Many employers are well aware of the increasing number of lawsuits filed under the FLSA in recent years, including a significant increase in collective/class actions. There were a record number of FLSA cases filed in 2015 according to the latest statistics. When cases are filed in federal court, they are categorized by the type of case as well as the statute or claims brought in the case. In 2015, there were 8,954 new cases filed in federal court alleging either claims under the FLSA for unpaid minimum wage, overtime or both. These filings are up by nearly 900 cases from 2014. And, the total number of FLSA cases in federal courts has gone up 450% since 2000.

What has changed? In 2004, the Department of Labor issued new regulations covering the white-collar exemptions (executive, administrative, professional, outside sales and computer-related occupations). In addition to making changes to the salary levels required to meet the exemption, the DOL changed some of the regulations regarding the “duties” tests. This change prompted more litigation, as employees who used to be traditionally considered exempt raised claims for misclassification in one of these white-collar exemption categories. In addition, many employees are misclassified as independent contractors and bring claims for unpaid overtime as well as other employee benefits.

Now, cases include not only misclassification, but more and more cases also include “off-the-clock work.” These are cases where employers usually do not have complete time records to dispute the claims, as employees will often allege that they were required to report early, work through lunch or stay late and the only proof is anecdotal evidence. Other cases involve the so-called “regular rate” calculation where employees allege that the overtime payments did not factor all compensation received, such as bonuses or shift differentials. Since the FLSA permits a prevailing plaintiff to recover reasonable attorneys’ fees, many plaintiff’s attorneys carefully screen cases before filing them to ensure that even if they are stuck in protracted litigation, there is a high chance that they will get all of their fees as part of any settlement or verdict.

What this means for employers, especially when the DOL has published proposed regulations to increase the salary levels for the white-collar exemptions, is that an ounce of prevention is worth a pound of cure. It is important for employers to ensure that employees are classified correctly if they are indeed exempt. Job titles alone are rarely of any significance, as the job duties actually performed are what the DOL and courts will look at to determine proper classification. If employees are entitled to overtime and not exempt, employers need to be cognizant of the different rules for calculating the regular rate to ensure that all compensation is factored in for overtime purposes. Often, these types of cases can result in a very small payment of back overtime to employees, but if it is brought on a collective or class-wide basis, the overall costs can be significant. And, there is of course, liquidated damages in an equal amount and attorneys’ fee to add to cost of the claim.

Contact any one of the members of the Wage & Hour Defense Institute for further information about proper classification and payment of overtime both under the Fair Labor Standards Act and any applicable state law.

Paul Bittner, WHDI Member

In 2014, President Obama directed the Secretary of Labor to streamline existing overtime regulations for the “white-collar” exemptions. These exemptions from overtime, which cover the typical executive, administrative and professional employees, were last revised in 2004. When the revisions became effective in 2004, there were significant changes in the application of the exemptions for many employers. It remains to be seen whether these proposed changes will have as sweeping an impact across industry.

In 2014, there was quite a bit of discussion by proponents of change to increase the minimum salary required to be exempt. Some commentators pointed to examples of entry-level management employees who, by and large did the same tasks as their subordinates, but were not entitled to any overtime compensation. This can result in subordinate employees working fewer hours or making more money once the overtime premiums were factored in.

Last fall, the Department of Labor stated that it would delay the publication the proposed final regulations until February 2015. The month is quickly coming to a close and the Department of Labor has yet to publish these proposed new regulations. Of course there will be a comment period prior to final implementation. If it is similar to the 2004 changes, there will be some tweaks from the first version published to the final version that is actually implemented in the Code of Federal Regulations. The Wage & Hour Defense Institute will be closely monitoring the Department of Labor and its proposed rules once they are published for the benefit of its members and their clients. But, suffice to say that all employers should take note of the changes to ensure compliance, especially those with executive employees.

Questions often come up from employees and human resources professionals regarding rest and meal periods under the Fair Labor Standards Act. Most of these questions are the result of confusion by the employee regarding when rest and/or meal periods are required. Under the FLSA, an employer is not required to provide rest or meal periods to an employee during his or her shift. These requirements are often the result of state laws, employer policies or collective bargaining agreements that mandate breaks and meal periods. It is important to determine whether a state law, employer policy or collective bargaining agreement applies, as these may be the source for a required rest and/or meal period while working.

Under the FLSA, rest periods are considered compensable time. Employers should not require employees to “clock out” for rest periods. Rest periods usually run from approximately 5 minutes to about 20 minutes in duration. Employees are usually permitted to have a snack, a cup of coffee or soda, smoke (unfortunately) or use their cell phones during the break. If an employer provides breaks, the employer should not offset the break time against other working time or other on-call time. The key here though is that breaks are provided for relief to the employees and to promote efficiency in the workplace and should be treated as compensable time.

Meal periods, on the other hand, are treated differently. A meal period that is at least 30 minutes in duration does not need to be compensable time. An employee can be required to “clock out” and eat his or her meal unpaid provided that the employee is not required to perform work during the meal period. For example, if a receptionist is required to eat lunch at the reception desk, even though technically she is off the clock, she would still be working as she would be responsible for greeting visitors and accepting the mail or deliveries during her lunch break. Under certain circumstances, a meal period may be shorter than 30 minutes and still be considered non-compensable work time. These situations are very unusual and generally do not apply in the modern workplace. Meal periods should be at least 30 minutes long and employee should be relieved of all duties during this time.

Some employers, in my experience, have required employees to take their meal breaks in the designated employer cafeteria, or if none is provided, in the employer provided break or lunch room. This ensures that employees are not hanging around their work stations and working “off the clock” even if they are doing so without the express permission of the employer. Other employers who I worked with actually require employees to leave the office and eat their lunch either in the designated break room or at a local restaurant in order to ensure that the meal period is actually taken and also to ensure that customers do not come in to the establishment and form the impression that the employees are being paid and not working. (Imagine the classic example of the county road worker sleeping in his truck during his lunch break and members of the public thinking he is sleeping on the job!)

We always recommend employers maintain a clear policy regarding break periods and meal periods under the FLSA. If breaks and meal periods are given, ensure that employees are disengaged from work during the meal period if they are required to clock out. Remember also to check your state laws, employer policies and any applicable collective bargaining agreements to determine if any additional requirements apply.

Paul Bittner, Ice Miller LLP

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

Following my December 2011 post entitled “Pharma Reps Paid to Sell or to Market, That is the Question,” the Seventh Circuit revealed its own opinion on the issue of whether pharmaceutical sales reps are exempt from overtime pay and other Fair Labor Standards Act (FLSA) protections. The Seventh Circuit issued the Schaefer-LaRose v. Eli-Lilly & Co. opinion in May 2012, complicating the debate already dividing the Second and Ninth Circuits.

The United States Supreme Court will soon consider whether the Ninth Circuit appropriately held in Christopher  v. SmithKline Beecham Corp. that the outside sales exemption applied to pharmaceutical sales representatives. The Christopher opinion directly contradicted the findings of the Department of Labor and the Second Circuit in In Re Novartis, which held that pharmaceutical sales reps do not meet the exemption’s requirements because they do not sell any drugs, do not obtain any orders for drugs, and can at most obtain from physicians a non-binding commitment to prescribe drugs to their patients. The Supreme Court will ultimately decide which appellate court, if any, got it right. Oral arguments were on April 16, 2012.

The Seventh Circuit in Schaefer-LaRose declined altogether to address the applicability of the outside sales exemption. Instead, the court held that the administrative exemption to the overtime requirements of the FLSA applied to pharmaceutical sales reps. According to the FLSA, the exemption from the overtime requirement applies to “any employee employed in a bona fide executive, administrative, or professional capacity.” An employee employed in a bona fide administrative capacity is one whose compensation is salary based, whose primary duty is the performance of office or non-manual work directly related to the management of the employer or employer’s customers, and whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

The Seventh Circuit emphasized that pharmaceutical sales reps do not manufacture products or make individual sales of medications. On the contrary, their function is to be a representative of the company to the medical community and promote sales generally by ensuring that confidence in the product is continually high. In the Seventh Circuit’s view, these job duties exempt the pharmaceutical sales reps from overtime pay because they are properly defined as “administrative employees.”

Although the Supreme Court will not directly consider the administrative exemption at issue in Schaefer-LaRose, a decision favoring the DOL and Second Circuit opinion could cause employers to rely on the Seventh Circuit’s interpretation in future cases.

In preparing for the Supreme Court’s ultimate decision, employers with outside sales employees should take immediate steps to reduce the risk of costly litigation. At a minimum, employers who have not recently audited their wage and hour practices should consider whether this might be a good time to do so.

Paul Bittner

Ice Miller, LLP

Special thanks to Summer Associate George Kiamos for his contribution to this analysis.

In an effort to resolve a contentious debate dividing federal courts, the United States Supreme Court will soon consider whether pharmaceutical sales reps are exempt from overtime pay and other Fair Labor Standards Act (FLSA) protections. 

In agreeing to hear an appeal to the Ninth Circuit’s decision in Christopher v. SmithKline Beecham Corp., the Supreme Court will decide whether the FLSA’s outside sales exemption applies to pharmaceutical sales representatives. According to the FLSA, the outside sales exemption applies to “any employee employed in the capacity of outside salesman.”  An employee employed in the capacity of outside salesman is one whose primary duty is making sales or obtaining orders or contracts for services. Sales include an exchange, contract to sell, consignment for sale, or agreement of shipment for sale. 

According to Department of Labor regulations, promotional work may or may not be considered as exempt outside sales work.  When promotional work is undertaken by a person who actually sells a product, the DOL considers the work to qualify for the outside sales exemption.  Nevertheless, where promotional work will not lead to actual sales or where it is incidental to sales made by someone else, the DOL does not consider it as exempt work.

In In re Novartis, the Second Circuit held that pharmaceutical sales reps do not meet the exemption’s requirements because they do not sell any drugs, do not obtain any orders for drugs, and can at most obtain from physicians a non-binding commitment to prescribe drugs to their patients.  The court based its decision in large part upon DOL guidance, where promotional activities designed to increase the prescription of certain drugs was not considered exempt sales work.  

The Ninth Circuit reached a very different conclusion in Christopher, the case now before the Supreme Court. Rejecting the findings of the Department of Labor and the Second Circuit, the Ninth Circuit court found that the outside sales exemption applied to pharmaceutical sales representatives.  The court pointed to the employees’ sales training and the employer’s requirement of sales experience as a condition for employment as evidence of their status as “outside salesmen.”  

In preparing for the Supreme Court’s ultimate decision, Employers in the pharmaceutical industry should take immediate steps to reduce the risk of costly litigation.   At a minimum, Employers who have not recently audited their wage and hour practices should consider whether this might be a good time to do so. 

Paul Bittner and David Campbell

Schottenstein, Zox & Dunn Co., LPA

Predictive of the U.S. Supreme Court’s holding in AT&T Mobility LLC v. Concepcion, No. 09-893, the U.S. District Court for the Southern District of Ohio found that an arbitration agreement signed by department store employees prevented them from filing a collective or class action in court. The U.S. Supreme Court issued its 5-4 decision in AT&T Mobility on April 27, 2011. The narrow majority of the high court held that the Federal Arbitration Act preempted state law regarding the enforceability of a class action waiver in an arbitration agreement. Just a month earlier in Aracri v. Dillard’s Inc., No.: 1:10cv253 (3/29/11), two Dillard employees brought claims under the FLSA and analogous Ohio statutes for unpaid overtime. The employees filed a collective and class action respectively on behalf of themselves and all other similarly situated employees. Dillard’s required new hires to sign an arbitration agreement as part of the new hire paperwork and then the agreement was confirmed electronically shortly after employment commenced. At the top of the arbitration agreement in all capital letters it stated,

IMPORTANT NOTICE: THIS AGREEMENT WAIVES YOUR RIGHT TO A JURY TRIAL AND TO PURSUE LITIGATION IN COURT. READ IT CAREFULLY BEFORE SIGNING.

According to the terms of the agreement, an aggrieved employee must arbitrate all claims related to among other things, “overtime.” Further, the parties agreed to proceed under the “Rules of Arbitration” established by Dillard’s. Defending on this basis, Dillard’s sought dismissal of all collective and class action allegations, an order staying the proceedings in court and compelling arbitration of the individual claims. Citing to the Federal Arbitration Act, the Southern District did not find any basis to overturn the enforceability of the arbitration agreement. Further recognizing the federal public policy favoring arbitration, the Court held that any ambiguities in the arbitration agreement or doubts as to the parties’ intentions should be resolved in favor of arbitration. The Court held that the Dillard’s agreement was not unconscionable and that the Plaintiff’s had knowingly and voluntarily agreed to arbitration.

When confronted with the issue of arbitrating collective or class claims, however, the Court found that the Dillard’s Rules of Arbitration were silent. The Court held that a waiver of collective or class claims was not unconscionable and unenforceable per se, but because the Dillard’s Rules of Arbitration were silent on whether collective or class claims could be subject to arbitration, the Southern District determined that question was properly presented to an arbitrator. In other words, the underlying substantive claims for unpaid overtime were subject to arbitration; whether the claims could be heard as a collective or class action or just on an individual basis was a question for the arbitrator and not the Court.

Clear to the Court, however, was the fact that the Plaintiffs’ court-based collective and class claims were waived. The Court then dismissed without prejudice the Plaintiffs’ complaint and ordered the parties to proceed to arbitration.

The “take-away” for all employers is pretty simple: If you have an arbitration agreement, include a waiver of collective and class claims. Provided that employees are provided with notice and an opportunity to read and understand the terms of the agreement prior to acceptance, an attack as to unconscionability and unenforceability can be avoided.

by Paul L. Bittner, Schottenstein, Zox & Dunn Co., LPA

On November 9, 2010, the settlement In re Wal-Mart Stores Inc. Wage & Hour Litigation, pending in the U.S. District Court for the Northern District of California, received final approval from the court. The settlement resolved the claims of a class of 293,971 employees who worked in California Wal-Mart or Sam’s Clubs ranging from 2002 until June of this year.

This case stemmed from allegations that Wal-Mart did not pay workers for various types of earned wages upon termination of employment, including vacation and personal time. The class members sought damages under specific provisions of the California state law requiring prompt payment upon separation. The state law also provides penalties for non-compliance.

Based upon reports, the settlement is approximately worth 2 days of profits for the retailer.

Although the scope of this case encompassed a very large amount, the lesson is relatively simple: Under the Federal Fair Labor Standards Act, employers are not required to provide paid vacation and there is not specific requirement for immediate payment upon separation from employment.

But, state laws typically dictate when paychecks are due upon termination and if and when accrued benefits, such as vacation and PTO, are due. These state laws, like the California Labor Code, could cause problems for employers who do business in multiple states. There is not necessarily a “one-size fits all” program. Some states require payment immediately upon separation; others with 72 hours and some have no requirement other than the next regular pay day. Further, vacation and PTO can be mandatory in some states and completely discretionary in others.

Employers in multiple states should consider consulting with legal counsel and ensuring that pay practices are proper in each state where they operate. Most won’t be as big as Wal-Mart, but two days of profits to settle a claim can still be more costly than an initial effort at compliance.

By Paul L. Bittner, WHDI Member
Schottenstein, Zox & Dunn Co., L.P.A.
Columbus and Cleveland, Ohio

Two recent federal cases have found in favor of pharmaceutical sales representatives concerning overtime claims. For years, pharmaceutical sales reps have been off the radar when it comes to overtime claims. Most sales reps were well-compensated, enjoyed the legendary perks that came with the job (high-end meals, golf trips, presentations at resorts with physicians, etc.) and never complained about working long hours.

But, perhaps a trend in new overtime cases is emerging where courts are finding that the overtime exemption for outside sales representatives does not necessarily apply, especially when the sales reps themselves are not making any sales.

In June of this year, Judge Ruben Castillo granted summary judgment in favor of a class of plaintiffs against Abbott Labs in Jirak, et al. v. Abbott Laboratories, Inc. (N.D. Ill., Case No. 1:07-cv-03626, June 10, 2010). The plaintiffs in Jirak were responsible for generating market share and growth for certain Abbott products and making “selling presentations” but not promoting the products to patients or end-users. After analyzing the issues, Judge Castillo found that the sales reps for Abbott Labs did not make sales, but were more akin to marketers and promoters. When cross-motions for summary judgment were filed by the parties, the Judge found in favor of plaintiffs on liability and retained jurisdiction to determine any back overtime and damages due the plaintiffs.

On July 6, 2010, another pharmaceutical company, Novartis, had a decision originally in its favor overturned by the U.S. Court of Appeals for the Second Circuit. In In re Novartis Wage and Hour Litigation (2d Cir., Dkt. No. 09-0437-cv, July 6, 2010), overtime claims for a class of approximately 2500 sales representatives were reinstated and remanded to the trial court. The trial court originally found that the Novartis reps were in fact exempt under the outside sales and administrative exemption and thus, not entitled to overtime pay. On appeal, the plaintiffs, joined by the U.S. Secretary of Labor as amicus curiae, argued that in fact, the reps did not make sales. The Court of Appeals pointed out that when delivering “samples” to physicians, no money actually changes hands. If it did, such a “sale” would be a federal crime. Ultimately, the claims for overtime compensation were reinstated and the only likely issues left for the trial court to determine are back overtime and damages due the plaintiffs.

Remember that in order to qualify for the Outside Sales Exemption, all of the following tests must be met:

• The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
• The employee must be customarily and regularly engaged away from the employer’s place or places of business.

There is no minimum salary requirement for an outside sales exemption.

According to the Department of Labor, “Making Sales” includes any sale, exchange, contract to sell, consignment for sales, shipment for sale, or other disposition. It includes the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property. “Obtaining Orders or Contracts for Services or for the Use of Facilities” includes the selling of time on radio or television, the solicitation of advertising for newspapers and other periodicals, and the solicitation of freight for railroads and other transportation agencies. The word “services” extends the exemption to employees who sell or take orders for a service, which may be performed for the customer by someone other than the person taking the order.

An outside sales employee makes sales at the customer’s place of business, or, if selling door-to-door, at the customer’s home. Outside sales does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls. Any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business, even though the employer is not in any formal sense the owner or tenant of the property.

By Paul Bittner, Schottenstein, Zox & Dunn Co., LPA, Columbus, Ohio
Member, Wage & Hour Defense Institute

The DOL’s Wage and Hour Division has a new webpage called “We Can Help”. The webpage contains general information that would be of particular interest to employees who wish to pursue wage or overtime claims against their employer. The webpage has bold text boxes on “How to File a Complaint”, links for General Information for Workers, Frequently Asked Questions, Third-Party Complaints and the Investigative Process.

Prominently displayed on slides artistically depicting construction workers, tools and migrant workers in the Art Deco style are toll-free compliance assistance numbers for employees. In addition, there are public service announcements with video links, usually in both English and Spanish. One notable PSA has actor Jimmy Smits speaking about the basics of the FLSA in Spanish and advising viewers to contact the Department of Labor if they need help regarding questions related to minimum wage and overtime, regardless of their documented status.

This is the most aggressive outreach ever made by the Wage and Hour Division since it has been online to reach workers and solicit calls for assistance. This campaign is likely going to result in more DOL investigations and enforcement. Employers should be aware of this campaign and take steps to ensure compliance with the minimum wage and overtime provisions of the FLSA. You can see the new webpage at www.dol.gov/wecanhelp.