Compensating Non-Exempt Employees Webcast

Posted by Staci Ketay Rotman on November 06, 2012

webinar_cropped18912405.jpgSome of the most common questions we receive from clients involve how to properly compensate non-exempt employees. Join me on Thursday, November 29, 2012, at 11:00 a.m. CST, for a two-hour live webcast entitled “Understanding FLSA’s Compensable Time Requirements for Non-Exempt Employees.”  I will be serving on a panel in which we will address the following topics:

  • Compliance with FLSA's compensable time requirements
  • Calculating the amount of money a non-exempt employee should receive for all hours worked
  • Practical Solutions on some of the common pitfalls for employers
  • Training your staff and establishing clear policies about non-exempt employees working hours
  • Legal Issues involved in case errors in compliance are identified
  • Recent DOL changes concerning salaried exempt employees
  • And a lot more!

Thanks to The Knowledge Group for inviting me to present this program.  As a client or friend of the Firm we can offer registration for this webinar at the discounted price of $25.  Please e-mail Maryanne Adams at mca@franczek.com if you wish to register for the webcast for the $25 fee.  More information on the webcast and general registration is available through The Knowledge Group.

Family Dollar Settles Store Manager Overtime Claim

Posted by Staci Ketay Rotman on September 13, 2012

Dollar.Stacked.XSmall.jpgOn September 12, 2012, Family Dollar announced that it will pay up to $14 million to settle a class action in the Southern District of New York.  Similar to other class actions filed against Family Dollar over the years, New York store managers claimed that the Company failed to pay them overtime.  Although the agreement has not yet been finalized, the proposed settlement would affect more than 1,700 store managers in New York who are covered by the certified class. 

As we mentioned in our prior blog post back in April, court rulings have come down on both sides of the issue as to whether store managers at discount retailers, such as Family Dollar, are exempt from overtime.  Back in 2008, the Eleventh Circuit upheld a $35.6 million judgment in favor of Family Dollar Stores managers on the basis that those managers did not meet the executive exemption.  Since then, court rulings addressing this issue have varied depending upon the facts of each case.  Most recently, in April 2012, a federal district court in South Carolina determined that two Dollar General store managers met the executive exemption from overtime pay under the FLSA.  Gooden v. Dolgencorp and Thomas v. Dolgencorp.  Similarly, in August 2012, a North Carolina district court found that a Family Dollar store manager met the executive exemption.  Ward v. Family Dollar Stores.   

Given some of the more recent rulings finding that the executive exemption applied to store managers, it is not entirely clear why Family Dollar chose to settle this New York class action.  Needless to say, each case must be reviewed based upon its own set of individual circumstances.  Like all employers, Family Dollar likely looked at the facts and risks associated with further litigation and made a determination as to whether the settlement made sense.  In any event, this case does not suggest that Family Dollar and other retailers cannot meet the executive exemption by demonstrating that management is the primary duty for its store managers in the future.  At most, this is a reminder to employers that such a determination will always be based on the specific facts at issue and the individuals involved.

Are Summer Camp Staff Exempt? [Lesser Known Exemptions]

Posted by Bill Pokorny on July 09, 2012

Camp SignMost regular readers of this blog will be familiar with the most common exemptions to the overtime requirements of the Fair Labor Standards Act, those being the "white collar" exemptions for executive, administrative, and professional employees. However, the FLSA also contains a number of less well-known exemptions covering specific establishments or industries. In this post, we take a look at the exemption for seasonal amusement and recreational establishments. 

Seasonal Establishment Exemption: Basics

FLSA Section 13(a)(3) (29 U.S.C. § 213(a)(3)) provides an exemption from the FLSA's minimum wage and overtime provisions for employees of amusement or recreational establishments, organized camps, or religious or non-profit educational conference centers if either:

  1. The establishment does not operate for more than seven months in any calendar year, or
  2. During the preceding calendar year, the establishment's average receipts for any six months were not more than 1/3rd of its average receipts for the other six months of the year. 

For purposes of the first test, whether an establishment "operates" during a particular month depends upon whether it operates as a covered establishment during the month. For example, a seasonal camp that is closed to guests but that carries on maintenance operations during a given month is not regarded as "operating" in that month.

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Supreme Court Finds Pharmaceutical Representatives Exempt From Overtime

Posted by Bill Pokorny on June 18, 2012

Pharmaceutical sales rep iStock_000005240599XSmall.jpgThis morning the U.S. Supreme Court ruled 5-4 that pharmaceutical representatives are "outside salesmen" exempt from the overtime requirements of the Fair Labor Standards Act. Christopher v. Smithkline Beecham Corp. (.pdf). 

This has been a hotly-contested issue in the courts and the subject of a split between the federal appellate courts, with the Ninth and Seventh Circuits holding that drug reps could qualify for the outside sales exemption, and the Second Circuit holding that they could not. (For more background, see our prior posts here.)

Facts of the Case

As described by the Court, pharmaceutical sales representatives, also known as "detailers," provide information to physicians about the company's products in hopes of persuading them to write prescriptions for the products in appropriate cases. They also call on physicians within an assigned territories to discuss information regarding the company's drugs, and seek nonbinding commitments from physicians to prescribe those drugs in appropriate cases. Detailers' compensation includes an incentive component, based upon the sales volume or market share of their assigned drugs within their territories. Detailers normally work beyond normal business hours and with minimal supervision. 

Deference to the DOL?

The first issue addressed in the Supreme Court's decision today is whether the courts should have deferred to the U.S. Department of Labor's position that detailers are not exempt. The DOL first announced its view that pharmaceutical sales representatives were not exempt outside salesmen in an amicus brief filed in the Second Circuit Court of Appeals in 2009. The Department reiterated its position in amicus briefs filed in subsequent cases on the issue, including the case before the Supreme Court. Specifically, the DOL argued that pharmaceutical representatives were not "salesmen" because they did not make "sales," in the sense that they did not directly consummate transactions, but rather secured only nonbinding commitments from healthcare providers to purchase their employers' products. 

Ordinarily, courts will defer to administrative agencies' interpretations of their own regulations. However, such deference is not required where the agency's interpretation is plainly erroneous or inconsistent with the regulation, or does not reflect the agency's fair and considered judgment on the matter in question. The latter might apply, for example, where the agency has changed its interpretation over time, or where it appears that the regulation is nothing more than a "convenient litigating position" or "post hoc rationalization." 

In this case, the Court's majority noted that the DOL's position would create massive liability for pharmaceutical companies based upon conduct occurring before the DOL made its views public in 2009. The Court also observed that the DOL's position was "preceded by a very lengthy period of conspicuous inaction" by the DOL to enforce its newly announced interpretation. The most plausible explanation for this inaction, the Court found, was that up until 2009 the DOL evidently did not think that pharmaceutical sales representatives were misclassified. Thus, the Court determined that the DOL's interpretation of its regulations was not entitled to judicial deference. 

Detailers Are Exempt

Turning to the merits of the case, the majority of justices rejected the DOL's argument that pharmaceutical reps are not exempt because they "promote" pharmaceuticals rather than actually "selling" them. The Court instead held that the FLSA requires a "functional, rather than a formal inquiry" on this issue, and that an employee's responsibilities must be viewed "in the context of the particular industry in which the employee works." In the pharmaceutical industry, "[o]btaining a nonbinding commitment from a physician to prescribe" a pharmaceutical company's drugs "is the most that [sales representatives] were able to do to ensure the eventual disposition of the products" being sold. The Court held that given the regulatory environment applicable to the pharmaceutical industry, this arrangement comfortably fell within the regulatory language defining "sales." 

The Court also observed that sales representatives "bear all of the external indicia of salesmen." They were hired for their sales experience, trained to close sales, worked away from the office, and compensated with sales incentives. The Court noted that "it would be anomalous to require respondents to compensate petitioners with overtime, while at the same time exempting employees who function identically to petitioners in every respect except that they sell physician-administered drugs, such as vaccines and other injectable pharmaceuticals, that are ordered by the physician directly rather than purchased by the end user at a pharmacy with a prescription from the physician." 

Dissent: No DOL Deference, But Detailers' Work Is Promotion, Not Sales

In a dissenting opinion joined by Justices Ginsburg, Sotomayor, and Kagan, Justice Bryer agreed with the majority that the DOL's interpretation of the regulations was not entitled to deference, but reached a different view regarding the merits of the case. Following an exhaustive review of the FLSA, the DOL's regulations, Department of Labor reports, and industry ethics codes governing the Detailers' work, Justice Breyer concluded that "the drug detailers do not promote their 'own sales,' but rather 'sales made, or to be made, someone else,'" and therefore could not qualify as "outside salesmen" under the FLSA.

Insights for Employers

While certainly a major relief for pharmaceutical companies, it is not immediately clear that this case will have a major impact upon most employers. While certainly more esoteric, the most interesting piece of this decision is not the Court's ruling on the scope of the sales representative exemption, but it's determination that the DOL's interpretation of its own regulations was not entitled to judicial deference. Given the current political climate, pushing through new legislation or even new regulations to change the FLSA is likely to be extraordinarily difficult if not impossible. That has left the DOL and other federal agencies in the position of having to change the law by modifying their interpretations of existing rules or changing their enforcement priorities. This case illustrates that legislation by administrative interpretation has its limits, and may encourage further challenges to some of the Department's more aggressive interpretations of the FLSA and its regulations. 

Court Rejects Challenge to DOL's Interpretation That Mortgage Loan Officers are Non-exempt

Posted by Staci Ketay Rotman on June 11, 2012

MortgageApp.XSmall.jpgI wanted to give our readers a quick update on the status of mortgage loan officers.  In Mortgage Bankers Ass’n v. Solis, a federal district court in Washington D.C. recently rejected a challenge to the March 2010 DOL administrator’s interpretation that mortgage loan officers do not generally meet the administrative exemption under the FLSA.   As previously mentioned, on March 24, 2010, the Wage and Hour Division (WHD) announced it was no longer issuing opinion letters in response to specific questions but would issue administrative interpretations containing general interpretations of the law and regulations.  At the same time, the WHD issued its first administrator’s interpretation, which concluded that employees performing typical duties of a mortgage loan officer do not qualify as administrative employees exempt from overtime, thus reversing its own previously issued opinion letter, dated October 5, 2006.

The Mortgage Bankers Association (MBA) were the recipients of the original 2006 opinion letter from the DOL and filed suit in January 2011, claiming that the DOL had improperly reversed its opinion letter without engaging in appropriate rulemaking and notice requirements.  In rejecting MBA’s claims, the Court found no substantial and justifiable reliance on the DOL’s 2006 opinion letter and that the interpretation was not arbitrary and capricious and contrary to the law.  The Court noted that the 2006 opinion letter had only been in effect for four years, whereas the DOL had previously taken the position that mortgage loan officers were not exempt.  The Court reasoned that the exempt status provided in the opinion letter was short lived and there would be no damages resulting from the prior interpretation due to good faith reliance.  Moreover, the Court was persuaded by the DOL’s argument that the interpretation was not arbitrary or capricious, despite the flip-flop in its stance.

The issue as to whether mortgage loan officers are exempt is not likely to end with this case.  As we previously reported in March 2011, at least one jury has rejected the DOL’s administrative interpretation that mortgage loan officers are non-exempt.  The conflict in how courts apply the law is just another example of why employers need to carefully make classification decisions based on the facts related to each specific job. 

Can Employees Agree to Be Exempt? [Wage & Hour FAQs]

Posted by Bill Pokorny on May 30, 2012

iStock_000004431244XSmall.jpgQ. Our employees consider themselves "professionals" and don't want to be treated as hourly workers. If our employees agree to it, can we still treat them as "exempt" even if they don't meet all of the requirements under the FLSA or state law? 

A. In a word, no. This question comes up more often than you might think. In some cases, particular industries have developed a practice of treating certain categories of employees as "salaried" and assuming that they are not exempt. In others, employees would simply rather be "salaried" or "exempt" because this suggests a higher status than an "hourly" position, or because they prefer not to have to track their time. 

Unfortunately for employers, an employee's choice generally had nothing to do with whether or not the employee can legitimately be classified as "exempt" from overtime requirements under state and federal law. With very few exceptions, the rights provided by the Fair Labor Standards Act and is state equivalents can't be waived or modified by an agreement with the employee. 

So how can employers manage employee expectations without running afoul of the law? 

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Pharmaceutical Sales Representatives Found to be Exempt by Seventh Circuit

Posted by Staci Ketay Rotman on May 10, 2012

pillbottle.XSmall.jpgThe Seventh Circuit recently weighed in on whether pharmaceutical sales representatives are exempt under the FLSA in Susan Schaeffer-LaRose v. Eli Lilly & Company.  In this consolidated case, the Seventh Circuit focused on the administrative exemption in determining that the sales representatives were exempt.  Because the Court found that the sales representatives met the administrative exemption, it did not address the outside sales exemption.  This decision is noteworthy because it is contrary to the more recent trend where such sales representatives were found not to meet the exemption. 

The Second and Third Circuits had previously ruled on this very issue in Novartis and Smith, respectively, while the application of the discretion and independent judgment prong in the pharmaceutical sales context was a question of first impression for the Seventh Circuit.  In Novartis, the sales representatives were found not to meet the administrative exemption, while in Smith, the sales representative did exercise the necessary discretion and independent judgment to meet the exemption.  In its opinion, the Seventh Circuit analyzed both of these prior rulings, as well as the Department of Labor’s regulations, rejecting the arguments of the Plaintiffs and the Department of Labor that the sales representatives in the instant consolidated case were not exempt.  

After examining the record, the Court was convinced that the sales representatives performed work directly related to the general business operations of the employer and were required to exercise a significant measure of discretion and independent judgment in their daily duties.  Specifically, the Court focused on the fact that these sales representatives were the public face of their employer to the most important decision-makers regarding use of their companies’ products and the freedom in which they were allowed to execute individually tailored and strategic analysis to their work without supervision.  As a result, the Court found that they met the administrative exemption.

While the Schaeffer-LaRose case further clarifies the use of the administrative exemption for pharmaceutical sales representatives, it is just one piece of the puzzle.  We are still waiting for a decision from the United States Supreme Court in Christopher v. SmithKline Beacham Corp as to whether the pharmaceutical sales representatives meet the outside sales exemption.  How the Supreme Court rules will have obvious ramifications on the industry and the exempt status of these sales representatives.  If the Court holds that these sales representatives meet the outside sales exemption, the issue will become moot.  However, if the Court holds that they do not meet the outside sales exemption, cases like Schaeffer-LaRose, Novartis, and Smith – that address the administrative exemption – will become more important in determining exempt status for pharmaceutical sales representatives.  We expect a decision in SmithKline at some point over the summer – so stay tuned!

Recent Settlements Agreeing to Pay Overtime for Misclassification of Employees

Posted by Staci Ketay Rotman on May 07, 2012

iStock_Money_Small.jpgMisclassification of employees continues to bring a lot of headaches to employers.   I have worked with a wide variety of businesses on this issue – from Fortune 500 to “mom and pop” companies.  Each has its own way of doing things in this area and monitoring classification compliance is pretty low on the to-do list.  Nevertheless, this is an area of law that is not going away, and remains a high priority for the Department of Labor and provides big pay days for Plaintiff’s counsel.  Two recent settlements caught my eye and further demonstrate that employers of all sizes need to worry about proper classification and paying overtime.

On April 27, the review site Yelp agreed to pay $1.25 million to settle class allegations that it failed to pay overtime to nearly 1,000 account executives.  Yelp is an on-line start-up that allows individuals to review various service providers – ranging from doctors to restaurants.  According to the Complaint, these representatives make calls to potential sales leads and are paid a base salary, as well as additional pay for performance.  Plaintiffs claimed that they were misclassified as exempt and owed overtime.  Out of this settlement amount, $312,500 goes toward attorneys’ fees, $10,000 toward costs and $25,000 to the settlement administrator.  As a result, a big chunk of the settlement amount Yelp agreed to pay does not even go to the alleged victims. 

On May 1, the DOL announced that Wal-Mart agreed to pay $5.29 million to resolve overtime violations affecting current and former vision center managers and asset protection coordinators who were misclassified as exempt.  This amount includes $4,673,837 in overtime owed from June 2004 - March 2007 and $463,816 in civil monetary damages.  Despite Wal-Mart correcting the classification error in 2007, the DOL said it assessed civil monetary damages because of Wal-Mart’s repeated violations of various wage and hour laws.  Over the last couple of years, Wal-Mart had agreed to pay hundreds of millions of dollars to resolve numerous wage and hour suits.  The DOL wanted to put Wal-Mart and other employers on notice that they cannot avoid their obligations by improperly classifying workers as exempt.

Insight for Employers:

These recent settlements serve as a reminder that misclassification of employees can affect employers of all sizes and result in considerable monetary payments.  One thing to remember is that the cost of misclassification is more than just overtime owed.  Employers who misclassify workers as exempt can find themselves on the hook for attorneys’ fees, penalties, administration fees, etc. – all of which add up quickly. 

Paying On a "Salary Basis" Requires Actual Payments

Posted by Bill Pokorny on April 26, 2012

Pay stub with salary seen through glasses iStock_000014646227XSmall.jpgAs we have discussed before, to be considered an exempt executive, administrative, or professional employee, most employees must be paid on a "salary basis," meaning that they receive a fixed salary for each workweek regardless of the number of hours worked or the quality or quantity of work performed. In a ruling that at first blush seems fairly obvious, the Sixth Circuit Court of Appeals ruled earlier this year that actually paying an employee's salary is a necessary condition to meeting this standard. Orton v. Johnny's Lunch Franchies, LLC. 

Background

According to court papers, John Orton went to work for Johnny's Lunch Franchise ("JLF") in September 2007 as the company's Vice President of Real Estate and Site Selection with a base salary of $125,000. In August 2008, JLF encountered financial trouble and, according to Orton, ceased paying him any wages. Orton continued working until he and the entire executive staff were formally laid off on December 1, 2008. Orton filed suit in federal court, claiming that JLF and Anthony Calamunci, one of the company's owners, violated both state law and the FLSA by failing to pay him for his work from August through December 1, 2008. 

The district court dismissed Orton's complaint, finding that he was not entitled to sue under the FLSA because he admitted that he was an exempt employee and failed to allege that JLF had taken any improper deductions due to variations in the quality or quantity of work performed. Having dismissed Orton's federal claims, the court declined to exercise jurisdiction over Orton's claims under state law. Orton appealed to the Sixth Circuit Court of Appeals.

Ruling

Reversing the district court's judgment, the Sixth Circuit observed that the district court incorrectly relied upon language from the pre-2004 version of the regulations defining the salary basis test, which provided that an employee is considered to be paid on a salary basis "if under his employment agreement he regularly receives pay each pay period." 29 C.F.R. § 541.118(a)(1973). In 2004, the Department of Labor revised the pertinent regulation to read as follows:

An employee will be considered to be paid on a "salary basis" within the meaning of these regulations if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee's compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.

29 C.F.R. § 541.602(a). Thus, under the new rule, the focus was changed from the terms of the employee's agreement with the employer to the salary actually received by the employee. The court of appeals also noted that the district court erred by failing to acknowledge that exempt status is an affirmative defense under the FLSA, which JLF had the burden of proving. The allegations of Orton's complaint were not sufficient to clearly establish as a matter of law that Orton was an exempt employee. Accordingly, the district court erred by dismissing his complaint. 

Insights for Employers

  • It seems like this should go without saying, but if you are going to claim that you pay an employee on a salary basis, you must first actually pay the employee. As this case illustrates, this was less clear under the pre-2004 regulation, but at least in the 6th Circuit and very likely elsewhere the fact that you promised to pay but never did so is not sufficient. 
  • Leaving the Fair Labor Standards Act issues aside, many states have wage payment laws that require employers to regularly pay earned compensation, even for exempt employees. Many of these statutes carry significant penalties. Even if your employees are willing to work without compensation for a period of time, this may not be allowed by your state's laws. 
  • Additionally, both the FLSA and many state laws allow employees to sue not just the company, but individual owners and managers for failure to pay compensation required by law. In some cases there are even criminal penalties for not paying employees. Individual owners and managers need to be aware that they may be on the hook for unpaid wages if the company fails to pay.

More Store Managers Found to Meet Executive Exemption

Posted by Staci Ketay Rotman on April 12, 2012

DollarStore.edited.XSmall.jpgOn April 3, 2012, a federal district court in South Carolina determined that two Dollar General store managers met the executive exemption from overtime pay under the FLSA.  Gooden v. Dolgencorp and Thomas v. Dolgencorp.  Granting summary judgment to Dolgencorp, the court held that Gooden’s and Thomas’s primary duties were managerial in nature based upon the facts in these cases.

In order to meet the executive exemption, an employee’s primary duty must be management.  Primary duty is defined as the “principal, main, major or most important duty that the employee performs.”  29 CFR § 541.700(a).  In analyzing whether management was the primary duty of Gooden and Thomas, the court looked at the following factors:  amount of time spent performing managerial duties, the relative importance of those duties, the frequency in which discretion was exercised, freedom from supervision, and comparison of compensation to nonexempt employees.  Gooden and Thomas met each of these factors:

  1. Gooden and Thomas testified that they spent 70 to 75 percent of their time performing managerial duties, and even when performing nonexempt duties, they were still concurrently responsible for leading and overseeing their stores’ operations.
  2. Both testified that their most important duty involved running the stores and ensuring their success, and that the stores could not operate absent their management.
  3. Both exercised daily discretion in hiring, demoting and firing employees; training; setting and adjusting schedules; delegating and prioritizing tasks and assignments; and disciplining employees. 
  4. Their discretion was rarely limited by Dollar General’s extensive standard operating procedures manual or district managers who visited once every few weeks or months.  The court noted that the company’s desire for standardization and uniformity does not take away a manager’s primary duty to manager her store.
  5. Both were paid more than nonexempt employees, and earned approximately 10 to 30 percent more than assistant managers at their stores.  They also earned bonuses based on their stores’ profitability.

Based on these factors, the court found that Gooden and Thomas met the executive exemption under the FLSA.

Insight for Employers

These latest cases join other recent district and circuit court rulings that have granted summary judgment to Dolgencorp and other retailers on this very issue.  However, it is important to remember that a manager’s ability to qualify for a FLSA exemption is a fact-specific determination.  Just because one store manager meets the executive exemption does not necessarily mean that a manager in another store or company will meet the same exemption.  A 2008 decision by the Eleventh Circuit makes this crystal clear.  There, a $35.6 million dollar judgment in favor of Family Dollar Stores managers was affirmed on the basis that those managers did not meet the executive exemption.  The Court disagreed that management was the primary duty for these managers based on the facts in that case. 

So while these Dolgencorp cases are encouraging to employers who classify store managers as exempt, a company’s ability to establish management as the primary duty will always be determined based on the specific facts at issue and the individuals involved. 

Do I Have To Pay An Exempt Employee Who Answers E-Mail Or Phone Calls While On FMLA Leave? [Wage & Hour FAQ]

Posted by Bill Pokorny on March 05, 2012

You've Got mailQ. A salaried, exempt employee who recently returned from a week of unpaid FMLA leave claims that he is entitled to be paid his full salary for entire week because he responded to a number of work-related e-mails and telephone calls while he was out. Do we have to pay?

A. Wage and hour law is confusing enough on its own, but it becomes even more so when it intersects with other complicated legal issues, like the Family and Medical Leave Act. On our FMLA Insights blog, my colleague Jeff Nowak explains how to deal with this situation from the perspective of counting the employee's time as FMLA leave. But that leaves open the question of whether and how much the employee is entitled to be paid. 

As we explained in a recent post regarding unpaid disciplinary suspensions, in most cases employees who are classified as exempt executives, administrators, and professionals under the Fair Labor Standards Act must be paid on a "salary basis," meaning that they must receive a fixed salary each workweek that does not vary regardless of the number of hours worked or the quality or quantity of work performed. 

However, the FLSA regulations provide certain exceptions from this general rule. Salary deductions are allowed when an exempt employee misses one or more full workdays for personal reasons other than sickness or disability. Deductions are also permitted for full-workday absences due to sickness or disability if the employer has a "bona fide plan, policy, or practice of providing compensation for loss of salary occasioned by such sickness or disability," such as paid sick days or a short-term disability insurance plan. 

In the case of FMLA leave, however, the regulations go one step further. Here is the relevant text (29 CFR § 541.602(b)(7)):

An employer is not required to pay the full salary for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act. Rather, when an exempt employee takes unpaid leave under the Family and Medical Leave Act, an employer may pay a proportionate part of the full salary for time actually worked. For example, if an employee who normally works 40 hours per week uses four hours of unpaid leave under the Family and Medical Leave Act, the employer could deduct 10 percent of the employee's normal salary that week.

So, turning to our hypothetical question above: 

Much depends upon exactly how much time the employee is spending on e-mail and telephone calls while he is away from work. If all the employee does is spend a couple of minutes over the course of the week responding "OK" to e-mails or taking a quick phone call or two, the time at issue may be de minimus and not an issue. If, on the other hand, the employee is spending significant time working while on FMLA leave, the employee might arguably be entitled under the FLSA to a percentage of his regular salary proportionate to the time actually worked, but not his full salary for the entire workweek. 

That takes care of federal law, but what about state law? As noted in our discussion of disciplinary suspensions, Illinois rejected the 2004 amendments to the FLSA regulations that added the language quoted above. However, as stated in the preamble to the 2004 FLSA regulations, the exception for FMLA leave incorporated into the 2004 FLSA rules merely codified existing federal law. Indeed, the exception is written into the FMLA itself at 29 U.S.C. § 2612(c):

Except as provided in subsection (d) of this section, leave granted under subsection (a) may consist of unpaid leave. Where an employee is otherwise exempt under regulations issued by the Secretary pursuant to section 213(a)(1) of this title, the compliance of an employer with this subchapter by providing unpaid leave shall not affect the exempt status of the employee under such section.

Insights for Employers:

  1. FMLA leave is the one situation in which an employer can take deductions from an exempt employee's salary in increments of less than one full work day. 
  2. However, if an exempt employee is actually performing work during FMLA leave and the time involved is more than de minimus, the employee might be entitled to a pro rata portion of his or her salary for the time spent on work activities. 

 

Can We Suspend An Exempt Employee Without Pay? [Wage & Hour FAQ]

Posted by Bill Pokorny on February 17, 2012

Man with dunce cap on stoolQ. One of our salaried exempt employees appears to have violated our sexual harassment policy. We would like to suspend him without pay for 3 days. Is this allowed under the FLSA?

A. Maybe, but check your state's laws as well. 

With a few specific exceptions, employees whose duties qualify them as executive, administrative and professional employees under the Fair Labor Standards Act can be considered exempt only if they are paid on a "salary basis." This means for each week in which the employee performs any work, he or she must receive a fixed weekly salary that does not vary regardless of the number of hours worked or the quality or quantity of work performed. Taking improper deductions from an exempt employee's salary can potentially result in loss of exempt status not only for the affected employee, but for all employees in the same job classification. 

There are, however, certain exceptions to the rule against salary deductions. For example, if an employee is absent for one or more full workdays for personal reasons other than sickness or disability, the employee's salary can be reduced proportionately. Likewise, an exempt employee's salary can be reduced for full-day absences due to sickness or disability if the employer provides paid sick leave or other disability compensation. 

With respect to this specific question, the regulations also allow for salary deductions for "unpaid disciplinary suspensions of one or more full days imposed in good faith for infractions of workplace conduct rules" "imposed pursuant to a written policy applicable to all employees." In the example cited above, the sexual harassment policy is (hopefully) in writing, and (hopefully) applies generally to all employees in the organization. Consequently, suspending the employee for three full days without pay under these circumstances likely would not violate the FLSA.

But that's not the end of the story. While most states follow the U.S. Department of Labor's rules regarding exempt status, this is not universally so.  In our great state of Illinois, for one, the General Assembly specifically rejected the 2004 updates to the FLSA regulations that allowed for disciplinary suspensions for violations of written workplace conduct rules. Thus, in Illinois, an exempt employee can be suspended without pay for disciplinary reasons  only for violating a "safety rule of major significance," such as rules "prohibiting smoking in explosives plants, oil refineries, and coal mines."

So what can an employer in Illinois do if it wants to impose discipline that will hit an exempt employee's pocketbook without terminating the individual's employment? There are a few options:

  • Suspend the employee for a full week. Provided that the employee does not perform any work during the week, no salary is due. However, no work means no work. Requiring the employee to participate in a conference call or respond to e-mails during the suspension could obligate the employer to pay the employee's full salary for the week, converting a disciplinary suspension into a paid vacation. 
  • Require the employee to use available paid vacation or PTO while on suspension. So long as the employee's take-home pay is not reduced, deducting from the employee's bank of paid leave time does not result in loss of the employee's exempt status. 
  • If the employee is eligible for any sort of discretionary bonus or other compensation in addition to their salary, consider reductions in those amounts if that is consistent with any applicable policies, plans or agreements. 
  • Factor the infraction in to future compensation adjustments. While after-the-fact salary deductions are not permitted, bona fide prospective salary adjustments are allowed. 

Seventh Circuit Weighs In On Commonality Requirement in Class Actions

Posted by Staci Ketay Rotman on February 09, 2012

BankBuilding.XSmall.jpgThe Seventh Circuit recently applied the Supreme Court’s Wal-Mart Stores, Inc. v. Dukes decision to class certification in a wage and hour action, and affirmed the certification of two classes.  Ross v. RBS Citizens N.A. d/b/a Charter One.  The Seventh Circuit held that the district court did not abuse its discretion in certifying two classes of bank employees and that this certification met the commonality requirement clarified in Dukes.

The district court had certified two classes of bank employees:  (1) nonexempt hourly employees who alleged that the Charter One’s unofficial policy denied them overtime pay; and (2) assistant branch managers who claim that they were misclassified as exempt employees.  On appeal, Charter One’s sole argument was that the certification order did not comply with Rule 23(c)(1)(B), because it did not adequately define the class, claims, issues or defenses  After the Supreme Court issued its Dukes opinion, the Seventh Circuit asked that the parties address the commonality requirement in light of that decision.

After reviewing the parties’ position statements, the Seventh Circuit determined that the classes met Rule 23(a)(2)’s commonality requirement under Dukes.  The court reasoned that the classes present a common claim based on a broadly enforced policy denying overtime pay to nonexempt employees and requiring assistant branch managers to perform nonexempt work without overtime, and that this policy potentially drives the resolution of this case.  While there might have been slight variations in how Charter One enforced its overtime policy, the Court found that both classes maintained a common claim, and this “common claim” was the “glue” necessary to satisfy the commonality requirement.  Unlike in Dukes, an individualized assessment of each assistant manager’s job duties was not necessary and did not destroy commonality.  The Court found such an assessment to be irrelevant as to whether a company-wide policy existed to deny them overtime pay.  Moreover, the Court focused on the fact that the class members at issue were substantially fewer than in Dukes and all were located in Illinois.

Finally, in an issue of first impression, the Seventh Circuit upheld the district court’s class certification order under Rule 23(c)(1)(B).  The Court felt there was no doubt as to which current and former employees would be included in the hourly and assistant manager classes because the order and memorandum indicate that this includes “all current and former employees who worked at an Illinois Charter One location within the last three years.”  The order also identified the claims and types of evidence that could be presented.  The Court declined to require a district court to list any and all possible methods of proof, suggesting this would border on the absurd.

While Dukes’ clarification of the commonality requirement is helpful to employers in defeating class certification, Charter One demonstrates that there are limits.  Just because a class can number in the thousands does not mean a court will find commonality lacking, particularly where there is a broadly enforced policy.  While the commonality argument will continue to develop, we will likely see more appellate courts weighing in as to how to apply Dukes.

"Right to Know" Rule Not Likely in 2012

Posted by Bill Pokorny on January 27, 2012

Regulatory Agenda screen clip.pngFor roughly the last two years, the U.S. Department of Labor has been contemplating (some would say "threatening") revisions to the recordkeeping regulations under the Fair Labor Standards Act that would require an employer who classifies an employee as exempt to prepare a written justification of the basis for the exemption. This document would have to be provided to the employee and would be subject to inspection by the Department of Labor. For obvious reasons, many employers strongly disfavor this proposal.

The Department of Labor's plans for new regulations are published semiannually in the Unified Regulatory Agenda. The first entry relating to the proposed Right to Know rule, in the Spring 2010 agenda, indicated that proposed regulations would be published in August 2010. That date was later moved back to April 2011, and most recently to October 2011. In the most recent edition of the Unified Regulatory Agenda, published on January 20, 2012, the DOL moved the "Right to Know" rules from the "Proposed Rules Stage" to "Long-Term Actions," and removes any projected date for issuing proposed rules. "Long-term actions" are defined in the agenda as "items under development but for which the agency does not expect to have a regulatory action within the 12 months after publication of this edition of the Unified Agenda." That being the case, it appears that the Department of Labor does not plan to move forward with its Right to Know rules at least until January 20, 2013 - hardly surprising given that these will be controversial rules and this is an election year. 

However, once the election is over (and assuming President Obama remains in office), we can expect the Department to move forward once again on this proposal. According to a recent article in BNA's Daily Labor Report (subscription required), Acting Wage and Hour Administrator Nancy Leppink called the Right to Know rule one of the Wage and Hour Division's priorities, stating "We're continuing to work on that regulation," and that "We're learning about what the issues are" from the Department's ongoing misclassification enforcement initiative. This is probably not such good news for the employers who will have to comply with the new regulations. However, I'm certainly looking forward to them, as they will undoubtedly provide plenty of interesting new problems for us to write about on this blog. Stay tuned!

 

Does Lady Gaga Owe Assistant OT?

Posted by Staci Ketay Rotman on January 04, 2012

lady-gaga-NYE.jpgImagine you are the personal assistant for the world’s most famous artist, Lady Gaga.  You have the opportunity to travel the world, meet famous people and watch your boss hit the button to drop the “ball” in Times Square on New Years Eve.  What could be better?  Well, apparently, being paid overtime. 

Recently, Lady Gaga’s former personal assistant filed a lawsuit alleging that she was owed hundreds of thousands of dollars in overtime.  The assistant claims that she was paid a salary for working around the clock, 24/7, and is owed overtime pay under FLSA and state law.  Generally, when such challenges arise, the “employer” claims that the assistant is exempt under the administrative exemption.  However, the administrative exemption is the same whether the assistant works a regular “office job” or provides services to a world famous recording artist – that employee must be paid on a salary basis and exercise significant independent discretion and judgment.  This is something to keep in mind for those that employ an executive or personal assistant.

At least employers have the satisfaction of knowing even the rich and famous have to worry about wage and hour laws.  Happy New Year!

Pharmaceutical Sales Representative Case Goes to Supreme Court

Posted by Staci Ketay Rotman on November 28, 2011

pillbottle.XSmall.jpgIn a previous post in August, I questioned whether the pharmaceutical companies were losing the exemption battle as it related to pharmaceutical sales representatives and the outside sales exemption.  The Supreme Court had declined to review the Second Circuit’s Novartis holding that pharmaceutical sales representatives do not qualify for the outside sales exemption because they do not make sales, and the District of Connecticut had recently found that Schering’s pharmaceutical sales representatives did not meet the administrative exemption test in contrast to the Third Circuit’s Johnson & Johnson decision.  Now, it looks that the Supreme Court will finally enter this battle. 

This morning, the Supreme Court announced that it has granted certiorari in Christopher v. SmithKline Beecham Corp., where the Ninth Circuit affirmed that Christopher, a pharmaceutical sales representative, was an “outside salesman” exempt from overtime under the FLSA.    In SmithKline, the Ninth Circuit concluded that it owed no deference to the Secretary of Labor’s current interpretation of the outside sales exemption and, in fact, disagreed with the Secretary’s interpretation.  This was in contrast to the Second Circuit’s Novartis decision, which adopted the Secretary’s interpretation.

 The two issues on appeal are as follows: 

  1. Whether deference is owed to the Secretary of Labor’s interpretation of the outside sales exemption and related regulations; and
  2. Whether the FLSA’s outside sales exemption applies to pharmaceutical sales representatives.

While I can’t read tea leaves, I wonder whether the Supreme Court decided to hear the SmithKline case because it disagrees with the Ninth Circuit’s holding.  The Supreme Court had the opportunity to look at this issue with Novartis earlier this year and declined.  On the other hand, with SmithKline, there is now truly a Circuit split on whether pharmaceutical sales representatives meet the outside sales exemption.  I guess we will just have to wait and see how this plays out.  Stay tuned.

Does An Exempt Employee Who Calls In Sick The Day Before Thanksgiving Get Holiday Pay? [Wage & Hour FAQ]

Posted by Bill Pokorny on November 22, 2011

Turkey iStock_000001827125XSmall.jpgQ. Our holiday pay policy says that employees must be at work the day before and the day after a holiday. Our office is closed Thursday and Friday for Thanksgiving. If an exempt employee works Monday and Tuesday but calls in "sick" on Wednesday, can we deny the employee holiday pay?

A. Many employers have policies like this one. The intent behind them is to discourage employees from extending their holiday weekends through strategic use of unscheduled sick time or personal days. With hourly employees, the issue is relatively simple from a wage & hour perspective: follow your policy (and any applicable union contract or employment agreement) and make sure the employee is paid for any time actually worked. 

For exempt employees, the problem is a bit more complicated. Remember that to qualify for the most commonly used exemptions - the "white collar" exemptions for executive, administrative, and professional employees - employees must (with some exceptions) be paid on a "salary basis." This means that an exempt employee must receive his or her full salary for any workweek in which he or she performs any work, regardless of the number of hours worked or the quality or quantity of work performed. Deductions are permitted for some disciplinary suspensions, purely personal absences and, if the employer has a policy providing for paid sick leave, for absences due to personal injury or illness. However, employers cannot take deductions for absences occasioned by the employer or resulting from the operating requirements of the employer's business. In other words, the fact that the employer is closed for business on a holiday does not permit the employer to deduct from an exempt employee's salary, even if the employee would not be eligible for "holiday pay" under the employer's policies. 

So if you cannot take a salary deduction, what can you do to curb abuse of sick or personal leave by exempt employees around the holidays? One solution would be to deduct an additional day or two, as applicable, from the employee's available paid vacation or personal leave time. This is permissible under the FLSA, as the exempt employee still receives his or her full salary for the week. However, if an employee has exhausted all available paid leave the full salary must still be paid.

Other alternatives for managing this situation include requiring the employee to make up the extra hours (or possibly even work on the holiday), or imposing discipline without any adjustment to pay. Of course, if those alternatives seem too punitive for the holiday season, you could also simply let the issue go, though if you do so you should be sure that all similarly-situated employees are treated in the same manner.  

What Do You Mean the Job May No Longer Be Considered Exempt?

Posted by Staci Ketay Rotman on October 25, 2011

iStock_ManHeadHands.XSmall.jpgMy last blog entry on travel time only touched on one issue that may arise as we see more employees being asked to take on additional responsibilities and assignments in lieu of hiring new personnel.  Indeed, consolidation of jobs or responsibilities can lead to a number of other potential wage and hour issues that can have a significant impact on employers.  One such issue arises when an exempt employee takes on additional jobs or duties that are non-exempt.  How should an employee be treated for overtime purposes if working both exempt and non-exempt positions? 

When an employee performs work in more than one capacity for the same employer – e.g. as a clerical worker (non-exempt) and manager (exempt) – employers must consider the character of the employee’s job as a whole.  The standard for determining whether the combined job duties are exempt is the primary duty test.  In other words, if the exempt managerial duties are the primary duty, the employee will be exempt.  If the clerical duties are the primary duty, the employee will be non-exempt, and normal regular rate principles apply in calculating overtime for all hours worked for both jobs in the workweek. 

Factors to consider when determining the primary duty of an employee include, but are not limited to:

  • the relative importance of the major or most important duty as compared with other types of duties;
  • the amount of time spent performing the major or most important duty;
  • the employee's relative freedom from direct supervision; and
  • the relationship between the employee's salary and the wages paid to other employees for performance of similar work.

http://www.dol.gov/elaws/esa/flsa/overtime/glossary.htm?wd=primary_duty.  The amount of time spent performing the specific duty can be a useful guide in determining whether such work is the primary duty of an employee.  Under the FLSA, employees who spend more than 50 percent of their time performing a specific duty will generally satisfy the primary duty requirement. However, employers must remember to check to see if their State law is different than the FLSA.  For example, in Illinois, if employees spend more than 20 percent of their time on non-exempt work, they will generally be considered non-exempt.  However, it is important to note that time alone is not the sole test; employees may nonetheless meet the primary duty requirement if the other factors (listed above) support such a conclusion.

Misclassification of employees has the potential to cause significant problems for employers.  As employers are looking for ways to cut costs, they need to keep these factors in mind to avoid losing the benefits of an employee’s exempt status.  Because there is no bright line test, if going down this road, check with an experienced employment attorney before making any such decisions on job consolidation. 

Exempt Employees, Paid Leave, and Partial Day Absences [Webinar Q&A]

Posted by Bill Pokorny on October 18, 2011

Thumbnail image for Q&AChalkboardAnother in our series of answers to questions from our September 28 webinar on wage and hour law in higher education:

Q. If an exempt employee only works a half day, i.e. they go home sick at noon, and they have both sick and vacation leave available, can we require that they use four hours of leave time to "make up" the lost four hours? Or, since they are exempt and there can be no variance for hours, must they be paid their full regular pay and not use leave time? 

A. Yes, if an exempt employee has a bank of available paid leave time and misses a half day, you can deduct a half day of available paid leave time from the employee's "bank", so long as the end result is that the employee receives his or her full salary for the workweek. If you allow use of leave time in smaller increments, you could also deduct smaller increments of time from the employee's leave bank for shorter absences. What you cannot do is take a partial-day deduction from the employee's salary once the employee has exhausted all available paid leave, unless the absence counts as FMLA leave.

For greater detail, see the DOL's opinion letters on this issue here and here.

Can An Employer Pay An Exempt Employee Extra Compensation? [Wage & Hour FAQ]

Posted by Staci Ketay Rotman on August 25, 2011

Dollr Sign13528403.jpgQ.        My Company anticipates embarking on a big project this fall that will have extreme importance to the Company’s future and require extra hours at the office.  The Company wants to give a little extra pay to employees who work on this important project.  A number of these employees are classified as exempt.  May the Company provide extra compensation to exempt employees for their work on this project?

 A.        Yes.  Exempt employees are not required to receive extra compensation for extra work, but the FLSA allows employers to provide extra pay and still maintain their employees' exempt status.  Specifically, the FLSA regulations provide that an employer may provide an exempt employee with additional compensation so long as the employment arrangement also includes a guarantee of at least the minimum weekly-required amount or $455 paid on a salary basis. 

Generally, in these types of situations, the risk facing employers is whether the format of the additional compensation will invalidate the salary basis requirement, resulting in a loss of the overtime exemption.  The regulations provide limited examples of acceptable additional compensation that will not affect the salary basis qualification.  If your Company chooses to pay exempt employees additional compensation for this extra work, one of the payment formats with the least risk of destroying the employees' exempt status would be that of a flat sum bonus.  An employee’s exempt status – already difficult to establish - might be even more difficult to prove if the employee is paid time-and-a-half for the extra hours, like a non-exempt employee. 

Are Pharmaceutical Companies Losing the Exemption Battle?

Posted by Staci Ketay Rotman on August 18, 2011

pillbottle.XSmall.jpgRecently, another group of pharmaceutical sales representatives successfully demonstrated that they are not exempt from overtime under the FLSA.  Kuzinski, et al., v. Schering Corp  Focusing on the administrative exemption, the District Court of Connecticut held that the sales representatives’ work was not directly related to Schering’s management or general business operations and they lacked the necessary exercise of discretion and independent judgment to meet the requirements of the exemption.  The sales representatives did not directly sell pharmaceutical products, instead individualizing Schering’s canned sales pitch to promote certain products to identified customers.  At the end of the day, the sales representatives simply used the core messages and promotional strategies developed by Schering, rather than developing those messages and strategies themselves.

 Litigation Background

Pharmaceutical companies have traditionally classified sales representatives as exempt under the outside sales exemption, but have recently faced difficulty convincing courts that pharmaceutical representatives meet this exemption since they do not make “sales” in the traditional sense.  While the results have been mixed at the district court level, the most noteworthy case, the Novartis wage and hour litigation, put a hole in the companies’ defense.  Affirming the district court, the Second Circuit concluded that the Novartis sales representatives do not make sales and, therefore, do not qualify for the outside sales exemption.  The U.S. Supreme Court recently declined to review that decision and the holding remains. 

Notwithstanding the impact of the Novartis decision, there was a glimmer of hope that pharmaceutical sales representatives could still be classified as exempt, but under the administrative exemption.  In Smith v. Johnson & Johnson, the Third Circuit concluded that the administrative exemption was satisfied because Smith’s work related to the company’s core business operations and her primary duties involved the use of her discretion in making significant decisions.  Specifically, Smith had to form a high-level strategic plan to maximize sales in her territory, and exercised significant discretion and independent judgment while performing her duties without direct oversight.  But not all sales representatives are alike and so the administrative exemption will not apply across the board.  The Schering court focused on this issue, contrasting the “management-scripted,” “core messages” used by the Schering sales representatives with that of Smith, a senior professional sales representative who ran her territory as she saw fit.  Finding the Schering sales representatives duties were more like those of Novartis, the Court concluded they did not fit the narrow facts supporting the holding in Smith.

 Insights for Employers

The decisions in Schering and Smith further underscore the fact intensive nature of the administrative exemption.  This exemption is not a “one size fits all” category based on job title, but depends on whether the employee actually fulfills the requirements.  To truly meet the administrative exemption, companies must prove that the employee’s work is directly related to its management or general business operations and that the employee exercises discretion and independent judgment in matters of significance. 

For sales representatives, this may be achieved by giving the representatives actual control and management of their sales territory and allowing them to exercise the necessary level of discretion and independent judgment.  Companies should consider holding the representatives accountable for specific sales goals or targets, while leaving the means of achieving those ends primarily up to them.  This means that while the representatives may receive general guidance about how to approach a customer, the crafting of the precise message, the number of times conveyed and to whom, should be left up to the representative.  While there is no guarantee that a court will find the exemption met, such a proactive approach will definitely put the company in a better position if sued or subjected to a DOL audit.