Source: https://wagehourdefense.wordpress.com/author/jrscoop/
Timestamp: 2019-04-25 01:47:51+00:00

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Remember, in the last few weeks, the DOL issued (1) its long-awaited proposed rule to increase the salary threshold for the white collar exemptions (an effort to finally supersede the proposed $47,476 threshold suggested by the Obama administration) and (2) its “out of the blue” proposed rule to update the “regular rate of pay” rules.
Interestingly, please don’t forget that our other “favorite” agency—the National Labor Relations Board—is also hard at work with its own proposed “joint employer” rule, which is expected to be tremendously employer-friendly! Let’s go government—keep the “good” rules coming!
Alert – Gig Economy More Employer-Friendly? Ask Uber!
Spoiler alert! Today, the U.S. District Court for the Eastern District of Pennsylvania handed Uber what the Court described as Uber’s first win on its independent contractor classification for one class of its drivers: “This case is the first to grant summary judgment on the question of whether drivers for UberBLACK are employees or independent contractors with the meaning of the Fair Labor Standards Act ….” The case is Razak et al. v. Uber Technologies, Inc. et al. (Civil Action No. 16-573; 4/11/18).
Wow. Pretty significant progress for the gig economy’s foundational feature – the engagement of workers classified as “independent contractors.” I dare say that, with this decision, the gig economy may have just gotten a little more employer-friendly – at least here in Eastern Pennsylvania and at least as to Uber.
(6)	Whether the service rendered is an integral part of the alleged employer’s business.
Using the above test, the Court found the 4 of the 6 factors weighed in favor of “independent contractor” status, with the other 2 only being somewhat supportive of employee status. Importantly, the Court noted that it was the plaintiffs’ burden to prove that they indeed were “employees” – and they failed to do that.
Stay tuned as this decision filters out – it will be interesting to see how and whether it impacts pending misclassification cases across the country against Uber, as well as other gig economy stalwarts, and likely even non-gig businesses. Though truly a fact-specific analysis, employment defense lawyers around the country are surely going to find creative ways to use this Uber decision to buttress arguments for their clients.
You (likely) heard it here first!
DOL Bends Slightly More Toward Employers – Self-Audits (Via Pilot Program) Are Back!
No one questions the incredibly complex and nuanced web of wage and hour regulations that the U.S. Department of Labor (DOL) has laid down over the last 80 or so years as guidance under the Fair Labor Standards Act (FLSA). Of course, in one sense, the regulations represent a grand effort to try to address just about every possible scenario implicating minimum wage and overtime pay concerns. On the other hand, the sheer volume of the regulations and embedded intricacies often leave employers scratching their heads. Well, compliance help may be on the way! In another (expected) move under Republican administration stewardship, which typically focuses on compliance assistance rather than “gotcha” enforcement, there will soon be an option for any employer that realizes it has been mistakenly out of compliance to self-report and obtain a final resolution.
The DOL’s Wage and Hour Division (WHD) has just announced that it will implement a new nationwide pilot program, the Payroll Audit Independent Determination (PAID) program, which it says is designed to “facilitate resolution of potential overtime and minimum wage violations under the [FLSA].” See the WHD’s information page here (https://www.dol.gov/whd/paid/) for more details. The DOL has created the program to assist in expeditiously resolving claims and avoiding unnecessary litigation, while also providing a vehicle to (1) improve employer compliance with minimum wage and overtime obligations, and (2) ensure that more employees receive the back wages they are owed without the delay associated with pursuing claims through lawsuits or DOL investigations.
The WHD plans to implement this pilot program nationwide for approximately six months. Upon completing the pilot, the WHD will evaluate how effective it is, whether potential modifications to the program would enhance it, and whether to make the program permanent. Voluntarily participating employers can correct compliance errors without risk of paying liquidated damages, civil money penalties, or attorneys’ fees.
The benefits of this program (to the extent it ultimately becomes permanent) will be for those employers who are vigilant and monitor their wage and hour compliance … and want to properly correct any mistakes found, which includes voluntarily paying any back wages employees are owed. Currently, when an employer identifies a compliance issue where back pay is owed, it cannot simply calculate and pay the back wages and have certainty that the matter is resolved. The potential for litigation remains (possibly seeking more money, liquidated damages, a longer back pay period, and attorneys’ fees) as well as a time-consuming and costly DOL investigation.
Stay tuned for the DOL announcing exactly when the pilot program will begin and providing more detailed information about participation. Please don’t hesitate to reach out to any member of the Wage and Hour Defense Institute with questions.
They’re heeeeeere! DOL Unveils New Proposed FLSA White Collar Regulations.
Although we have not yet parsed through the full NPRM, it is clear that the DOL has taken President Obama’s instructions to heart and sought to broaden the federal overtime pay requirements to cover an estimated 5 million additional workers in the U.S. The primary method for this expansion comes through raising the minimum salary level required to meet the applicable white collar exemption tests. To meet one of these exemptions, an employee must be paid at least the minimum salary, be paid on a salary basis, and primarily perform certain job-related duties. The DOL does not appear to have proposed any material changes to the salary basis requirements or duties tests for the exemptions.
Since 2004, the minimum required salary has been $455 per week (or $23,660 annually). The proposed rule would increase that amount to what is expected to be $970 per week in 2016 (or $50,440 annually). The DOL is setting the salary threshold to be equal to the 40th percentile of weekly earnings for full-time salaried workers. The DOL’s logic behind the substantial increase is that too many white collar salaried workers (85%) get paid at least $455 per week yet fail to meet the duties tests to be exempt. That means, in the DOL’s view, that the current salary level is only screening from exemption approximately 15% of overtime-eligible white collar salaried employees. By changing the salary level as proposed, the DOL states that it would screen out an additional approximately 44% of overtime-eligible white collar salaried employees. By enhancing the effective screening ability of the salary threshold, the DOL believes there will be less pressure on the duties test and also avoid a return to the more detailed “long” duties test that existed before 2004.
Additionally, the DOL is seeking to ensure that the salary threshold remains meaningful and grows over time by establishing a mechanism for automatic updates to the standard salary level. The DOL has suggested two different methods for this updating mechanism (one continually tied to the 40th percentile noted above and the other tied to inflation) and seeks public comment on both.
Although no direct changes to the duties tests are proposed, the DOL is seeking comments on the current requirements and whether they are working as intended to screen out employees who are not bona fide white collar exempt employees. So, there certainly could be potential changes in the works. Only time will tell. The comment period will be open for 60 days following the official publication of the proposed rule in the Federal Register.
Don’t Wait – Think Now!
Regardless of whether the proposed new rule goes into place exactly as laid out in the DOL’s NPRM, this is a call to all employers to begin (if you have not already) thinking about the impact on your workforce and where you may need to re-evaluate and re-classify. There’s no better time than with newly issued, or even proposed, regulations to evaluate and plan the implementation of any needed re-classifications. You can “blame” the re-classifications on the new regulations, rather than admitting to any prior misclassification.
Check back soon for more detailed information and updates on the DOL’s efforts!
Just when you thought it was safe to go back in the water … or at least thought you might be getting a handle on the highly technical and nuanced regulations under the Fair Labor Standards Act governing the “white collar exemptions,” President Obama is instructing the Department of Labor to revamp those regulations to ensure that more American workers are eligible for minimum wage and overtime pay.
1. Raising the minimum salary amount that applies to most of the white collar exemptions. The President seeks to substantially increase the current $455/week salary requirement, possibly more than doubling it.
2. Changing the duties requirements. Word has come from the White House that abuse is rampant among employers for using the “primary duty” test (i.e., the duty that is most important or is the principal function) to treat workers as exempt from overtime pay even though they only perform that duty less than 50% of the time. For example, retail store supervisors whose primary duty is to oversee and manage the store may very well spend more than 50% of their time assisting customers and making sales; however, that supervisor can still be exempt under the regulations if her/his “primary duty” is to manage the store (performing duties such as hiring, disciplining, firing employees; directing work; setting schedules; controlling the flow of inventory and supplies; and planning and controlling the budget). Apparently, the revisions contemplate ensuring that, to be exempt, workers must perform exempt duties at least a minimum percentage of the time.
This process and potential revision of these regulations is unlikely to happen quickly, as the DOL will need to evaluate the current regulations and draft proposed changes to meet the President’s goals, which will then be subject to public comment before final approval and issuance by the DOL. Regardless, for employers still not out of the woods from the economic downturn, the prospect of having more employees fall out from under these common FLSA exemptions could be harrowing for their future. Strong objection is expected from business and industry groups, especially as regulation changes often yield substantial increases in lawsuits (FLSA lawsuits have already increased more than 350% over the last dozen years) and DOL enforcement actions. We will continue to monitor this issue and provide further reports as it evolves.
On August 9, 2012, in upholding decertification in a nearly decade-long class action suit against Wal-Mart, the U.S. Court of Appeals for the Third Circuit took the opportunity to weigh in and clarify the standard for final certification of a collective action under the Fair Labor Standards Act (FLSA). Zavala v. Wal-Mart Stores Inc., No. 11-2381 (3d Cir. Aug. 9, 2012). Originally filed in 2003, in the U.S. District Court for New Jersey, the plaintiffs were Wal-Mart cleaning crew members who sought unpaid overtime compensation and certification of a collective action under the FLSA, as well as civil damages under RICO and damages for false imprisonment. (Note: interestingly, though not for the purposes of this article, the RICO claims alleged Wal-Mart took part in the harboring of illegal immigrants, encouraging illegal immigration, conspiring to commit money laundering, and involuntary servitude. Additionally, they alleged Wal-Mart locked workers in some stores at night without having a manager with a key available.) The plaintiffs were illegal immigrants who had taken jobs with contractors and sub-contractors that Wal-Mart engaged to clean its stores.
In relevant part, after conditionally certifying the FLSA collective action in 2004, the District Court granted Wal-Mart’s motion to decertify the action in June 2010. The District Court concluded that, after extensive discovery, the breadth of factual circumstances underlying the individual workers’ claims prohibited the case from proceeding as a collective action.
The Third Circuit also held that, at the final certification stage, the burden of proof falls squarely on the plaintiffs to establish the “similarly situated” requirement under the FLSA. Also, addressing an unresolved issue, the Court held that plaintiffs must satisfy this burden by a preponderance of the evidence, rather than a heightened standard.
At the end of the day, the Third Circuit effectively assisted employers (in Delaware, Pennsylvania, New Jersey and the Virgin Islands) by clarifying that establishing different factual circumstances and individualized defenses will go a long way towards preventing final certification of a collective action under the FLSA. As has been the case in courts around the country, it remains critical for plaintiffs seeking collective action certification to demonstrate some common policy, plan or decision that links the proposed class members together in pursuing FLSA violations. The more breadth in the proposed class, whether across state lines or differing job classifications, the more difficult the burden appears to be on the plaintiffs. Wal-Mart (and, of course, other employers in the Third Circuit) could not agree more.
Certainly, the Third Circuit has now fallen in line with, and indeed reinforced, the trend set by the four other Circuit Courts of Appeal. It is a critical blow to employers defending such cases in Pennsylvania, New Jersey, Delaware and the Virgin Islands, as they no longer will have the argument or opportunity to limit pursuit of such claims to an FLSA opt-in action, which traditionally only achieves opt-in rates of 15 to 20 percent of those potentially eligible class members. The ruling also allows employees to more efficiently pursue both FLSA and state law claims in a single federal court action.
 The opt-in FLSA claims and opt-out state law claims originated in separately filed actions, so this was not the typical “hybrid” single action. Ultimately, the Middle District of Pennsylvania heard the claims on the issue of whether the separately filed actions were compatible and decided to extend the “inherent incompatibility” rationale to the situation at hand.
The plaintiff, Symczyk, brought an FLSA collective action on behalf of herself and others similarly situated. The employers immediately made an offer of judgment under Federal Rule of Civil Procedure 68 for $7,500.00 in alleged unpaid wages plus attorneys’ fees, costs, and expenses. Although Symczyk did not dispute the adequacy of the offer, she did not respond, allowing the offer to lapse. The district court then scheduled a discovery period prior to the plaintiff’s moving for conditional certification. The employer moved under Federal Rule of Civil Procedure 12(b)(1) to dismiss for lack of subject matter jurisdiction, arguing that following the rejection of the offer of judgment, Symczyk no longer had a personal stake or legally cognizable interest in the outcome of the action. The district court found that the individual FLSA claim mooted the collective action and dismissed the case.
As an additional justification for its holding, the Court found that the “relation back” doctrine “helps safeguard against the erosion of FLSA claims by operation of the Act’s statute of limitations.” It pointed out that, for an opt-in plaintiff, the FLSA action commences only upon filing of a written consent. The Court rationalized that protracted disputes over the propriety of dismissal in light of Rule 68 offers may deprive potential opt-ins whose claims are in danger of being barred by the statute of limitations.
For an employer in the Third Circuit, Symczyk removes what was a potentially important tool in its FLSA arsenal. The employer may no longer thwart a collective action by making an offer of judgment that would fully satisfy the demand of the named plaintiff.
Recently, in Knepper v. Rite Aid Corporation, No. 09-cv-2069 (M.D. Pa. Feb. 16, 2011) and Fisher v. Rite Aid Corporation, No. 10-cv-1865 (M.D. Pa. Feb. 16, 2011), the United States District Court for the Middle District of Pennsylvania addressed the issue of whether Fair Labor Standards Act (“FLSA”) § 216(b) collective actions and Federal Rule of Civil Procedure 23 class actions are “inherently incompatible,” where the actions are filed separately. In Knepper and Fisher, the plaintiffs were assistant store managers who filed putative Rule 23 class actions against their employer claiming to be misclassified and seeking overtime pay under state law. Prior to filing the Rule 23 class actions, both plaintiffs had consented (i.e., opted in) to become party-plaintiffs in Craig v. Rite-Aid Corporation, No. 08-cv-2317, (M.D. Pa.) (“the Craig action”). In the Craig action, current and former Rite Aid assistant managers had filed a § 216(b) collective action alleging that they were misclassified as exempt from the FLSA’s overtime-pay requirements.
Although Knepper and Fisher dealt with separately filed actions, there is a substantial body of conflicting case law regarding the compatibility of FLSA opt-in collective action claims and state-law wage-and-hour Rule 23 opt-out class claims asserted in the same lawsuit—often referred to as “hybrid” actions. As such, there is no established rule defining the parameters of the inherent incompatibility doctrine. Because plaintiffs increasingly file state-law wage-and-hour claims alongside FLSA claims, the procedural split amongst the courts translates into the prospect of increased litigation and costs associated with wage-and-hour claims. This issue will likely make its way to the Supreme Court for final clarity. But, for now, at least in the Middle District of Pennsylvania, FLSA opt-in collective action claims are “inherently incompatible” with Rule 23 opt-out class claims, whether pursued together in a hybrid action or separately in different actions.
 There is a deceptively simple difference between “collective actions” brought pursuant to the FLSA and “class actions” brought pursuant to Federal Rule of Civil Procedure 23 (“Rule 23”). FLSA claims are governed by an “opt-in” mechanism in § 216(b). In these collective actions, litigants who do not affirmatively file notice and join the litigation are not bound by the judgment. Conversely, the Rule 23 “opt-out” device governs non-FLSA claims: class action litigants who do not affirmatively file notice and exit the litigation are bound by the judgment.
 Of interest, the court dismissed the cases without prejudice, thereby allowing both plaintiffs the opportunity to re-file their claims in state court.
The FLSA’s Section 7(i) exemption applies to employees in retail or service establishments if, among other things, more than 50% of their compensation is derived from commissions on the sale of goods or services. The term “commissions,” however, is undefined by the FLSA or its interpretive regulations.
NutriSystem had created a compensation plan to pay its call center sales associates flat-rate payments based on the direct sales of pre-packaged meal programs to consumers. These flat-rate payments were not based on the consumer’s price paid, but rather on when a sale was consummated and from what type of sales call it resulted. NutriSystem’s flat-rate fees were paid to its sales associates at varying rates of $18.00, $25.00, and $40.00 per sale. These payments were not linked to the costs of any particular meal program sold. Rather, the higher rates were paid on sales made on outgoing sales calls and for sales on calls made during less desirable work shifts (such as the overnight shift).
In affirming the summary judgment for NutriSystem, the Third Circuit made two critical decisions: (1) it declined to grant deference to the DOL’s interpretation and arguments; and (2) it rejected the premise that, to be a commission, payments must be based on a percentage of the price paid by the consumer.
The significance of the Third Circuit’s refusal to defer to the DOL should not be underestimated. The Third Circuit did not simply bow in deference to the DOL’s interpretations. Rather, it appeared to hold the DOL to a higher standard, intently analyzing the rationale behind the DOL’s arguments before rejecting them. The decision clarifies for retail sales employers in the Third Circuit (Delaware, New Jersey, Pennsylvania and the U.S. Virgin Islands) that their compensation plans do not have to be strictly based on a percentage of sale prices to qualify as a “commission” under Section 7(i). However, employers should be aware that the Third Circuit’s decision in this case likely will not be embraced by the DOL. Accordingly, for example, if the DOL conducts an audit, it may adhere to its own interpretation of the term “commission,” leaving the employer to battle to reach a potentially more favorable venue in the courts of the Third Circuit.
The Third Circuit held that “when the flat-rate payments made to an employee based on that employee’s sales are proportionally related to the charges passed on to the consumer, the payments can be considered a bona fide commission rate for the purposes of [Section] 7(i).” In reaching that decision, the Third Circuit was persuaded by four primary factors. First, although NutriSystem’s flat-rate payments ranged from 5% to 14% of the price of the meals charged to the consumer, the variance was nominal, and, therefore, the flat-rate payments were proportionate to the costs. Second, the flat-rate fees were based on sales made by the associates and not on the number of calls made or on time worked. Third, from a policy standpoint, the flat-rate fees created incentives for sales associates to be actively making outgoing calls and to work less desirable shifts, thereby allowing NutriSystem to operate at peak efficiency around the clock. Finally, NutriSystem’s compensation system did not offend the history or intent of the FLSA and its overtime provisions, which were enacted to protect lower income employees, to spread available work among the larger pool of employees, and to compensate workers for the increased risk of workplace accidents that they might face from exhaustion in having worked overtime hours.
The Third Circuit’s decision has provided retail employers within the Third Circuit with greater latitude in developing commission plans for employees under the Section 7(i) exemption. Of course, any retail employer must remain mindful of the potential for the DOL to take a conflicting position as it did in this case, and also of how future courts within the Third Circuit interpret this opinion. However, a retail employer may now embark on a path to develop a commission plan similar to the NutriSystem plan that better fits its business model, knowing that the Third Circuit has supported such an effort.
 Parker v. NutriSystem, Inc., 2010 U.S. App. LEXIS 18691 (3d Cir. Sept. 7, 2010).

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