The FLSA requires that covered employees be compensated not only for time spent on the principal activities he or she is engaged to perform but also tasks that are an integral and indispensable part of those principal activities. In Integrity Staffing Solutions, Inc. v. Busk, 135 S. Ct. 513 (2014), the U.S. Supreme Court explained that an activity is “integral and indispensable to the principal activities that an employee is employed to perform if it is an intrinsic element of those activities and one with which the employee cannot dispense if he is to perform his principal activities.”
Recently, the Second Circuit had an opportunity to apply Busk’s “integral and indispensable” standard in the context of a donning and doffing claim. In Perez v. City of New York, __ F.3d __, 2016 WL 4087216 (2d Cir. Aug. 2, 2016), Assistant Urban Park Rangers (AUPRs) employed by the City’s Department of Parks & Recreation claimed an entitlement to compensation for time spent donning and doffing uniforms and equipment. The district court granted summary judgment for the City, but the Second Circuit reversed, finding that a reasonable jury could conclude the AUPR’s donning and doffing activity was integral and indispensable to their principal law enforcement and public assistance activities.
As an initial matter, the Court of Appeals emphasized that the donning and doffing of uniforms was by all indications undertaken for the City’s benefit, as evidenced by the fact that the Parks Department (i) “prescribes the components of the uniform in painstaking detail, and AUPRs may be disciplined for non-compliance”; and (ii) “requires AUPRs to don and doff their uniforms at the workplace.” Moreover, the Second Circuit explained, “it is the professional Parks Department clothing, with its recognizable color scheme and insignias, that not only attract citizens in need of assistance but also establishes an AUPR’s authority to investigate violations, issue summonses, make arrests, and otherwise intervene in emergency situations.”
The Court next observed that the protective gear carried by the AUPRs appeared to be vital to the primary goal of their work in that “an AUPR’s utility belt holds items used to perform law enforcement duties” and so may be properly classified as tools of the trade: “A summons book is, of course, necessary for the issuance of summonses. A baton, mace, and handcuffs, in turn, may be critical in effecting an arrest. And a radio and flashlight may prove crucial in tracking suspects and coordinating with other municipal employees.” Therefore, the Court opined, “a reasonable factfinder could conclude that the donning and doffing of an AUPR’s utility belt are integral and indispensable tasks.” Likewise, the Circuit Court concluded that “the donning and doffing of an AUPR’s bulletproof vest may also qualify as integral and indispensable” since “it guards against ‘workplace dangers that transcend ordinary risks,'” in particular “[t]he risk of sustaining gunfire while enforcing municipal laws.”
Perez offers yet another illustration of the highly fact-intensive, job-specific nature of the “integral and indispensable” inquiry.
Wiggin and Dana LLP
Beyond setting a minimum wage rate for the Commonwealth, the Massachusetts Minimum Fair Wage Law (MFWL) also forbids payment of an “oppressive and unreasonable wage,” defined by statute as “a wage which is both less than the fair and reasonable value of the services rendered and less than sufficient to meet the minimum cost of living necessary for health.”
The plaintiff in Costello v. Whole Foods Market Group, Inc., 2016 WL 4186927 (D. Mass. Aug. 8, 2016) offered the novel argument that a wage rate higher than the established minimum wage may nonetheless be “oppressive and unreasonable,” only to be shot down by a federal district judge. Although technically a matter of first impression, the district court found “that from the very beginning, the MFWL has been interpreted to enforce the minimum wage standards that are statutorily or administratively set, but not to permit ad hoc, case by case inquiries into what might be ‘oppressive and unreasonable’ in varying circumstances. The fact that a wage is not below any established minimum is conclusive that the wage is also not ‘oppressive and unreasonable.'” The court therefore concluded that because the plaintiff’s wage rate always exceeded the statutory minimum, it “could never have violated the MFWL.”
The issue actually arose in the context of a claim for retaliatory discharge–the plaintiff alleged that he was fired for complaining about an “oppressive and unreasonable” wage rate. Rejecting the claim essentially for want of protected activity, the court reasoned that the plaintiff could not have reasonably believed the statute “authorizes the free-floating assessment he proposes. In other words, given the way the law has been administered, it would not have been reasonable for him to believe that his employer violated the minimum wage law by not giving him a raise from an already above-minimum wage to an even higher wage.”
While the result in Costello is hardly surprising, a contrary ruling would undoubtedly have had disastrous consequences, potentially leaving it to the judiciary to determine on a case-by-case basis whether a given wage was “oppressive and unreasonable” under the particular circumstances. Hopefully, this is the last we’ve seen of the novel argument rejected in Costello.
Wiggin and Dana LLP
In Fortune v. National Cash Register Co., 373 Mass. 96, 364 N.E.2d 1251 (1977), the Supreme Judicial Court of Massachusetts held that an employer breaches the implied covenant of good faith and fair dealing by terminating an at-will sales employee in order to deprive him or her of the opportunity to earn commissions, such as in a situation where the employee is discharged on the brink of completing a commissionable sale. Nearly forty years later, the Supreme Court of Connecticut has followed suit, recognizing in Geysen v. Securitas Security Services USA, Inc., __ Conn. __, __ A.3d __, 2016 WL 4141090 (Aug. 9, 2016) “the availability of a breach of the covenant of good faith and fair dealing contract claim when the termination of an employee was done with the intent to avoid the payment of commissions.”
In arriving at this conclusion, the Court rejected the notion that in the at-will employment context a claim for breach of the covenant of good faith and fair dealing is coextensive with a claim for wrongful discharge, reasoning that “the former focuses on the fulfillment of the parties’ reasonable expectations rather than on a violation of public policy.” The Court noted that “although an employer may terminate the employee at will” and “an employer does not act in bad faith solely by refusing to pay commissions on sales invoiced after an employee’s termination if that obligation is an express contract term,” “the employer may not act in bad faith to prevent paying the employee commissions he reasonably expected to receive for services rendered under the contract.”
On a more positive note, the Court rejected the plaintiff’s claim under Connecticut’s wage payment statutes, reiterating that the wage laws leave the timing of accrual of earned compensation to the determination of the wage agreement between the employer and employee, and holding that a “contract provision providing that commissions will be paid only if the work had been invoiced prior to termination of the employee does not violate public policy and is enforceable.” The Court also affirmed dismissal of the plaintiff’s public policy-based wrongful discharge claim, ruling “that the parameters of the public policy of this state with regard to the payment of wages is reflected in the wage statutes and that an employee cannot use the nonpayment of wages that have not accrued as the basis for a wrongful discharge claim.”
All in all then, the Geysen decision is a mixed bag. However, by recognizing the equivalent of a Fortune claim the Court has undoubtedly opened the door to further litigation.
Wiggin and Dana LLP
In 2013, the DOL promulgated a rule that served to eliminate the overtime exemption for companionship service workers, including live-in domestic service providers, employed by home care agencies and other third-parties. The new rule was to become effective on January 1, 2015. In the meantime, a lobbying group representing the interests of home healthcare companies filed suit in the U.S. District Court for the District of Columbia challenging the rule. The district court vacated the rule, finding it in conflict with the FLSA. However, last August, the U.S. Court of Appeals for the D.C. Circuit reversed the district court’s vacatur, reasoning that the rule was grounded in a reasonable interpretation of the FLSA and neither arbitrary nor capricious. Just last month, the U.S. Supreme Court denied the lobbying group’s petition for certiorari.
Against this backdrop, the U.S. District Court for the District of Connecticut was called upon to determine the effective date of the new rule. As artfully framed by the district court, the case, Kinkead v. Humana, Inc., “raise[d] a basic but well-settled question about the intersection of law and time.” In particular: “Are employers like the defendants in this case liable to pay overtime only from the date that the D.C. Circuit’s mandate issued in October 2015 to overturn the district court’s decision that vacated the rule? Or are employers liable to pay overtime as of the agency’s initial effective date in January 2015?” Applying “the well-established rule that judicial decisions are presumptively retroactive in their effect and operation,” the court determined that the rule became effective in January 2015, as originally contemplated by the DOL. The court reasoned that the defendants’ purported reliance on the district court’s decision was, in light of this presumption, unjustified. As such, the plaintiffs’ overtime entitlement kicked in as of January 2015.
Lawrence Peikes, Wiggin and Dana LLP
The recent flurry of FLSA lawsuits brought on behalf of unpaid interns claiming to be employees has finally spawned appellate guidance. In a pair of decisions issued on July 2, 2015, the Second Circuit rejected the DOL’s six-part test for determining whether an intern working in the for-profit private sector is actually an employee, and therefore entitled to the minimum wage and overtime pay. That test was embodied in a Fact Sheet published in 2010 and was “essentially a distillation of the facts discussed” in the U.S. Supreme Court’s 1947 decision in Walling v. Portland Terminal Co. The Court of Appeals deemed the DOL’s test “too rigid for our precedent to withstand” and instead adopted a “primary beneficiary” test that focuses on “whether the intern or the employer is the primary beneficiary of the relationship.”
The test formulated by the Second Circuit in Glatt v. Fox Searchlight Pictures, Inc., and applied in Wang v. The Hearst Corp., is comprised of the following “non-exhaustive set of considerations”:
1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee–and vice versa.
2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
The Second Circuit emphasized that “[a]pplying these considerations requires weighing and balancing all of the circumstances” and that “[n]o one factor is dispositive and every factor need not point in the same direction for the court to conclude that the intern is not an employee entitled to the minimum wage.” Because the district courts applied the discredited six-part test set out in the DOL’s Intern Fact Sheet, the Court of Appeals vacated the decisions and remanded the cases to allow the lower courts an opportunity to assess the plaintiffs’ status under the newly conceived “primary beneficiary” test.
Lawrence Peikes, Wiggin and Dana LLP
Federal Preemption Yields a Victory For Employers, Connecticut Supreme Court Holds Commuting Time Not Compensable
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.
Second Circuit Examines Pleading Requirements for FLSA Overtime Claims, Rejects FLSA “Gap-Time” Claims
The U.S. Court of Appeals for the Second Circuit recently ruled that a group of current and former employees of New York area hospitals and health care systems may be able to plead statutory overtime claims for alleged off-the-clock work, as well as some common law claims, but could not maintain a “gap-time” claim under the Fair Labor Standards Act (“FLSA”). Nakahata v. New York-Presbyterian Healthcare System, Inc., __ F.3d __, 2013 WL 3743152 (2d Cir. July 11, 2013).
In four lawsuits filed against more than thirty hospitals, health care systems, corporate heads, and related entities, the plaintiffs alleged that they were regularly required to (1) work during meal breaks even though defendants had a policy of automatically deducting time allotted for such breaks from the plaintiffs’ paychecks, (2) engage in work activities both before and after their shift without compensation, and (3) attend training sessions for which they were not compensated. The plaintiffs sought to recover the allegedly unpaid compensation pursuant to the FLSA, New York Labor Law (“NYLL”), and New York common law. Plaintiffs further alleged that their paychecks were misleading and part of a fraudulent scheme to disguise the underpayment in violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and New York common law. The United States District Court for the Southern District of New York granted the defendants’ motions to dismiss, and disposed of each complaint in its entirety.
On appeal, the Second Circuit found as an initial matter that the allegations regarding the plaintiffs’ overtime claims lacked the requisite specificity. Citing its recent decision in Lundy v. Catholic Health System of Long Island Inc., 711 F.3d 106 (2d Cir. 2013), the Court of Appeals held that “[t]o plead a plausible FLSA overtime claim, plaintiffs must provide sufficient detail about the length and frequency of their unpaid work to support a reasonable inference that they worked more than forty hours in a given week.” Absent allegations that the plaintiffs were scheduled to work more than forty hours per week, the overtime claims were insufficiently pleaded.
However, the Second Circuit also determined that the district court abused its discretion by not allowing the employees an opportunity to amend their complaints before entering final judgment in the case. Though, notwithstanding the district court’s dismissal of their suits, the plaintiffs remained free to re-file new actions alleging the same basic FLSA and NYLL violations, the error was not harmless, as the plaintiffs lost the opportunity to pursue some claims that had become time-barred. The Court of Appeals therefore remanded the FLSA and NYLL overtime claims back to the district court to allow the plaintiffs an opportunity to file amended complaints stating plausible overtime pay claims, if possible.
As to the plaintiffs’ gap-time claims, the Second Circuit, again relying on Lundy, noted that the FLSA does not provide a cause of action for unpaid time worked under forty hours per week, or gap-time, provided the alleged uncompensated time does not drop employees’ remuneration below the minimum wage, as the FLSA “is unavailing where wages do not fall below the statutory minimum and hours do not rise above the overtime threshold.” Although the Court of Appeals upheld the lower court’s dismissal of the plaintiffs’ gap-time claims under the FLSA, it at the same noted “that a gap-time claim would be consistent with the language of NYLL § 663(1), which states that ‘if any employee is paid by his or her employer less than the wage to which he or she is entitled he or she shall recover in a civil action the amount of any such underpayments.’” Accordingly, the Second Circuit remanded the plaintiffs’ NYLL gap-time claim to be considered in light of any amended pleadings.
The Second Circuit then considered the plaintiffs’ contention that the district court improperly dismissed their common law claims as preempted by the applicable collective bargaining agreements and Section 301 of the Labor-Management Relations Act. Without resolving the merits of the preemption issue, the Circuit Court reversed on the ground that the district court erred by considering materials outside the pleadings, namely the collective bargaining agreements attached by the defendants to their dismissal motions.
Finally, the Second Circuit affirmed the dismissal of the plaintiffs’ claims accusing the defendants of committing mail fraud in violation of RICO because, rather than perpetuating a fraud, the paychecks “would have revealed (not concealed) that plaintiffs were not being paid for all of their alleged compensable overtime.”
This was the second time in a matter of months that the Second Circuit addressed the pleading requirements for FLSA overtime claims and rejected gap-time claims under the FLSA. Nakahata applies the holding of Lundy that, so long as wages do not fall below the statutory minimum, employees do not have a claim for uncompensated hours under forty per week pursuant to the FLSA. In Lundy, the Second Circuit held that employees must plead “some” amount of uncompensated but compensable time worked over 40 hours in a week in order to state a cognizable FLSA overtime claim, while leaving open the possibility, depending on the case, that employees may need to also plead an approximation of overtime hours. Nakahata clarifies that plaintiffs need only provide sufficient detail about the “length and frequency of their unpaid work.”
Wiggin and Dana LLP
Fox Searchlight Pictures violated federal and state labor laws by misclassifying photocopying and coffee-fetching interns as employees, according to a recent decision handed down by the United States District Court for the Southern District of New York. The case, Glatt v. Fox Searchlight Pictures, Inc., __ F. Supp. 2d. __, 2013 WL 2495140 (S.D.N.Y. June 11, 2013), arises from the set of the Academy Award winning motion picture “Black Swan,” and reinforces the narrow application of the “trainee” exception to the minimum wage requirements of the Fair Labor Standards Act (“FLSA”).
Eric Glatt and Alexander Footman were low-level staffers who performed a variety of menial tasks during production and post-production “internships” on “Black Swan.” Despite being labeled as “interns,” Glatt and Footman argued they were in fact “employees” covered by the FLSA and New York Labor Law. Following a brief review of the U.S. Supreme Court’s landmark decision in Walling v. Portland Terminal Co., 330 U.S. 148 (1947), which created the “trainee” exception, the Court, in the absence of any guiding precedent from the Second Circuit, endorsed the U.S. Department of Labor’s approach to determining whether internships may indeed be unpaid. Citing to the Department’s Fact Sheet #71, the Court focused on the following criteria:
(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 the intern understand that the intern is not entitled to wages for the time spent in the internship.
In applying these criteria to the undisputed facts of the case, the Court ruled that the benefits received by Glatt and Footman “such as knowledge of how a production or accounting office functions or references for future jobs—are the results of simply having worked as any other employee works, not of internships designed to be uniquely educational to the interns and of little utility to the employer. They received nothing approximating the education they would receive in an academic setting or vocational school.” Indeed, had Glatt and Footman not performed the tasks they did, the work would have been done by paid employees. Fox’s assertion that Glatt and Footman understood they would not be compensated for their services made little difference, as the FLSA does not allow employees to waive their entitlement to be paid at least the statutory minimum wage.
In the end, the Court concluded that the relationship was a clear one-way street favoring Fox, and, moreover, “a far cry from Walling.” Glatt and Footman’s motion for summary judgment was granted, and the Court’s reliance on Fact Sheet #71 over the “primary benefit test” utilized by other circuits puts a feather in the cap of the Department of Labor. The decision also serves as another timely reminder to employers that legal analyses under federal and state labor laws will transcend workers’ assigned titles and focus on the substance and benefit of their roles.
Lawrence Peikes and Joshua Walls, Wiggin and Dana LLP
Court Rejects Employer’s After-The-Fact Reliance Upon “Fluctuating Work Week” Compensation Formula For Misclassified Workers Under The FLSA
The United States District Court for the District of Connecticut was recently asked to decide whether an employer accused of misclassifying workers as “exempt” from overtime protections under the Fair Labor Standards Act (“FLSA”) could utilize a “fluctuating work week” formula for calculating wages if the employees were to prevail at trial. The answer, provided by Judge Stefan Underhill in response to a motion in limine filed by the employees in Hasan v. GPM Investments, LLC, was a resounding “no.”
Plaintiffs were hired as “managers” for convenience stores and gas stations owned by GPM Investments, LLC (“GPM”), and were paid a fixed salary with no extra compensation for time worked in excess of 40 hours per week. Holding themselves out as “clerks,” plaintiffs filed suit claiming entitlement to overtime premium pay for all hours worked in excess of 40 per week. GPM argued that the managers qualified for the FLSA’s executive exemption, and were paid for a fluctuating work week in which “plaintiffs’ hours varied from week to week, and rather than submit them to unpredictable paychecks based on hours worked, the company paid them a fixed salary no matter how much time they spent on the job.”
The Court found numerous flaws with GPM’s fluctuating workweek argument, noting the distinction “between imputing what an hourly rate should have been and converting salaries into hourly rates is enormous.” The Court illustrated this point as follows:
“[S]uppose an employee makes a weekly salary of 1200 dollars. A court is faced with the task of putting her in the position she might have been in absent a violation. If [the] court divides her salary by the legal limit of 40 hours, it gets a regular rate of 30 dollars per hour. In a week when the employee worked 60 hours, she would receive time and a half, or 45 dollars per hour, for that additional 20 hours of overtime. Thus, her total compensation should have totaled 2100 dollars (1200 dollars in base salary plus 900 dollars in overtime).
But what if a court is faced with a fluctuating work week, not a standard overtime violation? In that same 60-hour work week, the worker’s 1200 salary only compensated her at a rate of 20 dollars an hour, not 30. And, for the additional 20 hours she only wins an overtime supplement of 10 dollars – she has already gotten the base rate of 20 dollars for every hour she worked, including the extra hours, and was only deprived of the slight bump of an unpaid half-time premium. For that week, then, she would only receive two-thirds of the standard calculation or 1400 dollars (1200 dollars in base salary plus 200 dollars in an unpaid overtime premium). This math adds up to a perverse incentive – the longer the hours the less the rate of pay per hour.”
The Court agreed with plaintiffs that the fluctuating work week compensation method is inappropriate where employers have misclassified employees as exempt from the FLSA’s overtime requirements: “When an employer misclassifies an employee, the resulting employment contract will never fulfill any of the requirements” of the fluctuating work week set forth by Department of Labor Guidelines, 29 C.F.R. § 778.114, promulgated “to codify” the United States Supreme Court’s decision in Overnight Motor Transp. Co. v. Missel, 316 U.S. 572, 578, 62 S. Ct. 1216 (1942). These Guidelines contain two requirements: (1) a “clear mutual understanding” between employer and employee that the “fixed salary is compensation (apart from overtime premiums) for the hours worked each work week;” and (2) the employee “receive payment of a contemporaneous premium for overtime hours.”
Not only were these elements absent from the instant case, but they would be absent from any misclassification case in which the employer attempted to utilize a fluctuating work week after-the-fact. As noted by the Court: “First, parties who believe that an employee merits no overtime payment cannot simultaneously believe that any overtime will be paid at varying rates. Put another way, in a misclassification case, the parties never agreed to an essential term of a fluctuating work week agreement – that overtime would be paid at different rates depending on the number of hours worked per week…To assume otherwise converts every salaried position into a position compensated at a fluctuating rate. Second, misclassified employees will never have received any kind of bonus or premium for overtime.” The Court further noted that in this case in particular, GPM failed to meet a third component of the DOL’s Guidelines as well, namely “that [the] employee’s hours actually fluctuate.” It was undisputed that plaintiffs were expected to work a minimum of 52 hours per week. To the extent their hours fluctuated, it was because they sometimes worked almost 100 hours per week. “This variance, between weeks with a moderate amount of overtime hours, and weeks where a majority of hours worked exceeded the 40 hour threshold, is not the same as the up and down fluctuation contemplated by the DOL and by the [United States Supreme] Court in Missel.”
According to this district court, then, fluctuating workweek arrangements cannot be created after-the-fact to explain an employer’s failure to comply with the FLSA’s overtime requirements. Employers looking to utilize a fluctuating workweek must intend to set up such an arrangement and comply with the DOL’s Guidelines from the outset.
By Lawrence Peikes and Joshua Walls, Wiggin and Dana LLP
“A warehouse worker who earns $700 per week ensuring that vegetables and other foodstuffs are loaded onto the correct delivery trucks and who lacks an office, a cubicle, or even a chair, to call his own does not fit the popular image of a ‘bona fide executive,’” but the United States Court of Appeals for the Second Circuit says such an employee fits within the Department of Labor’s definition of the term nonetheless. In an opinion handed down on July 12, 2012, the Second Circuit determined that summary judgment was properly entered in favor of a wholesale food distributor sued by a class of “warehouse captains” for unpaid overtime wages. The decision, in Ramos v. Baldor Specialty Foods, Inc., __ F.3d __, 2012 U.S. App. LEXIS 14333 (2d Cir. July 12, 2012), is predicated on a welcome employer-friendly construction of the FLSA’s executive exemption.
The Ramos plaintiffs were a class of night-shift captains employed in Baldor’s warehouse who were responsible for supervising nearly identical teams of “pickers,” employees who retrieved food products from warehouse shelves and loaded them onto trucks for delivery. Each captain was in charge of his team of pickers, including ensuring timely attendance and providing daily work assignments, and was ultimately accountable for the team’s performance.
Applicability of the executive exemption in this case turned principally on whether the captains’ primary duty involved “management …of a customarily recognized department or subdivision thereof.” Regulations promulgated by the DOL define a “customarily recognized department or subdivision” as “a unit” that “must have a permanent status and a continuing function,” as opposed to “a mere collection of employees assigned from time to time to a specific job or series of jobs.” The plaintiffs argued that because “each team [of pickers] performs the same tasks as the other teams at the same time and in the same warehouse,” the executive exemption did not apply. The Second Circuit framed the issue of first impression as “whether a unit can have ‘a permanent status and a continuing function’ when it is functionally identical to other units, when it works the same shift as other units, and when it operates in the same physical space as other units.”
Answering this question in the affirmative, the Second Circuit rejected the plaintiffs’ contention that as a matter of law “multiple units cannot have a permanent status and continuing function if they are functionally, temporally, or geographically identical to each other” as being without “support in the legislative history of the FLSA, in the regulations, or in the Department’s interpretations of those regulations.” The Court determined there was simply no requirement for some type of distinguishability, such as operating in different locations, working different shifts, or performing distinct functions, before teams of employees could constitute a “customarily recognized department or subdivision,” explaining that “[t]he job of supervising a team of employees becomes no less managerial merely because the team operates alongside other teams performing the same work in the same building.” The fact that the warehouse teams performed the same tasks and were effectively interchangeable was, according to the Second Circuit, “immaterial” because the “[i]nterchangeability of a team’s function does not alter the supervisory nature of the captain’s job.” For these reasons, the Court agreed that the plaintiffs were properly classified as exempt executives and, as such, not entitled to overtime pay.
As this case illustrates, commonly held perceptions of “executives” as clothed in business attire and stationed in an office do not always hold true. While employers must remain cautious in classifying non-traditional “executives” as FLSA-exempt, the practical approach to this often vexing challenge embodied in the Second Circuit’s decision in Ramos is certainly an encouraging development.
Wiggin and Dana LLP