Employment and Labor Relations Lawyer & Attorney : Porter Wright's Employer Law Report : Employment Litigation, Non-Compete, Trade Secrets

The United States Department of Labor (DOL) recently released two new opinion letters. Both are employer-friendly.

Opinion Letter FLSA2008-1 addressed whether purchasing agents in a private sector company were properly categorized as exempt administrative employees. Based on the specific context, DOL determined that the employees were exempt from overtime requirements. As a reminder, to meet the criteria for an administrative exemption, the position must: (1) meet the salary basis test; (2) have a “primary duty” of performing office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and (3) include the exercise of discretion and independent judgment with respect to matters of significance in performing the primary duties. 29 C.F.R. § 541.200(a).  

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Failing to pay overtime to an employee because he or she was incorrectly classified as exempt under the Fair Labor Standards Act can be an expensive mistake. Not surprisingly, failing to pay overtime to employees holding a group of jobs improperly classified as exempt can have serious financial consequences for an employer.

Last week, in Wiegele v. Fedex Ground Package System Inc., 3:06-cv-01330-JLS-POR (S.D. California 2008) et al., a federal judge certified a class of former managers who claim to have been improperly denied overtime pay. The managers argued that they spent most of their time performing manual labor instead of managerial tasks and, accordingly, that they should have been classified as non-exempt workers, eligible for overtime. Considering the bid for class certification, the court found that the common issue of whether the employees were exempt predominated over individualized issues and that it would be more efficient to certify the class than allow the claims to proceed as individual actions.

It remains to be seen whether the plaintiffs’ claims have merit – i.e., whether they were, in fact, misclassified as exempt employees. Nonetheless, the cost of defending claims on a class basis coupled with the possibility of up to three years of backpay for classes containing more than 550 members illustrate the magnitude of the potential risk for employers that incorrectly classify entire job groups as exempt. To help avoid such risks, employers should periodically review their exempt job classifications to ensure that incremental changes to jobs that occur over time do not destroy the exempt status of employees in those positions.

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A recent wage-and-hour case illustrates the effect payroll deductions can have on minimum wage compliance. In Rivera v. Brickman Group, Ltd., No. 05-1518 (E.D. Pa. Jan. 7, 2008), a company brought Guatemalan and Mexican workers to the United States for seasonal employment under H-2B visas. Although the workers were paid amounts that appeared to be above the minimum wage, the company failed to take into account certain travel expenses and other employment-related costs incurred by the workers – expenses that reduced the workers’ earnings below minimum wage levels.

In particular, the court found that transportation expenses, costs involved in obtaining visas, and fees charged by the company’s recruiters were incurred by the workers primarily for the company’s benefit. Therefore, the company violated the Fair Labor Standards Act because the deductions brought the employees’ earnings below the minimum wage. In reaching its decision, the court rejected the company’s argument that the Immigration and Nationality Act and the Portal-to-Portal Act supersede the FLSA with regard to H-2B workers’ wages and do not require employers to bear the travel expenses of such employees. The company has not yet announced whether it will appeal the decision.

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Are you making improper deductions from employees’ pay without even realizing it?  Have you ever had a manager who is consistently late and you want to impose a fine equal to 15 minutes of pay for each occurrence?  Or an hourly employee who loses or destroys company tools or equipment and you want them to pay you back for what they broke?  What about an employee who resigns while he or she has a negative leave balance? In all these situations, making a deduction from pay makes logical sense.  But these deductions may be contrary to wage and hour law.

First, many states have laws requiring employers to obtain employee authorization prior to making deductions from pay.  The Ohio wage and hour statutes refer to “employee authorized deductions” generally and specifically require employers to have express authorization before making deductions for damage to tools or equipment.  See Ohio Rev. Code §§ 4113.15; 4113.19.  Pay careful attention to state law before you make any deductions from pay!  You should also consider including a general deductions policy in your handbook, and realize that you may need to obtain specific waivers for certain deductions from pay.

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Adding clarity to an often-litigated area of wage and hour law, the Sixth Circuit recently held that a small store manager was exempt from the FLSA's overtime requirements despite her performance of non-managerial tasks and close supervision by her district manager. The case – Thomas v. Speedway SuperAmerica, LLC, No. 04-00147 (6th Cir. 2007) – involved a Speedway  gas station and convenience store manager who Speedway claimed was an exempt “executive employee” under the Fair Labor Standards Act. Even though the store manager was the most senior employee at the store, she was supervised by a district manager who visited the store twice a week. She was expected to work at least 50 hours per week, and often worked much more than that. She received a $500 weekly base salary as well as managerial bonuses equaling a percentage of the gross profit from certain products sold in the store. As for her day-to-day work duties, the manager spent about 60 percent of her time performing non-managerial tasks such as stocking merchandise, sweeping bathrooms, operating the cash register, and performing routine clerical duties.  The remaining 40 percent of her time was spent performing several management functions, including supervising current employees, hiring new employees, preparing weekly work schedules, handling employee complaints, evaluating employees, and terminating employees.

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Ohio employers should be aware that the minimum wage is about to increase yet again. The Ohio Department of Commerce has announced that the state’s minimum wage will increase to $7.00 per hour on January 1, 2008 – a 15 cent increase over the 2007 minimum wage. The minimum wage for tipped employees will rise from $3.43 to $3.50 per hour, so long as employees earn a total of $7.00 per hour once wages and tips are combined. 

These new minimum wages apply to employees over 16 years of age whose employers gross more than $255,000 annually. For employees younger than 16 and those whose employers gross less than $255,000 annually, the federal minimum wage of $5.85 applies – but not for long. The federal minimum wage will increase to $6.55 on July 24, 2008.

A copy of the Department of Commerce’s 2008 Minimum Wage poster can be found here.

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