Yesterday, the United States Department of Labor Wage and Hour Division issued its final rule with updates to the Fair Labor Standards Act’s overtime requirements. The most-awaited update was the dollar amount for an employee to be considered exempt from overtime. DOL set the exemption at $684 per week — which is equivalent to $35,568 per year. Here is a link to DOL’s summary of the new rule: DOL Overtime Rule.
Regular readers may recall that DOL, under the Obama administration, proposed raising the exemption from $23,660 to $47,476 in 2016. Here is a link to a summary of that proposed rule: 2016 Overtime Post. Implementation of that rule was halted in court and the DOL under the Trump administration later rescinded it.
The new rule is effective January 1, 2020. Hopefully, Alabama employers have already reviewed their exempt employees to ensure that they comply with the imminent changes to the FLSA. If you have not done so, you need to immediately review all of your exempt employees to ensure that they comply with the new rule.
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.
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.
Yesterday, United States District Court Judge Amos Mazzant struck down a Department of Labor overtime regulation which increased the threshold for salary exemption under the Fair Labor Standards Act from $23,000 per year to $47,476 per year. Here’s an article from The Hill discussing Judge Mazzant’s ruling: Texas Judge Strikes Down Obama Overtime Rule
I wrote about the overtime regulation when it was released, here: Overtime Rule Released. After the regulation was released, numerous interested parties filed suit in Judge Mazzant’s court challenging the regulations, and he issued a preliminary injunction, which prevented the regulation from going into effect: Judge Halts Overtime Regulation
The DOL under the Obama administration was not satisfied with Judge Mazzant’s ruling and filed an appeal with the Fifth Circuit Court of Appeals: DOL Appeals Overtime Ruling That appeal remains pending, but many attorneys believe that the DOL under the Trump administration may abandon the appeal. I will keep you updated as the appeal progresses.
For purposes of the Fair Labor Standards Act, migrant farm workers can be joint employees of the farm where they work and the company which supplies their services to the farm. See Garcia-Celestino v. Ruiz Harvesting, Inc., No. 16-10790, 2016 WL 7240150 (11th Cir. Dec. 15, 2016). The issue of joint employment is raising its head frequently as companies try to limit their liability to the people providing services to them. As I previously discussed, the issue is frequently whether an employer possesses control over the worker: MY ACHING “JOINTS” – JOINT EMPLOYEES UNDER THE FLSA
In Garcia-Celestino, Basiliso Ruiz provided migrant workers to pick oranges for Consolidated Citrus. Consolidated paid based upon the number boxes of fruit picked by each worker. If the worker did not pick enough boxes of fruit to achieve minimum wage, Consolidated Fruit paid additional “build-up pay” to raise the worker to minimum wage. Unfortunately, Mr. Ruiz then deprived the migrant workers of minimum wage by requiring them to hand-over the “build-up pay” to him under threat of deportation. Ultimately, the migrant workers sued both Mr. Ruiz and Consolidated Citrus for failure to pay minimum wage under the FLSA.
The primary issue in Garcia-Celestino was whether the migrant workers were joint employees of Consolidated Citrus for purposes of breach of contract and FLSA claims. The trial court found that Consolidated Citrus was a joint employer for both claims, and relied upon the FLSA’s “suffer or permit to work” standard of “employer” to reach that conclusion. Under that definition, the ultimate question is whether, as a matter of “economic reality,” the hired individual is “economically dependent” upon the hiring entity.
The Eleventh Circuit found that the trial court incorrectly applied the “suffer or permit to work” standard to the migrant workers’ breach of contract claims. As a result, the Eleventh Circuit remanded the case for the trial court to determine whether the migrant workers were Consolidated Citrus’s employees under the common-law standard — which focuses mostly on control. Nevertheless, for purposes of the FLSA minimum wage claims, the Eleventh Circuit found that the trial court correctly applied the “suffer or permit to work” standard, and concluded that Consolidated Citrus was a joint employer for purposes of the minimum wage claims.
Garcia-Celestino provides a cautionary tale for all employers — not just farmers. If you are contracting-out labor, you run the risk of liability as a joint employer of the contract laborers.
Many of my clients are calling with questions about the new overtime regulations, which become effective on December 1, 2016. Those calls and a recent decision from the Eleventh Circuit Court of Appeals merit a discussion of the “fluctuating workweek” method of calculating overtime. See Garcia v. Yachting Promotions, Inc., No. 16-10095, 2016 WL 6276046 (11th Cir. Oct. 27, 2016). In summary, an employee with a fluctuating work schedule can be paid: (1) a fixed weekly salary; and (2) half-time (instead of time-and-a-half) as overtime compensation for all hours over 40.
This methodology should only be applied to employees who work irregular work hours. Most importantly, their hours must fluctuate both above and below 40 hours per week.
If an employee truly works a fluctuating workweek, then it is possible to pay them overtime at half-time rather than time-and-a-half. But, there are numerous requirements that must be satisfied. Critically, the employee must be paid a fixed weekly salary as straight time pay. The employee receives this amount if they work less than 40 hours in a week, or more than 40 hours. Additionally, the Department of Labor’s regulations provide:
The employee clearly understands that the straight-salary covers whatever hours he or she is required to work;
The straight-salary is paid irrespective of whether the workweek is one in which a full schedule of hours are worked;
The straight-salary is sufficient to provide a pay-rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours worked is greatest; and
In addition to straight-salary, the employee is paid for all hours in excess of the statutory maximum at a rate not less than one-half the regular rate of pay.
In Lopez-Garcia, the issue was whether there was a clear mutual understanding between the employer and the employee to apply the fluctuating workweek methodology. “The employee does not have to understand every contour of how the fluctuating workweek method is used to calculate salary, so long as the employee understands that his base salary is fixed regardless of the hours worked.” Lopez-Garcia, 2016 WL 6276046 at *2. In Lopez-Garcia, the plaintiff possessed limited proficiency in English. Nevertheless, he signed a memorandum acknowledging his understanding of the fluctuating workweek, and he knew that he was a “salary employee who did receive overtime.” Id. Those facts were sufficient for the Court to find that the employee was properly paid under the fluctuating workweek method.
The Department of Labor is concerned that employers might attempt to use the fluctuating workweek methodology to limit overtime paid to employees — particularly employees who do not truly work a fluctuating schedule. Thus, application of this methodology should be approached very carefully. But, if you have employees whose schedule truly fluctuates over and under 40 hours per week, this is a potential alternative method for calculating overtime.
Frequently, employers will refuse to issue a final paycheck to a terminated employee. Usually, this occurs because the employee has caused damage of some kind (property or financial) to the employer. The Eleventh Circuit Court of Appeals recently held that holding a final paycheck does not convert an overtime-exempt employee into a “non-exempt” overtime-eligible employee. Pioch v. IBEX Engineering Svcs., No. 15-10845, 2016 WL 3254138 (11th Cir. Jun. 14, 2016).
In Pioch, the employee was paid by the hour, but was exempted from overtime by the FLSA’s “computer employee exemption.” Over a four-year period, the employee collected $147,230 in per diem payments for time allegedly traveling from IBEX’s main office in Nevada to a location in Florida. In actuality, the employee had purchased a house in Florida, was not traveling from Nevada and was not eligible for the per diem payments. Thus, IBEX withheld his pay for the last three weeks prior to his resignation.
The employee sued and argued that withholding his pay converted him to a non-exempt, overtime-eligible employee during the three weeks his pay was withheld. After an extensive analysis, the Eleventh Circuit held that an employee’s exempt status “does not evaporate simply because the employer withholds a final paycheck.” Pioch, 2016 WL 3254138 at *6.
In short, holding a final paycheck does not magically confer overtime eligibility on an employee. Nevertheless, this does not mean that employers are immune from all types of liability. In fact, the Eleventh Circuit’s Pioch opinion repeatedly emphasized that Pioch might possess a breach of contract claim against his employer. Such a claim is resolved in state court instead of federal court.
Judge Virginia Emerson Hopkins recently certified a potential class action by store managers seeking overtime compensation from Cato women’s clothing stores. SeePrince v. Cato Corp., No. 1:14-CV-1708-VEH, 2016 WL 2997217 (N.D. Ala. May 25, 2016). Cato contends that its store managers are “bona fide executive, administrative or professional” employees who are exempt from overtime requirements.
The request for a class action was made by Virginia Prince, a store manager at Cato’s Anniston, Alabama store. Ms. Prince claims that she was required to work at least 45 hours per week, but that the overwhelming majority of her time was spent performing manual labor instead of bona fide managerial work. A special provision of the Fair Labor Standards Act regulations permits an executive or administrative employee in the retail sector to spend up to 40% of their time on non-administrative duties without loss of the overtime exemption.
Ms. Prince asked Judge Hopkins to certify a nationwide class of Cato store managers, but Judge Hopkins declined. Instead, she certified a class solely within the Northern District of Alabama consisting of current and former store managers from September 17, 2011 to the present.
Judge Hopkins’s certification is merely the first step in the process for a potential class action. Cato obviously denies that its managers are entitled to overtime and will have the opportunity to de-certify the class at a later dater. Nevertheless, Prince provides a cautionary tale for employers. Large employers with employees performing the same duties in similar locations are potentially subject to class actions for overtime compensation under the FLSA.
In a recent overtime dispute, an employer attempted to use an employee’s LinkedIn profile to establish that the employee was exempt from payment of overtime under the Fair Labor Standards Act. SeeTrammell v. Amdocs, Inc., No. 2:15-cv-01473-RDP, 2016 WL 3618367 (N.D. Ala. Jul. 6, 2016). Unfortunately, Judge David Proctor was forced to send the case to trial.
In Trammell, Scott Trammell worked as a Project Management Office Professional for Amdoc, Inc. and was paid more than $100,000.00 in salary in 2014. He sued for overtime after leaving Amdoc’s employment in 2015. Amdoc attempted to have the case dismissed at the summary judgment stage and argued that Trammell was exempt from overtime because he was a highly-compensated employee. But, the highly-compensated employee exemption only applies if the employee customarily and regularly performs exempt executive, administrative or professional duties.
Trammell flatly denied that he performed executive, administrative or professional duties. Instead, he claimed that he merely generated reports for his supervisor and responded to e-mail correspondence. So, Amdoc pointed to Trammell’s LinkedIn Profile which suggested that his duties included: management of seven employees and two applications; monitoring and coordinating team projects; providing end to end project management; managing team overload; providing overall delivery of multiple projects; and, coordinating, tracking and reporting IT releases.
In an entertaining opinion, Judge Proctor was forced to send the case to trial because the Federal Rules of Civil Procedure required him to believe Trammell’s denials of responsibility — even when contradicted by the LinkedIn Profile. The difficulty of Judge Proctor’s decision is found in the following passage:
Would an employer really pay someone like him over $100,000 to merely answer emails and generate reports? (If so, where can recent college graduates in the IT field obtain an Amdocs application for employment?) It might even be said that his denial lacks credibility. But it emphatically is the [jury] who must say that, not this court ruling on a motion for summary judgment.
Frequently, my clients think that every managerial employee is exempt from overtime. That assumption is dangerous and can lead to liability for overtime — particularly under the new overtime rule which will go into effect on December 1, 2016.
In determining eligibility for overtime, the first hurdle is not the duties performed by the employee. Instead, look at their salary first. Under the current regulations, almost every employee who earns a salary less than $23,660 is entitled to overtime — regardless of whether their duties might make them executive, administrative or professional employees under the Fair Labor Standards Act. On December 1, 2016, that salary threshold will increase to $47,476. Here’s a link to a previous post about the new rule: Breaking News: Final Overtime Rule Released
So, if you have a manager making a salary less than $47,476, you will probably be required to pay them overtime starting December 1, 2016. I strongly encourage you to conduct an audit/review of all of your employees to determine if they will be entitled to payment of overtime under the new rule.