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

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.

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Disputes regarding the application of the FLSA’s “learned” professional exemption can arise where many – but not all or even “most” – holders of a given position possess specific or substantially-job related academic credentials, but others do not. This is so due to some courts’ narrow interpretation of the learned professional exemption’s requirement that the position require advanced knowledge customarily acquired by a “prolonged course of “specialized intellectual instruction.” With the exception of a few universally-acknowledged professions such as doctors, lawyers and accountants (an industry which itself has been subject to challenge), litigation often centers on whether the requirements for an employer’s specific job are customarily based on academic instruction, or work experience. One such position is that of social worker. Recently, the Ninth Circuit, reversing the lower court’s grant of summary judgment, held that social workers employed by the State of Washington did not satisfy the exemption’s requirements. Solis v. Washington, 2011 U.S. App. LEXIS 18668 (9th Cir. Sept. 9, 2011).

Washington concerned a challenge to the state Department of Social and Health Services’ (DSHS) classification of its social workers as exempt. The district court agreed with DSHS’ position that the academic credentials of its social workers – who were required to hold a “[b]achelor's degree or higher in social services, human services, behavioral sciences, or an allied field," - were sufficiently specialized and related to their social work to establish the credential and academic instruction as a prerequisite to hold the job of social worker. In the district court’s view, the DSHS requirement that social workers have eighteen months’ social work field experience, along with the imposition of mandatory continuing education requirements, “weighed in favor of a finding of specialized training” and thus exempt status.

Reversing, the Ninth Circuit analyzed Department of Labor opinion letters concerning related positions and observed that “the ‘learned professional’ exemption applies to positions that require ‘a prolonged course of specialized intellectual instruction,’ not positions that draw from many varied fields. While particular coursework in each of the acceptable fields may be related to social work, DSHS admits that it does not examine an applicant's coursework once it determines that the applicant's degree is within one of those fields.” Id. at * 21 (emphasis in original). Because individuals with diverse academic training could hold the position, based on their professional experience, the Court reasoned that no specialized academic instruction could possibly be a prerequisite for the job. In the Circuit Court’s view, DSHS’ 18-month on-the-job training requirement further militated against exempt status because DOL regulations “state clearly that the exemption does not apply to ‘occupations in which most employees have acquired their skill by experience.’”    

This narrow application of the learned professional exemption creates a dilemma for employers: namely, hire the best candidates to perform a given position, regardless of the source of their superior qualifications, or limit employees hired in job titles classified under the learned professional exemption exclusively to those holding specific narrow degree prerequisites. This concern is underscored in certain professions such as social work by the limited monies provided by funding entities to compensate employees. Absent such a “hard line stance” with respect to this formal requirement, or a very academic, lengthy training program, employers are exposed to a risk of challenge of such a classification.  

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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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Despite the Circuit split created by this month’s decision from the Ninth Circuit, holding that pharmaceutical sales representatives are outside sales employees within the meaning of the FLSA, the Supreme Court has declined to take up Novartis’ appeal of the adverse ruling it received on this issue from the Second Circuit.  The Supreme Court’s ruling was contained in its Order List for February 28, and does not provide any insight into the Court’s thinking. 

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In a decision reiterating important independent contractor issues for employers, the Ninth Circuit Court of Appeals last week reversed a lower court decision holding that certain delivery drivers were properly classified as independent contractors under various provisions of the California Labor Code. Narayan v. EGL, Inc., 2010 U.S. App. LEXIS 14279 (9th Cir. July 13, 2010).

At the trial court level, Judge Ronald M. Whyte of the Northern District of California concluded that the drivers, although residents of California providing delivery services in California, were independent contractors under the laws of Texas, the governing law set forth in the drivers’ “Leased Equipment and Independent Contractor Services” agreement with EGL, a nationwide provider of logistics services.  In a footnote, the court further held that “[t]he result would be no different if California law governed.”

Reversing the decision, the Ninth Circuit observed that ‘[w]hether the Drivers are entitled to those benefits [under the Cal. Lab. Code] depends on whether they are employees of EGL, which in turn depends on the definition that the otherwise governing law--not the parties--gives to the term ‘employee’” (emphasis added). The Circuit Court held that the parties’ selection of Texas law to “govern” the contract applied only to disputes about interpretation of the contract (i.e, Texas contract law), not the application of employment statutes like the California Labor Code. Simply put, the Circuit Court held that the drivers’ claims under the Cal. Labor Code did not “arise” from the contract (i.e., did not call primarily for interpretation of that contract) – the contract was simply relevant evidence relating to their claims of employee status.  Finally, the Court reversed Judge Whyte’s ruling that the drivers were independent contractors (even under California law) because, in the Court’s view, he “did not apply the relevant factors [for IC status] identified by the Supreme Court of California to the facts in this case.”

While the Appellate Court’s failure to recognize the choice of law clause may not be relevant to most employers, the central holding and vital takeaway is very straightforward: independent contractor status is generally narrowly construed and currently under intense scrutiny. Further some aspects of the relevant analysis vary not only from state to state but from statute to statute. Additionally, and critically, the intent of the parties as reflected by the parties’ agreement is often of little importance to an administrative agency’s or court’s analysis, as Narayan clearly demonstrates.

All employers, and especially those with multi-state operations, must focus on the propriety of their organization’s use of contractors.   A more detailed analysis of this issue can be found here.

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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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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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