exempt or non-exempt? overcoming latest employee...

Exempt or Non-Exempt? Overcoming

Latest Employee Misclassification Challenges Conducting Self-Audits, Identifying Vulnerabilities, Correcting Errors,

and Minimizing Liability Under FLSA and State Law

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WEDNESDAY, JUNE 10, 2015

Presenting a live 90-minute webinar with interactive Q&A

Brent E. Pelton, Esq., Pelton & Associates, New York

Mark E. Tabakman, Partner, Fox Rothschild, Roseland, N.J.

Noel P. Tripp, Shareholder, Jackson Lewis, Melville, N.Y.

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EXEMPT OR NON-EXEMPT? EMPLOYEE

MISCLASSIFICATION CHALLENGES

Positions Most Vulnerable

to FLSA Claims

Mark Tabakman, Esq.

Fox Rothschild LLP

[email protected]

http://wagehourlaw.foxrothschild.com/

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FLSA EXEMPTIONS:

EMERGING CLASS ACTION THREAT

AT-RISK POSITIONS

Financial Services Industry

I.T. Workers/Computer Programmers

Sales Staff

Clerical/Administrative/Executive

Secretaries

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FLSA SECTION 13(a)(1), GENERALLY

• Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for individuals employed as bona fide executive, administrative, professional, and outside sales employees. Sections 13(a)(1) and 13(a)(17) also exempt certain computer employees. – To qualify for exemption, employees generally must meet certain

tests regarding their job duties and be paid on a salary basis at not less than $455 per week.

– Job titles do not determine exempt status. – In order for an exemption to apply, an employee’s specific job

duties and salary must meet all the requirements of the DOL’s regulations.

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FINANCIAL SERVICES

• Over the last several years there has been

a torrent of litigation concerning the

exempt status of positions in the financial

services industry (mortgage brokers, loan

originators, etc.).

FINANCIAL SERVICES

• “Supreme Court Sides with USDOL on Its Right To Issue New

Guidance on Exempt Status of Mortgage Brokers,” Mar. 23, 2015 at:

http://wagehourlaw.foxrothschild.com

• In 2010, DOL issued a White Paper classifying mortgage brokers as

exempt.

• The Mortgage Bankers Association successfully challenged that

purported exercise of rulemaking in federal district court and the DC

Circuit sustained the district court’s striking down of that new

interpretation.

• The US Supreme Court held that agencies do not have to go

through formal rule-making to effect major changes to their rules

interpreting regulations.

– Perez et al. v. Mortgage Bankers Association and Nickols et al.

v. Mortgage Bankers Association.

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FINANCIAL SERVICES

• Prior to the DOL’s issuance of its 2010 White Paper (guidance statement) on the matter, employees were deemed exempt as administrative if their duties included work such as collecting and analyzing information regarding a customer’s income, assets, investments, or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of financial products; and servicing, promoting, and marketing the employer’s financial products.

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FINANCIAL SERVICES

• Per the DOL’s 2010 White Paper, except in certain circumstances, mortgage loan officers will not qualify for the administrative exemption under the Fair Labor Standards Act.

• If mortgage loan officers perform supervisory duties, they may still fall under the executive exemption, but the most commonly urged exemption for them, i.e. administrative, is now foreclosed.

• The DOL concluded that “mortgage loan officers typically have the primary duty of making sales on behalf of their employer; as such, their primary duty is not directly related to the management or general business operations of their employer or their employer’s customers.” – Mortgage loan officers will not qualify for the administrative exemption

because their primary duty is production work, i.e. sales.

• Casas v. Conseco Financial Credit Corp. (D.Mn. 2002) 146 LC ¶ 34,502

– Loan originators who were responsible for soliciting, selling and processing loans

as well as identifying, modifying and structuring the loan to fit a customer’s

financial needs were production rather than administrative employees; these

duties established that they were primarily involved with “the day-to-day carrying

out of the business” rather than “the running of [the] business [itself]” or

determining its overall course or policies.

• Davis v. J.P. Morgan Chase & Co., 587 F.3d 529 (2d Cir. 2009)

– Job of underwriter as it was performed at Chase falls under the category of

production rather than of administrative work. Underwriters performed work that

was primarily functional rather than conceptual. They had no involvement in

determining the future strategy or direction of the business, nor did they perform

any other function that in any way related to the business's overall efficiency or

mode of operation. Underwriters played no role in the establishment of Chase's

credit policy. Rather, they were trained only to apply the credit policy as they

found it, as it was articulated to them through the detailed Credit Guide.

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FINANCIAL SERVICES

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I.T. WORKERS/COMPUTER PROGRAMMERS

• Computer systems analysts, computer

programmers, software engineers, and other

similarly skilled workers in the computer field

who meet certain tests regarding their job duties

may be exempt from minimum wage and

overtime requirements of the FLSA.

– To be exempt, these employees must be paid at least

$455 per week on a salary basis or paid on an hourly

basis, at a rate not less than $27.63 per hour.

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• To qualify for the computer employee exemption, the following tests must be met: – Employee must be paid at least $455 per week on a salary basis

or paid on an hourly basis, at a rate not less than $27.63 per hour;

– Employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties described below;

– The employee’s primary duty must consist of: • The application of systems analysis techniques and procedures; • The design, development, documentation, analysis, creation, testing

or modification of computer systems or programs, or of programs related to user or system design specifications; or

• The design, documentation, testing, creation or modification of computer programs related to machine operating systems.

• A combination of the aforementioned duties, the performance of which requires the same level of skills.

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• The computer employee exemption does not include employees engaged in the manufacture or repair of computer hardware and related equipment.

• Exemption also does not apply to employees whose work is highly dependent upon computers, but who are not primarily engaged in computer systems analysis and programming or other similarly skilled computer-related occupations.


• Young v. Cerner Corp. (W.D. Mo. 2007) 155 LC ¶ 35,350

– A Level 6 software engineer who performed defect resolution and transformed data using

Informatica was an exempt computer professional: her assertion that she never created or

modified “source code” was immaterial to the application of the computer exemption because

the regulations do not use the term “code” and her duties still consisted of using systems

analysis techniques, design, testing, and modifying of programs.

• Clarke v. JP Morgan Chase Bank NA, (S.D.N.Y. 2010) 159 LC ¶ 35,732

– A highly certified IT “guru” who consulted with various users to determine hardware,

software, or system functional specifications, handled remediation issues, tested software in

live environments to provide feedback to the engineering department, spent ten percent of

his time on such special projects as server upgrades or back up migration projects, drafted a

troubleshooting guide for the desktop support team, and was the final authority for escalated

computer problems was an exempt computer professional.

• Hunter v. Spring Corp. (D.D.C. 2006) 153 LC ¶ 35,209

– An employer failed to established that a Managed Network Operation Engineer II was an

exempt computer professional: the exemption applies to jobs with a substantially higher

technically proficient help-desk employee whose primary duty was customer service.

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• FLSA Computer Exemption to Get Revised: A Good Thing

For Employers” Nov. 17, 2011 at:


• On October 20, 2011, the US Senate introduced the Computer

Professionals Update Act. This legislation expanded the coverage of

the exemption to those who work in a “computer or information

technology occupation, including, but not limited to, work related to

computers, information systems, components, networks, software,

hardware, databases, security, internet, intranet or websites, as an

analyst, programmer, engineer, designer, developer, administrator or

other similarly skilled worker.”

• Additionally, employees who direct the work of individuals performing

these duties would be exempt.

• However, died in Congress in 2012

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SALES

• To qualify for the outside sales exemption, all of

the following tests must be met:

– Employee’s primary duty must be making sales (as

defined in FLSA), or obtaining orders or contracts for

services or for the use of facilities for which a

consideration will be paid by the client or customer;

and

– The employee must be customarily and regularly

engaged away from the employer’s place or places of

business.

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SALES

• The salary requirements of the regulation

do not apply to the outside sales

exemption. An employee who does not

satisfy the requirements of the outside

sales exemption may still qualify as an

exempt employee under one of the other

exemptions allowed by the FLSA.

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SALES

• Primary duty: – Principal, main, major or most important duty that the employee

performs.

• Making sales: – “Sales” includes any sale, exchange, contract to sell,

consignment for sales, shipment for sale, or other disposition. It includes the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property.

• Away from employer’s place of business: – An outside sales employee makes sales at the customer’s place

of business, or, if selling door-to-door, at the customer’s home. Outside sales does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls.

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EXECUTIVE EMPLOYEE EXEMPTION

• To qualify for the executive employee exemption, all of the following tests must be met: – The employee must be compensated on a salary basis (as defined in

the regulations) at a rate not less than $455 per week; – The employee’s primary duty must be managing the enterprise, or

managing a customarily recognized department or subdivision of the enterprise;

– The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and

– The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.

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• Management: – Generally, “management” includes, but is not limited to, activities such

as: • Interviewing, selecting, and training of employees; setting and adjusting their

rates of pay and hours of work; directing the work of employees; • Maintaining production or sales records for use in supervision or control; • Appraising employees’ productivity and efficiency for the purpose of

recommending promotions or other changes in status; • Handling employee complaints and grievances; • Disciplining employees; • Planning the work; • Determining the techniques to be used; • Apportioning the work among the employees; • Determining the type of materials, supplies, machinery, equipment or tools

to be used or merchandise to be bought, stocked and sold; • Controlling the flow and distribution of materials or merchandise and

supplies; • Planning and controlling the budget; and • Monitoring or implementing legal compliance measures.

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• Factors to be considered in determining whether an employee’s recommendations as to hiring, firing, advancement, promotion or any other change of status are given “particular weight” include, but are not limited to, whether it is part of the employee’s job duties to make such recommendations, and the frequency with which such recommendations are made, requested, and relied upon. Generally, an executive’s recommendations must pertain to employees whom the executive customarily and regularly directs. It does not include occasional suggestions.

• Highly compensated employees performing office or non-manual work and paid total annual compensation of $100,000 or more (which must include at least $455 per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.

• “Possible Obama White Collar Exemption Revisions Don’t Worry

Me!” Mar. 18, 2014 at: http://wagehourlaw.foxrothschild.com

• The Obama Administration is going to direct the Department of Labor to toughen

up the exceptions to federal overtime requirements through regulation. This

could be by raising the salary threshold, currently $455 per week and/or

augmenting the existing or establishing new elements of exempt status.

• On the issue of salary, I have always thought the $455 per week was too low,

especially if the employee(s) performed subordinate duties, which injected the

issue of the primary duty test into the equation. In that context, to me, the low

salary, coupled with the significant amount of non-exempt work, almost

suggested a non-exempt finding by an agency or court. Higher salary thresholds

already exist, e.g. New York ($640) and California (600), which I believe should

be the “basement” for exempt employee salaries, to show that there is a bright

line between manager and subordinate.

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• “Revisions to DOL Exemption Rules on Hold,” Oct. 14, 2014 at:


– Rules were going to miss November 2014 deadline

– Pushed off till 2015

• Proposed rule expected in June 2015

• Changes to look for:

– Rise in salary threshold

– Change from primary duty requirement to quantitative standard

– California uses a quantitative standard: in addition to a minimum salary,

employee must spend at least 50 percent of his or her time on exempt tasks to

be exempt from law.

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• “The Drive Towards ‘Fighting’ Misclassification Heats Up

In DC,” at: http://wagehourlaw.foxrothschild.com – Under the proposed budget, it is anticipated that the DOL will hire more than 350

new employees, including 177 investigators and other enforcement staff

– The Wage Hour Division, the entity charged with conducting investigations

relating to misclassification, will hire an additional ninety new investigators.

– The amount of $25 million will go towards the so-called “misclassification

initiative.” Investigators will look more numerously to and closer at alleged

employee misclassification, such as when workers are deemed independent

contractors or consultants. They are then ostensibly denied overtime and the

protection of unemployment benefits.

– The additional enforcement personnel will work pursuant to a joint undertaking by

the DOL and Treasury to take away the reasons that employers misclassify

employees and to beef up the power of both agencies to seek enhanced

penalties for violations of the employee status rules/laws.

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• W & H Opinion Letter No 2230, July 21, 2000

– A guard shift supervisor, who performed supervisory duties only two to three hours per guard

shift, was not an employee whose primary duty was managerial, and was not a bona fide

executive employee.

• Ale v. Tennessee Valley Authority (6th Cir 2001) 144 LC ¶ 34,387

– A magistrate judge properly determined that shift supervisors’ primary responsibility was

performing clerical duties. Although they did spend some of their time supervising

employees, this supervision was not managerial in nature, and thus, they did not qualify for

the overtime exemption.

• McClain v. McDonald’s Corp. (ED Penn 2007) 153 LC ¶ 32,246

– An assistant manager was exempt; evidence overwhelmingly showed that management was

her primary function, even though she engaged in about 58 percent non-exempt work.

• Schreckenbach v. Tenaris Coiled Tubes, LLC (S.D. Tx. 2013) 163 LC ¶ 36,091

– An employee who was the only salaried employee who worked the night shift and who

oversaw 20 hourly employees was properly classified as an exempt executive employee in

his position as night shift coordinator for a manufacturing company.

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• W & H Opinion Letter No 2223, (June 14, 2000)

– House managers of residential homes mentally retarded individuals were exempt executive

employees where, even though they spent less than 50 percent of their time performing

managerial duties, those duties were of substantially greater importance to the employer

than their nonmanagerial duties, they had substantial discretion in performing their duties

and the employer exercised very minimal supervision over them.

• Mitchell v. Abercrombie & Fitch, Co (S.D. Ohio 2006) 152 LC ¶ 35,134

– A store Manager who was responsible for supervising 60 employees and was the highest

ranking employee at the store, did not successfully argue that his responsibilities were

preempted by micromanaging administrators so as to negate his obvious exemption from

FLSA overtime provisions. The fact that a district manager could override certain decisions

by the manager did not undermine the manager’s day to day authority to manage for

purposes of exempt overtime status; nor did the fact that the manager spent much of his time

performing general tasks take him out of the exempt category. The employer demonstrated

by a preponderance of clear evidence that the manager’s primary duties were managerial,

exempt tasks.

• W & H Opinion Letter No 2223, (June 14, 2000).

– House managers of residential homes mentally retarded individuals were exempt executive

employees where, even though they spent less than 50 percent of their time performing

managerial duties, those duties were of substantially greater importance to the employer

than their non-managerial duties, they had substantial discretion in performing their duties

and the employer exercised very minimal supervision over them.

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• In re Family Dollar FLSA Litig., 998 F. Supp. 2d 440 (W.D.N.C.

2014), appeal dismissed (Aug. 19, 2014)

– Dollar store manager was excluded from FLSA overtime provision, as an exempt

executive, where she spent approximately 85 percent of her time performing

managerial duties such as interviewing, training, and directing employees' work,

she was ultimately responsible for the performance of the store even while

performing nonexempt work, she had discretion and flexibility to choose what

tasks to perform herself and what tasks to delegate to other employees,

manager was the only person running the store, so it could not have operated

successfully without her handling of managerial tasks, manager was relatively

free from supervision in that her district manager visited the store only about

once a month, and manager earned significantly more than her nonexempt

employees, receiving a bonus only upon demonstrated profitability of her store.

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• Solis v. SCA Rest. Corp., 938 F. Supp. 2d 380 (E.D.N.Y. 2013)

– Restaurant employee was not exempt from FLSA overtime wage provisions as

employed in bona fide executive, administrative, or professional capacity;

although employee's salary range exceeded minimum required to fall within

exemption, employee did not have authority to hire or fire other employees, did

not have management as his primary duty, and did not customarily and regularly

direct work of two or more other employees

– Some testimony was presented that he would direct which salads and dressings

to make, or which dishes to clean. However, he spent the vast majority of his day

cooking food. He did not have keys to the restaurant, interview prospective

employees, or determine the salaries or schedules of other employees in the

kitchen. Although the amount of time that he spent cooking is not dispositive,

defendants did not introduce sufficient evidence that his “primary duty” was, in

fact, management.

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• “Home Goods Assistant Managers Denied FLSA

Conditional Certification” Apr. 11, 2012 at:

http://wagehourlaw.foxrothschild.com • Where the support for the class, including, but not limited to affidavits and

testimony, is simply too insufficient to evidence the requisite commonality for a

class to exist. Although the court recognized that plaintiffs have a light burden, a

class of plaintiffs cannot be certified on the basis of thin support, such as a single

page report submitted by a consultant.

• In the case highlighted here, the plaintiff alleged that he and others routinely

performed a variety of non-exempt tasks, including cleaning/sweeping, unloading

trucks and taking out the garbage. If these tasks comprised a major portion of

their work time, their exemption would be undermined. However, failure to

support these actions doomed the case.

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• “Payless Shoes Settles Another FLSA Executive Exemption

Misclassification Suit,” Mar. 11, 2015 at


– Theory of the case was that the Company misclassified the Managers as exempt

under the Fair Labor Standards Act.

– Payless agreed to settle class action for just under $3,000,000.

– There were allegations that the Company knew that the workers spent more than

50% of their time working the cash register, dealing with customers, cleaning the

store and answering phones. (All clearly non-exempt, rank-and-file duties).

– The Company hotly contested these allegations but chose to settle to save future

litigation costs, without admitting any liability or wrongdoing.

– Shallin et al v. Payless Shoesource, Inc. et al filed in Fed. District Ct in

Connecticut.

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ADMINISTRATIVE EMPLOYEE EXEMPTION

• To qualify for the administrative employee exemption, all of the following tests must be met: – The employee must be compensated on a salary or fee basis (as

defined in the regulations) at a rate not less than $455 per week;

– The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and

– The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

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• Directly Related to Management or General Business Operations – To meet the “directly related to management or general business

operations” requirement, an employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example from working on a manufacturing production line or selling a product in a retail or service establishment.

– Work “directly related to management or general business operations” includes, but is not limited to, work in functional areas such as tax; finance; accounting; budgeting; auditing; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee benefits; labor relations; public relations; government relations; computer network, Internet and database administration; legal and regulatory compliance; and similar activities.

34


• Discretion and Independent Judgment – In general, the exercise of discretion and independent judgment

involves the comparison and the evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. The term implies that the employee has authority to make an independent choice, free from immediate direction or supervision.

– Factors to consider include, but are not limited to: whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree; whether the employee has authority to commit the employer in matters that have significant financial impact; whether the employee has authority to waive or deviate from established policies and procedures without prior approval, and other factors set forth in the regulation.

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• An executive assistant or administrative assistant to a business owner or senior executive of a large business generally meets the duties requirements for the administrative exemption if such employee, without specific instructions or prescribed procedures, has been delegated authority regarding matters of significance.


• W & H Opinion Letter No 1973, (January 18, 1996).

– Because as an executive secretary, an employee’s primary duties required her only to

perform routine clerical work, as opposed to work, as opposed to work directly related to the

employer’s management policies or general business operations of an employer and did not

require her to exercise the requisite level of discretion and independent judgment set forth in

the pertinent regulations, an employer could not classify the secretary as an exempt

administrative employee within the meaning of the FLSA

• W & H Opinion letter No. 1966, (October 25, 1995).

– Where the extent of discretion and independent judgment that a municipal employer’s

assistant/deputy clerk-treasurer was required to exercise fell within closely prescribed limits,

and the skills necessary to perform the tasks involved could be acquired after a short period

of training and on-the-job experience, the employer could not classify the clerk-treasurer as

an exempt administrative employee within the meaning of the FLSA.

• W & H Opinion Letter No. 2059, (October 20, 1997)

– Because an administrative assistant’s primary duties required only that she follow prescribed

procedures, determine which procedures to follow, or determine whether specified standards

were met, as opposed to formulating company policy or exercising wide-ranging authority to

commit her employer to substantial financial or similar responsibility, the assistant’s duties

did not display the necessary “discretion and independent judgment” for her employer to

classify her as a exempt “administrative” employee.

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• Calderon v. GEICO Gen. Ins. Co., 917 F. Supp. 2d 428 (D. Md. 2012)

– Investigators were likely not engaged in day-to-day production work for

employer, and employees' investigative duties seemed to be directly related to

employer's general business operations; also, employees exercised discretion

and independent judgment. BUT:

– employees did not exercise discretion on matters of significance, and thus they

did not fall within administrative exemption to FLSA's overtime requirements.

– The Court said, “regulations and case law suggest that the fact that Investigators

note that certain claims could be fraudulent does not in itself establish that their

discretion bears on ‘matters of significance.’”

• Stultz v. J.B. Hunt Transp., Inc., 35 F. Supp. 3d 866 (E.D. Mich. 2014)

– Scrap auditor function performed by employee of trucking company, who worked

as parts manager, did not involve exercise of discretion or independent judgment

required for application of administrative exemption to FLSA's overtime

requirements; employee's scrap auditor role involved nothing more than applying

established standards to the tires employee was examining, employee was not

permitted to deviate from those standards, and employee had to seek permission

from superior to travel to scrap audit site.

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Contact Information

Mark Tabakman, Esq.

973.994.7554

[email protected] http://wagehourlaw.foxrothschild.com

Employee Misclassification Challenges

Current Trends & Vulnerable Positions

Brent E. Pelton, Esq. Pelton & Associates, PC

111 Broadway, Suite 1503 New York, New York 10006

[email protected]

www.peltonlaw.com 6/10/2015

mailto:[email protected]

http://www.peltonlaw.com

FLSA Enforcement is a Federal Priority The United States Department of Labor has found that investigations initiated by

the Department have a greater deterrent effect than investigations trigged by individual complaints.

In 2013, the DOL recovered $83 Million for over 100,000 workers in low-wage industries and a total of $250 Million. In 2014, the DOL recovered $240 Million.

The DOL is cracking down on “fissured industries,” where workforces are increasingly sub-contracted or hired through agencies.

The DOL is expanding beyond enforcement efforts to educating workers through outreach including social media campaigns and bilingual “public service announcements.”

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Pelton & Associates, PC // www.peltonlaw.com

Workers in the News Exotic dancers: Courts continue to find exotic dancers to be employees, not

independent contractors. Terry v. Sapphire Gentlemen’s Club, 336 P.3d 951 (Nev. Sup. Ct. 2014), Butler v. PP&G, 13-cv-430 (D.Md. 2013); Stevenson v. The Great American Dream, 12-cv-3359 (N.D. Ga. 2013); Hart v. Rick’s Cabaret, 09-cv-3043 (S.D.N.Y. 2013).

Cheerleaders: In 2014 cheerleaders for the Cincinnati Bengals, Buffalo Bills, Oakland Raiders and Tampa Bay Buccaneers filed lawsuits, alleging that they should be treated as employees and are owed extensive backpay. The Buccaneers settled for over $800,000 and the Raiders for $1.25 million. The Bills suspended their cheerleading program after the filing of the lawsuit.

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Workers in the News: Direct Care Aides

In 2013, Department of Labor extended FLSA protections to domestic service workers such as home health aides, nursing assistants, caregivers starting 2015. However, the law is on uncertain grounds…

Home Care Assoc. v. Weil (D.D.C Dec. 22, 2014): District court struck down large swathes of the regulation 10 days before it was to enter in effect, specifically the provision stating that home health care aides employed by third party businesses are non-exempt.

The Wage and Hour Division has appealed the decision to the D.C. Circuit, with oral argument held May 7, 2015.


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Workers in the News: Energy Sector Oilfield workers: Since October and November 2014, operators, drillers,

technicians and other oilfield workers filed numerous lawsuits alleging misclassification. In January 2015, a judge granted conditional certification to the plaintiffs, oil technicians and support staff, in Elliott v. Schlumberger Tech. Corp., 13-cv-79 (N.D. 2015).

Tankermen: “Seaman” test: duties performed “in aid of operating a vessel as a means of

transportation.” E.g., barge tenders are seaman because they attend the boat. Seaman are exempt from overtime.

Compare: Owens v. SeaRiver Maritime (5th Cir. 2001): Tankerman was not a seaman because most of his duties were loading and unloading petroleum products from the barges with Coffin v. Blessey Marine Services, 71 F.3d 276 (5th Cir. Nov. 13, 2014): Tankerman who lived on vessel was a seaman and therefore exempt from overtime.

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Workers in the News: Drivers

McMaster v. Eastern Armored Car Services, __ F.3d __, 2015 U.S. App. LEXIS 3826 (3d Cir. Mar. 11, 2015): Confirming that truck drivers who spend 50% of their time driving vehicles weighing under 10,000 pounds are entitled to overtime under the SAFETEA-LU Technical Corrections Act of 2008.

Compare Gordilis v. Ocean Drive Limousines, Inc., No. 12-cv-24358, (S.D. Fla. May 28, 2014), finding that limo drivers are employees, not independent contractors with, with Saleem v. Corporate Transp. Grp., Ltd., No. 12-cv-8450 (S.D.N.Y. Sept. 16, 2014), finding that black car drivers are independent contractors. Factors: ownership of vehicles, whether drivers had set shifts or made own hours, whether drivers also worked for other companies.

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Other Workers in the News

Contract Attorneys: Second Circuit just heard oral argument in Lola v. Skadden, Arps, Slate, Meagher, No. 14-3845 after it was dismissed on a motion to dismiss. Oberc v. BP, PLC, No. 13-cv-1382 (S.D. Tex.), against Kirkland & Ellis LLP and a staffing company was dismissed on a motion to dismiss. Plaintiffs in Henig v. Quinn Amanuel Urquhart & Sullivan, No. 13-cv-1432 (S.D.N.Y.) survived a motion to dismiss, and a summary judgment motion has been stayed pending the Second Circuit appeal.

Manicurists: shortly before the New York Times expose on low pay and unsafe working conditions for manicurists, Chen v. Gypsophilia Nail & Spa, Inc., 15-cv-2520 (S.D.N.Y.) was filed, and the judge recently denied a motion to dismiss.

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Sports Players, Other Employees Big issue for FLSA litigation is whether entity qualifies as amusement or recreational

establishments that operate for fewer than 7 months per year

Senne v. Major League Baseball, 14-cv-608 (N.D. Cal): In Feb. 2014, minor league players sued, claiming that they are employees who work 50-70 hours per week and earn $3,000-$7,500 for an entire season.

In 2013, San Francisco Giants settled with the Department of Labor to pay over $500,000 to employees such as clubhouse assistants and managers.

In March 2014, NLRB declared Northwestern football players to be employees. In October 2014, one student athlete filed a class action complaint against the entire NCAA for unpaid wages: Sackos v. NCAA, 14-cv-1710 (S.D.Ind. Oct. 20, 2014)

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Are Managers, Assistant Managers Exempt? Managers and assistant managers in particular are increasingly common

plaintiffs:

Lytle v. Lowe’s Home Centers, 12-cv-1848 (M.D.Fla) settled in 2014 for $9.5 million. Plaintiffs were managers, such as HR managers, who did not supervise employees or exercise independent judgment, whose work was centrally controlled by central corporate management.

McKee v. PetSmart, 12-cv-1117 (D.Del.) settled in April 2015 for 3.8 million on behalf of operations managers, who claimed they performed mostly non-exempt work.

Whittington v. Taco Bell, 10-cv-1884 (D.Co.) settled in 2013 for $2.5 million. Plaintiff claimed she did extensive non-exempt work such as bussing tables, cleaning, cashier work, cooking. More suits have been filed since against Taco Bell.

Hickton v. Enterprise Rent-a-Car, MDL 2056 (W.D. Pa.). In 2013, Enterprise settled for $7.75 million with assistant rental managers based on inter alia little independent authority exercised by plaintiffs and little involvement with personnel decisions.

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Managers: Which Factors Determine Status?

Morgan v. Family Dollar, 551 F.3d 1233 (11th Cir. 2008): Managers not exempt because they spent 80-90% of time on manual labor, had duties proscribed by store manual, were closely supervised by district managers.

In re Family Dollar FLSA Litigation, 637 F.3d 509 (4th Cir. 2011): Manager exempt because she multi-tasked between managerial and manual tasks, was the highest ranking employee at the store, her income depended on store’s success, and she had authority over other employees.

Madden v. Lumber One Home Center, No. 13-2214 (8th Cir. Mar. 17, 2014): Two plaintiffs not exempt, one exempt. Court looked at level of input into personnel decisions – casual input solicited from all employees does not make an employee an executive.

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Computer Workers: Rates and Duties Computer worker exemption requires careful consideration of

both rates and duties

Jones v. Judge Technical Services, Inc., 11-cv-6910 (E.D.Pa. 2010): Partial summary judgment for plaintiff. Computer worker exemption permits for hourly wages. However, a computer worker must be paid at least $27.63 for every hour worked, not an average of $27.63 for all hours worked.

Heffelfinger v. Electronic Data Sys. , 492 Fed. Appx. 710 (9th Cir. 2012): Two plaintiffs exempt, one not exempt. Exempt plaintiffs developed standards and procedures, affected company policy by making recommendations, monitored and managed important databases, suggested solutions to meet client needs, extensively supervised employees. Non-exempt plaintiff spent little time on administrative work, main duty was creating and modifying programs to meet business needs.

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Interns Cases in a wide range of industries: movie production, magazine publishing, multimedia online

content and blogging, modeling. Settlements are pricey: NBC settled with SNL interns for $6.4 million in Eliastam v. NBC Univ. Media, 13-v-4634 (S.D.N.Y); Conde Nast settled for $5.8 million in Ballinger v. Advance Magazine Publishers, 13-cv-4036 (S.D.N.Y).

Recent defendants include Giorgio Armani Corp. and Metro-Goldwyn-Mayer (MGM) Productions LLC.

Factors include whether there is: benefit to intern or employer, training and educational activities specific to field or general office work, displacement of regular workers by interns. General benefits of any job not sufficient: resume lines, references, general on the job experience that any worker has.

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Lauren Ballinger:

Intern at W Magazine

Lead Plaintiff v. Conde Nast

Matthew Lieb

Intern at The New Yorker

Lead Plaintiff v. Conde Nast

Volunteers

Chen v. Major League Baseball No. 13-CV-5494 (SDNY Mar. 25, 2014): Claim of “FanFest” volunteer dismissed because “FanFest” is a seasonal business exempted by FLSA. Court did not decide whether Plaintiff could be considered employee based on nature of work.

Liebesman v. Competitor Group No. 14-CV-1653 (ED Mo. May 11, 2015): Court denied motion to dismiss lawsuit filed by bicycle escort for marathon and half-marathon, finding that court did not have enough information to decide whether races were amusement or recreation establishment and whether separate races counted as separate or single establishment.

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New York Construction and Commercial Goods Transportation Fair Play Acts NYS Construction Fair Play Act: effective October 2010

NYS Commercials Goods Transportation Fair Play Act: effective April 1, 2014

Workers (construction workers, truck drivers) presumed to be employees unless the worker meets one of two tests:

“ABC” test: A) is free from control and direction in performing work, B) performs duties outside employer’s usual course of business and C) engages in an independently established business; OR

“Separate business entity” test: Meets 12 criteria, focusing on worker’s independence as to manner of work, financial independence from employer, independence as to business operations

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Overtime and Minimum Wage Updates Minimum wage for federal contractors was raised to $10.10 per hour by

executive order.

States and locations are raising the minimum wage as high as $15.00 per hour, with the highest in Seattle and Los Angeles.

In March 2014, President Obama ordered the Department of Labor to revise federal rules regarding overtime. Possible changes include:

Raising the salary threshold from $455 per week ($23,600 per year)

Modifying, minimizing or removing some of the exemptions

Implementing a limitation on % of non-exempt work employee can perform

In his January 2015 State of the Union address, President Obama again emphasized that overtime reform is a priority of his administration. Recent February 2015 deadline passed without word on new rules. In a May 2015 blog post, DOL promised an update would come soon.

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FLSA Issues: Joint Employers In July 2014, The NLRB General Counsel issued a memo advising offices to treat

McDonald’s as joint employer of franchisee employees. In 2014-2015, NLRB has filed numerous complains seeking joint employer treatment of franchisors.

Compare Irizarry v. Catsimatidis, 722 F.3d 99 (2nd Cir. 2013): Gristede’s owner personally liable for settlement payments based on his participation in business operations and Glatt v. Fox Searchlight Pictures, 11-cv-6784 (SDNY 2013): movie studio is joint employer of interns, with production company because of studio’s close control over making of the movie and staffing issues

…with Layton v. DHL, 686 F.3d 1172 (11th Cir. 2012): DHL not joint employer of drivers because DHL gave only broad directions to drivers’ employer courier company; Orozco v. Plackis, 757 F.3d 445 (5th Cir. 2014): owner of franchisor not joint employer of franchisee employees.

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Other Recent FLSA Questions

Employee responsibility for under-reporting: Bailey v. TitleMax of Georgia, Inc. (11th Cir 2015):Where supervisor instructed employee to work off-the-clock and edited his time records, employee’s claim for overtime where he under-reported his hours worked in violation of company policy was not barred by clean hands defense.

Salary deductions: Ellis v. J.R.’s Country Stores, Inc., 2015 U.S. App. LEXIS 3667 (10th Cir. Mar. 9, 2015): Although salary deductions can transform salaried employee into non-exempt, one single salary deduction did not transform manager into non-exempt employee.

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Employment Law Trends Beyond the FLSA

Criminal consequences for misclassification are more and more common: restaurant owner Elisa Parto was arrested for wage and hour violations; the downfall of former Staten Island, New York Congressman Michael Grimm, which ended with his resignation from Congress, began with a wage and hour investigation.

Increased protections for interns after spate of wage and hour lawsuits: NYC and New York both expanded employment discrimination protects to interns.

Mandatory sick leave laws have recently and continue to take effect in New York, New Jersey, California.

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57


Noel P. Tripp

Shareholder

Long Island Office

June 10, 2015

Key Defense Theories to Prevent or Mitigate Damages

Key Defense Theories: Hours Worked

#1: Hours Worked:

-What constitutes work time; and,

-How do you (dis)prove it?

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Compensable Working Time (For Hourly Employees) Includes . . .

Time spent in primary work activities;

Time spent by an employee outside normal hours “required,

suffered or permitted to work.”

All such work time must be recorded!

For time not spent in primary work activities, query whether the

time is “integral and indispensable” to a primary duty under the

Portal-to-Portal Act. See Integrity Staffing Solutions, Inc. v. Busk,

574 U. S. ___, 135 S. Ct. 513, 190 L. Ed. 2d 410 (2014).


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When Is “On Call” Time Compensable? (29 C.F.R. §

785.17)

An employee who is required to remain on-call on the

employer’s premises or so close thereto that he/she

cannot use the time effectively for his/her own purposes

is working while “on-call.”

An employee who is not required to remain on the premises

but is merely required to leave word at his/her home or

with company officials where he/she may be reached is

not working while on-call.


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When Is Travel Time Compensable? (§§ 785.33-785.41)

Home-to-work and work-to-home travel is commuting time

and ordinarily not compensable working time;

Travel time during the working day is compensable, e.g.,

driving between patients, customers or sites;


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Question: For exempt employees, how do you incorporate these considerations into litigation defense, or best practices outside litigation? Legal Answer: Even if an employee is misclassified, she or he retains “burden of proving that he performed work for which he was not properly compensated.” Holaway v. Stratasys, Inc., 771 F.3d 1057 (8th Cir. 2014) quoting Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 686-87 (1946). In Holaway, the Court ruled that Plaintiff’s testimony regarding his hours worked (his only evidence on the issue) was so “vague” and “inconsistent” it could not support a finding of overtime work – even on summary judgment! However, not all employers will be so lucky: Plaintiff’s burden is relaxed to a “just and reasonable inference” standard. Kuebel v. Black & Decker Inc., 643 F.3d 352, 363 (2d Cir. N.Y. 2011).

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Question: For exempt employees, how do you incorporate these considerations into litigation defense, or best practices outside litigation? Practical Answer: Consider how you will respond to a misclassification plaintiff’s allegations regarding his or her “hours of work.” What will the data trail show? What business records exist (e.g. sales reports)? How will you rebut the “blank check” to exaggerate one’s hours that the absence of time records affords?

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Key Defense Theories: Calculation of OT

#2: Calculation of Overtime Damages:

-Fluctuating workweek;

-The “intended to compensate” doctrine;

-Relevant evidence;

-Klinghoffer rule.

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Summary of Fluctuating Workweek § 778.114(a) DOL

Regulation:

• Requirements:

• Hours of work fluctuate from week to week.

• Salary paid pursuant to “clear mutual understanding of the

parties” that fixed amount is straight time pay for whatever

hours worked in a workweek, whether few or many.

• Salary is sufficient to compensate at a rate not less than

minimum wage for every hour worked.

• Employer pays fixed salary during workweeks when full

schedule of hours is not worked.

• Result:

• Overtime hours paid at one-half regular rate of pay, which varies

from week to week depending on the number of hours worked.

• Theory: OT pay requirement is satisfied because hours over 40

have already been compensated at the straight time rate. 66


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Fluctuating Workweek and Misclassification Damages are not the

same thing

• Most circuit courts hold FWW compliance not necessary or

applicable in misclassification cases. See, e.g. Urnikis-Negro v.

Am. Family Prop. Servs., 616 F.3d 665 (7th Cir. Ill. 2010)

Discussing Half-Time or Time and a Half? Calculating Overtime

in Misclassification Cases by Paul DeCamp. Clements v. Serco,

Inc., 530 F.3d 1224 (10th Cir. 2008).

• Some district courts have required variation on FWW:

“rebuttable presumption” that salary does not cover all hours.

• Key inquiry is what hours salary “intended to compensate.”

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Intended to compensate evidence:

• HR materials

• Job descriptions;

• Offer letters;

• Trainings;

• Mandatory forms;

• Benefits materials

• How is PTO tracked/accrued?

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Klinghoffer rule regarding minimum wage:

FLSA generally mandates:

(1) the payment of overtime at the regular rate for hours in

excess of 40; and

(2) that employees receive at least minimum wage for all hours

of work in a workweek.

Ex: Employee paid 35 hours at rate above minimum wage, and

later alleges she worked 36 hours, has FLSA claim only if inclusion

of additional hour pushes regular rate for the 36 hours below the

min. wage (currently $7.25/hour). See Lundy v. Catholic Health

Sys. of Long Island, Inc., 711 F.3d 106 (2d Cir. 2013)(validating

Klinghoffer rule); Burns v. Haven Manor Health Care Ctr., LLC,

2015 U.S. Dist. LEXIS 29194, at *4 n. 3 (E.D.N.Y. Mar. 10, 2015).

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Key Defense Theories: Good Faith

#3: Good Faith Defenses to Liquidated Damages

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The Portal-to-Portal Act:

• No liability for failure to pay minimum wages or overtime

compensation if proven that the act or omission

complained of was in good faith in conformity with and in

reliance on any written administrative regulation, order,

ruling, approval, or interpretation of the DOL.

Congressional Purpose of Defense

• FLSA not intended to provide “windfall payments, including

liquidated damages, of sums for activities performed by

them without any expectation of reward beyond that

included in their agreed rates of pay.”

“Good faith” defense can be an absolute defense (§ 10) and

a defense to liquidated damages (§ 11).


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§ 10 Requirements:

(1) action taken in reliance on written admin. reg., order,

ruling, approval, or interpretation by U.S. DOL, or any

admin. practice or enforcement policy;

(2) in conformity with that ruling; and

(3) in good faith.

Test of employer's good faith is whether employer acted as

“reasonably prudent man would have acted under similar

circumstances.” But – USDOL has stopped providing

opinion letters!

http://www.dol.gov/whd/opinion/adminIntrprtnFLSA.htm


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• §11 -- Eliminate or reduce liquidated damages

Requirements:

(1) Subjective good faith, defined as honesty of intention

and no actual or constructive notice of an FLSA

violation; and

(2) Employer's reasonable grounds to believe that its

conduct complies with the Act.

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Considerations:

• Difficult to establish defense, especially the

complete defense under § 10

• Courts reluctant to find “good faith” defense if

issues of fact exist as to reasonableness of inquiry;

• DOL Rule/Regulation/Opinion Letter needs to

“clearly” establish no liability;

• Reliance on outcome of involuntary governmental

audits not guaranteed to support defense;

• Subjective belief insufficient;

• Be prepared to waive the attorney-client privilege;

• May not be available under state law.


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Attorneys Fees

Attorneys Fees

FLSA provides for fee shifting. 29 U.S.C. § 216(b).

Many state wage laws do as well. Reasonable fee

requirement does not require or strongly consider

proportionality. Barfield v. N.Y. City Health & Hosps.

Corp., 537 F.3d 132 (2d Cir. 2008)(affirming reduction

of attorneys’ fees from $100,000 to $50,000 where

Plaintiff recovered $1,744.50). However, courts

increasingly scrutinize fee petitions potentially

providing for a windfall. Flores v. Mamma Lombardi's

of Holbrook, Inc., 2015 U.S. Dist. LEXIS 65197

(E.D.N.Y. May 18, 2015)(class counsel’s request for

one-third of $1.375M fund reduced to $92,974.90).

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Attorneys Fees

Reasonable fee issue: Rates.

High variability. Compare Kalloo v. Unlimited Mech.

Co. of NY, 977 F. Supp. 2d 209, 212-213 (E.D.N.Y.

2013)($350/hour for 5th year associate who

successfully tried case) with Encalada v.

Baybridge Enters., 2014 U.S. Dist. LEXIS 122783

(E.D.N.Y. Sept. 2, 2014)($350/hour should be

maximum rate in District for most experienced

FLSA attorneys) and Flores, supra (capping

partner’s rate at $200/hour based on “conduct”

in litigation).

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Attorneys Fees

Reasonable fee issue: Hours expended.

While courts will assess attorney bills to determine the

sufficiency of the records, and remove block billing,

work not appropriately “pushed down,” duplicative or

unsuccessful work, the net result is often a substantial

fee. Kahlil v. Original Old Homestead Rest., Inc., 657

F. Supp. 2d 470 (S.D.N.Y. 2009)(agreeing with

Defendant’s position regarding Plaintiff’s counsel’s

“inefficient billing” and billing for “clerical” tasks, and

reducing hours billed 15% resulting in fee award of

$95,784.30 after three Plaintiffs accepted offer of

judgment).

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Attorneys Fees

Reasonable fee issue: fees on fees

Before taking these issues to the Court recognize that

drafting the fee application itself will become part of

the fee application. However, “[i]f the fee claims are

exorbitant or the time devoted to presenting them is

unnecessarily high, the judge may refuse further

compensation or grant it sparingly.” Gagne v. Maher,

594 F.2d 336, 344 (2d Cir. 1979) aff’d, 448 U.S. 122

(1980).

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Attorneys Fees

Reasonable fee issue: Offer of Judgment.

Cabala v. Crowley, 736 F.3d 226, 230 n. 3 (2d Cir.

2013)(Suggesting in Fair Debt Collection Practices Act case

that Rule 68 offer could have cut off liability for attorneys’

fees); Luo v. L&S, 2015 U.S. Dist. LEXIS 56236, at *8-9

(E.D.N.Y. Apr. 29, 2015)(offer in excess of recovery “cuts off

the continuing exposure for attorneys’ fees”).

Even if no Rule 68 Offer, make settlement offer as context.

Johnson v. GDF, Inc., 668 F.3d 927, 932 (7th Cir.

2012)(“substantial settlement offers should be considered

in determining reasonable attorney's fees”)

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