Wage & Hour Defense Blog : Wage & Hour Lawyer & Attorney : Epstein Becker Green Law Firm : DOL Enforcement, FLSA Coverage

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by Amy J. Traub

On December 16, 2009, Judge Laura Taylor Swain of the United States District Court for the Southern District of New York granted summary judgment to Starbucks Corp. (“Starbucks”) in a wage/hour lawsuit filed by former and current baristas of Starbucks’s coffee shops located in New York.

In their lawsuit, filed in April 2008, the New York baristas argued that Starbucks had violated state wage and hour laws by splitting tips intended for baristas with shift supervisors, handing out tips on a weekly basis instead of on a per-shift basis, and failing to distribute tips to baristas-in-training. The baristas further moved for class certification on behalf of all baristas who have worked at Starbucks coffee shops in New York in the past six years, estimating that the proposed class in New York could likely exceed 2,000 people and that the amount in controversy was more than $5 million.

In its motion for summary judgment, Starbucks argued that shift supervisors are part-time hourly-paid workers who provide the same customer service as baristas and do not act as supervisors or agents of the company in that they have no authority to interview, hire, transfer, evaluate, promote, discipline, fire, or determine pay for any other employee and do not otherwise perform the types of duties performed by a “supervisor” or “agent,” as those terms are defined by the New York State Labor Law. Therefore, argued Starbucks, shift supervisors should be entitled to inclusion in the tip pool. Judge Swain agreed, granting Starbucks’s motion and dismissing the baristas’ tip-splitting claims, reasoning that any additional duties performed by shift supervisors, such as opening and closing the store, depositing money in the safe, and overseeing the store when a manager is out, do not constitute the exercise of authority over the creation, terms, or conditions of the employment relationship with Starbucks.

Having granted summary judgment to Starbucks, the court then denied the plaintiffs’ motion for class certification.

The plaintiffs have appealed.

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It is that time of the year when most companies start thinking about handing out year end or Christmas bonuses to their employees.  For exempt workers, such payments are not a concern.  For non-exempt workers, however, bonus payments raise the prospect of adding to the employee's regular rate, which could result in additional overtime liability.  For example, if an employee works overtime in the week he receives a bonus check of $400.00, the Department of Labor may require the bonus to be included in the "regular rate" upon which the time and one half overtime calculation is based (i.e. add $10 per hour to regular rate).

Companies can easily avoid the overtime problem by carefully crafting their bonus policies to fit within the Department of Labor's exclusion for "discretionary payments" (29 CFR 778.211).  The relevant regulation provides:

The employer must retain discretion both as to the fact of payment and as to the amount until a time quite close to the end of the period for which the bonus is paid. The sum, if any, to be paid as a bonus is determined by the employer without prior promise or agreement. The employee has no contract right, express or implied, to any amount. If the employer promises in advance to pay a bonus, he has abandoned his discretion with regard to it. Thus, if an employer announces to his employees in January that he intends to pay them a bonus in June, he has hereby abandoned his discretion regarding the fact of payment by promising a bonus to his employees.

For employers, this means it is critical that bonus policies be scrutinized to ensure there are no promises or guaranties of payment, and that the appropriate discretion language is included.  If not, your Company could be on the hook for a much larger Christmas bonus this year than you anticipated.

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by Betsy Johnson

On November 23, 2009, the Chief Counsel of the California Division of Labor Standards Enforcement ("DLSE") issued an Opinion Letter on behalf of the Labor Commissioner, Angela Bradstreet, in which the DLSE modified its enforcement stance on the issue of making deductions from exempt employee accrued vacation to cover partial-day absences. In the Opinion Letter, the DLSE opined that there is nothing in California law that would prevent an employer from implementing a policy that provides for hour-for-hour deductions from accrued vacation leave for partial-day absences taken by exempt employees.

This change in the DLSE enforcement policy brings California law more in line with the federal Fair Labor Standards Act ("FLSA") regarding the "salary basis test" and deductions from exempt employee paid time-off accounts for partial-day absences.

Question Presented to the DLSE

The employer presented the DLSE with a series of factual scenarios in which it proposed different reductions in vacation and/or sick leave balances for full- or partial-day absences of exempt employees and asked whether the proposed reductions were permissible under California law.

The employer who sought the DLSE's guidance maintains a policy pursuant to which employees accrue vacation time to be used for absences for vacation and personal reasons, as well as for absences due to illness (when sick leave has been exhausted). The employer's policy also provides for the accrual of sick leave. The employer's vacation policy requires that employees use accrued vacation hours for illness when the employees do not have any sick leave left. In addition, employees must use all accrued vacation and sick leave before any unpaid time off is approved.

One of the questions presented to the DLSE was whether the employer's policy of deducting from exempt employee accrued vacation time to cover partial-day absences is consistent with the "salary basis test" for exempt employees under California law.

DLSE's Analysis

In order to qualify for an exemption from the overtime and minimum wage requirements of California law, an employee must meet both the "duties test" and the "salary basis test." For the purposes of the Opinion Letter, the DLSE assumed that the employees in question met the duties test for the "white collar" (executive, administrative and professional) exemptions described in the California Wage Orders.

At issue was whether the apportionment of accrued vacation to the partial-day absences outlined in the employer's factual scenarios violated California's salary basis test. One of the hallmarks of exempt status is the payment of a fixed, predetermined salary to employees for any day in which the employees perform any work. Improper reductions in exempt employees' salaries results in the loss of exempt status.

In one case, a California court held that the state salary basis test prohibits employers from making deductions from exempt employees' salary for a partial-day absences. See, Conley v. P.G.& E., 131 Cal.App.4th 260 (2005). However, the Conley court did allow the employer to deduct vacation time in four-hour increments to cover partial-day absences of exempt employees. In its Opinion Letter, the DLSE rejected the four-hour limitation placed on the employer's ability to deduct time from exempt employees' accrued vacation to cover partial-day absences, concluding that the holding in Conley is inconsistent with California and federal law.

The DLSE concluded that there is no state or federal regulation or law that provides for a "four or more hours" limitation for deductions from accrued vacation. The DLSE found that the applicable federal regulations and interpretations by the federal Department of Labor ("DOL") support the conclusion that an employer may reduce exempt employee vacation banks on an hour-for-hour basis to cover partial-day absences.

Specifically, the DLSE looked at 29 CFR § 541.602, which sets forth the general rule that exempt employees must be paid their pre-determined salary for any week in which they perform work and DOL opinion letters interpreting this regulation. The federal regulations also make clear that employers may not "dock" (reduce the dollar amount of exempt employees' salaries) exempt employees for taking partial days off. On the other hand, if exempt employees take partial days off, the DOL has opined that employers may apportion exempt employees' compensation for those days between regular salary, vacation pay and sick pay, so that the employees receive full pay for those days. The DLSE found that these federal guidelines are consistent with state law.

Therefore, the DLSE concluded, while it is impermissible for an employer to deduct from exempt employees' salaries for partial-day absences, employers may deduct from accrued vacation balances in connection with absences due to vacation or sickness of less than a full day under an express policy providing for such deductions without the employees losing their exempt status. The DLSE's conclusion is premised on the fact that the employer's policies provide for such deductions so that the employees are aware of how partial-day absences will be handled.

What This Means To Employers

While the DLSE Opinion Letter is not legally binding precedent in civil litigation, it should be given significant weight by the California courts. However, the Opinion Letter is binding precedent in any DLSE proceeding and signifies a favorable shift in the DLSE's enforcement policy in favor of giving employers more flexibility by allowing employers to implement vacation and sick leave policies that apportion paid time to partial-day absences of exempt employees.

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By Bill Milani, Jeff Landes, Susan Gross Sholinsky and Anna Cohen

We previously advised that the New York State Department of Labor ("DOL") had taken the stance that in order to comply with Section 195(1) of the New York State Labor Law (i.e., to provide proper notice to employees of their wages, overtime rates (if applicable) and paydays), employers would be required to utilize the DOL's official forms, which could be accessed at the DOL's Web site.

The DOL has now decided that, while employers may still elect to utilize the DOL's forms, employers need not utilize the DOL's forms in order to comply with Section 195(1). Rather, employers may utilize their own forms. Specifically, the DOL's Web site now states:

No particular form is required. Employers may create their own forms, or use and/or adapt a sample form available [on the DOL's Web site].

If employers elect to utilize the DOL's sample forms, they should understand that the only forms currently available are for hourly non-exempt employees and staffing agencies. The DOL's Web site, however, notes that "[i]n the near future, sample forms for a variety of pay agreements (salaried, prevailing rate, exempt, and others) will be provided." We will advise you when such additional sample forms are published by the DOL.

Based on the DOL's statement, employers will be deemed to be in compliance with Section 195(1), so long as: (i) the employer's form includes employees' pay rate, overtime rate (if applicable) and paydays in the applicable document, (ii) the form is given to employees before they perform any work, (iii) the form is signed by the employee, (iv) the original form is maintained by the employer for a minimum of six years, and (v) a copy of the signed form is provided to the employee. While the DOL has informed us that its preference would be for employers to utilize a stand-alone form in order to comply with Section 195(1), it also has confirmed that if an employer includes all of the applicable information required by the statute in an offer letter, and that offer letter is signed by the employee, kept by the employer, and a copy is provided to the employee, the employer would be in compliance with the statute.
 

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Often, employers ask their outside labor counsel to review job descriptions or other material to provide an opinion on whether a job, or group of jobs, should be classified as exempt from overtime requirements.  Such efforts would seemingly be a classic example of a privileged attorney client communication made for the purpose of providing legal advice.

In a recent case out of California state court, however, this answer was not so clear at the trial and appellate level, who both required the employer to hand over a redacted version of such a letter in a class action overtime suit.  The employer took the case to the California Supreme Court, who rightfully  weighed in and made clear that such opinion letters are privileged and should not be subject to discovery.

This opinion is good law for a number of reasons, not the least of which is that it encourages employers to do the right thing - police themselves.  Employers should not be punished by seeking out legal advice on whether their actions are correct.  Moreover, determining the applicability of overtime exemptions can sometimes be as much art as science.    If employers are afraid to discuss these nuances with their own lawyers, how can they ever hope to achieve compliance? Hopefully, this decision will set an example and avoid meritless discovery fights that often erupt in these ever growing wage and hour class actions.

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