Wage and Hour Law Update : Wage & Hour Lawyer & Attorney : Jackson Lewis Law Firm : Minimum Wage, Overtime & Service Contracts

As the volume of FLSA lawsuits remains high, the frequency of collective action trials – once unheard of – has correspondingly increased. On January 5, 2012, following a bench trial, Judge Edmund Sargus, Jr. of the United States District Court for the Southern District of Ohio ruled that 91 current and former “special investigators” for defendant Nationwide Mutual Insurance Company were exempt from minimum wage and overtime under the FLSA’s administrative exemption. Foster, et al. v. Nationwide Mutual Insurance Company, 2012 U.S. Dist. LEXIS 1384 (S.D. Ohio Jan. 5, 2012).

In the Court’s lengthy Order, the Court summarized the evidence presented at trial and applied it to the most commonly disputed component of the administrative exemption test -  whether the investigators’ work required the exercise of discretion and independent judgment with respect to matters of significance. In making such determination, the Court first sought, consistent with FLSA jurisprudence and guidance, to define the investigators’ “primary duty” in their work for Nationwide. The Court ultimately identified the primary duty “conduct[ing] investigations into suspicious claims with the purpose or goal of resolving indicators of fraud present in those claims.” In coming to this conclusion, the Court rejected Plaintiffs’ assertion that their primary duty was to “investigate suspicious claims by gathering and reporting facts” as too “narrow”, since it failed to account for the resolution of fraud indicators in the conduct of an investigation.

This distinction made all the difference to the Court’s ultimate determination, namely that the investigators exercise discretion and judgment because they were “tasked with resolving indicators of fraud” and had “nearly unilateral discretion in referring claims to law enforcement and the [National Insurance Crime Bureau].” In regard to resolving fraud indicators, the Court noted that “‘truth’ is not an entirely objective concept” and the investigator’s decision required factual determinations, the reaching of which “necessarily requires judgment and discretion.” This discretion was “significant” because in making factual determinations the investigators had “undisputed influence on Nationwide's decisions to pay or deny insurance claims.” These investigators were thus unlike the investigators addressed in other recent FLSA opinions.

The insurance industry has a decade-long history of misclassification claims involving investigators, adjusters and other “white collar” employees, as exemplified by Foster (a complaint from 2008). Misclassification litigation continues to weigh on employers, and the risks of such litigation should be considered by all counsel, business leaders and risk managers in determining classifications and formulating and refining underlying business models. 

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As we have repeatedly discussed, use of a so-called “auto-deduct”, wherein a predetermined amount of time is automatically deducted from an employee’s hours of work to correspond to a meal period with the understanding that the employee will perform no work during that period, can give rise to individual or class claims that an employee has in fact performed some work during that period on one or more days, rendering the time compensable. This is particularly so in professions such as health care or security services, where the need to provide assistance, however fleeting, can create an instance of arguable “work” any time the employee remains on the premises. Often, employees assert such claims as putative collective action claims, alleging a systemic practice of requiring or allowing employees to perform work during these meal break periods, and then automatically deducting the time from hours of work. In a pair of new decisions, two different district judges in Pennsylvania have decertified such collective actions against Pennsylvania hospitals, finding at the close of discovery that the putative collective action plaintiffs had failed to establish similarity between their claims: i.e., they failed to establish that the employer had a “policy or practice” of allowing such work to be performed and to go uncompensated. Camesi v. Univ. of Pittsburgh Med. Ctr., 2011 U.S. Dist. LEXIS 146067 (W.D. Pa. Dec. 20, 2011); Kuznyetsov v. West Penn Allegheny Health Sys., 2011 U.S. Dist. LEXIS 146056 (W.D. Pa. Dec. 20, 2011).

In these cases, the employers were able to establish through a combination of documentary and deposition evidence that they had adequate safeguards in place to ensure FLSA compliance. These safeguards included policies and practices which require the recording of all hours of work, and a mechanism (of which the employees were duly advised) for reporting any instance of work outside the scheduled time or during a meal break, which would otherwise be automatically deducted and thus not paid. In Camesi, the court observed “Ms. Camesi received training regarding [defendant]'s meal break cancellation policies, and pursuant to those policies, she was paid for working through meal breaks at least five times . . . [she] testified that her supervisor would not have been aware of whether she had worked through unpaid meal breaks, and she never complained to any superior about working through meal breaks and not being paid.” Thus, the hospital did not “suffer or permit” Plaintiff to work through lunch without pay if and when she performed work during lunch without availing herself of the policy, as she alleged.

While these are positive decisions, they were only obtained after significant litigation.  Employers must closely balance the administrative convenience attendant to such a practice with the heightened risk that an FLSA violation will occur or be alleged. Employers should adopt such policies with due care and at the least even if such policies are adopted ensure there are clearly communicated mechanisms for employees to report that they worked during such otherwise uncompensated periods. 

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On December 23^rd, President Obama signed the $1 trillion omnibus spending act, which set the Labor Department budget at $14.5 billion for fiscal year 2012. This constitutes a $145.4M increase (approximately 1%) from 2011. The bill, which prevented any government shutdown from occurring, places five restrictions on U.S. Department of Labor activities during the funded period. These are:

1)      A prohibition on DOL implementation of the H-2B wage rule for temporary nonagricultural workers;

2)      A prohibition on implementation or enforcement of DOL’s proposed “coal dust” rule -- a proposed rule to lower miners' exposure to respirable coal dust in all underground and surface coal mines –until an independent assessment of DOL’s process giving rise to the rule is conducted;

3)      Continued exempt classification of service technicians at auto dealerships from overtime requirements under the FLSA pursuant to 29 U.S.C. § 213(b)(10) for DOL enforcement purposes;

4)      A freeze on the Department’s proposed development of a musculoskeletal disorders reporting requirement (aka the “ergonomics regulation”); and

5)      A prohibition on the implementation of electronic voting procedures in representation elections before the National Labor Relations Board.

This funding, and these fairly narrow concessions limiting USDOL activity, ensures the continuation of active Department enforcement heading into the election year.

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In recent weeks, we have discussed challenges to FLSA exempt status brought by employees many might assume to be properly exempt, such as a Director for the Red Cross. In another recent rejection of a claim of this type brought by the the aggressive plaintiffs’ bar, a federal court in Pennsylvania has ruled, following a bench trial, that the Supervisor of the Toxicology Laboratory for Wilkes-Barre Hospital properly was classified as an exempt "learned" professional.  Hockenbury v. Wilkes-Barre Hosp. Co., LLC, 2011 U.S. Dist. LEXIS 141001 (M.D. Pa. Dec. 8, 2011).

Judge Edwin M. Kosik found that Plaintiff Hockenbury, who supervised fifteen technologists in the lab, possessed the requisite “educational degree and expertise in toxicology” to qualify as a learned professional under 29 C.F.R. § 541.301 (e)(1). The Court also concluded that Plaintiff was paid on a salary basis because he conceded that “he received in every single pay period the minimum of eighty hours pay, which was never reduced based on the number of hours he worked.”

Hockenbury represents another employer victory in a single FLSA plaintiff’s challenge to his or her exempt status. However, such scattered district court cases do little to alleviate the continued threat of FLSA litigation, and nothing to obviate the need for position-specific analysis of FLSA classification by all employers. In general, to qualify for the “learned” professional exemption, in addition to being paid on a salaried or fee basis, the employee must have a specific job-related advanced degree that is necessary for the performance of the job. State law also must be reviewed as some states, such as California, impose higher standards for exemption. 

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California has joined New York in requiring a new hire wage notification under its Wage Theft Prevention Act, with the California statute effective for all new hires on or after January 1, 2012. To assist employers, the California Division of Labor Standards Enforcement has issued its model form complying with the new law. The DLSE’s model form is available here.

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While the FLSA governs the payment of minimum wage and overtime, it does not by its statutory language regulate the receipt of gratuities.  However, Section 3(m) of the FLSA (29 U.S.C. § 203(m)) requires that employees paid pursuant to the “tip credit” provision (i.e., paid less than the standard minimum wage of $7.25 due to receipt of gratuities), retain all of their tips or share them only with employees who are customarily and regularly tipped and who do not qualify as a “employer” under the FLSA (Some states impose this principle even if a tip credit is not taken, and the USDOL recently issued guidance indicating it is taking the same position, contrary to case law). Thus, participation in a “tip pool” (wherein members of the service staff pool all tips for a given day or shift and redistribute them according to a pre-determined formula) is limited to employees who hold a customarily and regularly tipped position, and who do not meet the test for an employer under the FLSA. In a new decision involving prominent Washington D.C. eatery Marcel’s, a Federal District Judge rejected plaintiffs’ claims that the maitre ‘d who participated in the Marcel’s tip pool did so in violation of the FLSA. Arencibia v. 2401 Rest. Corp., 2011 U.S. Dist. LEXIS 146979 (D.D.C. Dec. 21, 2011). 

Plaintiffs alleged that Adnane Keiblar, the Restaurant’s long-standing maitre ‘d, should have not received tips because, in addition to his regular functions as maitre d’ where he was “responsible for organizing reservations, supervising the floor, ensuring the staffs' uniforms are clean, and generally accommodating   the requests of guests, including seeing that ‘regulars’ are seated at the tables they request,” he also exercised managerial authority rendering him an “employer” under the FLSA. The Court rejected this assertion by analyzing the four principal factors identified by courts in making this analysis, namely whether the individual had the authority to: hire or fire employees; set employee schedules; set employee compensation; and maintain employment records. The court also rejected claims that the restaurant’s director of sales should not have participated in the Marcel’s pool (even though she in fact did not), because her “direct interaction with customers to arrange private events” rendered her a properly tipped employee. 

Hospitality industry employers have been besieged by lawsuits and extensive regulation, including numerous challenges in New York and many other states as to the tip pool participation of various service positions outside of the universally understood tipped positions of server, and bus boy. Arencibia joins several other recent decisions which have rejected the narrow reading plaintiffs urge, which would limit tip pool participation to a small handful of titles not reflective of the versatile diverse nature of the hospitality industry workforce, particularly within the fine dining community.   Employers must carefully analyze their tip pool participants under both federal and state law. At all times, the employer must ensure that state law permits tip pooling and also be able to support its position that each participant is both not a manager and regularly involved in customer service.

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Assisting Lady Gaga with her day-to-day needs may be a dream to many, but does it make one exempt from overtime pay? Under DOL regulations, an administrative assistant who is paid on a salaried basis and exercises significant independent discretion and judgment is exempt under the "administrative exemption." 29 CFR § 541.203(d). This is the same exemption that applies to others who exercise significant independent discretion and judgment in performing "office or non-manual" work (as demonstrated by regulation 541.203), such as certain Human Resources employees. Challenges to the applicability of the exemption to executive or personal assistants are not new; the fact that the individual being assisted is a prominent professional in his or her industry is not determinative. Some courts applying the DOL’s regulation have expressed reluctance to rule that well-compensated individuals providing such assistance do not exercise "discretion and independent judgment, but case law remains unclear. See   Seltzer v. Dresdner Kleinwort Wasserstein, Inc., 356 F. Supp. 2d 288 (S.D.N.Y. 2005)(executive assistant to president of defendant investment bank qualified for exemption); Malena v. Victoria's Secret Direct, LLC, 2010 U.S. Dist. LEXIS 121320 (S.D.N.Y. Nov. 16, 2010)(denying summary judgment as to whether defendant's good faith belief that executive assistants performed exempt work precluded liability).

In a new challenge, a former personal assistant to chart-topping entertainer Lady Gaga has filed suit, alleging that she essentially worked around the clock in exchange for a fixed salary, and thus did not receive hundreds of thousands of dollars in premium overtime pay due under the FLSA and state law. O'Neill v. Mermaid Touring Inc., Civil Case No. 11-9128 (Southern District of New York, Dec. 14, 2011)(Jones, J). 

Employers and individuals retaining personal or executive assistants to perform similar services should be aware of the employment risks associated therewith. At the least, in addition to ensuring such employee is paid on a salaried basis, the employer must ensure that the assistant utilizes independent discretion in judgment in performing job duties.

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The proliferation of FLSA lawsuits brought by “non-exempt” employees for alleged uncompensated working time has highlighted several important FLSA questions. One prominent and thorny question concerns when and how an employer is deemed to have constructive knowledge of work allegedly performed by an employee, such that the employer will be deemed to have “suffered or permitted” that work, rendering such work compensable time. Often, employers are frustrated by this broad and unclear standard, which may entitle employees to compensation even when no member of management was aware that work was being performed. In a new decision, the Court of Appeals for the Seventh Circuit has identified circumstances under which an employer is not obligated to compensate the employee for such hours. Kellar v. Summit Seating Inc., 2011 U.S. App. LEXIS 24745 (7th Cir. Dec. 14, 2011).

Kellar concerned a sewing manager for Defendant who claimed that she regularly arrived at Summit's factory “between 15 and 45 minutes before the start of her 5:00 a.m. shift.” She characterized her activities upon arrival as follows:

about 5 minutes unlocking doors, turning on lights, turning on the compressor, and punching in on the time clock. Then she prepared coffee for the rest of Summit's employees, which took her about 5 minutes. Depending on her workload, she spent 5 to 10 minutes (or longer) reviewing schedules and gathering and distributing fabric and materials to her subordinates' workstations, "so that they could go straight to work, rather than waiting for [her] to bring [fabric] to them." For another 5 minutes, she drank coffee and smoked a cigarette. The remaining time was spent performing "prototype work" (preparing models for production), cleaning the work area, or checking patterns.

Id. at * 2-3. Plaintiff conceded that “no one told her that she needed to come in before her shift, but she arrived early because it would have been "a hassle" to show up at 5:00 a.m. and still get her subordinates up and running close to the start of their 5:00 a.m. work shifts.” Id. Plaintiff sometimes punched in early (as was common among Defendant’s employees), but when she forgot to do so she would write the “official” shift start time on her timesheet (i.e., 5 a.m.), and she did not complain at any time that her paycheck failed to capture her hours of work. 

The lower court held _that plaintiff was not entitled to compensation for the alleged pre-shift work, and she appealed to the Seventh Circuit. For purposes of the appeal, the parties did not dispute whether or not these activities took place (as typically is disputed). The legal questions before the court were simply: (1) whether these activities were “preliminary” and thus excludable from hours of work under the FLSA on that basis; (2) whether this time was “de minimis” and thus not compensable; and, (3) whether defendant had the aforementioned knowledge necessary to render this work compensable under the FLSA. 

After answering the first two questions in the negative, ruling that these activities would constitute compensable work if Defendant had suffered or permitted them, the court rejected Plaintiff’s claims. The Court observed that Plaintiff, as a manager, was aware of and at times enforced Defendant’s policy of forbidding unauthorized overtime, and participated in weekly meetings discussing the upcoming week’s schedule. The Court further noted that Plaintiff’s early punch-ins did not constitute notice to the employer of pre-shift work because early punching was a common practice at Defendant’s place of business, and “clocking in early would not necessarily have alerted Summit that Kellar was performing pre-shift work. Id. at * 17 citing 29 C.F.R. § 785.48.   Under these circumstances, the Court concluded that “[management] had little reason to know, or even suspect, Kellar was acting in direct contradiction of a company policy and practice that she herself was partially responsible for enforcing. Accordingly, no reasonable trier of fact could conclude that Summit had reason to know that Kellar was working before her shift.” Id. at * 19. 

The “suffer or permit” standard remains a relatively broad one, which can render employee activities compensable even if members of management or others with authority are not expressly aware of the activities at the time they are performed. Kellar provides valuable instruction to employers (particularly those within the Seventh Circuit’s reach, encompassing Illinois, Indiana and Wisconsin) in crafting FLSA-compliant policies for application to non-exempt employees. With that said, all employers should carefully scrutinize timekeeping and wage payment policies to avoid disputes of this ilk. 

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Quantifying the necessary “discretion and independent judgment” required to qualify for the administrative exemption continues to divide courts, and the conclusion is often in the eye of the judicial beholder. This is especially so where discretionary authority must be measured without reference to monetary benchmarks or limits, such as those applicable to insurance adjusters or purchasing agents. See Roe-Midgett v. CC Servs., 512 F.3d 865 (7th Cir. 2008)(insurance adjusters with sufficient discretion to approve claims qualified for exemption); see also 29 CFR § 541.203(f)(regarding purchasing agents). With that said, USDOL regulations and district courts interpreting the exemption have identified certain duties (often varying by industry) which constitute the hallmark of such discretion. In a new decision, one federal judge in New York State rules that a Director of Emergency Services for the Red Cross met this test. Raffe v. Am. Nat'l Red Cross, 2011 U.S. Dist. LEXIS 137340 (N.D.N.Y Nov. 30, 2011).

Plaintiff Raffe challenged the applicability of the exemption via the common technique of citing the repeatability of certain processes integral to his job, despite admitting “to having significant budgetary and fiscal responsibilities, including reallocation of emergency services funds, submitting grant applications, handling procurement, overseeing equipment and inventory, and authorizing purchases” (id. at * 37) and further admitting to “developing  and evaluating the [Red Cross] Chapter's Continuity of Operations Plan.” Id. at * 37-8. Plaintiff argued that his consultation with (and obtaining the approval of) the Chapter’s Executive Director or Board prior to the implementation of major decisions undercut his discretion and independent judgment. Rejecting this argument, the Court rightly observed that “[t]he fact that Raffe did not have sole or final authority to make decisions does not disqualify him from satisfying the conditions necessary for the administrative exemption.   Id. at * 38 citing 29 C.F.R. § 541.202(c). Because Raffe also met the other prongs of the administrative exemption test (including being paid on a salary basis), he qualified for exemption from minimum wage and overtime. 

Raffe is a positive result for employers in New York and the other jurisdictions within the Second Circuit, but also highlights the reality that director-level employees such as Raffe can mount expensive legal challenges to their exempt classification. The potential direct and indirect costs of such challenges must be factored into employers’ classification decisions and risk management plans.   A full understanding of the current judicial view of the scope of exemptions within each region in which each organization operates is vital to fully understand all potential risks.  

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