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.

OT Can Be Paid at ONE-HALF in Some Salary Arrangements

May 7, 2014 by

The FLSA can be broken down into two key principles: (1) that employees are to be paid at least the applicable minimum wage for all hours worked, and (2) that an overtime premium equal to one and one-half the “regular rate” must be paid for all hours worked over 40 hours in a workweek. The minimum wage principle is fairly straight forward. The overtime principle, however, is decidedly more complex.

The definition of the term “regular rate” often creates confusion. The regular rate is calculated by adding together the employee’s pay for the workweek and all other earnings and dividing the total by the number of hours the employee worked in that week.  There is a common misconception that all hourly employees are entitled to overtime while all salaried employees are exempt from the overtime requirements. This is not true.   Unless an employee meets a specific FLSA exemption, he or she is entitled to overtime regardless of whether or not the employee is paid on a salary or hourly basis.

There are more than 60 exemptions to the FLSA. I have tried to count them all, and depending on the subparts, your count may be different.  Many of these exemptions are obscure.  Maple sap processors are exempt from overtime.  If you make maple syrup, you probably know that already.

Most other employers will rely on tried and true “white-collar” overtime exemptions. The term “white-collar employee” is recognized shorthand for the general class of executive, administrative, professional, computer-related and outside sales employees who are exempt from the FLSA’s minimum wage and overtime requirements. Each white-collar exemption category has specific requirements. Payment on a “salary basis” alone does not make a white-collar exemption.

The “fluctuating workweek” compensation model may be of particular interest to employers who want to pay non-exempt employees on a salary basis and reduce overtime costs. This method allows employers to pay employees a fixed salary as straight-time pay for all hours worked in the workweek, and then compensate employees for their overtime hours on an additional half-time basis. Because the salary is intended to compensate the employee at straight time for all hours worked, including any overtime hours, only one-half of the regular rate remains owed for the overtime hours.

Employers often find a fluctuating workweek to be the best of both worlds.   To qualify for the “FWW,” the employee must be paid a fixed salary that does not vary with the number of hours worked during the workweek. The employee must also work hours that will fluctuate from week to week. An employee can have a long week and a short week or truly variable hours from week to week. Next, the salary must be sufficiently large enough to ensure that the employee will never work enough that he or she will make the equivalent of less than minimum wage. Last, and perhaps most importantly, the employer and employee must share a “clear mutual understanding” that the salary covers all hours worked during the workweek, regardless of the number.

The fluctuating workweek requirement is not a difficult thing to set up.  There is also benefit for employees as well, because in short workweeks they still receive their fixed salary.

The FWW is an option for compliance with the FLSA’s overtime requirements and it allows you to reduce overtime liability and increase stability in your workforce.

Paul L. Bittner

Ice Miller LLP

Employer Prevails in Donning and Doffing Case

May 7, 2014 by

By Bernie Siebert

On May 6, 2014 Judge Richard P. Matsch of the United States District Court for the District of Colorado ruled that the plaintiffs from a Greeley, Colorado meat processing plant did not prove that they were entitled to additional pay for donning and doffing, walk time and an unpaid meal period.  The case spanned nearly six years and involved two trial proceedings, one trial to determine liability and a second to determine damages.  The decision is attached here.

In 2011, following a weeklong trial, the Court ruled that there was a question as to when the workday begins and ends and a question as to whether employees were receiving a full 30 minute unpaid meal period.  He ordered that a second trial concerning the issue of damages be held.  That trial was held in 2013 with final arguments in January, 2014.

In its May 6th Opinion and Order, the Judge ruled that he was incorrect in believing that the 30 minute meal period was required by law or regulation.  Rather, the Court found that the 30 minute unpaid meal period was a product of the collective bargaining agreement between the company and the United Food and Commercial Workers Union.  The Court specifically ruled that there was no legal requirement that a meal period be 30 minutes.  Because the Union never pursued a grievance claiming that employees were not receiving a full thirty minute meal period (which included the time required for donning and doffing), the Court found that the Union had accepted the 30 minute provision knowing that employees were not in fact receiving a full 30 minutes.  The Court then turned to the issue of the compensability of the donning and doffing and walk time.

In 2000 the Company and Union agreed to certain amounts of time for performing donning and doffing, walk to wash and washing tasks.  In 2007, the Company and Union agreed to certain amount of time for walk time at the beginning of the shift.  That agreement was incorporated into the parties’ 2009 agreement.  As part of that agreement, the company paid two years of back walk time to then current employees.  The Union opposed making the same payments to former employees.  At the trial on damages, each side presented expert time study witnesses.  Naturally, the Plaintiffs’ expert testified that employees were substantially underpaid for donning and doffing and walk activities.  The company’s expert testified that employees were being properly compensated for all such activities.  The Court had previously ruled that Section 203(o) of the Fair Labor Standards Act applied thus excluding the donning and doffing time at the beginning and end of each shift, primarily leaving open the issues of donning and doffing at the meal period and walk time.  The Court noted that the substantial differences in the amounts calculated by the two experts reflect the difficulty in determining “the realities of the workplace by these methods.”  Ultimately, the Court adopted the findings of the company’s expert.  The Court stated that “…the adversarial process of civil litigation is not designed for adjudicating this dispute and judges are ill-equipped to evaluate the work of industrial engineers doing time studies.”  The Court found because of the conflicting views, that it could not say “with a reasonable probability that Plaintiffs have met their burden of proving their entitlement to additional compensation.”

Finally, the Court stated “It must be admitted that the result now reached is contrary to the expectations generated by the previous Order.  It is, however, the result of careful reflection on the evidence in this case and the court opinions cited above.”  The Court also noted that the Company’s attorney had stated that the company would, to the extent profitable, make the walk time payments to those former employees that did not receive such in 2009.  The Court stated that it took the representation as a pledge to do so.  The case was dismissed with costs awarded to the company.

Employers Should Review Internship Programs for Legal Compliance

April 30, 2014 by

With summer finally around the corner, employers who utilize interns should review their internship programs to ensure compliance with applicable wage and hour laws. The analysis is fact dependent and should entail close review of the six-factor test outlined by the Department of Labor.  

 The Department of Labor’s Six-Factor Test

 The U.S. Department of Labor (“DOL”) uses a six-factor test for determining whether an intern is exempt from the FLSA or, conversely, is an employee subject to the FLSA’s protections. While the DOL notes that the intern/employee question “depends upon all of the facts and circumstances” of the program, the DOL also takes the position that all six criteria must be met in order for an intern to fall outside the parameters of the FLSA: 

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and intern understand that the intern is not entitled to wages for the time spent in the internship.

U.S. Dep’t of Labor, Wage & Hour Div. Fact Sheet No. 71: Internship Programs Under the Fair Labor Standards Act, available at http://www.dol.gov/whd/regs/compliance/whdfs71.htm.  The factors enunciated in the test derive in part from the U.S. Supreme Court’s decision in Walling v. Portland Terminal Co. 330 U.S. 148 (1947).  In Walling, the Court noted that while the FLSA’s definition of “employ” is broad, it “was obviously not intended to stamp all persons as employees who, without any express or implied agreement, might work for their own advantage on the premises of another.”

In addition to the DOL’s six-factor test, some jurisdictions have other requirements that must be met in order to remove an intern from state wage and hour protections. E.g., New York State Dep’t of Labor, Wage Requirements for Interns in For-Profit Businesses, available at http://www.labor.ny.gov/formsdocs/factsheets/pdfs/p725.pdf.

Unpaid Internships in the News

The U.S. Court of Appeals for the Second Circuit announced last month that it would hear interlocutory appeals of two unpaid internship cases in tandem. The cases, Glatt v. Fox Searchlight Pictures, Inc. and Wang v. Hearst Corp., both involve potential classes of interns who claim they were truly employees and entitled to the minimum wage and overtime protections of the FLSA.

In Fox, the federal district court held that the interns were employees covered by the FLSA and that they had satisfied the requirements for class certification under both the FLSA and New York Labor Law. Fox, 293 F.R.D. 516 (S.D.N.Y. 2013).  Applying the DOL’s six-factor test, the district court found that interns on the set of the movie Black Sawn were performing work that was similar to or displaced that of paid employees.  These tasks included drafting letters, making photocopies, organizing filing cabinets, ordering lunches, and running errands.  In Hearst, the district court found a material question of fact regarding whether magazine interns who conducted online research, organized files, assisted at photo shoots, ran errands, and performed other tasks were interns or employees. Hearst, 293 F.R.D. 489 (S.D.N.Y. 2013).  However, the district court refused to certify the interns as a class, finding that under Wal-Mart Stores, Inc. v. Dukes, the plaintiffs had not established the commonality requirement; they “cannot show anything more than a uniform policy of unpaid internship.” 

Fox and Hearst are currently pending before the U.S. Court of Appeals for the Second Circuit.  Several prominent organizations—such as the Economic Policy Institute, the National Employment Lawyers Association, and the Chamber of Commerce of the United States—have filed amicus briefs in the cases.  Lawsuits involving unpaid workers are certainly not limited to the east coast.  On April 22, 2014, beauty school students filed a complaint against Estee Lauder and Aveda, alleging that the companies violated wage and hour laws by treating students as unpaid employees.  That case, Jennings v. Estee Lauder, Inc., No. BC543276, is pending in the Superior Court of California, County of Los Angeles. 

Outside of wage and hour law, unpaid interns have recently made waves in the civil rights context. Because civil rights laws typically apply only to “employees,” interns who fall outside of that definition under the applicable law may not be protected.  In Wang v. Phoenix Satellite Television US, Inc., a federal district court found that an unpaid intern could not bring a sexual harassment claim against her former employer under the New York City Human Rights Law because she was not an employee.  No. 13 Civ. 218 (PKC), 2013 WL 5502803 (S.D. N.Y. Oct. 3, 2013).  In response, the New York City Council passed legislation confirming that the law applies to interns, regardless of whether they are paid.  N.Y.C. Proposed Int. No. 173-2014A (amending N.Y.C. Admin. Code § 8-102).

Practical Guidance

The DOL takes the position that internships in the for-profit private sector will most often be deemed employment subject to the FLSA. Employers who have unpaid internship programs should review the programs with the DOL’s six-factor test in mind, and should consult legal counsel to ensure that any unpaid internship safely falls outside of the employment relationship.  The safest course of action in the private sector to avoid issue would be to treat the interns as employees.  Employers who are nonetheless considering utilizing unpaid interns should consider:

  • Collaborating with educational institutions to determine how the program can build on the academic experience and to assess whether the intern can receive educational credit for participating.
  • Assigning as the intern’s supervisor an individual with knowledge about the substantive area that the intern is to be learning.
  • Ensuring that supervisors overseeing the intern understand that the intern is not to perform work that other employees would normally perform.  Do not utilize interns to displace regular employees.
  • Ensuring that supervisors and other employees do not assign interns administrative tasks like photocopying and coffee runs that are not related to an educational benefit.
  • Offering experiences to the intern that are specifically for the intern’s benefit, even if they will impair company operations.
  • Requiring the interns to acknowledge in writing that they understand the program is an internship, that they are not employees, that the program is for their educational benefit, and that they will not be paid.
  • Setting specific dates for the beginning and end of the internship program so that the program does not morph into employment or something that looks more like employment.
  • Ensuring that the program trains the intern regarding the business or industry generally, and not only regarding work at the specific company.

There’s a New Sheriff in Town: Senate Confirms David Weil as Wage & Hour Administrator

April 29, 2014 by

It took only 5.5 years, but the Obama Administration has finally filled the position of the DOL’s Wage and Hour Administrator. Past nominees never made it through the confirmation process, but due to a compromise on the filibuster rule and other political factors, yesterday the Senate confirmed the nomination of David Weil to be the new Wage and Hour Administrator.

With this appointment, and for the first time since the President was first elected, the seats for all top DOL executives dealing with wage and hour matters are now filled, i.e., the Secretary of Labor, the Solicitor of Labor, and the Wage and Hour Administrator. The Wage and Hour Administrator oversees the division of the Department of Labor responsible for enforcing the Fair Labor Standards Act, the Family and Medical Leave Act, the Service Contract and Davis Bacon Acts, and various laws dealing with migrant farmworkers and immigrants. With this latest appointment, the President is clear as to the direction he wishes for the Department of Labor to take; the Administration is to focus on enforcement. In fact, “enforcement” may be an understatement; the direction given is more along the lines of “aggressive enforcement.” In other words: “Take no hostages!”

Each of these appointments have been given to officials with strong enforcement backgrounds. Secretary Perez came out of the Civil Rights Division of the Justice Department, and prior to that made his mark as an aggressive enforcer of Maryland’s wage and hour laws as its Secretary of Labor, Licensing and Regulation. Similarly, Solicitor Patricia Smith had a reputation for aggressive and punitive enforcement actions in her prior role as the State of New York’s Commissioner of Labor and Chief of its Labor Bureau. As with Secretary Perez, she focused much of her attention on employees misclassified as contractors.

The latest appointee is similarly inclined, but has asserted his views from his role as an academic and as a non-attorney. From his academic podium, he has advocated for more vigorous enforcement actions against employers, with a focus on lower paid jobs and employers in fissured industries (i.e., franchises, those which use staffing companies and subcontractors, and the like). Targeted industries, according to Administrator Weil, include: janitorial, construction, grocers, landscapers, restaurants, home health care, hospitality, moving, retail and agriculture. He also believes that what he terms to be the “top employer” in the hierarchy of fissured relationships, should be held liable for the wrongs of the lower level employers, and thereby allow actions to be brought against groups of alleged employers in singular cases. Further, and as has been also advocated by the Solicitor, the new Administrator also believes that full liquidated damages should be assessed for any FLSA violations claimed in the course of DOL investigations, even though the statute only mandates liquidated damages in the context of actual lawsuits.

The President has echoed some of these initiatives by recently advocating changes to the white collar exemption regulations through a reexamination of the duties tests currently used, as well as the salary level test. These initiatives are designed to make more employees eligible for overtime compensation than under the current regulations.

These appointments and trends almost appear to be blanket indictments on employers. In fact, the DOL estimates that 70% of employers are somehow violating the FLSA, and that too many, in the words of the DOL, have a “‘catch me if you can’ attitude.” These views appear extreme and questionable. To the contrary, employers have been frustrated at the Division’s 2010 decision to no longer provide Administrator Opinions which provide employers with compliance advice as to wage and hour matters. In a recent GAO report, the GAO was also critical of the Division’s lack of transparency and systematic means for obtaining compliance over recent years.

In light of this, and while compliance with the law should always be endorsed, there are means for obtaining compliance through more cooperative and instructive means, as opposed to purely punitive and adversarial means. That is to say, carrots sometimes work, but sticks are also needed at times. It is hoped that the Administration will endeavor to obtain better compliance by using both techniques, but there has been little indication that in the foreseeable future the DOL will resist just using its stick. Unfortunately, this only suggests that employers should view the DOL with suspect, and in the meantime be even more vigilant in auditing their pay practices and employee classifications, and documenting their good faith efforts to comply with the nuances inherent in the FLSA.

Texas Federal District Court Slaps U.S. Labor Department With Attorneys Fees for Unjustified Misclassification Case

April 17, 2014 by

In a win for every small business in the United States, a Federal Court near Houston sent a clear message to the government: don’t pursue a frivolous wage and hour case or you will pay the employer’s attorneys fees and expenses. The opinion by Senior Judge John D. Rainey ordered the U.S. Department of Labor (DOL) to pay $565,000 to a 37-member oilfield services company for a case that “should have [been] abandoned.” This latest decision, issued on April 9, 2014, followed an earlier decision that had dismissed all DOL’s misclassification claims and granted judgment to the employer.

 To grant the attorney fees and expenses, the Court relied upon the Equal Access to Justice Act (EAJA), 28 U.S.C. § 2412, which was enacted in response to concerns that persons “may be deterred from seeking review of, or defending against, unreasonable governmental action because of the expense involved in securing the vindication of their rights.” To prevail on an EAJA claim, a private litigant must show several factors. Most importantly, it must have less than a $7 million net worth and less than 500 employees, win a final judgment against the government, and demonstrate that the position the government took in the litigation was “not substantially justified.” This is no easy task by any standard. But here, it was met and then some.

The Court unequivocally stated that “[h]ad the DOL interviewed more than just a handful of [the employer’s] roughly 400 gate attendants before presenting [the employer] with a $6,000,000.00 demand and filing its Enforcement Action against [the employer], it would have known the gate attendants were not employees. Once discovery revealed the facts cited in the paragraph above, the DOL should have abandoned this litigation.”  This sends a strong message, one we hope the government hears.

As a practical matter, however, the likelihood of this decision causing a sea change in such overbearing enforcement efforts is unlikely for the time being. While it may cause DOL to pause when approaching a small business in this manner, this case is no deterrent for the pursuit of larger businesses.  This brings us to the more important point.  The facts in this case show that DOL prejudged the case, repeatedly ignored the facts, and couched its case in terms only favorable to its improper position, something it continued to do even after it lost.  While government investigators and lawyers are bound by a code ethics that requires them to seek justice, the system somehow miserably failed here.  It is most unfortunate that, in this author’s experience, this sad state of affairs is not unique.

For this reason, we are happy to stand together as part of the Wage and Hour Defense Institute (WHDI).  WHDI relishes its role and our collaboration as a bulwark against such government overreaching and, with time and diligence, is working to ensure the right result in wage and hour matters for our business clients.        

The case is Gate Guard Services L.P. v. Thomas E. Perez, Secretary of Labor, United States Dept. of Labor (S.D. Tex., April 9, 2014), and the author is Bryant S. Banes, Managing Shareholder, Neel, Hooper & Banes, P.C., Houston, Texas.

President Obama Sics The DOL On Corporate Profits, Says Reduce The Number Of Exempt Workers And Pay More Overtime

March 14, 2014 by

By: Jason E. Reisman, Obermayer Rebmann (3/14/14)

Just when you thought it was safe to go back in the water … or at least thought you might be getting a handle on the highly technical and nuanced regulations under the Fair Labor Standards Act governing the “white collar exemptions,” President Obama is instructing the Department of Labor to revamp those regulations to ensure that more American workers are eligible for minimum wage and overtime pay.

It’s been reported that today the President will direct the DOL to begin the process of revising the regulations governing the “white collar exemptions”—clearly, an endeavor to combine his efforts to increase to the minimum wage with a broadening of the types of workers who will be entitled to receive the minimum wage and also overtime pay. As you may recall, the white collar exemption regulations were last revised in 2004, which was about 50 years after the prior substantive modification. These regulations define the requirements for specific white collar exemptions and generally apply to those executive, administrative, and professional employees who are paid a minimum weekly salary amount of $455/week, are paid on a salaried basis, and primarily perform duties in line with those described in the regulations. By meeting the requirements of one of the white collar exemptions under the FLSA, a worker is “exempt” from receiving minimum wage and also from receiving overtime pay for hours worked in excess of 40 in a work week. (Note: In states that have minimum wage and overtime laws, to be exempt, an employee must meet the state law requirements as well.)

From the news reports, it sounds like the President has two basic changes in mind:

1. Raising the minimum salary amount that applies to most of the white collar exemptions. The President seeks to substantially increase the current $455/week salary requirement, possibly more than doubling it.

2. Changing the duties requirements. Word has come from the White House that abuse is rampant among employers for using the “primary duty” test (i.e., the duty that is most important or is the principal function) to treat workers as exempt from overtime pay even though they only perform that duty less than 50% of the time. For example, retail store supervisors whose primary duty is to oversee and manage the store may very well spend more than 50% of their time assisting customers and making sales; however, that supervisor can still be exempt under the regulations if her/his “primary duty” is to manage the store (performing duties such as hiring, disciplining, firing employees; directing work; setting schedules; controlling the flow of inventory and supplies; and planning and controlling the budget). Apparently, the revisions contemplate ensuring that, to be exempt, workers must perform exempt duties at least a minimum percentage of the time.

This process and potential revision of these regulations is unlikely to happen quickly, as the DOL will need to evaluate the current regulations and draft proposed changes to meet the President’s goals, which will then be subject to public comment before final approval and issuance by the DOL. Regardless, for employers still not out of the woods from the economic downturn, the prospect of having more employees fall out from under these common FLSA exemptions could be harrowing for their future. Strong objection is expected from business and industry groups, especially as regulation changes often yield substantial increases in lawsuits (FLSA lawsuits have already increased more than 350% over the last dozen years) and DOL enforcement actions. We will continue to monitor this issue and provide further reports as it evolves.

Ninth Circuit Asks California Supreme Court to Clarify Suitable Seating Requirements

January 10, 2014 by

Last week the Ninth Circuit Court of Appeals asked the California Supreme Court to clarify how the state law requiring employers to provide workers with “suitable seating” should be applied.

California’s Industrial Welfare Commission wage orders require most employers to provide their employees with suitable seating “when the nature of the work reasonably permits the use of seats.”  This has been the law for decades, but the suitable seating requirement was little noticed until after the enactment of the California Labor Code Private Attorneys General Act of 2004 (the “PAGA”).  This law allows employees to sue their employers on behalf of themselves and other “aggrieved employees” for violation of labor laws, and allows prevailing plaintiffs to collect civil penalties that previously were available only in administrative enforcement actions brought by the state.  Under the PAGA, the civil penalty for violation of the suitable seating requirement is $100 for each aggrieved employee per pay period for the initial violation, and $200 for each aggrieved employee per pay period for each subsequent violation.

The two cases that triggered the Ninth Circuit’s request are Kilby v. CVS Pharmacy, Inc., 2013 BL 359084, 9th Cir., No. 12-56130; and Henderson v. JPMorgan Chase Bank NA, 2013 BL 359084, 9th Cir., No. 13-56095.

In Kilby, Nykeya Kilby brought a putative class action on behalf of a class of current and former CVS clerk/cashiers.  She alleged that during her employment at CVS she spent around 90 percent of her working time operating a cash register.  CVS has a policy of not providing seats to its cashiers because, in the company’s judgment, standing while operating the cash register promotes excellent customer service.  The district court found that the “nature of the work” performed must be considered, and that courts should consider an employer’s “business judgment” when considering the nature of the work.  The district court denied class certification because of differences in the duties of CVS cashiers, and granted summary judgment to CVS because many of Kilby’s duties required her to stand, CVS expects its cashiers to stand, and she knew of this requirement when she took the job.

In Henderson, four Chase bank tellers brought a putative class action on behalf of current and former Chase tellers.  They alleged they spent most of their working time standing at their teller stations servicing bank customers, but also performed a variety of additional duties away from their teller stations.  The district court denied class certification after finding that the nature of a teller’s work could vary based on the different tasks the teller performs away from the teller station, the bank at which the teller works, and which shift the teller works.

In both cases the plaintiffs appealed to the Ninth Circuit, contending that the district courts misapplied the suitable seating law.  In their view, if an employee is engaged in a task that can objectively be performed while seated, the employer must provide a suitable seat, and neither the employee’s other tasks, nor the employer’s business judgment, should affect the court’s determination of whether the nature of the work reasonably permits the use of seats.

The Ninth Circuit certified three questions to the California Supreme Court.  First, does the phrase “nature of the work” refer to individual tasks an employee performs during the day, or should it be construed “holistically” to cover the entire range of an employee’s duties?  Second, should an employer’s business judgment, the physical layout of the workplace, or the physical characteristics of the employee be considered when determining whether the nature of the work “reasonably permits” the use of a seat?  And third, does a plaintiff need to prove what could constitute “suitable seats” to show the employer has violated the law?

In certifying its questions to the California Supreme Court, the Ninth Circuit cited the potentially “dramatic” impact of the suitable seating law on California employers, stating that “tens of millions of dollars” are at stake in the Kilby and Henderson cases alone, depending on how the law is interpreted.  The Ninth Circuit wrote, “A definitive decision from the California Supreme Court would avert the potential uncertainty of federal courts and state courts adopting different interpretations . . . and would provide businesses in California with clear guidance on how to comply with the Wage Orders.”

The California Supreme Court could accept the Ninth Circuit’s invitation to clarify the law, or it could decline the request, leaving the responsibility for interpreting and applying the law with individual trial courts.

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

Fifth Circuit Upholds Legality of Class Action Waivers in Arbitration Agreements

December 10, 2013 by

Last week the Fifth Circuit Court of Appeals held that the National Labor Relations Act (NLRA) does not prohibit arbitration agreements waiving the right of employees to pursue employment claims on a class or collective basis.  The court’s decision rejected last year’s ruling by the National Labor Relations Board (NLRB) that home builder D.R. Horton violated the NLRA by requiring its employees to sign such agreements.  The case is D.R. Horton, Inc. v. NLRB, 5th Cir., No. 12-60031, 12/3/13.

The underlying NLRB decision invalidating class and collective action waivers was issued on January 3, 2012.  The NLRB held that class actions qualify as “concerted activities for the purpose of collective bargaining or other mutual aid or protection….”  The NLRB reasoned that because the NLRA protects the right of employees to engage in such “concerted activities,” D.R. Horton violated by NLRA by requiring employees to waive their right to bring class actions.

In rejecting the NLRB’s analysis, the Fifth Circuit noted that while the NLRA protects concerted activity, there is nothing in the NLRA explicitly guaranteeing the right of employees to bring class actions.  Further, the court found no evidence that Congress intended the NLRA to override the Federal Arbitration Act (FAA), which generally mandates that arbitration agreements be enforced according to their terms.

Although many courts throughout the country have refused to follow the NLRB’s D.R. Horton analysis, the Fifth Circuit’s reversal of the actual D.R. Horton decision should seriously undermine the argument that the NLRA prohibits class action waivers in arbitration agreements.  The NLRB may no longer follow its own D.R. Horton analysis within the Fifth Circuit (Louisiana, Mississippi and Texas), and federal courts in other circuits have already displayed disfavor towards it.  The NLRB may simply abandon its D.R. Horton analysis, or it could petition the United States Supreme Court to review the Fifth Circuit’s decision.  Recent United States Supreme Court decisions, including AT&T Mobility v. Concepcion, have championed the FAA’s strong policy in favor of arbitration agreements—including agreements with class action waivers—so the NLRB is unlikely to find relief there.

Although this decision seriously undermines one argument against class action waivers, there are others that remain unsettled.  Employers considering whether to implement an arbitration program that includes class and collective action waivers should proceed with caution.

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

State Farm Settlement Highlights How State Laws Can Trip Up Multi-State Employers

November 26, 2013 by

Earlier this month a federal district judge in Los Angeles approved a class action settlement in which State Farm agreed to pay $5 million to a class of 274 vehicle damage inspectors who alleged they were not paid for commuting between their California homes and vehicle inspection sites.  The case is Shiosaka v. State Farm Mutual Automobile Ins. Co., C.D. Cal., No. 2:12-cv-01268.

The home-based inspectors worked in the field, inspecting damaged vehicles and estimating repair costs.  They alleged that State Farm required them to drive company-owned vehicles between their homes and vehicle inspection sites, but were not allowed to use the vehicles for personal errands.  The inspectors further alleged that State Farm did not begin paying them for their time until they arrived at their first inspection site of the day, and stopped paying them when they left their last inspection site of the day to return home.  The inspectors claimed they worked an average of 1.75 hours per day for which they were not paid, most of which was attributed to commuting between their homes and vehicle inspection sites.  They sued for unpaid wages under both the FLSA and California state law.

Under the FLSA, State Farm had a good argument that the commute time was not compensable.  In 1996, Congress enacted the Employee Commuter Flexibility Act (“ECFA”), which provides that an employer need not compensate an employee for commute time, even when the employer requires the employee to use the employer’s vehicle as a condition of employment.  Courts interpreting the ECFA have held that the commute time remains non-compensable even when the employer prohibits the employee from using the vehicle for personal purposes.

But California law favored the employees.  Under California law, employees must be compensated for all time during which they are “subject to the control” of an employer.  California courts have held that when an employer requires an employee to take designated transportation to a work site, and the employee is foreclosed from activities in which the employee might otherwise engage if the employee was permitted to use the employee’s own transportation (such as personal errands), the employee is subject to the control of the employer and therefore must be compensated for that travel time.

State Farm agreed to pay $5 million to settle the case.  Vehicle inspectors in the settlement class will receive an average of $13,061 each.

This case is a good reminder that California and some other states have their own wage and hour laws that differ from the FLSA, and place substantially greater restrictions on employers.  These state laws can trip up even relatively sophisticated employers like State Farm that are based out of state and may not be familiar with state law requirements.  Employers with multi-state operations are well advised to familiarize themselves with applicable state laws and to make sure they are in compliance.

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


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