Explosion of FLSA Litigation Should Prompt Employers to Review Their Practices

Posted on January 14, 2010 by Rob Stalter

Recent reports have indicated that the number of FLSA collective actions rose sharply in 2009. Many believe this trend will continue in 2010 as employees gain increased awareness of their rights under wage and hour laws and the plaintiffs' bar recognizes the potential value of FLSA collective actions.

Indeed, there has been a recent flurry of activity across the country in the area of wage and hour class actions. Assistant managers at Foot Locker Retail Inc. filed a nationwide collective action in the Southern District of California, alleging that the company misclassified them as exempt and failed to pay them overtime wages. Similarly, Vermont state employees have brought a putative class action under the FLSA, claiming that the state has failed to pay overtime to employees in higher pay grades. 

A federal judge in Florida has denied conditional class certification in a putative class action brought against H&R Block by its tax agents because the lead plaintiffs could not show that the company's failure to pay overtime was a companywide practice. In Missouri, however, a group of AT&T call center workers won conditional certification in their collective action, in which they seek overtime compensation for the amount of time it takes them to log onto their systems prior to shifts.

Recent settlements have also been reached. A judge in the Middle District of Florida signed off on a settlement between Cemex Inc. and a group of former truck drivers who had accused the company of withholding overtime wages. Finally, the plaintiffs in an FLSA case against First Residential Mortgage Network Inc. settled their claims following the decertification by the court of a class of loan advisors.

 

Given the increase in FLSA collective action activity, it is important that all employers be mindful of their classifications of employees and pay practices. These cases can be very expensive for employers to defend and sometimes even more expensive to settle.  

 

If employers have any questions about whether they have properly classified their employees as being exempt, they would be wise to spend a little money up front to conduct a self-audit. Among the steps employers can take are (a) confirming that job descriptions truly describe exempt executive, administrative, professional, computer professional or outside sales positions; (b) confirm that employees are actually doing what their job descriptions say they are supposed to do; and (c) ensure that exempt employees are being paid at least the minimum qualifying salary. In addition, to avoid other potential wage and hour litigation, employers should confirm that non-exempt employees are recording all hours worked, that minors are not forced to work outside state law requirements, and that individuals that are treated as independent contractors are not really employees.
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Department of Labor Releases New Wage and Hour Fact Sheet

Posted on August 6, 2009 by Jaime Powell

The federal Department of Labor (DOL) recently issued a new fact sheet entitled “Frequently Asked Questions Regarding Furloughs and Other Reductions in Pay and Hours Worked Issues.”  While the fact sheet contains no new law or interpretation, in these economic times, it is extremely helpful for employers to have the DOL’s prior guidance on these issues consolidated in one sheet. 

The fact sheet is set out in a question-and-answer format that is easy to follow. It addresses the following questions:

  1. If an employer is having trouble meeting payroll, do they need to pay non-exempt employees on the regular payday? Answer: Yes.
     
  2. Is it legal for an employer to reduce the wages or number of hours of an hourly employee? Answer: Yes, so long as the minimum wage and overtime provisions are met.
     
  3. Does an employer need to pay an hourly employee for a full day of work if he or she was scheduled for a full day but only worked a partial day due to lack of work? Answer: No.
     
  4. In general, can an employer reduce an otherwise exempt employee’s salary due to a slowdown in business? Answer: It seems to depend on what you mean. The fact sheet interprets this as a deduction for lack of hours worked. That is prohibited by the FLSA. Keep in mind, however, that employers are typically free to prospectively reduce an exempt employee’s overall compensation so long as the salary basis test and threshold is met.
     
  5. Can an employer reduce the leave of a salaried exempt employee? Answer: Yes. Be careful when making any deductions from pay. Also keep in mind that, under Ohio law, accrued leave is the same as earned wages – it is not advisable under state law to “take away” leave that has already accrued.
     
  6. Can a salaried exempt employee volunteer to take time off due to lack of work? Answer: Yes, which would allow the employer to deduct for a full day’s absence.  Proving that the employee truly “volunteered,” however, may be next to impossible.  This option should be resorted to only with great caution.
     
  7. Can an employer make prospective reductions in pay for a salaried exempt employee due to the economic downturn? Answer: Yes. See Question 4.
     
  8. Can an employee still be on-call or performing work at home during a furlough day? Answer: Employees who perform part or all of their normal job duties during a furlough day are working and are entitled to appropriate compensation.
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A Double Identity Doesn't Entitle You To Overtime!

Posted on April 10, 2009 by Jaime Powell

We just ran across a wage and hour case out of Texas with a unique twist on the usual overtime claim. Bustamente, an undocumented immigrant, alleged that the El Palenque Mexican Restaurant and Cantina forced him to work under another identity to avoid overtime.  

According to Bustamente, the kitchen manager realized he lacked the documentation to work legally in the country but told him it wouldn’t be a problem if he had some documents. Bustamente began working under his brother’s identity. (He actually brought the case as Jesus Bustamente, the brother– he only confessed that his real name is Cristoforo one week prior to trial). Soon after, Bustamente alleged that the restaurant had him fill out an application using his nephew’s identity in order to avoid overtime pay. He worked the early shift as his brother, the evening shift as his nephew. Bustamente testified that he received two separate paychecks. 

 

The restaurant’s defense was straightforward – Bustamente and his nephew were both employees. The company used a fingerprint timekeeping system, making it difficult to impersonate someone. Witnesses remembered the nephew as taller than Bustamente. The company did pay overtime to other employees.  Most important, the company produced payroll records showing that Bustamente and his nephew actually worked the same shift on one occasion. In light of the conflicting testimony and confusing payroll records, the court found that Bustamente could not prove his claims. 

 

While the facts of this case are amusing and hopefully not likely to repeat themselves often, it serves as a good reminder that clear, accurate payroll records can be an employer’s best friend in a wage and hour case.   Cristoforo Bustamente, a/k/a Jesus Bustamente, a/k/a Angel Bustamente, v. El Palenque Mexican Restaurant and Cantina, Inc., Case No. No. H-07-2506, (S.D. Tex, February 3, 2009).

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DOL Issues New Wage and Hour Opinion Letters

Posted on March 13, 2009 by Jaime Powell

On March 6, 2009, the United States Department of Labor (DOL) released two noteworthy wage and hour opinion letters.

The first, Opinion Letter FLSA2009-16, may cause an unnecessary stir in the employer and legal communities. The opinion letter approves an employer’s “compressed work schedule.” Employees work nine hours per day Monday through Thursday and work eight hours on one of the two Fridays during the two-week pay period. The company operates under two alternative workweeks. Under the first option, the workweek begins at 11:31 a.m. on Friday and ends at 11:30 a.m. the following Friday, with the scheduled workday beginning at 7:30 a.m. Under the second option, the workweek begins at 12:31 a.m. on Friday and ends at 12:30 a.m. the following Friday, with the scheduled workday beginning at 8:30 a.m. Assuming the employees work no more than the stated hours, they do not receive overtime under this schedule.

On first glance, this opinion letter appears to allow employers to “average” the workweek – employees work 44 hours one week, 36 hours the next. While this reading would be extremely employer-friendly, it would also contradict the Fair Labor Standards Act, which sets a single workweek as the standard length of time used to determine if an employee is due overtime. The law does not allow for the averaging of hours over two or more weeks. See 29 U.S.C. § 207(a)(1); 29 C.F.R. § 778.104. 

 

It’s crucial to look at the actual workweek in this case. Because the employer’s workweek starts and ends mid-day on Friday and employees begin their workday that morning, the work performed on a Friday is technically split between two workweeks. Four hours fall into the first workweek, four hours into the second. Therefore, the employee is actually working only 40 hours each workweek. 

While it’s important that employers and attorneys not read this opinion letter too broadly, the good news is that the DOL did approve a workweek that was skillfully created to avoid overtime. Employers who regularly deal with substantial overtime may want to consider a similar arrangement. 

 

Opinion Letter FLSA2009-2 is potentially less exciting but just as relevant in today’s economy. In the opinion letter, the DOL approved an employer’s plan to require exempt employees to use accrued vacation time during a plant shutdown of less than a workweek without violating the salary basis test and jeopardizing their exempt status. 

 

Reiterating the position set forth in a 2004 Opinion Letter, the DOL explained that “since employers are not required under the FLSA to provide any vacation time to employees….it is our opinion that the employer may require exempt employees to use accrued vacation time for any absence, including one resulting from a plant shutdown, without affecting their exempt status, provided that employees receive a payment in an amount equal to their guaranteed salary.” (emphasis added). 

Employers considering a facility shut-down should keep in mind the general rule that exempt employees must be paid for any employer-occasioned absence of less than one full workweek. Employers who, for economic reasons, need to implement unpaid shutdowns should make sure that exempt employees are on furlough for a full workweek. 

 

In addition to these two opinion letters, the DOL also released 33 others. All of the opinion letters were signed by the Acting Administrator before President Obama’s inauguration. Eighteen of the letters, but neither of the letters discussed above, were given only a conditional release, with the DOL explaining that the while agency is “making these letters available to the requestor and to the public, the agency has decided to simultaneously withdraw these letters for future consideration.” While employers (and attorneys) may understandably be confused by this development, the best course of action is to avoid relying on any of the conditional letters until the DOL either issues final approval or completely withdraws the letters.

 

We’ll keep you updated on the status of these opinion letters. 
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Ohio Department of Commerce Issues New Prevailing Wage Guidelines

Posted on November 5, 2008 by Jaime Powell

 The Ohio Department of Commerce recently released new prevailing wage guidelines.  These guidelines, which became effective on October 15, 2008 and are available at http://com.ohio.gov/laws/,  focus on construction projects supported by both public and private funds.  Essentially, whenever a public entity contributes funding or other direct support (such as public land) to a project, even an otherwise privately-financed project, prevailing wage must be paid to the workers on that project.  The guidelines also state that, for the most part, projects may not be subdivided into a publicly-supported project and a privately-financed project in order to avoid prevailing wage on certain “phases” of a project. 

 While the guidelines are intended to clarify the existing law, rather than create new standards, some of the examples listed in the guidelines have resulted in much controversy, particularly in the areas of asbestos removal/brownfield remediation.  Nevertheless, the guidelines are considered to be currently in effect and Ohio employers should approach prevailing wage issues conservatively.  Please contact your attorney if you have any questions on prevailing wage or whether a construction project is covered by the state law. 

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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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