Tag Archives: Fair Labor Standard Act

DOL Significantly Narrows Yet Another FLSA Exemption

Contributed by Suzanne Newcomb

In regulations set to take effect January 1, 2015, the Department of Labor eliminated the Fair Labor Standards Act (FLSA) exemption for home care providers employed through third-party agencies and significantly narrowed the exemption for those employed by households directly.  Under current law, employees who provide in-home care for those who cannot care for themselves due to age, illness or disability are largely exempt from the FLSA’s overtime and minimum wage provisions.  (Though Illinois, Wisconsin, California and handful of other states have state laws in place requiring minimum wage and overtime pay for many of these workers.  Indiana and Missouri and a majority of other states do not.)

In its Final Rule issued September 17, 2013, the DOL largely gutted the so called “companionship exemption” by significantly narrowing its definition of “companionship services.”   Under the new rule, home health care companies, staffing agencies and other employers of in-home care staff will be prohibited from claiming the exemption regardless of the duties their employees actually perform.  Households who hire an employee directly in what the DOL describes as an “elder sitter” role to provide “companionship, fellowship, or protection” may still claim the exemption but only in certain circumstances.  They too will lose the exemption if the employee provides medical services, performs services for others within the infirmed individual’s household or devotes more than 20% of work time to housekeeping, transportation or assisting the infirmed individual with daily living skills (such as eating, bathing, grooming) as opposed to providing companionship and fellowship to and/or oversight of the individual.  

What does this mean for your business?  Those in the home care industry should examine employee pay classifications, compensation structures and staffing levels.  The new rule takes effect in just over a year.  Heavily impacted employers will need that time to craft proper procedures and implement tools to accurately track and record employees’ time and duties; along with the minimum wage and overtime requirements come FLSA mandated record keeping obligations.  Some employers may choose to increase staffing levels or restructure shifts to avoid significant overtime expenditures.  Read the full text of the rule at www.dol.gov/whd/homecare/final_rule.pdf.  Further information and guidance is available at www.dol.gov/whd/homecare.

For employers outside the home care industry, this is but the latest in a trend toward narrowed exemptions to the FLSA.  All employers should review their exempt / non-exempt classifications, time keeping tools and record keeping procedures regularly to ensure they are compliant with current law and that each employee is properly classified in light to the work actually performed.  If challenged, it is the employer’s burden to prove a claimed exemption is appropriate.  Clear and accurate records are the key component in meeting this burden.  Misclassifying an employee as exempt (or failing to properly document hours worked) can be a costly mistake and make the employer on the hook for unpaid wages, overtime, taxes and penalties.

Marketplace Notices – to Comply or Not to Comply?

Contributed by Rebecca Dobbs Bush

The deadline for employers to provide current employees with notice of health care coverage options available through the ACA Marketplace is October 1, 2013, right around the corner.    

The DOL has published model notices that employers can use to comply with the notice requirements:

§  Model Notice for employers who offer a health plan to some or all employees <http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf>

§  Model Notice for employers who do not offer a health plan <http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf>

On September 11, 2013, the DOL published FAQ’s confirming that there is no penalty tied to the Marketplace Notice requirement.  As this particular notice requirement was done as an amendment to the FLSA (instead of as an amendment to HIPAA or ERISA), the FAQ’s should not have been a surprise or considered as a drastic change in position by the department.

In light of the recently published FAQ’s, some are now advising employers not to publish the notices at all.  While there is not a penalty tied to the notice, employers should not forget that they are still legally required.  With the DOL increasing its scrutiny of welfare plans (and where such audits often consist of reviews to ensure proper plan documentation and these very type of notices are in place), it is not recommended to blatantly disregard the Marketplace Notice requirement. 

Instead, the confirmation of lack of penalty should simply be referred to as a reminder to not spend too much time or analysis on this Notice requirement.  In other words, just do your best to comply.  In addition, many employers that are getting caught up with the particulars of how to complete part B of the model notice and having difficulty completing it, are simply distributing part A of the Notice.  There are various considerations to take into account if you are considering this strategy and whether it is best for your company.  In that event, you may want to contact counsel for advice on the best options for your situation.  Keep in mind that when employers are eventually subjected to penalty exposure in 2015, that penalty exposure will be tied to whether or not a person accesses a subsidy at the Marketplace.  Whether a person can access a subsidy is dependent on the price and availability of the employer offering.   All of that information is to be included on Part B of the model notice.  Thus, without providing that information to an employee, the employee may very likely give inaccurate information at the Marketplace resulting in an inappropriate subsidy award.  In turn, increasing potential penalty exposure for the employer.

Also, remember that the Notice requirement is not over after you meet your October 1, 2013 distribution date.  Employers must also provide new employees with notice of health care coverage options available through the ACA Exchange “at the time of hiring.”  For 2014 the DOL will consider an employer to have given notice “at the time of hiring,” if the notice is provided within 14 days of the new employee’s start date.

New October 1, 2013 Deadline for Employers to Notify Employees of Health Care Coverage Options

Contributed by Rebecca Dobbs Bush 

In January, the DOL delayed the March 1, 2013 effective date of the notice requirements in Section 18B of the Fair Labor Standard Act to late summer or fall of 2013.  On May 8th the DOL clarified the delay in a technical release and provided guidance on a new October 1, 2013 deadline.

Employers must now provide current employees with notice of health care coverage options available through the ACA Exchange no later than October 1, 2013.

Additionally, beginning October 1, 2013, employers must provide new employees with notice of health care coverage options available through the ACA Exchange “at the time of hiring.”  For 2014 the DOL will consider an employer to have given notice “at the time of hiring,” if the notice is provided within 14 days of the new employee’s start date. 

The DOL’s technical release also includes model notices that employers can use to comply with the notice requirements. 

However, stay tuned as this guidance and the model notices are temporary as to what the DOL will consider compliance with Section 18B of the FLSA and will only remain in effect until formal regulations or additional guidance is issued.  See the full text of the DOL Technical Release No. 2013-02.

In today’s technical release, the DOL also issued guidance on a new model COBRA Election Notice.  The new model COBRA Election Notice includes language informing the qualified beneficiary that there may be other coverage options available through the Health Insurance Marketplace and the possibility of being eligible for a tax credit.  See the Redline Version of the COBRA Model Election Notice.

FLSA Case No Longer Justiciable When the Lone Plaintiff’s Individual Claim Becomes Moot

Contributed by Caryl Flannery and Molly Arranz

This week, in a 5-4 decision written by Justice Thomas, the U.S. Supreme Court ruled that a Fair Labor Standards Act case is no longer justiciable when the lone plaintiff’s individual claim becomes moot—even if there were collective-action allegations in the complaint.  Genesis Healthcare Corp. v Symczyk, — S. Ct. —, Case No. 11-1059, (April 16, 2013). 

Laura Symczyk worked as a nurse at facility owned by Genesis.  After her employment ended, she filed a collective action complaint in federal court claiming that Genesis Healthcare’s practice of automatically deducting pay for employee breaks, whether or not the employee worked during the break, violated the Fair Labor Standards Act (FLSA).  The FLSA permits employees to file “collective actions” on behalf of themselves and other “similarly situated” employees.  Unlike a Rule 23 class action case, however, each employee must affirmatively join a collective action. 

When answering Symczyk’s complaint, Genesis tendered a Rule 68 offer of judgment for $7,500 (the maximum amount that Symczyk could have recovered for alleged unpaid wages), together with reasonable attorneys’ fees, costs and expenses “as the Court may determine.”  The offer of judgment included a caveat that it would expire in 10 days.  When Symczyk did not respond to the Rule 68 offer in the stated time, Genesis moved to dismiss the suit, arguing that the offer of full satisfaction left Symczyk without an interest—a personal stake—in the case.   The district court agreed, finding Symczyk, the only plaintiff, no longer possessed an actual controversy, and dismissed the case as moot. 

The Third Circuit reversed.  Though the Court of Appeals conceded that no other plaintiff had yet opted into the lawsuit, that the offer fully satisfied Symczyk’s claims and that under Third Circuit precedent, the offer—whether or not accepted—generally triggers the mooting of the claim, it found that these strategic “pick off” offers should not frustrate the goals of collective actions.

Plaintiffs’ attorneys and employee unions and groups from around the country sided with the Third Circuit.  In numerous amicus briefs, they advanced arguments that employers should not be able to buy their way out of these FLSA actions by “picking off” the first plaintiff before any other employees could join or prior to briefing of conditional certification.  In response, employer groups filed their own amicus briefs arguing that employers should not have to defend themselves against claims by absent parties for injuries that were only theoretical. 

The Supreme Court reversed the Third Circuit, holding that once the claim of a sole representative in a collective action becomes mooted by an offer of judgment, the case can be dismissed for lack of subject matter jurisdiction.  There is no longer a case or controversy.  The Court emphasized that “the mere presence of collective-action allegations in the complaint cannot save the suit from mootness once the individual claim is satisfied.”  Significantly, the Supreme Court did not resolve a Court of Appeals split on whether an unaccepted offer that fully satisfies a plaintiff’s claim is, in itself, sufficient to render the claim moot—claiming that this argument had been waived.

Initially, employers are claiming victory.  Collective and class actions have become an expensive thorn in the sides of employers and a favored tool of disgruntled employees, aggressive government agencies, and plaintiffs’ attorneys looking to maximize the return on their investments.  This decision can be read to provide a clear tool for short-circuiting a collective action.  Moreover, the decision reinforces the concept that conditional certification of a collective action is not nearly as significant as certification of a Rule 23 class action.  

Yet, this decision may also be seen as employers winning a battle—but not the war.  For a few reasons, the dissent’s statement that this case is “the most one-off of the one-offs” rings true.  The dissent recognized the reality of the case: that Symczyk walked away with nothing—the Rule 68 offer was never accepted, such that her case was dismissed without any recovery for her.  The majority’s opinion flowed from the failed premise, the dissent advanced, that an unaccepted offer of settlement rendered a plaintiff’s claims moot and relieved her of all interest in a case.

Likely, the savvy plaintiffs’ attorney will simply take her cues from this decision in at least two ways: filing (even a perfunctory) motion for conditional FLSA certification or class certification at the time of filing the complaint—before the defendant even has a chance to make a Rule 68 offer; and/or, by pleading less clear recovery, including equitable relief, such that an employer will have difficulty putting together a Rule 68 offer to satisfy the individual plaintiff, fully.  In addition, the majority’s holding did not address the question of whether an offer not accepted moots a claim, so the far-reaching implications many had hoped for are not found. 

U.S. Supreme Court Holds Pharmaceutical Sales Reps Exempt from the Overtime Protections of the FLSA

Contributed by Samantha Esmond

On May 16, we reported on the Seventh Circuit decision on whether pharmaceutical representatives are exempt under the FLSA. At the time, we were still waiting for the Supreme Court decision. Well here it is: on June 18, the court rejected the DOL’s interpretation of the “outside salesman” exemption to the Fair Labor Standards Act and determined that pharmaceutical sales representatives who encourage doctors to prescribe the use of a company’s products are exempt from the overtime protections of the FLSA. (Christopher v. SmithKline Beecham Corp. d/b/a Glaxo SmithKline,U.S. No. 11-204, 6/18/12).

The majority, in a 5-4 opinion written by Justice Alito, held that the pharmaceutical sales representatives made sales within the meaning of the FLSA and, therefore, were exempt “outside salesmen.” The court reasoned that the petitioners were hired for their sales experience, trained to close each sales call by obtaining the maximum commitment possible from the physician, worked away from the office with minimal supervision, were rewarded for their efforts with incentive compensation, and earned an average of more than $70,000 per year. The court further reasoned that given the unique regulatory environment within which pharmaceutical companies must operate, “[o]btaining a nonbinding commitment from a physician to prescribe one of respondent’s drugs,” is the kind of arrangement which comfortably falls within the “outside sales” exemption to the FLSA.

In reaching this decision, the court rejected the DOL’s current interpretation of its regulations – that a sale demands a transfer of title – because it “plainly lacks the hallmarks of thorough consideration” and would result in the kind of “unfair surprise” against which this court has long warned. Because the DOL first announced its view that pharmaceutical sales reps are not outside salesmen in a series of amicus curiae briefs, rather than formal rulemaking procedures, there was no opportunity for public comment. The court also noted that until 2009, the pharmaceutical industry had little reason to suspect that its longstanding practice of treating sales reps as exempt transgressed the FLSA, given the DOL’s acquiescence in initiating any enforcement actions.

Given this decision, perhaps the DOL will think twice before sidestepping its formal rulemaking procedures in the future.  While this case provides guidance for employers in the pharmaceutical industry, all employers should be mindful of any other DOL interpretations concerning their industry and consider how those interpretations impact their wage and hour polices and procedures. Employers with questions or concerns regarding the impact of any DOL interpretations should reach out to their labor and employment attorney.

Court Upholds the DOL’s Interpretation That Loan Officers Are Not Exempt from Overtime

Contributed by Jon Hoag

The administrative exemption continues to trouble the financial services industry. On June 6, 2012, a federal district court rejected the Mortgage Bankers Association’s legal battle to invalidate the United States Department of Labor’s (DOL) March 24, 2010 interpretation.  As a reminder, the DOL’s March 24, 2010 interpretation boldly reversed its prior opinion to conclude that mortgage loan officers no longer qualify for the administrative exemption under the Fair Labor Standards Act (FLSA).  The court’s decision is a blow to the financial services industry.  Not only did the decision permit the DOL to flip-flop on critical guidance concerning the exemption of loan officers, but it also sends a reminder that the DOL has its sights on the financial services industry and the DOL intends to maintain its strict interpretation of wage and hour laws; making application of the administrative exemption in the banking industry that much more precarious. 

The easy lesson from the DOL’s March 24, 2010 interpretation is that the classification used for mortgage loan officers must be reassessed.  Now that the DOL has obtained court approval for its interpretation, we can expect the DOL and plaintiffs’ attorneys to more aggressively pursue misclassification issues within the financial services industry. For those that were holding out hope that the March 24, 2010 interpretation would be invalidated, it is time to capitulate and conduct the appropriate wage and hour classification audit immediately.

All employers should note that the DOL’s March 24, 2010 interpretation is not solely about mortgage loan officers. Although the interpretation focused on mortgage loan officer position, it sends a broader message that the DOL intends to aggressively pursue misclassification issues and the administrative exemption will be an area of focus. The fact the DOL’s interpretation was recently upheld is a setback for all employers, especially those in the financial services industry. There almost certainly will be more scrutiny of wage and hour issues within the financial services industry in light of the court’s decision. This is a time for all employers in the industry to take immediate and proactive steps to minimize potential liability. The following steps should be considered to help ensure your positions are classified correctly:

  1. Analyze your job descriptions and revise accordingly to make sure they reflect (in great detail) the job responsibilities and duties. Have employees review and sign an acknowledgement that the job description is accurate.
  1. Review all positions classified as administrative exempt closely to be certain the positions actually meet the test. Focus the analysis on the third element related to discretion and independent judgment as this is the most difficult element to meet.
  1. Review other internal documents such as training materials, performance evaluations, etc. to ensure they are consistent with the exempt classification (e.g. the exempt employee is being evaluated on non-manual work directly related to the business operations).
  1. Make sure that all members of management involved with setting pay classifications are trained and educated about the issues and consequences associated with misclassifying employees.
  1. Set and follow a schedule to audit all position classifications on an annual basis.

The Seventh Circuit Joins the Fray of the Varying Decisions on Whether Pharmaceutical Representatives are Exempt Under the FLSA

Contributed by Jill Cheskes

Opinions on this issue are all over the board: are pharmaceutical sales reps exempt under FLSA? One case asking this question is currently before the U.S. Supreme Court. However, the Seventh Circuit recently weighed in on whether pharmaceutical sales reps are exempt for overtime purposes under the FLSA and found that, in fact, they were.

Initially, this was raised in two separate cases, one against Eli-Lilly, the other against Abbott Labs. Interestingly, the two district courts involved ruled differently.  The Southern District of Indiana granted summary judgment to Eli-Lilly finding that the sales reps met both the FLSA’s outside sales and administrative exemptions. Conversely, the Northern District of Illinois granted summary judgment to the employees finding that the FLSA’s outside sales and administrative exemptions did not apply.

Ultimately, the Seventh Circuit declined to decide whether the outside sales exemption applied to pharmaceutical sales reps (which is the actual issue before the Supreme Court) but did decide that the administrative exemption was applicable. In so doing, the Seventh Circuit disagreed with a previous Second Circuit’s opinion on the issue but agreed with a previous Third Circuit’s decision.

In looking at the administrative exemption, the Seventh Circuit found, most importantly, that the sales reps exercise discretion and independent judgment while performing their duties. The court was not swayed by the fact that the reps were trained extensively on what they could and could not say during the visit with the physicians. Pharmaceutical sales reps are heavily controlled by federal regulations and the reps relied on “carefully honed messages” and materials provided by their employer to ensure compliance. 

Nonetheless, the court found that sales reps interact with physicians with minimal supervision and tailor their messages to respond to each particular physician’s circumstances. The court found the reps “strategic analysis” of which physicians to visit as well as collaborations with other reps all manifested a “substantial measure of judgment.”  The combined view of all of these issues led the Seventh Circuit to find that the exemption applied.

As stated, the Supreme Court will be deciding whether the FLSA outside sales rep exemption applies to pharmaceutical reps. The Supreme Court opinion will not directly affect the Seventh Circuit’s ruling since the Seventh Circuit did not address the outside sales rep exemption. However, if the Supreme Court finds that the outside sales rep exemption does apply, it will be unnecessary to use the administrative exemption in such a case.

Automatic Enrollment for Health Plans in 2014? Not Just Yet….

Contributed by Rebecca Dobbs

The Patient Protection and Affordable Care Act (ACA) requires all large employers (with more than 200 employees) to automatically enroll full-time employees in a health plan, if they offer one.  This provision was scheduled to take effect in 2014. Interestingly, it was done as an amendment to the Fair Labor Standards Act (FLSA)–a law that allows plaintiffs, i.e. employees, greater remedies than the Employment Retirement Income Security Act (ERISA) currently does.

The automatic enrollment provision of the ACA will most likely cause employers to feel an immediate cost impact.  Increasing enrollment in a sponsored health plan will instantaneously increase the monthly invoice an employer receives from its insurance carrier.

Pursuant to the automatic enrollment provisions, employers are required to notify employees that they will be automatically enrolled in a health plan and give them an opportunity to opt out—not much else is known outside of that. 

On February 9, 2012, the Department of Labor (DOL) issued a Technical Release which, among a few other things, announced that guidance on automatic enrollment will not be ready by 2014.  The DOL made clear that until such final regulations are published, employers will not be required to comply.

The DOL has indicated that this delay is necessary “[i]n view of the need for coordinated guidance and a smooth implementation process….”  While this applies to just about every provision of Health Care Reform, we’ll take any additional time to seek any clarity that we can get.

Employers Beware… Your Policies are Only Helpful if You Can Establish They are Uniformly Enforced

Contributed by Sara Zorich

On February 22, 2012 the District Court in the Northern District of Illinois granted conditional certification of a collective action under the Fair Labor Standards Act (FLSA) for a group of hourly employees who allege that they were required by their employer to perform work while not on the clock.  Smith v. Family Video Movie Club, Inc., 2012 U.S. Dist. LEXIS 21935 (N.D. Ill. Feb. 22, 2012).

Under the FLSA, there is a two-step process for granting certification of a collective action.  The first step requires only a very minimal showing that others in the potential class are similarly situated.  The plaintiffs must make only a modest factual showing to demonstrate that they were victims of a common policy or plan.

In Smith, the plaintiffs pointed to evidence that there was an unwritten policy at Family Video Movie Club (FVMC) requiring employees to perform work off the clock and after hours including making bank deposits, running errands and buying store supplies. FVMC argued that the plaintiffs were not entitled to certification of the collective action because FVMC’s official policy stated that employees were required to clock-in for all work performed.  The court found that the written policy alone did not insulate FVMC from an FLSA action and the fact that there was some evidence that more than a rogue manager may have required employees to work off the clock was enough to support certification of the collective action.

Of note, FVMC argued that the plaintiffs were precluded from bringing their claim because FVMC had a policy that employees were required to sign their timesheets and attest to the accuracy of the time recorded on the time sheet.  However, the plaintiffs argued that they knew their time was incorrect but also knew that if they did not sign their time sheet they would not receive their paycheck.  The court stated that signing the timesheets alone did not preclude the plaintiffs’ action and FVMC could not pass the burden to comply with the FLSA onto the employee because FVMC was required to compensate employees for time worked under the FLSA.

Employers should be cognizant that hourly employees are required to be compensated for all hours worked under the law.  Thus, if an employee is required to perform work by the employer and/or on behalf of the employer, even before or after his or her scheduled work shift, the employee must be compensated for this time. Employers should train all managers and supervisors regarding this policy and consider including a wage and hour complaint mechanism in their handbook so employees can notify management if they have complaints regarding their pay or time records.  If an employee does bring an issue to the employer’s attention, the issue should be investigated and remedied (including back pay) if an error has occurred.

Old Man Winter May Get You Yet: PTO and Salary Reductions

Contributed by Beverly Alfon

The unpredictability of Chicago weather keeps all of us on our toes.  Employers need to remain ready to handle operations in the face of severe weather.  One part of that readiness plan is knowing how to handle employee absences caused by inclement weather. 

Non-exempt employees are the easiest to address.  If a non-exempt employee does not work, no wages are due to him/her – regardless of whether or not the employer’s location stays open or is closed.  The only caveat is where a state has a reporting time pay law (which requires wage payments to non-exempt employees whenever they report to work at the request of the employer, even if no work is available).   

For exempt employees, the analysis requires a little more discussion.  The starting point for the U.S. Department of Labor is that (1) the Fair Labor Standards Act does not require an employer to provide paid time off (PTO); and, (2) exempt employees must be paid their full salary for any week in which they perform any work, unless a deduction is specifically permitted under 29 C.F.R. § 541.602(b).

When an Employer Closes a Location Due to Inclement Weather

  • An employer can require an exempt employee to use PTO or paid leave bank accrual – regardless of the fact that it is the employer’s decision to close the location.  DOL Opinion Letter FLSA2005-41
  • An employer must also pay the exempt employee’s full week salary — even if the employee has no accrued leave benefits, reducing the accrued leave will result in a negative balance, or the employee already has a negative balance in the accrued leave bank (unless the location is closed due to weather for more than one full workweek).  PTO deductions are okay in this situation – but not salary deductions. 

When an Employer Keeps a Location Open Despite Inclement Weather

  • An employer can require an exempt employee who fails to report to work to take vacation or make leave deductions without jeopardizing the employee’s exempt status. 
  • Where an employer is open for business and the exempt employee chooses not to report to work for personal reasons (i.e., absence is not based on sickness or accident), then the employer can also impose salary deductions.  DOL Opinion Letter FLSA2005-46.  Similarly, if the absent exempt employee does not have any accrued PTO benefits, the employer does not have to pay the employee (i.e., the employer may place the employee on leave without pay) for the full day(s) that he or she fails to report to work under these circumstances. 
  • Salary deductions made for absences for “personal reasons” may only be made for a full day of no work.  29 C.F.R. 541.602(b)(1).  Therefore, if an employee chooses not to come into work for one day and a half, the employer may only deduct one full day’s worth of salary. 

Practice Tip:  When inclement weather appears to be headed your way, review your inclement weather and PTO policy and distribute a copy or summary of the policy to employees.