Exempt or Non-Exempt? Overcoming the Latest Employee …media.straffordpub.com/products/exempt-or-non-exempt-overcoming-the... · 7 Pelton Graham LLC // Workers in the News: Energy

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Presenting a live 90-minute webinar with interactive Q&A

Exempt or Non-Exempt? Overcoming the

Latest Employee Misclassification Challenges Conducting Self-Audits, Identifying Vulnerabilities, Correcting Errors,

and Minimizing Liability Under FLSA and State Law

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

TUESDAY, AUGUST 22, 2017

Brent E. Pelton, Partner, Pelton Graham, New York

Noel P. Tripp, Principal, Jackson Lewis, Melville, N.Y.

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Employee Misclassification Challenges

Current Trends & Vulnerable Positions

Brent E. Pelton, Esq. Pelton Graham LLC

111 Broadway, Suite 1503 New York, New York 10006

[email protected]

www.peltonlaw.com 8/22/2017

mailto:[email protected]

http://www.peltonlaw.com

Uncertain Future of Federal Overtime Rules

The Obama Administration Department of Labor issued revised overtime regulations that would have raised the weekly salary threshold from $455 to $913--$47,476 annually

The revised overtime rule was struck down by a federal court less than a month before it was scheduled to be implemented and enforced. The Trump administration has indicated that it will not seek to enforce the revised regulations.

The Trump Administration Department of Labor has published another Request for Information in July, 2017 and may seek to make incremental changes to the overtime threshold or other overtime regulations

5 Pelton Graham LLC // www.peltongraham.com

Workers in the News Cheerleaders: In 2014 cheerleaders for the Cincinnati Bengals, Buffalo Bills,

Oakland Raiders and Tampa Bay Buccaneers filed lawsuits, alleging that they should be treated as employees and are owed extensive backpay.

The Buccaneers settled for over $800,000 and the Raiders for $1.25 million. A Class Member appealed the Raiders settlement, which was affirmed by the California Court of Appeals as fair, adequate and reasonable.

In May 2017, the Buffalo Bills Cheerleaders won partial summary judgment on the issue of whether two companies were joint employers of the cheerleaders. The matter remains pending.


Workers in the News: Direct Care Aides

In 2015, the Department of Labor’s final rules regarding domestic service workers were implemented, narrowing the domestic service exemption.

The domestic service exemption is are only available 1) to companionship and live-in domestic service employees 2) in situations where the employee is employed directly by the individual, family or household—the exemptions cannot be claimed by a third-party agency

“Companionship services” is defined as the “provision of fellowship and protection,” such as conversation and accompaniment on errands. Tasks relating to care with the activities of daily living must not exceed 20% of the total work hours.


Workers in the News: Energy Sector In 2015 and 2016, the U.S. Department of Labor imposed millions of dollars in fines

on oil and gas companies for violations of overtime. Common violations included misclassification of non-exempt employees, failure to include regular bonuses in calculating worker’s correct overtime rate, and failure to pay for off-the-clock hours.

Inquiries are extremely fact-specific and not tied to titles.

Tankerman: Compare Owens v. SeaRiver Maritime (5th Cir. 2001) (Tankerman was not a seaman because most of his duties were loading and unloading petroleum products from the barges) with Coffin v. Blessey Marine Services, 71 F.3d 276 (5th Cir. Nov. 13, 2014) (Tankerman who lived on vessel was a seaman and therefore exempt from overtime)

Mud Engineers: In May 2017, Fifth Circuit overturned a Texas decision finding drilling fluid specialists, also called “mud engineers.” Case was reversed and remanded because there were issues of fact as to whether their duties of stabilizing mud systems “non-manual work directly related to the general business operations.”

8


Workers in the News: Truck Drivers

McMaster v. Eastern Armored Car Services (3d Cir. Mar. 11, 2015): Truck drivers who spend 50% of their time driving vehicles weighing under 10,000 pounds are entitled to overtime under the SAFETEA-LU Technical Corrections Act of 2008.

In Jan. 2017, an Arizona judge granted summary judgment to truck drivers for Swift Transportation Co., finding that the drivers were employees, not independent contractors, thus exempting their contracts from federal and state arbitration acts, which specifcally exempt “contracts of employment” of transportation workers. Doe v. Swift Transportation Co., (D.Az. 2017). Swift has appealed the decision.


Uber/Lyft Driver Classification Ride-sharing drivers across the country have filed numerous suits seeking

minimum wage and overtime.

Uber/Lyft claim their drivers are independent contractors; drivers claim these companies exercise sufficient supervision and control that they should be considered regular employees

In July 2017, a North Carolina court conditionally certified a nationwide action brought by Uber drivers. However, in June 2017, a Florida court denied conditional certification in a similar action.

Other gig economy cases are pending. In June 2017, a California court denied summary judgment to GrubHub in a case brought by a delivery driver who claimed he was misclassified as an independent contactor.


Student Athletes In March 2014, NLRB declared Northwestern football players to be employees. In

October 2014, one student athlete filed a class action complaint against the entire NCAA for unpaid wages: Sackos v. NCAA, 14-cv-1710 (S.D.Ind. Oct. 20, 2014)

In April 2017, a California judge dismissed a class-action suit by a former college football player, finding “no legal basis” for finding player to be employee. Dawson v. NCAA (N.D. Cal. 2017). Plaintiff has appealed to the 9th Circuit.

In December 2016, the 7th Circuit ruled that track and field athletes at University of Pennsylvania were not employees under the FLSA. However, a concurring opinion in the 7th Circuit matter suggested that their reasoning might not extend to student receiving athletic scholarships in “revenue” sports such as football and basketball, since that could alter the ‘economic realty’ of the situation. Berger v. NCAA (7th Circ. 2016)

Pelton Graham LLC // www.peltongraham.com 11

Are Managers, Assistant Managers Exempt? Managers and assistant managers in particular are increasingly common

plaintiffs:

In May 2017, Wal-Mart reached a confidential settlement with assistant store managers who claimed that they did not have true managerial duties or authority but were in fact hired to do the work of hourly, non-exempt employees. Cardoza v. Wal-Mart (N.D. Cal. 2015).

In 2016, PNC Bank reached a $6 million lawsuit with assistant branch managers who claimed that they primarily performed teller duties. Briggs v. PNC Fin. Serv. Grp. (N.D. Ill. 2015)

In 2016, the Bob Evans restaurant chain settled an overtime action with assistant managers for $16.5 million. The assistant managers alleged that they performed manual duties such as cooking, cleaning, and operating the cash register and had very few managerial duties. Snodgrass v. Bob Evans Farms (S.D. Oh. 2012)


Managers and Assistant Managers: What Factors Determine Status?

Morgan v. Family Dollar, 551 F.3d 1233 (11th Cir. 2008): Managers not exempt because they spent 80-90% of time on manual labor, had duties proscribed by store manual, were closely supervised by district managers.

In re Family Dollar FLSA Litigation, 637 F.3d 509 (4th Cir. 2011): Manager exempt because she multi-tasked between managerial and manual tasks, was the highest ranking employee at the store, her income depended on store’s success, and she had authority over other employees.

Madden v. Lumber One Home Center, No. 13-2214 (8th Cir. Mar. 17, 2014): Two plaintiffs not exempt, one exempt. Court looked at level of input into personnel decisions – casual input solicited from all employees does not make an employee an executive.


Computer Workers: Rates and Duties Computer worker exemption requires careful consideration of

both how employees are paid and the nature of their work.

Jones v. Judge Technical Services, Inc., (E.D.Pa. 2010): Partial summary judgment for plaintiff. While computer workers may be paid on an hourly basis, they must be paid at least $27.63 for each hour worked, not simply an average of $27.63 for all hours worked.

Heffelfinger v. Electronic Data Sys. , (9th Cir. 2012): Two plaintiffs exempt, one not exempt. Exempt plaintiff developed standards and procedures, affected company policy by making recommendations, monitored and managed important databases, suggested solutions to meet client needs, extensively supervised employees. Non-exempt plaintiff spent little time on administrative work, main duty was creating and modifying programs to meet business needs.


Interns

Cases in a wide range of industries: movie production, magazine publishing, multimedia online content and blogging, modeling. Settlements are pricey: NBC settled with SNL interns for $6.4 million in Eliastam v. NBC Univ. Media, (S.D.N.Y. 2013); Conde Nast settled for $5.8 million in Ballinger v. Advance Magazine Publishers, (S.D.N.Y. 2013).

An SDNY judge award summary judgment to plaintiff interns against Fox Searchlight Pictures, but the Second Circuit in 2016 found the judge’s reasoning “too rigid” and remanded, ordering that the “proper question is whether the intern or the employer is the primary beneficiary of the relationship.” The case settled in 2016 with a payout of about $500 per intern. Glatt v. Fox Searchlight Pictures (S.D.N.Y. 2011).


Volunteers and Seasonal/ Recreation Establishments

Chen v. Major League Baseball No. 13-CV-5494 (SDNY Mar. 25, 2014): Claim of “FanFest” volunteer dismissed because “FanFest” is a seasonal business exempted by FLSA. Court did not decide whether Plaintiff could be considered employee based on nature of work.

Liebesman v. Competitor Group No. 14-CV-1653 (ED Mo. May 11, 2015): Court denied motion to dismiss lawsuit filed by bicycle escort for marathon and half-marathon, finding that court did not have enough information to decide whether races were amusement or recreation establishment and whether separate races counted as separate or single establishment.

16


New York Minimum Wage Updates Beginning December 31, 2016, the minimum wage in New York

State will be staggered, depending upon the location and size of the employer.

Employers in New York City will pay higher wages, followed by employers in Long Island and Westchester, with employers in the rest of New York State having a lower minimum wage.

Required minimum wage rate will also be higher for New York City employers with 11 or more employees.

The incremental changes will eventually raise all New York State workers to a $15.00 minimum wage. Employees in New York City large businesses will reach $15 in 2019, employees in NYC small business in 2020, employees of Westchester and Long Island businesses 2022, and sometime thereafter for employees throughout the rest of the state.


New York Construction and Commercial Goods Transportation Fair Play Acts NYS Construction Fair Play Act and

NYS Commercials Goods Transportation Fair Play Act

Workers in these industries presumed to be employees unless the worker meets one of two tests:

“ABC” test: A) is free from control and direction in performing work, B) performs duties outside employer’s usual course of business and C) engages in an independently established business; OR

“Separate business entity” test: Meets 12 criteria, focusing on worker’s independence as to manner of work, financial independence from employer, independence as to business operations


Related FLSA Questions: Unclean Hands and Salary Deductions

Employee responsibility for under-reporting: Bailey v. TitleMax of Georgia, Inc. (11th Cir 2015): Where supervisor instructed employee to work off-the-clock and edited his time records, employee’s claim for overtime where he under-reported his hours worked in violation of company policy was not barred by unclean hands defense.

Salary deductions: Ellis v. J.R.’s Country Stores, Inc., 2015 U.S. App. LEXIS 3667 (10th Cir. Mar. 9, 2015): Although salary deductions can transform salaried employee into non-exempt, one single salary deduction did not transform manager into non-exempt employee.


FLSA Settlement Approval under Cheeks Cheeks v. Freeport Pancake House, Inc. (2d Cir. 2015). The Second Circuit held

that courts must approve private FLSA settlements and the parties may not simply file a stipulation of dismissal.

Second Circuit was concerned about several aspects of the Cheeks settlement, including a highly restrictive confidentiality provision, a broad release waiving every possible claim against defendants including unknown and unrelated claims, attorney fee provisions providing for an award of over 40% of the settlement, and a promise by attorneys not to represent anyone bringing similar claims against the employer.

Courts in the Second Circuit have simultaneously tended to disfavor high FLSA multipliers, finding the lodestar multipliers of around 2 are appropriate for most FLSA matters.


21

Pelton Graham LLC // www.peltongraham.com

In 2015, the number of FLSA lawsuits brought by employees against

employers reached a record high of over 8,500 cases.

Source: TSheets (https://www.tsheets.com/flsa-research-tool) and US Courts (www.uscourts.gov)

21

Noel P. Tripp

Principal

Long Island Office

August 22, 2017

Salary Basis and Other Current Exemption Considerations

Salary Basis

Salary basis test:

• Employee must be paid a predetermined and fixed salary

that is not subject to reduction because of variations in the

quality or quantity of work performed.

Salary level test:

• The amount of salary paid must meet a minimum specified

in the regulations.

Duties test:

• Primary duties must involve executive, administrative, or

professional duties, as defined in regulations.

23 23

Salary Basis -- FLSA

Following Puzder’s withdrawal, Trump nominated Alexander

Acosta.

• Sworn in on April 28, 2017

• 27th Secretary of the US DOL

• Former republican member of the NLRB

• Dean of Law School at FIU

• Earned his undergraduate and law degree from Harcard

“Unlike Andy Puzder, Alexander Acosta’s nomination deserves serious

consideration,” said organized labor representative Richard Trumka.

“In one day, we’ve gone from a fast-food CEO who routinely violates

labor law to a public servant with experience enforcing it.”

Under Trump, the DOL is expected to be more business-

friendly, and to shift its focus to achieving compliance

rather than aggressive enforcement

24


Obama Administration’s Salary Level Increase

$47,476

[$913/week]

$23,660

[$455/week]

Not so fast…

25


• State of Nevada, et al. v. U.S. Department of Labor

• November 22, 2016 - Texas Federal District Judge Arnos

Mazzant III enjoins implementation of the rule

• DOL appeals to 5th Circuit Court of Appeals

• DOL has just filed their reply brief on appeal – they are

contesting the District Court’s finding that they do not

have authority to establish the salary basis, but are not

advocating for the salary basis set forth in the rule

• Acosta has signaled willingness to raise to low $30,000s

• Generally speaking employers have followed the

injunction and not changed their practices. Alvarez v.

Chipotle (D.N.J., Complaint filed June 7, 2017)

challenges position

26


July 26, 2017 – DOL issues request for information seeking

public comment on eleven questions, including:

• Whether the salary threshold should vary based on factors like

size of employer, census region, census division, state,

metropolitan statistical area, or some other method;

• Whether executive, administrative and professional

employees should be subject to different salary thresholds;

• Whether employers increased salaries of exempt employees

(to $913 or more) in anticipation of the overtime rule going

into effect or whether employers adopted other strategies to

deal with employees who would have been newly eligible for

overtime pay under the rule;

• Whether a test for exemption that relies solely on duties (and

does not consider salary) would be preferable, and, if so, what

duties should be included; and

• Whether the salary threshold should be automatically updated

from time to time, and, if so, how updates should be

calculated.

27


Deadline to respond to RFI is September 25, 2017

Possibility of reversal by Fifth Circuit, with potential for

retroactive application of rule to December 1, 2016.

28

Salary Basis – State Law

New York Labor Law

New York Department of Labor Minimum Wage Orders

• Miscellaneous Industries and Occupations

• Hospitality Industry Wage Order

New Wage Orders implemented on 12/31/16: splits the

state up into size and geographic regions

Distinction between overtime exemption under state law

and “employee” exclusion

29

NYC Large Employer

“Salary Basis” Increases

30

Date State Salary Basis Amount (per

week)

12/31/2016 $825

12/31/2017 $975

12/31/2018 $1,125

12/31/2019 $1,125

12/31/2020 $1,125

12/31/2021 $1,125

30

NYC Small Employer


31

Date State Salary Basis Amount (per week)

12/31/2016 $787.50

12/31/2017 $900

12/31/2018 $1,102.50

12/31/2019 $1,125

12/31/2020 $1,125

12/31/2021 $1,125

31

“Long Island & Westchester” Salary Basis

Increases

32


12/31/2016 $750

12/31/2017 $825

12/31/2018 $900

12/31/2019 $975

12/31/2020 $1,050

12/31/2021 $1,125

32

Remainder of NY State


33


12/31/2016 $727.50

12/31/2017 $780

12/31/2018 $832

12/31/2019 $885

12/31/2020 $937.50

12/31/2021 $937.50

33

Strategies for Responding to Salary Level

Changes

Identify employees who no longer meet the salary level test.

Then:

1) Raise salary levels and consider other changes to

compensation package;

2) Reclassify: hourly, salaried non-exempt, fluctuating

workweek. Numerous legal and costing considerations

associated with each.

34 34

Executive Employees Are Employees….

Whose primary duty is management of the enterprise in

which the employee is employed or of a customarily

recognized department or subdivision thereof;

Who customarily and regularly directs the work of two or

more other employees; and

Who has the authority to hire or fire other employees or

whose suggestions and recommendations as to hiring,

firing, advancement, promotion or any other change of

status of other employees are given particular weight.

Exemptions: Executive Employees

35

Executive Exemption: Common Litigation Issues

Management is a duty, but not the primary one.

Employee’s hiring and firing power is purely theoretical.

Employee does not really have much discretion.

Jobs commonly challenged as misclassified exempt

executives:

• Foreman

• Crew Leader or Line Leader

• Assistant Manager

• Shift Manager

• [Insert name of department here] Manager

• [Insert verb or noun here] Supervisor

36

Exemptions: Professional Employees

Professional Employees Are Employees…

Whose primary duty is the performance of work requiring

knowledge of an advanced type (defined as work which is

predominantly intellectual in character, and which includes

work requiring the consistent exercise of discretion and

judgment) in a field of science or learning customarily

acquired by a prolonged course of specialized intellectual

instruction;

or

Whose primary duty is the performance of work requiring

invention, imagination, originality or talent in a recognized

field of artistic or creative endeavor.

37

Examples of Learned Professionals

Accountants;

Athletic trainers;

Licensed funeral directors and embalmers;

Nurses;

Physician assistants;

Lawyers and Doctors (no salary basis requirement under

FLSA);

Registered or certified medical technologists; and

Paralegals are generally not learned professionals.

38

Professional Exemption: Common Litigation Issues

Degree not necessary for the job

Discretion and judgment (a recurring theme)

Jobs commonly challenged in litigation:

• Junior accountants

• Junior engineers and construction management ee’s

• Social workers

• Paralegals

39

Exemptions: Administrative Exemptions

Administrative Employees Are Employees…

Whose 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

Whose primary duty includes the exercise of discretion and

independent judgment with respect to matters of

significance.

40

Tax

Finance

Accounting

Auditing

Quality Control

Purchasing

Procurement

Advertising

Marketing

Research

Safety and Health

Personnel Management

Human Resources

Employee Benefits

Public Relations

Labor Relations

Government Relations

Insurance

Management or General Business Operations

41

Has authority to formulate, affect, interpret, or implement policies/practices.

Carries out major assignments in conducting the operations of the business.

Performs work that affects business operations to a substantial degree, even if

employee’s assignments are related to a particular segment of the business.

Has authority to commit Company in matters that have significant financial impact.

Has authority to waive or deviate from established policies/procedures without prior

approval.

Has authority to negotiate and bind Company on significant matters.

Provides consultation or expert advice to management.

Involvement in planning long- or short-term business objectives.

Investigates and resolves matters of significance on behalf of management.

Represents Company in handling complaints, arbitrating disputes, or resolving

grievances.

An Exempt Administrative Employee:

42

Administrative Exemption: Common Litigation Issues

Not “directly related to” management or general

operations: production, not “administrative”.

Independent judgment and discretion!

• Evaluating and choosing among different courses of

action.

• Not mere application of skill – even if it’s a great skill.

• Any white-collar business or department.

43

Independent Contractor or Employee? The Fair Labor Standards Act defines an employee as any

individual employed by an employer. 29 U.S.C.

§203(e)(1).

On the other hand, an employer is defined as “any person

acting directly or indirectly in the interest of an employer

in relation to an employee . . . .” 29 U.S.C. §203(d).

It is clear, therefore, that the FLSA does not cover

independent contractors.

Independent contractor status, however, is not determined

by issuance of 1099s.

Independent Contractor

44


Instruction of Worker;

Training;

Integration of Services;

Personal Nature of Services;

Similar Workers;

Cont. Relationship;

Hours of Work

Full Time Work;

Work on Premises;

Order of Performance;

Submitting Reports;

Method of Payment;

Payment of Expenses;

Tools and Materials;

Investment;

Profit or Loss;

Exclusivity of Work;

Available to General Public;

Right to Discharge;

Right to Quit.*

*No one factor is

determinative.

45

Shortened Version - Courts Saleem v. Corp. Transp. Group, Ltd., 854 F.3d 131 (2d Cir.

Apr. 12, 2017) – Focus is on whether, as a matter of

economic reality, the worker is economically dependent

upon the alleged employer or is instead in business for

himself. Five non-exhaustive factors:

(1) the degree of control exercised by the employer over the workers,

(2) the workers' opportunity for profit or loss and their investment in

the business, (3) the degree of skill and independent initiative required

to perform the work, (4) the permanence or duration of the working

relationship, and (5) the extent to which the work is an integral part of

the employerʹs business.


46

Summary of Fluctuating Workweek § 778.114(a) DOL

Regulation:

• Requirements:

• Hours of work fluctuate from week to week.

• Salary paid pursuant to “clear mutual understanding of the

parties” that fixed amount is straight time pay for whatever

hours worked in a workweek, whether few or many.

• Salary is sufficient to compensate at a rate not less than

minimum wage for every hour worked.

• Employer pays fixed salary during workweeks when full

schedule of hours is not worked.

• Result:

• Overtime hours paid at one-half regular rate of pay, which varies

from week to week depending on the number of hours worked.

• Theory: OT pay requirement is satisfied because hours over 40

have already been compensated at the straight time rate. 47

Misclassification in Litigation: Remedies

47

Fluctuating Workweek and Misclassification Damages are not the

same thing

• Most circuit courts hold FWW compliance not necessary or

applicable in misclassification cases. See, e.g. Urnikis-Negro v.

Am. Family Prop. Servs., 616 F.3d 665 (7th Cir. Ill. 2010);

Clements v. Serco, Inc., 530 F.3d 1224 (10th Cir. 2008).

• Some district courts have required variation on FWW:

“rebuttable presumption” that salary does not cover all hours.

• Key inquiry is what hours salary “intended to compensate.”

48

Misclassification in Litigation: Remedies

48

Documents

Exempt or Non-Exempt? Overcoming the Latest Employee …media.straffordpub.com/products/exempt-or-non-exempt-overcoming-the... · 7 Pelton Graham LLC // Workers in the News: Energy