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

The Ninth Circuit recently revised and reissued its earlier opinion in Rutti v. Lojack Corp., No. 07-56599 (9th Cir. Mar. 2, 2010), holding upon further review that the Plaintiff’s commuting time is compensable under California law, while continuing to find that such time  is not compensable under the FLSA. The Court did not change its ruling that time spent on the required post-shift activity at issue in the case – the daily transmission of data – was compensable.

The Plaintiff, an automotive technician, installed and repaired vehicle recovery systems for the employer. Because technicians perform most of their duties at the clients’ locations, the employer required Plaintiff to use a company-owned vehicle to travel to clients’ sites. The employer prohibited technicians from carrying passengers in the company vehicles and from using the vehicles for personal business. The technicians also were required to keep their cell phones on while driving.

The employer paid Plaintiff on an hourly basis for the period beginning when he arrived at his first job and ending when he completed his final job, but not any commuting time. Plaintiff, on behalf of himself and all technicians, sued the employer to recover compensation for commuting time and for alleged preliminary and post-shift activities.

Addressing Plaintiff’s claim that the commuting time should be compensable under California law, the Court concluded that the district court erred in granting summary judgment to the employer. California law requires that employees be compensated for all time “during which an employee is subject to the control of an employer.” Morillion v. Royal Packing Co., 22 Cal. 4th 575, 578 (2000). In Morillion, the California Supreme Court held that the plaintiffs were “subject to the control” of their employer during a mandatory bus commute because “plaintiffs could not drop off their children at school, stop for breakfast before work, or run other errands requiring the use of a car.” The California Supreme Court reasoned the “[p]laintiffs were foreclosed from numerous activities in which they might otherwise engage if they were permitted to travel to the fields by their own transportation.”

Similarly, in Lojack, Plaintiff was required to drive the company vehicle, could not stop off for personal errands, could not take passengers, was required to drive the vehicle directly from home to his job and back, and could not use his cell phone while driving, except to answer calls from the company dispatcher. Accordingly, the Court found that “Plaintiff was under Lojack’s control while driving the Lojack vehicle en route to the first Lojack job of the day and on his way home at the end of the day.” Thus, the Court held that his commute was compensable under California law.

Employers that provide company vehicles and have restrictions regarding their use should expect increased challenges to their policies and claims that employees’ commutes are “compulsory,” rather than ordinary.  A more detailed analysis of the  Lojack decision is available here.

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While in New York all employees are at-will absent contractual language to the contrary, an employer may (intentionally or unintentionally) create a “contract” with an employee governing certain terms of employment (such as bonus compensation) without destroying the at-will nature of employment.  Properly drafted and agreed upon, such a contract can preclude employees from later claiming they were made oral promises regarding compensation and benefits at the time of hire (or later on) which are different than the terms reflected in the contract.  In Broyles v. J.P. Morgan Chase & Co., 2010 U.S. Dist. LEXIS 21861 (S.D.N.Y. Mar. 8, 2010), United States District Judge William Pauley rejected an employee’s attempt to do just that, finding that the letter of employment the Plaintiff had received and signed at the time of hiring: (1) was an enforceable contract, and (2) it contained “the entire understanding of the parties with respect to the terms and conditions of the offer of employment.”  Id. at * 7. 

When the Plaintiff was subsequently terminated, he brought suit claiming he had been orally promised a bonus for the year prior to the year in which he was terminated.  However, the letter of employment at issue provided that any bonuses were discretionary and would not be paid if the employee quit or was terminated.  The Court held that this clear language governing bonuses contained in the offer letter, coupled with an integration clause, precluded the employee’s claims that he was verbally promised a bonus.  The court found that the offer letter was an enforceable written agreement which precluded any oral agreements or quasi-contractual claims by the employee.  Finally, since the bonus was never “awarded” to the employee, he had no “vested” interest in it, and therefore could not pursue a claim for the unpaid bonus under the New York Labor Law.

It is difficult for employers to ensure that no statements regarding compensation are made by managers, co-workers or human resources during the hiring process.  Recruiters or other interviewers can unwittingly make oral promises or use poorly tailored language regarding the terms and conditions of employment.  To prevent such statements from causing issues down the road, employers should consider utilizing a well drafted employment letter, such as the one in Broyles, or a well drafted incentive compensation plan with an integration clause, in order to easily dispose of these claims if and when they do arise.

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In addition to (oftentimes conflicting) state and federal wage laws, employers in particular counties – including such notables as Miami-Dade County (FL), San Francisco County (CA – where the minimum wage of $9.79 is almost $2/hour higher than the state minimum wage) and New York City – must also stay abreast of wage legislation at the county level.  On March 25, New York City Council Member Gale Brewer, along with more than 30 co-sponsors, reintroduced the Earned Paid Sick Leave Act for debate and consideration. In short, the Act would require private employers in the City to provide employees a minimum number of paid sick days each year.  Washington DC and San Francisco already have such laws in place.  Further detail and discussion is available here.

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On March 23, President Obama signed a bill which amended the FLSA to require most covered employers to provide breaks to mothers for the purposes of breastfeeding (as well as furnish private space for them to do so).  While the new law does not require that nursing mothers be paid for such break time, state law may.  An in depth analysis of the new law is available here.

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On March 24, 2010, Nancy J. Leppink, the Deputy Administrator for the Wage and Hour Division of the United States Department of Labor, issued an “Administrator’s Interpretation” stating that employees who perform the typical job duties of a mortgage loan officer generally do not meet the prerequisites for the administrative exemption under the FLSA.   The issuance of the Interpretation is a significant departure from the Division’s past practice of generally issuing legal opinions solely in response to requests for guidance from the public, and may be a sign of a more aggressive Wage and Hour Division.  The Interpretation is directly contrary to a September 8, 2006 opinion letter issued by the Division stating that mortgage loan officers could qualify for the exemption, and in fact the Deputy Administrator stated that the previous opinion was based on a misleading assumption and a selective and narrow analysis.

The Division bases its new position on the following conclusions:

• A Mortgage Loan Officer’s primary duty is to make sales and accordingly he/she performs production work and not administrative work.  As stated by the Deputy Administrator, “[w]ork such as collecting financial information from customers, entering it into the computer program to determine what particular loan products might be available to that customer and explaining the terms of the available options and the pros and cons of each option, so that a sale can be made, constitutes the production work of an employer engaged in selling or brokering mortgage loan products.”

• While in certain situations, providing advice to a business regarding a potential mortgage to purchase land could qualify as exempt work based on it being related to the management or general business operations of the employer’s customers, home loans do not as “[i]ndividuals acting in a purely personal capacity do not have “management or general business operations.”

• Its belief that the September 8, 2006 opinion letter improperly created an alternative standard for the administrative exemption for employees in the financial services industry.

This is a significant development for industry employers that relied on the administrative exemption for loan officers based on the 2006 opinion letter.  This narrowing of the definition of “administrative” work by the DOL is also consistent with the Second Circuit’s recent decision in Davis v. J.P. Morgan Chase & Co., 587 F.3d 529 (2d Cir. 2009)(underwriter “produced” bank’s product of making loans, and thus was not an administrative employee). 

While it is not a resolved legal issue, some courts have held that the 7(i) “commissioned employee” exemption also is inapplicable to mortgage loan officers because they do not work in a “retail” industry. Compare Gatto v. Mortgage Specialists of Ill., Inc., 442 F. Supp. 2d 529 (N.D. Ill. 2006) with In re: Wells Fargo Home Mortg. Overtime Pay Litig., 2008 U.S. Dist. LEXIS 46595 (N.D. Cal. June 11, 2008). This would leave the outside sales exemption as the only potential exemption on which employers in the industry can rely, however, such exemption typically has limited application in the industry as most mortgage loan officers perform services from a fixed location.  An additional open question remains as to whether loan officers who are “highly compensated” (i.e., are paid on an FLSA-compliant salary basis and receive more than $100,000/year in total compensation) may still qualify for exemption.  29 CFR § 541.601.

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The Supreme Court, on March 22, 2010, agreed to answer a question that has divided the circuit courts of appeal—whether the FLSA retaliation provision protects verbal complaints made by employees or only written ones. The Court will review the Seventh Circuit’s decision in Kasten v. Saint-Gobain Performance Plastics Corp., 570 F.3d 834 (7th Cir. 2009), where the Seventh Circuit held verbal complaints regarding unlawful pay practices do not fall under the protections of the FLSA’s anti-retaliation provision, 29 U.S.C. § 215(a)(3).  The decision follows the Second and Fourth Circuits, which previously held that an employee is not protected from retaliation under the FLSA where the employee has not complained in writing, based on the statutory requirement that the retaliation be in response to a “filing” (Note: the Second Circuit goes even further -- declining to protect internal written complaints and protecting only formal complaints to the DOL or a court). In Kasten, the Seventh Circuit agreed with this interpretation, and held that since Plaintiff’s complaints were “purely verbal”, this was fatal to his claim.  Id. at 838. 

Several circuit courts, including the First, Fifth, Sixth and Ninth, however, have ruled verbal complaints are sufficient. Three judges dissented in the Seventh Circuit’s subsequent decision in Kasten to deny rehearing en banc, citing these cases. Kasten v. Saint-Gobain Performance Plastics Corp., 585 F.3d 310 (7th Cir. 2009). The dissenters criticized the majority's decision, observing: "the [Seventh Circuit] has taken a position contrary to the longstanding view of the Department of Labor, departed from the holdings of other circuits, and interpreted the statutory language in a way that [we] believe is contrary to the understanding of Congress." Id. at 311.

The Supreme Court’s decision in Kasten, whether accepting or rejecting the Seventh Circuit’s employer-friendly approach, will hopefully provide some clarification regarding whether internal verbal complaints are protected under federal law. As always, state laws may (and do) differ.

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 In 1981, the Supreme Court issued general guidance as to what an employer can say to “putative class members” In doing so, the Court explained that the judiciary has the power to control communications See generally Gulf Oil v. Bernard, 452 U.S. 89 (1981) (holding a district court has both the “duty and broad authority to exercise control over a class action and to enter appropriate orders governing the conduct of counsel and parties,” including the duty and authority to enter orders limiting communications by class counsel for the plaintiff to members of the class). Since then, counsel for all parties in a class action have wrestled with the strategic and ethical implications of communicating with an individual who is not formally represented by either side (Note: this issue is further confounded by the collective action “opt-in” nature of the FLSA – an issue for another day). 

This communication process is made all the more difficult in the employment context, where management must interact with putative class members on a daily basis – because they still work for you! One recent opinion addressing communications from both plaintiff and defense counsel in a putative class action is Clincy v. Galardi S. Enters., 2010 U.S. Dist. LEXIS 22796 (N.D. Ga. March 12, 2010). In Clincy, a putative collective wage and hour action filed by several dancers at Club Onyx, an adult entertainment night club in Atlanta, counsel for plaintiffs sent a communication about the lawsuit to the homes of dancers who had not joined the lawsuit. In response, counsel for defendants circulated a memo to potential class members, correcting what they perceived to be misleading information contained in plaintiffs’ letter. Id. at * 8-11.

After reviewing these two submissions (and in light of already-substantiated allegations of retaliatory acts by the employer and other Defendants – some of which were partially captured on audiotape by the Plaintiffs), the Court cautioned Defendants strongly against any further retaliation or coercive behavior. Id. at * 10-11. Acknowledging Defendants’ need to communicate with putative participants in order to defend the case, the Court permitted future communication with those individuals, but required that any further written communication contain an “introductory paragraph” with specified language in a font “that is bold and larger than the text contained in the body of the communication”, reading:

This communication represents the opinion of the management of Club Onyx. It is unlawful for Club Onyx, its management, or any other Defendant, to retaliate against employees who choose to participate in this case or assist Plaintiffs' counsel in this case.

Id. 

Interaction with putative class members is one of the most difficult and subtle aspects of class action defense. It is important to consider all of the ramifications of any proposed communication, even when the subject matter does not directly relate to the lawsuit, before implementing a communication strategy. Employers do not want to put themselves in a position whereby by court mandate the credibility of their communication is expressly circumscribed.

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Effective March 15, 2001, employers who employ H-2A workers must display a new H-2A poster where employees can readily see it. The poster is also available in Spanish.  The poster can be accessed through the links in the prior sentences.

Full information regarding federal posting requirements related to the workplace is available via this link - http://www.dol.gov/compliance/topics/posters.htm.

Of course, there are also state law requirements in many states.

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Federal law merely mandates that employers pay employees as promptly as possible.  State and local laws often require employers to pay wages no less frequently than weekly/bi-weekly/semi-monthly or monthly.  And often these requirements differ based on the type of employees.  For example, in New York, only manual workers need to be paid weekly but most other workers generally need to be paid no less frequently than semi-monthly.

Florida law does not impose any direct pay frequency requirements on employers.  However, the recently enacted Miami-Dade Wage Theft Ordinance requires private sector employers to pay all employees employed in Miami-Dade County within 14 days from the date the employee performed the work, absent a written agreement between the employer and employee extending such time period to 30 days.    Damages for violations (i.e., late payment of wages in excess of $60) are three times the back wages owed, and supervisors can be individually liable for violations.

Employers with multi-state locations must constantly stay abreast of state laws.

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In the food service industry, an employer can take a tip credit against the minimum wage for customarily tipped employees, such as servers, bus persons and bartenders.  Under federal law, a restaurant can pay employees holding such positions $2.13 per hour, rather than $7.25 per hour, as long as the employees receive sufficient tips to make up the difference and the tips are only retained by customarily tipped employees.  For years, an issue that has bedeviled industry employers is how to handle prep time and clean-up time as in most establishments there is a period of time pre and post-shift and potentially even during busy hours, in which customarily tipped employees perform prep work and maintenance work.  Can a tip credit be taken for the entire shift?

The United States Department of Labor through its Field Operations Handbook has long taken the position that an employer may take a tip credit for time spent on prep and maintenance only if it consists of less than 20% of the employee’s shift.  The United States District Court for the Western District of Missouri recently addressed this issue, and upheld the USDOL’s position. However, the court stayed the pending FLSA action (involving over 5,000 plaintiffs) and allowed an immediate appeal to the United States Court of Appeals for the Eighth Circuit.   If the appeal is accepted, the Eighth Circuit will determine whether the USDOL’s position is consistent with the language and intent of the Fair Labor Standards Act.   

The Circuit court would have to balance the conflicting positions of industry employers with that of employees and employee advocacy groups.  Industry employers assert this prep and maintenance work is part and parcel of the job duties that result in tips and accordingly the key inquiries should be solely whether the non-tipped duties were part of the continuum of the tipped duties (i.e., the direct customer service duties) and whether the individual received sufficient tips to make up the tip credit.  Employee advocates argue that the 20% rule provides employers with necessary leeway to assign non-tipped duties during a shift, but provides an inappropriate windfall by only having to pay a subminimum wage for non-tipped work that should be compensated at the standard minimum wage or higher.  See Fast v. Applebee's Int'l, Inc., 2010 U.S. Dist. LEXIS 19571 (W.D. Mo. Mar. 4, 2010).

Of course, at all times, state law must be consulted.  Some states do not allow any tip credit; other states allow a lesser tip credit than federal law and many states impose tangents on its application.  For example, in some states the tip credit cannot be taken for any hour in which more than a de minimis amount of prep or maintenance work is performed.

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 The FLSA, as we know, is structured largely on a “workweek basis.” See, e.g. Bright v. Houston Northwest Medical Center Survivor, Inc., 934 F.2d 671, 678 (5th Cir. 1991). The standalone nature of each workweek can have draconian results for employers who overpay (intentionally or otherwise) in some workweeks, but underpay in others, as offsets generally only are available within the same pay period (and even then in limited circumstances). See, e.g. Herman v. Fabri - Centers of Am., 308 F.3d 580, 590 (6th Cir. 2002); Howard v. City of Springfield, Ill., 274 F.3d 1141, 1149 (7th Cir. 2001); also see Conzo v. City of New York, 2009 U.S. Dist. LEXIS 101949 (S.D.N.Y. Oct. 23, 2009)(observing that neither the FLSA nor DOL regulation define the time period for which offsets may apply).

However, one line of cases, based largely in “equity” (i.e., fairness), and exemplified by Singer v. City of Waco, Texas, 324 F.3d 813, 817 (5th Cir. 2003), permits offset against FLSA damages for overpayments made in other workweeks within the limitations period, or for already used (though unlawful!) compensatory overtime taken by the employee/plaintiff within the period. The Singer line of cases permitting this ‘cumulative’ offset was cited with approval and applied last week in Bray v. Dog Star Ranch, 2010 U.S. Dist. LEXIS 21983 (W.D. Mich. Mar. 10, 2010).

In Bray, two former employees had agreed to “bank” all hours worked over 40 in a workweek and take them as compensatory time in subsequent workweeks. This clearly violated the FLSA as “comp time” cannot be utilized in lieu of overtime with private sector non-exempt employees. However, during part of the time period at issue the employer paid the two employees for a full 40 hours, even when they worked fewer. In accepting the Defendants’ argument that they should receive a credit against overtime owed for those overpayments, Chief Judge Maloney wrote:

Plaintiffs are entitled to be made whole; they are not entitled to a windfall at Defendants' expense. Equity requires Defendants be credited with overpayments made to Plaintiffs during their employment. During certain pay periods, Defendants paid Plaintiffs as though they worked forty hours a week, even though Plaintiffs worked less than the hours for which they were paid. Defendants are entitled to a credit for those overpayments. Accordingly, this court agrees with Defendants that they are entitled to an offset.

Until the Supreme Court resolves these differing lines of case law, employers cannot rely with certainty on an offset defense based on overpayments in other pay periods. However, relevant circuit court decisions must be reviewed, as some courts do recognize this equitable defense.

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The Ninth Circuit Court of Appeals recently ruled that the FLSA does not restrict employer-mandated tip-pooling arrangements when no tip credit is taken by the employer against the minimum wage obligation.  Cumbie v. Woody Woo, Inc., et al., No. 08-35718 (9th Cir. Feb. 23, 2010).  Further, the Court rejected the DOL’s regulation at 29 C.F.R. § 531.35, and held that the employees in Woody Woo had no legal right under the FLSA to retain all of their tips, except where the tip credit is taken by their employer. 

In Woody Woo, all tips received by the restaurant went into a “tip pool”, the proceeds from which were redistributed to all employees, including the kitchen staff, who (it is universally understood) are not “customarily tipped” for the purposes of the FLSA in the restaurant industry.  Importantly, all employees received an hourly wage that complied with both federal and Oregon minimum wage laws: again (it can’t be said enough), no tip credit was taken. 

Based on this decision, in states where state wage-and-hour laws track the FLSA (or states with no applicable state wage law), especially those within the Ninth Circuit, employers may want to consider tip pooling arrangement similar to the one addressed by Woody Woo. Where the FLSA is the only statute at issue, Woody Woo stands for the proposition that, provided all employees receive the federal minimum wage (currently $7.25/hour), tips can be collected and redistributed to the entire labor pool, or even potentially kept by management, without violating the FLSA. 

However, in many states, state wage and hour laws expressly  prohibit the construct Woody Woo authorizes. In New York, for example, tip pooling and tip distribution is limited to voluntary pooling among employees who “customarily” receive tips and an employer or its agent cannot retain any tips. N.Y. Labor Law § 196-d.

Finally, even in states with no state law restrictions, common law theories of contract, quantum meruit or unjust enrichment (which are part of most states’ common laws), or statutory theories under consumer protection or business practices statutes can be utilized by employees to attack tip distribution arrangements where any tips are siphoned away from employees engaged in direct service. This concern is underscored if the customer is not explicitly advised that non-service personnel may receive a portion of tips. 

Further discussion of this decision can be found on www.JacksonLewis.com by clicking here.

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Determining whether an entity is covered by the Fair Labor Standards Act is not an easy analysis. One basis for jurisdiction is "enterprise coverage."

On March 3, Magistrate Judge Azrack of the Eastern District of New York ruled on summary judgment that St. Augustine’s Episcopal Church of Brooklyn is not an “enterprise” for purposes of the FLSA, and accordingly dismissed FLSA claims asserted by a former on site caretaker and custodian. Locke v. St. Augustine's Episcopal Church, 2010 U.S. Dist. LEXIS 18749 (E.D.N.Y. Mar. 3, 2010). In reaching this decision, Magistrate Azrack first declined to treat the church and the Diocese of Long Island (which was not named separately as a defendant) as a single enterprise. The court then focused its analysis on whether St. Augustine’s secular activities (principally, hosting functions and renting an apartment to the plaintiff at a below-market rate) rendered it an enterprise engaged in commerce.

Distinguishing Boekemeier v. Fourth Universalist Soc'y, 86 F. Supp. 2d 280 (S.D.N.Y. 2000) (as well as the Supreme Court’s decision in Tony & Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290 (1985)), the court ruled that “The undisputed facts show that St. Augustine's does not perform rental activity as a ‘business operation on the side.’” Id. at * 27. Unlike in Boekemeier and Alamo, the limited rental of St. Augustine’s function hall space (which the church did not advertise or maintain a staff to service and promote) did not make St. Augustine’s an enterprise because the church did not compete with commercial establishments, and the income earned was not substantial. Based on this analysis, the Court held that “Locke has not met the burden of establishing that St. Augustine's performed any activities for a business purpose. St. Augustine's does not constitute an enterprise.”
 

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