adhere to Zurich’s best practices manual, did not undermine the Plaintiffs’ status as exempt administrative employees.

Bucklin, like prior industry litigation, reinforces the need for industry employers to ensure job duties support any exempt classification.

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