An employee’s entitlement to incentive compensation continues to be a litigation issue. Recently, a Massachusetts federal district court held that an employer’s refusal to award an employee a discretionary bonus does not violate the Massachusetts Wage Act. Comley v. Media Planning Grp., No. 14-10032, 2015 U.S. Dist. LEXIS 76383 (D. Mass. June 12, 2015).
In Comley, the plaintiff, a Senior Vice President and Managing Director, claimed that the employer’s decision not to award her a bonus under the company’s Management Objective Plan violated the Massachusetts Wage Act because the bonus should have been treated as an earned commission. In response, the employer argued that payment of the bonus was entirely discretionary under the Plan. The Court agreed, relying on language from the Plan guidelines providing that “[t]he availability and terms of [the bonus] are at the sole discretion of Havas Media’s global Board of Directors and can be eliminated or amended at any time,” to find payment of the bonus to be discretionary. As the court observed, “[w]hile the result may seem harsh, discretion is what it is, and if retained by the employer over the award of a bonus, the employee . . . has no resort to the Wage Act.” Because the plaintiff was not entitled to payment under the Wage Act, the court also found that her retaliation claim premised on her objection to being passed over for a bonus also failed.
Business owners should analyze their employees’ compensation structure to ensure compliance with federal and applicable state wage and hour laws, and to maximize discretion over incentive compensation awards where appropriate.
One method of computing overtime payments under the FLSA is the “fluctuating workweek” method. The Department of Labor’s interpretive bulletin, 29 C.F.R. § 778.114, sets forth this example of determining the regular rate of pay when an employee is paid a salary for all hours worked in a workweek, whether few or many. Because the salary is intended to compensate the employee at straight time rates for whatever hours are worked in the workweek, the regular rate of pay is determined by dividing the number of hours worked in the workweek into the amount of the salary to obtain the applicable hourly rate for the week. Payment for overtime hours at one-half such rate in addition to the salary satisfies the overtime pay requirement because such hours have already been compensated at the straight time regular rate, under the salary arrangement. For example, a fluctuating workweek employee with a $1000/week salary who works 50 hours is entitled to $1000/50 = $20 * (0.5) = $10/hour for each of his ten overtime hours, or $100 in overtime premium pay. The regulation does not address any degree to which hours must fluctuate. A new ruling from federal court in Missouri reemphasizes that fluctuation above the 40 hours statutory threshold alone is sufficient. Speer v. Cerner Corp., 2015 U.S. Dist. LEXIS 75946 (W.D. Mo. May 22, 2015).
In Speer, plaintiffs alleged that by applying the fluctuating workweek overtime concept to them, when their hours fluctuated only above 40 (and never dipped below), defendant violated the FLSA. Citing decades-old precedent from the Seventh Circuit which had “presumably been significantly relied on by counsel [counseling employers on FLSA issues]”, Judge Howard F. Sachs observed that “the Seventh Circuit, in considered opinions, has squarely ruled against plaintiffs’ legal contention,” and that there is no appellate law to the contrary, ultimately ruling that “plaintiffs’ contention that the Fluctuating Work Week method of calculating overtime obligations cannot be used when the work week is never less than 40 hours is legally unsound.”
Implementation of the fluctuating workweek method, Belo contract or other non-hourly pay plan must be carefully reviewed under federal and state law.
The FLSA generally governs only the payment of minimum wages and overtime. It does not govern unpaid wage claims that do not result in a minimum wage or overtime violation—e.g., a claim brought by an employee that he worked 39 hours, but was only paid for 35 (sometimes referred to as a “gap time” claim). As long as the total wages paid by the employer equal or exceed the minimum wage for all hours worked, there is no minimum wage FLSA violation. A new case joins those rejecting these so-called “gap time” claims. Campbell v. Cnty. of Monmouth, 2015 U.S. Dist. LEXIS 75176 (D.N.J. June 10, 2015).
Plaintiff Campbell was a registered nurse earning $33.61 per hour at a care center operated by Defendant county. The parties did not dispute that “[p]laintiff never worked overtime and that she never fell below the minimum wage, even accounting for Plaintiff’s allegedly unpaid lunchtime work.” She nevertheless continued to pursue an FLSA claim based on these allegedly unpaid lunches, which the Court indicated “appears to be for ‘gap time,’ that is, uncompensated non-overtime hours worked where the wage averaged across all hours worked remains above minimum wage.” Noting that the Court of Appeals for the Third Circuit has rejected the gap time theory, the Court granted judgment to Defendant on the FLSA claim.
The volume of FLSA litigation remains high, and employers are often required to defend cases that still challenge basic principles under the FLSA.
“Administrator’s Interpretations” from the Wage Hour Division have been relatively few and far between since their implementation in 2010. However, on Friday Administrator David Weil, speaking at a conference at New York University School of Law, indicated his office would be issuing such an interpretation to “clarify” who qualifies as an independent contractor under the FLSA through a “very clear set of criteria.” Administrator Weil indicated that this clarifying Interpretation would expand upon but not deviate from the “economic realities” test courts continue to reference in analyzing this issue. Gayle v. Harry’s Nurses Registry, Inc., 2014 U.S. App. LEXIS 23029 (2d Cir. Dec. 8, 2014) (reiterating application of “economic realities” test under FLSA). Watch this space for further coverage of federal and state rulemaking and related guidance.
Litigation regarding the status of workers as independent contractors or employees continues to be a hotbed of litigation. This is true even in industries that have long-considered workers as independent contractors, such as real estate agents. Attorneys representing workers, for example, have turned to state statutes addressing independent contractor status to attempt to upset these long-held classifications. The Massachusetts Supreme Judicial Court, however, ruled that the state’s 2004 independent contractor statute cannot be applied to real estate brokers, relying on a longstanding provision of the state’s real estate law authorizing real estate salespersons to operate as contractors. Monell v. Boston Pads, LLC, 2015 Mass. LEXIS 318 (Mass. June 3, 2015).
In Monell, licensed real estate salespeople who worked for, and under, the real estate broker’s license of one of the larger real estate offices in Boston, sued in state court alleging they were misclassified under MA’s strict independent contractor statute, which provides for treble damages. The trial judge, on summary judgment, found for the brokerage, observing that the two statutes (the Real Estate law and the Independent Contractor law) were irreconcilable because, among other issues, the new contractor statute required freedom from control, but the real estate statute expressly permitted an independent contractor arrangement with some degree of supervision and control. Monell v. Boston Pads, LLC, 31 Mass. L. Rep. 382 (Mass. Super. Ct. 2013). Affirming on direct appellate review, the Supreme Court explained “the real estate licensing statute makes it impossible for a real estate salesperson to satisfy the three factors required to achieve independent contractor status, all of which must be satisfied to defeat the presumption of employee status.”
The Court limited its holding to Plaintiffs’ claim under the independent contractor statute, and declined to address Plaintiffs’ claims of misclassification under other provisions of Massachusetts wage law, taking “no position on whether the plaintiffs in fact are employees or independent contractors, or on how, in the absence of the framework established by the independent contractor statute, it may be determined whether a real estate salesperson is properly classified as an independent contractor or employee.” The court observed that legislation seeking to resolve that question had been proposed but rejected by the Governor.
Use of the independent contractor classification continues to draw scrutiny as an aspect of the “fissured” economy federal and state agencies seeks to police. Businesses utilizing contractors must examine their use of contractors for legal compliance.
In 2012, the Court of Appeals for the Fifth Circuit held that union members who worked on a film shoot and later brought FLSA claims subsequently waived those claims through a private agreement between their union and the production company. Martin v. Spring Break ’83 Productions, L.L.C., 688 F.3d 247 (5th Cir. 2012). On Monday, the Fifth Circuit limited the holding in that case to a private settlement of “bona fide disputes” regarding hours worked and overtime compensation due, rejecting a general release’s applicability to FLSA claims. Bodle v. Txl Mortg. Corp., 2015 U.S. App. LEXIS 9091 (5th Cir. June 1, 2015).
In Bodle, two former employees of a Texas mortgage firm were Defendants in a non-compete action brought by their former employer in a state court. They subsequently brought FLSA claims in a separate federal action. The trial court in the FLSA matter concluded that the general release the plaintiffs signed in connection with resolution of the state court lawsuit “validly barred the plaintiffs’ subsequent FLSA claims because the topic of unpaid wages for commissions and salary arose in the settlement negotiations . . . [and] the plaintiffs were aware of their claims for unpaid overtime because they had [already] signed consent forms to join the [FLSA] lawsuit . . . the plaintiffs chose . . . to remain silent about their overtime claims.” The Circuit reversed, holding that the “Martin exception does not apply to the instant case because not only did the prior state court action not involve the FLSA, the parties never discussed overtime compensation or the FLSA in their settlement negotiations. Therefore, there was no factual development of the number of unpaid overtime hours nor of compensation due for unpaid overtime.”
The supervision doctrine continues to pose challenges for FLSA litigants and all employers seeking to comply with the statute and minimize legal risk. All stakeholders must be aware of the judicially-fashioned rules and procedures in their jurisdiction under the FLSA, and, state law.
As with the recent uptick in state and municipal paid leave laws, employers in multiple jurisdictions now find themselves faced with a similar national bandwagon in favor of increased state and municipal minimum wage requirements, highlighted by the Los Angeles City Council’s recent decision to ratify a proposal moving that City’s minimum wage to $15 per hour by 2020. Los Angeles joins other west coast municipalities, including Seattle and San Francisco, in drastically increasing the minimum wage.
Courts will continue to wrestle with the appropriateness of state and municipal legislation in this area, as exemplified by the tortured history of New York Local Law 27, a City prevailing wage ordinance for the building services sector. Passed by the City Council during the Bloomberg administration, Mayor Bloomberg successfully sued to invalidate the law, citing longstanding New York precedent that the state-wide Labor Law preempts any effort to create patchwork municipal legislation on wage issues. Mayor of the City of N.Y. v Council of the City of N.Y., 2013 N.Y. Misc. LEXIS 3445 (N.Y. Sup. Ct. Aug. 2, 2013). Upon taking office, Mayor de Blasio reversed the Mayoral Office’s position on the issue, and jointly moved with the City Council that the opinion striking down the Law be withdrawn.
Legal confusion regarding the applicability of a law – any law – requiring payment of a specific wage clearly wreaks havoc with businesses, in particular businesses operating in numerous jurisdictions and also small business owners. Consider the possibility of a drastic increase to the minimum wage for New York City and the surrounding counties, as has been proposed, and the potential for migration of small businesses employing such workers from the outer boroughs into upstate New York or New Jersey simply to avoid a drastic increase in labor costs. These changes affect not only those businesses, but the consumers of their services, as with the increase to New York State’s tip credit minimum wage, effective at the end of the year which likely will result in an increase to the at times already startling cost of dining in New York State and particular New York City.
Watch this space for coverage of minimum wage developments. Increased ambiguity and confusion, as always, continues to serve as a breeding ground for litigation.
Like many states before it, New York today published new proposed regulations to provide “clarification and specification as to the permissible methods of payment [in New York], including [the use of] payroll debit cards.” The proposed regulations require voluntary consent from employees paid pursuant to such a program, and set minimum program requirements for feeless access to wage payments. This is consistent with the Attorney General’s recent attempt to amend the Labor Law itself to provide these protections. Absent a change in timetable brought about by a change in the Department’s thinking or a legal challenge, the regulations will take effect following a 45-day notice and comment period.
In a lengthy report entitled “Rethinking Overtime” commissioned by the National Retail Federation, Oxford Economics analyzes the likely impact on businesses of the anticipated rise in the salary required for exempt status, one of the expectations of the Department of Labor’s review of the exemption regulations. The report, available here, notes that only where an employer takes no steps and is completely “passive” will a change in base salary result in increased pay for workers who transition from exempt to non-exempt under the new regulations. Much more likely is a variety of responses resulting in fewer exempt autonomous managerial positions in the middle ranks, with many employees “pushed down” to hourly roles while a small subset move up to remain exempt under the new tests, and “automation” replacing the use of human capital.
It is anticipated that the proposed regulations will be made public sometime in late spring or early summer, with the hotly-contested notice and comment period extending through summer into late 2015.
Affirming a ruling from the Eastern District of Pennsylvania, the Court of Appeals for the Third Circuit last week confirmed that drivers for a motor coach company remained exempt under the motor carrier exemption, notwithstanding the relatively low volume of interstate transit and related revenue generated by the company’s interstate routes. Resch v. Krapf’s Coaches, Inc., 2015 U.S. App. LEXIS 7810 (3d Cir. May 12, 2015).
In Resch, the employer ran a bus and shuttle service operating 32 set routes, four of which crossed state lines. During the relevant period, the percentage of the division’s revenue generated by those routes varied from 1% to 9.7%. The employer retained the discretion to assign a driver to any route. Plaintiffs asserted that they were not exempt since they could not have been “reasonably …. expected to drive interstate” because of the low volume of interstate routes and interstate revenue. Rejecting this argument, the court found that during the relevant time period 6.9% of all trips were interstate, which was sufficient to create a reasonable expectation of travel in interstate commerce, and the exemption would apply even if a particular driver never engaged in an interstate route because “”even if the driver has not personally driven in interstate commerce [he would remain subject to Motor Carrier Act coverage] if, because of company policy and activity, the driver could reasonably be expected to do interstate driving.” The court noted that the employer adhered to the federal DOT regulations governing motor carriers, and rejected the argument that the volume of interstate travel was “de minimis.”
Application of the motor carrier exemption, involving as it does the interplay between Department of Labor and Department of Transportation regulations, remains highly technical, and requires attention to not only federal but applicable state laws, as well as consultation with counsel.