Wage and Hour Update: New Opinion Letters from DOL

Posted on April 15, 2008 by Jaime Powell

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).  

The purchasing agents in this case were responsible for ensuring the timely order and delivery of materials; negotiating prices; maintaining records and handling returned goods; and selecting vendors.  DOL properly gave great weight to the fact that the purchasing agents were authorized to make purchases up to $25,000 without managerial review or authorization. This fact was truly significant because 99 percent of purchasing orders fell below $25,000 – indicating that the purchasing agents consistently made significant financial decisions with little supervision. These facts met the test for the administrative exemption. As with previous guidance from DOL, this opinion letter underscores how heavily the agency considers an employee’s decision-making authority in determining exempt status.

Opinion Letter FLSA2008-2 deals with the substitution provision available to public sector employers. Public sector employees may agree, with the approval of the employer, to substitute during scheduled work hours for another employee in the same classification/position. 29 U.S.C. § 207(p)(3). (This situation may occur, for instance, when one employee agrees to cover another employee’s shift.) Under the FLSA, the employer may exclude “substitution hours” from the calculation of overtime. Id. 

The specific issue addressed in the opinion letter was whether the substituting employee must receive any additional compensation for those hours. According to DOL, the public sector employer does not have to compensate the employee for those extra hours except where the employee has worked so many substitute hours that his wages for all hours worked fall below the minimum wage. In that case, the employer must be sure that the employee is paid at least minimum wage but still is not required to pay additional overtime. Conversely, the employer can remain in compliance with the minimum wage provision without paying any additional wages by denying any shift substitution requests that might drop the substitute employee’s hourly wages below the minimum wage.
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Court Finds That Immigrant Workers' Transportation and Visa Expenses Must Be Taken Into Account For Minimum Wage Purposes

Posted on January 10, 2008 by Rob Stalter

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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Sixth Circuit Holds That Gas Station Manager Is An Executive Employee Under the FLSA

Posted on December 28, 2007 by Rob Stalter

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.

After Speedway terminated the manager in 2003, she filed a lawsuit in the U.S. District Court for the Southern District of Ohio alleging, among other claims, that Speedway violated the FLSA by misclassifying her as exempt and failing to pay her overtime compensation as required by the Act. The district court held that the manager was an exempt employee under the FLSA and, as such, Speedway was not required to pay her overtime. The manager then appealed to the Sixth Circuit, which upheld the ruling for Speedway.  

In its opinion, the court explained that it “cannot rely on the plaintiff’s or the employer’s description of the plaintiff’s position or authority; instead we must look at the plaintiff’s actual duties to determine whether she qualifies for the executive exemption.” The court noted that, while being “in charge” does not automatically qualify an employee as an executive employee, in this case, the fact that the manager was in charge of the store for a significant period of time each week made her an executive employee. And, even though she was supervised by someone else and was required to follow policies set by Speedway’s management, the manager still exercised everyday discretion in how she performed her duties.

The court also focused on the relative importance of her managerial and non-managerial job duties to the company. The court stated that if the store manager “failed to perform her nonmanagerial duties, her Speedway station would still function, albeit much less effectively. After all, most of us – even if unwillingly – have visited and spent our money at filthy gas stations with sparsely stocked shelves.” But if the store manager “failed to perform her managerial duties, her Speedway station would not function at all because no one else would perform these essential tasks.” 

Although the court in this case found that Speedway properly classified its store manager as exempt, the case highlights the importance of properly classifying employees. If Speedway had been wrong in its classification, it would have owed the store manager tens of thousands of dollars for overtime it never paid her – not to mention being on the hook for the store manager’s attorneys’ fees. Most importantly, Thomas highlights that employers’ focus when making exempt v. non-exempt employee classification decisions needs to be on employees’ actual duties – not generic (and sometimes inaccurate) job descriptions. 
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