Posted on July 26, 2012 by Richard S. Zackin

Third Circuit Establishes Test for Determining "Joint Employer" Liability Under the FLSA

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.

The Third Circuit’s Decision

The Third Circuit noted that the FLSA’s regulations provide for joint employer status when “the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer." Emphasizing that shared control should be determined by “economic reality” rather than by “technical concepts,” the Court concluded that joint employer status depended on evidence showing that the two employers “share or co-determine those matters governing essential terms and conditions of employment.” The Court ruled that the appropriate inquiry should be “does the alleged employer have: (1) authority to hire and fire employees; (2) authority to promulgate work rules and assignments, and set conditions of employment, including compensation, benefits, and hours; (3) day-to-day supervision, including employee discipline; and (4) control of employee records, including payroll, insurance, taxes, and the like.” The Court was careful to note that these factors were not an exhaustive list and that there might be other indicia of “significant control in any given case.”

In the case before it, the Third Circuit adopted the findings of the District Court that Enterprise Holdings had no authority to hire or fire assistant managers, to promulgate work rules or assignments, or to set compensation, benefits, schedules, or rates or methods of payment. Moreover, Enterprise Holdings was not involved in employee supervision or discipline, nor did it maintain control over employee records. The Court rejected the plaintiffs’ contention that the guidelines and manuals promulgated by Enterprise holdings to its subsidiaries evidenced the requisite control over the assistant managers, finding that these materials were no more than recommendations that the subsidiaries could follow or not in their discretion. The Court acknowledged that the issue of interlocking directorates raised by plaintiffs was a factor to be considered, but ruled that on balance this fact did not outweigh the other factors indicating that the parent company did not exercise shared control over the assistant managers. Accordingly, the Court affirmed the grant of summary judgment in favor of Enterprise Holdings.

Conclusion

The Third Circuit’s opinion provides useful guidance on the issue of joint employer liability, especially in the parent-subsidiary context. Although the Court noted that its list of relevant factors for assessing joint employer status was not exhaustive, an examination of those specific factors and the manner in which they were applied by the Court in the Enterprise case should allow companies in future cases to make reasoned assessments of their exposure as joint employers under the FLSA.

If you have any questions regarding joint employer status or any FLSA-related issues, please feel free to contact any of the attorneys in the Gibbons Employment & Labor Law Department.


Richard S. Zackin is a Director in the Gibbons Employment & Labor Law Department.
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Posted on June 25, 2012 by Mitchell Boyarsky

U.S. Supreme Court Rules Against OT Pay for Pharmaceutical Salespeople

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.

The FLSA obligates employers to compensate non-exempt employees for hours in excess of 40 per week at the rate of one-and-a-half times the employees’ regular wages. SmithKline did not pay the Reps time-and-a-half wages when they worked in excess of 40 hours per week because it classified them as exempt from overtime. As a result, the Reps brought suit alleging violations of the FLSA for failing to compensate them for overtime.

In a prior similar lawsuit brought in the Second Circuit Court of Appeals, the U.S. Department of Labor (“DOL”) filed an amicus brief in which it advocated against applying the outside sales exemption to the detailers – reasoning that the outside sales exemption does not apply unless a “transfer of title” to the property takes place. The DOL filed a similar amicus brief in the Supreme Court in the SmithKline case.

The Court’s Decision

The Supreme Court held that pharmaceutical sales representatives are covered by the outside salesman exemption and, in so ruling, rejected the position of both the Reps and the DOL that under the FLSA’s regulations a transfer of title is required for a “sale” within the meaning of the exemption. The Court focused on the unique relationship between pharmaceutical sales representatives and the physicians whom they solicit: 

Obtaining a nonbinding commitment from a physician to prescribe one of [SmithKline’s] drugs is the most that [the Reps] were able to do to ensure the eventual disposition of the products that [SmithKline] sells. This kind of arrangement, in the unique regulatory environment within which pharmaceutical companies must operate, comfortably falls within the [regulation’s] catch-all category of “other disposition."

In further support of its decision, the Court noted that the Reps “bear all of the external indicia of salesman.” For example, the Court emphasized that the Reps:

  • were hired for their sales experience;
  • were trained to close each sales call by obtaining the maximum commitment possible from the physician;
  • worked away from the office with minimal supervision; and 
  • were rewarded for their efforts with incentive compensation.

Finally, in considering the equity of fair warning for employers, the Court emphasized that the DOL had previously interpreted the FLSA regulations as requiring only that an employee “in some sense” make a sale, and otherwise “acquiesce[d] in the sales practices of the drug industry for over 70 years.” It would, therefore, be unfair to change the guidance given employers for many years especially when lack of notice would have significant financial repercussions.

Conclusion

The Supreme Court’s decision in SmithKline generally gives employers in the pharmaceutical industry vindication in classifying their sales representatives as exempt from overtime under the FLSA. In this case, the Court looked to job duties and responsibilities of the particular detailers and took into consideration industry practice and regulatory compliance. While there may exist analogous situations outside of the pharmaceutical industry, where the same arguments for application of the outside salesman exemption can be made, employers should conduct an analysis of their own circumstances and not rely unconditionally on SmithKline. Employers should consult with counsel to make these assessments. Attorneys in the Gibbons Employment & Labor Law Department regularly assist employers in these reviews and other employment and labor matters.


Mitchell Boyarsky is a Director in the Gibbons Employment & Labor Law Department. Michael J. Riccobono, an Associate in the Gibbons Employment & Labor Law Department, co-authored this post.
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Posted on May 29, 2012 by Richard S. Zackin

Seventh Circuit Applies FLSA's Administrative Exemption to Pharmaceutical Sales Representatives

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.

Turning to the “exercise of discretion” requirement, the Court, while recognizing that PSRs were constrained by government regulations about what they could and could not say about their company’s products, found that the representatives were required to exercise a significant measure of discretion and independent judgment. In this regard, the Court noted two other Federal Appellate Courts had divided on the issue, with the Second Circuit deciding that PSRs do not exercise sufficient discretion for the administrative exemption to apply , but with the Third Circuit reaching the opposite conclusion. In finding that PSRs do possess the required discretion, the Seventh Circuit noted, among other things, that the representatives are sent into physicians' offices with minimal supervision and have a fair amount of discretion in terms of what approach to take with a given physician in a given circumstance. Furthermore, PSRs are not treated as “simple mouthpieces, reciting scripts,” but have been given extensive education and training in their company’s products in order to tailor their conversations to the particular circumstances of each physician and to intelligently discuss the concerns and objections raised by the physicians. Thus the Court concluded that the PSR position entailed a sufficient amount of discretion and judgment for the administrative exemption to apply and, accordingly, that the defendant employers were not liable for unpaid overtime.

Critical to the Court’s determination was its view of the DOL’s regulations pertaining to the discretion issue, not as a “checklist” of factors, some number of which had to be present before the exemption would apply, but simply as a guide. In this regard, the Court stressed that “the determination of discretion is a circumstance-specific one that will look different from industry to industry.”

Because the Court’s holding with regard to the administrative exemption was dispositive of plaintiffs’ overtime claims, the Court did not reach the issue of whether the outside sales exemption also applied and noted that that issue is currently before the Supreme Court in a case from the Ninth Circuit.

Conclusion

In considering whether the administrative exemption applied to PSRs, the Seventh Circuit took a pragmatic, rather than a rigid, approach to the interpretation of the DOL regulations setting forth the parameters of the exemption. The exemption is clearly not limited to “higher level” employees, and the Court’s flexible approach to the “discretion” regulations would appear to be transferable to positions related to marketing, promotion and customer service beyond the pharmaceutical industry. If you have any questions regarding the application of any of the FLSA’s overtime exemptions or related issues, please feel free to contact any of the attorneys in the Gibbons Employment & Labor Law Department.


Richard S. Zackin is a Director in the Gibbons Employment & Labor Law Department.
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Posted on April 4, 2012 by Peter J. Dugan

Third Circuit Opens the Door for "Hybrid" Wage & Hour Claims in New Jersey, Pennsylvania, Delaware, and the U.S. Virgin Islands

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.

Employer Takeaways

In light of this development, employers with operations in the Third Circuit may be forced to litigate wage and hour claims under both federal and state law as part of the same lawsuit. The differing statutes of limitations, recoverable damages and burdens of proof as between the FLSA and the various state laws will certainly complicate the litigation of these claims, making them more costly for employers to litigate and more difficult to settle and subjecting employers to a wider array of damages.

Given this development, now is a good time for employers with operations in New Jersey, Pennsylvania, Delaware, and Virgin Islands to communicate with experienced wage and hour counsel regarding strategies to avoid wage and hour litigation. 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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Posted on March 7, 2012 by Mitchell Boyarsky

Healthcare System and its CEO Held Not Liable by New York District Court for Wage Claims at Single Hospital in the Hospital System

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.

Court’s Ruling

The Court, utilizing the “economic realities” test, considered whether any entity beyond Good Samaritan Hospital could be held liable as alleged in the complaint. This analysis requires scrutinizing the degree of formal control exercised over an employee. In the absence of formal control, the Court considered the degree of “functional control” exercised over the employee. The Court found unpersuasive plaintiff’s allegations that the Health System presented itself as a unified and integrated entity, utilized the same meal-deduction policy, had common ownership and was engaged in a joint venture. The Court also rejected arguments of agency or alter-ego relationship because the complaint merely asserted conclusory statements to support these theories.

The Court employed the same economic realities test to consider whether the CEO could be held liable. It concluded that his alleged responsibility to manage the Health System, to make decisions affecting staff benefits, Health System operations and significant functions and to create and/or implement policies failed to state a plausible claim against the CEO. In sum, the CEO did not “possess the power to control the workers in question.” The complaint did not claim the CEO had any direct involvement with the employees. Furthermore, the Court noted that the more numerous the employees the less the courts are likely to hold a senior executive individually liable.

Finally, the Court analyzed whether the lead plaintiffs properly asserted claims for denial of wages and concluded that they did not meet their burden for many of their claims. In some instances, the Court differentiated between viable claims asserted by one plaintiff and insubstantial claims asserted by other plaintiffs.

Analysis for Employers

Individual liability and corporate organization liability are often litigated. In some cases, courts have found senior executives to be potentially liable. The determination will depend on the extent of control exercised by the senior executives. Likewise, the mere identification of an entity as part of larger organization or system will not alone create liability of the larger entity for wage claims asserted against the smaller company or component. Gibbons attorneys in the Employment and Labor Department are available to assist employers with these matters.


Mitchell Boyarsky is a Director in the Gibbons Employment & Labor Law Department.
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Posted on March 6, 2012 by Carla N. Dorsi

NJ Department of Labor Re-Adopts Inside Sales Exemption

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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Posted on December 5, 2011 by Michael J. Riccobono

Recent Case Law Focuses Heavily on "Outside Salesman" and "Administrative" Exemptions to the Fair Labor Standards Act

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.

While there are some factual distinctions between the three cases discussed above, the circuit split has left pharmaceutical companies and companies who employ a similar sales forces without clear guidance as to how they should classify sales representatives for purposes of overtime. Such guidance, however, may be available soon. The United States Supreme Court recently agreed to hear an appeal from the Ninth Circuit case. A decision is expected in the spring of 2012.

In the meantime, companies with a workforce within the states covered by the Third Circuit should take note of a recent opinion from of the Eastern District of Pennsylvania, Ibanez v. Abbott Laboratories, which helps add some clarity to the scope of the “administrative” exemption to the FLSA’s overtime pay requirements.

Ibanez v. Abbott Laboratories

In Ibanez, Plaintiff Gerald Ibanez, a former pharmaceutical representative for Abbott Laboratories, Inc., claimed his employer did not pay him overtime because it misclassified its representatives as exempt from overtime requirements. Ibanez sued Abbott Laboratories under the FLSA and the Pennsylvania Minimum Wage Act of 1968 (“PMWA”), which has an administrative exemption provision that substantially mirrors that of the FLSA. Defendant Abbott Laboratories brought a motion for summary judgment, arguing that, under existing Third Circuit precedent, Ibanez was exempt from the overtime requirements under the administrative exemption.

Before discussing Ibanez’s specific duties as a pharmaceutical representative, the Court analyzed the statutory requirements of the FLSA’s administrative exemption provision. Essentially, this provision exempts from overtime pay those employees whose “primary duty includes the exercise of discretion and independent judgment with respect to matters of significance,” among other requirements.

Relying on two recent decisions within the Third Circuit dealing specifically with the administrative exemption as applied to pharmaceutical sales representatives, the Ibanez Court found that Plaintiff was an exempt employee falling under both the FLSA and PMWA’s administrative exemption provision. Critical to the Court’s conclusion in this regard was a finding that the Plaintiff’s engaged in

“short- and long-term business planning, including (but not limited to):

  • Utilizing available resources to plan and implement strategies to drive business in [Plaintiff’s] territory, including frequent analysis of reports from the home office and the creation of a focused specific business plan;
  • Developing solid plans to allocate and direct resources to keep physicians and drive business;
  • Developing and utilizing key opinion leaders;
  • Developing focus plans to direct resources to physicians that would bring the highest ROI;
  • Participated in the creation of business plans which tracked doctors by market share and potential.”

Granting the Defendant’s motion for summary judgment, the District Court reasoned that “[t]hese activities [ ] are consistent with relevant definitions of exempt administrative work because they affect Defendant’s business operations to a substantial degree, and involve sales and promotional work on behalf of Defendant that reflect the exercise of discretion and independent judgment with respect to matters of significance.”

Conclusion

Until the Supreme Court resolves the question of whether pharmaceutical sales representatives who promote products are subject to any of the exemptions recognized by the FLSA, companies with similar sales representatives should be cautious when classifying such employees as exempt or nonexempt. Please feel free to contact any one of the attorneys in the Gibbons Employment and Labor Law Department should your company have any questions.


Michael J. Riccobono is an Associate in the Gibbons Employment & Labor Law Department.

 
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Posted on November 22, 2011 by Carla N. Dorsi

NJ Department of Labor Proposes Re-Adoption of Inside Sales Exemption

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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Posted on September 27, 2011 by Michael J. Riccobono

Wage and Hour Guidance: IRS and Department of Labor Focus on Worker Misclassification

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.”

Voluntary Classification Settlement Program

Under the VCSP, employers will have the opportunity to voluntarily reclassify their workers as employees for future tax periods with limited federal employment tax liability for the past non-employee treatment. At its core, the VCSP is “designed to increase tax compliance and reduce the burden on employers by providing greater certainty for employers, workers and the government.” The VCSP is open to employers who have erroneously treated workers as non-employees or independent contractors and who meet the following criteria:

  • Consistently have treated the workers in the past as non-employees;
  • Have filed all required Forms 1099 for the workers for the previous three years;
  • Not currently under audit by the IRS, the DOL or a state agency concerning the classification of these workers.

Qualifying employers will:

  1. pay 10% of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year;
  2. will not be liable for any interest and penalties on the liability; and
  3. not be subject to an employment tax audit with respect to the worker classification of the workers for prior years.

The VCSP provides employers an extraordinary opportunity to avoid the tax risks associated with misclassification of their workers. Employers should be cautioned, however, that the VCSP does not grant them total immunity. The previously misclassified workers may have claims for benefits and wages under either local, state and/or federal wage and hour laws.

Employee vs. Independent Contractor

As illustrated by the DOL’s MOU and the VCSP, worker misclassification is a serious issue. A recent study conducted by the Government Accountability Office estimated that the IRS is losing billions of dollars on worker misclassification, and a DOL study indicates that up to 30% of employers misclassify their workers.

The classification of a worker as either an “employee” or an “independent contractor” has significant implications for the employer’s payment of payroll taxes and workers’ compensation, unemployment and disability insurance, as well as compliance with minimum wage, overtime and other wage and hour laws.

Of course, determining whether a worker should properly be classified as an independent contractor or employee is no simple task. The Gibbons Employment & Labor Law Department can help you avoid misclassification issues, mitigate risks associated with same, and ensure compliance with applicable tax and employment laws. Please feel free to contact our attorneys for assistance.


Michael J. Riccobono is an Associate in the Gibbons Employment & Labor Law Department.
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Posted on September 20, 2011 by Peter J. Dugan

New Jersey Adopts Federal White-Collar Overtime Exemptions

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;
  • Clarifying that certain occupations (e.g., public safety and health officers, licensed practical nurses, and paralegals) must be paid overtime in most cases;
  • Specifically identifying dozens of job classifications that generally do or do not qualify as exempt under any of the white-collar exemptions; and
  • Creating a “safe harbor” limiting liability for employers who take improper deductions from an exempt employee’s pay.

Upon the U.S. DOL’s implementation of the new regulations, many states followed suit by amending their corresponding state wage and hour exemptions to mirror the federal exemptions. Until now, New Jersey had not done so. Now, that New Jersey has adopted regulations akin to the federal rules, employers with any part of its workforce in New Jersey should review job classifications as they relate to Administrative, Executive, Professional, Outside Sales, and Computer employees. The newly adopted regulations may create opportunities for New Jersey employers to classify certain previously nonexempt employees as exempt. Employers, however, should still exercise caution when making these determinations.

The attorneys in the Gibbons Employment & Labor Law Department have been following these developments closely and would be happy to discuss with you the potential impact that these new regulations will have on your business. Please feel free to contact any of the attorneys in the Gibbons Employment & Labor Law Department with any questions that you may have.


Peter J. Dugan is an Associate in the Gibbons Employment & Labor Law Department.
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Posted on August 25, 2011 by Michael J. Riccobono

Wage and Hour Guidance: Individual Liability for Officers and Directors under the FLSA

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.

Individual Liability

For individual corporate defendants, the FLSA’s definition of “employer” has been applied in circumstances where that individual had “operational control over the corporation.” Courts have consistently given an expansive interpretation of the term “employer” under the FLSA so as to effectuate the Act’s broad remedial purposes. To illustrate, courts focus on a number of factors, including, but not limited to: (a) the significant ownership interest of the corporate officers; (b) their operational control of significant aspects of the corporation’s day-to-day functions, including compensation of employees, hiring and discharging employees, and establishing other terms and conditions of employment; (c) the role played by the corporate officer in causing the corporation to under-compensate employees and to prefer the payment of other obligations and/or retention of profits. Importantly, there may be instances in which there are several simultaneous “employers” under the FLSA, any one of which is responsible for compliance with the Act and may be held liable. In other words, the fact that a corporate defendant is considered an employer under the FLSA does not preclude a determination that others are also employers for the purposes of the FLSA.

Depending on the facts of the case, courts have held corporate actors liable (in their individual, not representative, capacity) along with any other corporate entity or individual meeting the definition of “employer.” The potential exposure of officers, directors and agents includes back-pay, penalties, attorneys’ fees, liquidated damages, or any other relief a court may award in an FLSA lawsuit.

Conclusion

Individual corporate officers, directors and agents need to be mindful of the FLSA’s provisions regarding personal liability. To that end, corporate actors must ensure the prompt payment of all accrued employee wages. Should your company find itself unable to pay timely wages to your employees, consider options that could help avoid or minimize an unpaid wage claim, such as a possible reduction in pay rates, periodic furloughs, changes in vacation and/or PTO policies, or reductions in force. Of course, before implementing any of the aforementioned alternatives, please feel free to contact one of the attorneys in the Gibbons Employment & Labor Law Department.


Michael J. Riccobono is an Associate in the Gibbons Employment & Labor Law Department.
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Posted on May 13, 2011 by Michael J. Riccobono

6th Circuit Applies "Primary Benefit" Test to Students in Work-Study Program

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.

Fair Labor Standards Act

The FLSA prohibits the use of “oppressive child labor” in commerce or in the production of goods for commerce. This restriction, however, is premised on an employment relationship - an individual who, “without promise or expectation of compensation, but solely for his personal purpose or pleasure, work[s] in activities carried on by other persons either for their pleasure or profit,” - is thus outside the Act’s protections.

Court’s Decision

The first issue addressed by the court was the proper test to be used in determining whether such an employment relationship is present in a training or learning situation. Notably, the court rejected Laurelbrook’s argument that its status as an accredited vocational school should conclusively resolve the issue in its favor. Furthermore, the court explicitly rejected the Secretary’s application of a six-factor test created by the Department of Labor’s Wage and Hour Division (“WHD”) for distinguishing between employees and trainees. Stating that such a test “is overly rigid,” “inconsistent with a totality-of-the-circumstances approach,” and “inconsistent with prior WHD interpretations and opinions endorsing a flexible approach,” the Sixth Circuit Court of Appeals instead adopted the “primary benefit” test. This test focuses on which party - the purported employer or the student - receives the primary benefit of the work performed. “By focusing on the benefits flowing to each party, the test readily captures the distinction the FLSA attempts to make between trainees and employees. . . . It also helps to readily identify relationships Congress sought to stamp out by enacting the FLSA’s child labor provisions: relationships that place adult employees in competition with minors.” The court suggested that “[f]actors such as whether the relationship displaces paid employees and whether there is educational value derived from the relationship are relevant considerations that can guide the inquiry.”

Applying this test to the facts of the case, the court concluded that student-workers were non-employees, properly excluded from the coverage of the FLSA. In reaching this determination, the court considered both the tangible and intangible benefits to the students. For instance, students were “provided with hands-on training comparable to training provided in public school vocational courses” and “the opportunity to obtain such an education in an environment consistent with their beliefs.” In contrast, evidence established that Laurelbrook “[was] sufficiently staffed such that if the students did not perform work at the Sanitarium, the staff members could continue to provide the same services there without interruption” (i.e., no displacement of current Laurelbrook employees occurred). Although recognizing that Laurelbrook did gain some benefits from the students’ activities, the totality of the circumstances weighed in favor of a finding that no employment relationship existed between Laurelbrook and the students. Thus, no violation of the FLSA could be established.

Conclusion

Employers should be aware of the Sixth Circuit’s decision in Laurelbrook. Indeed, numerous courts from around the country have either expressly or implicitly adopted the “primary benefit” test in determining whether an employment relationship exists in the context of a training or learning situation (including the Fourth, Fifth, and Eighth Circuits, and the Eastern District of Pennsylvania). To ensure that they do not to run afoul of the FLSA minimum wage requirements, employers should carefully consider whether a student or trainee qualifies as an employee under the primary benefit test. To guide this inquiry, employers should keep in mind that such a designation is dependent on the totality of the circumstances, and no one aspect of the relationship is determinative.

To discuss your company’s policy needs, contact any attorney in the Gibbons Employment Law Department. And watch for more posts on training and information about exciting new Gibbons educational programs on this blog.


Michael J. Riccobono is an Associate in the Gibbons Employment Law Department.
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Posted on January 4, 2011 by Peter J. Dugan

New York Employers Must Comply with Wage Theft Prevention Act Effective April 12, 2011

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.

Employers must provide this information at the time of hire as well as on or before February 1 in each year thereafter. The above disclosures must be in English as well as the employee’s self-identified primary language. Moreover, employers are required by the WTPA to obtain signed acknowledgments from employees, verifying that the notifications were made. Employers who fail to comply may face legal actions and be subject to monetary damages, injunctive relief, as well as paying reasonable attorneys’ fees and costs.

Pay Statement Obligations

Under the WTPA, New York employers must now provide written statements along with each payment of wages. The statements must include the dates of work covered, the employer’s name, address, phone number, rates of pay and basis thereof (e.g., hour, shift, day, week, salary, piece, commission, etc.), gross wages, deductions, net wages, and allowances claimed against the minimum wage (e.g., tip, meal, or lodging allowances). For nonexempt employees, the statement must also include the regular hourly rates of pay, overtime rates of pay, and the number of regular and overtime hours worked. In addition, upon the request of an employee, the employer must now furnish an explanation in writing as to how specific wages were computed. These compliance obligations extend beyond the recordkeeping requirements imposed on employers under federal law. New York employers who fail to comply with these new obligations may face legal actions and may be subject to monetary damages, injunctive relief, as well as paying reasonable attorneys’ fees and costs.

Recordkeeping Obligations

Under the WTPA, employers are now required to keep wage-related records for 6 years. For each week, employers must maintain contemporaneous, true, and accurate payroll records showing hours worked, rates of pay and basis thereof (e.g., hourly, salary, shift, day, piece, commission, etc.), gross wages, deductions, net wages, and allowances claimed against the minimum wage (e.g., tip, meal, lodging allowances) for each employee. The records for nonexempt employees must also indicate regular hourly rate of pay and overtime rate of pay as well as the total number of regular and overtime hours worked.

Expanded Remedies

The WTPA increases the scope of available remedies for wage and hour violations.

  • Liquidated Damages: Unless they can prove a good faith basis for believing they were in compliance, New York employers who fail to pay wages (e.g., minimum wages, overtime wages) are liable for the total amount of unpaid wages, costs, attorneys’ fees and liquidated damages. Liquidated damages presently are calculated to equal 25% of the total amount of wages due. The WTPA quadruples the amount to equal 100% of the wages due. On its face, this increase appears to mirror the liquidated damages available under the federal Fair Labor Standards Act (“FLSA”). However, employers should be mindful that the statute of limitations for violations of the New York Labor Law is 6 years (currently the longest of any state wage law), whereas the FLSA statute of limitations is at most three years. Additionally, employers must be mindful that at least some courts have found that liquidated damages under the FLSA and the New York Labor Law do not offset one another and may be recovered simultaneously.
  • Workplace Postings: The WTPA empowers the Commissioner of Labor to post a notice (for up to 1 year) in an area visible to employees and which summarizes the employer’s violation. If the violation is willful, the Commissioner may post the notice (for up to 90 days) in an area that is visible to the public.
  • Criminal Penalties: Under the New York Labor Law, employers that fail to pay the minimum wage or overtime compensation may be found guilty of a misdemeanor, and therefore fined up to $20,000 dollars or imprisoned for up to one year. If a second violation and conviction occurs within 6 years, the employer will be guilty of a felony. The WTPA expands these criminal penalties to partnerships and limited liability companies.
  • Attorneys’ Fees: The WTPA eliminates the potential for judicial discretion by directing the courts to award “all” reasonable attorneys’ fees as well a prejudgment interest in cases involving the underpayment of wages.

Anti-Retaliation

The WTPA grants anti-retaliation protection to employees who “reasonably and in good faith believe” that a violation of the Labor Law or Order of the Commissioner has occurred. Accordingly, we foresee this vague standard leading to an uptick in employees alleging retaliation claims. If successful, these employees will entitled to injunctive relief, liquidated damages of up to $10,000, back pay, and reinstatement. The WTPA also provides for an award of front pay in lieu of reinstatement. Unlawful retaliation is now deemed a class B misdemeanor.

Conclusion

In sum, the WTPA changes the way New York employers, large and small, will need to conduct business and keep records. The myriad of wage and hour laws was already complicated and is becoming more so. The cost to employers of non-compliance — regardless of whether from ignorance, misunderstanding, or willfulness — is getting even costlier. Accordingly, now is a good time for employers to communicate with experienced wage and hour counsel regarding compliance strategies.


Peter J. Dugan is an Associate in the Gibbons Employment Law Department.
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Posted on October 26, 2010 by Kristin D. Sostowski

FLSA Amended to Require Break Time for Nursing Mothers

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.
  • Employers with fewer than 50 employees are not subject to the break time requirement if compliance with the provision would impose an undue hardship. All employees who work for the employer must be counted for purposes of the 50-employee rule, not only those who work at the location in question.
  • Employers are not required under the FLSA to compensate nursing mothers who take breaks to express milk. However, where an employer already allows employees compensated breaks, an employee who uses that break time to express milk must be compensated in the same way that other employees are compensated for break time. Consistent with the FLSA’s general requirements, an employee must be completely relieved from duty during uncompensated break time.

Employers should be aware that the new FLSA amendments do not preempt state laws that provide greater protections to employees (for example, laws providing compensated break time, break time for exempt employees, or break time beyond one year after the child’s birth). Therefore, employers should also obtain legal advice regarding the relevant state law(s) to determine whether they are subject to stricter requirements.


Kristin D. Sostowski is an Associate in the Gibbons Employment Law Department.
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