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.

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. 

Wireless Internet SignIf you are a fellow tech junkie, you may already have heard about the flap over a marketer’s use of homeless people as Internet hotspots at the South by Southwest (SXSW) Interactive technology conference in Austin, Texas.

According to the New York Times, BBH Labs, a unit of international marketing agency BBH, recruited 13 people from a local homeless shelter to serve as human 4G wireless hotspots at the conference as part of its Homeless Hotspots project. The “volunteers” were provided with mobile wi-fi devices, business cards and personalized t-shirts stating “I’m [Name], a 4G Hotspot.” They were directed to go to crowded areas of the conference, where conference attendees could use the wireless hotspot service in exchange for donations. The project participants were paid $20 for the day, and were allowed to keep any donations received in exchange for the wireless service. 

Leaving aside the debate about whether this project is blatant exploitation or a brilliant effort to bring the problem of homelessness into the public eye (or both),* many have questioned whether BBH violated the FLSA by only paying its program participants $20 per day instead of the federal minimum wage of $7.25 per hour. So, did it?

Employee or Independent Contractor?

The first question that seems pertinent here is whether the program participants were “employees” as defined by the FLSA. Under the FLSA, an “employee” is “any individual employed by an employer.” The Act provides that the term “employ” “includes to suffer or permit to work.” Perhaps there is more here than is apparent from the news accounts. However, leaving the financial arrangement with the participants aside for the moment, it seems difficult to argue with the idea that giving someone a wireless hotspot and directing them to go stand in a crowded conference venue to provide wi-fi service to frustrated smartphone users would fall within the definition of “suffer or permit to work.” That, in turn, would arguably make the Homeless Hotspots participants “employees” under the FLSA. 

Perhaps BBH Labs could argue that the participants are not in fact volunteers, but independent contractors in business for themselves. That is the model used by “street paper” organizations likeStreetwise, which helps homeless individuals earn income by selling newsletters or magazines. (And, for that matter, by many for-profit newspapers.) Of course, some newspapers (for example, the Orange County Register) have paid large settlements to newspaper carriers alleging that they were misclassified as independent contractors. 

So what is the difference between an employee and an independent contractor? Under the FLSA, courts apply an “economic realities” test, which requires a case-by-case analysis of several non-exclusive factors, including:

  • The degree of control exercised by the employer over the manner in which the work is performed; 
  • The extent of relative investments of the putative employee and employer; 
  • The degree to which the purported employee’s opportunity for profit or loss is determined by the employer; 
  • The skill and initiative required in performing the job; and
  • The permanency of the relationship.

It is difficult to tell from published news reports (or, at least, the ones I’ve seen so far) exactly how much control BBH exercised over the program participants’ work, beyond directing participants to go to the most crowded areas of the conference. It seems clear that the only “investments” at issue were by BBH, which supplied the equipment, t-shirts, and business cards. Opportunity for profit or loss, on the other hand, could arguably be determined by the efforts of the program participants to engage conference attendees and sell their product. Obviously the job required no special skills, though arguably some “initiative” was required to drive sales. The articles do not seem to discuss how permanent this arrangement might be, but so far I have seen no indication that it will last beyond the end of SXSW. 

In short, there are factors pointing both ways, some favoring independent contractor status, others weighing in favor of employee status. As usual in these cases, the deciding factor would likely be the level of control exercised by BBH. The more direction BBH provided regarding working hours and the method in which the program participants sold their wireless service, the more likely that participants would be seen as BBH employees. 

Do Donations Satisfy The Minimum Wage?

Supposing for the moment that the program participants were employees, what if anything would BBH owe them beyond the $20 already paid, and could it count donations received from SXSW attendees against any obligations it might have to pay minimum wage? 

Under the FLSA regulations, it appears that the donations would likely be regarded as “tips,” which the regulations define as a “gift or gratuity presented by a customer in recognition of some service performed for the customer.” Under certain conditions, the FLSA permits employers to credit tips received by employees against their minimum wage obligations. However, the tip credit is only available to employees engaged in an occupation in which they “customarily or regularly” receive more than $30 a month in tips. Here, there is a definite question as to whether the program participants would meet this standard, at least initially, because until last week their “occupation” arguably did not exist, and there is certainly nothing “customary” or “regular” about it – which is exactly why we are talking about it here. 

Insights for Employers

Obviously most employers will not run into this particular issue in the course of their daily operations. However, there are occasions when employers will hire or contract with individuals on a temporary basis to perform odd jobs, like handing out flyers or standing outside of a store wearing a giant sandwich costume. Don’t assume that just because the arrangement is temporary or the work is novel that the the FLSA and state wage and hour laws won’t apply. 

*Wired.com’s Epicenter blog offers some additional backstory on this project and nicely sums up the concerns of those who criticize it, with links to some alternative viewpoints.

TipJar14346183.jpgThe latest news in celebrity chef wage and hour litigation is that eight New York restaurants owned by Mario Batali have agreed to settle $5.25 million to settle a class action lawsuit alleging that they illegally withheld tips from hourly service workers. The proposed settlement, which must still be approved by the court following a fairness hearing, would establish a fund for approximately 1,100 captains, servers, waiters, bussers, back waiters, runners, barbacks and bartenders who worked at Babbo Ristorante e Enoteca, Otto, Casa Mono, Bar Jamon, Esca, Lupa, and Del Posto in New York City, and Tarry Lodge in Port Chester, N.Y. between July 22, 2007 and February 14, 2012. The primary claim in the lawsuit was that management at the eight restaurants deducted 4 to 5 percent of each shift’s wine and other beverage sales from the restaurants’ tip pools. The restaurants denied any liability in agreeing to the settlement. 

Legal Background

The claims in this lawsuit illustrate a common issue for restaurants and other employers in the hospitality industry: determining who may participate in a tip pooling arrangement. Under federal law, and that of most states, employers can take a credit toward their minimum wage obligations for tips received by an employee only if the employee retains all tips received. However, employees may be required to participate in a valid tip pooling or tip sharing arrangements that provide for the distribution of tips among employees who “customarily and regularly receive tips.” In the restaurant context, this is generally limited to “front of the house” personnel such as servers, bussers, and service bartenders. “Back of the house” employees such as dishwashers, cooks, chefs and janitors do not customarily receive tips, and so may not participate in a tip pool. Likewise, management is prohibited from retaining any share of tips. 

At the federal level, there was some authority – out of the generally employee-friendly 9th Circuit Court of Appeals no less – for the proposition that these limitations on tip pooling arrangements applied only if an employer was actually taking a tip credit against its minimum wage obligations. See Cumbie v. Woody Woo, Inc. However, a recent memorandum from the Wage and Hour Division of the U.S. Department of Labor states that the Department is now taking the position that regardless of whether employers take a tip credit, they are prohibited from using employee tips for any purpose other than a credit against minimum wage as permitted by the regulations, or in furtherance of a valid tip pool. It is not clear yet whether that position will hold up in court, but for employers that have no desire to get into litigation with the Department of Labor, that may not matter.

Insights for Employers

  • If your employees are permitted to accept tips, they must be allowed to retain all tips that they receive, unless they are required to contribute to a valid tip pooling or tip sharing arrangement. 
  • “Back of the house” employees – dishwashers, cooks, etc. – may not be included in the tip pool. 
  • Management cannot retain any portion of employee tips for any reason, either through managers participating in a tip pool or “the house” taking a cut of the pool. 
  • The Wage & Hour Division maintains a fact sheet that provides a useful guide regarding requirements for tipped employees under the Fair Labor Standards Act. 

Ten CommandmentsI read the stories every day: some small business, often a local restaurant or a similar “mom and pop” operation, gets sued or tagged by the Department of Labor for failing to pay minimum wages and overtime to employees. Here’s just one example. 

I have worked with a fair number of small and midsize businesses. I understand that there are a lot of pressures associated with running a business, and that learning the complexities of wage and hour law is somewhere far down the list of priorities, below things like serving customers and making ends meet to keep the doors open. Time and again I have talked to small business owners and managers who think that because they pay their employees well and treat them fairly, they don’t have to worry about keeping track of hours or paying overtime. Here’s the thing: if you ignore basic wage and hour compliance, it will hit your bottom line, hard, and often at a time when you can ill afford it. 

The good news is that the basics of wage and hour law are relatively simple. Here are the essentials:

  1. Pay the Minimum Wage. All non-exempt employees must be paid at least the minimum wage for all hours worked. 
  2. Pay Overtime. All non-exempt employees are entitled to overtime pay at one and a half times their regular rate of pay if they work more than 40 hours per week. 
  3. When In Doubt, Treat Employees as Non-Exempt. Most employees are non-exempt. Paying someone a salary or giving them a job title like “manager” or “executive” does not make them exempt. There are overtime exemptions for certain executives, administrators, professionals, and other types of employees, but these have very specific legal definitions and the burden is on you as the employer to prove that the exemptions apply. Unless you are sure that you understand the legal tests and that an employee falls within an exemption, you should assume that the employee is not exempt and is entitled to overtime pay. 
  4. Keep Good Time Records. You need to know how many hours each employee works each workweek – not each pay period. How you track the time is up to you, but your records must be accurate, and must be available for inspection if the Department of Labor comes knocking or if you get sued. Your time records are your best defense in a wage and hour lawsuit or audit. Without them, you are at the mercy of your employees’ testimony regarding their work hours. 
  5. Keep Good Pay Records. You also must maintain complete records of all compensation paid to employees, so that you can prove that employees were properly paid for all hours worked. 
  6. Pay For All Hours Worked. “Hours worked” includes all hours that you “suffer or permit” an employee to work. If you are running a business, there is no such thing as “volunteer” work. 
  7. Don’t Misclassify Employees As Independent Contractors. Unless someone doing work for your business is truly independent – i.e., in business for themselves, not directly supervised by you, providing their own tools and equipment, doing similar work for other customers, etc. – you are likely asking for trouble by classifying them as independent contractors rather than employees. This puts you at significant risk of an audit, not only by state and federal labor authorities, but also the IRS and state revenue departments.
  8. Understand What Laws Apply To Your Business. Many states and even some local governments set minimum wage rates and overtime requirements that differ in some respects from the requirements of federal law. Make sure that you know what laws apply to your location. Likewise, if you have any union contracts or agreements with individual employees, make sure that you understand and comply with your contractual obligations. 
  9. It Doesn’t Matter What Your Employees Agree To. You may be a wonderful boss. Your employees may love their jobs and be willing to work for you even without pay. Perhaps they prefer to be treated as “salaried” because they don’t want to punch a time clock. Maybe they would rather have “comp time” off instead of overtime pay. The Department of Labor doesn’t care about any of this, and neither will the lawyer that your employee hires after he becomes disgruntled and decides to take out his frustrations in court. Employees cannot legally waive their rights under state and federal wage and hour laws, except as part of a settlement supervised by the Department of Labor or a court. That means that regardless of what your employees want or are willing to accept, you still need to comply with the law. 
  10. Good Legal Advice Is Cheaper Than A Wage and Hour Violation. Having been down this road multiple times, I can tell you from experience that it is far easier and cheaper to deal with wage and hour prospectively than it is to fix violations after the fact. If you have a wage and hour question, pick up the phone and talk to your employment lawyer. If your question is an easy one, it will cost you very little and you will know how to proceed. If it’s more complicated, then it is probably worth investing the time to make sure that you don’t become the next interesting case we write about in this blog. 

 

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. 

 

signing.memo.XSmall.jpgLouisiana is the latest State to sign a Memorandum of Understanding and join forces with the U.S. Department of Labor to combat employee misclassification.  These Memorandums of Understanding with state government agencies arose as part of the U.S. Department of Labor’s Misclassification Initiative, with the goal of preventing, detecting and remedying employee misclassification. Louisiana is now the thirteenth State to sign one of these Memorandums after California, Colorado, Connecticut, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, Utah and Washington.  The Memorandums allow the DOL to share information and to coordinate efforts with participating states as part of its Misclassification Initiative.

As we have previously mentioned, the DOL is laser focused on employers who misclassify employees as independent contractors.  And as misclassification continues to grow, so does the DOL’s resolve.  In 2011, the Wage and Hour Division collected more than $5 million in back wages for minimum wage and overtime violations under the FLSA that resulted from employees being misclassified as independent contractors or otherwise not properly treated as employees.  With that kind of money being collected, this issue is not going away any time soon.

Insight for Employers

Whether a worker is an independent contractor or an employee is a very fact specific analysis.   Like other misclassification issues, when left unchecked, failure to properly classify a worker as an employee may lead to serious monetary damages down the road.  Even if you are familiar with these rules, if your business uses independent contractors, it may be worth a few minutes of your time to confirm with an experienced employment attorney that your workers are properly classified. 

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. 

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.

woman with knife According to the facts described in her complaint, Kathy Minor was hired by Bostwick Laboratiries, Inc. as a medical technologist on December 24, 2007. Just a few months later, on May 6, 2008, Minor claims that she and several co-workers met with Bostwick’s chief operating officer to complain that their supervisor had altered employee time sheets to reflect that they had not worked overtime when they had. The following Monday, May 12, 2008, Minor alleged that she was fired because, according to her supervisor, there was “too much conflict with [her] supervisors and the relationship just [was not] working.” Minor filed suit in federal district court, alleging that she was fired in violation of the anti-retaliation provisions of the Fair Labor Standards Act. Minor’s complaint was dismissed by the district court, which held that the FLSA’s anti-retaliation provision does not protect purely internal complaints about FLSA violations. Minor appealed to the Fourth Circuit Court of Appeals. 

Courts Review Scope of the FLSA’s Anti-Retaliation Clause

As complaints of wage and hour violations increase, courts have also increasingly grappled with claims from employees that they have been subjected to retaliation for such complaints. The Fair Labor Standards Act prohibits retaliation. However, unlike the broader anti-retaliation provisions in other commonly-cited employment laws, the FLSA’s clause makes it illegal to discharge or discriminate against any employee who “has filed any complaint or instituted or caused to be instituted any proceeding under or related to” the FLSA. That phrase, “filed any complaint,” has been read by some to suggest that an oral complaint or a complaint made only internally, but not to the Department of Labor or some other government agency, is not sufficient to trigger the FLSA’s anti-retaliation provision. 

The Supreme Court settled part of this dispute last year in Kasten v. Saint-Gobain Performance Plastics Corporation, where it held that an oral complaint can fall within the FLSA’s anti-retaliation provision, so long as it is “sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for their protection.” However, the Kasten Court expressly declined to address the question of whether the anti-retaliation provision applies to a purely internal complaint that is not “filed” with any government agency. 

Although the issue remains unresolved by the Supreme Court, the majority of courts that have considered the question have held that internal complaints are protected by the the FLSA. On January 27, 2012, the Fourth Circuit joined that party with its ruling in Minor’s favor, reversing the district court’s dismissal order and remanding the case to the district court for further proceedings.

Insights for Employers

Given the direction taken in the other federal circuits that have addressed this issue, the Fourth Circuit’s ruling comes as no real surprise. Even if an employee’s complaint were found to be unprotected by federal law, many states also have wage and hour laws that include anti-retaliation provisions. Employers should assume, therefore, that any employee complaint about overtime, minimum wage, or other wage and hour issues may be protected by law, and that adverse actions against a complaining employee may give rise to a retaliation claim. To protect against such claims, employers should take the same basic precautions that we employment lawyers are constantly pushing:

  • Treat like employees alike; 
  • Document your decisions; 
  • Promptly and effectively investigate and follow up on complaints; 
  • Have a policy prohibiting retaliation; 
  • Follow your policies; 
  • Train your supervisors;

And most importantly:

  • Don’t refer to the complaining employee as “troublemaker,” “Benedict Arnold,” “ungrateful wretch,” etc., especially in an e-mail.