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

I am pleased to report that the United States Court of Appeals for the Eleventh Circuit has affirmed the district court's summary judgment in favor of our client, a bus company, in a case involving the motor carrier exemption.  The case is Walters v. American Coach Lines of Miami, Inc. (11th Cir., July 23, 2009).

 I first reported on this case and discussed the basics of the motor carrier exemption in a September 2008 post on the Florida Employment Law Blog.  My EBG colleague, Brian Molinari, recently summarized the Walters decision in a post on the Prima Facie Law Blog.

A quick refresher:  The motor carrier exemption is one of several exemptions from the Fair Labor Standards Act which generally requires employees engaged in commerce to be paid at least time and a half for the time worked above forty hours in one week. The motor carrier exemption provides:

The provisions of section 207 [maximum hours] of this title shall not apply with respect to. . . any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service pursuant to the provisions of section 31502 of Title 49.”  29 U.S.C. § 213(b)(1). 

49 U.S.C. section 31502 grants “the Secretary of Transportation the power to regulate the qualifications and maximum number of hours for employees of motor carriers engaged in interstate transportation.”

The principal question in Walters was whether the ACLM's drivers, by driving trips to and from local airports and seaports, all of which are in Florida, were engaged in interstate transportation so as to trigger the Secretary of Transportation's jurisdiction over them.  If so, the motor carrier exemption would apply, and the drivers would not be entitled to overtime pay.

In answering that question in the affirmative, the court's opinion breaks some new ground in the Eleventh Circuit, which covers Florida, Georgia and Alabama. Among the court's holdings are the following:

• The Secretary of Transortation's jurisdiction is not limited to transportation that crosses state lines, but extends to transporation that is part of the broader concept of "interstate commerce."
• Purely intrastate transportation can constitute part of interstate commerce if it ispart of a “continuous stream of interstate travel."
• The "incidental-to-air" exemption does not limit application of the motor carrier exemption. The court held that this exemption to the Secretary of Transportation's jurisdiction applies to economic regulation, not to safety regulation. Thus, the Secretary of Transportation has jurisdiction to prescribe safety regulation for transportation that is "incidental-to-air," i.e. within 25 miles of an airport.

The motor carrier exemption is complicated and has been the subject of much litigation. For employers in the Eleventh Circuit, the Walters decision clarifies several key issues. Still, the opinion leaves open a couple of issues:

• Does a company have to engage in more than de minimus interstate transportation, where it has the appropriate federal licensing and indisputably performs some transportation crosses state lines? The court declined to answer this question, finding that even if such a test applied, ACLM engaged in more than de minimus interstate transportation.
• Do airport-to-seaport trips constitute interstate commerce if they are not performed pursuant to formal contractual arrangements with airlines or cruise lines? The court declined to answer this question, finding that even if such a test applied, ACLM had contractual arrangements with cruise lines to transport passengers on its buses.
   

Litigation of these open issues is bound to occur as the proliferation of FLSA lawsuits continues. But for now, Walters is the latest word on the status of the motor carrier exemption in the Eleventh Circuit.

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Last month I reported that United States District Judge Kenneth L. Ryskamp had sanctioned the Shavitz Law Group, one of the leading plaintiff-side wage-hour firms in Florida, for soliciting plaintiffs in violation of Florida Bar Rules.  The case was Hamm v. TBC Corp. and Tire Kingdom, Inc., Case No. 07-80829-CIV-RYSKAMP/VITUNAC. 

The Shavitz firm recently struck back, filing a motion to disqualify or recuse Judge Ryskamp from presiding over a different case, a Fair Labor Standards Act collective action against Abercrombie & Fitch.  The motion quoted Judge Ryskamp's comments during a hearing in the Hamm case:

I have had our law clerk check and the Shavitz firm has filed 1,332 cases in the Southern District of Florida since 2000, so we see these things continually, virtually never see them go to trial, I think that I have had one trial with all the cases that have been filed.

In looking at the statistical numbers, they are usually closed within three months of the time they are filed, so what is very clear to me is that most defendants are saying how much is it going to cost me to defend this case and what is the claim and the claim is so small it would cost most to have the lawyers defend it, so they are basically nuisance type claims that get bought off, of course the lawyer’s fees are always – not always, but very often considerably more than the claim itself – and I think this is certainly an area for some Congressional oversight, I think there ought to be written into the statute a provision that a letter demand must be made upon the employer before a lawsuit can be filed because the way this thing is working is just a lawyer’s retirement bill. . . . this has gotten out of hand, I think we have more of these cases in the Southern District of Florida than there are anyplace else in the country and that’s probably because of the Shavitz law firm. . . . I think the problem needs to be resolved.

The Shavitz firm argued that these comments, and others that Judge Ryskamp has made about the Shavitz firm, demonstrate "an apparent bias or prejudice against Plaintiff and Plaintiff’s counsel, such that disqualification/recusal is mandatory."

Three days later, Judge Ryskamp issued an order recusing himself from the case. 

Judge Ryskamp's recusal notwithstanding, from my perspective as a defense attorney, his comments were on the money. Many, if not most, FLSA cases are settled on a nuisance value basis.  In such cases, there is often only a few thousand dollars of overtime pay at issue.  And the employer often has solid defenses which it could prove on summary judgment or at trial.  But after some frank discussions with defense counsel, the employer concludes that it makes more sense to settle the case for, say, $10,000 than to pay its own attorneys $50,000 to $100,000 to litigate the case.  An additional factor is the uncertainty of litigation:  if the employee proves liability, even for a small amount, the employer will be on the hook for the plaintiff's attorney's fees as well.  So these cases typically settle, and Shavitz (or one of his colleagues in the plaintiffs' bar) move on to their next case.  The cycle continues, and South Florida continues to lead the nation in wage-hour lawsuits.   

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The following is a reprint of a client alert authored by EBG attorneys Doug Weiner and Frank Morris, Jr.  It should be of interest to all Florida employers that are considering a reduction in force.

For many employers, these are desperate economic times. Every entity facing diminished revenue must consider cost cuts to survive. As news reports show, reductions in force (RIFs) are being used daily to achieve cost savings, and for some employers they may be the best solution. In some cases, however, the savings are not immediate as a result of statutorily required or voluntary notice periods, as well as costs of severance pay.

A different approach may be a furlough strategy, customized to fit each employer’s needs, which may also achieve a significant cost-savings benefit. Implementing a furlough can help retain the employer’s experienced workforce at a reduced cost, to help the enterprise weather the economic crisis. Most employees faced with, for example, the choice of a 20 percent annual pay reduction or the loss of their job would not hesitate to choose a reduction in pay. Further, both employers and employees taking advantage of a furlough program are well-positioned to take advantage of any increase in business activity in the inevitable economic recovery, whether it be this year or next. Furloughs are often viewed by the workforce more favorably than layoffs, thus preserving morale in the organization as well.

The Fair Labor Standards Act (“FLSA”) requires hourly and non-exempt salaried employees to be paid time-and-one-half their regular rate for weekly hours worked over forty. Accordingly, the first place to look for cuts in employee payroll costs is in non-exempt employee overtime pay. The FLSA was designed to give employers an incentive to spread employment from employees who work over forty weekly hours to other workers who are working fewer hours. In an environment where costs are critical, it is generally an inefficient use of payroll dollars to pay the additional wage premium required for overtime work.

Eliminating non-exempt overtime work is only the first step in reducing payroll costs among hourly non-exempt employees, salaried non-exempt employees and salaried exempt employees. Take an example in which it has been decided that in a department of 100 employees, where all three categories of employees work, that payroll expenses must be cut by 20 percent. One possibility is to reduce the department headcount by 20 percent, eliminating 20 jobs and the costs associated with them. Another possibility is to implement a mandatory furlough period with 20 percent pay cuts for all 100 employees. The furlough strategy takes more administrative time to manage properly, but it potentially saves 20 jobs while achieving the necessary cost-saving objective.

The FLSA allows employers to implement a variety of options to impose salary reductions and pay cuts, as do most state laws. A salary may be prospectively reduced without violating the “salary-basis” test of the FLSA for exempt employees, including a reduction in pay proportionate to a reduction in the number of days worked. Managers may implement furloughs and RIFs simultaneously or in a phased sequence. As with all such strategies, any applicable state and local requirements need to be determined, as federal law will defer to a state or local standard that provides a greater protection to the employee. California, as shown by the state’s decision to furlough state employees, allows furloughs to be implemented in accord with particular wage-hour requirements that must be considered.

The FLSA permits prospective adjustments to an exempt employee’s salary, including revisions to commission agreements or bonus compensation plans based on the quantity or quality of work, which do not reduce the “predetermined amount” of the employee’s salary (of course, the terms of the plans also need to be checked before changes are made). In concept, if the duties test for exemption is satisfied, the predetermined salary of, e.g., an exempt Sales Manager, could be as low as $455 per week, while the compensation the employee actually receives could be substantially higher (based upon commissions for meeting sales goals or bonuses for meeting other performance criteria). To preserve the salary basis of the exempt employee, the predetermined amount of salary would have to be paid for workweeks in which there were no commissions, or for which no bonus payments were made.

Careful strategic planning is required before implementing a furlough. Considerations include:

• Exempt salaried employees may have their salaries prospectively reduced to a lower predetermined amount so long as they stay above $455 per week. Salary adjustments may not be designed to circumvent the requirements of the FLSA.

• Hourly workers must be paid for every hour they are directed or permitted to work. Permitting “extra” work as, for example, spending more than de minimus time checking a Blackberry®, even when unauthorized, may well give rise to the obligation to pay for the time. Accordingly, managers must take the necessary steps to ensure the furlough plan realizes the necessary cost savings.

• It is a good practice to give employees clear notice specifying that no “volunteer work” is permissible and no work is to be performed unless specifically authorized by a predetermined schedule or authorization by an appropriate manager. Implementing a strict policy of prohibiting unscheduled work and having an administrative procedure to uniformly enforce the policy is well advised.

• Managers may consider asking hourly and salaried non-exempt employees for the return of employer-owned remote access devices during a furlough. Employees who access their work email accounts while on their “time off” may be working, or may start working. If they are working, even though advised not to do so, the employer may well incur wage liability, defeating the purpose of the furlough. Unauthorized work by non-exempt employees in violation of the employer’s furlough policy may generate exposure to significant wage claims. Violations of the furlough policy should be considered a serious disciplinary issue, warranting sanctions, including suspension and discharge. Withholding pay for hours actually worked, however, is not a legal option, even when the hours worked were not authorized.

• Salaries for exempt and non-exempt employees may be prospectively reduced so long as those adjustments are not so frequent as to appear designed to circumvent the requirements of the FLSA. Quarterly adjustments have been found by the U.S. Court of Appeals for the Second Circuit to be in compliance with the FLSA. Adjustments to the predetermined amounts of salary should be implemented as infrequently as feasible so as not to raise an argument that the adjustments are a pretext to avoid compliance with the FLSA.

In sum, properly implemented salary reductions should comply with the salary requirements of the FLSA. Although it requires strategic planning and careful implementation, employers may find many benefits by implementing an effective cost-savings furlough plan that saves money and jobs, versus the RIFs dominating the news.

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