Following is an excerpt:

More than a year after its efforts were first announced, the U.S. Department of Labor (“DOL”) has finally announced its proposed new rule pertaining to overtime. And that rule, if implemented, will result in a great many “white collar” employees previously treated as exempt becoming eligible for overtime pay for work performed beyond 40 hours in a workweek – or receiving salary increases in order that their exempt status will continue.

Read the full original post here.

Following is an excerpt:

In order to prevent employee theft, some employers require their employees to undergo security screenings before leaving the employers’ facilities. That is particularly so with employers involved in manufacturing and retail sales, who must be concerned with valuable merchandise being removed in bags, purses or jacket pockets.

Often in the context of high-stakes class actions and collective actions, parties have litigated whether time spent undergoing a security screening must be compensated under the Fair Labor Standards Act (“FLSA”). On December 9, 2014, a unanimous United States Supreme Court answered that question – no.

The Court’s decision in Integrity Staffing Solutions v. Busk may have a far-reaching practical and legal impact. Not only may it make more employers comfortable conducting security screenings of their employees, but it may bring an end to most class actions and collective actions filed against employers seeking compensation for employees’ time spent in such screenings.

Following is an excerpt from the blog post:

On July 29, 2014 the NLRB’s General Counsel announced a decision to treat McDonald’s, USA, LLC as a joint employer, along with its franchisees, of workers  43 McDonald’s franchised restaurants with regard to unfair labor practices charges filed by unions on behalf of the  workers and authorized charges against of both the franchisees and McDonalds. (See our July 30 blog post  and Aug. 14 blog post)

To access the full blog post, please click here.

By Aaron F. Olsen

The United States Supreme Court declined to review the Second Circuit’s decision in Irizarry v. Catsimatidis in which the Court of Appeals affirmed the District Court’s decision holding a Supermarket CEO personally liable for violations of the Fair Labor Standards Act (FLSA).

By way of background, in July 2013, the United States Court of Appeals for the Second Circuit affirmed the District Court’s decision that the CEO of a supermarket chain could be held personally liable for damages in Irizarry v. Catsimatidis.  The District Court had granted summary judgment in favor of plaintiffs in the class action case and held that plaintiffs were entitled to liquidated damages on their claims concerning reduction of hours, withholding of overtime, misclassification as exempt employees, and retaliation.  The parties entered into a settlement agreement.  However, the corporate defendants later defaulted on their obligations under the agreement.  Plaintiffs then moved for partial summary judgment on the CEO’s personal liability as an employer.

Individual liability under the FLSA turns on whether an employment relationship exists between the employee and the purported employer, the individual defendant.  The FLSA defines “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee….”  29 U.S.C. § 203(d).  An “employee” is defined as “any individual employed by an employer.”  29 U.S.C. § 203(e)(1).  Quoting from the U.S. Supreme Court’s  decision Rutherford Food Corp. v. McComb, 331 U.S. 722, 728 (1947), the Court of Appeals in Irizarry stated that the FLSA contains “no definition that solves problems as to the limits of the employer-employee relationship under the Act.”

The District Court reasoned that the CEO hired managerial employees, signed all paychecks to the class members, had the power to close or sell the stores, routinely reviewed financial reports, worked at the corporate office and generally presided over the day to day operations of the company.  The District Court concluded that there was no area of the store which was not subject to the CEO’s control, whether or not he chose to exercise it, and therefore the CEO had “operational control” and could held liable as an employer.

The CEO argued that he was a high-level employee who made symbolic or, at most, general corporate decisions that only affected the plaintiffs through an attenuated chain of causation.

The Court of Appeals noted that it had previously set forth four factors to determine the “economic reality” of an employment relationship: (i) whether the alleged employer had the power to hire and fire the employees, (ii) supervised and controlled employee work schedules or conditions of employment, (iii) determined the rate and method of payment, and (iv) maintained employment records.  However, the Second Circuit also stated that it had examined different indicia of “operational control” in other cases, with the intent of assessing whether a defendant exercised functional control over a worker.

In conducting its analysis, the Court of Appeals noted that the CEO personally owned the building where the headquarters were located.  In addition, he stayed apprised of how the supermarket chain was doing, reviewing the overall profit and loss statements as well as the “sales to purchases” statements of particular stores. He received weekly gross margin reports from all the “perishable departments” and a comprehensive Profit and Loss report on a quarterly basis that he studied in depth and sometimes used to make general recommendations. He also made “big picture” merchandising decisions, like whether to push Coca-Cola or push Pepsi-Cola” and the decisions on having pharmacies in the stores.  He would also visit the stores regularly and make comments to the store managers about displays, merchandising decisions and discuss what is going right and what is going wrong.

The Court of Appeals concluded, in what it described as a “close case,” that there was no evidence that the CEO was responsible for the FLSA violations, or that he ever directly managed or otherwise interacted with the plaintiffs.  Nevertheless, the supermarket CEO was an “employer” for the purposes of the FLSA because his control over the hiring of managerial employees, and his overall financial control of the company meant that he possessed “operational control” over the plaintiffs’ employment.

The potential to be held personally liable for violations of the FLSA understandably creates concern for CEOs – especially those of medium-sized companies that have a large enough number of employees to create significant exposure but not enough resources for the Company to pay for a large judgment that may come from losing a class-action.

On March 13, 2014 President Obama issued a memorandum instructing the Department of Labor (“DOL”) to review and revise overtime regulations under the Fair Labor Standards Act (“FLSA”).  Under the FLSA employees are eligible to receive overtime for all hours worked over 40 per week, unless they fall within certain specified exemptions.  The most common of exempt classifications in the retail industry are executive, administrative, and commission sales.

The executive exemption applies to managers and supervisors who direct the work of others and who earn a salary of at least $455 per week. The administrative exemption applies to employees who (i) earn a minimum weekly salary of $455, (ii) perform non-manual work directly related to the employer’s business operations and (iii) have as a primary duty the exercise of discretion and independent judgment with respect to matters of significance. The commissioned sales person exemption applies to employees who receive more than half of their earnings from commissions.

The upcoming changes to overtime regulations will be the first since 2004, when the threshold for the executive exemption was raised from $250 to $455 per week.

While the exact changes the Obama administration has in mind remain unclear, the impact on the retail industry, and indeed nearly all employers, may be be significant because the express purpose of the mandated review is to increase the number of workers eligible for overtime. One likely change will be a further increase to the minimum weekly salary threshold for executive and administrative exemptions. Inasmuch as many, if not most, exempt employees already have salaries of more than $455 per week, the change to the salary threshold alone might not be significant – depending on the new minimum. But, other changes cannot be ruled out.

The DOL has not indicated when it expects to issue the proposed amendments. A comment period will follow before any rule amendments are adopted, however.   Rulemaking may take a year or more. We will be monitoring the process and will alert you here to developments.

In addition, you may wish to download the EBG Wage & Hour app to your smart phone,  where changes to the regulations will also be posted.

Here’s a preview of the five items:

1. IRS Will Begin Taxing a Restaurant’s Automatic Gratuities as Service Charges
2. The New DOL Secretary, Tom Perez, Spells Out the WHD’s Enforcement Agenda
3. DOL Investigates Health Care Provider and Obtains $4 Million Settlement for Overtime Payments
4. Federal Court Strikes Down DOL Tip Pooling Rule
5. Take Preventative Steps When Facing WHD Audits

Read the full article here.

Apple Inc.’s practice of requiring hourly employees to wait (off the clock) in order to undergo “personal package and bag checks” prior to meal breaks and at the end of shifts is the subject of a purported wage-hour collective action.

According to a complaint filed in the U.S. District Court for the Northern District of California, these security checks take approximately 50 minutes to 1.5 hours per week of uncompensated time to search for “possible store items or merchandise taken without permission and/or contraband.”

The lawsuit seeks to certify a nationwide collective action class under the federal Fair Labor Standards Act, as well as classes in California and New York class for alleged violations of those states’ labor laws.

Bag check requirements are relatively common in the retail environment, and a similar lawsuit against Polo Ralph Lauren settled for $4,000,000.

Preliminary and Postliminary Activities

An analysis of the time spent waiting for security checks at the end of the workday is similar to the analysis in “donning and doffing” cases dealing with the compensability of “preliminary” or “postliminary” activities such as putting on uniforms or safety equipment before a shift begins.

The FLSA, as amended by the Portal-to-Portal Act of 1947, generally precludes compensation for activities that are “preliminary” or “postliminary” to the “principal activity or activities” of the employee. 29 U.S.C. § 254(a). But preliminary and postliminary activities are compensable if they are “integral and indispensable” to an employee’s principal duties. In IBP v. Alvarez, the U.S. Supreme Court ruled that an activity is “integral and indispensable” if it is (1) “necessary to the principal work performed” and (2) “done for the benefit of the employer.”

The Impact of Busk v. Integrity Staffing Solutions, Inc.

The compensability of time spent clearing security was recently addressed in Busk v. Integrity Staffing Solutions, Inc., and the Ninth Circuit created a distinction that may spur a new wave of litigation.

In Busk, the District Court found time going through security checks to be non-compensable, and relied on Second Circuit and Eleventh Circuit precedent involving employees at a nuclear power plant and an airport construction project, respectively.

However, the Ninth Circuit reversed, concluding that those security screenings were not in place because of the nature of the employee’s work, and indeed were applicable to employees and non-employees. Accordingly, those screening were not integral to the principal activities of the employees.

Conversely, the Ninth Circuit held that requiring “screening to prevent employee theft … stems from the nature of the employees’ work (specifically, their access to merchandise),” and therefore may be compensable work time.

Perhaps with an eye towards this distinction, the complaint against Apple notes that its bag check policy applies to all employees, but not to customers.

De Minimis Time

To the extent that time spent on bag checks is not preliminary or postliminary, the time is likely to be compensable unless it is de minimis. 29 CFR 785.47 provides that “insubstantial or insignificant periods of time beyond the scheduled working hours … may be disregarded.” While there is no definitive maximum, periods of ten minutes or less will typically be regarded as de minimis.

The de minimis rule “applies only where there are uncertain and indefinite periods of time involved of a few seconds or minutes duration, and where the failure to count such time is due to considerations justified by industrial realities.” Furthermore, not all states recognize the de minimis principle.

Accordingly, employers with security check requirements should review those policies to determine whether the time involved is preliminary/postliminary, de minimis or compensable.

*The author appreciates the assistance of summer associate, Kristopher Reichardt, in the preparation of this article.

As shoppers and retailers get ready to celebrate “Black Friday” —  the kickoff to what we hope will  be a busy holiday shopping season —  it’s a good time for retail employers to review their policies on timekeeping and to ensure that non-exempt employees know how to record their working time.  Where is it not prohibited by state laws concerning meal and other breaks, employees may sometimes end up missing all or part of an unpaid meal break due to the demands of a busy sales floor. Employers need make sure employees are properly compensated for time spent working during what would have been an unpaid break, and to protect against allegations to the contrary under the federal Fair Labor Standards Act or similar state wage laws. It will go a long way in avoiding, and if necessary, defending against such claims if your company timekeeping policies are carefully drafted, circulated, and followed.

The Sixth Circuit Court of Appeals recently issued a ruling that provides some guidance on this issue.  In White v. Baptist Memorial Healthcare Corp, et al (No. 11-5717) (6th Cir., Nov. 6, 2012)  the plaintiff, a nurse, claimed that she was not compensated for work done during her unpaid meal break time at the defendant hospital.  The Sixth Circuit upheld the lower court’s dismissal of plaintiff’s claims because the employer’s handbook included an “exception log” mechanism that allowed employees to report when they missed all or part of a meal break, and that Plaintiff knew about, but failed to take advantage of, that mechanism.

Relying upon prior decisions from other federal appeals courts, the White Court found:  “Under the FLSA if an employer establishes a reasonable process for an employee to report uncompensated work time, the employer is not liable for non-payment if the employee fails to follow the established process.”  Employers should be guided by this finding, and ensure that they have policies in place that clearly inform non-exempt employees how to record or report all time worked, including instances of missed or interrupted meal breaks.

Having the appropriate policies in place is, of course, just the first step.  It is also imperative for those policies to be sufficiently communicated and enforced.  For example, in ruling for the employer in White, the Sixth Circuit found it significant that: (a) Plaintiff admittedly knew about the “exception log” policy in the handbook (and had, in fact, used it successfully on occasion to obtain pay for time worked during her meal break period); and  (b) there was no evidence that the defendant employer discouraged its employees from reporting time worked during meal breaks or that the employer was otherwise notified that their employees were failing to report time worked during meal breaks.

Retail employers should therefore ensure not only that their non-exempt employees know about the time recording policies, but also that their supervisory managers (whether non-exempt or exempt) who work “on the ground” at the retail locations know about, and enforce, the policies.  Even if a company has the right policies in place, it could all be for naught if there is evidence that managers routinely look the other way as employees are required to work through all or part of their unpaid meal break without compensation.

Misclassification of employees as exempt from overtime compensation has become a cottage industry for plaintiff’s lawyers and for the United States Department of Labor (“DOL”) in the Obama years.  One of the most difficult issues is whether employees meet the so-called administrative exemption to the Wage Hour laws.  In Hines v. State Room, the United States Circuit Court of Appeals for the First Circuit offered some clarity and help to beleaguered employers holding that former banquet sales managers were exempt from overtime requirements under the Fair Labor Standards Act (“FLSA”).

For more, see the full post at the EBG Wage & Hour Defense Blog, available by clicking here.

The current prevalence of lawsuits for unpaid overtime compensation under the Fair Labor Standards Act (“FLSA”) by employees who claim they were misclassified by their current or former employer as “exempt” from overtime has been well-documented.  These lawsuits continue to present challenges to employers, not just in terms of the burdens and costs of defending the cases, but in the uncertainty of the potential financial exposure. As our colleagues have previously reported (here and here), there are two methods in which the employees can be compensated for the allegedly unpaid overtime wages in such a case.  Under the FLSA, overtime compensation for non-exempt employees is computed at “a time and half” rate for hours worked in excess of forty in a week.  In appropriate situations, however, when the employees have received a fixed salary for all hours worked (which is frequently what has occurred in a misclassification case because the employer has treated the employees as exempt from overtime), the overtime compensation owed to non-exempt salaried employees can and should be calculated based on the “half-time” or “fluctuating workweek” method.  This method of calculation can dramatically decrease the potential damages in a misclassification case.  Instead of dividing the weekly salary by forty to determine the regular rate of pay and paying 1 ½  times that rate for every hour worked in excess of forty, the weekly salary is instead divided by the actual number of hours the employee worked each week (in other words, the more overtime the employee worked, the lower the regular rate), and then paying an additional ½ of that rate for every hour worked in excess of forty in a week rather than 1 ½ times that rate.  Conceptually, the salary pays straight time for all weekly hours, and only additional half-time is due for weekly hours over 40 to pay the time-and-one-half required by law.

Guidance on the requirements for establishing prospectively a lawful fluctuating workweek overtime compensation system for salaried non-exempt employees is provided by U.S. Department of Labor regulations, 29 C.F.R. § 778.114.  Employers have frequently argued that this regulatory provision should also apply retroactively if it later turns out that a non-exempt employee was misclassified as exempt.  A split in authority has arisen, as some district courts have held that because that regulation requires contemporaneous payment of overtime, and a “clear mutual understanding” of the parties, the fluctuating workweek method cannot be applied retroactively to calculate damages in a misclassification case.  Many other courts have rejected that interpretation and have applied the fluctuating workweek method retroactively.  Even the Department of Labor has in the past endorsed the fluctuating workweek method in satisfying unpaid overtime claims in a misclassification case.

The dispute over the correct interpretation of the regulations has become increasingly irrelevant as a growing line of cases eschew the regulations in favor of reliance on the Supreme Court itself.  In Overnight Motor Transp. Co. v. Missel, 316 U.S. 572 (1942), the Court held that when an employee and employer have an agreement in which the employee is paid a fixed weekly wage for hours that fluctuate from week to week, the half-time method is the correct way to calculate damages in an unpaid overtime case.  Subsequent lower court decisions and the Department of Labor have made clear that the agreement need not be in writing, but rather, can be demonstrated through the course of conduct between the employer and employee.  In other words, if the employee was treated as exempt, without deduction from the weekly salary for absences from the office, then the requisite mutual understanding has been established.

A few months ago, the Supreme Court denied certiorari (PDF) in a Seventh Circuit case that would likely have presented the opportunity for a definitive ruling on (or reconfirmation of) the use of the half-time method in a misclassification case.  But significantly, five federal circuit courts have now approved the use of the half-time method—the First, Fourth, Fifth, Seventh and Tenth Circuits (All PDFs) —while not a single circuit has rejected this method.  And the more recent decisions (Fourth and Seventh Circuits) have broken away from reliance on the regulations and have, more appropriately, grounded their decisions on the Supreme Court’s decision in Overnight Motor Transportation Co.  Thus, the weight of authority is increasingly coming down on the side of the employers on this issue.

EpsteinBeckerGreen will be continuing to monitor developments on this topic and providing updates as appropriate.  In the mean time, employers who are sued or threatened with legal action for unpaid overtime under the FLSA should continue to push for the half-time method of calculating damages, in litigation or during settlement discussions, in any case in which the employees were clearly paid a fixed salary regardless of the number of hours actually worked each week, as the case law shows strong signs of developing positively in this direction.