On June 18, 2012, the U.S. Supreme Court affirmed a decision of the Ninth Circuit Court of Appeals finding that pharmaceutical sales representatives at GlaxoSmithKline fall within the outside sales exemption from the overtime pay requirements of the Fair Labor Standards Act ("FLSA"). As reported in a previous blog post, the Second Circuit Court of Appeals had reached the opposite conclusion in July of 2010, finding that pharmaceutical sales representatives employed by Novartis were not FLSA-exempt and that a class of more than 7,000 current and former employees in that position were entitled to pursue their overtime claims. The Supreme Court's 5-4 decision resolves the split in the Circuit Courts on the scope of the FLSA's outside sales exemption and addresses the amount of deference owed to the Secretary of Labor's interpretation of the U.S. Department of Labor's regulations promulgated under the FLSA.
In amicus briefs filed with both the Second and Ninth Circuits, the Secretary of Labor initially took the position that a "sale" as described in the regulations required a "consummated transaction directly involving the employee for whom the exemption is sought." Because pharmaceutical sales representatives promote drugs to physicians in exchange for nonbinding commitments to prescribe the drugs in appropriate cases, the Secretary argued that they did not "make sales" and, accordingly, could not qualify for the outside sales exemption. After the Supreme Court granted certiorari, however, the Secretary argued instead that an employee does not make a sale unless he "actually transfers title to the property at issue."
Although an agency's interpretation of its own ambiguous regulations is normally entitled to deference, the majority found "strong reasons" for not deferring to the Secretary's interpretation in this instance. Specifically, the majority found that the Secretary's current interpretation would impose potentially massive liability on employers without fair warning, especially given the U.S. Department of Labor's apparent acquiescence in the longstanding pharmaceutical industry practice of treating sales representatives as exempt. In addition, the majority found that the Secretary's interpretation was not persuasive in its own right for a number of reasons, including that it was first announced in a series of amicus briefs with no opportunity for public comment, that the Secretary's initial interpretation argued before the Second and Ninth Circuits had proven to be untenable, and that it was "flatly inconsistent" with the FLSA's definition of "sale."
The majority held that the FLSA's statutory language regarding the outside sales exemption called for a functional inquiry, taking into consideration an employee's responsibilities in the context of the particular industry in which he or she works. In light of the unique regulatory environment within which pharmaceutical companies operate, including the prohibition against dispensing certain drugs without a physician's prescription, the majority found that the sales representatives' promotional efforts to obtain non-binding commitments from physicians was "tantamount . . . to a paradigmatic sale of a commodity" within the pharmaceutical industry. Furthermore, the majority found that its holding comported with the apparent purpose of the FLSA's exemption, because pharmaceutical sales representatives who typically earn over $70,000 per year are hardly the type of employees the FLSA was intended to protect.
On February 21, 2012, the U.S. Supreme Court declined to review a Fourth Circuit Court of Appeals decision rejecting a job applicant's retaliation claim filed under the Fair Labor Standards Act ("FLSA") against her prospective employer. By declining to review the decision, the Supreme Court left undisturbed the Fourth Circuit's ruling that job applicants are not "employees" who are protected by the anti-retaliation provisions of the FLSA.
In Dellinger v. Science Applications International Corp., the plaintiff alleged that her prospective employer, Science Applications, retaliated against her by withdrawing its conditional job offer after discovering that she had filed an FLSA lawsuit against her former employer. In a 2-1 decision, the Fourth Circuit affirmed the U.S. District Court's dismissal of her retaliation complaint. The Fourth Circuit held that the FLSA anti-retaliation provisions applied only within the bounds of an actual current or former employment relationship, but did not authorize prospective employees to file retaliation claims against prospective employers in circumstances where an employment relationship never existed.
The plaintiff argued in her petition for Supreme Court review that the Fourth Circuit's decision conflicted with the Supreme Court's decision in Robinson v. Shell Oil Co., a 1997 decision addressing the scope of the anti-retaliation provisions of Title VII of the Civil Rights Act ("Title VII"). SAIC argued in its opposition to the plaintiff's petition that the Robinson case was factually distinguishable because the statutory language of Title VII expressly covers both employees and applicants and because the Robinson case involved a former employee of the defendant rather than a job applicant who had never been in an employment relationship with the defendant.
Although the Fourth Circuit's decision in the Dellinger case does not constitute binding precedent in the Federal Courts in New York, employers in New York can nevertheless rely on the Fourth Circuit's Dellinger decision as persuasive authority regarding the scope of the FLSA's anti-retaliation provisions.
Recently, the U.S. Department of Labor's Wage and Hour Division released three new Fact Sheets on unlawful retaliation under the Fair Labor Standards Act ("FLSA"), the Family and Medical Leave Act ("FMLA"), and the Migrant and Seasonal Agricultural Worker Protection Act ("MSPA"). Although the Fact Sheets do not contain any new information on the prohibition against retaliation, they provide a good reminder to employers regarding the scope of the anti-retaliation provisions in these three statutes.
Fact Sheet #77A provides general information concerning the FLSA's prohibition of retaliating against any employee who has filed a complaint or cooperated in an investigation. The Fact Sheet reminds employers that an employee who files a complaint under the FLSA is protected from retaliation regardless of whether the complaint was made orally or in writing. The Fact Sheet also states that the anti-retaliation provision of the FLSA applies even in situations where there is no current employment relationship; for example, former employees are also protected from retaliation. The Fact Sheet further indicates that complaints made to the Wage and Hour Division are protected and that "most courts have ruled that internal complaints to an employer are also protected."
Fact Sheet #77B provides general information concerning the FMLA's prohibition of retaliation against an individual for exercising his or her rights protected under the FMLA. The Fact Sheet provides examples of prohibited conduct, which include: discouraging an employee from using FMLA leave, manipulating an employee's work hours to avoid responsibilities under the FMLA, and counting FMLA leave as absences under "no fault" attendance policies.
Fact Sheet #77C provides general information concerning the MSPA's prohibition of discrimination against a migrant or seasonal agricultural worker who has filed a complaint or participated in any proceeding under the MSPA. The MSPA applies to agricultural employers, agricultural associations, and farm labor contractors who engage in at least one of the following activities: furnishing, employing, soliciting, hiring, or transporting one or more migrant or seasonal agricultural workers.
A bill has been introduced in the New York State Legislature that would, if enacted, repeal the annual wage notice requirement imposed by the Wage Theft Prevention Act ("WTPA"). The bill would leave intact the requirement that employers provide a wage notice to all new hires, as well as the requirement that employers obtain signed written acknowledgments of the new hire wage notices. At this point, the bill is in its infant stages, and no vote has been taken.
The Business Council of New York State has submitted a memorandum in support of the bill, and has created a web page for employers to join in the effort to convince the New York State Legislature to repeal the annual wage notice requirement.
As New York employers should be aware, the first annual notice to employees required by the Wage Theft Prevention Act ("WTPA") must be distributed by February 1, 2012. Although the requirements of the WTPA have been grabbing recent headlines, this post addresses one unavoidable by-product of the annual notice requirement -- the reality that the distribution of these annual notices is likely to lead to workplace discussions among co-workers regarding wage and salary information. As a reminder, blanket rules -- whether formal or informal -- prohibiting employees from discussing their pay and benefits with their co-workers are unlawful under the National Labor Relations Act ("NLRA").
The NLRA provides private sector employees the right to engage in protected concerted activity regarding their terms and conditions of employment. This includes, as a general rule, employees' right to share and discuss information with their co-workers about their wages, benefits, and other working conditions. This protection extends to both union and non-union workplaces. Accordingly, employers may not promulgate or enforce any type of policy that prohibits such discussions. Even a broadly-written confidentiality policy may be found to violate the NLRA if an employee could reasonably view the policy as restricting discussions with co-workers about wages and other working conditions.
Employers should review their policies to ensure that there are no explicit or implicit prohibitions on wage discussions among employees that might be found to violate the NLRA. In addition, managers should be careful to avoid knee-jerk reactions to hearing such discussions that will inevitably arise from the distribution of the annual WTPA notice to employees.
At one point in the Hitchhiker’s Guide to the Galaxy series by British author Douglas Adams, Arthur Dent finds himself confronted by a door that will not open unless he can demonstrate a high degree of intelligence. When Dent somehow manages to possess both tea and no tea at the same time, the door opens, noting that Dent must be quite a philosopher to overcome the inherent contradiction of holding and not holding an item at once.
A recent decision by the Second Circuit is reminiscent of Dent’s feat. In Shahriar v. Smith & Wollensky, the Second Circuit Court of Appeals was confronted with the question of whether plaintiffs could simultaneously maintain a collective action under the Fair Labor Standards Act, as well as a class action based on state-law claims under Rule 23 of the Federal Rules of Civil Procedure. If you are wondering why that poses an issue, in a collective action potential plaintiff class members are not in unless they affirmatively opt in, whereas the plaintiffs in Rule 23 class actions are in unless they affirmatively opt out. As a result, the same person could be both a plaintiff and not a plaintiff in the same action; out of the collective action because she did not opt in, but in the class action because she did not opt out.
Despite the many potential consequences of permitting both participation and non-participation by the same person in a single action, the Second Circuit found that there is no inherent conflict in a federal court allowing both a collective FLSA action and a Rule 23 class action asserting parallel state law claims. The defendant argued that permitting a state law opt-out class action to proceed concurrently with the FLSA opt-in collective action would be inconsistent with the opt-in scheme created by Congress. The Second Circuit rejected that argument and found no inconsistency, concluding that nothing in the language of the FLSA or its legislative history indicated a Congressional intent to preclude concurrent class actions on state law claims, and that other circuits had reached the same conclusion. Another factor may have also influenced the Court’s decision. Earlier in the opinion, the Court stated that the potential FLSA plaintiffs may decide not to take the step of affirmatively opting into the collective action out of fear of retaliation, but that the same risk is not posed by participation in an opt-out class action.
Late last year, we posted on the passage of New York’s Wage Theft Prevention Act (WTPA), noting that the Act changed the penalties for violating the New York Labor Law’s prohibition on failure to pay wages. Specifically, the Act increased the liquidated damages penalty for failure to pay wages from 25% of the wages found to be due, to 100% of the wages found to be due. In addition, the WTPA requires an award of those liquidated damages, unless the employer proves it had a good faith basis to believe the underpayment of wages complied with the law, making an award of liquidated damages more likely.
Now, a New York trial court has determined that this liquidated damages provision applies retroactively to claims arising before the Act’s April 9, 2011 effective date. The case involves, among other claims, an alleged failure to pay overtime. The plaintiffs moved to amend their complaint to add the remedies created by the WTPA. In its decision granting the motion, the Court noted that under New York law a remedial statute is applied retroactively unless it impairs vested rights or creates new rights. The parties agreed the WTPA is a remedial statute, and the court concluded that it does not impair vested rights or create new rights. It just changes the penalty imposed with respect to a violation of rights already existing in the Labor Law. As a result of the decision, claims for failure to pay wages which go back several years (the statute of limitations on unpaid wage claims is six years) will be subject to the heightened WTPA penalties.
The issue of whether to compensate an employee for commuting time can be a difficult one where the employee does not have a single standard work location to which he reports. When the employee’s home base is his home, and he performs work at home each day before he gets on the road, is he entitled to be compensated for all time spent commuting between his home and various work sites? The United States Court of Appeals for the Second Circuit recently held no – at least not when the employee is not required to perform the home tasks immediately preceding or following required travel to other work sites.
The case was brought by a former employee of Black & Decker whose responsibilities included merchandising and marketing Black & Decker products at six Home Depot stores which were located between 20 minutes and three hours from his home by car. Black & Decker’s travel policy, adopted pursuant to a USDOL opinion letter, only paid for travel time going to a first store of the day or returning home from the last store of the day in excess of 60 miles (converted in practice to travel in excess of 60 minutes). So travel of 1.5 hours at the end of the day would only be compensated with half an hour of pay.
The employee performed a variety of administrative tasks at his home such as sending and answering e-mails and voice mails, reviewing sales reports, organizing materials and making displays and signs. He claimed that he spent 15-30 minutes before he left home and 15-30 minutes after he returned home each day performing these administrative tasks. Black & Decker contended the tasks did not have to be performed at his home or at any particular time of the day. There was no dispute that the employee was compensated for performing the tasks.
The employee argued that he because he performed these tasks immediately prior to and immediately subsequent to traveling to the Home Depot stores, he was entitled to compensation for all time spent traveling under something known as the “continuous work day” rule. This rule defines the workday as the period between the start and completion on the same workday of the employee’s principal activities. Under this rule, once an employee commences principal activities, or activities which are integral and indispensable to principal activities, all time during the same work day is compensable. The employee argued that the continuous work day rule applied because his work at home prior to traveling to the first store of the day was a principal activity, or at least integral and indispensable to a principal activity, so he was entitled to be compensated for all morning travel time, not just that in excess of 60 minutes. He also argued that his end of day activities extended the continuous workday to include all travel time coming home from his last store of the day.
The Second Circuit disagreed, concluding that the continuous workday rule did not apply. Instead, the Court relied on the well-established general principle that home to job site travel is not compensable. The fact that the employee performed administrative tasks at home at his election, just before and just after traveling, could not turn otherwise non-compensable travel time into compensable time by invoking the continuous work day rule. The Court found no evidence that the employee was required to perform the activities either immediately preceding his morning travel or immediately following his afternoon travel, and that he was free to perform them whenever he wanted and to use time for his own personal activities after performing them rather than getting on the road to a store location. As a result, the employee was not permitted to make the choice himself to perform the activities immediately before and after traveling and then invoke the continuous workday rule to increase his travel time compensation.
The Wage & Hour Defense Institute (WHDI) of the Litigation Counsel of America is an invitation only group comprised of highly talented and experienced wage and hour defense attorneys from across the United States. To further its goal of being a resource for employers, the WHDI annually updates its State-By-State Wage and Hour Law Summary. The Summary is an excellent reference tool for employers with employees in multiple states. The Summary addresses multiple topics on a state-by-state basis, including whether each state: (1) follows the federal exemptions; (2) uses special overtime rules; (3) has a higher minimum wage rate; (4) accepts the fluctuating work week method for calculating overtime; and (5) has meal and/or rest period rules. A copy of the Summary is available here.
The WHDI serves as a nationwide network and meeting ground for top-tier practitioners to engage in professional development in what has become a highly nuanced area of the law, and to become an established resource for employers on wage and hour matters. Each attorney was selected for membership in the WHDI based on his or her individual skills and experience representing management in the defense of wage and hour litigation. WHDI members also actively counsel employers on classification determinations and payroll practices to proactively avoid litigation, using tools such as “audits” to examine an employees’ classification as exempt or non-exempt or whether certain activities are compensable or non-compensable and whether overtime has been properly calculated. The Institute holds periodic conferences, meetings and colloquia for purposes of advancing defense techniques, methods and approaches, and broadening its members’ role and influence in wage and hour law and policy.
The New York State Department of Labor (“NYSDOL”) recently published additional guidance on compliance with the Wage Theft Prevention Act (“WTPA”). This guidance supplements the NYSDOL’s previously-issued templates, instructions and FAQs on the WTPA. Specifically, the NYSDOL recently published a “sample” paystub, demonstrating how employers should comply with the WTPA’s amendments to New York Labor Law Section 195(3). As we reported previously the amended Section 195(3), requires employers to include the following information in all employee paystubs:
Dates of work covered by wage payment;
Name of employee;
Name of employer;
Employer’s address and phone;
Rate or rates of pay;
Basis of rate(s) of pay (hourly, shift, day, week, salary, piece, commission or other);
Gross wages;
Deductions;
Allowances, if any are claimed as part of the minimum wage (tips, meals, lodging); and
Net wages.
Additionally, the following information must be provided in paystubs for non-exempt employees:
Regular hourly rate or rates;
Overtime rate or rates;
Number of regular hours worked; and
Number of overtime hours worked.
Also, for employees paid by piece rates, their paystubs must include the applicable piece rates and the number of pieces completed at each rate.
The NYSDOL’s sample paystub provides only basic guidance on how the required information should be displayed for a non-exempt, hourly employee. It does not illustrate how this information should be displayed for other employee classifications, such as employees who earn multiple rates in a given pay period or employees who are paid, in whole or in part, by commission. The sample paystub can be accessed here. In addition to its sample paystub, the NYSDOL also recently issued a “Fact Sheet,” summarizing the WTPA and, among other things, its various notice and record-keeping requirements for employers. However, employers are not required to post this Fact Sheet, or to otherwise distribute the document to employees in any manner.
Over the last couple of years the New York State Department of Labor has issued several opinion letters which significantly narrow its interpretation of New York Labor Law Section 193, the law governing permissible deductions from wages. We have discussed some of these interpretations in prior posts. To summarize, NYSDOL takes the position that a deduction from wages is not permissible unless it is a deduction which is similar to those expressly recognized in the statute as lawful, e.g. payments for insurance premiums, pension or health and welfare benefits. This interpretation varies from the Department’s historical focus on whether the deduction was for the “benefit of the employee.” Based on the newer standard, NYSDOL has rejected suggestions that an employer may make deductions from wages for items such as an overpayment of wages, parking, or for wage-linked card purchases of food at an employer-subsidized cafeteria.
The attack on deductions which are not similar to deductions for traditional employee benefits continued earlier this year when NYSDOL issued an opinion letter finding that deductions for overpayment of wages from a “paid time off” bank would also violate Section 193. In reaching this conclusion, the Department determined that paid leave time constitutes “wages,” so deducting from that time would be a deduction from wages covered by Section 193. Significantly, this interpretation runs counter to the long-time general rule in New York that an employer is required only to abide by the terms of its paid leave policy, because it is not required to provide paid time off at all. For example, “use it or lose it” polices are permissible in New York as long as the policy is clear and unambiguous. Under that rule, a paid time off policy which clearly states that accrued paid time off may be reduced by the amount of overpaid wages should also be permissible. NYSDOL’s most recent opinion letter on the subject serves as a reminder to employers that unless the deduction from wages is one that is actually listed in Section 193, the NYSDOL will probably view it as impermissible.
On Monday, the United States Department of Labor (DOL) released a smartphone App that is essentially a timesheet to help employees independently track the hours they work and determine the wages they are owed. The App is available here.
With this App (available in English and Spanish), employees can track regular work hours, break time and any overtime hours. As promoted by the DOL - "This new technology is significant because, instead of relying on their employers’ records, workers now can keep their own records. This information could prove invaluable during a Wage and Hour Division investigation when an employer has failed to maintain accurate employment records."
While this App is currently compatible with only the iPhone and iPod Touch, the DOL plans to explore updates that could enable similar versions for other smartphone platforms, such as Android and BlackBerry, and other pay features not currently provided for, such as tips, commissions, bonuses, deductions, holiday pay, pay for weekends, shift differentials and pay for regular days of rest.
While this may seem inconsequential to some employers, bear in mind that in wage and hour audits/litigation, employees routinely seek to undermine the validity of employer time records by asserting that the employer's time records are inaccurate or that supervisors have instructed them to falsify their time records. Should the employee succeed in advancing such an allegation and make use of this new App, the DOL (in its current employee-focused mindset) would undoubtedly turn to the employee's time records and may rely on them to establish the actual hours worked by the employee.
