BLOGS: Fair Labor Standards Act Law

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Thursday, March 27, 2008, 3:00 PM

100,000 Baristas to Benefit Big

From CBS News: In a class action brought on behalf of 100,000 baristas (Starbuck's endearing term for its employees), a California Superior Court Judge ordered Starbucks to pay the California baristas more than $100 million in back tips and interest. According to the complaint filed in the action, Starbucks violated California wage and hour laws in its tip pooling arrangement by permitting shift supervisors to share in tips received from customers. Starbucks argued that its shift supervisors were entitled to share in the tips because they were pouring coffee, waiting on customers, and performing tasks similar to the baristas. However, San Diego Superior Court Judge Patricia Cowett disagreed finding that state law prohibits managers and supervisors from sharing in employee gratuities. She issued a letter to counsel after five days of damages testimony ordering the coffee giant to pay more than $100 million in back tips and interest. Starbucks plans to appeal the ruling.

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What Sale? Drug Reps Challenge the Applicability of FLSA's Outside Sales Employee Exemption to Them

Virtually every big pharma company has been or is being sued for allegedly violating the FLSA and applicable state wage and hour laws in collective actions brought by former and/or current drug company sales representatives. The dispute focuses on the meaning of “outside sales employees” under the FLSA, with drug reps claiming that their job duties never actually include a “sale,” thus rendering the exemption inapplicable.

The general rule for “outside sales employees” is that the employee’s primary duty is

  • making sales within the meaning of the FLSA, or
  • obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer.

The exemption further requires that the employee “customarily and regularly” be engaged in this primary duty away from the employer’s place(s) of business. Under the FLSA, “sales” can be of services as well as commodities, and is broadly defined. Drug reps argue that they themselves are never part of a sale of the products they promote since they only interact with physicians, not with the ultimate purchaser of their products - patients - who take the prescription received from their physician to a pharmacy for filling and purchase. These layers of people and companies, drug reps assert, render the exemption inapplicable to the drug reps, allowing them to seek overtime wages for their otherwise uncompensated long hours. Unsurprisingly, big pharma employers have disagreed, arguing that drug reps are hired for sales-based positions, based on their past sales experience and training, and paid according to commissions reflective of the total amount of the products sold in the rep’s territory or region. Thus far, courts have sided with the employers granting summary judgment against the drug reps finding that the purpose of the drug reps work is a sale of a product and the physician, through prescriptions, control these sales.

Currently, this issue is the subject of appeals to the Ninth Circuit from three cases previously heard in the United States District Court for the Central District of California and also the subject of a Special Report by the Bureau of National Affairs, Inc. issued on March 26, 2008. Given the unpredictable nature of the Ninth Circuit, pharmaceutical companies should expect some surprises or challenges in the coming months.

Wednesday, March 26, 2008, 10:47 AM

Colorado Police Officers Settle FLSA Suit for $5.25 Million and Policy Changes

A class of more than 500 police offers settled a collective action against Colorado Springs to recover overtime and payment for off-the-clock work, according to news reports. While the plaintiffs stated they were more interested in the policy changes that they obtained (including a change to allow for payment for donning and doffing time), the officers will also receive $5.25 Million to be paid over the next three years.

Thursday, March 20, 2008, 12:08 PM

How Big Is Your Tent?

An extremely ambitious - but unsuccessful - attempt to achieve wage-hour coverage is found in Loodeen v. Consumers Energy Co. (W.D. Mich. No. 1:06-CV-848, Mar. 14, 2008). Consumers Energy received an on-line application from Paul Loodeen for the position of CES Intern, who committed to completion of a CES Educational Certificate within two years of the date of hire. Despite disputes regarding what Loodeen was told during his pre-employment interview, it was clear that the certification required achievement of C-or-above grades in college-level course work additional to that Loodeen already possessed, and that some of his efforts in that regard were not acceptable due to poor grades. Consumers repaid Loodeen for the classes, although the reimbursement was scaled dependent upon the grade received.

Loodeen did not meet the two-year deadline, but remained employed with Consumers Energy and was promoted several times; in fact, he had been taken out of the intern program soon after he was hired. On November 30, 2006, he sued his employer, contending that since the classwork was not voluntary and was "directly related to his job," Consumers Energy owed him $7000 for his "classroom time, homework time and travel time" - a total of 267 hours, some of which he contended to be overtime. After conclusion of discovery and a failed mediation effort, the employer sought summary judgment.

At issue was 29 CFR 785.27, an interpretive regulation setting the criteria for treatment of employer training programs as compensable time. Magistrate Judge Brenneman concluded that the regulation was inapplicable since the education involved consisted of "regular college classes taken apart from plaintiff's employment, as part of a multi-year attempt to qualify for a new position in the company." As such, the classes recalled those dealt with in Bienkowski v. Northeastern University, 285 F.3d 138, 141 (1st Cir. 2002) - a "peculiar situation... where the training is not continuing education relating to existing job duties, but instead a pre-condition for employment which the employer tolerantly allows to be satisfied while the employee is working on a probationary basis."

Therefore, the compensable nature of the coursework depended on the applicability of the Portal to Portal Act, 29 USC 254. The Court found that the classes were not "integral and indispensable" to his regular job's "principal activities." Loodeen performed no productive work for the employer while attending classes , and Consumers Energy could have established the course work as a requirement for initial hire. "In short, Consumers Energy did not hire Loodeen to be a student." Loodeen could take the classes wherever and whenever he chose, and he was not on call or in any way restricted in his activities away from the job. Accordingly, summary judgment was granted.

The interplay between educational requirements for employment and the requirements of federal (and, in some instances, state) law can be a complex subject - one best dealt with without litigation. Consumers Energy obviously did its homework, and the in-house attorney who defended the company is to be congratulated for her skill in achieving a good result.

Tuesday, March 18, 2008, 10:02 AM

Hit Me Baby One More Time: Wal-Mart Slapped with Yet Another FLSA Overtime Suit

Wal-Mart Stores, Inc. ("Wal-Mart") continues to fend off legal attacks from current and former employees for alleged violations of various employment and labor laws. This month, former inventory specialist Rita Hinesman filed a complaint alleging Wal-Mart failed to pay overtime pay for employees and proposing a class action to address these violations. The lawsuit, Hinesman v. Wal-Mart Stores, Inc., case number 1:08-cv-0779 filed in N.D.Ga on March 5th, alleges a variety of ways in which the company through its managers and supervisors manipulated employee's time to eliminate overtime and even pay in some cases.

Hinesman alleges that Wal-Mart managers and supervisors were directed by the company (or the company knew of this practice) to delete overtime hours of employees, deleted employee punches, altered time records to include meal periods that weren't taken and deducted time for breaks. Hinesman worked for Wal-Mart for approximately 25 months and alleges that these violations occurred on multiple occasions.

The complaint alleges that these practices occurred as a result of incentives by the company rewarding supervisors and managers who reduced employee payroll and overtime to manage costs. Wal-Mart has aggressively fought prior lawsuits asserting various challenges to its overtime and payroll practices, frequently arguing that its employees do not follow company policy and the alleged work for which the employees weren't paid did not occur.

The suits against Wal-Mart often assert that "company culture" and its associated incentive pay for employees in positions having access to time records and payroll procedures permits unlawful activities to occur. They are a good reminder to employers to review their payroll and timekeeping practices to ensure independence of functions to the extent possible.

Friday, March 14, 2008, 9:36 AM

The Happiest Place on Earth? Financial Analysts at Walt Disney Internet Group Find No Happiness in No Overtime

Financial analysts for Walt Disney Internet Group ("Disney") filed a proposed class action asserting that they were misclassified under the FLSA and purposefully denied overtime. Suit initiator Jerry Parks claims that Disney forced him and his coworkers to work more than 40 hours a week or more than 8 hours a day, and did not pay overtime. The laundry list of complaints against the media giant includes complaints that Disney:

  • did not allow employees mandatory meal or rest breaks;
  • did not pay employees on time; and
  • did not provide semi-monthly itemized wage statements (a California law requirement).

In their complaint, Parks argues on behalf of Disney "financial analysts" that their jobs non-exempt because their duties were "routine and repetitive" and required no "consistent exercise of discretion and judgment." For example, job duties included checking cost metrics data for errors and paying invoices and entering data. The suit proposes three separate classes: (i) one FLSA class to include all employees of the company who hold or held the title "financial analyst" or similar title since Feb. 28, 2005; (ii) one California Wage and Hour class to include all California employees who held/hold such position with Disney since Feb. 28, 2004 (due to the longer statute of limitations under California law); and (iii) one class under California law to include employees throughout the United States who held/hold such position with Disney since Feb. 28, 2004. Relief sought includes unpaid past wages, liquidated damages, and interest under the FLSA, as well as damages for every day breaks were not provided and injunctive relief to force Disney to provide required wage statements and to pay workers on time.

Disney affiliated companies have been widely regarded as good employer, establishing several employee-friendly benefits leading to a generally employee-friendly working environment. Nevertheless, Disney affiliates have been sued in the past for overtime issues. In 2001, an arbitrator ordered Walt Disney World in Florida to pay for time spent changing between costumes and personal clothing, and a similar settlement was reached as to Disneyland in California.

For more on the Disney lawsuit, Parks v. Walt Disney Internet Group, et al., case number 2:08-cv-01380 (U.S.D.C., C.D. Calif.), click here to read the complaint.

Misclassification remains a focus of the Department of Labor, more so in low-wage industries (hotel-motel workers, construction, janitorial services, among others) than the subject of this suit. Just this past week, the former administrator of the DOL's wage-and-hour division spoke to the New York Chapter of the Association of Corporate Counsel confirming that misclassification, particularly employers who misclassify their workers as independent contractors, is one of its top five enforcement priorities for 2008. Employers, with the assistance of their counsel, should review their job descriptions and assess their classification of employees in light of the continued governmental interest in these cases.

Thursday, March 13, 2008, 10:09 AM

Bakers and Bakery Battle over FLSA "Opt-In" and Class Action "Opt-Out" Rules

An interesting opinion was handed down by the U.S. District Court for the Eastern District of New York last week. In the suit, a number of bakery workers claimed that the bakery that employed them failed to pay them all overtime and compensation they were due, in violation of the FLSA and the New York Labor Law.

The plaintiffs claimed to represent a class of up to 250 "mostly foreign-born workers who have little command of English, are probably unfamiliar with the American legal system, and may be suspicious, if not intimidated, by this proceeding." After winning conditional certification of their collective action under the FLSA, the plaintiffs then sought to be allowed to proceed with their state law claims, in the same case, as a traditional class action under Rule 23 of the Federal Rules of Civil Procedure.

The bakery opposed allowing the FLSA collective action and the state law class action to proceed in the same case. Among their arguments, the bakery pointed out that in FLSA collective actions, would-be class members are required to affirmatively "opt in" in order to participate in the case. This procedure is different than traditional Rule 23 class actions, which requires class members to affirmatively "opt out" of the class.

The bakery contended that the FLSA collective action was a superior vehicle to resolve the dispute than a class action proceeding, that it would be judicially inefficient to have the FLSA collective action and the state law class action in the same case, and that the differing opt-in and opt-out rules would be confusing.

The court rejected the bakery’s arguments, and allowed the FLSA collective action and the state law class action to both go forward. Of note, the court agreed with the plaintiffs’ argument that a class action, with its opt-out rule, was appropriate because the class of mostly foreign-born workers might be reluctant to affirmatively opt-in to the case for fear or reprisal and retaliation. For that reason, the Court noted "[t] FLSA’s opt-in procedure is simply not an equivalent stand-in for a call action in this case."

The case is Guzman v. VLM, Inc. d/b/a Reliable Bakery, Case No. 07-CV-1126, pending in the U.S. District Court for the Eastern District of New York.

Friday, March 7, 2008, 9:27 AM

Starbucks Fair Labor Standards Act Decision in Texas

We told you earlier [see Case Against Starbucks Grinds On] about the contentious Starbucks litigation in Florida. It now appears that a companion case is nearing a conclusion. [EmploymentLaw 360 item] However, the process of notice to the class members and potential challenges from those who may want a larger share means that this case won't be ended for some time to come, and this settlement may or may not impact on the Florida litigation or on the other cases mentioned in the attached article.

Click here to read more.

Tuesday, March 4, 2008, 10:42 AM

Joint Employers: DOL Offers FLSA Guidance on When Overtime Obligations May Be Triggered

The Department of Labor appears eager to provide additional guidance on FLSA matters this spring, a welcome trend. On February 28, 2008, the DOL released an opinion letter, FLSA 2007-12, 12/31/07, regarding the joint employment of policy officers who are employed by the City Police Department during the day and work their off-duty hours voluntarily for an Authority charged with complete responsibility for the operation of the City's downtown convention center and arena.

Whether the hours worked by the police officer for the Authority must be taken into account by the City for overtime purposes is a fact-dependent analysis. The issue is whether the employers, in this case public employers, are separate and independent under 29 CFR § 553.227(c). In terms of whether public employers are separate, the DOL's prior opinion letters list the following factors that help determine the relationship of the employers:
  1. Separate payroll/personnel systems;
  2. Separate retirement systems;
  3. Separate budgets and funding authorities;
  4. Separate legal entities (including the power to sue and be sued);
  5. Arms' length dealings between the employers relative to the individuals in question as employees;
  6. Treatment under state law; and
  7. Lack of control over the appointment of officers of the other entity.

Another relevant fact may be whether the public employers are treated separately for statistical purposes under the Census of Governments. If the public employers are found to be separate and independent, there is no obligation for the primary employer to include the hours worked by the employees for the joint employer in calculating or paying overtime wages.

As always, if there is a question in an employer's assessment of whether overtime is due to an employee, contacting an experienced FLSA lawyer to analyze the employer's obligations is a must to ensure against unwanted and unintended liability.

Click here to read the opinion letter:
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