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

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. 

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The “salary basis” test is by far the most straightforward component of the white collar overtime exemptions, requiring only a fixed salary of $455/week (subject to state law) paid in compliance with the requirements of 29 CFR § 541.602. However, an employer’s use of an unusual compensation or bonus structure can still result in allegations that this requirement is not met. Such claims can arise even when the weekly payment in question far exceeds the minimum salary requirement. This was the nature of the Plaintiffs’ unsuccessful attempt to assert that the employer failed to satisfy the salary basis requirement in Bell v. Callaway, 2010 U.S. App. LEXIS 17981 (11th Cir. Aug. 26, 2010).[1]

In Callaway, the employer hired approximately 100 “bookkeeper/accountants” to assist Callaway in the restatement of a single company’s books (HealthSouth). Their compensation arrangement is summarized below:

Plaintiffs received a guaranteed weekly salary of $1600 or more that did not depend  on the quality or quantity of the work performed. This weekly salary was reduced by one-fifth of the weekly salary for every full day a Plaintiff took off from work for personal reasons during the normal workweek without substituting Paid Time Off ("PTO") [Ed.: a lawful deduction under 541.602]. But, a Plaintiff could work fewer than eight hours during any given workday without any reduction in his or her weekly salary. Second, Plaintiffs were eligible to receive additional incentive compensation (a "bonus") paid at a straight-time hourly rate based on the cumulative number of billable hours that Plaintiffs worked. Any bonus to be awarded was determined based on how many additional hours over forty a Plaintiff worked in a given week minus any "deficit" hours a Plaintiff had accumulated in past weeks. For example, if a Plaintiff worked seven and not eight hours on each regularly-scheduled workday in a given week, thus totaling 35 hours of work, he or she still earned the full predetermined weekly salary, but would not earn a bonus in a subsequent week until he or she made up the bonus-hour deficit of five hours and then worked more than 40 hours in a given week.

Id. at * 1-2. 

The Eleventh Circuit, affirming the district court, rejected Plaintiffs’ claim that they were “not paid on a salary basis because the amount of their bonuses fluctuated based on the cumulative number of hours worked.” Id. at * 4. The Court noted the DOL’s regulation which allows an employer to “provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly-required amount paid on a salary basis.” Id. at * 5 citing 29 C.F.R. § 541.604(a). Because the salary basis was met, exempt status was preserved, and the additional compensation was of no moment. The fact that the bonus was based on hours worked and subject to adjustment based on hours worked was irrelevant to the court’s analysis of salary basis compliance.

While Callaway is in line with other Circuit decisions addressing similar plans (See e.g. Havey v. Homebound Mortg., Inc., 547 F.3d 158 (2d Cir. 2008)(the fact that [plaintiff’s] overall compensation for quarter could be decreased due to quality errors does not render [plaintiff] a non-salaried employee if, under the employer's policy, the adjustments do not affect a "predetermined amount" [compliant with the salary basis test]), employers devising exempt compensation plans must beware of compensation arrangements that could result in assertions that rather than applying a proper FLSA exemption, they are attempting to circumvent the Act’s overtime requirement. See generallyAdams v. Department of Juvenile Justice, 143 F.3d 61 (2d Cir. 1998).

This decision points out the need for all employers to ensure that compensation programs for white collar-exempt employees are in full compliance with the salary basis requirements of the FLSA. 

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In light of other case law, a recent pro-employer decision from the Eleventh Circuit Court of Appeals, holding that a salaried dispatcher for a crane rental company qualified as an exempt administrative employee, adds credence to a question often asked by legal and human resources professionals: is the administrative exemption in the eye of the beholder? Rock v. Ray Anthony Int'l, LLC, 2010 U.S. App. LEXIS 10775 (11th Cir. Fla. May 26, 2010).

At the trial court level, the district court found that Rock’s duties as dispatcher included “customer communication, choosing the appropriate crane for specific jobs, assigning operators to cranes, overseeing other employees, preparing and reviewing job tickets, and maintaining the crane rental schedule . . . He was also responsible for selecting the type of materials, supplies, machinery, equipment, and tools that were needed to meet the customers' needs.” Id. at * 5-6. The trial court concluded that these duties “related to servicing or running [defendant’s] general business operations”, rendering him eligible for the administrative exemption. Id. at * 6.

On appeal, Rock argued that the recently issued DOL Administrative Interpretation regarding loan officers (discussed here), which opined that employees performing sales work generally are engaged in “production” and not eligible for classification as exempt “administrative” employees, supported a non-exempt finding, as his responsibilities were “more akin to sales and retail.”

The Eleventh Circuit, relying on precedent within the Circuit, observed that “even when employees engage in sales, their duties are administrative if the majority of their time is spent advising customers, hiring and training staff, determining staff pay, and delegating matters to staff.” Id. at * 9 citing Hogan v. Allstate Ins. Co., 361 F.3d 621, 627 (11th Cir. 2004). Because the trial court found that Rock’s duties “went beyond mere sales” and included management of the crane division, the administrative classification was upheld.  Id.

Rock is welcome news for employers within the 11^th Circuit’s purview of Florida, Georgia and Alabama. However, the general lack of clarity as to what constitutes “administrative” work is highlighted when the Rock decision is juxtaposed with a recent decision involving dispatchers issued by a New York federal court. In Iaria v. Metro Fuel Oil Corp., 2009 U.S. Dist. LEXIS 6844 (E.D.N.Y. Jan. 30, 2009), the court denied the employer’s motion for summary judgment as to its classification of a dispatcher as an exempt administrative employees. In part, the Court’s decision in Iaria was premised on crediting the plaintiffs’ testimony that their duties did not involve supervisory or management responsibilities, but were limited to “monitoring drivers' deliveries, responding to drivers' problems, handling some customer service calls, routing, entering data in the computers, and checking the drivers' logs.” Id. at * 3.  The Court stated that these dispatcher plaintiffs’ “duties relate more directly to the service and product that [defendant] provides -- the delivery of fuel for heating -- than they do to servicing the business.” Id. at * 11.   

Employers utilizing the administrative exemption, especially with sales and quasi-sales position, must closely review the DOL’s current position and the applicable law in their Circuit, as well as applicable state law, to ensure understanding of all potential risks.

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