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.

Second Circuit Holds That Contract Attorney Properly Alleged Misclassification Claim

Reversing Judge Richard J. Sullivan’s 2014 decision, a panel of the Court of Appeals for the Second Circuit ruled today that a contract attorney who provided document review services on a multi-district litigation for a law firm through a third party staffing firm colorably alleged an FLSA violation based on his assertion that the document review services he provided did not constitute legal work.  Lola, et al. v. Skadden, Arps, et ano., 2d Cir., No. 14-3845, 07/23/2015.

In its decision, the Second Circuit first affirmed Judge Sullivan’s determinations that: 1) state law should apply to determine whether Plaintiff Lola was engaged in the practice of law (and thus exempt); and 2) North Carolina state law applied because Plaintiff lived and worked in that state when he provided the services in question. The court nevertheless reversed Judge Sullivan’s dismissal of the complaint because, based on its review of North Carolina guidance, a hallmark of practicing law in the state “is the exercise of at least a modicum of independent legal judgment.” Because Plaintiff Lola alleged that he exercised no such judgment, his complaint properly stated a claim under the FLSA. The Court observed that North Carolina’s appellate courts would be the preferred forum to determine the practice of law standard for that state, but that North Carolina law does not provide a mechanism to certify such questions for review.

Agencies that provide “contract attorneys” to law firms and firms that directly employ such attorneys must examine the work performed by these individuals and their compensation practices in light of this decision. While the Lola decision is only the denial of a motion to dismiss and the employer may ultimately prevail on the merits, employers may wish to take actions to minimize the risk of such claims.

New York’s Fast Food Wage Board Confirms: $15/Hour

In a televised meeting this afternoon, New York’s recently-convened Fast Food Wage Board confirmed industry employers’ fears and announced its unanimous recommendation that the wage for “fast food employees” in “fast food establishments” be increased to $15/hour by December 31, 2018 in New York City and by July 1, 2021 in the rest of New York State.  Prior to issuing their recommendations, the Wage Board elicited testimony from James Brown of the NY Department of Labor’s Division of Statistics regarding the cost of living in New York and the insufficiency of average wages in the industry.

The Wage Board announced a phase-in schedule for the increase, as follows:

For New York City:

  • $10.50/hour December 31, 2015;
  • $12.00/hour December 31, 2016;
  • $13.50/hour December 31, 2017;
  • $15.00/hour December 31, 2018;

For the balance of New York State:

  • $9.75/hour December 31, 2015;
  • $10.75/hour December 31, 2016;
  • $11.75/hour December 31, 2017;
  • $12.75/hour December 31, 2018;
  • $13.75/hour December 31, 2019;
  • $14.50/hour December 31, 2020;
  • $15.00/hour July 1, 2021.

In justifying the different phase-in schedules (anticipating potential legal challenges), the Board noted that the “fast food growth rate” is higher in New York City, allowing for greater “throughput” and profits. The Wage Board also provided recommended definitions for key terms relating to coverage under the new regulation: “Fast food employee”, “Fast food establishment”, “Chain”, “Franchisee”, “Franchisor”, “Franchise” (To be co-extensive with NY GBL § 681) and “Integrated enterprise.”  The recommended definition of “fast food establishment” includes franchise or chain establishments having 30 or more locations nationwide. The Board announced that their formal written recommendations would be subject to a 15-day public comment period.

New York’s Business Council has expressed concern regarding the Wage Board’s ability to properly and clearly define which employers and employees will be covered by this new rule.  Multiple industry groups, including the International Franchise Association, already have announced their intention to challenge the legality of the proposed rule through litigation, as the Association recently did in Seattle.

Watch this space for further coverage of this evolving issue relating to wages due to New York’s fast food industry workers.

Washington’s Highest Court Rules Piece Rate Compensation Does Not Satisfy Rest Break Pay Requirement

Like all compensation methods, piece rate compensation plans – under which an employee is compensated based on the number of “pieces” he or she generates or completes – must be analyzed for wage-and-hour compliance. For example, under federal law, minimum wage generally is due for all hours worked, and there are recordkeeping obligations, although some piece rate plans may qualify for the section 7(i) overtime exemption. Under state law, employers also must analyze whether piece rate employees’ compensation meets all applicable requirements, which supplement FLSA requirements for most employers. A new decision from Washington state’s highest court reinforces this last principle and imposes further payment obligations on certain Washington employers. Demetrio v. Sakuma Bros. Farms, Inc., 2015 Wash. LEXIS 807 (Wash. July 16, 2015).

Demetrio concerned the unique agricultural rest break requirement of WAC 296-131-020(2), requiring that “[e]very employee . . . be allowed a rest period of at least ten minutes, on the employer’s time, in each four-hour period of employment.” (Emphasis added.) Plaintiffs were seasonal workers who picked berries on Defendant’s berry farm under a piece rate system of compensation, i.e., Defendant paid them “an amount per pound or per box of fruit harvested.” Plaintiffs argued that Defendant’s pay system “deprived them of paid rest breaks required by WAC 296-131-020(2)” because the phrase “on the employer’s time” required Defendant to “pay a wage separate from the piece rate for the 10-minute period they are on break, since no piece rate wages accumulate during that time.” Defendant urged that it had “set[] the piece rate with rest periods in mind and that breaks are therefore ‘on the employer’s time’” as required by the regulation.

The Court noted that actually taking rest breaks is the goal of the regulation, to mitigate the dangers of allowing agricultural work – “one of the most dangerous industries in America” – by allowing employees like the Plaintiffs to actually sit, cool down, and rehydrate. The Court expressed concern that permitting a piece rate to compensate the employees for rest periods as well as productive work incentivized employees to work through rest breaks to increase their earnings, undermining the purpose of the regulation. The Court also ruled that the rest periods must be compensated at what it termed the piece worker’s regular rate of pay or the applicable minimum wage, whichever is greater. In this context, the Court instructed affected employers to compute the pieceworker’s regular rate of pay for rest break compensation by dividing the total piece rate compensation for the workweek by the total hours worked excluding the required rest break time. (The Court contrasted this computation for rest break compliance purposes with the computation needed to assess minimum wage compliance, expressly noting that the paid rest break time is included in the denominator when the question is minimum wage compliance.)

Demetrio points up the detailed nature of some state law rules, and the need to review compensation plans for compliance therewith. California law imposes a similar requirement for piece rate workers.

USDOL Issues Administrative Interpretation Reflecting Administration’s View Of “Independent Contractor” Analysis Under FLSA

As previously promised, the Department of Labor today issued its eighth Administrator’s Interpretation (“AI”) since the 2010 implementation of this form of guidance. Today’s Interpretation, as expected, reflects the current Department’s position that the governing analysis is the economic realities test which, in the Department’s view, is used to determine “whether the worker is economically dependent on the employer” rather than the full “economic realities” of the parties’ arrangement. Unsurprisingly, under this analysis the Department expresses its view that “most workers are employees under the FLSA.” DOL Administrator’s Interpretation No. 2015-1 (July 15, 2015). This view is consistent with the position expressed by DOL at the agency level in its investigations. The balance of the fifteen-page AI discusses the factors that should be used in applying the “economic realities” test and provides examples of workers who satisfy and fail to satisfy each factor, collecting case law finding workers to be employees under the FLSA.

Unlike the AI in which the Department interpreted the applicability of its own regulations to loan officers, recently reviewed by the Supreme Court, this new Interpretation concerns an interpretation of definitions contained in the FLSA itself. What deference, if any, courts will give to this new interpretation remains to be seen, as the AI does not identify any particular expertise the DOL possesses and employed in assessing the various factors. One obvious distinction between “economic realities” and “economic dependence” is the attempt through the latter – consistent with Wage Hour Administrator Weil’s approach to wage issues – to move away from a legal test focused on the putative employer’s control over the worker to a purely economic test focused solely on the relative bargaining power of the parties.  The AI does send a strong signal that the DOL will look skeptically on any claim of independent contractor status.

This latest guidance regarding DOL’s position serves as another reminder that all employers should carefully examine the facts and circumstances behind classification of service providers as contractors.

Court Finds That Employees Of Wisconsin Roller Rink Are Not FLSA-Covered

Though the Department of Labor currently is revisiting certain aspects of the FLSA, one aspect that remains unchanged is that “enterprise coverage” of a business under the Act attaches where the business has “employees engaged in commerce or in the production of goods for commerce” and has “annual gross volume of sales made or business done [of] not less than $500,000” (despite the fact that this revenue coverage threshold has not been updated for many years). Absent enterprise coverage, an employee must show individual coverage based on his or her own engagement in interstate commerce in order to avail himself/herself of FLSA rights. A Wisconsin federal court recently applied these principles in finding a Wisconsin small business and its employees were not covered by the FLSA. Shoemaker v. Lake Arbutus Pavilion, LLC, 2015 U.S. Dist. LEXIS 84507 (W.D. Wis. June 30, 2015).

In Shoemaker, plaintiffs had been partners with the owners of the corporate defendant but later became employees of the corporate entity operating a roller rink and diner. When plaintiffs sued for alleged unpaid overtime under the FLSA, defendant asserted competent evidence that it did not have $500,000 in annual gross sales, and asserted that Plaintiffs’ work for their substantially local business did not affect interstate commerce. The Court agreed, finding enterprise coverage absent based on Defendant’s revenue and that, even though Plaintiffs may have served some out-of-state customers or used “instrumentalities of interstate commerce like telephones and the Internet, on the whole they “worked for a local business in an intrastate capacity.” Thus, no individual FLSA coverage attached to their employment.

Small businesses, even those believing themselves under the FLSA’s revenue threshold, must analyze their compliance with the FLSA to avoid an expensive challenge to their practices under the Act. State law coverage thresholds also must be reviewed and analyzed.

Commissioned Sales Employee Not Entitled To Commission Payment Under The Plain Language Of Incentive Compensation Plan

This blog has stressed (most recently here and here) the importance of carefully drafting incentive compensations plans to avoid unintentionally converting incentive compensation into earned “wages” protected under state law.   Another recent decision, this one from the Court of Appeals for the Seventh Circuit reinforces the employer benefits of careful drafting. Lawson v. Sun Microsystems, Inc., 2015 U.S. App. LEXIS 11201 (7th Cir. June 30, 2015).

In Lawson, Plaintiff, a commissioned sales employee, sought commission under his employer’s 2005 incentive plan for a sale he negotiated in 2005 and closed in March 2006. Plaintiff urged that the terms of the 2005 incentive plan entitled him to approximately $1.8 million in commission. According to that plan’s terms, commissions were payable thereunder on all sales which were invoiced during the 2005 fiscal year (January through December), and the plan would remain in effect until a subsequent plan or amendment became effective. On August 31, 2005, Defendant acquired Plaintiff’s former employer, and effective September 1, 2005, amended the incentive plan by setting December 25, 2005 as the date the 2005 incentive plan would terminate. On March 17, 2006, one day after Plaintiff closed the sale at issue, Defendants circulated the 2006 incentive plan, which was dated March 13, 2006 and made retroactive to December 26, 2005, consistent with the September 1, 2005 amendment. Under the terms of the 2006 incentive plan, Plaintiff was entitled to $54,300 for the sale he closed in March 2006.

In seeking payment of the higher commission, Plaintiff agued the terms of the incentive plans were ambiguous insofar as the original text of the 2005 incentive plan stated the plan would remain in effect until a subsequent plan or amendment became effective, while the September 1, 2005 amendment set a fixed date for the expiration of the incentive plan. Therefore, Plaintiff argued extrinsic evidence should be admitted to demonstrate that the 2005 incentive plan was intended to remain in effect through March 2006 when the new plan finally was distributed. Further, Plaintiff argued because the business did not transmit the 2006 plan until after Plaintiff finalized the sale, he was entitled to commissions under the 2005 plan. The Court rejected both arguments. Specifically, the Court concluded that the 2005 incentive plan, as amended, clearly and unambiguously foreclosed Plaintiff’s ability under such plan to collect commissions on sales which were not completed by December 25, 2005. Plaintiff’s argument could not be reconciled with the plain language of the incentive plan.

Employers should review their incentive compensations plans to ensure the terms of the plans are clear and unambiguous, and maximize employer discretion where appropriate. Of course, employers also should endeavor to issue plans prior to the covered performance period to limit equitable arguments.

Liaison Responsible for Troubleshooting Invoice Failures Exempt Administrative Employee

A Tennessee federal court recently held that a “Print and Archive Vendor Liaison” responsible for coordinating with outside vendors to print and deliver customer invoices qualified for the administrative exemption notwithstanding the employee’s inability to deviate from employer policies or budgets.  See Boaz v. Fed. Express. Corp., 2015 U.S. Dist. LEXIS 70342 (W.D. Tenn. May 22, 2015).

In Boaz, Plaintiff received a monthly salary of $4,180.00, and testified during trial that her primary duties included “overseeing and troubleshooting failures” in the delivery of invoices between Federal Express customers and the vendors responsible for printing those invoices, and correcting the failure by “get[ting] the right people on a conference call and act[ing] as a liaison between the print vendor and [her employer], until the issue was resolved.” Plaintiff performed these tasks free from constant supervision and without prior approval as to many of her decisions. Further, her supervisor asserted that she was a “subject-matter expert in the print and archive vendor liaison function [who] supported multiple projects, and acted as a minor lead in the part of the project she supported.” Plaintiff conceded that the projects she supported had “a high dollar value and require[ed] an equal level of skill, effort and responsibility [to a male colleague].”  Plaintiff, however, “did not have authority to hire or fire, could not establish or deviate from [her employer’s] polices, could not establish budgets, could not bind [her employer] contractually, and was not involved in long term business plaining on behalf of [her employer.]”

Plaintiff argued she did not exercise discretion and independent judgment in the performance of her duties. Plaintiff also argued that her employer’s policy of permitting her to “flex” her schedule to compensate for on-call and recall hours worked by taking time off was a tacit admission by her employer that she was not exempt from the overtime provisions of the FLSA.

Rejecting Plaintiff’s arguments, the Court issued a post-trial decision finding that Plaintiff “could exercise discretion and independent judgment with respect to matters of significance.” The Court determined that Plaintiff was in fact a “subject-matter expert in the print and archive vendor liaison function” whose “work affected business operations to a substantial degree even though her assignments were related to the operation of a particular segment of the business.”  This work, the Court concluded, impacted FedEx’s “revenue stream.”  Thus, the issues Plaintiff resolved were “matters of significance” which she administered free from “day-to-day” supervision.  Specifically, the Court found Plaintiff “used her experience, judgment and discretion to get the right people on a conference call and act[ ] as a liaison between the print vendor and Fed[eral] Ex[press] to resolve issues” and thereafter implement changes resulting from those issues. The Employer’s policy of permitting exempt employees to flex their schedules in response to additional workload did not alter Plaintiff’s exempt status.

Employers should carefully review the job duties of employees, in consultation with legal counsel, and review applicable federal and state case law, to ensure compliance with all federal and state wage and hour laws.

Second Circuit Holds “Primary Beneficiary” Test Is Standard To Determine Employee Status Of Unpaid Interns; Likely Dooms Any Unpaid Intern Class and Collective Actions

The Second Circuit today issued two eagerly anticipated decisions addressing the standard that should be applied to determine whether unpaid interns at a for-profit employer are employees under the Fair Labor Standards Act (FLSA) entitled to compensation for services provided. Glatt v. Fox Searchlight Pictures, Inc., Nos. 13-4478-cv, 13-4481-cv (2d Cir. July 2, 2015); Wang v. Hearst Corp., No. 13-4480-cv (2d Cir. July 2, 2015). The interns urged the Second Circuit to adopt a test granting them employee status whenever the employer receives an immediate advantage from their work. The Department of Labor submitted an amicus brief in support of the Plaintiffs and argued that each of the six factors enumerated in its Intern Fact Sheet must be present for the intern to not qualify as an employee. The employers, on the other hand, urged the Court to adopt a nuanced primary beneficiary test that was not so rigid.

The Second Circuit rejected the test advocated by the Plaintiffs and the Department of Labor and sided with the employer, holding “the proper question is whether the intern or the employer is the primary beneficiary of the relationship.” The Court identified two salient features of the test. First, it “focuses on what the intern receives in exchange for his work;” second, it “accords courts the flexibility to examine the economic reality as it exists between the intern and the employer.” The Court identified the following non-exhaustive set of considerations, none of which alone is dispositive and all of which must be weighed and balanced:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee – and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by education institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Such a flexible standard “reflects a central feature of the modern internship – the relationship between the internship and the intern’s formal education.”

Just as significant in clarifying the standard, the Court vacated the district court’s decision certifying a class action under New York law and a collective action under the FLSA finding issues relating to classification of the interns too individualized to permit certification either under Rule 23 or even the lenient standard applied at the preliminary stage of a collective action under the FSLA. The Court found that even where an employer has a policy of replacing paid employees with unpaid interns, every intern is not necessarily likely to prevail on a claim that the intern was an employee under the primary beneficiary test, and therefore certification was improper. Even “assuming some questions may be answered with generalized proof,” the Court held, “they are not more substantial than the questions requiring individualized proof.” Similarly, as to collective certification, the Second Circuit observed that “courts must consider individual aspects of the intern’s experience” and that such analysis may be sufficient to find that unpaid interns are not similarly situated, even at first-stage conditional certification.

Employers obtained a clear victory in these cases, likely ending the barrage of intern class actions filed in New York. Employers, of course, should still be vigilant in reviewing their classifications of individuals as employees or unpaid interns.

Second Circuit Affirms Tennis Umpires Properly Classified as Independent Contractors

The Second Circuit recently held that the United States Tennis Association properly classified tennis umpires who handled the U.S. Open as independent contractors under the Fair Labor Standards Act and the New York Labor Law. In doing so, the court rejected the umpires’ claims for alleged unpaid overtime, as such laws do not apply to independent contractors, only employees. Meyer v. United States Tennis Ass’n, 2015 U.S. App. LEXIS 11037 (2d Cir. June 29, 2015).

Analyzing the “economic reality” of the relationship between the U.S. Open and its umpires and relying on substantially the same reasons stated by Judge Carter in granting summary judgment in favor of the USTA, the Second Circuit observed that the umpires were “highly skilled workers who exercise a high degree of independent initiative and control in officiating tennis matches.” Although umpires are “integral” to the Open and “invest little in the event,” they are “free to decide independently each year whether to officiate at the U.S. Open, which lasts for only a few weeks each year, and for how many days they wish to officiate.” Umpires “also remain free to serve as umpires for other tennis associations and to maintain other non-umpiring jobs throughout the year.” As to the umpires’ NYLL claims, the Second Circuit also noted that the umpires “worked at their own convenience, were free to engage in other employment, did not receive fringe benefits, [] were not on defendant’s payroll, and [] generally claimed independent contractor status on their income tax returns.”

Employers should continue to review any use of contractors to ensure compliance with federal and applicable state wage and hour laws.

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