Massachusetts Court Declines Invitation To Determine “Oppressive and Unreasonable” Wage Rate

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.

Lawrence Peikes
Wiggin and Dana LLP

Supreme Court of Connecticut Recognizes Fortune Claim

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.

Lawrence Peikes
Wiggin and Dana LLP

Massachusetts Enacts Groundbreaking Wage Equity Law

On August 1, 2016, Massachusetts Governor Charlie Baker signed a new pay equity act (the “Act”) into law. The Act, which goes into effect on July 1, 2018, is designed to close the wage gap between men and women. Although Massachusetts already had a pay parity law that prohibits wage discrimination, the Act provides greater clarity on what constitutes unlawful pay discrimination and imposes new rules and restrictions on employers.

First, the Act clarifies what it means to discriminate against workers who perform “comparable work” to others. While the current statute prohibits pay discrimination where workers perform “comparable work,” it does not define that term. Under the Act, comparable work is defined to be work that requires “substantially similar skill, effort and responsibility and is performed under similar working conditions.” The Act, however, does not define “substantially similar,” so that term will still be subject to interpretation by either the Attorney General’s Office or courts.

Second, whereas seniority was the only stated basis for paying variable wages under the old law, the Act recognizes six justifications for pay disparities where workers perform comparable work. Variations in pay are permissible under the Act if based upon: (1) a seniority system, provided that job-protected leave does not reduce seniority; (2) a merit system; (3) a system measuring quality or quantity of production, sales or revenue; (4) geographic location of where the job is performed; (5) education, training, or experience to the extent these factors reasonably relate to the job at issue; and (6) travel, if travel is a regular and necessary condition of the job.

Third, Massachusetts becomes the first state in the country to constrict what employers may ask prospective employees about their wage history. Under the new law, employers may not seek the wage or salary history of a prospective employee from the prospective employee or a current or former employer or require that applicants meet certain salary criteria to be eligible for a job. This  provision, however, includes an important caveat: prospective employees may authorize a prospective employer to verify salary history, and prospective employers may confirm salary history  after an offer with compensation has been negotiated and made to a prospective employee.

Fourth, the Act makes it unlawful for employers to prohibit employees from discussing or disclosing information about their own wages, or the wages of other employees.

Fifth, the Act establishes an affirmative defense for employers who have audited their pay practices within the prior three years. Specifically, employers who voluntarily evaluate their pay practices and “demonstrate that reasonable progress has been made towards eliminating wage differentials based on gender for comparable work,” have an affirmative defense to pay discrimination claims, so long as the evaluations were reasonable in detail and scope. At the same time, the law prohibits courts from drawing an adverse inference against employers who have not done a voluntary audit.

Sixth, the Act enhances the enforcement scheme of the previous law. The statute of limitations has been extended from one year to three years. The new law also allows employees to go directly to court with their pay discrimination claims without first bringing a complaint to the Massachusetts Commission Against Discrimination or the Attorney General’s Office.

Pay equity has been a topic of significant interest of late both locally and nationally. Massachusetts Attorney General Maura Healey in particular has made pay equity a priority of her office and has been using her enforcement powers to audit employer pay practices to detect and address discrimination. Accordingly, employers should expect that the Attorney General’s scrutiny of discriminatory pay disparities will only increase when the Act goes into effect. Now more than ever, employers should take time to review and evaluate their compensation practices to identify and remedy discriminatory pay disparities, and to take advantage of the new affirmative defense discussed above. They should also review hiring practices to ensure that they are not making impermissible inquiries into the pay histories of prospective employees. They also should review employee handbooks and other policies to ensure that they do not inhibit employees from discussing their compensation, as such a prohibition not only violates the Act, but also federal labor law.

Jonathan Keselenko
Foley Hoag LLP
Boston, MA


DOL’s Companionship Services Rule Applies Retroactively Says District Court

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


Ninth Circuit Upholds Time Rounding Practices

The Ninth Circuit issued its decision in Corbin v. Time Warner-Advance Newhouse, rejecting an employee’s claim that he was unlawfully denied compensation for hours worked due to his employer’s poilcy of rounding time entries to the nearest quarter hour.  The Ninth Circuit further rejected the employee’s claim that the trial court erroneously denied class certification on the rounding claim.  The first paragraph of the Ninth Circuit opinion nicely captures just how ridiculous this claim, where less than $20 was actually at issue, was:

“This case turns on $15.02 and one minute.  $15.02 represents the total amount of compensation that Plaintiff Andre Corbin (“Corbin”) alleges he has lost due to his employer’s, Defendant Time Warner Entertainment-Advance/Newhouse Partnership (“TWEAN”), compensation policy that rounds all employee time stamps to the nearest quarter-hour.  One minute represents the total amount of time for which Corbin alleges he was not compensated as he once mistakenly opened an auxiliary computer program before clocking into TWEAN’s timekeeping software platform. $15.02 in lost wages and one minute of uncompensated time, Corbin argued before the district court, entitled him to relief under the Fair Labor Standards Act of 1938 (“FLSA”), 29 U.S.C. § 201, et seq., and various California state employment laws.”

Of course, it is safe to assume that several hundreds of thousands of dollars were spent litigating the merit of this $15.00 claim, the propriety of class certification, and the resulting appeal.  Fortunately, the Ninth Circuit, like the trial court, rejected the employee’s claims and in the process, upheld the validity of the employer’s rounding policy under both the FLSA and California law.

The rounding policy at issue rounded all employee time stamps to the nearest quarter hour.  There was no evidence that the policy operated to benefit only the employer by, for example, rounding all entries in the employer’s favor.  Instead, the evidence showed that the policy was neutral, meaning that if an employee clocked in up to 7 minutes early, the employee’s time would be rounded up (benefiting the employer), but if the employee clocked in up to 7 minutes late, his or her time would be rounded down (benefiting the employee).  Similarly, if the employee clocked out up to 7 minutes early, the time would be rounded up (benefiting the employee), and if the employee clocked out up to 7 minutes late, the time would be rounded down (benefiting the employer).  A review of the named plaintiff’s time records revealed that the rounding policy resulted in plaintiff gaining compensation or breaking even 58% of the time.  However, for the snapshot of time at issue, the net result was that plaintiff lost $15.02 based on the rounding policy.  Plaintiff alleged that this violated both the FLSA and California law, and sought to certify a class action on the claim.  The district court granted summary judgment in favor of the employer and rejected the plaintiff’s effort to certify a class.

Agreeing with the district court, the Ninth Circuit held that the rounding policy was lawful and that plaintiff did not have a valid claim for unpaid wages.  The Court relied on a FLSA regulation, 29 CFR 785.48, that specifically permits rounding practices as long as they are applied in a neutral manner that does not, over time, result in a failure to compensate employees for all time that they have actually worked.  The plaintiff argued that because he lost $15.02 as a result of the application of the rounding policy (for the snapshot of time analyzed), it violated the law because it resulted in him being underpaid.  The Ninth Circuit rejected this argument, reasoning that the validity of a rounding policy depends on how it operates in the global sense, not how it impacts one individual employee.  Here, the evidence showed that the policy was neutral in operation.  Furthermore, even looking at how the policy affected just the individual plaintiff in this case, even though the plaintiff lost $15.02 for the snapshot of time analyzed, the rounding policy was still lawful because it was undisputed that in most pay periods the policy operated to either overcompensate the plaintiff or he broke even.  Thus, it did not result in him being systematically underpaid.  Indeed, in 8 out of 10 of his last pay periods, he was overcompensated based on the rounding policy.  Thus, if he had continued working a few more pay periods and those were added into the analysis, it likely would have resulted in there being no net loss whatsoever.  The Court thus rejected the idea that just because the particular snapshot of time selected produced a net loss, this automatically invalidates the rounding policy.  The Court reasoned that if this were the case, this would lead to artful pleading by plaintiffs to craft rounding claims based on carefully selected snapshots of time that they know would yield a net loss.

Having determined that the rounding policy complied with federal law, the Court turned to plaintiff’s claim that the policy violated California law.  The Court rejected this argument as well, holding that California law is in accord with federal law on the issue of rounding.

The Court similarly rejected the plaintiff’s claim that he was denied one minute of pay for work he performed off the clock on one occasion when he mistakenly logged onto his computer before clocking in.  The court held that this was de minimis time that was not compensable under the FLSA or California law.  The Court further noted that the employee’s off the clock “work” was contrary to the employer’s policies specifically requiring employees to clock in before performing any work.

On the issue of class certification, the Court held that the trial court’s grant of summary judgment in favor of the employer on the named plaintiff’s rounding claim mooted the issue of whether or not a class should have been certified because there was no valid rounding claim upon which to base a class claim.

While a good result and a favorable decision for employers, this case should not be interpreted as providing blanket approval for rounding policies and practices.  Such policies still carry risk and invite litigation, particularly where combined with written or unwritten rules of practice that aim to ensure that the policy will operate to the benefit of the employer.

USDOL Promulgates 2016 FLSA White-Collar Exemption Final Rules


By Michael J. Killeen and Sheehan Sullivan Weiss

California Governor Jerry Brown Signs $15 Minimum Wage Bill

Today Governor Jerry Brown signed Senate Bill 3, which will gradually increase the state’s minimum wage from its current level of $10 per hour to $15 per hour by 2022.  Both houses of California’s legislature passed the bill on March 31 to great fanfare, but the Governor waited until today to give formal approval, presumably to avoid signing the bill into law on April Fool’s Day.

The new law will increase the state’s minimum wage from $10 per hour according to the following schedule:

For employers with 26 or more employees:

January 1, 2017: $10.50 per hour
January 1, 2018: $11.00 per hour
January 1, 2019: $12.00 per hour
January 1, 2020: $13.00 per hour
January 1, 2021: $14.00 per hour
January 1, 2022: $15.00 per hour

For employers with 25 or fewer employees, each increase will be delayed by one year as follows:

January 1, 2018: $10.50 per hour
January 1, 2019: $11.00 per hour
January 1, 2020: $12.00 per hour
January 1, 2021:  $13.00 per hour
January 1, 2022: $14.00 per hour
January 1, 2023: $15.00 per hour

Beginning in 2024, the minimum wage will increase annually up to 3.5 percent based on the United States Consumer Price Index for Urban Wage Earners and Clerical Workers, rounded to the nearest ten cents.  The new law does not preempt local minimum wage ordinances that have been adopted by several cities in California in recent years, so local governments remain free to enact minimum wages higher than the state minimum.

Beginning July 1, 2018, the new law will also phase in paid sick leave for in-home supportive care workers, who were excluded from the state’s paid sick leave law that took effect in 2015.

The new law will also gradually increase California’s minimum salary for so-called “white collar” (executive, administrative, and professional) exempt employees, which is set at twice the state minimum wage for a 40-hour work week.  Under the current $10 state minimum wage, California’s minimum salary is $800 per week or $41,600 per year.  Unless the legislature acts to de-couple the minimum exempt salary from the minimum hourly wage, the minimum salary for white collar exempt employees in California will rise according to the following schedule:

January 1, 2017:      $840 per week / $43,680 per year
January 1, 2018:      $880 per week / $45,760 per year
January 1, 2019:      $960 per week / $49,920 per year
January 1, 2020:      $1,040 per week / $54,080 per year
January 1, 2021:      $1,120 per week / $58,240 per year
January 1, 2022:      $1,200 per week / $62,400 per year

The minimum salary for white collar exempt employees under the FLSA is currently just $455 per week ($23,660 per year).  However, the Obama administration’s plan to change the FLSA regulations to raise that minimum to at least $970 per week ($50,440 per year), and then annually adjust the minimum to keep pace with inflation, is likely to take effect in the summer or fall of 2016.  Any white collar employee in California must be paid a salary high enough to satisfy both the state and federal minimums to be exempt from overtime for hours worked in excess of eight per day or 40 per week.

Employers should immediately begin planning to adjust to the new law, which critics describe as a “job-killer.” The economic impact of a $15 minimum wage remains to be seen, and given the implementation schedule the new law’s effects will be gradual.  But at a minimum we know this much is true: (1) Minimum wage workers who remain employed will see a wage increase; and (2) Those who are laid off or cannot find employment under the new law will have an effective minimum wage of zero.

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

Human Resource Professionals Beware — Second Circuit Finds HR Director May Be Individually Liable Under the FMLA

Human Resource Professionals Beware — Second Circuit Finds HR Director May Be Individually Liable Under the FMLA

By John Ho and Robert F. Manfredo, Bond Schoeneck & King, PLLC

On March 17, 2016, the United States Court of Appeals for the Second Circuit issued a decision in Graziadio v. Culinary Institute of America.  In that decision, the Court held that the facts (when viewed in the light most favorable to the plaintiff) could lead a jury to conclude that the Culinary Institute of America’s Director of Human Resources was individually liable for violating the FMLA adopting the “employer” test used under the FLSA.

The plaintiff, Cathy Graziadio, was employed at the Culinary Institute as a Payroll Administrator.  On June 6, 2012, Graziadio’s son was hospitalized due to issues related to Type I diabetes.  Graziadio immediately informed her supervisor that she needed to take leave to care for him.  Graziadio completed the necessary FMLA paperwork and submitted medical documentation supporting her need for leave.  Only a few weeks later, Graziadio’s other son fractured his leg playing basketball and underwent surgery.  Graziadio again notified her supervisor that she needed leave to care for her other son and expected to return to work, at least part time, by the week of July 9.

On July 9, Graziadio’s supervisor asked for an update on Graziadio’s return to work and Graziadio responded that she needed a reduced, three-day week schedule until mid-to-late August and could return July 12 if that schedule was approved.  Graziadio asked whether the Culinary Institute required any further documentation from her.  At that point, Graziadio’s supervisor contacted the Director of Human Resources regarding Graziadio’s request.  Despite several calls and e-mails from Graziadio, the Director of Human Resources did not respond until July 17.  Over the next several weeks, Graziadio and the Director of Human Resources corresponded regarding Graziadio’s need for continued leave, alleged deficiencies in her FMLA documentation, and her expected return to work date.

On September 11, 2012, the Director of Human Resources sent Graziadio a letter notifying her that she had been terminated for abandoning her position.  After being terminated, Graziadio commenced an action against the Culinary Institute, her supervisor, and the Director of Human Resources alleging interference with her FMLA leave and retaliation for taking FMLA leave.  The District Court granted summary judgment to the Culinary Institute and the individual defendants, but the Second Circuit reversed that decision.

Under the FMLA, an individual may be held liable if he or she is considered an “employer,” defined as “any person who acts, directly or indirectly in the interest of an employer to any of the employees of such employer.”  In examining this standard, the Second Circuit applied the economic realities test – which courts apply to determine who may be considered an employer under the Fair Labor Standards Act.  Under this test, the Court must look to whether the individual “possessed the power to control the worker in question.”  The factors include whether the individual:  (1) had the power to hire and fire employees; (2) supervised and controlled employee work schedules or conditions of employment; (3) determined the rate and method of payment; and (4) maintained employment records.  In the context of the FMLA, courts look to whether the individual “controlled in whole or in part plaintiff’s rights under the FMLA.”

In the Graziadio case, the Second Circuit held that the Director of Human Resources “appears to have played an important role in the decision to fire Graziadio” and “under the totality of the circumstances, [the Director of Human Resources] exercised sufficient control over Graziadio’s employment to be subject to liability under the FMLA.”  Accordingly, unless the parties reach a settlement, the case will proceed to trial with both the Culinary Institute and its Director of Human Resources as defendants.

This case stands as a stark reminder to human resource professionals involved in making decisions related to employee FMLA requests to proceed with caution and to strictly comply with the requirements of the FMLA when processing requests for leave.  If there is any doubt regarding the appropriate course of action, human resource professionals should consult with counsel.

Supreme Court upholds representative time study in don/doff class action

The U.S. Supreme Court’s decision this week in Tyson Foods, Inc. v. Bouaphakeo et al. came as a surprise to many observers, and has the potential to significantly influence the manner in which wage and hour collective and class actions are litigated going forward. We note that while the decision allowing for use of representative evidence in a donning and doffing class or collective action is not ideal, it is not as bad as it could have been. The Court did, after all, make clear that such evidence is permissible only if each plaintiff could have used the same evidence in an individual action. On the other hand, plaintiffs who clear that hurdle now will be permitted to rely on a time study conducted on a sample of class members to calculate an average donning/doffing time, which is then extrapolated to each member of the class — even if the actual time spent on the activity in question varies dramatically among employees and even if some of the class members failed to prove damages at all based on that time study. Cozen O’Connor offers a comprehensive analysis of the case, including several strategic lessons for employers, at (Jeremy Glenn, Cozen O’Connor)

New Overtime Regulations Closer to Final Roll-Out

On March 14th, the Department of Labor sent its final draft of the new regulations governing the white collar exemptions to overtime pay to the Office of Management and Budget.  The OMB’s review is the final step required for a regulation to be published and implemented.  Consequently, though the details are still “top secret,” the regulations’ release is more imminent.  The OMB’s review may take as long as 90 days, but the review period typically lasts between 30 to 60 days, and sometimes even less.

Once released, the regulations will likely go into effect 60 days thereafter.  Some pundits believe that the DOL is targeting Labor Day for an effective date, in which case, they will be published in final form before July 4th.  In order for the Administration to foreclose a rare but possible congressional override vis-à-vis the Congressional Review Act, they must be published by early July.  Though no one can accurately predict when they will actually be rolled out, based on this latest development it appears that they could be rolled-out as early as late April through early July.

The anticipated impact these regulations will have on employers will be widespread. The DOL appears primed to double the salary threshold for being exempt from overtime, and it may also redefine the types of duties employees may perform to qualify for the exemption.  For details, click here.  Employers may have to redesign their pay structures and reclassify employees from being exempt, to non-exempt.

Bottom line, employers should plan now to avoid being caught “flat-footed” by waiting and then only having 60 days to react.  Experienced counsel should be consulted to weigh options and to make sure all bases are covered.