California Supreme Court Limits Commissioned Employee Exemption

July 28, 2014 by

On July 14 the California Supreme Court ruled that commissions paid in one pay period cannot be attributed to earlier pay periods in order to satisfy the requirements of California’s commissioned employee overtime exemption. The case is Peabody v. Time Warner Cable, Inc.

The overtime exemption for commissioned employees (sometimes referred to as the “commissioned salesperson exemption” or “inside sales exemption”) is found in Industrial Welfare Commission Wage Orders 4 and 7, which exempt from overtime requirements employees whose earnings exceed one and one half times the state minimum wage if more than half the employee’s compensation consists of commissions.

Julie Peabody worked for Time Warner Cable selling advertising. Time Warner paid Peabody her hourly wages every two weeks, but paid her commissions only once a month.

Peabody brought a class action against Time Warner for unpaid overtime. Time Warner did not dispute Peabody’s claim to have worked overtime, but contended she fell within the commissioned employee exemption. The company acknowledged that most of Peabody’s paychecks included only hourly wages that were less than one and one half times the minimum wage, but argued that commissions paid monthly should be averaged out over all the weeks of the month, including weeks in earlier biweekly pay periods, in order to satisfy the minimum earnings requirement. Peabody contended the requirement can only be satisfied by applying commissions to the pay period in which they are paid.

The district court agreed with Time Warner and granted summary judgment. Peabody appealed to the Ninth Circuit Court of Appeals, which could find no clear controlling precedent to resolve the issue. The Ninth Circuit certified the question to the California Supreme Court.

The state’s high court saw things Peabody’s way. While acknowledging that an employer is permitted to pay commissions monthly or even less frequently, the court concluded that for purposes of the commissioned employee exemption, the minimum earnings requirement is satisfied only in those pay periods in which it actually pays the required minimum earnings. In other words, an employer may not satisfy the requirement by reassigning wages paid in one pay period to a different pay period. The court reasoned that to rule otherwise would be inconsistent with Labor Code Section 204, which requires wages to be paid at least twice per month. The court rejected Time Warner’s argument that the monthly averaging method should be endorsed because federal law permits it, explaining that, in light of the “substantial differences” between federal and California wage and hour laws, “reliance on federal authorities to construe state regulations would be misplaced.”

Employers should review their pay practices to ensure that all employees classified under California’s commissioned employee exemption are paid at least one and one half times the state minimum wage during each pay period. Employers should also ensure that these employees satisfy the other requirement of the exemption, i.e., that commissions account for more than half of their total compensation.

Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA

City of San Diego Raises Minimum Wage and Mandates Paid Sick Leave

July 17, 2014 by

Earlier this week the San Diego City Council voted to join San Francisco, San Jose and several other cities across the nation as municipalities with higher minimum wages than those established by federal or state law. The council also voted to require employers to provide paid sick leave. The council is scheduled to vote again on July 28 to officially adopt the ordinance. The 6-3 vote in favor of the measure is sufficient to override an expected veto by Mayor Kevin Faulconer.

Currently the federal minimum wage is $7.25 per hour. California’s minimum wage increased from $8 to $9 per hour on July 1 of this year, and is scheduled to rise again to $10 per hour on January 1, 2016. Employees must be paid the highest minimum wage in effect, which means workers in San Diego are currently subject to the state minimum wage.

The vote by the City Council will, for the first time, establish a minimum wage within the City of San Diego that will be higher than both the federal and state minimums. San Diego’s minimum wage will apply to all private sector employees who work at least two or more hours per calendar week within the city limits. These employees must be compensated for each hour worked within the city limits at the following minimum hourly rates:

Beginning January 1, 2015:          $9.75

Beginning January 1, 2016:          $10.50

Beginning January 1, 2017:          $11.50

Beginning January 1, 2019, the city’s minimum wage will increase in January of each year based on the prior year’s increase in the Consumer Price Index.

San Diego’s new paid sick leave mandate takes effect April 1, 2015, and requires employers to provide employees with one hour of paid sick leave for every 30 hours worked within the city limits, with a maximum accrual of 40 hours per year. Employees may begin using paid sick leave on July 1, 2015. Paid sick leave may be used for the employee’s own illness or medical appointment, to care for an ill family member, or to take time off for reasons related to domestic violence.

Employers may require paid sick leave to be used in increments of at least two hours, and may limit an employee’s use of paid sick leave to 40 hours per year. Employees will be allowed to carry over unused sick leave to the following year, but employers are not required to pay out unused sick leave upon the employee’s separation from employment. Employers already providing paid sick leave that meets the requirements of the ordinance are not required to provide any additional sick leave.

The measure also requires employers to post notices of the new ordinance within the workplace by April 1, 2015, and to provide each new employee with written notice of the minimum wage and paid sick leave requirements after that date. The city will make notice materials available to employers by April 1, 2015.

The ordinance also creates a city Enforcement Office to enforce the minimum wage and paid sick leave requirements, and establishes a civil penalty for most violations of up to $1,000. Violations of the notice requirement may be assessed at $100 per employee, up to a maximum of $2,000.

San Diego business leaders are considering a referendum to overturn the ordinance. In the meantime, employers who have employees working within the San Diego city limits (even if the employer is based outside the city) should plan to comply with the new minimum wage, sick leave, and notice requirements.

Aaron Buckley – Paul, Plevin, Sullivan & Connaughton LLP – San Diego, CA

Fifth Circuit Blocks Franchisee Employee’s Effort to Treat Franchisor As His “Employer” Under The FLSA

July 11, 2014 by

by Erin L. Malone, Phelps Dunbar LLP (Tampa, FL)

The Fifth Circuit Court of Appeal recently held in Orozco v. Plackis that a franchisor was not liable to a franchisee employee for alleged minimum wage and overtime violations because the franchisor was not an “employer” under the Fair Labor Standards Act (“FLSA”). No. 13-50632, 2014 WL 3037943 (5th Cir. July 3, 2014). Under the FLSA, an employer is broadly defined as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U.S.C. § 203(d). Relying on the economic reality test, the Fifth Circuit examined the employer‒employee relationship by examining whether the franchisor: (1) possessed the power to hire and fire the employee, (2) supervised and controlled the employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records. After examining the evidence, the Fifth Circuit held that the franchisor was not an employer under the FLSA because the employee lacked legally sufficient evidence to establish any of the elements of the economic reality test.

In Orozco, a restaurant cook filed a lawsuit against the restaurant’s franchisee owners, alleging minimum wage and overtime violations under the FLSA, and after settling with the franchisee owners, the employee added the restaurant’s franchisor owner as a defendant. At trial, the jury rendered a verdict in favor of the employee, finding, in part, that the franchisor was the employee’s employer and the franchisor was part of an enterprise covered by the FLSA. The district court denied the franchisor’s motion to set aside the jury’s verdict, and the franchisor appealed.

The Fifth Circuit reversed the district court and rendered judgment in favor of the franchisor. The Fifth Circuit found that the evidence did not allow the jury to find that the franchisor was an employer under the FLSA. In fact, the Fifth Circuit found that none of the elements of the economic reality test weighed in favor of employer status. It is noteworthy that the United States Department of Labor filed an amicus brief in favor of the employee, but the Fifth Circuit ignored the DOL’s brief in the opinion.

FLSA suits continue to proliferate and employees of franchisees sometimes look to franchisors as a “deep pocket” or, in this case, an “extra pocket” to recover money. Franchisors (especially in the Fifth Circuit – Louisiana, Mississippi, and Texas) should consider the Orozco decision as an arrow in the quiver to avoid possible liability against FLSA lawsuits filed by franchisee employees. Nevertheless, franchisors also should know that Orozco does not provide absolute immunity against FLSA lawsuits, as the Fifth Circuit clarified that the Orozco decision does not mean “franchisors can never qualify as the FLSA employer for a franchisee’s employees.” Franchisors should know and appreciate that the FLSA broadly defines who and what constitutes an employer (more broadly than the common law definition of employer), and the analysis of determining an employer’s status is fact specific.

California Supreme Court on Arbitration Agreements: Class-Action Waivers OK, but PAGA Claims Unwaivable

June 27, 2014 by

This week, the California Supreme Court issued its highly anticipated opinion in Iskanian v. CLS Transportation Los Angeles, LLC. The decision was a partial victory for employers: the Court clarified that class-action waivers in arbitration agreements may be enforced, but it also held that employers cannot obtain the waiver of an employee’s right to bring a “representative” claim under California’s Private Attorney General Act of 2004 (PAGA).

Iskanian resolved a split amongst California courts as to whether the U.S. Supreme Court’s 2011 ruling in Concepcion v. AT&T Mobility overruled an earlier California case – Gentry v. Superior Court – that said courts could evaluate class-action waivers on a case-by-case basis. The Iskanian Court addressed whether the Federal Arbitration Act (FAA) allowed state courts to refuse to enforce arbitration agreements in order to promote important state interests, such as California’s wage-and-hour laws. The plaintiff in Iskanian argued wage claims were cost-prohibitive for an individual to bring, so class actions were needed to enforce California’s unwaivable labor rights.

The California Supreme Court concluded that the FAA trumps these state-law interests. Because the FAA mandates the enforcement of legal arbitration agreements, California labor laws cannot require procedures that are “incompatible with arbitration.” Therefore, California courts are not free to rely on public policy to reject class action waivers. The Court also rejected the argument that class action waivers violated employees’ rights to engage in “concerted activity” under National Labor Relations Act.

The case was not a total win for employers, however, as the Court determined that employees cannot waive the right to bring claims under the PAGA. Iskanian held that the FAA’s purpose is to preserve arbitration’s “efficient forum for the resolution of private suits.” PAGA “deputizes” employees so they can assert claims for civil penalties on behalf of the state of California. Since PAGA claims are not “private suits” but state enforcement claims, the Court reasoned, the FAA does not apply and an employee’s waiver of rights to pursue PAGA claims on behalf of other employees is not enforceable.

What This Means

Iskanian allows employers to include class action waivers in arbitration agreements. To be enforceable, these agreements still must comply with existing legal standards including mutuality, allocation of costs, and preservation of statutory rights to attorneys’ fees.

However, it is now established that such class action waivers cannot include a waiver of an employees’ right to bring PAGA claims. Therefore, employees with valid arbitration agreements can still seek civil penalties for Labor Code violations, and they can do so on behalf of themselves and all other allegedly aggrieved employees. As a result, employers with valid class action waivers in arbitration agreements could find themselves litigating wage claims in two separate forums.

The potential of parallel wage claims is a new wrinkle in this area. Employers should consider this along with all the other pros and cons of arbitration agreements, and ensure that their agreements do not otherwise violate California law against unconscionable contracts.

by Matthew R. Jedreski and Fred M. Plevin.

FLSA Settlements – Doesn’t Mean It is Over Yet

June 13, 2014 by

You know the feeling. Regardless of whether you are an in-house attorney or outside counsel, you have settled a significant FLSA litigation matter. You breathe a sigh of relief. All that is left is the paper work for the settlement agreement and court approval. You and your client are happy. But, wait, the court has rejected your settlement? How can that be?

Recently, courts have denied approval of settlement agreements for various reasons – the way funds will be distributed or broad releases. One judge in overseeing a proposed settlement involving a music retailer noted that the financial settlement to the putative class was less than the proposed attorneys’ fees in the proposed settlement. This one is easy to ignore in 49 states because it involves California state claims and therefore brought under a different statute and procedural vehicle from FLSA claims.

But, judges in FLSA cases in several states have also recently rejected proposed settlements for similar reasons – the judge determined the settlement was not fair. Courts are trying to verify that there was really an arms-length negotiation between plaintiff’s counsel and defendant’s counsel. Courts aim to ensure that the funds are being distributed fairly and not heavily weighted in favor of a group of plaintiffs or attorneys’ fees. Courts are also very concerned about the appropriateness of a full, general release of all claims rather than a release limited to those asserted under the FLSA. Finally, judges are leery of confidential settlements and are now rejecting settlements that are filed under seal or involve confidentiality provisions.

With recent statistics showing a 5% increase in FLSA filing over the last year, lawyers on both sides of the docket need to consider these factors when reaching terms and drafting settlement agreements. Courts are obviously willing to reject those settlements that they find to be unfair. It is in all parties’ interest to reach an agreement that a court will approve. That means employers may not be able to insist on favored terms like full releases and confidentiality. It also means that lawyers should be discussing the breakdown among attorneys’ fees and settlement awards during the negotiation process to avoid reaching an agreement that will not be approved.

What these recent cases remind us is that reaching a deal is not the end of the road, obtaining approval is. And, judges are willing to withhold approval if they do not view the deal is fair to all of the class members.  These issues should be discussed as you are reaching the final stages of negotiations to avoid an order denying approval.

Federal Preemption Yields a Victory For Employers, Connecticut Supreme Court Holds Commuting Time Not Compensable

May 27, 2014 by

In Sarrazin v. Coastal, Inc., 311 Conn. 581 (2014), the Connecticut Supreme Court ruled that the Fair Labor Standards Act (“FLSA”) preempts Connecticut law with respect to a claim seeking overtime wages for certain travel time and concluded that under the FLSA a plumber’s commuting time is not compensable even though he commutes in a company vehicle with his tools at the ready.

The plaintiff in this case was employed by Coastal, Inc. (“Coastal”), a plumbing subcontractor engaged in the installation and repair of plumbing systems on large construction projects throughout Connecticut.  His state law claim for overtime wages was directed at the two hours a day he spent driving a company truck from his home to varying job sites.  He also claimed as compensable time the half an hour each day he allegedly spent cleaning the truck once he arrived home as well as the time occasionally spent picking up tools from defendant’s warehouse after working hours.

The threshold issue in the case was whether the FLSA, and more specifically the Portal-to-Portal Act, preempted state law as it related to the travel time in question.  Because the FLSA does not include an express preemption clause, and Congress clearly did not intend that the FLSA occupy the field, state wage and hour laws are only preempted to the extent there is an “irreconcilable conflict” with the FLSA. Starting from the premise that the FLSA is “a national floor with which state law must comply,” the Court determined that “state laws that provide less protection than guaranteed under the FLSA are in irreconcilable conflict with it and preempted; state laws that provide the same or greater protection than that provided by the FLSA are consistent with the federal statutory scheme and are thus not preempted.” In this context, the “national floor” is defined by the rule that activities preliminary and postliminary to an employee’s primary work activities, such as the employee’s commute, generally are not compensable. This is true even if the employee is commuting in a company vehicle, as long as the travel is within the employee’s normal commuting area and the use of the employer’s vehicle is pursuant to an agreement between the employee and his employer. Federal courts have carved out an exception to this rule, holding that the time is compensable if the requirements and restrictions the employer places on an employee’s commute impose more than a minimal burden on the employee, such that his commuting time becomes an integral and indispensable part of his primary work activity.

Having established the federal “floor,” the Court focused attention on the applicable state regulation in order to assess whether state law provided less protection than the FLSA and thereby created an “irreconcilable conflict.”  The Connecticut regulation, codified at Regs. Conn. State Agencies § 31-60-10, defines “travel time” as “that time during which a worker is required or permitted to travel for purposes incidental to the performance of his employment but does not include time spent in traveling from home to his usual place of employment or return to home, except as hereinafter provided in this regulation.”  The operative regulation goes on to provide in Subsections (c) and (d) that only “additional travel time”—defined as the difference between an employee’s regular commute and the time it takes to travel from an employee’s home and a location other than his regular place of employment—is compensable.  Added to this mix is subsection (b), which provides that “travel time” is compensable when an employee is required to travel for purposes that “inure to the benefit of the employer.”  Taking these subsections as a whole, the Court concluded that unlike the FLSA, there are no circumstances under which Connecticut regulations require an employee to be compensated for his regular commute. In other words, there is no “more than a minimal burden” test.

In so concluding, the Court rejected the plaintiff’s reliance on the Connecticut Department of Labor’s interpretation of its own regulations.  Although such interpretations are ordinarily entitled to deference, that is not the case where, as here, the department’s construction of a provision “has not previously been subject to judicial scrutiny [or to] . . . a governable agency’s time-tested interpretation.” In this instance, the regulation had not only gone unscrutinized but was based on what the Court obviously considered to be outdated information.  Specifically, the CT DOL read § 31-60-10 as incorporating the standards set forth in a 1995 U.S. Department of Labor opinion letter interpreting the Portal-to-Portal Act to mean that time spent commuting in a company vehicle is not compensable if the company vehicle is the type that would normally be used for commuting, the employee incurs no cost for using the vehicle, the work location is within normal commuting distance, and the employee takes the company vehicle home at the end of the day voluntarily.  However, this test represented a complete reversal from an opinion letter issued in 1994.  Unsatisfied with this discrepancy, Congress amended 29 U.S.C. § 254(a) to provide that when an employee uses an employer’s vehicle to commute, that travel time, which includes activities incidental to the use of the vehicle, is not compensable if the travel is in the normal commuting area and the employee is using the vehicle subject to an agreement with his employer.  The Court was clearly perplexed by the CT DOL’s continued reliance on a position that “was emphatically and expressly rejected by Congress in 1996” and its failure “to acknowledge the questionable history of the 1995 opinion letter or offer any explanation as to why the department nonetheless relies on an interpretation superseded by congressional action to interpret § 31–60–10 of the regulations.”

Summarizing on the preemption point, the Court explained that “pursuant to the plain language of § 31–60–10 of the regulations, we conclude that the regulation provides for no compensation for an employee’s regular commute.  Because the FLSA does allow for compensation for an employee’s regular commute under certain circumstances, preemption applies and the Portal-to-Portal Act governs the plaintiff’s claim.”  Having concluded that state law is preempted, and the provisions of the FLSA are therefore controlling, the Court quickly disposed of the matter, agreeing with the trial court’s conclusion that the plaintiff’s commuting time was not compensable under the FLSA in that carrying tools during a commute imposed a minimal, if any, burden on the plaintiff, the commute to various job sites was within the normal commuting area, and the plaintiff used the defendant’s truck subject to an agreement between the two parties.

This is a victory for Connecticut employers in that the Court rejected a CT DOL interpretation of the agency’s regulations that would have conferred greater benefits on employees in terms of compensation for travel time than is afforded by federal law.  That being said, employers and attorneys alike should be on the lookout for possible changes to the Connecticut laws at play in this case in the next legislative session and for updated interpretations by the CT DOL of its own regulations in light of the Court’s not-so-subtle criticism.

Employers Take Heed – EEOC Scrutinizing “Standard” Severance And Settlement Agreements

May 17, 2014 by

Several recent EEOC lawsuits, one filed in the Northern District of Illinois and another very recently filed in the District Court of Colorado, suggest an emerging trend that may have broad reaching impact on what has been considered standard, enforceable language in severance and settlement agreements. Specifically, the agency has recently challenged commonplace general release language, confidentiality provisions and non-disparagement clauses, arguing that they unlawfully chill employees’ right to file a charge of discrimination and communicate with the EEOC – even if such agreements include a disclaimer that the employees may still file a charge notwithstanding the release.

In the pioneer case – filed against CVS Pharmacy, Inc. (“CVS”) in the Northern District of Illinois – the EEOC challenges CVS’s form separation agreement, despite the fact that the agreement explicitly contains language notifying the employee that nothing in the agreement is intended to “interfere with Employee’s right to participate in a proceeding with any appropriate federal, state or local government agency enforcing discrimination laws, nor shall this [a]greement prohibit Employee from cooperating with any such agency in its investigation.” Nevertheless, the EEOC concluded this was not sufficient – focusing on the fact that the disclaimer was only stated once in the agreement. The EEOC has gone even further – taking the position that commonplace confidentiality agreements and non-disparagement provisions somehow prevent employees from communicating with the EEOC about allegations of workplace discrimination. Based on the foregoing, the EEOC argues that CVS’s form agreement amounts to a “pattern and practice” of interfering with the employees’ right to file discrimination charges or communicate with the EEOC. This is an unsettling development in that many employers incorporate similar language in their standard separation and settlement agreements with the understanding that this approach comports with already settled law.

CVS filed a motion to dismiss the EEOC’s lawsuit, arguing: (1) that its “run-of-the-mill agreement” simply does not interfere with employees’ right to file a charge, pointing out that the agreement expressly stipulates that former employees may participate in EEOC proceedings; and (2) that Title VII’s pattern-or-practice provision merely authorizes the EEOC to use a class action-style proof framework against those employers who repeatedly and intentionally engage in discrimination and retaliation, and the alleged wrongdoing in this suit does not fall into that category of conduct. Rather, CVS argued, even if the severance agreement had the effect of discouraging participation in EEOC proceedings, at worst, the agreement would be unenforceable, and not demonstrative of a pattern of discrimination. The EEOC has not yet filed its response brief. Thus, the validity of the EEOC’s theory is unclear at this point.  

If the EEOC’s theory is successful, however, the result would severely limit the utility and value of releases, which is inconsistent with the public policy favoring the resolution of disputes. Indeed, if courts were to enforce the EEOC’s stance on CVS’s agreement, it would make it much more difficult for employers and employees to resolve disputes. Furthermore, the EEOC has failed to identify what release language it would find acceptable, leaving employers guessing about whether a bargained for release is even enforceable. The lack of a clear standard for enforceability would very likely make employers hesitant to enter into such an agreement (and pay consideration for a release) in the first place. Moreover, the EEOC’s position ignores legitimate and recognized employer concerns. For instance, confidentiality provisions in separation and settlement agreements are intended to protect confidential company information and, in some cases, are also intended to discourage the filing of frivolous charges by other employees. Finally, the EEOC’s position implicates important public policy considerations for employees, employers and the judicial system alike. Release agreements provide a benefit to departing or former employees who are provided with extra compensation while foregoing the cost and time of litigation, they provide a benefit to employers in the form of finality of the ongoing threat of potential litigation and they benefit the judicial system which is spared the cost of resolving innumerable employment disputes.

Regardless of the dubious merit of the EEOC’s allegations against CVS, employers should take notice of this apparently emerging trend. Whatever the outcome of CVS’s Motion to Dismiss, the EEOC is not likely to back away from its scrutiny of employer release language. In fact, it recently filed a similar lawsuit in the District Court of Colorado against CollegeAmerica. In that case, the EEOC challenged allegedly unlawful provisions in a separation agreement that conditioned the employee’s receipt of severance benefits upon, among other things, her promise not to file any complaint or grievance with any government agency and not to disparage the company. Although the agreement at issue in CollegeAmerica is more akin to those that have typically been susceptible to challenge (insofar as it specifically asks the releaser to give up her right to file a complaint with a government agency), these recent cases suggest that the EEOC is paying very close attention to the terms of severance pacts.

As such, employers may want to revisit their existing severance and settlement agreements and ensure that -at a minimum – they contain disclaimers regarding an employee’s right to participate in an EEOC investigation and file a charge. Employers may, however, include language in the release that clarifies that the employee waives the right to any monetary recovery if a third party asserts any claims on his or her behalf. As noted above, if the EEOC is successful in its attempts to control release language, the potential value of a release may decrease significantly. Thus, employers should keep an eye on this issue and consider consulting with counsel about whether and how to modify existing form agreements.

Joe Tilson and Jeremy Glenn of Meckler Bulger Tilson Marick & Pearson

Sixth and Ninth Circuits Reverse Summary Judgment Rulings in Cases Involving Executive Employee Exemption

May 15, 2014 by

Two recent appellate decisions serve as reminders that in order to meet the requirements of the executive exemption, it is not enough that an employee provide day-to-day supervision of at least two other employees.  An exempt executive employee must also have the authority to hire or fire other employees, or his or her suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.  29 C.F.R. § 541.100(a)(4).

In both Taylor v. AutoZone, Inc., No. 12-15378 (9th Cir., decided May 12, 2014), and Bacon v. Eaton Corp., No. 13-1816 (6th Cir., decided May 1, 2014), the court of appeals reversed decisions granting summary judgment for the defendants, and ruled that a genuine issue of material fact existed as to whether the plaintiffs had sufficient influence over personnel decisions to meet the requirements of the executive exemption.

Bacon was a suit brought by first-line shift supervisors who claimed they were entitled to overtime compensation.  Each directed the work of more than twenty non-exempt employees and were, themselves, under the supervision of second-level managers.  The record included evidence that while the plaintiffs completed probationary evaluations for employees under their supervision, the company hired probationary employees as a matter of course, and did not place great weight upon the plaintiffs’ evaluations.  Some of the plaintiffs only submitted probationary evaluations after the probationary employee’s probation had ended, and, therefore, had no influence upon whether the probationary employee was hired. 

The employer also argued that the plaintiffs had indirect, but significant, influence over employees’ changes of status through a “progressive discipline” system.  Again, however, the court of appeals held that there was a factual issue as to the nature of the employer’s disciplinary system and the role of the plaintiffs in carrying out that system.

Similarly, in Taylor, a suit by AutoZone’s store managers, the court of appeals found that, in light of conflicting evidence as to the frequency with which the store managers make hiring, firing, and promotion-related recommendations, and the extent to which their supervisors relied upon these recommendations, there were genuine issues of material fact as to whether such suggestions and recommendations were given particular weight.

Also at issue in Taylor was whether the store managers’ primary duty was management, as required by 29 C.F.R. § 541.100(a)(2).  AutoZone conceded that the plaintiffs spent less than fifty per cent of their time performing exempt work.  The court of appeals noted, however, that under 29 C.F.R. § 541.700(a), the plaintiffs might, nevertheless, be primarily involved in management activities if other pertinent factors supported that conclusion.  These factors would include: (1) the relative importance of the plaintiffs’ managerial duties as compared with other types of duties; (2) whether they have relative freedom from supervision; and (3) the relationship between the store managers’ salaries and the wages paid to other employees for the same kind of non-managerial work performed by those employees.  The court found there was conflicting evidence on these issues and reversed the award of summary judgment.


May 9, 2014 by

On April 29, 2014, an administrative law judge with the National Labor Relations Board (NLRB) issued a decision addressing wage and hour lawsuits arising under both the FLSA and state labor laws in 200 East 81st Restaurant Corp. and Arsovski, Case No. 02-CA-115871. In a decision that outlined a melodramatic employment saga, involving an affair and missing files and receipts, the key concern related to the complainant’s filing of a lawsuit seeking wages under the FLSA and New York labor laws. The complainant, who worked as a waiter in the Manhattan restaurant, filed a lawsuit in the Southern District of New York on June 20, 2013: “on behalf of himself and all others similarly situated.” Arsovski v. 200 East 81st Restaurant Corp., Case No. 13-cv-42965. The restaurant terminated the waiter after being served with the lawsuit; however, the employer contended that its termination decision had been made before learning of the lawsuit. The employee then proceeded to file a charge the NLRB in October 2013, months after the initiation of his federal court lawsuit.

The critical point of this decision relates to the definition of “concerted activity” under Section 7 of the National Labor Relations Act (NLRA). The ALJ addressed the question of whether an employee who filed on behalf of himself and all others similarly situated engaged in NLRA-protected, concerted activity even if no individuals actually joined the lawsuit. The ALJ answered this question affirmatively. The employee, although acting on his own behalf and without any identifiable co-plaintiffs, had engaged in Section 7 protected, concerted activity simply because he filed the complaint on behalf of himself and all others similarly situated. This language, ruled the ALJ, could reasonably lead the employer to believe that the complainant was acting in concert with his co-workers in pursuing the FLSA lawsuit. Notably, the employee had unsuccessfully attempted to have a co-worker join him in filing the suit. Despite this fact, the ALJ recommended that the NLRB issue an order: (1) directing the complainant’s reinstatement with full back pay and seniority; and (2) requiring the employer to advise employees of their rights under the FLSA by posting a DOL-required notice.

The Arsovski decision is the latest in a series of rulings under the current Board that address issues arising in a non-unionized workplace. Multiple questions remain: will the NLRB follow the ALJ’s recommendation? If so, how would such a decision affect the employee’s unpaid wages lawsuit, which is still pending in federal court? How would the Board’s decision impact the several wage collective and class action lawsuits filed each day. We will continue to monitor this issue and provide updates. For now, employers should be aware of the Arsovski decision that at least one ALJ believes filing a complaint under the federal and state wage laws may be deemed protected, concerted activity.

First Circuit Holds that Variable “Per Diem” Payments May be Part of an Employee’s Regular Rate of Pay for Calculating Overtime

May 9, 2014 by

The U.S. Court of Appeals for the First Circuit held recently in Newman v. Advanced Technology Innovation Corp., that a per diem payment that is based on the number of hours worked by an employee must be considered part of the regular rate of pay for calculating overtime. In Newman, two former employees claimed they were owed additional overtime pay under the Fair Labor Standards Act (FLSA), because their employer failed to include per diem payments when calculating their regular rate of pay. The per diem payments were intended to reimburse the employees for travel expenses incurred, and the employer had a practice of reducing the per diem payment depending on the number of hours worked by the employee. The district court for Massachusetts granted summary judgment for the defendant, explaining that per diems generally are excluded from the calculation of an employee’s regular rate for overtime purposes.

On appeal, the First Circuit reversed and ordered that judgment be granted in favor of the plaintiffs. Although the FLSA states that an employee’s regular rate of pay does not include, “reasonable payments for traveling expenses” incurred by employees, the Department of Labor had taken the position in a handbook that a per diem payment is part of the regular rate of pay when it is calculated based on hours worked. The First Circuit accepted this position, and because the employer had adjusted the per diem payments based on hours worked, the Court concluded that the per diems should have been included in the plaintiffs’ regular rate of pay for overtime purposes.

The decision in Newman is a reminder that in order to properly treat a per diem as a non-wage, the method of calculating the per diem should not be based on hours worked. A per diem can be partially discounted and still not be considered a wage, but the discount must not be hours-based. The Newman decision also warns that courts will “pierce the labels parties affix to the payments” and consider the realities of how employees are being compensated. To be safe, employers should carefully examine how their per diem policies are written and enforced in order to ensure that they do not incur unanticipated overtime liability.


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