Intrastate Passenger Trips Can Trigger FLSA's Motor Carrier Exemption, Rules Eleventh Circuit

By Richard Tuschman

Drivers who transport passengers from airports to locations within the same state can be subject to the FLSA’s motor carrier exemption, according to a recent decision by the Eleventh Circuit Court of Appeals, Abel v. Southern Shuttle Services, Inc., Case No. 10-10659 (11th Cir., September 21, 2010). The Abel decision is significant because it expands upon and clarifies the principles set forth in the Eleventh Circuit’s decision in Walters v. American Coach Lines of Miami, Inc., 575 F.3d 1221, 1226 (11th Cir. 2009), cert. denied, 130 S. Ct. 2343 (2010), which I reported on last year (and which I had the privilege to argue to the Eleventh Circuit on behalf of the employer).

The motor carrier exemption exempts from the FLSA’s overtime pay requirement “any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service pursuant to the provisions of section 31502 of Title 49,” otherwise known as the Motor Carrier Act (“MCA”) exemption. 29 U.S.C. § 213(b)(1). The Eleventh Circuit has held that the MCA confers upon the Secretary of Transportation the authority to regulate the maximum hours of service of employees who are employed (1) by a common carrier by motor vehicle; (2) engaged in interstate commerce; and (3) whose activities directly affect the safety of operations of such motor vehicles.

The purpose of the motor carrier exemption is to avoid overlapping jurisdiction, and potentially conflicting rulemaking, of federal agencies. Where the Secretary of Transportation has the authority to regulate a driver’s hours of service, the Secretary of Labor cannot have jurisdiction over the same issue. Both Walters and Abel presented the question of precisely when the Secretary of Transportation has such authority.

In Walters, the Eleventh Circuit held that “[t]here are two requirements for an employee to be subject to the motor carrier exemption”: (1) “his employer’s business must be subject to the Secretary of Transportation’s jurisdiction under the MCA”; and (2) “the employee’s business-related activities must directly affect the safety of operation of motor vehicles in the transportation on the public highways of passengers or property in interstate or foreign commerce within the meaning of the Motor Carrier Act.”

The bus company in Walters was licensed by the DOT and performed some trips across state lines; for example, between Florida and Georgia. Therefore, the court held that prong 1 of the test was satisfied. However, because not all of the plaintiffs in Walters drove across state lines, the court also considered the employer’s argument that the plaintiffs’ transportation of passengers between local airports (where the passengers typically arrived from out of state) and local seaports (where the passengers embarked and disembarked cruise ships that sailed outside of U.S. waters) constituted driving in interstate commerce. The court held that that “purely intrastate transportation can constitute part of interstate commerce if it is part of a ‘continuous stream of interstate travel.’ For this to be the case, there must be a ‘practical continuity of movement’ between the intrastate segment and the overall interstate flow.” The court concluded that “[f]or cruise ship passengers arriving at the airport or seaport, [the bus company’s] shuttle rides would be part of the continuous stream of interstate travel that is their cruise vacation.” Thus, the motor carrier exemption applied.

But part of the Walters court’s rationale for applying the motor carrier exemption was that the company performed airport-to-seaport trips pursuant to contractual or “common” arrangements with cruise lines, which are arguably interstate carriers. At the time Walters was decided, this appeared to be a significant factor because earlier authority held that the Secretary of Transportation has jurisdiction over intrastate passenger-carrying trips only where there is a “through-ticketing” arrangement between the intrastate carrier and an interstate carrier for the “continuous passage” of the passengers. The Walters court left open the question of whether such contractual arrangements were essential to the application of the motor carrier exemption. But this is a critical question, because many companies that transport passengers on intrastate trips as part of interstate journeys do so in the absence of formal contractual arrangements with airlines or cruise lines.

Southern Shuttle Services, Inc. is one such company. It operates the “SuperShuttle,” which transports passengers to and from three South Florida airports to various locations throughout South Florida (for example, a home, officer or hotel). Many of Southern Shuttle’s reservations are made through travel websites on the internet. Travelers buy “package deals” from these internet travel companies that include hotel accommodations, airfare, and a voucher on the SuperShuttle for transportation to and from the airport. Southern Shuttle apparently does not perform any trips across state lines, and the Secretary of Transportation appears not to have exercised jurisdiction over the company (by licensing or auditing the company, for example). The primary question presented in Abel was whether the Secretary nevertheless has jurisdiction over Southern Shuttle (prong 1 of the two-part test set forth in Walters).

The Eleventh Circuit said yes, holding that “Southern Shuttle’s local transport of these package-deal travelers has a ‘practical continuity of movement’ with the overall interstate journey.” The court also held that “Southern Shuttle’s arrangement with internet travel companies to provide airport shuttle service for their package-deal customers meets the ‘common arrangement’ requirement discussed in Walters.” Answering the question left open in Walters, the court rejected Abel’s argument that the common arrangement must be with an interstate carrier to satisfy the interstate commerce requirement. Finally, as to prong 2 of the test, the court held that “[h]aving already concluded that Southern Shuttle’s airport shuttle service was transportation of passengers in interstate commerce that subjected it to the Secretary’s jurisdiction, we conclude that Abel’s activities in driving the airport shuttle also constitute interstate commerce.” Thus, Southern Shuttle established the applicability of the motor carrier exemption, and Abel was not entitled to overtime pay.

To be clear, Abel does not mean that any company that transports passengers to or from an airport can claim the motor carrier exemption. For example, a taxi ride to or from an airport at the beginning or end of an interstate journey ordinarily will be deemed a local trip that is not within interstate commerce. For the motor carrier exemption to apply, the employer must show that the trips are part of the “practical continuity of movement” with the overall interstate journey. This means that some type of common arrangement, under which the intrastate trip is bundled with one or more elements of the passenger’s trip across state lines, must be shown.


FLSA Complaint Must be in Writing, Rules 3d DCA

Third District Court of AppealsBy Richard Tuschman

Defense lawyers whose clients are sued in Florida state court under the Fair Labor Standards Act typically remove the cases to federal court.  And for good reason:  employers generally have a better chance of obtaining a summary judgment in federal court. 

But defense lawyers may want to rethink this strategy in FLSA retaliation cases in light of a recent decision by the Third District Court of Appeals, Alvarado v. Bayshore Grove Management, LLC, Case No. 3D09-3332 (Fla. 3d DCA, October 6, 2006). 

In Alvarado, the plaintiff alleged that he had made oral complaints to his employer about his compensation and that he was terminated as a result in violation of the FLSA's anti-retaliation provision, 29 USC §215(a)(3).  This provision makes it unlawful "to discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to this chapter...."  Citing the Seventh Circuit Court of Appeals' decision in Kasten v. Saint-Gobain Performance Plastics Corp., 570 F.3d 834, 838-40 (7th Cir. 2009), the Third DCA affirmed the trial court's dismissal of the retaliation claim, holding that "the very meaning of the word 'filed' requires that the aggrieved employee at least submit something in writing." 

As the Seventh Circuit noted in Kasten, the Eleventh Circuit Court of Appeals reached a different conclusion in EEOC v. White & Son Enters., 881 F.2d 1006, 1011 (11th Cir.1989).  There, the Eleventh Circuit held that given the FLSA's "remedial purpose," an oral complaint is protected activity under the Equal Pay Act (which is part of the FLSA).  White & Son is binding on federal district courts in the Eleventh Circuit. See, e.g., Dees v. Rsight, Inc., Case No. 6:05-cv-1923-Orl-DAB, 2006 U.S. Dist. LEXIS 92860 (M.D. Fla. Dec. 22, 2006) (citing White & Son for the proposition that "the Eleventh Circuit has held that unofficial oral complaints by employees to their employer can constitute protected activity under the FLSA"). 

The lesson of Alvarado and White & Son is clear:  Employers who are sued in state court on an FLSA retaliation claim based on an oral complaint should keep the case in state court so they can argue that the complaint was not protected activity.  In any trial court within the Third DCA, this argument should be a winner.  In trial courts outside the Third DCA, at least the employer has a fighting chance on this argument; Alvarado is not binding but is persuasive authority.  Once the case is removed to federal court, White & Son controls, so the employer better be prepared to assert a different defense to the plaintiff's retaliation claim.

UPDATE:  Four days after this post, the United States Supreme Court held oral argument on this issue in Kasten.  You can hear the argument here.  Several justices sounded skeptical about the employee's attorney's argument that an oral complaint to an employer can constitute the "filing" of a complaint under the FLSA.  Assuming the Supreme Court resolves this precise issue, all federal and Florida courts will be bound by its decision. In that case, the apparent split between the Third DCA and the Eleventh Circuit will be moot.





Understanding the Eleventh Circuit's Polycarpe Decision

Eleventh Circuit Court of AppealsRecently I reported that the Eleventh Circuit’s decision in Polycarpe v. E&S Landscaping Services, Inc. will lead to an increase in the number of FLSA cases filed against small businesses in Florida.  This week I will summarize Polycarpe and attempt to explain its significance. 

First, some background.  Employees may be covered by the FLSA’s provisions as individuals, which is known as individual coverage, or as employees of a covered business, which is known as “enterprise coverage.”  Enterprise coverage is triggered if a business (1)“has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person”; and (2) has at least $500,000 of “annual gross volume of sales made or business done.” 29 U.S.C. § 203(s)(1)(A) (emphasis supplied).


The highlighted language is known as the handling clause.  Congress added it to the FLSA in 1961, thereby expanding the FLSA’s reach to include retail and service businesses that were local in nature, so long as the employees of a business handled goods that had moved in interstate commerce.  Congress added the words “or materials” after the word “goods” in 1974.  But the precise reach of enterprise coverage under the FLSA was not often addressed by the courts, and never attempted before by the Eleventh Circuit.

The Polycarpe decision addressed this issue by tackling two questions.  First, do interstate goods or materials lose their interstate quality if the items have already come to rest within a state before they are purchased within the state by the business?  As an example, if a lawn service business purchases a lawnmower that is built out-of-state, does the lawnmower lose its interstate quality if the lawn service purchases it at the local Home Depot?  The Eleventh Circuit ruled no, rejecting the “coming to rest” doctrine as inconsistent with the text of the FLSA, a 1973 Fifth Circuit decision, Brennan v. Greene’s Propane Gas Serv., Inc., 479 F.2d 1027, 1030 (5th Cir. 1973) (which is binding in the Eleventh Circuit), and a Department of Labor regulation, 29 C.F.R. § 779.242 (stating that it is “immaterial . . . that the goods may have ‘come to rest’”).. 

The second question the court addressed involved the interplay of “goods” and “materials” under the handling clause, and the application of the “ultimate consumer” defense.  The court began by reciting the definition of “goods” under the FLSA:

“Goods” means goods (including ships and marine equipment), wares, products, commodities, merchandise, or articles or subjects of commerce of any character, or any part or ingredient thereof, but does not include goods after their delivery into the actual physical possession of the ultimate consumer thereof other than a producer, manufacturer, or processor thereof.

29 U.S.C. § 203(i) (emphasis supplied). 

The highlighted language is known as the “ultimate consumer” exception.  Employees’ handling of goods that fall under this exception will not trigger enterprise coverage.  But the handling of materials will not fall under this exception, and will trigger enterprise coverage. Thus, it becomes critical to distinguish between “goods,” which is defined in the statute, and “materials,” which is not.

To make this distinction, the court reasoned that the meanings of “goods” and “materials” must be different, and not overlap.  Applying these criteria to several different dictionary definitions, the court concluded that

the most accurate view of Congress’s intent for the interplay between “goods” and “materials” in the FLSA--one that does not impliedly repeal some of the statutory definition of “goods”--is to read “materials” in the FLSA this way: “materials” in the FLSA means tools or other articles necessary for doing or making something. See Webster’s Third New Int’l Dictionary: Unabridged 1392 (1993). We believe that this interpretation is true to the ordinary meaning of “materials” and avoids conflict with the statutory “goods” definition.

The court explained that this definition accorded with the legislative history of the 1974 amendments and the Department of Labor’s own view on the meaning of materials, as expressed in its amicus brief in the Polycarpe case.  

The court then addressed the question of how to determine whether the items in a given case are either goods or materials (or neither):

Whether an item counts as “materials” will depend on two things: 1) whether, in the context of its use, the item fits within the ordinary definition of “materials” under the FLSA and 2) whether the item is being used commercially in the employer’s business.

The court used china plates as an example to illustrate both prongs of the test.  As to prong 1:  When a catering business uses china plates, they are materials.  But when a department store sells the plates, they are goods.  As to prong 2:  When an accounting firm uses the china plates as decorative items in its lobby, they are not materials because they do not have a significant connection to the firm’s accounting work.

Unfortunately, the court did not provide an analysis of whether the six businesses whose cases were consolidated in Polycarpe were covered by the FLSA.  Instead, the court remanded the cases to the district courts to determine whether enterprise coverage had been triggered in view of the Eleventh Circuit’s holdings.  In particular, the district courts will now have to decide whether the items evidenced by plaintiffs as having moved in interstate commerce support enterprise coverage under the handling clause as either “goods” (not subject to the ultimate-consumer exception) or as “materials.” 

Not having worked on any of the cases at issue in Polycarpe, I will not venture to predict the outcomes of the cases in the lower courts.  Nevertheless, it seems clear that Polycarpe significantly expands the likelihood that any business in the Eleventh Circuit will be found to be covered by the FLSA.  No longer can a business rely on the fact that the interstate goods or materials its employees handled had “come to rest” within the state before the business purchased them.  Assuming a business meets the $500,000 gross sales threshold, the only way a business can avoid enterprise coverage is by proof that its employees do not regularly handle, sell or work on materials in interstate commerce, and that the business is the ultimate consumer of any interstate goods that its employees handle.  For service businesses that do not sell goods to consumers, it may be relatively easy to establish that it is the ultimate consumer of the goods in question.  But establishing that its employees do not regularly handle interstate materials would seem be more challenging, because the majority of materials that businesses handle are manufactured outside the state.  The saving grace for employers may be the requirement that the materials have a “significant connection” to the employer’s business purposes.  The Eleventh Circuit suggests that there will be cases in which this requirement will defeat a plaintiff’s claim of enterprise coverage:

[W]e believe that the ordinary meaning of “handling, selling, or otherwise working on” is not so expansive as to be limitless; not every employer that meets the $500,000 sales threshold must be subject to the FLSA. It seems to us that an employee who uses an item at work will only sometimes be “handling, selling, or otherwise working on” the item for the purposes of FLSA coverage: an item’s use must have a significant connection to the employer’s business purposes.

It remains to be seen, however, how courts will define “significant connection.”  China plates used to decorate an accounting firm’s lobby may not have a significant connection to the firm’s accounting work, but what about the computers, calculators, paper and pencils the firm uses?  Are these “materials” that have a significant connection to accounting work? If so, do the same materials used by a dry cleaner have a significant connection to the business of dry cleaning?  These are the types of questions that I believe courts in the Eleventh Circuit will grapple with in the post-Polycarpe world of FLSA litigation. I will keep you posted.




Eleventh Circuit Rules for Employees on FLSA Enterprise Coverage

In an important decision that will affect countless numbers of small businesses in Florida, the Eleventh Circuit Court of Appeals today rejected the arguments of several employers that they were not subject to “enterprise coverage” under the Fair Labor Standards Act.  The decision, Polycarpe v. E&S Landscaping Services, Inc., is bound to lead to an increase in the number of FLSA cases filed against small businesses in Florida – which are already the frequent target of such claims.  I will provide some analysis of the Polycarpe decision in the near future. 

Understanding the New DOL Breastfeeding Break Guidelines

Just yesterday the U.S. Department of Labor released a Fact Sheet explaining the March, 2010 amendment to the Fair Labor Standards Act  that requires employers to provide breaks for nursing mothers.  The DOL's guidance is helpful because I have had several clients ask me about this law in recent months.  Some states already had laws like this, but Florida was not one of them.

The law requires employers to provide "reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child's birth each time such employee has need to express the milk."  Employers must provide the breaks "as frequently as needed", and must give the employee a private place, other than a bathroom, to take the breaks.  The breaks need to be of "reasonable" length.  The employer does not have to pay the employee for the break time, unless the employer already provides compensated breaks, and the employee uses one of those breaks to express breast milk.

A couple of interesting points:  (1) the law applies only to non-exempt employees, and not to exempt employees; and, (2) employers with under 50 employees are not subject to the law "if compliance with the provision would impose an undue hardship."

This amendment will probably not lead to much litigation, but employers need to be aware that it is out there. 

When Plaintiff's Lawyers Go Too Far

My partner Richard Tuschman has blogged extensively on this site about the unusually high number of Fair Labor Standards Act lawsuits Florida employers face.  The state leads the nation in these suits.  Clients often ask why that is so, and in response I usually give credit to the enterprising plaintiff's bar here, especially in South Florida.  Disgruntled ex-employees often consult with plaintiff's employment lawyers about bringing some type of wrongful termination suit, but the lawyers often end up advising that the clients file FLSA overtime suits instead, because the lawyers know that employers often settle these cases early to avoid mounting legal fees. 

Of course, that is not the only way plaintiff's employment lawyers get FLSA cases.  Some rely upon their contacts within the bar and local community to investigate and build cases against large employers.  Because these cases can be filed as "collective actions", with numerous plaintiffs in one case, large employers are especially vulnerable to these suits.

A recent case out of a federal court in Minnesota illustrates the lengths that plaintiff's employment attorneys will go to build their cases, and the trouble they can get into by going too far.  The plaintiff's law firm at issue there, Halunen and Associates, sued Target Corporation for allegedly misclassifying some of its executives as exempt.   One of the named plaintiffs, Linda Gifford, had come to the law firm with complaints of employment discrimination and retaliation, but the lawyers thought that an FLSA claim had more merit. 

The lawyers investigated the claim for several months before bringing suit.  During that investigatory period, the firm was approached by another employee of the same company, this time an executive that the Court refers to as "Jane Doe".  Doe worked in a sensitive position with the company, and was privy to confidential and attorney-client privileged information.  Like Gifford, Doe came to the firm with questions related to the potential termination of her employment.  The firm, however, was also interested in Doe's knowledge of the issues relating to the potential FLSA suit it was investigating, and obtained  information from Doe to use to support that suit.

After the firm filed the FLSA suit, the company got wind of the conversations between the firm and Doe about the FLSA issues, and moved to disqualify the firm from representing the FLSA plaintiffs.  The Court granted the motion because the firm had "pushed ethical boundaries when it chose to represent Doe while simultaneously investigating" the FLSA suit.  The Court reasoned that Doe had disclosed confidential and attorney-client privileged information to the firm, and that allowing the firm to continue litigating the case "potentially undermines public confidence in the legal profession."

I, of course, have no information about this case other than what is contained in the Court's Order.  But, I think the lesson here for employers (and their attorneys) is to think long and hard about how the plaintiff's employment firms they are litigating against obtained the case in the first place.  If you do a little bit of digging, you might learn that the plaintiff's firm knows a lot more about your operation than you think, or than they should. 

Does Dees v. Hydradry Leave Employers High and Dry in FLSA Settlements? (Part II)

When settling employment-related lawsuits, employers want peace as quickly, inexpensively, and painlessly as possible. This usually means the following:  (1) employers want to resolve the case as quickly as possible, incurring a minimum of defense fees; (2) they want to settle for as little as possible, and typically do not care how the settlement is divided between plaintiff and his counsel; (3) if the settlement involves a large sum of money, employers often want to pay in installments over time; (4) employers want to continue to deny liability, and avoid any feature of the settlement that could be construed as an admission of liability; and (5) employers want to ensure that the settlement is confidential, and that the plaintiff is not free to encourage other employees or formers to sue. 

The settlement of FLSA lawsuits is no different in these respects. However, Judge Merryday’s Dees opinion runs counter to several items on the employer’s settlement wish list. 


First, Dees addresses the issue of attorney’s fees in the following way: If the parties reach agreement on the plaintiff’s recovery before the plaintiff’s attorney’s fees are considered, then the court will typically approve the settlement without separately considering the fee to be paid to the plaintiff’s counsel.  Otherwise, the settlement may reflect a conflict of interest between the plaintiff and his counsel, and the court will determine the plaintiff’s attorney’s reasonable fee using a lodestar approach. 


But in practice, reaching agreement on the plaintiff’s recovery, without also considering the plaintiff’s attorney’s fee, is difficult. Employers’ representatives typically have authority to settle the entire case for a given number. From the employer’s perspective, reaching agreement on the plaintiff’s recovery, without considering the plaintiff’s fees, leaves too much uncertainty; if the fees are too high, then the settlement is unacceptable. The alternative - litigating the attorney’s fee issue separately - is time-consuming and expensive. Thus, in most FLSA cases (in my experience, at least), the parties negotiate the plaintiff’s recovery and the fees at the same time, and it is up to the plaintiff’s attorney to justify his fees under a lodestar approach if the court questions the fee portion. But Dees suggests that such an approach is likely to be tainted by a conflict of interest between the plaintiff and his attorney, and that judicial scrutiny of the plaintiff’s fee award will be appropriate. Judicial scrutiny generally means delay, the potential for additional litigation, and increased fees on both sides. 

For example, in Shannon v. Saab Training USA, LLC, Case No. 6:08-cv-803-Orl-19DAB (M.D. Fla. June 22, 2009), the magistrate judge concluded that the attorney’s fee provision in an FLSA settlement was too high and recommended that the district court revise the settlement agreement and reallocate the total settlement number, so as to provide more to the plaintiffs and less to their counsel. Judge Fawsett concluded that the court did not have the power to rewrite the settlement agreement. Therefore, Judge Fawsett rejected the settlement agreement. The parties were effectively forced to restructure their settlement and submit it for approval. Judge Conway issued a similar order in Rodriguez v. Fuji Sushi, Inc., No. 6:08-cv-1869-Orl-22KRS (M.D. Fla. May 22, 2009). 


The parties may attempt to avoid judicial scrutiny in cases involving no compromise, i.e. where the plaintiff is paid his entire claim and relinquishes nothing else of value. In such a case, Judge Merryday writes in Dees that “the district court should approve the settlement and dismiss the case (if the employer has paid) or enter judgment for the employee (if the employer has not paid).” But even here, the employer may be faced with a choice between two undesirable options: pay the plaintiff in full before the settlement is approved, or have judgment entered against the employer. The first option may be undesirable because the employer may prefer to pay the plaintiff and his counsel in installments over time.  In addition, employers and their counsel generally are wary of paying settlement proceeds before court approval, even if court approval appears likely. The other option, a judgment, is something most employers seek to avoid because it can be viewed as an admission or judicial finding of liability in future cases. 


Judge Merryday’s rejection of confidentiality provisions in FLSA settlements, as well as filings under seal, and in camera inspection of settlement agreements, is also unfortunate from the employer’s perspective, and may actually serve to discourage settlements. As Judge Merryday recognizes in Dees, “the employer worries that compromise with an employee who has vindicated a valuable FLSA right will inform and encourage other employees, who will vindicate their FLSA rights (or who will wrongly, but expensively for the employer, conclude that additional wages are due).” Of course, there is already a vehicle by which a plaintiff can inform and encourage other employees to vindicate their FLSA rights: a collective action. If a collective action is inappropriate, it is likely because the plaintiff’s claim is dubious or unique. Employers who are required to make their settlements of such FLSA claims a matter of public record may choose to litigate rather than settle. Employers generally believe, with good reason, that settling lawsuits in the public record is likely to make them a target for future lawsuits.


The Dees opinion also leaves some questions unanswered. For example, what happens if the judge finds that other factors weigh in favor of a rejection of a compromise settlement? In Dees, Judge Merryday states that such factors include:


the presence of other employees situated similarly to the claimant, a likelihood that the claimant’s circumstance will recur, a history of FLSA non-compliance by the same employer or others in the same industry or geographic region, or the requirement for a mature record and pointed determination of the governing factual or legal issue to further the development of the law either in general or in an industry or a workplace.


If the court determines that one or more of these factors are present, will the court reject the proposed settlement and require the parties to litigate the case? Will the court certify the case as a collective action even if the parties have not requested certification, so as to afford potential relief to similarly situated employees? I have never heard of a court taking either of these actions. (If you have, please let me know). But if courts follow Judge Merryday’s opinion in Dees, we may see such a case in the near future. And in that event, the settlement of FLSA cases will have become substantially more difficult than they already are. 


Does Dees v. Hydradry Leave Employers High and Dry in FLSA Settlements? (Part I)

In Dees v. Hydradry, Case No. 8:09-cv-1405-T-23TBM (M.D. Fla., April 19, 2010), U.S. District Judge Steven Merryday issued a 29 page opinion that addresses the key issues pertaining to the settlement of FLSA cases in the Eleventh Circuit. The opinion is remarkable not only for its length and scholarly tone, but because, if followed by other district courts, it could make settlement of FLSA cases much more difficult in the Eleventh Circuit.

In this first of two posts, I summarize the Dees decision. In the second post, I will offer some thoughts on the impact Dees may have in FLSA cases in the Eleventh Circuit, and identify some questions that Dees leaves unanswered.

(Unwanted) Judicial Scrutiny

Judge Merryday issued his Dees decision four months after the parties filed a one paragraph Joint Stipulation of Dismissal with Prejudice. The parties represented in their stipulation that

The Defendant has agreed to pay Plaintiff for all overtime owed in full, without compromise. ($550 in Actual Damages, $550 in Liquidated Damages). Defendant agreed to separately pay Plaintiff attorney's fees and costs of $2,900 ($1,900 in attorney's fees; $1,000 in costs).  As such, no judicial scrutiny is needed. See Mackenzie v. Kindred Hosps. East, LLC, 276 F.Supp 2d. 1211, 1217 (MD.Fla. 2003).”

But judicial scrutiny is exactly what the parties got. Judge Merryday begins his opinion by noting that although the FLSA prohibits agreements that curtail an employee’s FLSA rights, the FLSA is silent as to whether an employee can compromise a claim for unpaid wages. Reviewing the Supreme Court’s decisions in Brooklyn Savings Bank v. O'Neil, 324 U.S. 697 (1945) and D.A. Schulte v. Gangi, 328 U.S. 108, 114 (1946), Judge Merryday concludes that these decisions, “[a]lthough prohibiting purely private compromise …. leave unanswered whether an employee may compromise a claim with supervision by the district court.”

That question was answered by the Eleventh Circuit in Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982). As noted by Judge Merryday:

The Eleventh Circuit held that the FLSA permits an employee only two avenues for compromising an FLSA claim. First, an employee may accept a compromise supervised by the Department of Labor. By accepting the compromise, the employee waives the right to sue for the unpaid wages. Second, if an employee sues for back wages under the FLSA, the parties may present a proposed compromise to the district court, which “may enter a stipulated judgment after scrutinizing the settlement for fairness…. [A]n employee may compromise a claim if the district court determines that the compromise “is a fair and reasonable resolution of a bona fide dispute over FLSA provisions.”

Judge Merryday endorses the reasoning of Lynn’s Food Stores by opining that “leaving an FLSA settlement to wholly private resolution conduces inevitably to mischief”: 

An employer who pays less than the minimum wage or who pays no overtime has no incremental incentive to comply voluntarily with the FLSA, if, after an employee complains, the employer privately compromises the claim for a discount -- an amount less than the full amount owed under the FLSA (plus, with savvy negotiation, a confidentiality agreement to preclude the spread to other employees of information about the FLSA). If approval is required, the discount might become unavailable and the undiscounted principal owed the employee might increase (for example, as a result of liquidated damages or a more refined damage computation), both of which unhappy prospects conduce to voluntary compliance by the employer. The Eleventh Circuit in Lynn's Food and perforce this district court proceed on the logical and salutary premise that the FLSA, a statute famously designed to preempt in certain particulars the possibility of private agreement, remains immune to the unsupervised intrusion of a private agreement.

Absent DOL or court approval, Judge Merryday notes, the release of a compromised FLSA claim remains unenforceable. The employer remains liable for the unpaid wages, and the employee may sue to recover any wages (or liquidated damages) compromised by the parties’ private agreement.

What does a Compromise Mean?

What does it mean to say an FLSA claim has been compromised? In Mackenzie, 276 F.Supp 2d. at 1211, the employer made an offer of judgment for full relief. After determining that a collective action was inappropriate, the magistrate judge determined that the offer fully compensated the plaintiff on his FLSA claim, and therefore recommended entry of judgment in favor of the employee for the amount of the employer's offer of judgment. 

Judge Merryday was the district judge in Mackenzie, and he adopted the magistrate’s recommendation. But in Dees he notes that if the parties' agreement includes any additional term – “such as the forbearance of a valuable right of the employee, including perhaps one of the employee's FLSA rights, or the exchange of another valuable consideration of any kind” – the claim has been compromised and MacKenzie is inapplicable:

To the extent that the employee receives a full wage but relinquishes something else of value, the agreement (even if exhibited to the court as a stipulation for “full compensation” or an offer of judgment) involves a “compromise,” and Lynn's Food requires judicial approval of the compromise.

Scrutinizing a Settlement for Fairness

Judge Merryday then analyzes how a court should scrutinize a settlement for fairness. First, “the court should consider whether the compromise is fair and reasonable to the employee (factors ‘internal’ to the compromise).” Next, “the court should inquire whether the compromise otherwise impermissibly frustrates implementation of the FLSA (factors ‘external’ to the compromise).” Only if both factors are met should the court approve the settlement.

With respect to “internal” factors, Judge Merryday focuses on four issues. First, the district court must examine the nature of the dispute, and determine whether the employer is “extract[ing] a disproportionate discount on FLSA wages in exchange for an attenuated defense to payment.” 

Second, the court must ensure that the parties’ settlement agreement does not contain a confidentiality provision because, according to Judge Merryday, such provisions frustrate the purposes of the FLSA, by:  (1) empowering an employer to retaliate against an employee for exercising FLSA rights; (2) effecting a judicial confiscation of the employee's right to be free from retaliation for asserting FLSA rights; and, (3) transferring to the wronged employee a duty to pay his fellow employees for the FLSA wages unlawfully withheld by the employer.

Third, the court must ensure that the employee is not waiving FLSA rights prospectively.  For example, the employee may not stipulate that he is an exempt employee.

Fourth, the court must “review . . . the reasonableness of counsel's legal fees to assure both that counsel is compensated adequately and that no conflict of interest taints the amount the wronged employee recovers under a settlement agreement.” Judge Merryday quotes with approval Judge Presnell’s opinion in Bonetti v. Embarq Management Co., __ F. Supp. 2d __, 2009 WL 2371407 (M.D. Fla. Aug. 4, 2009):

[T]he best way to insure that no conflict has tainted the settlement is for the parties to reach agreement as to the plaintiff's recovery before the fees of the plaintiff's counsel are considered. If these matters are addressed independently and seriatim, there is no reason to assume that the lawyer's fee has influenced the reasonableness of the plaintiff's settlement.

In sum, if the parties submit a proposed FLSA settlement that (1) constitutes a compromise of the plaintiff's claims; (2) makes full and adequate disclosure of the terms of settlement, including the factors and reasons considered in reaching same and justifying the compromise of the plaintiff's claims; and (3) represents that the plaintiff's attorneys' fee was agreed upon separately and without regard to the amount paid to the plaintiff, then, unless the settlement does not appear reasonable on its face or there is reason to believe that the plaintiff's recovery was adversely affected by the amount of fees paid to his attorney, the Court will approve the settlement without separately considering the reasonableness of the fee to be paid to plaintiff's counsel. However, if the parties can only agree as to the amount to be paid to the plaintiff, the Court will continue the practice of determining a reasonable fee using the lodestar approach.

With respect to external factors, Judge Merryday lists several factors that may militate in favor of rejecting a proposed compromise, including:

[T]he presence of other employees situated similarly to the claimant, a likelihood that the claimant's circumstance will recur, a history of FLSA non-compliance by the same employer or others in the same industry or geographic region, or the requirement for a mature record and a pointed determination of the governing factual or legal issue to further the development of the law either in general or in an industry or in a workplace.

Filing Under Seal, In Camera Inspections, and Fairness Hearings

Judge Merryday then addresses the practices of filing settlements under seal, or having the court review them in camera, or having fairness hearings that do not include the admission of the agreement into the record. Judge Merryday concludes that all these practices are inimical to the public’s right of access to a judicial proceeding, and also “thwart[] Congress's intent both to advance employees' awareness of their FLSA rights and to ensure pervasive implementation of the FLSA in the workplace.” Thus, concludes Judge Merryday, “the parties must file the settlement agreement in the public docket.”

Rejection of Stipulation of Dismissal

Turning finally to the stipulation of dismissal filed by the parties in Dees, Judge Merryday rejects the stipulation and orders the parties to request approval of their settlement by : (1) filing their settlement; (2) describing "the bona fide dispute or disputes resolved by the compromise and confirm[ing] that the filed agreement includes every term and condition of the parties' resolution (in other words, confirm the absence of any ‘side deal’)”; and (3) demonstrating the reasonableness of the proposed attorney's fee using the lodestar approach, or representing that the parties agreed to the plaintiff's attorney's fee separately and without regard to the amount paid to settle the plaintiff's FLSA claim.

Reducing Your Company's Exposure on FLSA Exemption Claims

http://www.rgbstock.comSuppose a group of your salaried employees sues your company under the Fair Labor Standards Act, claiming they’ve been improperly classified as exempt and are entitled to overtime pay for the last three years. And suppose you’re concerned about the strength of your exemption defense and want to calculate your potential exposure. Do you calculate the employees’ overtime hours at 1.5 times their regular rate? Or can you assert that even if the employees were improperly classified, their salary paid them at a straight time rate for all their overtime hours, and therefore any liability should be calculated at only a half-time rate? 

The answer depends on how many hours the employees’ salary was intended to cover. 

Here’s why. The FLSA requires that employers pay non-exempt employees overtime pay for hours worked in excess of 40 per week at a rate not less than one and one-half times the employee’s regular rate of pay.  29 U.S.C. § 207(a)(1).  The regular rate must be “must be drawn from what happens under the employment contract.” 29 C.F.R. § 778.108. Suppose you agree to pay an employee a weekly salary of $1,000 for a 40 hour workweek. The regular rate is determined by dividing total compensation by the number of hours the salary is intended to compensate. 29 C.F.R. § 778.113. Here, the employee’s regular rate is $25 per hour. If a court determines that the position is non-exempt, your company will be liable for overtime at 1.5 times the regular rate, i.e. $37.50.

Employers and salaried employees often do not have a specific agreement as to how many hours of work are required or expected. But if the facts warrant a conclusion that the salary was intended to cover a 40 hour workweek, the employer will still be liable for overtime hours at 1.5 times the regular rate. In a recent case, Talbot v. Lakeview Center, Inc., Case No. 3:06cv378/MCR/MD (N.D. Fla., February 2, 2010), the employer posted two job opening advertisements that listed the hours of employment as 8 a.m. to 5 p.m., Monday through Friday. Plaintiffs were expected to be on the job during normal business hours and did not believe they were permitted to work fewer than 40 hours per week. Although plaintiffs understood that evening or weekend work would sometimes be required, the employer used a “flex time” arrangement that permitted plaintiffs to arrive at work late if required to work on an evening or weekend. The court found these facts consistent with a contract for a 40 hour week and held that the employer was liable for overtime at 1.5 times the regular rate.

For employers, there is a better way. If you’ve made it clear to salaried employees that their salary covers all hours worked, irrespective of the number of hours they work, you can argue that the employees’ salary already compensated them at a straight time rate for all hours worked, and that even if the employees are found to be non-exempt, any overtime should be calculated at a half-time rate. Courts sometimes characterize this as a retroactive application of the “fluctuating workweek” method.

Under the Department of Labor’s “fixed salary for a fluctuating workweek” rule, “where there is a clear mutual understanding of the parties,” an employer can pay a non-exempt employee a fixed salary that serves as compensation for all hours worked if it is sufficient to compensate the employee for all straight time hours worked at a rate not less than the minimum wage and the employee is paid an additional one-half of the regular rate for all overtime hours. See 29 C.F.R. § 778.114. To be clear, when you treat employees as exempt, you are not actually utilizing the “fluctuating workweek” method because, by definition, you are not paying the employees any overtime. But if your exemption argument fails, many courts will allow you to apply the rule retroactively to limit overtime liability to a half-time rate.

For example, in Blackmon v. Brookshire Grocery Co., 835 F. 2d 1135 (5th Cir. 1988), the plaintiffs had been promoted with the understanding that they would be paid a fixed weekly salary, and would work whatever number of hours were required to get the job done. The trial court found that plaintiffs were not exempt and calculated overtime at 1.5 times their regular rate. On appeal, the Fifth Circuit Court of Appeals, citing the fluctuating workweek rule, held that a half-time rate was appropriate. In Saizan v. Delta Concrete Prods. Co., 209 F. Supp. 2d 639, 640 (M.D. La. 2002), the court, citing Blackmon, reached the same conclusion. In Sutton v. Legal Services Corp., 11 W.H Cas.2d 401, 404 (D.C.Sup.2006), the court stated that “virtually every court that has considered the question” has upheld the remedial use of half-time in failed exemption cases.

A January 14, 2009 Department of Labor opinion letter (FLSA2009-3),  in which the DOL endorsed the fluctuating workweek method to compute the retroactive payment of overtime to misclassified employees, lends support to Blackmon and similar cases.

But recently, at least two courts have held that the fluctuating workweek method cannot apply retroactively. In In re Texas EZPawn Fair Labor Stds. Act Litig., 633 F. Supp. 2d 395 (W.D. Tex. 2008), the court stated that applying the method not only as a way to pay an employee, but also as a way to remedy misclassification, is inconsistent with the remedial provisions of the FLSA. In Russell v. Wells Fargo and Co., No. C 07-3993 (N.D. Cal. Nov. 17, 2009), the court reached the same conclusion and specifically found the DOL opinion letter (FLSA2009-3) unpersuasive.

In Torres v. Bacardi Global Brands Promotions, Inc., 482 F. Supp. 2d 1379 (S.D. Fla. 2007), the court side-stepped the issue altogether and held that the application of the fluctuating workweek method was not at issue because the employer was not relying on it.  The court nevertheless agreed with the employer that because the plaintiff had “already received his regular rate for all hours worked,” he was only entitled to half-time for those hours worked in excess of forty per week.  

While there is some disagreement in the case law about whether it is proper to use a half-time rate to calculate overtime liability in a failed exemption case, there is little or no disagreement that half-time is applicable, if at all, only where the employees’ salaries were intended to cover all hours worked. If the evidence shows that the employees’ salaries were intended to cover a 40-hour workweek, the employer’s half-time argument will fail.

And make no mistake, the difference between calculating overtime at a half-time rate and 1.5 times the regular rate is dramatic. As noted above, an employee who is paid a $1,000 weekly salary for a 40-hour workweek has a regular rate of $25 per hour. Ten hours of overtime will cost the employer $375 in back pay (25 x 1.5 x 10 = $375). Now consider an employee who is paid a $1,000 weekly salary with a clear understanding that her salary covers all hours worked. In a week in which the employee works 50 hours, the regular rate is $20 per hour. Using a half-time rate, the employer’s liability for ten hours of overtime is only $100 (20 x 0.5 x 10 = $100), a $375% difference.  


Miami-Dade County Passes New Wage Theft Ordinance

Editor's note:  see legislative update to "reasonable time" provision below.

By Teresa Maestrelli

The Miami-Dade Board of County Commissioners recently approved a Wage Theft Ordinance designed to make it easier for employees to take legal action against employers that fail to pay (or underpay) them. Under the new ordinance, the county will rely on a streamlined hearing examiner process to address complaints by employees.


The unanimous vote made Miami-Dade the first county in the nation to adopt a countywide wage theft law.[1]  For nearly a year, members of the South Florida Wage Theft Task Force - a coalition of union, immigrant, faith, women’s and legal services organizations - worked with County Commissioner Natacha Seijas, the principal sponsor of the ordinance, to craft and introduce the ordinance. 


The ordinance bars wage theft, and allows the county to use its police powers to intervene and help recover workers’ back pay. The ordinance specifically applies to private sector employees and employers in cases involving at least $60 (the “threshold amount”). Under the ordinance, wages include pay for daily, hourly, or piece work at a rate no less than the highest applicable rate established under federal, state, or local law.


Wage-Theft Violations:


An employer that fails to pay a portion of wages due to an employee, according to the wage rate applicable to that employee, within a “reasonable time” from the date on which the work was performed by the employee, shall be wage theft. The ordinance establishes a presumption that a “reasonable time” is no later than 14 calendar days from the date on which the work is performed. Employers may lengthen the period of time between the date work is performed and the date the employee is paid wages, for a period not to exceed 30 days, upon express written agreement signed by the employee.


Update:  On June 3, 2010, the Board of County Commissioners amended the Wage Theft ordinance to provide that  "[r]easonable time shall be presumed to be no later than fourteen calendar days from the date on which the work is performed unless the employer has established, by policy or practice, a pay schedule whereby employees earn and are consistently paid wages according to regularly recurring pay periods in which case such pay schedule shall govern."  This amendment avoids the problem of employers being deemed to have failed to pay their employees within a reasonable time, when payment is made twice per month.


Procedures for Wage-Theft Complaints:


An aggrieved employee may file a complaint with the county alleging a violation of the ordinance.  The complaint must set forth the facts upon which it is based with sufficient specificity to identify the employer and for the county to determine both that an allegation of wage theft has been made, and that the threshold amount has been met. Upon determining that the complaint alleges wage theft, the county will then serve the complaint on the employer, which will have 20 days to file an answer.


Hearing Before Hearing Examiner:


Upon request by either party, a hearing will be held before a Hearing Examiner appointed by the county. In conducting any hearing to determine whether a violation of the ordinance has occurred, the Hearing Examiner will have the authority to administer oaths, issue subpoenas, compel the production of and receive evidence. The burden of proof by a preponderance of the evidence rests upon the complainant/employee.


Upon the conclusion of the hearing, an adjudicative final order will be issued and served upon the parties setting forth written findings of fact and conclusions of law.


Enforcement of Violations:


At the conclusion of the hearing and upon a finding of a wage violation, the employer will be ordered to pay wage restitution to the affected employee in an amount equal to three times the amount of back wages that the employer is found to have unlawfully failed to pay the employee. The county will further order the employer to pay the Board of County Commissioners an assessment of costs not to exceed actual administrative processing costs and costs of hearing.  The new ordinance provides for additional penalties for failing to comply with the Hearing Examiner’s order.  


As demonstrated above, the penalties for violation of the ordinance can be costly. Employers in Miami-Dade County need to be sure that they comply with the new ordinance by timely paying wages due to their employees. As stated, the new ordinance establishes a presumption that a reasonable time is no later than 14 calendar days from the date on which the work is performed, however, employers are free to modify that (for a period not to exceed 30 days) by an express written agreement signed by the employee.  


[1] San Francisco has an ordinance similar to Miami-Dade’s, but it only covers the city.  Los Angeles and New Orleans also are considering wage theft legislation.

Florida Led Nation in FLSA Lawsuits in 2009

Florida led the nation in Fair Labor Standards Act lawsuits in 2009. Statistics generated from PACER (Public Access to Court Electronic Records) show that about 2000 new cases were filed in United States District Courts in Florida last year, far more than in any other state. 

Of course, Florida is not the only hotbed of wage-hour litigation. California, which has its own, more rigorous wage-hour laws, has a large number of wage-hour cases filed in its state court system. Texas and New York are also seeing increasing numbers of wage-hour cases.

But when it comes to the FLSA, the Sunshine State rules. The reasons for this are somewhat mysterious. Are Florida employees more litigious than in other states? Do Florida employers violate the FLSA more often? Is there a more active plaintiff-side employment bar in Florida? I suspect the answer is a combination of all these factors, plus good old-fashioned word of mouth. Here’s what I mean: The vast majority of FLSA cases settle before trial. FLSA settlements generally must be approved by a court, see Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982), and many judges refuse to allow FLSA settlements to be confidential. And even if the terms of a settlement are confidential, a settling plaintiff can always disclose that the case has been “resolved amicably,” or words to that effect. Whatever the exact words, the message is clear – the plaintiff got a nice check. It’s like that old shampoo commercial from the 70’s: a settling plaintiff tells two friends, and they tell two friends, and so on and so on… Pretty soon you have 2000 FLSA cases on the docket.

So what can a Florida employer do to avoid being named in an FLSA lawsuit? Well, the best advice I can offer is to make every reasonable effort to comply with FLSA. That may seem obvious, but it’s not as easy as it sounds because the FLSA can be counterintuitive; its rules are often inconsistent with what seem to be reasonable and ethical business practices. But if you learn what the FLSA requires, and adopt policies and practices that are consistent with the law, you will go a long way toward avoiding a lawsuit. And, yes, get the advice of a qualified employment lawyer if you are unsure about what to do. Believe me, it will be far less expensive than litigation.

President Obama Backs Department of Labor Misclassification Fight

The following EBG client alert, authored by my partner Evan Spelfogel, should be of interest to all Florida employers.

On February 1, 2010, President Barack Obama released his federal budget for the coming fiscal year, including $117 billion for the United States Department of Labor, of which $25 million was set aside expressly to help the DOL combat employee misclassification. This includes, specifically, identifying and litigating against employers that categorize workers as independent contractors when, in fact, they are employees, and that classify as exempt from overtime those employees who do not meet the requirements of the White Collar Exemptions under Part 541 of the Wage and Hour Regulations.

The DOL will use a large portion of these funds to hire hundreds of investigators and other enforcement staff. The new Department of Labor Solicitor, Patricia Smith, will pursue a “Misclassification Initiative” to obtain, for misclassified employees, the wages, overtime pay, unemployment insurance benefits, social security contributions and health, welfare and pension benefits available to employees, but not to independent contractors.

Smith, it should be noted, was most recently Commissioner of Labor in New York State. In that capacity, she publicly identified misclassification as one of the most serious workplace problems today, and created a dedicated taskforce to attack the problem, encompassing representatives from a number of state government agencies, including labor, tax, unemployment insurance, workers compensation and labor relations.

Now, more than ever, employers must have programs in place to insure the validity of their classification of workers as independent contractors or as exempt from overtime, and must have a clear strategy for handling government audits and enforcement actions.

Employers should engage in proactive self-audits, in order to seek out and eliminate vulnerability. Companies should take the appropriate first steps to limit liability and protect their businesses, without raising “red flags.” Employers should check their IRS Form 1099s to identify those they have been paying as independent contractors. They should then audit their outside contractor and employee job descriptions, actual job duties and functions, and the degree of day-to-day control exerted by management, to determine who, in fact, is an independent contractor and who is an employee, and whether the employees are exempt or non-exempt under applicable wage and hour tests.

Employers should pay particular attention to matching duties and functions with the requirements for exemption under the managerial/supervisory, administrative and professional white-collar exemptions. Getting the company’s house in order before the government’s “knock on the door” may save time, attorneys fees and the actual and intangible cost of administrative and civil litigation.

The consequences of worker misclassification, both as to independent contractors and overtime exempt employees, may be severe. Individual, class and collective actions concerning workers’ status are proliferating. Companies are facing larger judgments, ramifications and costs, as one case sparks another. The expense to employers can be staggering, including back-pay with interest, liquidated damages, stock options awarded at years-ago, lower prices and legal fees. Misclassification cases are lucrative for plaintiffs’ lawyers, particularly when they can assert class and collective claims and work on a contingent-fee basis. The announcement of additional funds made available to the DOL under the president’s budget and the confirmation of Patricia Smith as Solicitor of the Department of Labor should provide a wake-up call to employers.

For additional information, please see Mr. Spelfogel’s published article titled: “Misclassification: The Profusion, The Cost, and the Remedy” (NYSBA L&E Newsletter, Vol. 34, No. 1 at page 7, Spring 2009).


The Obama Administration's Agenda for the DOL -- What Employers Need to Know

The following post, authored by my partner Betsy Johnson, should be of interest to all Florida employers.

President Obama just celebrated his first year in office and his Administration has been busy! Employers of all sizes are starting to see the effects of the Obama Administration’s workplace agenda; especially at the Department of Labor (DOL). The watchword for all employers in the wage/hour arena for 2010 is “compliance.”  The DOL is slated to receive a substantial budget increase this year and it is going on a hiring spree to increase the number of investigators and enforcement personnel. 

The DOL’s agenda includes increased audit and enforcement proceedings related to “off the clock” work and the misclassification of employees as “exempt” under the Fair Labor Standards Act (FLSA). In addition, the DOL (in cooperation with the IRS) will focus its audit and enforcement proceeding on employers who misclassify individuals as independent contractors.  Now, more than ever, employers must have programs in place to ensure compliance with the myriad of wage/hour laws and regulations, and implement a clear strategy for handling government audits and enforcement actions. While the thought of conducting a comprehensive payroll practices compliance audit can be daunting, employers can efficiently conduct “spot” audits of particular areas where they may be vulnerable. 


As an initial matter, employers should determine who will conduct the audits. Utilizing internal resources such as the Human Resources and/or Payroll Departments and/or the company’s General Counsel will help keep the costs down. However, using internal resources may not guarantee that the results will be protected by the attorney-client privilege should the company become involved in litigation regarding the subject matter of the audit. As such, employers may wish to seek assistance of outside counsel to conduct the audit and analyze the results.


The purpose of these “spot” audits is to: 1) identify areas of non-compliance; 2) identify policies, procedures and/or practices that can be improved; 3) develop a plan for improvement; and 4) implement the plan. The areas where most employers are vulnerable to government actions and employee claims in the wage/hour area are:


         Overtime calculation and payment

         Off the clock work

         “Donning and doffing” issues

         Classification of employees (exempt v. non-exempt)

         Time keeping


         Proper classification of independent contractors


In planning a “spot” audit, employers should determine: 1) the scope and depth of the audit; 2) what data needs to be collected; 3) what documents need to be reviewed; 4) which managers should be interviewed to obtain relevant information; and 5) whether the employees should be surveyed for relevant information. On a cautionary note, if the employer believes there may be too many “skeletons in the closet” that may be exposed in an audit, consideration should be given to retaining outside counsel to assist in the audit so that the process and the results can be protected by the attorney-client privilege.


Finally, employers must decide what to do with the results of the audit. Some things to consider are: 1) who will be apprised of the results and how (written or verbal); 2) will the person who conducted the audit make recommendations regarding problem areas; 3) what, if anything, is going to be done about any problems; 4) how should any changes be implemented (a “spin doctor” may be needed); and 5) how is the employer going to address employee questions and challenges.


In the short-term, the exercise of conducting internal audits may be viewed as a distraction from an employer’s business purpose. In the long run, however, getting the company’s “house in order” before a government agency knocks on the door will save time, attorneys’ fees and the intangible costs of being embroiled in administrative or civil litigation. Remember the old adage: “An ounce of prevention is worth a pound of cure.”

Eleventh Circuit Affirms Sanctions Against Plaintiffs' Firm for Solicitation

The Eleventh Circuit Court of Appeals has affirmed a district court's entry of sanctions against the Shavitz Law Group, one of the leading plaintiff-side FLSA firms in Florida.  I reported on the district court decision in February.  The case is Hamm v. TBC Corp. and Tire Kingdom, Inc. (Case No. 09-11221, August 25, 2009) (unpublished). 

Shavitz apparently did not dispute that his assistant solicited two of the opt-in plaintiffs to join the case.  Shavitz argued that the sanctions were excessive because the solicitation was conducted by a non-attorney and there was no evidence of attorney knowledge or ratification of the solicitation. The Eleventh Circuit found these facts "irrelevant" and ruled that the sanctions imposed by Judge Ryskamp were appropriate.

But the decision is not as bad for Shavitz's firm as he might have thought.  The court notes that Shavitz interpreted the district court’s sanctions order as preventing Shavitz from representing any plaintiff in any case against any defendant, unless the plaintiff is one of the six named plaintiffs in the instant case or was first a co-worker of one of the named plaintiffs.  That seems like a strained interpretation of Judge Ryskamp's order, and I have to wonder whether Shavitz was being disingenuous. Did Shavitz make a straw man argument in order to make Judge Ryskamp's order seem more draconian than it really was, so that the order would be reversed? Regardless, the Eleventh Circuit interpreted the order as only limiting Shavitz from representing opt-in plaintiffs in this particular case.  "These were reasonable and limited sanctions that balanced the danger that current and future opt-in clients were impermissibly solicited against [Shavitz's] interest in representing lawfully-obtained clients," the court concluded.



Furlough FAQ's

Furloughs are a hot topic in today's economy.  I previously reported on the potential usefulness of furloughs, as well as the risk that reducing an employee's salary as part of a furlough program could run afoul of the "salary basis" test and jeopardize the employee's exempt status. 

Recognizing the need for legal guidance on this issue, the U.S. Department of Labor's Wage and Hour Division recently issued a user-friendly "Frequently Asked Questions" fact sheet on furloughs. (Special thanks to my EBG colleague Elissa Silverman for bringing this to my attention.)

I don't see any major surprises here.  Nevertheless, employers considering the use of a furlough program would be wise to consult this fact sheet first.

On the issue of the salary basis test, FAQ # 7 confirms the basic rules that I discussed in March of this year:

7. Can an employer make prospective reduction in pay for a salaried exempt employee due to the economic downturn?

An employer is not prohibited from prospectively reducing the predetermined salary amount to be paid regularly to a Part 541 exempt employee during a business or economic slowdown, provided the change is bona fide and not used as a device to evade the salary basis requirements. Such a predetermined regular salary reduction, not related to the quantity or quality of work performed, will not result in loss of the exemption, as long as the employee still receives on a salary basis at least $455 per week. On the other hand, deductions from predetermined pay occasioned by day-to-day or week-to-week determinations of the operating requirements of the business constitute impermissible deductions from the predetermined salary and would result in loss of the exemption. The difference is that the first instance involves a prospective reduction in the predetermined pay to reflect the long term business needs, rather than a short-term, day-to-day or week-to-week deduction from the fixed salary for absences from scheduled work occasioned by the employer or its business operations.


Bus Company Prevails in FLSA Motor Carrier Exemption Case

Port of MiamiI am pleased to report that the United States Court of Appeals for the Eleventh Circuit has affirmed the district court's summary judgment in favor of our client, a bus company, in a case involving the motor carrier exemption.  The case is Walters v. American Coach Lines of Miami, Inc. (11th Cir., July 23, 2009).

 I first reported on this case and discussed the basics of the motor carrier exemption in a September 2008 post.  My EBG colleague, Brian Molinari, recently summarized the Walters decision in a post on the Prima Facie Law Blog.

A quick refresher:  The motor carrier exemption is one of several exemptions from the Fair Labor Standards Act which generally requires employees engaged in commerce to be paid at least time and a half for the time worked above forty hours in one week. The motor carrier exemption provides:

The provisions of section 207 [maximum hours] of this title shall not apply with respect to. . . any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service pursuant to the provisions of section 31502 of Title 49.”  29 U.S.C. § 213(b)(1). 

49 U.S.C. section 31502 grants “the Secretary of Transportation the power to regulate the qualifications and maximum number of hours for employees of motor carriers engaged in interstate transportation.”

The principal question in Walters was whether the ACLM's drivers, by driving trips to and from local airports and seaports, all of which are in Florida, were engaged in interstate transportation so as to trigger the Secretary of Transportation's jurisdiction over them.  If so, the motor carrier exemption would apply, and the drivers would not be entitled to overtime pay.

In answering that question in the affirmative, the court's opinion breaks some new ground in the Eleventh Circuit, which covers Florida, Georgia and Alabama. Among the court's holdings are the following:

  • The Secretary of Transortation's jurisdiction is not limited to transportation that crosses state lines, but extends to transporation that is part of the broader concept of "interstate commerce."
  • Purely intrastate transportation can constitute part of interstate commerce if it ispart of a “continuous stream of interstate travel."
  • The "incidental-to-air" exemption does not limit application of the motor carrier exemption. The court held that this exemption to the Secretary of Transportation's jurisdiction applies to economic regulation, not to safety regulation. Thus, the Secretary of Transportation has jurisdiction to prescribe safety regulation for transportation that is "incidental-to-air," i.e. within 25 miles of an airport.

The motor carrier exemption is complicated and has been the subject of much litigation. For employers in the Eleventh Circuit, the Walters decision clarifies several key issues. Still, the opinion leaves open a couple of issues:

  • Does a company have to engage in more than de minimus interstate transportation, where it has the appropriate federal licensing and indisputably performs some transportation crosses state lines? The court declined to answer this question, finding that even if such a test applied, ACLM engaged in more than de minimus interstate transportation.
  • Do airport-to-seaport trips constitute interstate commerce if they are not performed pursuant to formal contractual arrangements with airlines or cruise lines? The court declined to answer this question, finding that even if such a test applied, ACLM had contractual arrangements with cruise lines to transport passengers on its buses.

Litigation of these open issues is bound to occur as the proliferation of FLSA lawsuits continues. But for now, Walters is the latest word on the status of the motor carrier exemption in the Eleventh Circuit.

Florida Minimum Wage for Tipped Employees Also Rises on July 24, 2009

By now, you're probably aware that the minimum wage under the federal Fair Labor Standards Act goes up to $7.25 on July 24, 2009.  This is four cents more than the current Florida minimum wage of $7.21.  Florida employers must pay the higher of the two wages.

But what's the minimum wage for tipped employees in Florida as of July 24th?  The answer is not as simple as you might think, and you might be misled by reading the Florida Agency for Workforce Innovation web page on the minimum wage.  That web page states the new federal minimum wage, and also states that tipped employees must be paid a direct minimum wage of $4.19 as of January 1, 2009.  While that's not inaccurate as far as it goes, the AWI web page does not explain how much tipped employees must be paid in direct wages as of July 24, 2009. [UPDATE: This is no longer correct; AWI updated its web page on July 23, 2009.]

First, some background.  Under the FLSA, employers are allowed to claim a “tip credit” toward satisfying state and federal minimum wage laws for their tipped employees. This means that tips are credited against, and satisfy a portion of, the employer’s obligation to pay the minimum wage.  Under the FLSA, if an employee retains all tips, and the employee customarily and regularly receives more than $30 a month in tips, an employer may pay a tipped employee not less than $2.13 an hour in direct wages if that amount plus the tips received equal at least the federal minimum wage. If an employee's tips combined with the employer's direct wages of at least $2.13 an hour do not equal the federal minimum hourly wage, the employer must make up the difference.  As the federal minimum wage increases, so does the federal tip credit; the direct wage that must be paid to the employee ($2.13) stays the same. (You can read an article I co-authored on FLSA tip credit and tip pooling rules here. )

Not so under Florida law.  The Florida Constitution  provides that "For tipped Employees meeting eligibility requirements for the tip credit under the FLSA, Employers may credit towards satisfaction of the Minimum Wage tips up to the amount of the allowable FLSA tip credit in 2003."  The FLSA tip credit in 2003 was $3.02, i.e. the difference between the minimum wage in 2003 ($5.15) and the reduced minimum wage ($2.13).  Therefore, under the Florida Constitution, the tip credit can be no more than $3.02.  So, in Florida, as the minimum wage increases, the $3.02 tip credit stays the same, and the direct wage that must be paid to the employee increases. As of January 1, 2009, the direct wage equals the Florida minimum wage ($7.21) minus the 2003 tip credit ($3.02), or $4.19.

As you can see, however, $4.19 is not enough as of of July 24, 2009, because under Florida law the maximum tip credit remains $3.02.  An employer that paid only $4.19, and took a tip credit of $3.02, would leave the employee four cents short of the federal minimum wage of $7.25.  So, as of July 24, 2009, Florida employers must pay their tipped employees a direct wage of no less than $4.23. 




Preparing for the Worst: Hurricane Guidance for Florida Employers

The following article is adapted from an article aimed at Texas employers authored by EBG lawyer David Barron.  With hurricane season approaching, it should be of interest to all Florida employers



Hurricanes pose unique human resources challenges for employers with operations in Florida and other states in the Southeastern U.S. According to the Congressional Budget Office, Hurricane Katrina alone wiped out as many as 400,000 jobs. The economic effects of hurricanes have long term consequences on businesses in the region. While many employers are working around the clock on recovery efforts, other employers find themselves unable to function for extended periods because of damage or loss of utilities. 

Although one can never be fully prepared for such natural disasters, it is important to be aware of the employment laws that may be implicated in such situations. The information contained below may be applicable to other disasters, such as fires, flu epidemics and workplace violence.


Hurricane FAQs


1.      Is there any law that protects employees who are absent from work during or after a hurricane?


Unlike some states, such as Texas, Florida does not have a law which prohibits employers from taking action against employees who refuse to work because of an impending hurricane. An analogous situation was presented in Gillyard v. Delta Health Group, Inc., 757 So. 2d 601, 603 (Fla. 5th DCA 2000). There, the employee of a nursing home alleged that she was terminated in violation of the Florida Whistleblower’s Act because of her refusal to report to work; she claimed that reporting to work would have violated the Governor’s mandatory order to evacuate the county due to severe fires. The court held that the governor's executive order was not a law, rule or regulation as defined by the FWA.


2.      If a work site is closed because of weather, or unable to reopen because of damage and/or loss of utilities, am I required to pay affected employees?

The FLSA requires employers to pay non-exempt employees only for hours that the employees have actually worked. Therefore, an employer is not required to pay non-exempt employees if the employer is unable to provide work to those employees due to a natural disaster. An exception to this general rule exists where there are employees who receive fixed salaries for fluctuating workweeks. These are non-exempt employees who have agreed to work an unspecified number of hours for a specified salary. An employer must pay these employees their full weekly salary for any week in which any work was performed.

For exempt employees, an employer will be required to pay the employee’s full salary if the worksite is closed or unable to reopen due to inclement weather or other disasters for less than a full workweek. However, an employer may require exempt employees to use allowed leave for this time.


3.      Is it lawful to dock the salaries of exempt employees who do not return to work when needed after an emergency or disaster?

The DOL considers an absence caused by transportation difficulties experienced during weather emergencies, if the employer is open for business, as an absence for personal reasons. Under this circumstance, an employer may place an exempt employee on leave without pay (or require the employee to use accrued vacation time) for the full day that he or she fails to report to work. If an employee is absent for one or more full days for personal reasons, the employee’s salaried status will not be affected if deductions are made from a salary for such absences. However, a deduction from salary for less than a full-day’s absence is not permitted. 


We recommend caution, however, in docking salaried employees’ pay, and suggest you first consult with legal counsel. Moreover, many employers instead require employees to “make up” lost time after they return to work, which is permissible for exempt employees. This practice is not allowed for non-exempt employees, who must be paid overtime for all hours worked over 40 in a work week.


4.      What are other wage and hour pitfalls that employers should be aware of following a hurricane or other natural disaster?

On Call Time: An employee who is required to remain on call at the employer’s premises or close by may be working while “on call” and the employer may be required to pay that employee for all of his time. For example, maintenance workers who remain on premises during a storm to deal with emergency repairs must be compensated, even if they perform no work, if they are not free to leave at any time.

Waiting Time: If an employee is required to wait, that time is compensable. For example, if employees are required to be at work to wait for the power to restart, that is considered time worked.

Volunteer Time: Employees of private not-for-profit organizations are not volunteers if they perform the same services they are regularly employed to perform. They must be compensated for those services. Employers should generally be cautious about having employees “volunteer” to assist the employer during an emergency, if those duties benefit the company and are duties regularly performed by employees.


5.      Can employees affected by a hurricane seek protected leave under the Family and Medical Leave Act (“FMLA”)?

Yes, employees affected by a natural disaster are entitled to leave under the FMLA for a serious health condition caused by the disaster. Additionally, employees affected by a natural disaster who must care for a child, spouse, or parent with a serious health condition may also be entitled to leave under the FMLA. Some examples of storm related issues might include absences caused by an employee’s need to care for a family member who requires refrigerated medicine or medical equipment not operating because of a power outage. 



6.      If a work site or business is damaged and will not reopen, what notice must be provided to affected employees?

The WARN Act, a federal law, imposes notice requirements on employers with 100+ employees for certain plant closings and/or mass layoffs. However, an exception does exist where the closing or layoff is a direct result of a natural disaster. Nonetheless, the employer is required to give as much notice as is practicable. If an employer gives less than 60 days notice, the employer must prove that the conditions for the exception have been met. If such a decision is contemplated, it is advisable to consult with legal counsel about the possible notice requirements to ensure compliance with the WARN Act.


7.      Our human resources department has been disrupted, and it may be weeks before things are back to normal—will the government extend any of the customary deadlines governing employer payment for benefits, pension contributions, and other subjects during this recovery effort?

During previous natural disasters, many governmental agencies and entities did extend the deadlines for certain reports and paperwork. Therefore, it is expected that with future natural disasters, the government will provide some deadline extensions, but as with every natural disaster, the government’s response will vary. 

8.      Employees from other states want to donate leave to affected employees in Florida, is this lawful?

Yes. Employers can allow employees to donate leave to a leave bank and then award the donated leave to the affected employees. 




Hurricane and Disaster Preparation Checklist


  •  Identify and notify those employees you believe should be deemed “emergency services personnel” who will be required to work during a storm or evacuation order. Make arrangements for providing these employees with food and shelter. Make sure to have procedures in place for evacuation of these employees in the event the hurricane or other disaster causes the workplace to become unsafe.
  • Identify your “essential employees.” These are employees that you cannot require to be at work during a hurricane or evacuation but you believe are vital to the continued operations of your company. Determine what incentives you can provide these employees to entice them to work during a disaster or to return to work as soon as possible. These incentives can include shelter, hot meals, fuel, as well as arrangements for family members.
  • Establish a contingency plan to address the needs of those employees who may be temporarily living in company facilities during a storm or disaster. Ensure you can provide such necessities as gas, food, and shelter to these employees.
  •  Establish a contingency plan to ensure security of payroll data and the ability to continue payment of wages to your employees if offices are damaged or power is lost. 
  • Review your existing policies to determine how to distribute paychecks to employees who cannot come to work because of weather or lack of power. 
  •  Establish a communication plan. This will include identifying ways to keep the lines of communication open with your employees even if power is out in the local community. Collect primary and secondary contact sources from your employees. Consider establishing a toll-free phone line where employees can obtain updated information regarding the company’s status during an emergency.
  •  Review applicable leave policies and procedures to address and allow for disaster-related leave requests, including how such leave will be treated (i.e. paid or unpaid). 
  •  Formulate a team of decision makers who will have authority to make crucial decisions in the midst of the hurricane or other disaster related to other human resources matters. This team should establish a method of communicating with each other during the hurricane. 
  • Review any existing Employee Assistance Programs and ensure employees know how to utilize these programs during the aftermath. A successful Employee Assistance Program can promote the fast and efficient return of your employees. 
  • Remember to be sensitive to the needs of your employees who have experienced extensive property damage or personal devastation. Always keep in mind that human life and safety trumps all other business necessities.




Federal Court Denies FLSA Class Certification Against South Florida Auto Dealership

Despite the lenient standards for conditionally certifying an FLSA collective action, a federal court in Miami recently ruled that a collective action against a local auto dealership was inappropriate.

First, some background on FLSA collective actions. The Fair Labor Standards Act provides that an action for overtime compensation “may be maintained . . . by any one or more employees for and in behalf of himself or themselves and other employees similarly situated.”  29 U.S.C. § 216(b). The Eleventh Circuit Court of Appeals, which covers Alabama, Florida, and Georgia, has instructed district courts to follow a two-tiered procedure to determine whether plaintiffs are “similarly situated” for purposes of class certification under § 216(b).  At the initial stage, or “notice stage,” the district court’s decision is based only on the pleadings and any affidavits which have been submitted. The second stage of the two-tiered procedure typically occurs at the end of discovery when the matter is ready for trial and defendant has filed a motion for decertification of the class.  

In deciding whether to authorize notice at the “notice stage,” the Court should strike a balance between allowing the named plaintiffs to contact potential class members to inform them of their rights, and the prohibition against solicitation of clients and the desire to avoid frivolous claims. One district court explained the rationale for this requirement as follows:

In seeking court-authorized notice, plaintiffs are in effect asking this court to assist in their efforts to locate potential plaintiffs and thereby expand the scope of the litigation. As a matter of sound case management, a court should, before offering such assistance, make a preliminary inquiry as to whether a manageable class exists. Moreover the sending of notice and consent forms to potential plaintiffs implicates concerns in addition to orderly case management. The courts, as well as practicing attorneys, have a responsibility to avoid the “stirring up” of litigation through unwarranted solicitation.


Severetson v. Phillips Beverage Co., 137 F.R.D. 264, 266 (D. Minn. 1991).


The Eleventh Circuit has held that a district court has the authority to enter an order requiring notice to individuals who are “similarly-situated,” but “before determining to exercise such power…the district court should satisfy itself that there are other employees…who desire to ‘opt in’ and who are ‘similarly situated.’” Dybach v. State of Florida Dep’t of Corrections, 942 F.2d 1562, 1567-68 (11th Cir. 1991). A plaintiff must offer “detailed allegations supported by affidavits which successfully engage defendants’ affidavits to the contrary.” Id.  Generalized, unsupported allegations are insufficient to discharge the plaintiff’s burden. Rather, a plaintiff has the burden of demonstrating a reasonable basis for crediting her assertion that aggrieved individuals exist in the proposed class. Rodgers, 2006 U.S. Dist. LEXIS 23272, at *7-8 (citing Haynes v. Singer Co., Inc., 696 F.2d 884, 887 (11th Cir. 1983)). 


Thus, plaintiff or her counsel’s mere belief in the existence of other employees who desire to opt in, and “unsupported expectations that additional plaintiffs will subsequently come forward, are insufficient to justify” certification of a collective action and notice to a potential class. Id.  Moreover, “[c]ertification of a collective action and notice to a potential class is not appropriate to determine whether there are others who desire to join the lawsuit.” Id. (citing Dybach, 942 F.2d at 1567-68). Rather, a plaintiff must show that others desire to opt in before the court can authorize notice. Id


When there is a lack of evidence to support a finding that other employees are interested in opting in to the litigation, a court should deny the Plaintiffs’ motion for conditional certification. 


That was exactly the result reached in a recent decision by United States District Court Judge Ursula Ungaro in Galban v. Bill Seidle's Nissan, Inc., Case No. 1:09-cv-20310-uu (S.D. Fla.)  The plaintiffs, former salesmen, alleged in their complaint that they were denied the federal minimum wage based on the dealership's "commission-only" pay plan.  They moved for conditional certification of a class, but failed to demonstrate that any other similarly situated salespeople had an interest in joining the litigation.  Absent such evidence, Judge Ungaro did not hesitate in denying the plaintiffs' motion.


The Galban decision illustrates an important principle of FLSA litigation.  A so-called "collective action" is not a collective action until the court says it is.  And although the standards for certifying a collective action at the initial, "notice" stage are lenient, there are certain minimum requirements that a plaintiff must meet.  It is defense counsel's role to hold plaintiffs to those standards and demonstrate, if possible, that a collective action is inappropriate.  

Florida Wage-Hour Firms Accused (Again) of Soliciting Clients

The Shavitz Law Group and Morgan & Morgan, two of the leading wage-hour firms in Florida, stand accused of soliciting clients in violation of state ethics rules for a case pending in the United States District Court for the Northern District of Texas.  The defendant in the case, Centex Homes, filed a Motion for Sanctions against the two firms on Friday.  

Centex's motion follows on the heels of a story I reported last month, Judge Ryskamp's order in the Hamm case granting sanctions against the Shavitz Law Group for soliciting clients by telephone in violation of Florida Bar Rules.  Centex alleges that the firms engaged in similar conduct in its case in violation of the Texas Disciplinary Rules of Professional Conduct. Centex cites Judge Ryskamp's decision in Hamm in support of its motion. Centex also alleges that the Shavitz firm failed to disclose the sanctions order in the Hamm case as required by the local rules of court.

Stay tuned for further developments.

Wage-Hour Firm Strikes Back Against Federal Judge

Gregg ShavitzLast month I reported that United States District Judge Kenneth L. Ryskamp had sanctioned the Shavitz Law Group, one of the leading plaintiff-side wage-hour firms in Florida, for soliciting plaintiffs in violation of Florida Bar Rules.  The case was Hamm v. TBC Corp. and Tire Kingdom, Inc., Case No. 07-80829-CIV-RYSKAMP/VITUNAC. 

The Shavitz firm recently struck back, filing a motion to disqualify or recuse Judge Ryskamp from presiding over a different case, a Fair Labor Standards Act collective action against Abercrombie & Fitch.  The motion quoted Judge Ryskamp's comments during a hearing in the Hamm case:

I have had our law clerk check and the Shavitz firm has filed 1,332 cases in the Southern District of Florida since 2000, so we see these things continually, virtually never see them go to trial, I think that I have had one trial with all the cases that have been filed.

In looking at the statistical numbers, they are usually closed within three months of the time they are filed, so what is very clear to me is that most defendants are saying how much is it going to cost me to defend this case and what is the claim and the claim is so small it would cost most to have the lawyers defend it, so they are basically nuisance type claims that get bought off, of course the lawyer’s fees are always – not always, but very often considerably more than the claim itself – and I think this is certainly an area for some Congressional oversight, I think there ought to be written into the statute a provision that a letter demand must be made upon the employer before a lawsuit can be filed because the way this thing is working is just a lawyer’s retirement bill. . . . this has gotten out of hand, I think we have more of these cases in the Southern District of Florida than there are anyplace else in the country and that’s probably because of the Shavitz law firm. . . . I think the problem needs to be resolved.

The Shavitz firm argued that these comments, and others that Judge Ryskamp has made about the Shavitz firm, demonstrate "an apparent bias or prejudice against Plaintiff and Plaintiff’s counsel, such that disqualification/recusal is mandatory."

Three days later, Judge Ryskamp issued an order recusing himself from the case. 

Judge Ryskamp's recusal notwithstanding, from my perspective as a defense attorney, his comments were on the money. Many, if not most, FLSA cases are settled on a nuisance value basis.  In such cases, there is often only a few thousand dollars of overtime pay at issue.  And the employer often has solid defenses which it could prove on summary judgment or at trial.  But after some frank discussions with defense counsel, the employer concludes that it makes more sense to settle the case for, say, $10,000 than to pay its own attorneys $50,000 to $100,000 to litigate the case.  An additional factor is the uncertainty of litigation:  if the employee proves liability, even for a small amount, the employer will be on the hook for the plaintiff's attorney's fees as well.  So these cases typically settle, and Shavitz (or one of his colleagues in the plaintiffs' bar) move on to their next case.  The cycle continues, and South Florida continues to lead the nation in wage-hour lawsuits.   

DOL's Failures Leave Workers with Nowhere to Turn? Not in Florida.

A report by the Government Accountability Office found that the Department of Labor's Wage and Hour Division, the federal agency charged with enforcing minimum wage, overtime and other labor laws, "is failing in that role, leaving millions of workers vulnerable," according to an article in today's New York Times.

One of the reports concerned the Division's office in Miami:

When an undercover agent posing as a dishwasher called four times to complain about not being paid overtime for 19 weeks, the division’s office in Miami failed to return his calls for four months, and when it did, the report said, an official told him it would take 8 to 10 months to begin investigating his case.

The report concludes that "Labor has left thousands of actual victims of wage theft who sought federal government assistance with nowhere to turn." 

Nowhere to turn? In Florida that's simply not true.  As anyone who pays attention to court filings can tell you, dozens of workers each week, many on the low end of the pay scale, file claims for overtime and minimum wage violations in Florida state and federal courts.  Indeed, as previously reported here, according to the Administrative Office of the United States Courts, for the past five years the Southern District of Florida alone has averaged 28.7% of all Fair Labor Standards Act cases filed in the United States.  The notion that workers have "nowhere to turn" is absurd.  They need only turn to one of Florida's many wage-hour lawyers, who have turned wage-hour litigation into a cottage industry in the sunshine state.  Does the GAO not realize that the FLSA permits private lawsuits, and in fact encourages them through its fee-shifting provisions? Why would an employee need the Wage and Hour Division when he has the Shavitz Law Firm or The Celler Legal Group in his corner? 

Reducing Hours and Pay of Exempt Employees May Run Afoul of "Salary Basis" Test

The U.S. Department of Labor's Wage & Hour Division has issued two new opinion letters addressing circumstances under which employers may not reduce the hours of exempt employees without running afoul of the "salary basis" test and risking loss of the employees' exempt status.  

First, some background.  Employees exempt from the FLSA's minimum wage and overtime requirements as professional, executive, or administrative employees must be paid a salary of at least $455 per week. Under 29 C.F.R. § 541.602(a),

[a]n employee will be considered to be paid on a "salary basis" . . . if the employee regularly receives each pay period . . . a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. . . . An employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.

In the first opinion letter, the employer sought to reduce the hours worked by employees using the following system:

Your client proposes occasionally reducing the hours worked by exempt employees due to short-term business needs (e.g., low patient census). In such cases, the employer offers “voluntary time off” (VTO), where employees may, at their option, use paid annual, personal, or vacation leave, but continue to accrue employment benefits. The employer approves VTO on a first-come, first-served basis. If there are insufficient volunteers for VTO, the employer requires “mandatory time off” (MTO) under a seniority-based rotational method. Exempt employees required to take MTO may use accrued paid leave or take unpaid MTO. If the employee elects not to use accrued paid leave or does not have sufficient accrued paid leave to cover the VTO or MTO, the employer deducts the amount equal to the VTO or MTO from the employee’s salary, if it is shorter than one workweek. For unpaid VTO or MTO lasting an entire workweek, the employer does not pay the salary for that pay period. Salaried exempt employees may take VTO or be assigned MTO in one-day increments.

The DOL opined that salary deductions due to MTO lasting less than a workweek violate the salary basis requirement and may cause the loss of exempt status.  "Deductions from salary due to day-to-day or week-to-week determinations of the operating requirements of the business are precisely the circumstances the salary basis requirement is intended to preclude." 

In the second opinion letter, the employer proposed requiring salaried exempt employees to stay home or leave work early during periods of insufficient work.  The employer would deduct the non-work time from the employees’ accrued paid time-off accounts. The employees would receive their regular salaries so long as they had sufficient hours in their PTO accounts to cover the non-work periods. If an employee’s accrued PTO was exhausted, the employee’s salary would be reduced in full-day increments, except that in no event would an employee’s salary be reduced below the $455 per week.

The DOL opined that this proposal would also run afoul of the salary basis test. 

If an employer requires that an exempt employee work less than a full workweek, the employer must pay the employee’s full salary even if: (1) the employer does not have a bona-fide benefits plan; (2) the employee has no accrued benefits in the leave bank; (3) the employee has limited accrued leave benefits, and reducing that accrued leave will result in a negative balance; or (4) the employee already has a negative balance in the accrued leave bank. 

The DOL also opined that if an exempt employee’s accrued PTO is exhausted and the periods of insufficient work continued, the employer would not be permitted to send the employee home and pay him a reduced salary for the week.  The DOL distinguished this situation from the scenario discussed in a 1970 opinion letter, in which the employer was considering a permanent change in the work schedule from 52 five-day workweeks to 47 five-day workweeks and 5 four-day workweeks. "In that case," the DOL noted, "the salary basis requirement was not circumvented because all the exempt employees were to be paid according to a bona fide reduction of one-fifth of their salaries for a fixed schedule of five annually recurring four-day workweeks."

The distinguishing principle was stated in a 1995 DOL opinion letter:

... a fixed reduction in salary effective during a period when a company operates a shortened workweek due to economic conditions would be a bona fide reduction not designed to circumvent the salary basis payment. Therefore, the exemption would remain in effect as long as the employee receives the minimum salary required by the regulations and meets all the other requirements for the exemption.

My takeaway from these opinion letters is this:  Employers that are considering reducing their exempt employees' hours due to insufficient work must proceed very carefully.  Reducing exempt employees' hours of work, and reducing their pay correspondingly, may be permissible if the changes are carried out in accordance with a fixed schedule over an extended period of time.  An employer may not make reductions in work hours and pay based on day-to-day or week-to-week determinations of how much work is available.  Such reductions will run afoul of the salary basis test, risk forfeiture of the employees' exempt status, and expose the employer to overtime claims from the employees when their workload increases.     

Amid Tough Times, Furloughs Can Save Employers Money and Employees Jobs

The following is a reprint of a client alert authored by EBG attorneys Doug Weiner and Frank Morris, Jr.  It should be of interest to all Florida employers that are considering a reduction in force.

For many employers, these are desperate economic times. Every entity facing diminished revenue must consider cost cuts to survive. As news reports show, reductions in force (RIFs) are being used daily to achieve cost savings, and for some employers they may be the best solution. In some cases, however, the savings are not immediate as a result of statutorily required or voluntary notice periods, as well as costs of severance pay.

A different approach may be a furlough strategy, customized to fit each employer’s needs, which may also achieve a significant cost-savings benefit. Implementing a furlough can help retain the employer’s experienced workforce at a reduced cost, to help the enterprise weather the economic crisis. Most employees faced with, for example, the choice of a 20 percent annual pay reduction or the loss of their job would not hesitate to choose a reduction in pay. Further, both employers and employees taking advantage of a furlough program are well-positioned to take advantage of any increase in business activity in the inevitable economic recovery, whether it be this year or next. Furloughs are often viewed by the workforce more favorably than layoffs, thus preserving morale in the organization as well.

The Fair Labor Standards Act (“FLSA”) requires hourly and non-exempt salaried employees to be paid time-and-one-half their regular rate for weekly hours worked over forty. Accordingly, the first place to look for cuts in employee payroll costs is in non-exempt employee overtime pay. The FLSA was designed to give employers an incentive to spread employment from employees who work over forty weekly hours to other workers who are working fewer hours. In an environment where costs are critical, it is generally an inefficient use of payroll dollars to pay the additional wage premium required for overtime work.

Eliminating non-exempt overtime work is only the first step in reducing payroll costs among hourly non-exempt employees, salaried non-exempt employees and salaried exempt employees. Take an example in which it has been decided that in a department of 100 employees, where all three categories of employees work, that payroll expenses must be cut by 20 percent. One possibility is to reduce the department headcount by 20 percent, eliminating 20 jobs and the costs associated with them. Another possibility is to implement a mandatory furlough period with 20 percent pay cuts for all 100 employees. The furlough strategy takes more administrative time to manage properly, but it potentially saves 20 jobs while achieving the necessary cost-saving objective.

The FLSA allows employers to implement a variety of options to impose salary reductions and pay cuts, as do most state laws. A salary may be prospectively reduced without violating the “salary-basis” test of the FLSA for exempt employees, including a reduction in pay proportionate to a reduction in the number of days worked. Managers may implement furloughs and RIFs simultaneously or in a phased sequence. As with all such strategies, any applicable state and local requirements need to be determined, as federal law will defer to a state or local standard that provides a greater protection to the employee. California, as shown by the state’s decision to furlough state employees, allows furloughs to be implemented in accord with particular wage-hour requirements that must be considered.

The FLSA permits prospective adjustments to an exempt employee’s salary, including revisions to commission agreements or bonus compensation plans based on the quantity or quality of work, which do not reduce the “predetermined amount” of the employee’s salary (of course, the terms of the plans also need to be checked before changes are made). In concept, if the duties test for exemption is satisfied, the predetermined salary of, e.g., an exempt Sales Manager, could be as low as $455 per week, while the compensation the employee actually receives could be substantially higher (based upon commissions for meeting sales goals or bonuses for meeting other performance criteria). To preserve the salary basis of the exempt employee, the predetermined amount of salary would have to be paid for workweeks in which there were no commissions, or for which no bonus payments were made.

Careful strategic planning is required before implementing a furlough. Considerations include:

• Exempt salaried employees may have their salaries prospectively reduced to a lower predetermined amount so long as they stay above $455 per week. Salary adjustments may not be designed to circumvent the requirements of the FLSA.

• Hourly workers must be paid for every hour they are directed or permitted to work. Permitting “extra” work as, for example, spending more than de minimus time checking a Blackberry®, even when unauthorized, may well give rise to the obligation to pay for the time. Accordingly, managers must take the necessary steps to ensure the furlough plan realizes the necessary cost savings.

• It is a good practice to give employees clear notice specifying that no “volunteer work” is permissible and no work is to be performed unless specifically authorized by a predetermined schedule or authorization by an appropriate manager. Implementing a strict policy of prohibiting unscheduled work and having an administrative procedure to uniformly enforce the policy is well advised.

• Managers may consider asking hourly and salaried non-exempt employees for the return of employer-owned remote access devices during a furlough. Employees who access their work email accounts while on their “time off” may be working, or may start working. If they are working, even though advised not to do so, the employer may well incur wage liability, defeating the purpose of the furlough. Unauthorized work by non-exempt employees in violation of the employer’s furlough policy may generate exposure to significant wage claims. Violations of the furlough policy should be considered a serious disciplinary issue, warranting sanctions, including suspension and discharge. Withholding pay for hours actually worked, however, is not a legal option, even when the hours worked were not authorized.

• Salaries for exempt and non-exempt employees may be prospectively reduced so long as those adjustments are not so frequent as to appear designed to circumvent the requirements of the FLSA. Quarterly adjustments have been found by the U.S. Court of Appeals for the Second Circuit to be in compliance with the FLSA. Adjustments to the predetermined amounts of salary should be implemented as infrequently as feasible so as not to raise an argument that the adjustments are a pretext to avoid compliance with the FLSA.

In sum, properly implemented salary reductions should comply with the salary requirements of the FLSA. Although it requires strategic planning and careful implementation, employers may find many benefits by implementing an effective cost-savings furlough plan that saves money and jobs, versus the RIFs dominating the news.

Court Sanctions Plaintiffs' FLSA Firm for Solicitation

The Shavitz Law Group, one of the leading plaintiff-side FLSA firms in Florida, was sanctioned recently by U.S. District Judge Kenneth L. Ryskamp for soliciting plaintiffs in violation of Florida Bar rules.  The case is Hamm v. TBC Corp. and Tire Kingdom, Inc., Case No. 07-80829-CIV-RYSKAMP/VITUNAC.  The details of the case are laid out in a Report and Recommendation issued by Magistrate Judge Ann E. Vitunac. 

In his Order Adopting the Report and Recommendation, Judge Ryskamp made some telling remarks about the the nature of FLSA litigation in the Southern District of Florida:

This Court would also note that, according to the Administrative Office of the United
States Courts, for the past five years the Southern District of Florida has averaged 28.7% of all FLSA cases filed in the United States. This would cause one to wonder if the employers in the Southern District are willfully ignoring the FLSA. The more logical conclusion is that FLSA cases are heavily weighted in favor of the plaintiff. Most cases are filed against small businesses which quickly realize that it is cheaper to pay a small claim and the plaintiff’s attorney’s fee than it is to defend the claims. Very few FLSA cases go to trial. It is clear that the volume of cases in the Southern District is attorney-driven.

Attorney-driven or not, the flood in FLSA litigation continues.  I suspect that the Hamm decision will do little to stem the tide.

Court Rejects "Ultimate Consumer" Defense to FLSA Enterprise Coverage

A federal court in the Southern District of Florida has rejected the "ultimate consumer" defense to enterprise coverage under the Fair Labor Standards Act.  The case is Exime v. E.W. Ventures, Inc., Case No. 08-60099-CIV-SEITZ/O'SULLIVAN (S.D. Fla., December 23, 2008). 

First, some background: To establish coverage under the Fair Labor Standards Act, a plaintiff must show that: (1) she was “engaged in commerce or in the production of goods for commerce”  [individual coverage]; or (2) that she was employed in an enterprise “engaged in commerce or in the production of goods for commerce” [enterprise coverage].  See 29 U.S.C. § 207(a)(1).

With respect to FLSA enterprise coverage, the relevant provisions are set forth in 29 U.S.C. § 203(s)(1)(A) and 29 C.F.R. § 779.238:

“Enterprise engaged in commerce or in the production of goods for commerce” means an enterprise that --

[H]as employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person; and

[I]s an enterprise whose annual gross volume of sales made or business done is not less than $500,000. . .

29 U.S.C. § 203(s)(1)(A)(i)-(ii).

. . . An enterprise described in [29 U.S.C. § 203(s)(1)] will be considered to have employees engaged in commerce or in the production of goods for commerce. . .if during the annual period which it uses in calculating its annual sales for purposes of the other conditions of these sections, it regularly and recurrently has at least two or more employees engaged in such activities. On the other hand, it is plain that an enterprise that has employees engaged in such activities only in isolated or sporadic occasions, will not meet this condition.

29 C.F.R. § 779.238.

Based on these rules, courts have adopted a two-prong test for enterprise coverage: (1) the enterprise commerce requirement; and (2) the gross sales requirement. Both prongs must be met in order to establish FLSA enterprise coverage.

The "Ultimate Consumer" Defense

The "ultimate consumer" defense asserts that employees' handling of interstate goods or materials cannot be used to establish FLSA enterprise coverage  if the employer is the ultimate consumer of those goods or materials. The defense is derived from 29 U.S.C. § 203(i) and § 203(s)(1)(A)(i), which state as follows:

“Enterprise engaged in commerce or in the production of goods for commerce” means an enterprise that. . .has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person;

29 U.S.C. § 203(s)(1)(A)(i).

“Goods” means goods (including ships and marine equipment), wares, products, commodities, merchandise, or articles or subjects of commerce of any character, or any part or ingredient thereof, but does not include goods after their delivery into the actual physical possession of the ultimate consumer thereof other than a producer, manufacturer, or processor thereof.

29 U.S.C. § 203(i) (emphasis added).

Judge Rejects "Ultimate Consumer" Defense

In Exime, the employer was a dry cleaning business.  The vast majority of the employer's equipment (dry cleaning machines, pressing machines, boilers, and vans) was manufactured outside Florida.   The chemicals that the employees used were purchased mostly from local retailers.  And the employer served only Florida customers.

Under these facts, the employer argued that to the extent employees handled interstate goods and materials, the employer was the ultimate consumer of those goods and materials, and therefore the employees' handling of such goods and materials could not be used to establish enterprise coverage.

Judge Patricia Seitz rejected this argument, stating in part as follows:

Defendants' argument.... ultimately turns on the assumption that the terms “goods” and “materials” share the same statutory definition. But, in order to accept Defendants' narrow interpretation, it would be necessary to wholly ignore the 1974 amendment to § 203(s)(1)(A)(i), as well as the accompanying Senate Report. That Report provides:

The bill also adds the words “or materials” after the word “goods” [in § 203(s)(1)(A)(i)] to make clear the Congressional intent to include within this additional basis of coverage the handling of goods consumed in the employer's business, as, e.g., the soap used by a laundry. . .S.Rep. No. 93-690, 93rd Cong., 2nd Sess. at 17 (1974) (emphasis added).

Significantly, the specific example cited in the 1974 Senate Report, “e.g., the soap used by a laundry,” demonstrates a clear Congressional intent to expand enterprise jurisdiction to companies whose employees handle interstate materials used in the employer's own business, regardless of whether that employer is the ultimate consumer of those materials. In other words, the additional term “materials” broadens FLSA jurisdiction by substantially constricting the “ultimate consumer” defense now asserted by Defendants....

The "ultimate consumer" defense, read broadly, is a potentially powerful weapon for employers in defense of an FLSA lawsuit. There are many small businesses, such as dry cleaners, that are the ultimate consumers of interstate materials, but who serve only local customers and do not otherwise handle, sell or work on goods in interstate commerce. But under Judge Seitz's narrow reading of the defense, businesses that do not handle, sell or work on interstate goods, but use interstate materials in their operations, are nevertheless covered under the FLSA. It is the rare business indeed that uses only intrastate materials in its operations. Thus, under Judge Seitz's interpretation, the "ultimate consumer" defense is effectively dead.

Is Exime the last word on the "ultimate consumer" defense? Stay tuned.

Marketing Executive is Exempt Outside Salesperson Under FLSA, Says Eleventh Circuit

11th Circuit Court of Appeals

In an important decision that explains the distinction between promoting and making sales, the Eleventh Circuit held recently that a marketing executive was exempt from the overtime and minimum wage provisions of the Fair Labor Standards Act as an outside salesperson. The case is Gregory v. First Title of America, Inc., Case No. 08-10737 (11th Cir., January 27, 2009).

Before addressing the facts of the case and the Eleventh Circuit’s holding, let’s review the applicable statute and regulations. The FLSA includes several exemptions from its minimum wage and overtime requirements, including any employee employed in the capacity of an outside salesperson, as defined by the Secretary of Labor. See 29 U.S.C. § 213(a)(1).

The Department of Labor defines “outside sales employee” as any employee whose primary duty is (i) making sales within the meaning of section 3(k) of the Act, or (ii) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and (2) Who is customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty. 29 C.F.R. § 541.500(a).

29 C.F.R. section 541.501 defines “making sales or obtaining orders” as follows:

(b) Sales within the meaning of section 3(k) of the Act include the
transfer of title to tangible property, and in certain cases, of tangible
and valuable evidences of intangible property. Section 3(k) of the Act
states that ‘sale’ or ‘sell’ includes any sale, exchange, contract to sell,
consignment for sale, shipment for sale, or other disposition.

(c) Exempt outside sales work includes not only the sales of
commodities, but also ‘obtaining orders or contracts for services or for
the use of facilities for which a consideration will be paid by the client
or customer.’ Obtaining orders for ‘the use of facilities’ includes the
selling of time on radio or television, the solicitation of advertising for
newspapers and other periodicals, and the solicitation of freight for
railroads and other transportation agencies.

(d) The word ‘services’ extends the outside sales exemption to
employees who sell or take orders for a service, which may be
performed for the customer by someone other than the person taking
the order.

Promotional work is addressed in 29 C.F.R. § 541.503. Promotional work may or may not be exempt outside sales work, depending on the circumstances under which it is performed. “Promotional work that is actually performed incidental to and in conjunction with an employee’s own outside sales or solicitations is exempt work” whereas “promotional work that is incidental to sales made, or to be made, by someone else is not exempt outside sales work.” 29 C.F.R. § 541.503(a).

Now for the facts and the Eleventh Circuit’s holding. First Title of America, Inc. (“First Title”) is a title marketing company based in Lake Mary, Florida. The plaintiff, Nelda Gregory, was a “marketing executive” for First Title who was hired due, in large part, to her prior experience in selling insurance. According to the Employment Agreement executed between the parties, her job description was to “provide the services for referring and closing title insurance companies.”

Under the terms of the Employment Agreement, Gregory initially was paid $1000 per week. At Gregory’s suggestion, she later began to be paid on a commission basis and received a fifty percent commission on all orders for title insurance from her clients that closed with First Title. Gregory claimed that although she often worked more than forty hours per week, she was never compensated for her overtime.

Gregory argued that she did not fall within the FLSA’s outside sales exemption because she was employed by First Title as a marketing representative and she never actually consummated a sale during her employment. Gregory contended that she was tasked only with inducing realtors, brokers and lenders to begin referring their customers – the end user – on to First Title for title insurance services. She maintained that she never directly sold title insurance or title insurance services to anyone because she was not licensed to do so. In short, Gregory asserted that she was employed only to promote First Title’s services and to stimulate sales and was never involved in the actual sale of title insurance to the realtors, brokers and lenders, or to the end users.

First Title argued that Gregory’s primary duty was bringing in or obtaining orders for First Title and that her compensation was tied directly to orders for title services that ultimately closed. First Title cited to language from the Preamble to 29 C.F.R. Part 541 discussing recent modifications to § 541.403 (Promotion Work), in which the DOL remarked that:

[T]he Department agrees that technological changes in how orders are taken and processed should not preclude the exemption for employees who in some sense make the sales. Employees have a primary duty of making sales if they ‘obtain a commitment to buy’ from the customer and are credited with the sale.. . . . Exempt status should not depend on whether it is the sales employee or the customer who types the order into a computer system and hits the return button. The changes to proposed section 541.503(c) are intended to avoid such a result.

Thus, First Title argued that that how the order is placed is immaterial – the inquiry should focus on the efforts of the salesperson. If those efforts were directed toward the consummation of her own sales as opposed to stimulating the sales of the company in general, then the employee is exempt.

Agreeing with First Title, the Eleventh Circuit concluded that Gregory’s primary duty was to obtain orders for First Title’s title insurance services, i.e., bring in orders. The court noted that the bulk of Gregory’s time was spent away from the office, free from direct supervision and performing work that could not be conclusively characterized as nonexempt.

Addressing Gregory’s argument that her work was “stimulating sales” as opposed to “obtaining orders for services,” the court concluded that “Gregory did, indeed, make a sale in some sense.”

She obtained commitments to buy orders for First Title’s title insurance service and, most importantly, was credited with the sale. She was hired for her prior sales experience and brought a book of clients with her to First Title. Not long after being hired, Gregory’s sole source of income was directly tied to the number of orders that she brought in. She listed her clients for the Appellees and received credit (and payment) only for those orders placed by her clients that closed. All of her efforts were directed towards the consummation of her own sales and not towards stimulating sales for First Title in general.

The court also noted that Gregory did not merely “pave the way” for other salespeople. “Gregory did not collect orders and turn them over to another salesperson nor does the record contain evidence of any other intervening sales effort between Gregory and orders placed with First Title[,]” the court noted. “As opposed to conceiving of Gregory as “paving the way” for others to consummate the sale, we view her as acting more as a conduit through which orders for services flowed. Gregory received credit and payment for those orders that flowed through her to First Title.”

The Gregory decision is significant, as there are undoubtedly thousands of sales and marketing employees within the Eleventh Circuit (Florida, Georgia and Alabama) who “obtain a commitment to buy” from the customer and are credited with the sale, but who do not actually place the order for the sale. Gregory makes clear that such facts do not necessarily preclude the application of the outside sales exemption.

A caveat: Employers should keep in mind that courts generally construe exemptions to the FLSA narrowly. Before classifying any employee as exempt under one of the “white collar” exemptions, careful attention must be paid to the employee’s actual job duties and the tests set forth by the DOL.


Eleventh Circuit Affirms $35 Million Judgment for Store Managers in FLSA Suit

The Eleventh Circuit has affirmed a jury verdict of more than $35 million against Family Dollar Stores, Inc. for misclassifying its store managers as exempt from overtime pay. 

The case, Morgan v. Family Dollar Stores, Inc., involved an opt-in class of 1,424 store managers in a collective action under the Fair Labor Standards Act.  During an eight-day trial, the Plaintiffs established that the store managers routinely worked 60 to 70 hours a week.  Family Dollar argued the store managers were executives within the meaning of the FLSA and exempt from its overtime pay requirements.  However, at the close of the evidence, the district court granted judgment as a matter of law to 163 of the 1,424 Plaintiff store managers, because the evidence showed that they did not satisfy the third requirement in the executive exemption test, i.e., that they customarily and regularly directed the work of two or more other employees.  As to the remaining Plaintiffs, the jury found that they were not exempt executive employees. 

The district court entered a final judgment of $35,576,059.48 against Family Dollar consisting of $17,788,029.74 in overtime wages and an equal amount in liquidated damages.

The appeal centered on the applicability of the executive exemption. To establish an employee is a bona fide executive, an employer must show: (1) the employee is “[c]ompensated on a salary basis at a rate of not less than $455 per week”; (2) the employee’s “primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof”; (3) the employee “customarily and regularly directs the work of two or more other employees”; and (4) the employee “has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring, firing, advancement, promotion or any other
change of status of other employees are given particular weight.” 29 C.F.R. § 541.100(a)

With regard to the primary duty requirement, the Eleventh Circuit's opinion notes that FLSA regulations specify that “[t]ime alone..., is not the sole test” and thus “[e]mployees who do not spend more than 50 percent of their time performing exempt duties may nonetheless meet the primary duty requirement if the other factors support such a conclusion.”

The opinion also notes that the FLSA regulations clarify that “[c]oncurrent performance of exempt and nonexempt work does not disqualify an employee from the executive exemption if the requirements of § 541.100 are otherwise met.” See 29 C.F.R. § 541.106(a). In other words, the Eleventh Circuit noted, "an employee’s performance of nonexempt work does not preclude the exemption if the employee’s primary duty remains management.  Similarly, an employee whose primary duty is to perform nonexempt work does not become exempt merely because she has some responsibility for occasionally directing the work of nonexempt employees."

Applying these principles, the Eleventh Circuit upheld the jury's verdict.  The evidence at trial showed store managers spent 80 to 90% of their time performing nonexempt, manual labor, such as stocking shelves, running the cash registers, unloading trucks, and cleaning the parking lots, floors, and bathrooms.

As to the relative importance of store managers’ managerial duties compared with their nonexempt duties, the Eleventh Circuit held that this factor also weighed in favor of the jury’s finding that store managers are not exempt executives. While the store managers’ job description includes managerial duties, the description of the store managers’ “Essential Job Functions” provides that store managers must do the same work as stock clerks and cashiers. "Rather than treat these manual tasks as an incidental part of a managerial job," the opinion notes, "Family Dollar describes them as essential. A large amount of manual labor by store managers was a key to Family Dollar’s business model given each store’s limited payroll budget and the large amount of manual labor that had to be performed."

The evidence also showed that store managers spent only 10 to 20% of their time on exempt (i.e., managerial) work, because most of their work was dictated by company manuals and directives and did not involve the exercise of managerial discretion:

Plaintiffs presented evidence that store managers rarely exercised discretion because either the operations manuals or the district managers’ directives controlled virtually every aspect of a store’s day-today operations. The manuals and other corporate directives micro-managed the days and hours of store operations, the number of key sets for each store, who may possess the key sets, entire store layouts, the selection, presentation, and pricing of merchandise, promotions, payroll budgets, and staffing levels. The manuals even instruct store managers on the smallest details, such as how to arrange clip boards, what items go in each of the four drawers of the single file cabinet, and how to remove spots and chewing gum from store mats. The few decisions not mandated by the manuals and corporate headquarters are vested in the district manager. These decisions include the power to change store hours, close for bad weather, approve changes to store layouts, establish all employees’ initial rates of pay, approve all pay raises, set payroll budgets, control the total labor hours allocated to each store, approve the hiring and firing of assistant managers, and even approve the use of appliances such as coffee pots. Even when a store manager exercised discretion in scheduling employees for the week, she did so within the strict constraints of mandatory store hours, a limited payroll budget, a prohibition on overtime work by hourly employees, and a staff scheduler. This evidence supports a reasonable jury finding that Family Dollar’s store managers had few, and infrequently exercised, discretionary powers.

The evidence also showed that store managers had little freedom from direct supervision. "Indeed," the opinion notes, ample evidence showed that the combination of sweeping corporate micro-management, close district manager oversight, and fixed payroll budgets left store managers little choice in how to manage their stores and with the primary duty of performing manual, not managerial, tasks."

For employers, the Morgan case highlights the distinction between job titles and job duties.  Duties are what count in determining whether an exemption applies.  And the burden in proving the exemption always remains on the employer. Before classifying employees as exempt, it is important for employers to make a careful analysis of the employees' actual job duties and measure them against the exemption criteria.  The Department of Labor's fact sheets, such this one on the executive exemption, are useful guides.  

Dollar Stores apparently did not do a careful analyis before classifying its store managers as exempt. In one of the most striking excerpts from the trial transcript, the court cited the following exchange between Plaintiffs' counsel and Dollar Stores' Senior Vice President of Store Operations about how the company reached its decision to classify all its store managers as exempt:

Q. Now, my question is, did you make that decision?
A. No, sir.
Q. Did your boss, Mr. Barkus, make that decision?
A. To my knowledge, it’s been in place -- it was in place when I came
here 29 years ago. So --
Q. Okay. So, do you know anybody that will own up to that decision;
say, “that was my decision”?
A. I do not.
Q. Mr. Levine, has he ever told you that’s his decision?
A. No, sir.
Q. Can you give us any clue? And the reason I’m asking you this, I
asked you this in the deposition and we’ve been asking a lot of people
in depositions: Who made this decision, do you know?
A. I do not.

Needless to say, an employer's explanation that "we have always done it this way" does not establish a legal defense.

For employment law practitioners within the Eleventh Circuit, the Morgan case is essential reading in understanding the executive exemption.  The opinion also contains a useful discussion on the use of representative testimony in an FLSA collective action trial.

When Must Wages Be Paid in Florida?

Some states have laws that prescribe when wages are due.  For example, California law provides that wages earned between the 1st and 15th days of any calendar month must be paid no later than the 26th day of the month during which the labor was performed, and wages earned between the 16th and last day of the month must be paid by the 10th day of the following month 

Florida has no such law.  The federal Fair Labor Standards Act applies to most Florida employers, but the FLSA does not specify when wages are due.  In a recent federal case in Florida, an employee claimed that the employer violated the FLSA by paying him 10 days after the end of the pay period.  The district court disagreed and granted summary judgment to the employer.  On appeal, the Eleventh Circuit Court of Appeals affirmed the district court's ruling in an unpublished opinion.  The opinion notes that the employee cited "no cases that have held that a ten-day delay between the end of the pay period and payday is unreasonable, and has provided no evidence from which to conclude that ten days was an unreasonable delay in this case."  The case is Arroyave v. Rossi, Case No. 08-12008 (11th Cir., Oct. 17, 2008).     

So when must wages be paid in Florida?  Well, there's no definitive answer to this question, but employers should be safe in paying employees within 10 days after the end of the pay period. 


Bellsouth Call Center Employees Challenge Pay Practices

Three employees of Bellsouth's call center in Escambia County, Florida have filed a putative collective action against the company under the Fair Labor Standards Act, alleging that they were denied overtime pay. 

The complaint alleges that call center employees routinely start work before their official eight hour shift begins in order to boot up their computers, start computer applications, and perform other duties so that they are ready to field incoming calls at the start of their shift.  The complaint also alleges that the company denies call center employees pay for work performed during rest and meal breaks, and that the company requires employees to continue work "off the clock" after their scheduled shift ends.  The case is Bonner v. Bellsouth Telecommunications, Inc., Case No. 3:08-cv-00524-WS-EMT (N.D. Fla.). 

Whether the plaintiffs' allegations have any merit remains to be seen.  It's also questionable whether booting up a computer is compensable activity, as noted in this post from the Connecticut Employment Law Blog. Nevertheless, the Bonner case serves as a reminder to employers to keep accurate records of actual time worked by non-exempt employees.  Scheduling employees for an eight hour shift is fine, but employers should not assume that the employees work only during their scheduled shift.  Preliminary and postliminary activities may be deemed principal activities and thus compensable.  Likewise, rest periods of 20 minutes or less are compensable, as are meal breaks when the employee is not completely relieved of duty.

Florida Minimum Wage to Increase to $7.21

Florida's minimum wage will increase to $7.21 per hour effective January 1, 2009, up from the $6.79 per hour minimum wage in 2008, according to this announcement from Florida's Agency for Workforce Innovation ("AWI"). 

In case you're wondering how the $7.21 figure is derived:  On November 2, 2004, Florida voters approved a constitutional amendment which created Florida’s minimum wage. The minimum wage applies to all employees in the state who are covered by the federal minimum wage.  Florida law requires AWI to calculate a new minimum wage each year based on the Consumer Price Index and publish the new minimum wage on January 1.

Florida employers should keep in mind that federal law requires that businesses pay the higher of either the Florida minimum wage or the federal minimum wage. The Florida minimum wage will be higher than the federal minimum wage until July 24, 2009, when the federal standard will increase to $7.25. 

Magistrate Recommends Sanctions Against Florida FLSA Lawyers

A federal magistrate judge has recommended that three Plaintiffs' lawyers who specialize in handling Fair Labor Standards Act cases in the Middle District of Florida be reprimanded as a sanction for their routine failure to comply with the Court's pretrial orders. 

The magistrate's report and recommendation illustrates the growing pains these Plaintiffs' firms have experienced due to the high volume of FLSA cases they are handling.  

According to the R&R, two of the  lawyers, K.E. Pantas and Charles Scalise, responded to the show cause order in this case (which I reported  on in June) by saying that they were scaling back their practices and would be handling a smaller volume of FLSA cases. 

But it remains to be seen whether the overall volume of FLSA cases in the Middle District of Florida will decrease, or whether other firms will pick up the slack.  Since Plaintiffs' lawyers have figured out that there's money to be made in FLSA cases, I'd bet on the latter.  I'd also bet that with a smaller volume of cases, Plaintiffs' lawyers will litigate cases more aggressively, and that defense lawyers will be seeing more motions to certify collective actions.  

Eleventh Circuit Affirms Skycap Company Victory in FLSA Collective Action

Sealing a significant victory to a Florida skycap company in an FLSA collective action, the Eleventh Circuit Court of Appeals recently affirmed the federal district court’s summary judgment decision in Pellon v. Bus. Representation Int'l, Inc., 528 F. Supp. 2d 1306 (S.D. Fla. 2007). My colleagues Mike Casey and Mark Beutler ably represented the employer at both the district court and the appellate levels.

In Pellon, the district court rejected claims by skycaps at Miami International Airport that their employer violated the Fair Labor Standards Act’s requirements for using the tip credit by (a) providing them insufficient tip credit notice, (b) deploying them to perform non-tipped work while receiving a tipped wage, and (c) imposing a $2 per bag service charge which the skycaps claimed reduced their tips.

The case was advanced by 53 skycaps. The skycaps worked for Business Representation International (BRI), assisting American Airlines passengers at Miami International Airport with their baggage. The skycaps alleged that the employer was violating federal and state minimum wage law and contract law by improperly claiming a tip credit and charging passengers $2 per bag for curbside check in. In August 2007, both sides moved for summary judgment.

The skycaps’ primary challenge was to the tip credit. The tip credit is the reduction in wage that an employer can pay a tipped employee. When the suit was filed, the federal minimum wage was $5.15 per hour. But, under federal minimum wage law, an employer can pay as little as $2.13 if an employee received sufficient tips to make up the difference. A tip credit is the difference between the minimum wage and the amount paid by the employer to a tipped employee.

The court ruled for the employer on all federal claims, and declined to exercise jurisdiction over the state-law based claims.

The court concluded that the skycaps received adequate notice of the tip credit because they were informed that they would be paid $2.13 plus tips, and an FLSA poster containing the DOL-approved language regarding the tip credit, was prominently displayed.

The court held that “every task [the skycaps] complain of are part of the normal duties of a skycap.” The court specifically stated that tasks that "properly fall within the skycap occupation" include transporting luggage to security screeners, assisting disabled passengers, charging passengers for overweight and extra baggage, and collecting baggage fees.

The court rejected the skycaps’ argument that the two dollar ($2) baggage service fee charged by the airline reduced their tips and thereby violated the requirement that all tips be retained by the tipped employee. The court concluded that the baggage fee was not a tip because it was neither given at the customer's discretion nor kept by the skycap. So long as genuine bona fide tips were sufficient to meet the income requirements for use of the tip credit, the employer was entitled to credit those tips against the minimum wage obligation.

The court declined to reach the skycaps state law minimum wage and contract claims, noting that its dismissal of the federal claims permitted it to decline jurisdiction.

BRI’s victory was significant. Had the court invalidated the tip credit, all 53 of the skycap plaintiffs, plus an additional 7 skycaps in a similar case, would have been entitled to recover the tip credit (between $3 and $4 dollars) for every hour logged back to April 2004, plus liquidated damages and attorney fees. In addition, there were supplemental state law claims that would have added to the liability exposure. The Florida minimum wage is higher than the federal minimum wage. In addition, the skycaps claimed that they should have received an $11.76 wage under the county living wage ordinance. Finally, the skycaps claimed that they were owed 50 cents per bag based on an oral contract. Resolving these claims favorably would have required additional costly litigation. An additional risk attendant to an adverse ruling was that the skycaps who had not yet sued BRI would have likely filed another class action lawsuit. Liability exposure was substantial even beyond the cost of a trial. The district court's decision resolving the legal issues in favor of the employer, and the affirmance by the Eleventh Circuit, prevented this.

The Pellon decision is notable as there are several similar cases pending in other federal courts involving thousands of skycaps around the country and millions of dollars in potential liability. While this case was on appeal, nine American Airlines skycaps stationed at Boston’s Logan airport were awarded $325,000 plus fees and costs in litigation regarding skycap tips. Within weeks, nationwide class actions lawsuits were filed against major air carriers and airline industry service providers. The Eleventh Circuit’s affirmance of the district court’s decision will likely affect those cases.

The decision has already had an impact on federal regulations. On July 28, 2008, The U.S. Department of Labor issued proposed regulations that would modify existing regulations to conform to case law. In the commentary explaining the proposed regulations affecting the tip credit notice, the district court’s decision in Pellon is cited as one of the cases to which the regulations conform.



A Primer on the FLSA Motor Carrier Exemption

The motor carrier exemption is one of several exemptions from the Fair Labor Standards Act which generally requires employees engaged in commerce to be paid at least time and a half for the time worked above forty hours in one week. The motor carrier exemption provides: “The provisions of section 207 [maximum hours] of this title shall not apply with respect to. . . any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service pursuant to the provisions of section 31502 of Title 49.” 29 U.S.C. § 213(b)(1).

In other words, the jurisdictions of the Secretary of Labor and the Secretary of Transportation are mutually exclusive. If the Secretary of Transportation has the authority to regulate a driver’s qualifications and maximum hours of service, the motor carrier exemption applies.

49 U.S.C. section 31502 grants “the Secretary of Transportation the power to regulate the qualifications and maximum number of hours for employees of motor carriers engaged in interstate transportation.”

The Department of Labor’s regulations explain that the Secretary of Transportation may establish maximum hours and qualifications of service for employees, and thereby trigger application of the motor carrier exemption, if two requirements are met: first, an employee must be employed by a carrier whose transportation of passengers is subject to the Secretary of Transportation’s jurisdiction under section 204 of the Motor Carrier Act; second, an employee must engage in activities of a character directly affecting the safety of operation of motor vehicles in interstate or foreign commerce within the meaning of the Motor Carrier Act. See 29 C.F.R. section 782.2. The regulations further explain that  that “[t]he work of an employee who is a full-duty or partial-duty ‘driver,’ ..., directly affects ‘safety of operation’ ... whenever he drives a motor vehicle in interstate or foreign commerce within the meaning of [the Motor Carrier Act.]” 29 C.F.R. section 728.3(b).

In short, to determine the applicability of the motor carrier exemption, two questions must be answered: (1) Is the employer subject to the jurisdiction of the Department of Transportation? and (2) Is the employee engaged in safety-related activities for a motor carrier in the interstate or foreign transportation of persons or property?

What does "interstate or foreign transportation" mean? Transportation across state and international borders counts, but so does transportation within a single state "where it forms a part of a practical continuity of movement across State lines from the point of origin to the point of destination.” 29 C.F.R. § 782.7(a)

My firm is currently representing a charter bus company in an FLSA collective action involving the application of the motor carrier exemption. Most of the 63 plaintiffs have never driven across state lines. However, in ruling on the company's motion for summary judgment, the court found that 45 of the plaintiffs had driven, or could reasonably have been expected to drive, in-state routes that are part of the practical, continuous interstate (or international) movement of passengers.  In particular, pursuant to contracts with cruise lines or their agents, with tour operators and travel agents, and with other entities that charter buses, the drivers regularly transport passengers to and from South Florida cruise ship terminals, where the passengers embark on, or debark from, international cruises. The court found that these airport-seaport trips are in the continuous stream of interstate commerce, even though the routes themselves do not cross state lines.  Thus, applying the motor carrier exemption, the court dismissed the overtime claims of the plaintiffs who drove these routes, or could reasonably have been expected to do so.

The 18 remaining plaintiffs, whose overtime claims were not dismissed, claim that they are not exempt because they mainly drive bus shuttles for local universities. Their case is scheduled for trial in January 2009.  The court's order on summary judgment is reported at 2008 WL 2967170.

Understanding the FLSA's Tip Credit and Tip Pooling Rules

Many employees in the service sector earn most of their compensation through tips rather than wages. Employers can claim a “tip credit” toward satisfying state and federal minimum wage laws, which means that an employee’s tips are credited toward the employer’s obligation to pay the minimum wage to that employee. 

However, the tip credit rules of the Fair Labor Standards Act (FLSA) are full of traps for the unwary. The FLSA also has rules concerning tip pools, which only complicate matters further.

My colleague Mark Beutler and I recently recently published an article on the FLSA's tip credit and tip pooling rules in Thompson Publishing's Employer's Guide to the Fair Labor Standards Act.  The folks at Thompson were kind enough to authorize me to post it here. 

This is a complicated topic, but Mark and I have done our best to explain the rules as plainly as possible.  Please let me know if you have any questions or comments.

DOL Proposes Revised Wage-Hour Regulations (Part II)

A few weeks go I reported on proposed revisions to regulations under the Fair Labor Standards Act and the Portal-to-Portal Act of 1947.  The regulations promise to revise rules that "have become out of date because of subsequent legislation or court decisions."

Now, having had a chance to review the proposed regulations, my colleague Mark Beutler and I have prepared a client alert that summarizes the proposed changes. 

For the most part, the proposed revisions are unremarkable.  Two changes to the "tip credit" rules caught my eye, however.  First, a proposed regulation, 29 C.F.R. § 531.59(b), would provide that an employer is ineligible to take the tip credit unless it has informed its employees that it "intends to treat tips as satisfying part of the employer’s minimum wage obligation", and that the notice need not be in writing. While the FLSA requires that tipped employees be informed of the provisions of 29 U.S.C. § 203(m) before the employer can pay the reduced tipped wage, there are currently no regulations prescribing the content of the tip credit notice.  The proposed rule would seem to mean that hanging a standard FLSA poster that contains an explanation of the tip credit rule would not suffice unless the employer has separately informed employees of its intention to treat tips as satisfying part of its obligation to pay the minimum wage. This proposed rule seems silly -- employees are smart enough to read a poster and figure out that their employer is taking a tip credit even if their employers haven't expressly informed them of this.

Second, the proposed regulation amends 29 C.F.R. § 531.54 to clarify that section 3(m) of the FLSA does not impose a maximum tip pool contribution percentage.  Currently, Wage and Hour opinion letters and its Field Operations Handbook provide that a tip pooling arrangement cannot require employees to contribute a greater percentage of their tips to the tip pool than is "customary and reasonable." The Department took the position that "customary and reasonable" equates to fifteen percent (15%) of an employee’s tips or two percent (2%) of daily gross sales. See, e.g., Wage and Hour Opinion Letter WH-468 (Sept. 5, 1978). Several courts rejected the Department’s maximum contribution percentages on the ground that "neither the statute nor the regulations mention [the ceiling on the tip pool contribution stated in the Department’s interpretation] and the opinion letters do not explain the statutory source for the limitation that they create." E.g., Kilgore v. Outback Steakhouse of Fla., Inc., 160 F.3d 294, 302-03 (6th Cir. 1998).  Indeed, the 15% rule makes little sense when the tipped employee receives substantial assistance from other employees in the tip pool.  For example, in a restaurant in which the servers take the food orders, but the food is delivered by runners, and the tables are cleaned by bussers, there is no logical reason why servers cannot be required to share more than 15% of their tips with others in the tip pool.  On this point, the revised regulations make sense.

 Comments to the proposed regulations must be received by DOL by September 11, 2008.

Federal Court Certifies Class Of Florida Tomato Workers in Wage Suit

The U.S. District Court for the Middle District of Florida certified as the class all migrant and seasonal agricultural workers employed on a "piece-rate" basis at the Florida operations of Ag-Mart Produce Inc. from June 1, 2005, through July 31, 2006.  On July 18, the federal district court  certified a plaintiff class of Mexican agricultural workers who sued a Florida tomato grower for allegedly paying them less than minimum wage (Mesa v. Ag-Mart Produce Inc., M.D. Fla., No. 2:07-CV-47-FtM-34DNF, class certified 7/18/08). Piece-rate tasks included laying plastic, irrigation, planting, staking, tying, picking, and removing plastic and stakes after harvest, according to the six-page order signed by Judge Marcia Morales Howard. The order adopted the March report and recommendations by a magistrate judge that the class of potentially 3,000 plaintiffs be certified on counts contained in a 2007 civil complaint alleging that the company routinely paid the workers less than the minimum wage mandated by the Fair Labor Standards Act and the Florida Minimum Wage Act. The defendant company, which operates as Santa Sweets Inc. in its grape tomato growing operations in Florida, also allegedly violated the recordkeeping, wage statement, and payment provisions of the Migrant and Seasonal Agricultural Worker Protection Act, according to the lawsuit filed by attorneys for the Migrant Farmworker Justice Project. The lawsuit, with 177 named plaintiffs, also alleges minimum wage violations of the FLSA but does not seek class certification, as that law provides its own statutory framework for collective actions, the magistrate's report noted.

DOL Proposes Revised Wage-Hour Regulations

The U.S. Department of Labor proposed revised regulations to the Fair Labor Standards Act of 1938 and the Portal-to-Portal Act of 1947 in today's Federal Register.  According to DOL, the proposed rules would revise regulations that "have become out of date because of subsequent legislation or court decisions." Comments to the proposed rules must be received by DOL on or before September 11, 2008. 

I will comment on the proposed rules in future posts... once I've had a chance to read them.

National Law Journal Reports on Middle District of Florida's Order Against Plaintiffs' Wage-Hour Firms

A follow up to last week's post regarding the order issued by the Middle District of Florida, admonishing some of the leading wage-hour law firms in Central Florida for their routine failure to comply with the court's standing orders:  The National Law Journal is now reporting on this issue.  I can't reprint the article here, but it summarizes the firms' responses and contains a nice quotation from my partner, employment defense lawyer Mike Casey

Middle District Admonishes Plaintiffs' Wage-Hour Lawyers

Order to Show Cause

Here's an interesting show cause order from the Middle District of Florida addressing the "routine failure" of the leading Plaintiffs' wage-hour firms in Central Florida "to abide by the Court’s standing orders." 

Anyone who practices employment law in Florida knows that these firms handle an extraordinary number of wage-hour cases.  So it's no surprise they don't find the time to comply with the court's standing orders.  Stay tuned to see what sanctions, if any, the court takes against these firms. 

Comp Time in the Private Sector?

Comp time -- an arrangement that allows workers to take time off instead of, or in addition to, receiving overtime pay from a prior workweek -- has long been impermissible under the Fair Labor Standards Act for private sector workers.  A group of Republican lawmakers in Congress are aiming to change that through the “Family-Friendly Workplace Act" (H.R. 6025).  If passed into law, the bill would give employers the option of offering employees the choice of paid time off in lieu of cash wages for overtime hours worked.  Employees would be allowed to take up to 160 hours of comp time every year.  Employees would retain the option of choosing overtime compensation in the form of cash wages.  The primary sponsor of the bill is Representative Cathy McMorris Rodgers of Washington, who summarizes the proposed legislation in this press release

The FFWA would offer welcome relief to businesses and employees, who currently have no choice of "opting out" of the rigid time-and-a-half overtime rules prescribed by the FLSA. Undoubtedly many employees would prefer time off in lieu of cash wages.  And, giving businesses the legal option of offering employees this choice would enhance their ability to retain quality workers and remain competitive.  I use the phrase "legal option" because in my experience, some private sector employers already offer employees comp time, though it is not permitted under the FLSA.  What makes business sense is not necessarily lawful, especially when it comes to the FLSA. 

Stay tuned for further developments on this proposed legislation.