How to Pay “By the Hour” Without Losing the Overtime Exemption

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Employees can be paid “by the hour” and still be exempt from overtime under the FLSA

Many employers believe that all salaried employees are exempt from overtime:  “I pay them a salary.  So, I don’t owe them overtime.”  That belief is dangerous.  The salary requirement is only one part of the FLSA’s overtime exemption.  The employee must also fit within the FLSA’s categories of Executive, Administrative or Professional (“EAP”) employees.   The EAP analysis can be extensive, and that analysis is outside the scope of this blog post.  For our purposes, assume that you have an employee who is an Executive, Administrative or Professional employee, and they are promised an annual salary of $23,660 or more.  It may be possible to compute that employee’s salary “by the hour” without losing the overtime exemption.

On November 8, 2018 the U.S. Department of Labor’s Wage and Hour Division (“DOL”) published an opinion letter that provides some guidance.  Here is a link to that opinion letter: FLSA2018-25.

The “salary basis” test is satisfied when an employee “regularly receives each pay period … a predetermined amount … not subject to reduction because of variations in the quality or quantity of the work performed.” 29 C.F.R. § 541.602(a).  This is the key:  a “salaried” employee must receive a guaranteed amount that is not subject to reductions based upon quality or quantity of work.  So long as the employee receives that “predetermined amount,” employers have great discretion in their method for calculating the amount.

An exempt employee’s earning may be computed on an hourly, a daily or a shift basis, without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis regardless of the number of hours, days, or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount earned.

Snipes v. Northeast Pharmaceuticals, Inc., No. 2:11-cv-1000-SRW, 2013 WL 757628 at * 6 (M.D. Ala. Feb. 27, 2013) (citing 29 C.F.R. § 541.604(b)).

DOL Opinion FLSA2018-25 goes a step further and analyzes whether an employee loses the overtime exemption by working too many hours beyond the guaranteed “predetermined amount.”  In that opinion, an employer paid engineers a guaranteed weekly salary of $2,100, determined by multiplying $70 per hour by 30 hours per week.  Even if the engineer worked less than 30 hours, he/she still received $2,100.  The employer also paid the engineers an extra $70 per hour if they worked beyond 30 hours.

DOL found that the extra pay  beyond 30 hours was permissible, so long as there was a “reasonable relationship” between the guaranteed amount and the amount actually earned.  “A ‘reasonable relationship’ exists when ‘the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly … rate for the employee’s normal scheduled workweek.'”  Ultimately, the DOL found that an employee can earn up to 1.5 times the guaranteed “predetermined amount” without losing the exemption.  But, if an employee received as much as 1.8 times the guaranteed “predetermined amount,” they might be considered an hourly employee who is not exempt.

Obviously, these issues are complex.  If you want to compute your salaried employees’ pay “by the hour,” you should consult with your employment attorney.

 

 

Warning: You Might Be Required to Pay Employees for Meal Breaks

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If you require employees to work during lunch, they may be entitled to pay.

Are you paying employees for the time they spend on meal breaks?  Most employers don’t.  That’s because the Fair Labor Standards Act and its implementing regulations clearly provide:  “Bona fide meal periods are not worktime.”  29 C.F.R.§ 785.19(a).  Some employers rely upon that general regulation and simply refuse to pay employees who take a meal break.  That over-generalization can be costly, because it ignores the requirement that a meal period be “bona fide.”  A meal break is only bona fide if the employee is “completely relieved from duty for the purposes of eating regular meals.”  Id.

The United States Department of Labor provides some guidance on this issue here:  Breaks and Meal Periods.  Typically, a bona fide meal period lasts at least 30 minutes. Short breaks of 5 to 20 minutes are generally considered compensable work time.

The key issue here is whether the employee is “completely relieved from duty” during meals.  That was the focus of the Eleventh Circuit’s recent opinion in Cooley v. HMR of Alabama, Inc., No. 18-10657, 2018 WL 4232041 (11th Cir. Sep. 6, 2018).  In Cooley, the plaintiffs were nursing assistants and licensed practical nurses.  They claimed that during meal breaks they “cared for patient needs” and “tended to patients,” but were not paid for that time.  They sued under the FLSA, but a trial judge dismissed their complaint — finding that it failed to adequately state a claim under the law.

The Eleventh Circuit reversed that decision.  The court found that the employees’ allegations stated a plausible claim that they were not “completely relieved from duty.”  Even so, the employer raised an additional defense.  In order to be compensated, the nurses needed to be performing an activity that was a “principal activity” or “integral and indispensable to the principal activities that an employee is employed to perform.”  The employer argued that the nurses’ allegations were so vague that it could not determine if they were performing a “principal activity” during the meal breaks.  The Eleventh Circuit quickly rejected that argument, finding that “[i]t is reasonable to assume that caring for and tending to patients during the workday is a ‘principal activity’ of a nursing home employee, especially when that employee is employed in at least some capacity as a nurse.”

The Eleventh Circuit’s opinion does not mean that the nurses have won their lawsuit.  Instead, they are simply being given the chance to proceed and prove their case.  The employer still might win if it can demonstrate that the employees were “completely relieved from duty,” or not performing a “principal activity” during the meal breaks.  Nevertheless, Cooley provides an important reminder that employers should carefully review their meal break policies and ensure that employees are “completely relieved from duty” if they are not being paid.

Employer Pays $25K in Arbitration Admin. Fees for $7K FLSA Claim.

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Sometimes, the fees associated with arbitration will cost more than the actual claim made by the employee.

Just because you’ve got the right to arbitrate a claim doesn’t mean that you have to arbitrate that claim.  If you’ve read my blog before, you know that arbitration is a great form of alternative dispute resolution for many claims.  But, employers should think carefully before arbitrating employment disputes:  Arbitration Isn’t Always Good for Employers.  In conducting that analysis, one factor for employers to consider is the amount of fees that they will pay to an arbitrator in comparison to the value of the employee’s claim.

In Hernandez v. Acosta Tractors, Inc., No. 17-13057, 2018 WL 3761126 (11th Cir. Aug. 8, 2018), the Eleventh Circuit Court of Appeals confronted an employer who was having second-thoughts about the wisdom of arbitrating a claim under the Fair Labor Standards Act.  (“FLSA”).  Julio Hernandez claimed that his employer, Acosta Tractors, failed to pay him overtime.  Mr. Hernandez sued in federal court and Acosta Tractors moved to dismiss the case because he signed an arbitration agreement.  The judge agreed, and dismissed Mr. Hernandez’s case in favor of arbitration.

Acosta Tractors soon began to experience sticker-shock with the arbitration process.  Mr. Hernandez was one of three employees who were arbitrating FLSA claims.  Acosta Tractors asked the arbitrator to consolidate the three proceedings into one, but the arbitrator refused.  The arbitrator also ordered 29 depositions to be taken in the three separate proceedings.

At this point, I need to be clear:  an arbitrator is essentially a paid judge.  Every time the arbitrator works on a case, he bills the parties for his work — usually at rates of $350.00 per hour or more.  Additionally, if a third-party organization, like the American Arbitration Association is involved, they will charge for their work on the case.  As a result, administrative fees quickly add up.

In Acosta Tractors’ case, it received bills for administrative fees in the amount of $33,100 and $43,640 in the other two cases, and $25,875 in Mr. Hernandez’s case.  At this point, faced with over $100,000 in administrative fees, Acosta Tractors cried “uncle,” and tried to go back to federal court.  It refused to pay the arbitration fees, and asked the federal judge to re-assert control over the case.  But, the judge was not pleased.  He found that Acosta Tractor defaulted in arbitration, and thus was also in default in federal court.  Ultimately, the judge entered a default judgment in Mr. Hernandez’s favor in the amount of $7,293.00.

On appeal, the Eleventh Circuit vacated the judge’s ruling for further consideration.    The Eleventh Circuit found that the trial judge should not have entered a default judgment based solely upon the failure to pay administrative fees in arbitration.  Instead, the Eleventh Circuit directed the trial judge to determine whether Acosta Tractors “acted in bad faith in choosing not to pay its arbitration fees.”  The court suggested that a “good faith inability to afford the arbitration fees” would be a factor in Acosta Tractors’ favor, but also noted that its decision “to abandon arbitration after getting adverse rulings from the arbitrator certainly looks like forum shopping.”

To me, the biggest lesson for employers to learn from Hernandez is:  “look before you leap.”  Arbitration is going to be expensive for everybody involved.  In Mr. Hernandez’s case, Acosta Tractors was billed $25,875 in administrative fees on an overtime claim that was worth $7,293.  With the benefit of hindsight, it looks like Acosta Tractors could have saved money by keeping this FLSA case in federal court.

When is an Employer not an “Employer”? FLSA v. Common Law

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The term “employer” has different meanings under the FLSA and common law.

Some British playwrite once wrote:  “That which we call a rose by any other name would smell as sweet.”  I’ve always interpreted that line to suggest that names are not nearly as important as substance or context.  The Eleventh Circuit recently issued an entertaining opinion recognizing this important issue in the employment law arena.  See Garcia-Celestino v. Ruize Harvesting, Inc., No. 17-12866, 2018 WL 3652010 (11th Cir. Aug. 2, 2018)(“Garcia-Celestino II“).  In Garcia-Celestino II, the Court was required to examine the intricacies of the term “employer” — and discuss the differences in that term under the Fair Labor Standards Act (“FLSA”) and the common law.

Judge Rosenbaum began his opinion:  “The English language contains many examples of homonyms —  ‘words that have the same sound and often the same spelling but differ in meaning’ ….”  He then suggested that the terms “employer” and “control” are “legal homonyms” that have “different meanings under the FLSA and the common law.”

Judge Rosenbaum also noted that this was the second time that the case came before the Eleventh Circuit.  Indeed, I wrote about the first Garcia-Celestino opinion, and the significance of control over contract labor here:  Migrant Farm Workers and the FLSA.  In the first Garcia-Celestino opinion, the Eleventh Circuit found that orchard owner Consolidated Citrus was a joint employer under the FLSA with Ruiz Harvesting — the company from which it contracted migrant labor.  But, the court remanded the case to the trial court to determine if Consolidated Citrus was also a joint employer for breach-of-contract purposes under the common law.  The trial court concluded that Consolidated Citrus was an “employer” for purposes of the common law.

Judge Rosenbaum’s opinion in Garcia-Celestino II reversed the trial court and found that Consolidated Citrus was not a joint employer under a breach of contract theory.  In short, Consolidated Citrus was an “employer” for purposes of the FLSA, but not for breach of contract. Under both the FLSA and the common law, “control” over a worker is important for determining whether her or she is employed.  But, the FLSA created “one of the broadest possible delineations of the employer-employee relationship.”  In contrast, a common law analysis “results in a much narrower analytical approach.”  “Under the common law, we must look at only who controls ‘the manner and means’ and ‘the details of the work,’ giving no consideration to ‘mere economic control or control over the end result of the performance.'”

Judge Rosenbaum then conducted an extensive analysis which largely focused on control over the “manner and means” of the migrant workers’ labor.  At the end of that analysis, he (along with Judge Tjoflat and Judge Ungaro) concluded that Consolidated Citrus was not a joint employer of the migrant workers for purposes of the common law.

The Garcia-Celestino saga is a nice microcosm of employment law.  Facts matter.  Claims matter.  The applicable law matters.  Under a single set of facts, a company can be liable as an “employer” under one claim (FLSA), but not liable under another (breach of contract).   With a good understanding of these intricacies, some employers can emerge from a lawsuit smelling like a rose.

 

 

FLSA: Law Enforcement Not Entitled to Pay for Certain Activities

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Under the FLSA, law enforcement officers are not entitled to compensation for the time they spend donning protective gear before work, or for the time they spend commuting to and from work.

The Eleventh Circuit has found that law enforcement officers are not entitled to pay for certain activities that occur before and after their work shifts.  See Llorca v. Sheriff, Collier County, No. 17-11377, 2018 WL 3134544 (11th Cir. Jun. 27, 2018).  In particular, the Fair Labor Standards Act (“FLSA”) does not require compensation to law enforcement for:  (1) putting on and taking off protective equipment (“donning and doffing”) before and after a work shift; or, (2) commuting to and from work in a marked patrol vehicle.

The Portal-to-Portal Act of 1947, as amended by the Employee Commuting Flexibility Act of 1996, provides that an employer is not required to pay employees for time travelling to and from work, or for activities that are “preliminary to or postliminary to” the “principal activity” of the job.  The United States Supreme Court has further found that preliminary or postliminary work is only compensable if it is an “integral and indispensable part of the principal activities.”  The Eleventh Circuit’s decision in Llorca focused on the “integral” and “indispensable” standards.

The employees in Llorca were Deputy Sheriffs in Collier and Lee County, Florida.  They were required to arrive at work wearing the following protective gear:  a “duty belt,” a radio case, pepper mace, a baton strap, a magazine pouch, a radio, a flashlight, handcuffs, a holster, a first-responders pouch, and a ballistics vest.  They also commuted to and from work in marked patrol vehicles.  The Sheriffs required their deputies to listen to radio calls while commuting, and respond to major calls and emergencies.  The deputies were also required to observe the roads for traffic violations and engage in general traffic law enforcement.  While the deputies were compensated for any time responding to emergencies and enforcing traffic laws, they were not compensated for time commuting while listening to their radios and observing the roads.

The Eleventh Circuit found that donning and doffing protective gear is not “integral” to a law enforcement officer’s principal activities.  The gear itself might be “indispensable” to a deputy.  But, the donning and doffing process is not an intrinsic element of law enforcement.  The Court was particularly persuaded by a 2006  Department of Labor memorandum finding that donning and doffing might be compensable “where the changing of clothes on the employer’s premises is required by law, by rules of the employer, or by the nature of the work.”  But, “if employees have the option and the ability to change into the required gear at home, changing into that gear is not a principal activity, even when it takes place at the plant.”

The Eleventh Circuit found that listening to the radio for calls and general traffic monitoring were not “indispensable” activities for deputies.  The court first relied upon a policy argument, noting that “traffic violations multiply if there is an appearance among the public that traffic enforcement is law.  Thus, it would be highly inappropriate for uniformed officers to drive to and from work in marked patrol vehicles without observing the roads for traffic violations and other incidents.”  The Court also relied upon a DOL regulation holding that a police officer “is not working during the travel time even where the radio must be left on so that the officer can respond to emergency calls.”  29 C.F.R. § 553.221(f).

The Llorca opinion is a significant win for employers in law enforcement.  Additionally, it provides additional guidance to all employers on “donning and doffing” requirements.

DOL Announces New Overtime Audit Program

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The DOL’s PAID program hopes that voluntary audits will result in better compliance with overtime and minimum wage requirements.

On March 6, 2018, the United States Department of Labor’s Wage and Hour Division (“WHD”) announced a new, voluntary audit program aimed at improving employers’ compliance with overtime and minimum wage requirements.  The program is called the Payroll Audit Independent Determination (“PAID”) program.  Here is a link to the DOL’s question-and-answer sheet on PAID:  Coming Soon: PAID

At this point, details on the program are scarce.  It will be a pilot program for six months, after which WHD will evaluate its effectiveness.  All employers covered by the Fair Labor Standards Act (“FLSA”) will be eligible to participate.  Employers will self-audit their compensation practices and identify potentially non-compliant wage practices.  They will then identify the potential violations to WHD.  Potentially, employers can benefit from this program because WHD will not require them to pay liquidated damages or civil monetary penalties for any voluntarily-disclosed violations.

WHD’s Acting Administrator, Bryan Jarrett, wrote an op-ed for The Hill discussing the new program, and it can be found here:  PAID Program a Win-Win-Win.  One interesting aspect of Mr. Jarrett’s op-ed is his observation that current laws prevent “employers from simply paying the wages due to conclusively settle overtime or minimum wage violations.”  That statement correctly recognizes that the only way to conclusively settle an FLSA claim is through litigation and a settlement in which a Judge finds the settlement fair and reasonable for the employee.  Rather than facing the issues arising from such suits, some employers simply refuse to pay money legally owed to an employee.

As with any new area of the law, the devil is in the details.  I will keep an eye out for details on the PAID program as they emerge, and attempt to keep you up-to-date.

Snow Day! Issues for Alabama Employers

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Snow days present several problems for Alabama employers

Snow Day!  It’s a glorious phrase to school kids everywhere, and a massive pain for employers.  Here in North Alabama, commerce was dragged to a halt yesterday by a dusting of snow.  While my friends in the North scoff, we play it safe in the Deep South even when there’s a possibility of ice.  As a result, employers need to think about the legal ramifications of inclement weather.

Let’s first focus on the “coldhearted” (pun intended) employers out there.  Some businesses cannot or do not close in the face of snow.  While surfing Twitter yesterday, I came across this interesting news story from Memphis:  Employers Can Legally Fire You for Not Coming To Work In Bad Weather.  It provides a correct analysis of the employee-at-will doctrine and its application to snow days — both in Tennessee and Alabama.  In most cases, if an employee does not possess an employment contract, and refuses to come to work because of weather, he or she can be terminated from employment.

Most employers will probably be more concerned about whether they are required to pay employees for snow days.  This question implicates the Fair Labor Standards Act (“FLSA”).  If the employer closes the business because of weather, it is not required to pay hourly, non-exempt employees for the time off.  The employer can allow such employees to use Paid Time Off to cover the absence, or consider the time-off unpaid.  As a practical matter, many employers pay employees, even though it’s not required, in the interest of employee relations.

Weather days for overtime-exempt employees are more difficult.  If an employer is open-for-business, but the employee chooses to stay home, the employee is not entitled to pay for the day.  The employer can dock the employee’s salary in full-day increments without violating the salary-basis test of the FLSA.  In contrast, if the employer closes the business, the employee’s full salary must be paid for the week — even though he or she may not have worked a full work week.

For Alabama employers, I hope that this post helps you to enjoy the snow while understanding your obligations to employees.

 

Nothing to Dance About: FLSA and Adult Entertainment

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Dancers at adult clubs claim that they are “employees” under the FLSA.

I’m sure you will surprised to hear this:  allegedly employers in the adult entertainment industry aren’t vigilant about complying with the law.  I previously wrote about the dangers of age discrimination at a “gentlemen’s club” in South Alabama here:  Age Discrimination and Dancers.  Now, one entertainer at a North Alabama landmark, Jimmy’s Lounge, has apparently decided to claim a violation of her rights to fair pay under the Fair Labor Standards Act (“FLSA”).  See Miller v. JAH, LLC, No. 5:16-cv-01543-AKK, 2018 WL 305819 (N.D. Ala. Jan. 5, 2018).

In an attempt to adequately describe Jimmy’s Lounge for non-Huntsvillians, I went to their Facebook page.  Their cover photo is a woman who is scantily “clothed” — in pizza.  Their “about” description is short:  “#1 Gentlemen’s Club.”  Hopefully, you get the picture.

Breeana Miller has decided to sue this renowned establishment, claiming that she is an employee who hasn’t been paid correctly under the FLSA.  Additionally, Ms. Miller has asked United States District Court Judge Abdul Kallon to certify a class action of all people who danced at Jimmy’s from September 16, 2013 to September 16, 2016.  The opinion released by Judge Kallon last week discussed that request for class certification and sheds some light on Ms. Miller’s claims.

Ms. Miller claims that Jimmy’s dancers are employees, covered by the FLSA, but they are not paid minimum wage as required by the FLSA.  Instead, their sole pay comes from the tips of patrons.  Ms. Miller claims that she is an employee because Jimmy’s maintains control over the terms and conditions of her work, including:  paying “tip out” fees to management and other non-tipped employees; requiring them to report to work at specific times with specific shifts; setting the prices of private dances; and, imposing monetary penalties for absences, lateness, leaving early, and their weight.

Jimmy’s denies that the dancers are employees, and instead claims the dancers are independent contractors.  Only employees can sue for violations of the FLSA.  Judge Kallon’s opinion does not provide much information discussing the details of Jimmy’s independent contractor defense.

Federal judges frequently grant conditional certification of a class in FLSA actions, and allow plaintiffs like Ms. Miller to contact potential class members.  Judge Kallon’s opinion discussed an interesting request by Ms. Miller to contact former dancers by e-mail and text message — claiming that dancers tend to move frequently.  Judge Kallon denied that request for now, and he seemed particularly reluctant to allow contact by text message.  Nevertheless, he seemed open to reconsidering the request if traditional contact by mail was unsuccessful.

I will try to keep tabs on this case and keep my faithful readers updated.  In the interim, if you assume that Ms. Miller’s accusations are true, the best lesson to be learned is one that I’ve talked about before.  Merely labeling somebody an “independent contractor” does not automatically prevent them from being considered your “employee”:  How “Independent” Are Your Independent Contractors.  The test for determining whether a worker is an “employee” for purposes of the FLSA can be a complex one, and it will be interesting to see what the evidence reveals as this case goes on.

 

 

 

FLSA: Litigating On Principle Costs $210K in Attorneys’ Fees

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In FLSA claims, employers which litigate “as a matter of principle” may wind up paying big money in attorneys’ fees if they lose.

Last week, Judge David Proctor issued a decision in a Fair Labor Standards Act (“FLSA”) case, which provides a warning to employers who want to litigate claims “as a matter of principle.”  See Lopez-Easterling v. Charter Communications, Inc., No. 2:14-cv-01493-RDP, 2017 WL 6406520 (N.D. Ala. Dec. 15, 2017).  Karen Lopez-Easterling sued her employer, Charter Communications, for overtime violations.  On May 18, 2017, a jury awarded her $5,355.72 as payment for those violations.

The FLSA permits a “prevailing party” to recover their attorneys’ fees.  Ms. Lopez-Easterling’s three attorneys spent 507.8 hours working on the case at rates between $325.00 and $450.00 per hour.  Thus, they asked Judge Proctor to award them $215,685.00 in attorneys’ fees.

Judge Proctor’s opinion largely granted the request for fees.  After some additions and a few reductions, Judge Proctor awarded $211,710.00 in fees.  The opinion strongly suggests that Charter Communications’ attitude towards the litigation influenced the fee award.  Judge Proctor discussed the fact that Charter “made crystal clear that it had no interest in resolving the case and exercised its right to ignore all of Plaintiff’s proposals.”    He also noted that Charter brought a “contest everything” approach to the litigation.  Finally, Charter’s own communications with the Judge during pre-trial conference may have been the deciding factor:

[Charter] had multiple opportunities to resolve this case prior to trial and chose not to do so.  [Charter] stated that it was not interested in settlement and was trying the case on principle.  In light of that position, the court gave [Charter] a warning that went something like this:  “you have the absolute right to take that position, but if you lose at trial — in for a dime, in for a dollar.”

Clients frequently want to go to court “as a matter of principle.”  But, principles can frequently be costly.  In this case, Charter could have settled for a relatively small payment early in the litigation, and avoided the substantial fee that Judge Proctor required after trial.  Instead, Charter will face a triple-threat of losses:  (1) $5,355.72 in overtime payments; (2) $211,710.00 in payments to the employee’s attorneys; and, (3) payments to their own attorneys of at least that amount.

 

Take Your Son to Work: Trainee or Employee under the FLSA?

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Employees are entitled to pay under the FLSA, but uncompensated trainees are not.

Under the Fair Labor Standards Act (“FLSA”)  “employees” are entitled to pay, but uncompensated “trainees” are not.  The Eleventh Circuit Court of Appeals recently wrestled with the issue of whether a son, who was “learning the business” from his father, was an employee or trainee.  Axel v. Fields Motorcars of Fla, Inc., No. 16-13829, 2017 WL 4461014 (11th Cir. Oct. 6, 2017).

Michael Axel worked as an automobile wholesaler for Fields Motorcars.  He asked the General Manager of Fields to hire his son, Scott Axel, but the General Manager claimed that Fields was not hiring any new employees.  Ultimately, the General Manager and Michael agreed on an arrangement under which Michael would hire Scott as his own employee and teach Scott how to become an automobile wholesaler.  Each day, Scott would arrive at work with his father, review inventory, attend a daily used-car meeting and then go to lunch.  After lunch, Scott posted cars on an internet website for Fields, discussed cars that could be listed for sale, and researched cars that were for sale at auction.  Over the course of his work, Scott purchased sixty or seventy cars for Fields.

After Michael was terminated from employment by Fields, Scott sued and claimed that he was an employee of Fields who was denied pay in violation of the FLSA.  Fields claimed that Scott was not entitled to pay because he was an uncompensated “trainee.”  A trial court in Florida agreed with that argument and dismissed Scott’s claims.  The Eleventh Circuit, however, found that more information was needed.

The court’s analysis borrowed from earlier decisions analyzing whether academic “interns” were entitled to compensation under the FLSA.  The “intern” test analyzes seven factors, which focus heavily on the academic nature of internships.   For non-academic “trainees,” the Court focused on:

  1. The extent to which the trainee and the employer clearly understand that there is no expectation of compensation.  Any promise of compensation, express or implied, suggests that the trainee is an employee — and vice versa.
  2. The extent to which the training period is limited to the period in which the trainee receives beneficial learning.
  3. The extent to which the trainee’s work complements, rather than displaces, the work of paid employees.
  4. The extent to which the trainee and the employer understand that the training opportunity is conducted without entitlement to a paid job at the conclusion of training.

The results of those factors were inconclusive.  The first and fourth favored Fields because Scott clearly understood that he was working without pay, and understood there was no promise of a job at the completion of training.  But, the other factors somewhat favored Scott.  The training period was of indefinite duration, and he did the work of other Fields employees when he did the online work for car sales.

The Court also noted that the analysis was not an “all or nothing” proposition.  Scott could have been a trainee at times and an employee at others.  As a result, the Eleventh Circuit vacated the dismissal of Scott’s claims and remanded the case back to the trial court.

The Axel case demonstrates how complex the issue of “interns” and “trainees” can be.  If somebody is working for you without pay, you need to proceed cautiously and make sure that you are not violating the FLSA.