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.

NEW YORK ADMINISTRATIVE LAW JUDGE RULES THAT FILING COLLECTIVE ACTION CONSTITUTES PROTECTED ACTIVITY UNDER NATIONAL LABOR RELATIONS ACT

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.

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.


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