Pump the Breaks: Employers Cannot Bypass Obligation to Compensate Employees for Short Rest Periods

Refusing to compensate employees for short breaks is prohibited by the FLSA, the Third Circuit has confirmed. Thus, an employer’s “flexible time” policy, under which employees were not paid if they logged off of their computers for more than 90 seconds, fails to comply with the Act when employees take breaks of twenty minutes or less, even if the policy allows the employee to log off whenever desired and for any length of time. Secretary, U.S. Dep’t of Labor v. American Future Systems, Inc., 2017 U.S. App. LEXIS 19991 (3rd Cir. Oct. 13, 2017).

American Future Systems publishes and distributes business publications and sells them through its sales representatives, who are paid an hourly wage and receive bonuses based on the number of sales they generate per hour while logged onto the company’s computer system. Under the company’s flexible time policy, the sales representatives are permitted to log off of their computers at any time, for any duration and for any reason.  While the policy was intended to maximize employees’ freedom to take breaks as needed, because they are not paid if they log off for more than 90 seconds, in practice employees constantly face the dilemma of foregoing pay when taking brief breaks to, for example, use the rest room, fetch a cup of coffee or mentally recover from what may have been a demanding sales call.

The DOL brought suit against the company, asserting that the flexible time policy violated 29 C.F.R. § 785.18, which states that “[r]est periods of short duration, running from 5 minutes to 20 minutes . . . are customarily paid for as working time” and “must be counted as hours worked.” The district court agreed and granted the DOL’s motion for partial summary judgment in this respect. On appeal, the employer argued the time spent by sales employees logged off of their computers under the company’s flexible time policy does not constitute work and that the district court erred in adopting the bright-line short break rule embodied in Section 785.18.

Rejecting these arguments, the Third Circuit reaffirmed the longstanding FLSA regulation that, while the Act does not require an employer to provide employees with breaks (although several state laws do), if the employer chooses to do so, breaks lasting up to twenty minutes are considered compensable hours worked. The Court of Appeals was unpersuaded – and unamused – by the company’s semantic argument that the time at issue was “flexible time” and not a “break” as defined by the FLSA, noting that the protections of the Act “cannot be negated by employers’ characterizations that deprive employees of rights” to which they are entitled.  The Third Circuit also rejected the employer’s argument that a fact-specific analysis should be applied to whether a short break is compensable under the FLSA and the DOL’s interpretive regulation.  On the contrary, the Court of Appeals confirmed that Section 785.18 sets forth a bright-line rule for employers and to hold otherwise would establish a “burdensome and unworkable” administrative regimen.

American Future Systems is a caution to employers that neither the DOL nor the courts will abide by blatant efforts to circumvent the protections of the FLSA. If you have any questions or concerns about this development, or any other wage and hour issues, please contact the Jackson Lewis attorney with whom you regularly work.

Intern or Employee? When “Take Your Children to Work” Day Backfires

In late April each year, tens of millions of employees and millions of employers participate in Take Your Sons and Daughters to Work Day. Of course, the vast majority of the child participants are elementary school kids, or perhaps young teenagers, who visit their parents’ workplaces for a few hours and then return to their everyday lives.  But what happens when the “child” is actually a young adult who, under the guise of a training internship, arrives with his father at the workplace every day for over a year?  As one employer recently learned, that so-called trainee might in fact be deemed an employee, to whom the minimum wage and overtime pay requirements of the FLSA apply.

In Axel v. Fields Motorcars of Florida, Inc., 2017 U.S. App. LEXIS 19524 (11th Cir. Oct. 6, 2017), the plaintiff’s father, who worked as a wholesaler for the employer, approached the general manager of the dealership about finding a job for his son who, with a poor employment record, a DUI arrest and a drug history, apparently was having difficulty finding work.  The general manager declined to hire the son but agreed to allow him to “shadow” his father without compensation, with the open-ended possibility that he would replace his father upon the latter’s retirement.  For over a year, the son would arrive at work with his father and observe his father’s activities throughout the morning.  However, during the afternoons, he would spend several hours posting cars for sale on an internal auto auction website, on e-Bay and on Craigslist; research cars for sale at auction; and purchase cars from other dealerships, all under the guidance of the used car manager.  This pattern continued for about fifteen months, at which time the father’s employment was terminated and the son likewise stopped coming to work.  The son then sued the employer, claiming that he was in fact an employee and was entitled to pay under both the FLSA and the Florida Minimum Wage Act (FMWA) for the time he was working at the dealership.  The plaintiff estimated that during his 15-month tenure, he worked in excess of sixty (60) hours per week.

The district court granted summary judgment to the employer, concluding that the plaintiff was not an employee and therefore not entitled to wages under either federal or state law.  On appeal, the Eleventh Circuit Court of Appeals vacated the summary judgment ruling and remanded the case for further consideration.  In doing so, the Court of Appeals relied on the seven “non-exhaustive” factors it had set forth in Schumann v. Collier Anesthesia, P.A., 803 F.3d 1199 (11th Cir. 2015), and which it had borrowed from the Second Circuit’s decision in Glatt v. Fox Searchlight Pictures, Inc., 791 F.3d 376 (2nd Cir. 2015), in determining whether the “primary beneficiary” of the relationship was the employer, in which case the individual would likely be deemed an employee, or the intern/trainee, in which case the FLSA’s protections would not apply.

After agreeing with the district court that three of the factors were irrelevant to the unique circumstances of the case, the Court of Appeals noted that two of the factors – the extent to which the intern and employer clearly understand that there is no expectation of compensation and the extent to which the intern and employer understand that the internship is conducted without entitlement to a paid position at the conclusion of the internship – weighed in favor of finding an actual internship, given that both parties clearly understood there was no expectation of compensation during the training or of a guaranteed position following its conclusion. Moreover, the Eleventh Circuit held that another of the factors – “the extent to which the internship’s duration is limited to the period during which the internship provides the intern with beneficial learning” – “[did] not clearly cut one way or the other,” given that the nature of the goals of the training, and whether they were ever accomplished, was unclear.  However, given that the only possible end date ever discussed – and an indefinite one at that – was the retirement of the plaintiff’s father, and further given that the plaintiff allegedly was working 60 hours per week, the Court of Appeals suggested that the length of the training may have been excessive.

With respect to the remaining factor – the extent to which the intern’s work complements, rather than displaces, the work of paid employees – the Court of Appeals pointed to the fact that the plaintiff was spending a considerable amount of his work time performing retail sales tasks under the direction of managers outside of the wholesaling arena in which his father worked, tasks that may have been displacing the work of those managers or other employees.   Ultimately, the Eleventh Circuit concluded that it lacked sufficient information regarding the amount of time plaintiff devoted to wholesaling tasks under the tutelage of his father versus the retailing tasks he performed at the direction of others, but noted that “the proper outcome may not be an ‘all-or-nothing’ determination.”   Thus, the case was remanded to the district court for further consideration.

The Axel case provides cautionary guidance to employers who may be considering some type of informal internship or training arrangement under the belief that the participants in such a program are not employees subject to the same wage laws.  If you have any questions about an internship or training program in your workplace, or any other wage and hour issues, please contact the Jackson Lewis attorney with whom you regularly work.

Here’s a Tip, Minnesota: Discharging Employees for Refusing to Share Gratuities is Prohibited

Discharging an employee for refusing to share tips is illegal under the Minnesota Fair Labor Standards Act (MFLSA), according to the Supreme Court of Minnesota.  Burt v. Rackner, Inc., 2017 Minn. LEXIS 629 (Minn. Oct. 11, 2017).  In Burt the plaintiff, who was employed as a bartender, was told that he needed to give more of his tips to the bussers or there would be consequences.  The plaintiff failed or refused to do so and was discharged on the express basis that he was not properly sharing tips with other staff members.  The plaintiff sued and, on motion by the employer, the state district court dismissed the complaint, holding that the MFLSA does not provide a private cause of action for wrongful discharge, as no such language is set forth in the statute.  The court of appeals reversed, concluding that the MFLSA “unambiguously provides that the employee may seek wrongful-discharge damages, including back pay and other appropriate relief” for any violation of the Act, including the tip-sharing provision.

On petition for review, the Supreme Court affirmed.  The Court noted that Section 177.24 of the Act provides that “[n]o employer may require an employee to contribute or share a gratuity” and although an employee may voluntarily agree to share tips, he must do so “without employer coercion or participation.”  Threatening to discharge, or actually discharging, an employee for failing to do something – in this case, tip sharing – constitutes coercion, the Court held.  Although the Act does not contain language expressly forbidding discharge for violations of the tip-sharing provision, and although it does include a specific remedy for violation of the provision (restitution of any diverted tips, plus double damages and attorney’s fees), the Supreme Court nonetheless concluded that because the statute includes a “broad, private cause of action for any violation,” it was unreasonable to interpret the statute in such a way that prohibits mandatory tip-sharing yet would allow the discharge of an employee who refused to abide by the prohibited conduct.

As a result, Minnesota employers should proceed cautiously when implementing a tip-sharing policy and program to ensure that participation in any such program is strictly voluntary and that no employee is pressured into participating or subjected to adverse action for declining to participate.  If you have any questions or concerns about this development or your specific business needs, please contact the Jackson Lewis attorney with whom you regularly work.

Supreme Court Grants Certiorari (Again) to Address Circuit Split on FLSA Automobile Dealer Exemption

After effectively “punting” on the issue last year, the U.S. Supreme Court has again granted certiorari to resolve a circuit split regarding whether “service advisors” at automobile dealerships are exempt from receiving overtime under an exemption for “salesmen, partsmen, and mechanics” under the FLSA.  Encino Motorcars, LLC v. Navarro, No. 16-1362 (U.S. Sep. 28, 2017).  In 2016, the Supreme Court ruled that the Ninth Circuit had wrongly relied on a 2011 Department of Labor regulation in concluding that such service advisors were not exempt from overtime under the FLSA.  Because the DOL’s position on the exempt status of service advisors vacillated over time and the 2011 regulation, which found service advisors to be non-exempt, had without justification reversed the Agency’s position established just three years earlier, the regulation was not entitled to deference under the standards established by the Court in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).  Therefore, held the Court, the Ninth Circuit should not have relied upon the regulation in reaching its decision.

However, rather than proceeding to resolve the split established by the Ninth Circuit’s decision, which conflicted with prior decisions by the Fourth and Fifth Circuits, the Supreme Court remanded the case to the Court of Appeals to re-evaluate the application of the exemption without reference to, or consideration of, the 2011 regulation. On remand, the Ninth Circuit reached the same result, again holding that service advisors are not covered by the exemption but now relying on an examination of the statutory text and legislative history.  Navarro v. Encino Motorcars, LLC, 845 F.3d 925 (9th Cir. 2017).  This time around, the Supreme Court is expected to resolve the underlying issue of whether the service advisers are entitled to overtime, providing needed certainty to employers.

Having even greater implications than resolution of the applicability of the automobile dealer exemption to service advisors, however, may be the Ninth Circuit’s continued reliance on the “narrow construction” principle when it comes to interpreting FLSA exemptions in general.  In ruling service advisers were not covered by the exemption, the Ninth Circuit relied on the alleged “longstanding rule that the exemptions in § 213 of the FLSA are to be narrowly construed against employers seeking to assert them.”  But in the 2016 decision remanding the case, Justices Thomas and Alito criticized the Court of Appeals for using this to put a thumb on the scale, referring to it as “made up canon” of construction and instructing the Ninth Circuit “not to do so again on remand.”  The Ninth Circuit ignored this warning.  The arrival of Justice Gorsuch to the Bench may finally provide the votes needed to address the validity and scope of the “narrow construction” principle, often a plague for employers.

We will continue to follow developments in this case.  If you have any questions regarding the FLSA’s exemptions or any other wage & hour questions, please contact the Jackson Lewis attorney(s) with whom you work.

Waiting Without Pay for Nike’s Pre-Exit Bag Inspection? Just Do It – Maybe, or at Least Until the California Supreme Court Weighs In

Nike retail employees required to undergo post-clockout, pre-exit bag and coat checks are not entitled to compensation under California’s wage and hour laws for the time spent on such inspections, a federal district court has ruled.  Rodriguez v. Nike Retail Services, Inc., 2017 U.S. Dist. LEXIS 147762 (N.D. Cal. Sept. 12, 2017).  Assuming such inspections are considered compensable time worked, they nevertheless must require enough of the employees’ time such that the time is not considered de minimis, that is, too short or insubstantial to require employers to track and pay for it.  The de minimis concept arose in the context of the FLSA, where more than seventy years ago the U.S. Supreme Court noted that “[w]hen the matter in issue concerns only a few seconds or minutes of work beyond the scheduled working hours, such trifles may be disregarded.  Split-second absurdities are not justified by the actualities of working conditions or by the policy of the [FLSA].”  Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 692 (1946).

In this case, the employer’s expert time and motion study demonstrated that about 60% of the employee exits involved zero waiting time, while 83% of the remaining exits involved a waiting time of one minute or less.  In total, the average waiting time for all employee exits was only 14.2 seconds.  As to the inspections themselves, the expert analysis demonstrated that the average visual inspection (where no bag was present) took only about three seconds, while inspections involving bags averaged only 7.5 seconds.  Thus, the overall combined waiting and inspection time per employee was between 17 and 20 seconds.  While the plaintiffs presented testimony from a couple of store managers who opined that inspections sometimes took longer, even they did not clearly refute the extensive expert study.  Under these circumstances, the time spent by these Nike retail employees was indeed de minimis and, therefore, not compensable.

In light of the strong facts Nike was able to establish in this case, California employers lacking similar facts should be cautious in relying on its holding.  Moreover, whether the district court’s decision will stand likely depends on two separate but related issues currently certified to the California Supreme Court for determination.  First, the district court assumed that the de minimis standard, while clearly applicable to claims under the FLSA, likewise is applicable to claims under California’s Labor Code.  However, that issue remains undecided.  Last year, California’s highest court agreed to decide the issue on a certified question from the Ninth Circuit Court of Appeals.  Troester v. Starbucks Corp., 680 Fed. Appx. 511 (9th Cir. 2016), request granted, 2016 Cal. LEXIS 6801 (Cal. Aug. 17, 2016).  Similarly, and with the potential for even greater impact, just last week the California Supreme Court also agreed to decide whether the time spent on waiting for and undergoing inspections of bags or packages “voluntarily brought to work purely for personal convenience by employees” constitutes compensable “hours worked” at all under state law, regardless of the amount of time spent doing so.  Frlekin v. Apple, Inc., 2017 U.S. App. LEXIS 15372 (9th Cir. Aug. 16, 2017), request granted (Cal. Sep. 20, 2017).  Both of these rulings could have a significant impact on employers with operations in the Golden State.

If you have any questions regarding the compensability of pre-exit inspections in your business, or any other wage & hour questions, please contact the Jackson Lewis attorney(s) with whom you work.


Department of Labor Moves to Dismiss Appeal on Obama-Era Overtime Rule (UPDATED 9/7/2017)

As anticipated following last week’s decision by the U.S. District Court for the Eastern District of Texas, striking down the Department of Labor’s May 2016 Final Rule regarding the FLSA’s “white collar” overtime exemptions, the DOL has asked the Fifth Circuit to dismiss its appeal of the district court’s preliminary injunction invalidating the Rule last November.  In a succinct, unopposed motion, the DOL noted that the district court’s final judgment rendered the preliminary injunction moot, citing established Fifth Circuit law for that proposition.

It would appear unlikely the DOL will appeal last week’s order granting summary judgment to the State and Business Plaintiffs, which may result in the end to the Obama-era overtime rule. Employers now await the possibility of a new rule, almost certainly with a substantially lower minimum salary, following completion of the DOL’s recently-published request for information, responses to which are due by September 25, 2017.

We will continue to follow these developments.  Please contact the Jackson Lewis attorney with whom you work with questions about the decision and compliance with the FLSA’s overtime exemptions.

UPDATE:  On September 6, 2017, at the direction of the court, the Clerk of the Fifth Circuit dismissed the appeal as requested by the DOL.

North Carolina’s New Employee Misclassification Law: What Will Be the Practical Effect?

Effective December 31, 2017, the North Carolina Employee Fair Classification Act, signed into law on August 11th, creates the Employee Classification Section of the North Carolina Industrial Commission. This new Section will be authorized to receive and investigate reports by employees claiming to be misclassified as independent contractors, and to share information with other state agencies, including the Department of Labor, the Division of Employment Security, the Department of Revenue and the Industrial Commission. This authority and information exchange may enable the State to more effectively go after employers who are engaging in such misclassification in order to avoid paying payroll taxes, providing workers’ compensation benefits or meeting other obligations under state law. For example, state licensing boards will be required to ask applicants to disclose, for a period of time yet to be determined, any investigation(s) for employee misclassification to which they have been subject and the outcome of such investigation(s). An applicant’s failure to comply will result in denial of the license or permit at issue.

Although the legislation does not revise the existing definitions of “employee” or “independent contractor” under state law, it will require employers to post a notice in the workplace stating that workers must be treated as employees unless they are independent contractors and that those who believe they have been misclassified have the right to report the alleged misclassification to the Employee Classification Section. The notice also must provide the physical and e-mail addresses and telephone number where alleged misclassifications may be reported.

When signing the Act into law, North Carolina Governor Roy Cooper noted, “This law is an important step in helping workers who are treated unfairly as independent contractors when they are actually employees, and by leveling the playing field for companies who are obeying the law and doing things the right way.” As the old saying goes, the proof is in the pudding. What practical impact the law will have remains to be seen.

Hair Today, Gone Tomorrow: Seventh Circuit Rejects Claim That Cosmetology Trainees Were Employees

Former cosmetology students are not employees entitled to pay under the FLSA and various state laws, the Seventh Circuit holds, rejecting the Department of Labor’s six-factor test but declining to adopt any bright-line test. Hollins v. Regency Corporation, 2017 U.S. App. LEXIS 15076 (7th Cir. Aug. 14, 2017).

The plaintiff was a student enrolled at one of 80 cosmetology schools, known as Regency Beauty Institutes. Each school offered both classroom and practical instruction, the latter consisting of discounted cosmetology services to the public, as well as performing various administrative and janitorial tasks at a school-operated salon.  Seeking to recover on behalf of both herself and a class of former students, the plaintiff alleged that she was an employee and thus entitled to minimum wage under federal and state law.  The district court granted summary judgment to the employer, finding the plaintiff was not engaged in compensable work and on appeal, the Seventh Circuit affirmed.

After first determining that a “final judgment” existed to create a proper appeal, the Seventh Circuit moved onto determining whether the plaintiff was properly classified as an unpaid trainee and not an employee. In resolving the issue, the Court first noted the circular, and practically meaningless, definition of “employee” found in the FLSA (“any individual employed by an employer”).  It then considered whether to adopt the DOL’s six factor “test” or some other multi-factor analysis, including those used by the Second and Eleventh Circuits and in earlier Seventh Circuit decisions, to distinguish between an employee and an unpaid intern.  While clearly expressing skepticism of the DOL’s test and appearing to be more amenable to those factors adopted by the other courts of appeal, the Seventh Circuit ultimately concluded that it could not make “a one-size-fits-all decision” about programs that include practical training or internships, and held that regardless of what factors are used, the overarching determination is “the economic reality of the working relationship.”

Here, the Seventh Circuit found particularly compelling the fact that the practical instruction implemented by the defendant was a state-mandated requirement for graduation from the cosmetology program and therefore was part of the instruction the plaintiff was paying to receive. The Court of Appeals further found compelling that the defendant did not operate salons independently of those used to train its students and prohibited licensed cosmetologists from working in its salons.  In addition, the students were awarded licensing hours and academic credit, not pay, for the services they performed.  Finally, the fact that some of the services the students were required to perform included janitorial or other menial tasks did not alter the analysis because these very types of tasks were part of the job of cosmetologists; in fact, the Seventh Circuit noted, “Salon Safety and Sanitation” comprises the greatest percentage of the state cosmetology examinations in both Illinois and Indiana.

The Seventh Circuit’s opinion in Hollins does not establish a clear-cut test for employers seeking to distinguish between employees and non-employees, instead allowing the law flexibility depending on the particular relationships at issue, which may be welcome news as the “gig” economy grows.

New Oregon Overtime Law both Giveth to, and Taketh Away from, Manufacturing Employers

Effective immediately, Oregon’s law has been clarified to provide relief to non-union employers operating mills, factories or other manufacturing facilities with respect to certain overtime pay obligations, but also has been revised, effective January 1, 2018, to limit the number of weekly hours employees in such establishments may work.

Previously, the Oregon Bureau of Labor and Industries (“BOLI”) had concluded that employees who worked enough hours to qualify for both daily overtime pay (for 10 or more hours worked in a single day) and weekly overtime pay (more than 40 hours total in a given week) were entitled to receive both, thereby requiring employers to pay twice for some overtime hours. The new law rejects BOLI’s interpretation and establishes that employees are entitled only to the greater of either daily or weekly overtime, not both.

In addition, the new law limits such manufacturing employees to working no more than 55 hours, or at employee request or by employee consent up to 60 hours, per week absent undue hardship. Existing law already limited manufacturing employers to no more than 13-hour workdays.  Driven primarily by the state’s significant wine, agricultural and fishing industries and their seasonal harvesting demands, the new law does allow employees who process perishable products to consent to work up to 84 hours per week, with certain limitations. However, the law also prohibits employers from disciplining employees who refuse to consent to work more than 55 hours a week and provides statutory and liquidated damages for violations of the daily or weekly work-hour maximums. For further details, see Oregon Clarifies, Overhauls Manufacturing Overtime Rules.

Washington Supreme Court Clarifies State Meal Break Requirements

Under Washington State’s meal break statute, an employer must provide an employee working five or more consecutive hours a 30-minute meal period, although employees may waive the meal break under state law.  In answering questions certified to it by a federal district court, the Washington Supreme Court first explained that the statute does not provide for strict liability, that is, an employer does not always violate the statute whenever an employee misses a meal break.  But if an employer is not automatically liable under the statute when an employee misses a meal break, what standard applies?  Answering this second, and more difficult question, the court rejected the more employer-friendly approach adopted by the district court and proposed by Autozone – that the employer’s burden is merely to provide the employee with a meaningful, reasonable opportunity to take the meal break, without impeding or discouraging the employee from doing so – and instead concluded that a greater burden exists on employers when an employee asserts a meal break violation under WAC 296-126-092.  Under the standard adopted by the court, an employee satisfies his or her prima facie case by providing evidence that he or she did not receive a timely meal break.  The ultimate burden of proof then shifts to the employer to demonstrate either that no violation occurred (i.e., the employee was in fact provided a meal break) or that a valid waiver existed.  Brady v. Autozone Stores, Inc., 2017 Wash. LEXIS 681 (Wash. June 29, 2017).

In light of the holding, employers should continue to ensure that their employees are taking required meal breaks or, if an employee elects to waive that right, that proof of the waiver exists, preferably in writing and signed by the employee.