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

By: Dean Silverberg, Evan Spelfogel, Peter Panken, Douglas Weiner and Donald Krueger

Reversing its prior stance, the U.S. Department of Labor (“DOL”) proposes to extend the minimum wage and overtime requirements of the Fair Labor Standards Act (“FLSA”) to domestic workers who provide in-home care services to the elderly and infirm. See Notice of Proposed Rulemaking to Amend the Companionship and Live-In Worker Regulations. In 1974, when domestic service workers were first included in FLSA coverage, the DOL published regulations that provided an exemption for such “companions”, whether employed directly by the families of the elderly and infirm, or by a third party employer/staffing agency. Now, heeding calls from organized labor and certain members of Congress, the DOL is moving to close this “loophole.” See“Is the Department of Labor Considering a Revision to the Domestic Service Exemption for Home Health Care Aides?” .

Specifically, the proposed rule would eliminate the exemption for third-party employers, like service staffing agencies, even if the employee is jointly employed by the staffing agency and the family. The new proposal if implemented, would likely drive up costs for families who wish to care for their elderly and infirm at home.

The change would be particularly onerous for Home Health Agencies if it is deemed to be merely a correction of a “misinterpretation” and given retroactive effect. This could lead to claims of past liability for extra overtime compensation for Home Health Agencies that had relied on the Department of Labor’s prior interpretation. The DOL’s prior interpretation, exempting third party employers and staffing agencies from FLSA overtime requirements had been upheld by the United States Supreme Court in the Coke case.

The change in the federal DOL’s interpretation could also affect State Wage Hour Regulations (like New York). These provide favorable treatment for employers of employees who are exempt under the FLSA.

The public has been invited to comment on the proposed new rule. Potentially adversely affected employers may use the public comment period to point out the impropriety of the proposed change after thirty five years of consistent industry wide application of the current rule. Employers might also point out that an unintended effect of the changed rule may be to force the care of the elderly and infirm from their homes to an institutional setting, such as a nursing home or assisted care facility.

By:  Peter M. Panken, Michael S. Kun, Douglas Weiner and Larissa Lalor-Rosado

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 in New England 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”).

The FLSA, requires overtime pay at the rate of one and one half times the regular rate of pay for all hours worked in excess of 40 hours in a seven day period unless the employee is exempt. The three pronged test for exemption for administrative employees is whether the employee is (1) salaried (paid a regular amount of at least $455 for all hours worked in a workweek); (2) the employee’s primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and (3) the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Plaintiffs were banquet sales managers whose job included seeking potential customers for events at the employer, developing the elements of the party or other event and submitting the proposed contract terms for approval by senior officials of the Banquet Halls.

The Court found that Plaintiffs met the first two prongs for exemption: Plaintiffs were paid on a salary basis, and their work was primarily administrative because it was ancillary to the employer’s actual business of providing banquet services.

Plaintiffs claimed that they did not meet the third prong for exemption because they lacked the authority to make any decisions of financial consequence, supervisory authority or policy-making authority.

The Court found that while the plaintiffs’ discretion in matters having significant financial impact was subject to managerial approval, such restrictions did not detract from the judgment exercised in developing a proposal for the client. Plaintiffs’ duties included maintaining primary contact with a client, tailoring an event to their needs, and overseeing the event through to execution. The Court ruled that plaintiffs exercised adequate discretion as sales people to be designated as exempt.

Other Factors Considered for Exemption

The preamble to the current DOL regulations identifies a host of factors that courts have found sufficient to demonstrate that employees exercise independent judgment. 69 Fed. Reg. at 22144. Such factors include:

·                     the ability to exercise discretion and independent judgment,

·                     freedom from direct supervision,

·                     personnel responsibilities,

·                     trouble-shooting or problem-solving activities on behalf of management,

·                     use of personalized communication techniques,

·                     authority to handle atypical or unusual situations,

·                     responsibility for assessing customer needs, primary contact to public or customers on behalf of the employer, the duty to anticipate competitive products or services and distinguish them from competitor’s products or services,

·                     advertising or promotion work, and coordination of departments, requirements or other activities for or on behalf of employer or employer’s clients or customers.

Unfortunately these factors are very fact intensive and do not provide a bright line test for exemption, But the Hines case does offer some useful precedent and guidance for employers. In any event, care must be taken to be sure that the law in a particular state or in a particular circuit does not impose a stricter limitation on the discretion and independent judgment issue.

Take-Away

An employer may retain the right to review an employee’s ability to create financial and contractual obligations and still properly classify the employee as exempt. Requiring managerial approval for these purposes does not necessarily detract from the judgment exercised by the employee at arriving at the proposal in the first place. In addition, as set forth above, there are numerous other factors that courts can consider in determining whether an employee should be designated as exempt.

by Dena L. Narbaitz and Marisa S. Ratinoff

While everyone awaits the California Supreme Court's ruling in Brinker Restaurant Corp. v. Superior Court (Hohnbaum) – which is expected sometime in early 2012 and will determine the scope of an employer's meal and rest period obligations – employers must not lose sight of other important developments in California employment law. Below are brief summaries of some of the legislative enactments in California that will affect employers. Unless otherwise noted, these laws will take effect on January 1, 2012.

Read the full advisory online

By Michael Kun

On January 1, 2012, the minimum wage for employees working in San Francisco will rise to $10.24 per hour. 

This is, to our knowledge, the first time the minimum wage in any U.S. city has ever exceeded $10 per hour.

Employers with employees in San Francisco will need to make sure that they make appropriate adjustments to their payroll systems and practices to account for the increase.

By:  Michael Thompson

In Ibanez v. Abbott Laboratories, Inc., the Eastern District of Pennsylvania issued the latest ruling in the ongoing dispute over whether pharmaceutical sales representatives are exempt from the overtime requirements of the FLSA. 

The plaintiff in Ibanez was a former sales representative for Abbott.  Among other things, the plaintiff helped create “business plans which tracked doctors by market share and potential.”  The plaintiff also developed “game plan[s] or strateg[ies] for individual calls with physicians.”  Thus, the District Court ruled that the plaintiff exercised significant independent discretion, and therefore fell within the Administrative exemption of the FLSA. 

This dispute over the exempt status of pharmaceutical sales representatives has arisen as plaintiffs have argued with increasing frequency that the representatives do not fall under the Outside Sales exemption.  This argument is based on the fact that these sales representatives do not “close” any sales.  Rather, a sale is closed outside the presence of a sales representative (when a patient fills a prescription at a pharmacy). Accordingly, plaintiffs contend, the Outside Sales exemption is inapplicable to these sales representatives and they are therefore entitled to overtime.

The battle lines in this dispute over the status of pharmaceutical sales representatives have been drawn around the rulings of three federal circuit courts: the Ninth Circuit, which has applied the Outside Sales exemption to these sales representatives; the Third Circuit, which has applied the Administrative exemption to these sales representatives; and the Second Circuit, which has declined to apply either exemption, found sales representatives to be non-exempt and therefore required employers to pay overtime compensation.

The Ninth Circuit Court of Appeals in Christopher v. SmithKline Beecham Corp., for example, rejected the argument that pharmaceutical sales representatives did not qualify for the Outside Sales exemption. The Ninth Circuit recognized that the sales representatives do not “close” direct sales.  However, the Court noted that the sales representatives were prohibited by law from making direct sales.  The Ninth Circuit accordingly held that, in the context of the industry, “common sense” showed that the pharmaceutical sales representatives fell within the terms of the Outside Sales exemption.

Conversely, in In re Novartis Wage & Hour Litigation, the Second Circuit Court of Appeals concluded that the Novartis sales representatives did not meet the requirements of the Outside Sales exemption because they did not “make sales.”  

The Second Circuit then evaluated whether the sales representatives had enough independent discretion to qualify for the Administrative exemption.  It was undisputed that the Novartis sales representatives were required to visit a given physician a certain number of times.  It was undisputed that the Novartis sales representatives were required to promote a given drug a certain number of times, and it was undisputed that the Novartis sales representatives were required to hold at least a certain number of promotional events per trimester.  Thus, the Second Circuit accepted the sales representatives claim that she did “low-level discretionless marketing work” and did not exercise sufficient discretion and independent judgment to satisfy the Administrative exemption

Finally, in Smith v. Johnson & Johnson, the Third Circuit Court of Appeals found that thus it was unnecessary to consider the Outside Sales Exemption because the sales representatives in that case satisfied the FLSA’s Administrative exemption.  The Third Circuit noted that the plaintiff developed her own strategic plan to achieve higher sales.  The plaintiff herself prioritized her responsibilities in a manner that maximized business results. Indeed, the plaintiff admitted that “[i]t was really up to [her] to run the territory the way [she] wanted to.”  The Third Circuit concluded that, by formulating and implementing the strategies for her territory, the plaintiff exercised sufficient independent discretion to qualify for the Administrative exemption

Like the plaintiff in the Johnson & Johnson case, the plaintiff in Ibanez exercised the discretion to develop his own business plans and thus stood in contrast to the plaintiff in the Novartis case.  Indeed, the District Court cited to twelve admissions made by the plaintiff regarding his job duties.  Seven of those admissions related to plaintiff developing various strategic plans (e.g. business plans, call plans, focus plans, etc.).

Thus, Ibanez further demonstratesthat the key to establishing the Administrative exemption for pharmaceutical sales representatives is the exercise discretion in formulating business strategies. Accordingly, sales representatives who help to create their own business plans have a strong argument for exempt status, while sales representatives who carry out strategies given to them have a more difficult argument.

By:      David Garland and Douglas Weiner

In February 2011, the U.S. Court of Appeals for the Ninth Circuit gave a resounding victory to employers in the pharmaceutical industry by finding that pharmaceutical sales representatives are covered by the outside sales exemption of the Fair Labor Standards Act (“FLSA”). Christopher v. SmithKline Beecham, No. 10-15257 (9th Cir. Feb. 14, 2011). Plaintiffs, and the U.S. Department of Labor (“DOL”) in an amicus brief, had argued the exemption did not apply because sales reps are prohibited from making the final sale. Prescription medicine in the heavily regulated pharmaceutical industry can only be sold to the ultimate consumer with the authorization of a licensed physician. Sales reps use their “selling skills” to persuade doctors to prescribe their employer’s products when the doctor’s patients have a medical need for them. Sales reps do not transfer title to the medicine themselves.

Previously the Second Circuit, in In Re Novartis, took a contrary view and adopted the Secretary of Labor’s position that the outside sales exemption did not apply to pharmaceutical sales representatives specifically because they were prohibited by regulation from making direct sales. The Ninth Circuit rejected the plaintiffs’ and DOL’s “rigid, formalistic interpretation” of the FLSA’s definition of “sale,” which provides that “Sale” … includes any “sale … or other disposition.” 29 U.S.C. 203(k). Because of the uncertainty in this unsettled area of law, both the employee plaintiffs and the employer asked the U.S. Supreme Court to review the Ninth Circuit’s decision.

Pertinent to the aggressive approach the DOL has recently taken in submitting unsolicited amicus briefs in significant cases, another issue the Supreme Court may review is the degree of deference, if any, the court owes to an amicus brief submitted by the DOL. Again in stark contrast, the Second Circuit gave the DOL’s amicus brief “controlling deference” to interpret the DOL’s own regulations while the Ninth Circuit gave the DOL’s amicus brief “no deference” finding it was a departure from established industry norm that the DOL used to short-cut the public notice – and – comment rule making procedures.       

It would be a most welcome development for the Supreme Court to affirm the Ninth Circuit and resolve this dramatic split in the circuit courts. However, even if the Second Circuit’s view of the “outside salesman” exemption is upheld, there are circumstances when sales reps may be exempt by virtue of the administrative exemption. Employers need clarity to structure employment practices without the ever-present threat of class action litigation.