On May 28, 2013, New York’s highest state court, the New York Court of Appeals, will hear oral argument regarding the scope and application of New York Labor Law 196-d and its tip splitting provisions to Starbucks’ tip pooling practices. The court’s analysis of these issues, which came to the court as certified questions from the Second Circuit Court of Appeals, is expected to have industry-wide implications, including guidance regarding what standard applies in determining who is eligible to participate in a tip pool and whether, and to what extent, an employer may exclude otherwise eligible employees from participating in a tip pool. As part of its deliberations, the Court will consider an amicus brief submitted on behalf of the New York State Restaurant Association by Jackson Lewis. A decision by the Court will hopefully provide clarity in this area of the law, as lingering uncertainty has served as a breeding ground for litigation.
Federal Court in Indiana Dismisses Claims Alleging Work Outside Of "Tipped Occupation" As Contrary To Law And Inadequately Pleaded
In a case defended by Jackson Lewis Wage Hour Practice Group Chair and former Wage and Hour Administrator Paul DeCamp, Judge Theresa Springmann of the Northern District of Indiana on Tuesday dismissed claims brought by a former server employed by an Indiana-based Applebee's operator alleging the restaurant was not entitled to avail itself of the FLSA’s tip credit provision, 29 U.S.C. § 203(m) for certain hours worked. Roberts v. Apple Sauce, Inc., N.D. Ind., No. 12-cv-0830, 05/13/13.
Plaintiff Roberts brought several claims based upon the so-called “20% rule” and the Eighth Circuit’s related interpretation of the tip credit provision in Fast v. Applebee’s International, Inc., 638 F.3d 872, 877 (8th Cir. 2011). Roberts alleged that she spent more than 20% of her time performing allegedly “non-tipped” duties, requiring payment of those hours at the full non-tipped minimum wage of $7.25/hour, rather than the tip credit minimum wage, which remains $2.13/hour under federal law. She also alleged that certain tasks always fall outside the “tipped occupation” and require payment at the full minimum wage without consideration of other tasks performed during those hours.
Judge Springmann ruled that merely invoking certain supposedly non-tipped duties in a complaint—such as food preparation or general cleaning—is insufficient to state a claim. Observed the Judge, “the cases, together with the regulations and interpretive guidance, lend no merit to the Plaintiff’s proposition that duties like food preparation and general cleaning around the dining room cannot be incidental to the regular duties of a server and therefore must be compensated at minimum wage regardless of the percentage of time the employee spends on such duties or whether the duties are generally assigned to servers.” The Court did not explicitly rule whether it would give the Field Operations Handbook—the genesis of the 20% rule—any deference because the Complaint did not sufficiently allege facts triggering that rule, but the Court made several comments expressing skepticism regarding the deference owed.
In other contexts, the Department of Labor has acknowledged that many of the duties cited by Plaintiffs in cases such as Roberts are the “core” duties of a server, such as “sweeping and mopping floors, vacuuming carpet, tidying up server station, taking out trash, or checking and cleaning bathroom.”
While Roberts is a favorable decision for the hospitality industry, as it rejects broad conclusory pleading to support tip credit claims, tip practices should be regularly reviewed by counsel for compliance with both federal and applicable state law.
In a significant victory for employers in the series of hotly contested cases regarding the status of interns, the Hearst Corporation successfully defeated class certification under the New York Labor Law. Xuedan Wang v. Hearst Corp., 2013 U.S. Dist. LEXIS 65869 (S.D.N.Y. May 8, 2013).
As important to wage/hour practitioners and employers as the Court's ruling on class certification (which cited Comcast) was Judge Harold Baer's rejection of Plaintiffs' proposed interpretation, in their summary judgment motion, of the seminal case concerning "trainees" under the FLSA, Walling v. Portland Terminal Co. 330 U.S. 148 (1947). Seizing upon particular language in the opinion, Plaintiffs urged that Hearst’s interns were employees under the FLSA if Hearst derived any "immediate advantage" from the purported work they performed. Judge Baer observed that "[a]lthough the Supreme Court held in Walling that the men in that case were not employees because the defendant railroads received 'no immediate advantage' from the trainees, it does not logically follow that the reverse is true, i.e. that the presence of an 'immediate advantage' alone creates an employment relationship under the FLSA." The Court also rejected literal application of the six-factor, conjunctive test set forth in Department of Labor guidance for establishing that an individual is a "trainee" excluded from minimum wage protection, adopting instead a more flexible "totality of the circumstances" analysis based on the "economic realities" of the arrangement, citing recent Second Circuit law. However, the Court stated that the Department of Labor’s view should be given significant consideration.
The Court’s practical view on the “intern” issue is encouraging to employers especially in light of the contrary or shifting Department of Labor positions on various issues. With that said, review of intern programs remains of paramount importance to employers with large unpaid intern populations.
The New York Department of Labor has issued proposed regulations interpreting revised New York Labor Law § 193, concerning permissible deductions from wages. The proposed regulations are available here, and are scheduled to be published in the May 22, 2013 issue of the State Register, with public comments regarding their content accepted until and including July 6, 2013. Notably, the proposed regulations permit deductions for 1) the enumerated permissible deductions written into the statute as well as 2) deductions which are both for the benefit of the employee and “similar” to the enumerated ones. § 195-2.1. A separate provision of the regulations lists the specific categories to which a non-listed benefit must be “similar” in order to qualify as a permissible deduction. § 195-4.4. Watch this space for further coverage regarding the regulations and public commentary regarding their impact on employers with New York operations.
Exempt status under the FLSA often requires payment of a fixed salary on the salary basis discussed in the DOL regulations. 29 C.F.R. § 541.602. An employee classified as exempt sometimes asserts that receipt of supplemental compensation beyond the fixed salary renders him a non-exempt employee. Courts, however, have rejected this argument, requiring only payment of the fixed salary on a basis that complies with 29 C.F.R. § 541.602 (and of course qualifying exempt duties) for the exemption to apply, including most recently the Court of Appeals for the Third Circuit. Sander v. Light Action, Inc., 2013 U.S. App. LEXIS 8506 (3d Cir. Apr. 26, 2013).
The supplemental compensation at issue in Sander was not simple. Plaintiff worked for a production and lighting company. When she did not work off-site at a show, she received $1,153.85, regardless of her number of hours. When she worked a show, she received a pro-rated portion of her $1,153.85 salary (reflecting hours in the office), as well as hourly pay for off site hours at a higher rate (meaning she always received at least $1,153.85). As the Court put it, “the additional compensation she earned for working at shows was effectively calculated on an hourly basis, and she was paid that premium on top of her standard weekly salary. The multi-tiered nature of that scheme does not change the fact that Sander earned as part of her compensation package a predetermined amount ... [that was] not subject to reduction.” Id. at *10-11 (internal quotation omitted).
Employers within the Third Circuit will be gratified to learn that the seemingly generous act of paying additional compensation to salaried exempt employees does not jeopardize exempt status. Employers within the Third Circuit can hope that the Second Circuits adopts a similar approach, which is consistent with the governing DOL regulations. Anani v. CVS RX Servs., 788 F. Supp. 2d 55 (E.D.N.Y. 2011) on appeal at 2d. Cir. Docket No. 11-2359 (argued June 27, 2012).
Developing political momentum for the first time in several years, the Republican-sponsored Working Families Flexibility Act or comp time bill - which would permit private sector employers to pay premium overtime via compensatory time off rather than in cash if certain conditions are met - received another boost yesterday, with a House vote passing the bill along party lines. However, this show of support from Republicans is unlikely to have much purchase, as both the Democratically-controlled Senate and the White House have continually expressed opposition, with the White House indicating that even a passed bill would likely be subject to veto.
Dedicated wage-and-hour practitioners, like many attorneys, will often find wage-and-hour issues to analyze in everyday life. Take, for example, this recent article regarding former Fenway Park fixture and local legend the “Crunch ‘n Munch” guy. The article, in addition to providing the back story behind his meteoric rise to local sports stardom (and drastically increased compensation), mentions in passing that, as a Fenway Park hawker, he was paid commission and tips. This leads wage-and-hour attorneys to question whether he received premium overtime for hours in excess of 40 or whether, perhaps, he was paid pursuant to 29 U.S.C. § 207(i) and not due overtime pay. Of course, it is also possible that his employer was not required to pay him overtime based on its being a seasonal or recreational establishment within the meaning of the FLSA. Jeffrey v. Sarasota White Sox, Inc., 64 F.3d 590 (11th Cir. 1995).
That such highly technical questions can arise from an off-hand reference in an article about an individual’s first employment nearly a decade ago is not atypical; wage-and-hour law remains one of the more intricate and subtle areas of the law impacting nearly all employers. And, with the continued exposure to class and collective action claims (offers of judgment and other defenses notwithstanding), it is an area where compliance and preventive practices remain paramount.
Specialty Importer's Orders of Foreign Baked Goods From Overseas Were In The Stream of Commerce, Qualifying Delivery Employees For Motor Carrier Status
The highly technical application of the motor carrier exemption to the FLSA’s overtime payment requirement often requires an analysis of the goods being transported by the purported motor carrier. If the goods in question are still traveling in the “continuous stream of interstate travel,” triggering Department of Transportation jurisdiction over the motor carrier, the exemption may apply. If the delivery is merely local and intrastate, the exemption likely does not apply. Walling v. Jacksonville Paper Co., 317 U.S. 564, 568 (1943). A recent Florida federal court decision focused on this question and held the goods in question—specialty “Hispanic” baked goods imported to Florida in large part from Canada, Chile and Spain—were traveling in interstate commerce, notwithstanding that not all of the orders in question were placed for specific customers with some made for inventory purposes. Rodriguez v. Pan & Plus Baking, LLC, 2013 U.S. Dist. LEXIS 55015 (S.D. Fla. Apr. 17, 2013).
Defendant’s orders of baked goods from these countries consisted of both “certain specific customers' pre-existing orders [and also goods purchased] in anticipation of projected customer demand for these foreign products.” Judge Federico A. Moreno observed that the “fact that shipments did not all correspond to specific customer orders does not, by itself, support a finding that there was no fixed and persisting intent to ship goods in interstate commerce.” Rather, the Court looked to the “intention formed prior to shipment, pursuant to which property is carried to a selected destination by a continuous or unified movement.” Under this analysis, all of the goods in question reflected Defendant’s intent - the “purchase of specialty baked goods from foreign manufacturers and the subsequent, continuous transportation of those goods from their points of origin to defendants' customers in Florida.” The Court explained these orders retained the “practical continuity of movement,” even when sometimes warehoused by Defendant for a period of up to two weeks. Because all of the Plaintiffs worked as drivers or, in one instance, a loader, of vehicles in excess of 10,000 pounds, the motor carrier exemption applied to Defendant’s employees’ movement of the goods.
The application of the motor carrier exemption can be highly technical. Consult with your counsel if you have questions.
New York Judge: Employee's Sporadic Use of Credit Card Machine Insufficient to Establish Individual Coverage Under FLSA
When small and medium-sized businesses are sued under the Fair Labor Standards Act, a common litigation issue is whether or not the defendant-employer – or the plaintiff-employee – is covered under the Act, through either its broad “enterprise coverage” or “individual coverage” of the worker’s employment. Where enterprise coverage is not present, typically because the business does not have the requisite $500,000 in gross revenues, the question becomes whether the individual employee is covered due to his or her work impacting “interstate commerce.” Rejecting applicability of individual coverage to an employee of a Queens, New York tire repair center, Eastern District of New York Judge Nicholas G. Garaufis ruled on summary judgment that testimony that the Plaintiff occasionally utilized the business’ credit card machine to ring up customers did not mean he was participating in “interstate commerce.” Owusu v. Corona Tire Shop, 2013 U.S. Dist. LEXIS 55381 (E.D.N.Y. Apr. 15, 2013).
Plaintiff Owusu worked as an automobile tire changer, changing and repairing tires in New York for New York customers. Defendant’s management witnesses testified that plaintiff did occasionally use the credit card machine. Plaintiff, seizing upon this testimony, and citing an old USDOL opinion letter, argued the use of the credit card machine invariably involved interstate commerce. Judge Garaufis rejected this argument because “[e]vidence that an employee sometimes engaged in an activity that can be considered interstate commerce, such as bank transactions or mail delivery, is not sufficient to show that the employee was ‘in the channels of commerce’ rather than merely affecting commerce.” The occasional credit card use was not a “substantial part” of Plaintiffs’ work, thus FLSA coverage did not attach. Id., at *11-12 citing Locke v. St. Augustine's Episcopal Church, 690 F. Supp. 2d 77 (E.D.N.Y. 2010).
Disputing FLSA coverage can be a defense strategy for a small business faced with an FLSA claim, and an important aspect of strategy even in states where state law provides broader protection. Small businesses and their counsel must analyze coverage issues and, where appropriate, seek to adjudicate such issues at the outset of a litigation in an effort to conserve resources.
Issuing its second sharply divided procedural opinion in as many months with ramifications for wage-and-hour practitioners, the Supreme Court yesterday ruled that a Pennsylvania nursing facility’s “offer of judgment,” which would have provided full relief to the sole putative collective action representative, effectively “mooted” her case. Accordingly, no collective action could proceed even though the offer was rejected. Genesis Healthcare Corp. v. Symczyk, 2013 U.S. LEXIS 3157 (U.S. 2013). As with the Court’s Comcast decision regarding FRCP 23 practice and certification, Symczyk concerns highly technical issues relating to the Federal Rules of Civil Procedure, specifically FRCP 68’s “offer of judgment” mechanism, and the related “mootness” doctrine. Employers and counsel should analyze the decision and its impact on pending litigation in depth.