Employment Law Alert : Gibbons P.C.: Labor Relations, Employment Contracts, Employee Benefits, & Wrongful Discharge Lawyers & Attorneys

An employee by any other name is still an employee, even if that other name is “intern.” On June 11, 2013, the District Court for the Southern District of New York granted summary judgment to several former unpaid interns of Fox Searchlight Pictures, holding that they were, in fact, employees entitled to wages under the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”).

Glatt v. Fox Searchlight Pictures, Inc.

In Glatt v. Fox Searchlight Pictures, Inc., the Court tackled several issues, including whether or not two individuals who worked on production and/or post-production of the film “Black Swan” were properly classified as unpaid “interns” or whether they were “employees” who should have been compensated for the time they worked.

The Test

In analyzing whether the two plaintiffs were properly classified as interns, the Court rejected Fox Searchlight’s argument that the “primary benefit test” – in which the determination is whether “the internship’s benefits to the intern outweigh the benefits to the engaging entity” – should apply. Calling that test “subjective and unpredictable,” the Court instead relied on the six factors identified by the United States Department of Labor in Fact Sheet # 71. Pursuant to those factors, in order for a job to be classified properly as an internship, it must meet the following criteria:

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In Genesis Healthcare Corp. v. Symcyk, the U.S. Supreme Court, by a vote of 5 to 4, rejected an employee’s contention that her employer should not have been permitted to thwart her attempt to bring a collective action under the Fair Labor Standards Act (“FLSA”) by making an offer of judgment to her under Rule 68 of the Federal Rules of Civil Procedure that included all of the relief to which she would have been entitled in connection with her individual FLSA claim. The Court’s April 16, 2013, ruling provides encouragement to employers who may seek to block an FLSA collective action with an offer of judgment—although, as detailed below, the Court’s opinion did leave one issue unresolved. The Court’s opinion also applies to cases brought under the Age Discrimination in Employment Act (“ADEA”) and the Equal Pay Act (“EPA”), as both of those statutes are governed by the collective action procedures of the FLSA rather than by the class action procedures of Rule 23 of the Federal Rules of Civil Procedure.

Background

Plaintiff brought suit under the FLSA alleging that her former employer improperly automatically deducted 30 minutes of time per shift for meal breaks even though plaintiff and certain other employees performed work during those breaks. Plaintiff purported to bring the action on behalf of herself and all similarly situated persons. The FLSA expressly permits such a “collective action” provided each similarly situated person affirmatively elects to “opt in” to the action.

When the employer answered the complaint, it simultaneously served on plaintiff an offer of judgment under Rule 68. That offer included all of plaintiff’s purported lost wages and “such reasonable attorneys fees, costs and expenses . . . as the Court may determine.” The offer was conditioned on it being accepted within 10 days. Plaintiff never responded to the offer. The employer then moved to dismiss the complaint for lack of subject matter jurisdiction, arguing that the offer of judgment deprived plaintiff of a personal stake in the litigation and thus rendered the entire action moot.

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On December 17, 2012, the New Jersey Assembly approved two pieces of wage-related legislation that each have the potential to significantly alter New Jersey State Labor Law.

Assembly Bill No. 3581 (Wage Withholding)

The bill strengthens the enforcement procedures and disorderly person sanctions against employers who fail to timely pay wages, compensation or benefits to their employees and makes it easier for employees to report such employer violations.

An employer found to have committed a violation is required to pay the wages owed plus liquidated damages equal to 100 percent of those wages. This is in addition to a $500 fine plus a 20 percent penalty of the wages owed in the case of a first offense or a $1000 fine plus a 20 percent penalty of the wages owed for subsequent offenses. “Employer” includes “any individual, partnership, association, joint stock company, trust, corporation, the administrator or executor of the estate of a deceased individual, or the receiver, trustee, or successor of any of the same, employing any person in [New Jersey].” Further, “the officers of a corporation and any agents having the management of such corporation” are considered the employers of the corporation’s employees.

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Effective November 6, 2012, amendments to Section 193 of the New York Labor Law (“NYLL”) will expand the list of items that private sector employers may deduct from employee paychecks to include, among other things, repayment of pay advances and overpayment of wages. Employers will welcome this amendment to the current version of the law, which limits permissible deductions only to those made for United States bonds, insurance premiums, pension contributions, charitable donations, and payments due to labor organizations (such as union dues).

The amendments direct the New York Department of Labor to issue regulations governing the timing and frequency of deductions, notice requirements, as well as a requirement that employers implement a procedure for employees to dispute a particular deduction. Until those regulations are released, New York employers should refrain from making any immediate changes in their current practices as they relate to wage deductions. We will keep our readers updated when the new regulations issue.

In addition to those already mentioned, other payroll deductions permitted by the amended law are:

• Payments for prepaid legal plans;
• Contributions made to bona fide charitable organizations;
• Purchases made at events sponsored by bona fide charitable organizations;
• Discounted parking and mass transit expenses (e.g. vouchers, far cards, and tokens);
• Fitness center and/or gym membership dues;
• Cafeteria and vending machine purchases made at the employer’s place of business and purchases made at gift shops operated by the employer, where the employer is a hospital, college, or university;
• Pharmacy purchases made at the employer’s place of business;
• Tuition, room, board and fees for pre-school, nursery, primary, secondary, and/or post-secondary education intuitions; and
• Housing payments (provided by non-profit hospitals and their affiliates).

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A recent Third Circuit decision, In re Enterprise Rent-A-Car Wage & Hour Employment Practices Litigation, addresses the circumstances under which a parent company will be liable under the Fair Labor Standards Act (“FLSA”) as a “joint employer” of employees of the parent’s subsidiaries. The Third Circuit’s opinion gives concrete guidance to employers confronted by the broad definition of “employer” set forth in the FLSA’s regulations, providing a standard for assessing joint employer liability. (The FLSA defines an employer as “any person acting directly or indirectly in the interest of an employer in relation to an employee.”) Although the standard announced by the Third Circuit is by no means a bright-line test, it does provide fair notice to employers of the factors that will determine joint employer status.

Background

Former assistant managers of a number of Enterprise car rental locations commenced lawsuits in various federal courts alleging they had been misclassified as “exempt” employees under the FLSA and thus had been wrongfully deprived of overtime wages as mandated by the statute. Each of the car rental locations employing one or more of the former assistant managers was a wholly-owned subsidiary of Enterprise Holdings, Inc. These cases were eventually transferred by the Judicial Panel on Multidistrict Litigation to the United States District Court for the Western District of Pennsylvania. Thereafter, the parent company moved for summary judgment on the grounds that it was not a joint employer.

The District Court found that the Boards of Directors of Enterprise Holdings, the parent company, and each of its subsidiaries consisted of the same three people. Additionally, the parent company made available to each subsidiary a panoply of services, including business guidelines, employee benefit plans, rental reservation tools, insurance, technology, employee relocation services, legal services and various human resources services, such as job descriptions, best practices, compensation guides, training materials and standard performance review forms. These materials included recommendations for subsidiary employee salary ranges and whether these employees should be salaried or receive an hourly wage. In addition, the parent company recommended that the subsidiaries, other than the California subsidiaries, not pay overtime to their assistant managers. The District Court also found, however, that each subsidiary could elect to use any or all of these guidelines or services in its own discretion and that none were mandatory. Finally, the District Court found that Enterprise Holdings had no authority to hire, fire or discipline assistant managers or to promulgate work rules or assignments and did not maintain control over employee records. Based on all of these findings, the District Court granted Enterprise Holdings’ motion for summary judgment.

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In a major victory for pharmaceutical companies, the U.S. Supreme Court recently held that company sales representatives who promote their employer’s products to doctors and hospitals are exempt from the overtime requirements of the Fair Labor Standards Act (“FLSA”). In doing so, the Court resolved a split in the Circuit Courts of Appeal over the scope of the “outside salesman” exemption to the FLSA’s overtime pay requirements. The Court’s holding in Christopher v. SmithKline Beecham Corp. regarding the scope of this exemption has provided much needed clarity to pharmaceutical companies and employers with similar types of sales forces who have relied – and hope to continue to rely – on the exemption.

Whether the FLSA requires pharmaceutical companies to pay their sales representatives overtime under the FLSA has generated significant litigation. As we have previously reported, a number of federal appellate courts have considered whether the FLSA’s “outside salesman” and/or “administrative” exemptions applies to these employees. Until now, the results have been inconsistent, leaving employers with many questions. Indeed, cases from the Second Circuit (covering the states of New York, Connecticut, and Vermont), Third Circuit (covering the states of New Jersey, Pennsylvania, Delaware, U.S. Virgin Islands), and the Ninth Circuit (covering California, Alaska, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) had reached varying conclusions.

Factual Background to the SmithKline Decision

The exemption at issue in SmithKline, the “outside salesman” exemption, applies to those employees “[w]hose primary duty is [ ] making sales.” Under the FLSA, a “sale” includes “any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” Because federal law prohibits pharmaceutical manufacturers from directly selling prescription medications to patients, many companies practice what is called “detailing,” whereby their sales representatives, or “detailers,” provide information to physicians about the company’s products with the goal of encouraging them to write prescriptions for these products to their patients. The representatives are legally prohibited from actually consummating sales with the physicians. Consistent with this practice, SmithKline’s sales representatives, including plaintiffs Michael Christopher and Frank Buchanan (the “Reps”), would “call[ ] on physicians in an assigned sales territory to discuss the features, benefits, and risks of an assigned portfolio of [SmithKline’s] prescription drugs.” The primary objective of these visits would be to obtain a non-binding commitment from the physician to prescribe those drugs so “detailed.” In the course of these efforts, the Reps would typically spend approximately 40 hours per week “detailing,” and approximately 10 to 20 hours each week attending events, reviewing product information, returning phone calls, and other miscelleneous tasks.

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The United States Court of Appeals for the Seventh Circuit has held that two pharmaceutical companies did not violate the Fair Labor Standards Act (FLSA) by failing to pay overtime to their sales representatives, concluding that the FLSA’s “administrative exemption” from the statute’s overtime requirements was applicable to these employees. Although the Court’s opinion focused on the job duties of pharmaceutical sales representatives (PSRs), the Court’s analysis of the general scope of the administrative exemption may prove useful to employers in other industries.

Procedural Background

Sales representatives of Eli Lilly (Lilly) and Abbott Laboratories (Abbott) brought separate actions in Federal District Courts in Indiana and Illinois, respectively, alleging that their employers had failed to pay overtime wages in violation of the FLSA. Both companies raised, as defenses, the FLSA’s administrative and outside sales exemptions. See 29 U.S.C. 213(a)(1). The District Court hearing the case brought by the Lilly employees held that both exemptions applied to PSRs, whereas the District Court hearing the case brought by the Abbott employees concluded that neither exemption applied. The Seventh Circuit consolidated the two cases for purposes of its opinion. See Schaefer-LaRose v. Eli Lilly & Co. and Jirak v. Abbott Laboratories, Inc. The U.S. Department of Labor (DOL) appeared as amicus curiae, taking the position that neither exemption applied to PSRs.

The Seventh Circuit’s Decision

The Seventh Circuit noted that the primary work of PSRs is to call upon physicians to persuade them to write prescriptions for their employer’s pharmaceutical products. Focusing on the administrative exemption, the Court cited to the three requirements that must be met for the exemption to apply as set forth in DOL regulations: (1) the employee must be compensated at a rate of not less than $455 per week, (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.” 29 C.F.R. § 541.200(a). It being conceded that all plaintiffs were sufficiently compensated as required by the regulations, the Court first addressed the “directly related” issue. The Court noted that, according to the DOL’s regulations, work directly related to the management or general business operations of the employer is work “assisting with the running or servicing of the business as distinguished from working on a manufacturing line or selling a product in retail or service establishment” and includes activities such as advertising, marketing and promoting sales. The Court concluded that the PSRs satisfied this criteria because they “neither produce the employers' products nor generate specific sales, but service the production and sales aspects of the business by communicating the employers’ message to physicians. The goal of their work is to increase market share indirectly or, stated differently, to promote sales.” The Court noted plaintiffs’ argument that each PSR was responsible for interacting with only a limited number of physicians, but held that the actual wording of the regulations did not support the plaintiffs’ position that the administrative exemption is limited to “higher level employees” with greater responsibilities than those of PSRs and with involvement in the overall sales, marketing and promotional policies of the company.

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On March 27, 2012, the United States Court of Appeals for the Third Circuit issued a precedential decision in Knepper v. Rite Aid Corp. which dramatically alters the landscape for wage and hour litigation for employers operating in the jurisdictions within the Third Circuit, i.e., in New Jersey, Pennsylvania, Delaware, and the U.S. Virgin Islands. Specifically, the Third Circuit ruled that the procedures for litigating a class action alleging state wage and hour violations is not “inherently incompatible” with the procedures for litigating a collective action under the federal Fair Labor Standards Act (“FLSA”). As a result, courts in these jurisdictions may well see a wave of hybrid class/collective actions alleging wage and hour violations under both the FLSA and the corresponding state wage and hour laws in the same complaint.

Background

The Knepper plaintiffs are assistant store managers who had “opted in” to a national FLSA collective action filed against Rite Aid in the Middle District of Pennsylvania. Under the FLSA, courts can assert jurisdiction only over those employees who affirmatively “opt in” to the lawsuit. The lawsuit alleged that Rite Aid misclassified the plaintiffs as exempt from the federal overtime and minimum wage requirements. Subsequently, these individuals filed their own separate class actions in federal courts in Maryland and Ohio under Rule 23 of the Federal Rules of Civil Procedure alleging violations of those states’ wage and hour laws. In a class action certified under Rule 23, the court acquires jurisdiction over all class members, but individual members may elect to “opt out” of the lawsuit. These newly filed lawsuits were ultimately transferred to the Middle District of Pennsylvania. That court dismissed the state law claims because, in its view, the Rule 23 “opt-out” process for litigating class actions under the state-law claims was “inherently incompatible” with the “opt-in” process utilized in FLSA collective actions. Over the years, numerous federal district courts in the Third-Circuit have reasoned that the contrast between an opt-in and opt-out procedure bars federal courts from hearing such dual-filed wage and hour actions.

The Third Circuit Decision

After analyzing the text and legislative history of the FLSA, the Third Circuit found no evidence of Congressional intent to preclude the joinder of “opt out” class action claims under state law with “opt in” FLSA claims. Thus the Third Circuit reversed the district court, stating: “[i]n sum, we disagree with the conclusion that jurisdiction over an opt-out class action based on state-law claims that parallel the FLSA is inherently incompatible with the FLSA’s opt-in procedure.” Moreover, the Court noted that many other circuits, specifically, the Second, Seventh, Ninth, and D.C. circuits have found that such dual filing “does not defeat otherwise available jurisdiction.” In reversing the District Court, the Court of Appeals opened the door for dual-filed and hybrid wage and hour actions in the Third Circuit.

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The issue of whether a hospital system (operating over 25 facilities) and its Chief Executive Officer can be held liable for wage claims by workers employed at a single entity within the system was decided by the Eastern District of New York in Wolman v. Catholic Health System of Long Island, Inc. Applying traditional tests to assess “joint employer” liability, the District Court concluded that plaintiffs did not plead the basic elements in the complaint to hold the hospital system and its CEO liable for alleged unpaid wages. The Court reached a similar conclusion regarding several underlying claims -- failure to compensate employees for meal periods and for time spent pre- and post-shift -- based on plaintiffs’ inadequate pleadings.

Factual Background

Three plaintiffs, who were employed at the Good Samaritan Hospital, commenced a putative class action against the Hospital, the entire Catholic Health System of Long Island and its CEO under the Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”). They sought overtime and additional wages for which they were not compensated. On behalf of a putative class, they claimed they often worked through lunch yet were not paid because of an automatic timekeeping deduction for meal periods, they worked before and after their scheduled shifts and they were not compensated for attending training programs. The proposed class included up to 15,000 employees.

In moving to dismiss the complaint, the Hospital, the Health System and its CEO argued that the complaint did not adequately establish each defendant was part of the employer-employee relationship. Defendants further argued that plaintiffs were not entitled to the claimed compensation because the alleged work at issue was not compensable.

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Effective February 21, 2012, the inside salesperson exemption was re-adopted by the New Jersey Department of Labor and Workforce Development (NJDOL) as part of the Administrative Exemption contained in New Jersey’s wage and hour laws. When the NJDOL adopted the so-called “white collar” exemptions for Administrative, Executive, Professional, Outside Sales, and Computer employees as contained in the Federal Fair Labor Standards Act (“FLSA”) in September 2011, it eliminated this long-recognized exemption. As we previously reported, the NJDOL later admitted that the elimination of this exemption was inadvertent and proposed regulations to reinstate it.

Those regulations have been adopted and N.J.A.C. 12:56-7.2(c) now states:

"Administrative" shall also include an employee whose primary duty consists of sales activity and who receives at least 50 percent of his or her total compensation from commissions and a total compensation of not less than $400.00 per week.  

If you have any questions regarding the treatment of employees as exempt or non-exempt or the proposed adoption of the inside sales exemption, please feel free to contact any one of the attorneys in the Gibbons Employment & Labor Law Department.

Carla N. Dorsi is a Director in the Gibbons Employment & Labor Law Department.

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In January and May 2011, we reported on a series of changes to New York Labor Law contained within the Wage Theft Prevention Act (“WTPA”). These changes are now applicable to all New York private-sector employers (including charter schools, private schools, and not-for-profit corporations). Affected New York employers must provide all employees with written pay notices at the time of hire on or before February 1 in each year.

Given that this deadline is fast approaching for 2012, now is a good time for employers to communicate with experienced wage and hour counsel regarding compliance strategies. If you have any questions, please feel free to contact any of the attorneys in the Gibbons Employment & Labor Law Department.

Peter J. Dugan is an Associate in the Gibbons Employment & Labor Law Department.

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Introduction

The issue of whether pharmaceutical company sales representatives who promote their employer’s products to doctors and hospitals are exempt from the overtime requirements of the Fair Labor Standards Act (“FLSA”) has spurred litigation across the country. Courts have considered whether these employees are entitled to overtime compensation or are exempt under the “outside salesman” or “administrative” exemptions recognized by the FLSA. The results have been inconsistent, leaving employers with many questions. For example, the Second Circuit (covering the states of New York, Connecticut, Vermont) has held that the pharmaceutical company sales representatives at issue did not qualify for either the “outside salesman” or “administrative” exemptions and were entitled to overtime compensation. Conversely, the Ninth Circuit (covering California, Alaska, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) recently held the pharmaceutical sales representatives were exempt from the FLSA’s overtime requirements under the “outside salesman” exemption, noting that the term “sale” must be ready broadly to include employees who “in some sense” sell. The Ninth Circuit ruled that the Department of Labor regulations, which supported a finding that the “outside salesman” exemption applied to the pharmaceutical representatives, were entitled to substantial deference and disagreed with the Second Circuit’s conclusion to the contrary. Most recently, the Third Circuit (covering New Jersey, Pennsylvania and Delaware) held that a pharmaceutical company’s sales representatives qualified for the “administrative” exemption in large part because they “executed nearly all of [their] duties without direct oversight.” Interestingly, despite the different results, the sales representatives at issue in the cases decided by the Second and Third Circuits performed similar functions.

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As we previously reported on September 6, 2011, the New Jersey Department of Labor and Workforce Development (NJDOL) adopted the so-called "white collar" exemptions for Administrative, Executive, Professional, Outside Sales, and Computer employees as contained in the Federal Fair Labor Standards Act ("FLSA"). Employers are not required to pay overtime compensation (i.e. compensation at the rate of 1.5 percent of the employee’s regular hourly rate) to an employee who qualifies for one of these exemptions. The new regulations were intended to provide consistency between federal and New Jersey law. They leave open the possibility, however, that employees who previously qualified for an exemption under New Jersey law may now have to be reclassified as non-exempt. The issue is raised by the New Jersey Appellate Division’s recent decision in Anderson, et al. v. Phoenix Health Care, Inc., et al. 

In Anderson the court affirmed summary judgment for the defendant employers and held that registered nurses, as “professionals,” are not entitled to overtime compensation even if paid on an hourly basis, as opposed to on a salary basis, so long as they are compensated in excess of the weekly minimum salary provided for in the New Jersey Administrative Code. The court endorsed one of the NJDOL’s longstanding interpretations of New Jersey’s Wage and Hour Law. Specifically, employees who meet all the criteria for the professional exemption from the overtime rate, will still qualify for that exemption despite being paid on an hourly basis as opposed to a salary basis. However, in a footnote, the Appellate Division referenced the NJDOL’s newly adopted regulations, and indicated that it was not opining on whether the result it had reached would be the same under the new regulations.

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The New Jersey Department of Labor and Workforce Development (“DOL”) recently issued a new notice regarding the maintenance and reporting of employment records. All New Jersey employers must immediately begin providing a copy of the notice upon hire to any employee hired after November 7, 2011. For all pre-existing employees, the notice must be provided by December 7, 2011. Provision of the notice may be provided by hard copy or electronic mail. In addition to these distribution requirements, the notice must immediately be conspicuously posted at each worksite either by displaying it alongside other required workplace postings in a readily visible and accessible location or on an employer-run Internet or intranet site that is used exlusively by employees and to which all employees have access. Failure to comply with the distribution and and posting requirements carries a fine of up to $1,000, in addition to possible criminal penalties.

The six-page notice lists the recordkeeping requirements of the following New Jersey statutes: the Wage Payment Law, the Wage and Hour Law, the Prevailing Wage Act, the Unemployment Compensation Law, the Temporary Disability Benefits Law, the Family Leave Insurance Benefits Law, the Workers’ Compensation Law, and the Gross Income Tax Act. In addition, the notice provides a list of various contact numbers for questions and complaints regarding an employer’s failure to meet the requirements of these statutes.

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As we previously reported on September 6, 2011, the New Jersey Department of Labor and Workforce Development (NJDOL) adopted the so-called “white collar” exemptions for Administrative, Executive, Professional, Outside Sales, and Computer employees as contained in the Federal Fair Labor Standards Act (“FLSA”). While the changes to the New Jersey law were designed to provide clarity to the state's wage and hour landscape and consistency between the federal and New Jersey laws, they inadvertently eliminated a long-recognized exemption in New Jersey for commissioned inside salespersons. Because the New Jersey and federal exemptions for such sales personnel are different and were housed in different sections of the law -- New Jersey's treatment of inside salespersons was part of the "Administrative" exemption, whereas the FLSA addresses the issue in an entirely separate section -- New Jersey's replacement of its “Administrative” exemption with that found in the FLSA resulted in the deletion of the inside salesperson exemption. Acknowledging that this was an "unintended consequence," the DOL has issued proposed regulations to reinstate the inside sales exemption to New Jersey law. In the November 21, 2011 New Jersey Register, the DOL proposed that the following language be added to N.J.A.C. 12:56-7.2 as section (c): "'Administrative'" shall also include an employee whose primary duty consists of sales activity and who receives at least 50 percent of his or her total compensation from commissions and a total compensation of not less than $400.00 per week." A public hearing on the re-adoption of this exemption is scheduled for December 13, 2011 and written comments must be submitted by January 20, 2012.

Until the inside sales exemption is re-adopted, employers should be particularly careful in the treatment of commissioned inside sales employees. While it is unlikely that the DOL would entertain overtime claims made by these employees, plaintiffs' lawyers may try to use the DOL's inadvertent oversight to file claims in the New Jersey courts in the coming months. In order to avoid such claims, employers should consider limiting the hours worked by commissioned inside salespersons to 40 or less per week until the proposed amendment is adopted.

If you have any questions regarding the treatment of employees as exempt or non-exempt or the proposed adoption of the inside sales exemption, please feel free to contact any one of the attorneys in the Gibbons Employment & Labor Law Department.

Carla N. Dorsi is an Associate in the Gibbons Employment & Labor Law Department.

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Employers should be aware of two recent announcements from the U.S. Department of Labor (“DOL”) and the Internal Revenue Service (“IRS”) regarding the misclassification of workers as independent contractors or non-employees. First, the DOL on September 19, 2011 signed a memorandum of understanding with the IRS that is designed to improve the DOL’s efforts to curtail employee misclassification by employers by sharing information with both the IRS and participating states. Second, the IRS announced on September 21, 2011 the launch of a new program, the Voluntary Classification Settlement Program (“VCSP”), that will enable employers to resolve prior misclassification of employees as independent contractors. The VCSP significantly limits past taxes for misclassified workers if an employer comes forward voluntarily in an attempt to comply with the tax laws.

Department of Labor Enforcement Efforts

The DOL’s memorandum of understanding (“MOU”) with the IRS “enables the DOL to share information and coordinate law enforcement with the IRS and participating states in order to level the playing field for law-abiding employers and ensure that employees receive the protections to which they are entitled under federal and state law.” Among others, signatory states to the MOU include New York, Connecticut, Massachusetts and Maryland.

The MOU goes on to note that “[b]usiness models that attempt to change, obscure or eliminate the employment relationship are not inherently illegal, unless they are used to evade compliance with federal labor laws -- for example, if an employee is misclassified as an independent contractor and subsequently denied rights and benefits to which he or she is entitled under the law.”

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The New Jersey Department of Labor and Workforce Development (“NJDOL”) has adopted the so-called “white collar” exemptions for Administrative, Executive, Professional, Outside Sales, and Computer employees as contained within the Federal Fair Labor Standards Act (“FLSA”). The adoption of these changes - which are considered by many to be long overdue - was announced in the New Jersey Register on September 6, 2011. The new regulations became effective immediately upon publication. As explained below, these changes will benefit employers and provide clarity and consistency to the wage and hour landscape in New Jersey.

Under both New Jersey and federal law, unless employees are “exempt” from such requirements, employers must pay them the minimum wage and overtime. In August 2004, the U.S. Department of Labor (“U.S. DOL”) broadened the scope of the exemptions under the FLSA for Executive, Administrative, Professional, Outside Sales, and Computer employees. Because of these employer-friendly changes, a larger number of employees have been found to be “exempt” from overtime and minimum wage requirements under federal law. Some of the critical changes to the federal regulations included:

• Increasing the Salary Basis threshold for Executive, Administrative, and Professional employees to $455 per week (or $26,660 per year) exclusive of board and lodging;
• Abandoning the antiquated long and short-form tests in favor of a single duties test for each exemption, which focuses on the primary character of an employee’s duties (as opposed to percentage of time spent);
• Creating a new exemption for certain “highly compensated” employees who earn in excess of $100,000 per year;

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Introduction

Corporate directors, officers, and agents need to be aware of the potential personal risks associated with the non-payment of wages to their company’s employees. Although the existence of a corporate or other business-entity form generally provides protection from individual liability for corporate actors, one significant exception is for claims brought pursuant to the Fair Labor Standards Act (“FLSA”). A corporate director, officer or agent’s own individual assets may be used to satisfy any judgment for unpaid wages in favor of the company’s employees. As employers continue to deal with the economic downturn, and more companies are finding themselves struggling to meet payroll, corporate officers, directors, or agents may more frequently find themselves the individually-named targets of an FLSA lawsuit.

Fair Labor Standards Act

The FLSA provides that “[e]very employer shall pay to each of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise in commerce,” a minimum wage. As to liability for failure to pay such wages, the FLSA requires “any employer who violates the provisions of [this] section shall be liable to the employee or employees affected in the amount of their unpaid minimum wage, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages.”

Although these wage and hour basics are par for the course for any company, many officers and directors are nonetheless surprised to learn that they personally are considered the “employer” for purposes of the the FLSA. The FLSA broadly defines an “employer” as “any person who acts, directly or indirectly, in the interest of an employer to any of the employees of such employer.” (Emphasis added). Likewise, the New Jersey Wage and Hour Law, the New York Labor Law, and the Pennsylvania Wage Payment and Collection Law similarly include individual persons in their definitions of “employers.” As a result, liability under the FLSA or corresponding state statute for failure to pay employees’ wages applies with the same force and effect to individual corporate defendants, jointly and severally, along with the company itself.

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On May 9, 2011, the U.S. Department of Labor (“DOL”) issued a press release announcing that there is now an application for the iPhone or iPod Touch that employees can use to easily and independently record their hours worked (including overtime and break times) and calculate wages that are owed to the employee. The free application is called “DOL-Timesheet” and is available in both English and Spanish. Although it is premature to assess whether this application will in fact be utilized by the DOL and employees in wage and hour enforcement and litigation, the emergence of the new technology serves to remind employers of the importance of accurate recordkeeping of employee hours worked and training of employees regarding policies on overtime, rest and meal breaks. In addition, to minimize the risk of an enforcement action and/or litigation and associated penalties, employers should encourage employees to come forward if they notice any disparity between the employer’s time records and the records the employee maintains independently through the application.

The description of the application on the Apple - iTunes website states: “This is a timesheet to record the hours that you work and calculate the amount you may be owed by your employer. It also includes overtime pay calculations at a rate of one and one-half times (1.5) the regular rate of pay for all hours you work over 40 in a workweek.” The description also includes a disclaimer which states, in part, that “the conclusions reached by this App rely on the accuracy of the data provided by the user.”

The application allows users to enter their daily work hours, including start times, end times, breaks and lunch periods. The application also provides for a summary of hours worked in a daily, weekly or monthly format. A report can be generated and sent by email which provides a summary of hours worked, as well as gross payment owed to the employee. For employees who work remotely (i.e. from somewhere outside the office), the feature of the application allowing for a report to be run and sent out by email may be of particular use. The application does have limitations. For example, it does not allow for tracking of tips, commissions, deductions, holiday pay, pay for weekends, shift differentials and pay for regular rest days. In addition to the tracking features, the application includes a glossary of wage and hour terms (which includes links to pertinent information on the DOL’s wage and hour website) as well as contact information for the DOL’s Wage & Hour Division.

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The United States Court of Appeals for the Sixth Circuit recently held that the proper test for determining whether persons participating in employer-sponsored training programs qualify as “employees” under the FLSA is an examination into which party derives the primary benefit from the relationship. The Sixth Circuit’s decision in Solis v. Laurelbrook provides guidance to any employer using students to perform work as part of a work-study or trainee program who are not monetarily compensated for such work.

Background

The Department of Labor Secretary filed suit in federal court seeking to enjoin future violations of the child labor provisions of the FLSA after its investigation into potential child labor violations committed by Laurelbrook Sanitarium and School, Inc. (“Laurelbrook”). Specifically, the Secretary requested a permanent injunction on the ground that Laurelbrook students are “employees” for purposes of the FLSA, thus subjecting Laurelbrook to the Act’s prohibitions on child labor.

Laurelbrook operates a boarding school for students in grades nine through twelve, an elementary school for children of staff members, and a 50-bed intermediate-care nursing home that assists in the students’ practical training (the “Sanitarium”). Pursuant to the philosophy and teachings of its founder, students in Laurelbrook’s boarding school learn in both academic and practical settings, the latter of which is spent in the Sanitarium’s kitchen and housekeeping departments, with older students providing medical assistance to patients. These students do not receive wages for the duties they perform.

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We previously reported on a series of changes to New York Labor Law contained within the Wage Theft Prevention Act (“WTPA”) that are now applicable to all New York private-sector employers (including charter schools, private schools, and not-for-profit corporations).

As discussed in our previous post, the WTPA requires New York employers to provide all employees with written pay notices at the time of hire and on or before February 1 of each year that include:

• The employee’s rate or rates of pay
• The overtime rate of pay, if the employee is nonexempt
• The basis of wage payment (e.g., per hour, per shift, per week, piece rate, commission, etc.)
• The allowances to be claimed against the minimum wage (e.g., tip, meal, and lodging allowances)
• The regular pay day
• The employer’s name and any name under which the employer conducts business
• The physical address of the employer’s main office or principal place of business (if different from the mailing address)
• The employer’s telephone number

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On December 14, 2010, New York Governor David Patterson signed the Wage Theft Prevention Act (“WTPA”), a new law that significantly changes the wage and hour landscape for all New York employers. This amendment to the New York Labor Law targets those employers who engage in “wage theft” by underpaying employees. In application, however, the WTPA will affect all New York employers by imposing burdensome notification and recordkeeping requirements, expanding the scope of penalties for violations, and increasing opportunities for employment litigation through strengthened anti-retaliation provisions. In compliance with these new amendments, New York employers will need to amend their payroll practices on or before April 12, 2011. Our summary and analysis of the key amendments is set forth below.

Notification Obligations

Under the WTPA, New York employers must now provide all employees with written notifications that contain the following information:

• The employee’s rate of pay, the basis thereof (e.g., hourly, weekly, salary, commission, etc.), the regular pay date, and allowances claimed against the minimum wage (e.g., tip, meal, or lodging allowances);
• The employer’s name (including any “doing business as” names), telephone number, and the physical address of the employer’s main office or principal place of business;
• Nonexempt employees must also be given notice of their regular rate of pay as well as their overtime rate of pay.

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Among the provisions of the sweeping federal health care legislation enacted earlier this year, the Patient Protection and Affordable Care Act (PPACA) amended Section 7 of the Fair Labor Standards Act to provide a new break-time requirement for nursing mothers who are non-exempt employees. A new fact sheet recently issued by the US Department of Labor's Wage and Hour Division supplies employers with information regarding the requirements of the new law.

The PPACA requires employers to provide nursing mothers who are non-exempt employees with reasonable break time to express breast milk. Employers should be aware of the following specific requirements:

• The nursing mother amendment to the FLSA applies only to non-exempt employees (i.e., employees who are not exempt from the FLSA's overtime pay requirements).
• An employer must allow a nursing mother a reasonable amount of break time to express milk for her nursing child for one year after the child’s birth as frequently as she needs to do so.
• The space made available for nursing mothers to express breast milk must be shielded from view, free from intrusion from co-workers and the public, and functional as a space for expressing breast milk. Notably, a private bathroom is not considered a permissible space for the nursing breaks. If a dedicated space is not utilized, the space must be available when needed by the nursing mother in order to meet the statutory requirement.

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