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

As previously discussed, the FLSA requires payment for all hours where an employer “suffers or permits” an employee to work. Compensable time can include time ostensibly designated for meal and other breaks if the employee in question is not completely relieved of duty and/or if the period is insufficient length. Aggrieved employees often allege that employers systemically deduct a fixed amount of time for a meal break, even if a a valid meal period is not provided (an “auto deduct”). This claim often arises in the health care industry where the demands of patient care often impacts an employee’s ability to take an uninterrupted 30 minute meal break. However, as one federal court recently observed, such an allegation is not necessarily appropriate for collective action certification under the FLSA. Cason v. Vibra Healthcare, 2011 U.S. Dist. LEXIS 47160 (E.D. Mich. May 3, 2011). 

In Cason, the Court concluded that while plaintiff nurse alleged that she performed work during meal periods for Defendant hospital but was not paid for such time due to an “auto deduct”, such allegation coupled with an unsupported assertion that other employees worked through meals but were not paid due to the “auto deduct” was insufficient to support conditional certification of the collective action. The Court observed that Plaintiff Cason had “not identified any other person who claims that her FLSA rights were violated by the automatic meal break deduction policy.”

While plaintiffs often argue in FLSA cases that a ruling such as Cason is antithetical to the “low standard” appropriate at the conditional certification stage in FLSA actions, a decision such as Cason is appropriate to spare a defendant the burden and costs of proceeding through the conditional certification and notice process, as well as collective action discovery.  In another recent case highlighting this dilemma, and the wisdom of the Cason decision, a previously conditionally certified collective action also alleging auto-deduct claims against a hospital employer was decertified on just such a theory. White v. Baptist Mem. Health Care Corp., 2011 U.S. Dist. LEXIS 52928 (W.D. Tenn. May 17, 2011).

While this is a positive decision for employers, business should continue to ensure they take appropriate measures to ensure employees are paid for all hours worked and that any wage and hour policies cannot be used by the plaintiffs bar to support class/collective claims.

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While it is understood that the FLSA applies to any “employee” employed by an “employer”, numerous courts have observed that this analysis does little to flesh who is an “employee”. In a recent appellate decision highlighting such difficulties, the Court of Appeals for the Sixth Circuit held students enrolled in a vocational training program at an accredited vocational high school were not employees entitled to minimum wage and overtime protections, affirming the district court. Solis v. Laurelbrook Sanitarium & Sch., Inc., 2011 U.S. App. LEXIS 8585 (6th Cir. Tenn. 2011).

Laurelbrook concerned a decades-old vocational program operated by a not-for-profit corporation associated with the Seventh-Day Adventist religion. Laurelbrook operated a boarding school as well as a 50-bed intermediate care nursing home, partially staffed by students as an integral component of their practical training and the school was accredited by the Tennessee Department of Education since sometime in the 1970s. Laurelbrook’s stated goals are to prepare students for a life of service after their education, such as missionary activities. As part of this training, students are assigned to the home’s kitchen and housekeeping departments, and at the age of 16, they also participate in a CNA (Certified Nurse’s Aide) program. Laurelbrook receives Medicaid funding from the federal government as payment for the care it provides to residents of the nursing home/sanitarium. 

The Secretary of Labor, acting on a tip from a private citizen, brought suit alleging the services provided by the enrolled students in the home were compensable work under the FLSA. 

The Secretary urged that the six-factor test developed by the DOL to address whether a “trainee” is an employee entitled to compensation should also apply to the students. The court rejected that approach, however, as “a poor method for determining employee status in a training or educational setting.” Opting for more flexible approach, the appellate court approved the District Court’s focus on “which party receives the primary benefit of the work performed by Laurelbrook students,” based on long-standing Supreme Court precedent. Id. at 21 citing Walling v. Portland Terminal Co., 330 U.S. 148, 149 (1947). After collecting various authority from around the country, the district court held that “the proper approach for determining whether an employment relationship exists in the context of a training or learning situation is to ascertain which party derives the primary benefit from the relationship.” The court then identified key factors, such as whether the relationship displaces paid employees and whether there is educational value derived from the relationship. 

The appellate court held the District Court did not err in ruling, after seven days of hearing testimony and receiving documentary evidence, that the students were the primary beneficiaries of the work performed. This was so because the students learned “practical skills about work, responsibility and the dignity of manual labor in a way consistent with the religious mission of their school.” Importantly, the District Court also found that while the school derived some benefit from the work performed by the students, the students did not displace compensated workers and that ultimately the home is “sufficiently staffed such that if the students did not perform work…the staff members could continue to provide the same services there without interruption.” 

In addition to the tangible benefits in the form of an accredited education, the Appellate Court also credited evidence in the record regarding the intangible benefits of participating in the school’s program, including an enhanced understanding of the importance of working hard and seeing a task through to completion, increased responsibility and leadership skills, sensitivity and respect for the elderly and infirm and a work ethic developed through the school. 

Laurelbrook represents a victory for the not-for-profit and academic community in upholding the treatment of properly enrolled students of accredited institutions as trainees not entitled to compensation under federal law. However, the FLSA reach remains broad, as the Laurelbrook court observed, and any decision to classify a student, trainee, intern or volunteer outside the protections of the statute must be made only after due consideration. Additionally, state law may provide broader protection. 

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The ubiquity of class and collective action lawsuits under the FLSA and state wage and hour laws requires employers to remain ever vigilant with respect to their wage practices. The ferocity of the plaintiffs’ bar is such that even seemingly settled FLSA doctrine is subject to attack. Recently, a federal district court in Illinois rejected one such attack. Brown v. Lululemon Athletica, Inc., 2011 U.S. Dist. LEXIS 18217 (N.D. Ill. Feb. 24, 2011). 

Lululemon concerned typical “off-the-clock” allegations, namely that the plaintiff sales clerk for the Defendant exercise apparel retailer was required to put in extra hours of work performing tasks for which she was not compensated but which Plaintiff alleged were all for the employer’s benefit and thus, compensable time. However, plaintiff did not allege that such activities pushed her over the statutory threshold for overtime of 40 hours in a workweek, or that by adding such unpaid hours to her total hours worked her rate of pay (as measured by her compensation divided by hours worked) fell below the minimum wage. Rather, plaintiff sought compensation for this as “gap time”, the time between her paid hours of work (which were under 40) and her actual hours of work based on these additional tasks (which were greater, but also under 40). 

Collecting more than a dozen cases from around the country (including a number of appellate decisions), the court rejected this claim, noting that Plaintiff sought to rely on a minority position permitting gap time claims within the Tenth Circuit Court of Appeals (which does not encompass Illinois). The court did note that where an overtime event has occurred, an employee can receive compensation for both gap time and overtime hours. Id. at 14-15, citing 29 C.F.R. § 778.315. 

Lululemon demonstrates a stark reality: employees and their counsel continue to bring wage claims in the face of contrary authority. Absent emphatic direction from either the relevant Circuit court or the United States Supreme Court (which has issued very few decisions addressing the FLSA), employers must remain proactive in this area, and be prepared to defend claims as they arise. Furthermore, state law may provide a cause of action for unpaid gap time. The best advice is to always act with caution. 

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As discussed at length on the Jackson Lewis web site here, the U.S. Department of Labor has announced the launch of its first free application for smartphones, releasing an “App” compatible with iPhone and iPod Touch (and available in English and Spanish), with which users can track regular work hours, break time and any overtime hours they work for one or more employers. This application raises numerous issues for employers relating to the implementation of official employer time tracking policies and recording of hours worked, topics analyzed in the very recent Second Circuit decision on these subjects. 

Employers must keep this new time tracking tool in mind when reviewing wage-and-hour policies, and when issuing company smartphones.

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As previously discussed, a federal court in the Western District of New York issued several important rulings in an FLSA case brought by a retail specialist responsible for the stocking, pricing and display of Black & Decker products at six Home Depot stores. In an omnibus decision reviewing all of these district rulings, the Second Circuit has held:

·         The district court properly ruled that the time plaintiff spent commuting to any of the six stores was non-compensable commuting time, even if it was preceded by compensable administrative work in the form of reviewing schedules or work-related communications; and

·         The district court erred in granting summary judgment as to Plaintiff’s off-the-clock claim, finding fact issues existed regarding whether Kuebel, who admitted to falsely shaving time from his time sheets to reflect only forty hours of work, was following instructions given by supervisors.

Kuebel v. Black & Decker Inc., No. 10-2273, 2011 U.S. App. LEXIS 9448 (2d Cir. May 5, 2011). Detailed analysis of this decision is available on the Jackson Lewis web site here.

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Per an announcement on the Florida Agency for Workforce Innovation’s web site, the state minimum wage will increase, effective June 1, 2011, to $7.31 per hour. Under the Florida Minimum Wage Act (which applies to all workers covered by the FLSA), the Agency is required to adjust the Florida minimum wage pursuant to a calculation based on the percentage change in the federal  Consumer Price Index for urban wage earners and clerical workers in the South Region.  The tip credit under Florida law remains $3.02, thus the direct tip credit minimum wage for non-overtime hours has increased to $4.29.

This change highlights the common problem of subtle distinctions between the FLSA and state law. Florida employees covered by both statutes who are paid at the minimum wage (with or without a tip credit) must now receive six cents more per hour than minimum required by federal law, and receive overtime at time-and-one-half that rate, or $10.97.

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