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

Assisting Lady Gaga with her day-to-day needs may be a dream to many, but does it make one exempt from overtime pay? Under DOL regulations, an administrative assistant who is paid on a salaried basis and exercises significant independent discretion and judgment is exempt under the "administrative exemption." 29 CFR § 541.203(d). This is the same exemption that applies to others who exercise significant independent discretion and judgment in performing "office or non-manual" work (as demonstrated by regulation 541.203), such as certain Human Resources employees. Challenges to the applicability of the exemption to executive or personal assistants are not new; the fact that the individual being assisted is a prominent professional in his or her industry is not determinative. Some courts applying the DOL’s regulation have expressed reluctance to rule that well-compensated individuals providing such assistance do not exercise "discretion and independent judgment, but case law remains unclear. See   Seltzer v. Dresdner Kleinwort Wasserstein, Inc., 356 F. Supp. 2d 288 (S.D.N.Y. 2005)(executive assistant to president of defendant investment bank qualified for exemption); Malena v. Victoria's Secret Direct, LLC, 2010 U.S. Dist. LEXIS 121320 (S.D.N.Y. Nov. 16, 2010)(denying summary judgment as to whether defendant's good faith belief that executive assistants performed exempt work precluded liability).

In a new challenge, a former personal assistant to chart-topping entertainer Lady Gaga has filed suit, alleging that she essentially worked around the clock in exchange for a fixed salary, and thus did not receive hundreds of thousands of dollars in premium overtime pay due under the FLSA and state law. O'Neill v. Mermaid Touring Inc., Civil Case No. 11-9128 (Southern District of New York, Dec. 14, 2011)(Jones, J). 

Employers and individuals retaining personal or executive assistants to perform similar services should be aware of the employment risks associated therewith. At the least, in addition to ensuring such employee is paid on a salaried basis, the employer must ensure that the assistant utilizes independent discretion in judgment in performing job duties.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In August, we discussed the California Supreme Court’s ruling addressing the circumstances under which a non-California resident can be covered by that state's employee-friendly Labor Code.  Sullivan v. Oracle Corp., 51 Cal. 4th 1191 (2011).  Yesterday, the Court of Appeals for the Ninth Circuit adopted the state court’s ruling, rejecting Defendant’s constitutional challenges to that decision.  Sullivan v. Oracle Corp., 2011 U.S. App. LEXIS 24625 (9th Cir. Dec. 13, 2011).  California-based employers must be mindful of Sullivan's applicability to their non-California employees.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As we recently discussed, interplay between state wage-and-hour laws and other statutes (federal or state) is not always seamless, as neither the state wage statute nor the competing law or regulation at issue properly addresses the extent to which their scope might interfere with each other. However, as employment statutes, the wage-and-hour laws are often construed broadly, and some courts are reluctant to limit their scope regardless of the presence of another statute. In a recent example of this judicial reticence, the United States Court of Appeals for the Ninth Circuit reversed a trial court decision finding that a district court could not adjudicate plaintiffs’ state wage-and-hour law claims against SuperShuttle because it lacked subject matter jurisdiction. Kairy v. SuperShuttle Int'l, 2011 U.S. App. LEXIS 22161 (9th Cir. Nov. 3, 2011).       

Plaintiffs, “franchisee” van drivers for SuperShuttle in California, allege they were misclassified as independent contractors for the purposes of various provisions of the California Labor Code. The trial court applied a three-part test laid out by the California Supreme Court to resolve conflicts potentially implicating the jurisdiction of Public Utilities Commission (“PUC”). The trial judge determined that: 1) the PUC had authority to formulate policy regarding the classification of all drivers for so-called passenger stage corporations (“PSCs”), including SuperShuttle; 2) the PUC had exercised such authority by issuing a General Order relating to PSC conduct, and a decision interpreting that order; and, accordingly 3) that to allow plaintiffs’ wage action to proceed would interfere with this regulation of PSC drivers. Id. at 6-7. In reversing, the appellate court acknowledged that the PUC had authority to regulate the relationship between a PSC, such as SuperShuttle, and its drivers, and that it was a “close” question as to whether the General Order issued by the PUC constituted an exercise of this authority. However, the appellate court ruled that application of the wage/hour laws would not interfere with the PUC regulations governing drivers. Thus, the Public Utilities Code was “not implicated, and the district court retains subject matter jurisdiction over this case.”

Public sector employers, and all businesses performing work for public sector entities, must closely analyze the interplay of employment statutes and the regulatory environment governing their particular industry.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

While states generally are free to enact wage and hour laws providing greater protections than contained in the Fair Labor Standards Act, sometimes such laws run afoul of federal statutes governing particular industries. In a recent decision exemplifying this type of preemption, a judge in the United States District Court of the Southern District of California ruled that the oppressive meal and rest break provisions of the California Labor Code (which will be clarified by the California Supreme Court following oral argument on November 8), conflict with and are preempted by the Federal Aviation Authorization Act of 1994 (FAAA), because the state requirements interfere with interstate commerce. Dilts v. Penske Logistics LLC, 2011 U.S. Dist. LEXIS 122421 (S.D. Cal. Oct. 19, 2011). This is a significant victory for industry employers as class action lawsuits alleging violation of these requirements have been prevalent in California.

Dilts concerned the meal and rest statute’s interference with the FAAA provision providing that “a State . . . may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier . . . or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.” Id. at * 13 quoting 49 U.S.C. § 14501(c)(1).  California’s strict meal and rest break laws, which the Court characterized as fairly rigid, force drivers to alter their daily routes while searching out appropriate places to pull off the highway and park their vehicles, preventing them from making some daily deliveries. Allowing California to “insist exactly when and for exactly how long carriers provide meal breaks for their employees would allow other states to do the same, and do so differently,” Judge Janis L. Sammartino observed. Id. at * 27.

Navigating the maze of federal, state and local regulation of wage-hour laws is never easy, particularly in heavily regulated industries such as trucking or aviation. Employers in these industries must monitor the status of the law to determine how best to comply with potentially competing provisions on the state and federal level. This decision points that the first step of any analysis is first to determine a statute or regulation’s enforceability.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Enterprise coverage under the Fair Labor Standards Act is broadly defined, seeking to include in its expansive definition of FLSA covered employers substantially all businesses with greater than $500,000 in gross revenues which have “employees engaged in commerce or in the production of goods for commerce, or that have employees “handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce.” 29 U.S.C. § 203(s)(1).   Even local businesses arguably falling outside this definition can be subjected to protracted legal proceedings under the FLSA, in which coverage is the initial focus of the dispute. A recent decision issued by Judge James C. Cacheris of the Eastern District of Virginia. Rains v. E. Coast Towing & Storage, LLC, 2011 U.S. Dist. LEXIS 106915 (E.D. Va. Sept. 20, 2011) is instructive as to the analysis and scope of “enterprise coverage.”.

Rains concerned the FLSA overtime claim of a plaintiff tow truck driver for defendant East Coast Towing & Storage, LLC, a company towing vehicles within Virginia. Because plaintiff produced “specific evidence suggesting that East Coast Towing had employees handling and working on goods and materials that had been moved in or produced for commerce”, including “truck[s] that had been manufactured outside . . . Virginia,” whether the business was a covered enterprise under the FLSA turned on the “revenue” prong of the enterprise coverage test, namely whether Defendant’s gross volume of sales was greater than $500,000 in any given year. In moving for summary judgment on the issue of coverage, Defendant produced tax returns for the years 2008 and 2009, as well as a Statement of Revenue and Expenses for 2010 indicating annual receipts between $201,322 and $428,176, along with an affidavit from the company’s owner stating that the company had never made more than $500,000. Plaintiff sought to rebut this evidence with testimony from himself and two other former employees which purported to estimate the average number of vehicles towed per day by Defendant, and the average amount charge per tow. Plaintiff asserted that, based on the figures at the lowest end of the range demonstrated by this evidence, Defendant had annual revenue of approximately $684,375. 

The court found this conflicting evidence sufficient to raise a genuine issue of material fact as to Defendant’s annual revenues, and rejected Defendant’s argument that plaintiff could not possibly have had personal knowledge of the number of vehicles towed during shifts when he was not working, based on his assertion that he had “constant interaction with East Coast Towing as a small company, and [was] one of only three night time staff.” The court also rejected Defendant’s attack on the supporting affidavit of one of the other employees which questioned the sufficiency of that employee’s knowledge of the amount Defendant received per tow, and further observed that the affidavit indicated the employer’s preference for accepting cash payments (evidence tending to indicate that Defendant’s “official” tax evidence did not encompass all revenue for purposes of the FLSA test). 

While some small businesses truly are not FLSA-covered under the enterprise coverage test, such “local” entities can still be subject to legal proceedings seeking to apply the FLSA’s provisions to their business, as Rains demonstrates. Further, businesses can be subject to FLSA suits from employees who are covered by the Act due to their individual involvement in commerce. And, of course, many state wage-and-hour laws provide broader coverage than the FLSA. Employers of all sizes, and particularly non-profit organizations, should analyze whether they are subject to coverage under the FLSA and/or applicable state laws.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Of continued concern to governmental agencies – departments of labor, taxing authorities, workers compensation and unemployment boards – is the classification of workers as “independent contractors” and resulting exclusion of (and lost revenue from) such individuals from coverage under tax, benefits and wage statutes. Periodically, such agencies seek to coordinate their enforcement efforts with respect to misclassification, such as the Joint Enforcement Task Force on Employee Misclassification convened in 2007 by former New York Governor Eliot Spitzer. Earlier this month, the Internal Revenue Service and U.S. Department of Labor announced that they have entered into a memorandum of understanding to “improve departmental efforts to end the business practice of misclassifying employees in order to avoid providing employment protections.” The DOL also announced it had reached similar agreements with several state agencies.

This cooperative arrangement was followed shortly by a separate IRS announcement of a new Limited Amnesty Program for underpayments of federal employment taxes due to alleged misclassification. Under this program, an employer is eligible if it is: (a) not currently being audited by any federal or state agency regarding worker classification; (b) has consistently treated the subject workers as non-employees; and (c) has filed all required Form 1099s for the workers for the previous three years. An employer meeting those criteria can, through the program, voluntarily pay 10% of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year, without any additional interest or penalties. However, the employer must enter into a “closing agreement” with the IRS which, among other provisions, extends the statute of limitations for collecting back taxes (from three to six years) during the first three years following entrance into the program. The tax “amnesty” offered by the program, of course, does not extend to the bevy of other laws potentially applicable to the acknowledged misclassified contractors. 

“Coordination of misclassification enforcement efforts by governmental agencies is not a new concept,” notes Jackson Lewis tax partner Bruce Schwartz. “Unfortunately, none of the agencies has been able to provide a bright line definition for determining whether a worker is an employee or independent contractor and certain laws – for example, unemployment compensation laws – may use a definition of employees that is broader than the common law definition used by the IRS. Nevertheless, businesses should be aware that worker classification determinations made by government agencies usually have the presumption of being correct. Companies need to take this into account determining their business model in using employees and/or independent contractors.” 

These continued government initiatives coupled with the growth of class and collective wage and hour claims based on worker misclassification make it vital for all businesses to closely review their classification process and practices, particularly if contemplating participation in a government “amnesty” program, such as the one outlined above. Simply calling one a contractor, whether the individual requests or agrees to such classification, is not a legal defense, and neither is the participation in a voluntary program applicable to a particular statute. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In the latest installment in a long running dispute regarding compensation of certain mid-level managerial employees at the Gristede’s chain of New York-area grocery stores, federal Judge Paul Crotty ruled last week that Gristede’s corporate CEO, John Catsimatidis, is an individually liable “employer” under the FLSA and New York Labor Law. Torres, et al. v. Gristede’s Operating Corp., et al., 04-CV-3316 (S.D.N.Y. Sept. 9, 2011).  

The Gristede’s litigation, settled on the eve of trial in 2009 but has persisted due to the corporate defendants’ failure to adhere to the payment schedule set forth in the settlement agreement. As the suit was initially filed against numerous corporate defendants and individuals, including Mr. Catsimatidis, the CEO of the operative corporation, Plaintiffs’ counsel renewed its motion to hold Mr. Catsimatidis individually liable when the payment scheduled was not adhered to.  In finding that Mr. Catsimatidis met the test for an “employer” as an individual under the FLSA’s “economic realities” test and the Second Circuit’s decision in Herman v. RSR Sec. Services Ltd., 172 F.3d 132 (2d Cir. 1999), Judge Crotty relied on undisputed evidence regarding his individual control and involvement in the management of the business, as well as on an affidavit submitted by Mr. Catsimatidis in an unrelated litigation attesting to his operational control of the company as CEO. 

Consistent with the FLSA’s broad, remedial purpose, courts have fashioned tests which seek to hold individuals liable for wages as employers (even without application of the corporate veil doctrine) where they exercise sufficient control and have sufficient authority to warrant imposition of such personal liability. As the Torres decision demonstrates, management of small, medium and large businesses (along with their employment and corporate governance counsel) must be aware of this potential liability, and take steps to ensure wage and hour compliance and minimization of personal risk.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The FLSA limits when an individual can provide services to an organization without compensation. See post dated April 6, 2010 “We Don’t Have to Pay Our Interns – Do We?”  However, last month a panel of the Court of Appeals for the Fourth Circuit (including Retired Supreme Court Justice Sandra Day O’Connor sitting by designation) re-confirmed one such circumstance, holding that a full-time public school employee who also voluntarily coached a golf program for a small stipend was a volunteer under the FLSA and not entitled to minimum wage or overtime pay. Purdham v. Fairfax County School Board, No. 10-1048, 2011 U.S. App. LEXIS 4644 (4th Cir Mar. 10, 2011). Although the plaintiff alleged he worked 400-450 hours per year as a coach, because his regular, overtime-eligible position as a security assistant was not conditioned on his coaching position, he was considered a volunteer under the FLSA when performing services as golf coach.

The plaintiff proffered five arguments in support of his claim he was an employee entitled to minimum wage and overtime for coaching activities:

(1)   He subjectively considered himself an employee and not a volunteer;

(2)   The terms of his employment contract established that he was an employee and not a volunteer;

(3)   Defendant made a prior retroactive payment for overtime wages to all non-exempt employees who performed coaching duties;

(4)   Defendant provided paid administrative leave when coaching responsibilities conflicted with regular full-time work; and

(5)   Defendant paid a small stipend to coaches.

The court dismissed out-of-hand the plaintiff’s first two arguments, finding that plaintiff’s subjective views and the terms of his employment contract are not controlling. The court also found that the prior retroactive payment for overtime wages made to all non-exempt employees who performed coaching duties merely exhibited an “abundance of caution” on the part of the school district, especially in light of the extensive FLSA-related litigation occurring in other school districts at the time.  Similarly, paid administrative leave provided by the school district in order to allow coaches to perform their voluntary coaching responsibilities was found not to be prohibited under the FLSA, as such a rule would be inconsistent with the FLSA’s statutory goals.  Lastly, the court determined that the small stipend the plaintiff received was plainly permitted under controlling FLSA regulations, and as a result did not serve to defeat the volunteer work exemption in this instance. 

While volunteer public school coaches like the Plaintiff in Purdham may be considered volunteers in their coaching capacity, public employers must ensure that all requirements for a volunteer are satisfied (and that non-volunteer work is not performed during volunteer hours).  While a similar volunteer exemption applies in the private sector for non-profit organizations, the volunteer concept is not recognized in the for profit private sector. See 29 CFR § 553.101(a); DOL Op Ltr FLSA2008-3NA.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Expanded Jackson Lewis coverage of New York’s Wage Theft Prevention Act is now available here. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Businesses that outsource specific functions are often subject to allegations that they are a joint employer of the employees of the outsourced entity. A Pennsylvania District Court recently rejected this theory of liability and dismissed Bank of America from a lawsuit brought by call center employees employed by a vendor servicing Bank of America, who alleged they were not properly compensated for time spent booting up their computers. Lepkowski v. Telatron Mktg. Group, 2011 U.S. Dist. LEXIS 9388 (W.D. Pa. Feb. 1, 2011).

Observing that the Third Circuit Court of Appeals (which encompasses Pennsylvania) has not yet ruled on the appropriate legal test to apply to determine “joint employer” status, the court applied factors from the test utilized by the Second Circuit and Ninth Circuit. Id. at * 7-10 citing Zheng v. Liberty Apparel Co., Inc., 355 F.3d 61 (2nd Cir. 2003) and Bonnette v. Cal. Health & Welfare Agency, 704 F.2d 1465, 1470 (9th Cir. 1983). Because the plaintiffs failed to allege that Bank of America could hire and fire the call center employees, set rates of pay or schedules or maintain employment records, functions all performed by Telatron Marketing Group, Bank of America was dismissed from the case. Id. at * 26-27.

While this decision should be hailed as a victory for companies which outsource call center or other similar functions, the terms and conditions of individuals providing services to a business must be analyzed on a case-by-case basis to assess exposure under the factors identified in Zheng, Bonnette and other appellate authority.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As FLSA and other wage lawsuits continue to be prevalent, one threshold issue that often arises with small and/or local businesses, as well as non-profit entities, is whether the employer is an enterprise covered by the FLSA. This issue is relevant because in order for the FLSA to be applicable, either the individual employee must be engaged in interstate commerce (individual coverage) or the defendant employer must be an enterprise engaged in interstate commerce (enterprise coverage). Enterprise coverage is triggered where an employer: 1) "has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person"; and 2) has at least $500,000 of "annual gross volume of sales made or business done." 29 U.S.C. § 203(s)(1)(A).

Recently, the United States Court of Appeals for the Eleventh Circuit  analyzed the applicability of enterprise coverage in six consolidated cases brought against employers who asserted they were local businesses not covered by the FLSA. In its decision, the court clarified what constitutes “goods or materials that have been moved in or produced for commerce” for purposes of establishing enterprise coverage. Polycarpe v. E & S Landscaping Serv., 2010 U.S. App. LEXIS 18171 (11th Cir. Fla. Aug. 31, 2010). 

Specifically the court held that whether the employees, who performed different jobs for the several defendants, including “landscapers, security-system technicians, and construction workers, among other [occupations]”, were covered by the FLSA turned on whether they used any materials in conducting their employers’ business which had shipped in interstate commerce. Materials, held the court, should be read for FLSA purposes to mean “tools or other articles necessary for doing or making something.” The court specifically rejected the so-called “coming to rest” doctrine, wherein goods or materials shipped in interstate commerce ceased to be identified as such once they “come to rest within a state before intrastate purchase by a business.” The court reversed the dismissals at the district court level, remanding five of the six the cases for application of its “materials” test.  The sixth case was affirmed based on uncontroverted evidence that the employer did not meet the $500,000 annual revenues test. 

While a highly technical decision, Polycarpe stands for a very straightforward proposition: FLSA enterprise coverage (at least in the Eleventh Circuit based on the court’s definition of “materials”) is broad. Employers with $500,000 in gross revenues within the Circuit (encompassing Florida, Georgia and Alabama) must carefully analyze potential FLSA liabilities. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As discussed here, here and here, the issue of independent contractor classification under wage, unemployment, tax and other laws is omnipresent, continuing to arise in litigation and legislative reform. In a rare victory for employers in this regard, this week the Fifth Circuit Court of Appeals (encompassing Texas, Louisiana and Mississippi) affirmed a district court’s decision that an individual performing work as a “splicer” (one who installs, cuts, repairs, and tests various high voltage cables) was properly classified as an independent contractor under the FLSA. Thibault v. BellSouth Telcoms., Inc., 2010 U.S. App. LEXIS 15267 (5th Cir. 2010).

The Thibault case arose from BellSouth’s efforts to rebuild its telecommunications grid in the aftermath of Hurricane Katrina. Unable to directly employ sufficient splicers to complete the huge volume of needed repairs, BellSouth contracted out some of the work. In fact, demand was so great that the contractor (Directional) subcontracted to a second entity (Parker), which in turn entered into a contractor agreement with Plaintiff Thibault. While Thibault was not an experienced splicer, he had extensive technical knowledge from a previous career, and operated his own business in his home state of Delaware. 

The Court described Thiabult’s work on the BellSouth repairs as follows:

In October, Thibault filled his trailer home with water and food, and the two men drove to Louisiana. From October 4, 2005 to January 6, 2006, Thibault worked as a splicer. In that time, Thibault made $ 51,628. Everyday, Thibault was required to report to Kenner Yard, a property rented by BellSouth.  At the first meeting, Thibault claims that a Parker supervisor informed them that they would be paid sixty-eight dollars an hour, would work at least eighty-four hours a week and would get a per diem and a place to park his motor home. Every day, Thibault showed up to Kenner Yard, and was assigned a specific splicing job in New Orleans. BellSouth  engineers created the overall rewiring plan for New Orleans. BellSouth supervisors designated the specific jobs to be done daily, and assigned Directional supervisors to distribute the assignments. When Thibault received his assignment, he was then required to take his truck to the job and work on the problem he was assigned. When completed, Thibault would return to Kenner Yard and would be assigned another splicing job. He worked in thirteen-day intervals with a one-day break in between. While Parker paid Thibault, BellSouth  had to approve all vacation and break time. On January 6, Parker laid off Thibault. Directional offered Thibault a job as a splicer, working directly for Directional, but Thibault declined. Instead, he returned to Delaware, and has not worked as a splicer since. Thibault brought this suit against Parker, Directional, and BellSouth for overtime pay under the FLSA, breach of contract, and Louisiana wage law statutes.

Id. at * 4-6.

In analyzing the “economic realities” of the arrangement between Thibault and the contracting entities, the Court noted that: 1) the relationship did not have a high degree of permanence as Thibault intended to return home to Delaware; 2) Thibault was subject only to limited supervision in his performance of the splicing work; 3) Thibault possessed a high degree of technical skill and initiative; and 4) Thibault had a high degree of investment in the tools necessary to be a splicer (bucket truck, cable splicer, pump, ventilator, ladder, climbing belt, harness, hard hat, safety vest and other miscellaneous tools), and controlled his profit or loss by managing his expenses while stationed in Louisiana. Furthermore, Thibault was a sophisticated business man with an independent business who was not economically dependent on splicing work.

While Thibault is a favorable decision and positive news for employers within the Circuit, it is important to note that the Plaintiff in the case possessed a high degree of skill, sophistication and autonomy: important components for creating a defensible independent contractor relationship. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

When an independent contractor alleges s/he was misclassified and seeks alleged unpaid minimum wage and overtime, a significant issue is whether a prevailing plaintiff can receive a windfall.  Simply put, can an independent contractor alleging misclassification under the FLSA (or state law) keep fees for services already collected, and also collect a damages award for unpaid minimum wage and overtime?  In one recent decision, a federal judge has found the answer to be “not necessarily”.  Doe v. Cin-Lan, Inc., 2010 U.S. Dist. LEXIS 16447 ( E.D. Mich. Feb. 24, 2010)(Note: Jackson Lewis partner Allan Rubin represents Cin-Lan in this matter).

Cin-Lan concerns the classification of exotic dancers as independent contractors at a Michigan nightclub.  The named Plaintiff entered into an independent contractor arrangement under which she danced at the defendant club in exchange for a portion of “dance fees” collected from patrons; the balance of the dance fee went to the club.  The club did not pay Plaintiff minimum wage or overtime, though she often collected dance fees at a rate approaching $75/hour.  Significantly, the parties’ agreement called for the dance fees to serve as an offset to any wage liability if Plaintiff were ever found to be an employee. 

In rejecting Plaintiff’s motion to dismiss the counterclaim, the Court first rejected Plaintiff’s argument that the contract itself was “repugnant to the FLSA” and thus invalid.  The Court further observed that “the parties agreed that if there was ever a legal determination that their business relationship was in fact an employment relationship, then the alternative provisions of the [contract] would apply to define the parameters of that relationship. The counterclaim alleges that Doe agreed to such an arrangement” and therefore the Court declined to reject such an arrangement as a matter of law.  Finally, the Court rejected Plaintiff’s argument that all “dance fees” should be re-characterized as tips for purposes of the FLSA (and thus not credited against wages owed). 

While this decision is based on a very-specific fact pattern involving dancers in the nightclub industry, it highlights the importance and value of a well-drafted independent contractor agreement.  Even if such agreement does not support the independent contractor classification, potentially it can limit damages.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Business owners, supervisors and managers performing services for corporate entities often believe that liability for wage and hour violations can be imposed solely on the incorporated entity.  To the contrary, as demonstrated by a recent New York Federal Court decision, various theories support individual liability under both federal and, in this case, New York State law.

In Flannigan v. Vulcan Power Group, L.L.C., 2010 U.S. Dist. LEXIS 41751 at * 10-13 (S.D.N.Y. Apr. 27, 2010), Judge Barbara Jones considered a motion to dismiss wage and hour claims brought against an officer/manager.In denying the motion, the court explained that corporate officers and principal shareholders, as well as supervisors and managers involved in wage and hour policymaking/decision-making, can be personally liable for unpaid wages under federal and state law.  Id. The Court cited Plaintiff’s allegations and documentary evidence to the effect that the individual defendant had met with her regarding the terms of her employment, and subsequently communicated with her about the status of her commission compensation, as sufficient to allege individual liability under the FLSA and New York law. Id. The court did however find that individual liability could not be imposed on the corporate shareholders under Section 630 of the New York Business Corporation Law because the defendant corporation was not incorporated in New York. Id.  Under BCL § 630, the ten largest shareholders of a closely held New York corporation are liable for unpaid wages and benefits.

Business owners (as well as supervisors and managers involved in wage and hour policymaking/decision-making) must recognize the various theories under which they can be subject to personal liability and of course take actions to minimize such potential liabilities. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.”
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link