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

Pursuant to New York State Department of Labor guidance and New York case law, incentive compensation is not considered “wages” unless it is “earned.” See generally Truelove v. Northeast Capital & Advisory, Inc., 95 N.Y.2d 220, 225 (2000). Accordingly, disputes over an employee’s entitlement to incentive compensation in New York often turn on whether a particular bonus, or other type of incentive payment has been earned, and thus become “wages” which may not be subject to subsequent forfeiture or nonpayment. Recently, the Appellate Division’s First Department, which sits in review of the trial courts in Manhattan, rejected an executive’s claim under Article 6 of the New York Labor Law for such a payment. Cuervo v Opera Solutions LLC, 2011 NY Slip Op 6197 (1st Dep't Aug. 11, 2011).

In Cuervo, a majority of the appellate panel ruled that because the executive level employee’s offer letter had reserved to the employer the right to modify the commission schedule, the plaintiff had no claim to further commission payments based on the employer’s unilateral modification (provided, of course, that minimum wage and overtime requirements were met). The dissent focused on whether the plaintiff was an executive or administrative employee who would be categorically exempt from the payment-of-wages protections of Article 6 of the Labor Law (and whose entitlement to any further compensation would thus be limited to his remedies under contract law).

As litigation over incentive payments continues to expand, to ensure compliance with the law and avoid costly disputes over incentive compensation. all employers should regularly review their incentive compensation programs and agreements to ensure they clearly state when any such potential incentive compensation is ”earned.”

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29 U.S.C. 215(a)(3) prohibits employer retaliation against an employee for complaints alleging FLSA violations (though the contours of what constitutes a protected complaint are still uncertain).  An unanswered question has been whether the FLSA’s anti-retaliation protections prohibit a prospective employer from considering an applicant’s FLSA activity arising out of previous employment?  Recently, the Court of Appeals for the Fourth Circuit ruled that such protections do not so extend, and that a prospective employer may consider such prior activity in making a hiring decision.  Dellinger v. Sci. Applications Int'l Corp., 2011 U.S. App. LEXIS 16635 (4th Cir. Aug. 12, 2011).

In Dellinger, plaintiff applied for employment with defendant SAIC.  After a contingent offer of employment was made, plaintiff disclosed to SAIC, in connection with the company’s required background check, her pending FLSA lawsuit alleging minimum wage and overtime violations against a previous employer.  The offer of employment subsequently was rescinded by SAIC.  Dellinger sued, alleging that the withdrawal was based on her disclosure of her FLSA activity, and that such an employment decision violated Section 215(a)(3)’s prohibition against retaliation by an employer “against any employee.”

In a two-to-one decision, with a dissent from Circuit Judge Robert King, the Appellate Court affirmed the lower court’s dismissal for failure to state a claim, ruling that the scope of the anti-retaliation provision was defined by the FLSA’s definition of an “employee,” contained in 29 U.S.C. § 203(e)(1).  Analyzing applicant Dellinger’s claims under this definition –“any individual employed by an employer” –the Court held that “Dellinger could only sue [SAIC] if she could show that she was an employee and that Science Applications was her employer.” Dellinger, 2011 U.S. App. LEXIS 16635 at * 8 (emphasis added).  In declining to broaden the scope of “employee” for Dellinger, the Court observed that the “core” purpose of the FLSA was to provide minimum wage and overtime protection to workers, and that permitting FLSA lawsuits from applicants on such a novel theory would impermissibly and inappropriately broaden the statute, even though “‘morally unacceptable retaliatory conduct’ may be involved.”

While Dellinger is a positive development for employers, specifically those located in the Fourth Circuit, making employment decisions based on an applicant’s prior attempt to assert his or her workplace rights and protections (as opposed to based on legitimate business criteria such as the qualifications of the applicant) remains fraught with legal risk. 

For further analysis of this decision by Jackson Lewis see here.

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The FLSA’s learned professional exemption provides an exemption from overtime for employees who have academic credentials in a field of “science or learning customarily acquired prolonged academic instruction” and who utilize this formal educational training in the performance of their job duties. Typical examples include doctors, lawyers, and certified public accountants, and doctors and lawyers need not even be paid on a salary basis. States with wage and hour laws generally have a similar exemption.

Historically, overtime disputes regarding the use of this exemption have centered in particular fields, such as engineering or, more recently, accounting. In a recent appellate decision from California, the Court of Appeal for the First Appellate District considered and rejected a challenge to the application of the California Labor Code’s learned professional exemption in the legal field. Zelasko-Barrett v. Brayton-Purcell, LLP, 2011 Cal. App. LEXIS 1080 (Cal. App. 1st Dist. Aug. 17, 2011).

In Zelasko, the Defendant firm utilized law students and law school graduates who had not yet passed the bar in the positions of Law Clerk I and Law Clerk II, respectively. Plaintiff held the Law Clerk II position prior to his admission to the bar for approximately 2 years, then moved on to the position of Associate Attorney. The Marin County Superior Court held that the plaintiff was properly classified as exempt when he held the position of Law Clerk II. 

Observing that the “federal regulations after which [the California learned professional exemption] was explicitly patterned . . . condition the learned professions exemption under federal law upon completion of an advanced course of education, not upon licensure,” the appellate Court ruled that possession of the degree, along with Defendant’s undisputed evidence that a Law Clerk II was required to perform all the same duties as a junior attorney, satisfied the exemption’s requirements.

Zelasko is an encouraging result for legal industry employers, which simultaneously highlights the broad scope of potential wage and hour liability. Industry employers must ensure that all employees classified as exempt are properly classified under federal and state law.  

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The FLSA and state law often both regulate the distribution of tips. See here. Under the FLSA, an employer can require all “customarily tipped employees” to pool tips generally or require a specific “customarily tipped employee” to share tips with another “customarily tipped employee.”  Disputes often arise as to whether an employee is a “customarily tipped employee” – one who provides service to an establishment’s patrons – thereby permitting his or her inclusion in the tip pool. In a recent decision from federal court in Texas, Judge Xavier Rodriguez denied a plaintiff’s motion for summary judgment seeking a ruling that a service bartender—who prepared drinks which he then provided to defendant restaurant servers, not to patrons—should not have received a share of customer tips. Barrera v. MTC, Inc., 2011 U.S. Dist. LEXIS 83468 (W.D. Tex. July 29, 2011).

In Barrera, plaintiffs attacked Mi Tierra Restaurant’s requirement that servers “tip out” 2% of gross sales into a tip pool that was divided between bussers, hosts, counter servers and service bartenders. While the service bartenders were in sight of customers, customers could not order drinks directly and, correspondingly, the bartenders did not receive tips directly. While observing that “front of the house” employees often are the only employees who share in tip pools, the Court, based on an analysis of the legislative history of Section 203(m) of the FLSA (addressing the FLSA’s tip credit and the customarily tipped employee requirement) and an analysis of industry custom, held that it was a factual issue as to whether the service bartenders in could be considered “customarily and regularly” tipped. In denying summary judgment, the Court compared the service bartender position to that of busboy, a position authorized to receive tips by 29 C.F.R. § 531.54.

As the Barrera decision highlights, hospitality establishments with tipped employees may have a tipping practice which does not necessarily correspond to a universally acknowledged “industry custom.. In such situations, the establishment must be prepared to defend its practice. See Kilgore v. Outback Steakhouse of Florida, Inc., 160 F.3d 294 (6th Cir. 1998) (hostesses) and Myers v. Copper Cellar Corp., 102 F.3d 546 (6th Cir. 1999) (salad preparers). As wage and hour litigation continues in the hospitality industry, industry employers must continue to regularly review their practices for compliance with federal and applicable state law.

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As often discussed in this space and elsewhere, Courts continue to widely differ in their analysis as to whether the administrative and/or outside sales exemptions are applicable to pharmaceutical sales representatives. Now, the Supreme Court will have another opportunity to weigh in on the applicability of the outside sales exemption to such employees, as the plaintiffs in Christopher v. SmithKline Beecham Corp., 635 F.3d 383 (9th Cir. 2011) have petitioned the Court to review the Ninth Circuit’s decision finding them to be properly classified as outside salespersons. Christopher, et al. v. SmithKline, Supreme Court Docket No. 11-204.

While acceptance of the petition and a ruling from the high court would hopefully provide welcome clarity in this area, even a resolution by the Supreme Court of the circuit split between Christopher and the Second Circuit’s decision in In Re Novartis will not resolve all outstanding issues relating to the classification of these employees, as Courts continue to differ on the applicability of the administrative exemption.

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In a long awaited decision, California’s Supreme Court has ruled that the State’s Labor Code provisions governing overtime pay may apply to non-residents working in California for “a California-based employer.” Sullivan v. Oracle Corp., 51 Cal. 4th 1191 (2011). A detailed analysis of the decision and its potential implications is available here.

California wage-and-hour practitioners and commentators continue to await the California Supreme Court’s ruling regarding the scope of the Labor Code’s “meal and rest” requirements in Brinker Restaurant Corp.

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In this post, we discussed two different courts’ analyses of hospital plaintiffs’ attempts to seek conditional certification of their claims that they were not paid for allegedly working meal periods due to the employers’ use of an auto-deduct for meal periods. In an opinion addressing such a claim on the merits (as opposed to the lower standard applicable to determining appropriateness of conditional certification of an FLSA collective action), a  Detroit federal court rejected, on summary judgment, such an assertion. Deppen v. Detroit Med. Ctr., 2011 U.S. Dist. LEXIS 78247 ( E.D. Mich. July 19, 2011).

In Deppen, the plaintiff nurse anesthetist claimed that the use of an auto-deduct for meal breaks, coupled with the fact that supervisors recorded employees’ time, demonstrated that she was not paid in a compliant fashion for 30 minute meal periods deducted per shift. After observing that defendant had demonstrated there were numerous work weeks where plaintiff either: 1) did not work over 40 hours (thus had no claim for gap time under the FLSA as discussed in this post); or 2) was overpaid for time she did not work, the court went on to determine the plaintiff had failed to “meet her burden showing that she performed substantial duties and spent her meal time predominantly for [the hospital’s] benefit.” Id. at *18 citing Myracle v. General Electric Co., 1994 U.S. App LEXIS 23307 (6th Cir. Aug. 23, 1994). The court further observed there was “adequate staffing to cover the patient caseload and allow the OB CRNA’s to take their meal breaks.” 

Wage/hour plaintiffs continue to regularly allege that automatic, systemic practices, such as an auto-deduct for meal periods or payment based on a set schedule such as 9:00 a.m. to 5:00 p.m, run afoul of the FLSA and applicable state laws. While potentially defensible, such policies and practices will always expose employers to greater risk of an allegation that wages paid did not correlate to actual hours of work. Employers should scrutinize such practices closely, and take additional measures to ensure compliance as necessary.

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Wage and hour plaintiffs, like all plaintiffs, seek recovery from the largest, most viable defendants. Often, employees who separate from failing businesses seek to broaden the scope of the concept of “employer” within the meaning of wage-hour laws and include as defendants other potentially-liable parties with “deep pockets.” As discussed here, a federal court in Pennsylvania recently rejected call center plaintiffs’ efforts to ensnare Bank of America in their FLSA litigation on a joint employer theory. Now, a federal court in California – applying California state law – has rejected a similar effort to include the (defunct) primary employer’s outside Human Resources and Benefits consultancy as a joint employer. Field v. Am. Mortg. Express Corp., 2011 U.S. Dist. LEXIS 84601 (N.D. Cal. Aug. 2, 2011).

Plaintiff Field was employed by Defendant American Mortgage Express. However, under American Mortgage’s contract with co-defendant Gevity HR, Gevity was responsible for administering all Human Resources functions, including recruitment, the development of workplace resources for recruited employees, and payroll. A Gevity employee served as American Mortgage’s human resources director. Further, the contract between the two parties expressly stated that employees recruited and employed pursuant to this program would be jointly employed by both entities. 

Plaintiff Field sued both entities under various California Labor Code provisions. Defendant American Mortgage failed to appear in the case, and defendant Gevity (despite the contractual language) moved for summary judgment as to its employer status. Applying the California Supreme Court’s recent decision in Martinez v. Combs, 49 Cal. 4th 35 (2010), Judge Edward Chen of the Northern District of California rejected Fields claim against Gevity because Field could not establish that: 1) Gevity exercised control over plaintiff’s wages, hours or working conditions; 2) Gevity suffered or permitted Field to work; or, 3) that Gevity engaged plaintiff. The Judge dismissed Gevity’s role as “ministerial,” observing that the material decisions relating to Fields’ employment all were made by American Mortgage executives, and rejected Field’s assertion that he, executive director of American Mortgage’s Western Division Wholesale Lending operations, was required to “consult with or obey” Gevity’s employee with respect to human resources matters. 

Fields is a favorable decision for all employers, and for outside human resources consultants and PEOs in particular. Of course, employers must remain vigilant in analyzing the control their organization exerts over sub-contractors, independent contractors and the employees of any other organization.

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As previously discussed in this blog, many (if not most) courts agree that an employee who receives a fixed salary for varying hours of work has a “clear mutual understanding” with his/her employer that such salary covers all hours of work, and that in the event overtime is deemed owed because the employee was not properly classified as an exempt salaried employee, such overtime should be paid pursuant to the half-time calculation.   Following a trial, Judge John Steele of the United States District Court for the Middle District of Florida, recently ruled that this half-time calculation is also appropriate when the plaintiff was misclassified as an independent contractor. Crumpton v. Sunset Club Props., L.L.C., 2011 U.S. Dist. LEXIS 83987 (M.D. Fla. Aug. 1, 2011).

Plaintiff Crumpton was a real estate broker whose job it was to market the Defendants’ low income housing units. She characterized the monthly payments she received (in addition to commissions for finding tenants for the units) as a salary which only covered her first 40 hours of work. Defendants maintained that the payments were a monthly draw against commissions, and in any event were intended to compensate her for all hours worked. She estimated that she worked in excess of 30 hours of overtime each week, and that she had not received any compensation for her overtime hours under the FLSA. The court disagreed, observing that where “certain conditions are met…the [overtime] rate is reduced to ‘half-time.’” Id. at 11. The Court went on to find that plaintiff’s receipt of the fixed salary satisfied this test. Id. at 12 citing Clements v. Serco, Inc., 530 F.3d 1224 (10th Cir. 2008). 

While many courts have adopted the reasoning articulated in Crumpton, thereby limiting exposure for overtime damages to half-time, until there is a governing Supreme Court decision, employers cannot be certain as to how a court will calculate damages. To bolster the argument that a half time calculation is appropriate, Employers should continue to take measures to refute any arguments that an aggrieved individual may make that any salary paid to any employee (or contractor) was not intended to compensate that worker for all hours worked and/or services performed.  Language in offer letters or agreements is invaluable in making such an argument.

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Generally, employee-related liability for US-based employees flows from domestic statutes (such as the FLSA) while liability for employing workers in other countries typically flows from that country’s body of law. In a recent decision, the Seventh Circuit rejected an attempt by civil litigants who performed services overseas for a subsidiary of Firestone Natural Rubber Co. to hold the corporation liable under U.S. law. Flomo v. Firestone Natural Rubber Co., LLC, 2011 U.S. App. LEXIS 14179 (7th Cir. July 11, 2011).

The plaintiffs in Flomo were 23 Liberian children who alleged that their working conditions at a Liberian rubber plantation violated the 1789 federal Alien Tort Statute, which was enacted to hold accountable violators of “customary international law.” After first determining that a corporation could be held liable under this longstanding statute, the court went rejected plaintiffs’ claim on the basis that it was impossible to determine whether Firestone’s employment of the plaintiff children to work on the plantation improved or worsened their daily life and future outlook, when compared to other Liberian children not so employed.

While challenges to wage and other employment practices typically arise under the laws of the jurisdiction in which the services are provided, employers with international operations must evaluate all potential exposures arising from such employment.

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In January, President Obama re-submitted his nomination of deputy assistant attorney general and chief of staff of the Justice Department's Civil Rights Division, Leon Rodriguez, to be Administrator of the DOL’s Wage and Hour Division.  On Tuesday, the White House issued a press release indicating that Mr. Rodriguez’s nomination has been withdrawn.  No reason for the withdrawal has been indicated.  As the President continues to spar with Congressional Republicans over economic issues, and in the wake of Congressional debate regarding the impact of wage-and-hour law on the economy, this withdrawal sets the stage for the President to name a new nominee for Wage and Hour Administrator.  This nomination will doubtless have important political implications, as politicians and pundits on both side of the fence will analyze the background and views of the nominee.

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As noted in our recent article regarding proposed amendments to the FLSA, individuals providing care to the infirm or elderly in a private home are exempt from the minimum wage and overtime requirements pursuant to the companionship exemption, an exemption which was reviewed by the Supreme Court in its 2007 decision Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158 (2007). Recently, the Court of Appeals for the Eleventh Circuit rejected a plaintiff’s allegation that the exemption did not apply because more than 20% of her time was devoted to “ordinary housework” as opposed to exempt care as a companion. Rodriguez v. Jones Boat Yard, Inc., 2011 U.S. App. LEXIS 15509 (11th Cir. July 26, 2011).

The plaintiff in Rodriguez worked as a “live-in domestic” providing companionship and household services for an elderly woman in Coral Gables, Florida. The Aide worked from 7:00 am until 11:00 pm every day, assisting her client/employer getting out of bed, bathing, dying and combing her hair, and helping her ambulate. She also provided constant care “throughout the day” such as preparing all meals, assisting with dressing, buying necessary medicines, testing and administering her insulin, and assisting in meals. Plaintiff also performed other duties related to her employer’s medical care, including feeding and personal and residence hygiene. Analyzing plaintiff’s deposition testimony, the District Court concluded (and the Circuit Court affirmed) that the duties which were arguably of a general household nature (such as meal preparation, walking the dog, and cleaning the apartment) were incidental duties and did not come close to exceeding 20% of the total hours worked each week, which could jeopardize the applicability of the exemption. The Court also ruled that although the client’s son placed the Aide on his company’s payroll for the purposes of processing payments for these companionship services, this payroll arrangement did not make the son or the son’s corporation (Jones Boat Yard) plaintiff’s employer within the meaning of the FLSA.

The DOL is considering changes to the FLSA which would impact the applicability of the companionship exemption in cases such as Rodriguez. Previously, legislation has been proposed which would eliminate the exemption and reverse the impact of the Coke decision (though such legislation was not passed). Industry employers – and even individuals and their families employing in-home care such as that addressed in Rodriguez – should pay close attention to these developments. Many state laws also provide wage and hour protection to domestic workers.

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Earlier this month, the House of Representatives’ Sub-Committee on Workforce Protection convened a hearing entitled “The Fair Labor Standards Act: Is It Meeting the Needs of the Twenty-First Century Workplace?” A panel of speakers, representing Human Resources associations, management counsel and the employee advocacy group the National Employment Law Project, appeared before the Sub-Committee and responded to questions concerning, among other topics, the appropriateness of the current federal minimum wage of $7.25/hour, and whether the FLSA and its numerous arcane, difficult to understand provisions, create a barrier to compliance and economic growth. 

The three witnesses representing business interests all testified at length about the hardships associated with FLSA compliance, and the risks and costs of protracted and increasingly frequent litigation over FLSA issues. Judy Conti, a representative from the National Employment Law Project, an employee advocacy group, argued that absent the FLSA framework and private enforcement, employers would simply engage in a “race to the bottom” in an effort to further decrease labor costs. This viewpoint was also espoused by representative Dennis Kucinich (D-Ohio). Statements from Representative Kucinich during the hearing regarding the inappropriateness of curtailing the FLSA can be viewed here. 

While this Congressional investigation into the need for FLSA reform should be heartening to employers throughout the United States, the present landscape continues to pose baffling problems for employers in terms of compliance and litigation avoidance, to say nothing of state law obligations.  

Interestingly, certain contemplated USDOL Wage and Hour Division actions may further increase employer obligations under the FLSA and exposure to FLSA lawsuits. In its semi-annual regulatory agenda, the Division indicated that in the fall it will propose a rule addressing the applicability of the companionship minimum wage and overtime exemption to companionship services provided in a domestic setting. The Division also indicated that it is continuing to work on a disclosure rule that could require employers to expain to employees the basis for their exempt and/or contractor classification.

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