Tag: Fair Labor Standards Act

Breaking Federal Developments in Labor and Employment September 2017

Salary Test for Exempt Status Invalidated

Under the prior administration the DOL had issued amendments to certain exemptions from the overtime requirements of the Fair Labor Standards Act (“FLSA”), which would have dramatically increased the number of employees eligible for overtime pay to over 4 million workers within the first year of implementation. The amendments were to be effective on December 1, 2016, however their implementation was stayed by a federal judge last November, as reported in our November 2016 Client Alert.

The new regulations were to essentially double the salary threshold for employees who would be exempt from overtime payments, assuming they met one of the three exemptions, from $455 per week or $23,660 per year, to $913 per week or $47,476 per year. Under these regulations, even if employees performed duties that would otherwise indicate they were exempt from overtime, if they made less than $47,476 per year, their employers would have to pay them overtime regardless of their duties. Just last week, a federal judge in Texas invalidated the new regulations, and specifically found that, while a salary test was permissible, the minimum threshold of over 47K per year was too high, and in fact obviated the need for any other duties based analysis, which has always been at the heart of the executive, administrative, or professional exemptions.

Employer Tip

For the time being, employers can feel comfortable relying on the duties test to determine eligibility for overtime, however, the DOL has indicated that it is still looking at the minimum salary threshold, and employers should expect that threshold to increase from the current number of $23,660. Employers would be well advised to take a look at their currently classified exempt employees making between 24-35K per year to determine whether such employees truly meet the duties test, and whether such employees are being paid at appropriate levels.

EEO-1 Salary Reporting Requirements Blocked

The new EEO-1 forms with reporting information for 2017 were to have included salary information in addition to the usual reporting requirements. The EEOC was presumably intending to use such information to target companies for Equal Pay investigations and complaints. Reporting is still due using the EEO-1 forms in March 2018, but the OMB has just announced that the forms are not going to require the reporting of salary information by gender and other protected characteristics, so employers have a reprieve with respect to federal reporting requirements.

Employer Tip

Employers should be mindful that the state and federal equal pay laws are still applicable, and it is always a good idea to do a self-audit of comparative pay data based on gender, race, and other protected characteristics in order to ensure compliance with such laws. Please also refer back to our April 2017 Client Alert with respect to NY pay equity laws and the salary history ban that goes into effect next month for NY employers.

New I-9 Form in Effect September 18, 2017

Employers should be aware that a new I-9 form is going into effect on September 18th. The link to the new form can be found here.

This post was written by David I. Rosen of Sills Cummis & Gross P.C. © Copyright 2017

Monopoly Money or the Real Deal? Exploring the Possibility of Paying Employees in Bitcoin

Bitcoin, the most popular form of digital or crypto-currency, is gaining traction as an investment vehicle and a way to pay for goods and services. More than 100,000 merchants worldwide now accept Bitcoin, allowing consumers to book a hotel stay, take a taxi, or buy a car.  The buzz around crypto-currency continues to grow as Bitcoin options will likely soon be traded on the futures exchange and regulators consider how to monitor Bitcoin transactions.

So what about paying employees in Bitcoin? Here are some things to consider before diving into the digital currency market.

What is Crypto-currency?

Virtual or digital currency is a digital representation of value that has no paper or coin equivalent. Crypto-currency such as Bitcoin uses encryption to control its creation.  Virtual currency is electronically created and stored and does not have the backing of a commodity, bank, or government authority. Additionally, virtual currency does not have the status of legal tender.  This means that a creditor can refuse virtual currency as payment for a debt.

Convertible virtual currency is a class of virtual currency that can be substituted for real currency. As of this week, 1 Bitcoin could be converted into to approximately $4,594.69 USD.

How Do I Get and Use Bitcoin?

Bitcoin is available online and may be purchased with cash, credit card, or wire transfer. A Bitcoin user would set up an online “wallet” that manages his or her transactions.  Each user has a unique address that is identified by a series of letters and numbers and each transaction in Bitcoin is also identified by a series of letters and numbers that can be viewed on a public ledger blockchain.info and shared with other devices on the Bitcoin network.

Due to the encryption of the transactions, the users have a certain level of anonymity, but the transactions are public. One of the advantages of Bitcoin is that there are no intermediaries, which gives user’s control to send payments from one party directly to another without a financial institution making fees lower.

To prevent paying twice with the same Bitcoin, each user has its own private key and a public key. Once a transfer is initiated, the transfer is submitted to the network encoded by the public key.  The acceptance occurs when the person accepts the amount on his or her private key.  The sender signs the transaction with the private key.  This log of transactions is continually downloaded by users on the network removing the need for a third-party clearinghouse to monitor the transactions.

Theoretically, paying an employee in Bitcoins would go through the same process. However, to comply with payroll deductions and filings, employers most commonly engage a payroll service experienced in Bitcoin that handles payroll deductions and filings.

What are the withholding implications of using Bitcoins as wages?

Just like wages paid in non-virtual currency, Bitcoin compensation would be considered W-2 wages for employees. Bitcoin is also subject to federal income tax withholding, FICA, FUTA, and the self-employment tax based on the fair market value of the Bitcoin on the date it was received. 

Do Bitcoin payments meet an employer’s minimum wage and overtime requirements?

Regulations under the Fair Labor Standards Act (FLSA) require that wage payments be in “cash or a negotiable instrument payable at par,” meaning that Bitcoin payments may not satisfy an employer’s minimum wage and overtime requirements under the FSLA. An employer could pay in a hybrid of U.S. currency and Bitcoin to meet the federal requirements and pay anything above that amount in Bitcoin.  Several state wage and hour laws also require that wages be paid in U.S. currency so it is important to check both federal and state laws before paying employees in crypto-currency.

What about exempt employees?

Most exempt employees have minimum salary requirements under federal law. The minimum salary requirement under the FLSA salary basis test must be paid in U.S. currency or a negotiable instrument.  Like the minimum wage and overtime requirements, once that threshold is met, employers may pay employees the rest of the amount in Bitcoin.

Other concerns?

For nonexempt employees, there is some gray area as to how to value Bitcoins for the regular rate calculation for overtime purposes. The timing of the valuation may have a significant economic impact due to Bitcoin’s somewhat volatile nature.  Bitcoin valuation may also be a problem when calculating the regular and back pay if an employee is misclassified as exempt.  There may also be other issues tied to Bitcoin’s volatility, the administrative cost of converting wages to Bitcoin and security of Bitcoin wallets.  Before diving into the digital currency world, it is recommended that an employer consult with legal counsel to avoid any potential pitfalls.

This post was written by Taylor E. Whitten  of  Foley & Lardner LLP © 2017
For more Labor & Employment legal analysis go to The National Law Review

The U.S. Department of Labor Rolls Back Obama-Era Guidance on Joint Employers and Independent Contractors

The U.S. Department of Labor (“DOL”) announced today that it was rolling back an Obama-era policy that attempted to increase regulatory oversight of joint employer and contractor businesses.

Courts and agencies use the joint employer doctrine to determine whether a business effectively controls the workplace policies of another company, such as a subsidiary or sub-contractor. That control could be over things like wages, the hiring process, or scheduling.

Legal IT ConsultantIn a short statement, the DOL signaled that it was returning to a “direct control” standard. “U.S. Secretary of Labor Alexander Acosta today announced the withdrawal of the U.S. Department of Labor’s 2015 and 2016 informal guidance on joint employment and independent contractors. Removal of the administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act, as reflected in the department’s long-standing regulations and case law.”

Until 2015, the DOL interpreted the joint employer doctrine to apply only to cases in which a business had “direct control” over another business’s workplace. In 2015 and then again in 2016, under then-Labor Secretary Tom Perez (currently the Democratic National Committee Chair), the DOL changed its interpretation to state that a business may be a joint employer even if it exerted “indirect control” over another’s workplace. The 2015 and 2016 guidance effectively expanded the conditions for when one business can be held liable for employment and civil rights law violations at another company. Critics of this “indirect control” language argued that it was ambiguous and threatened to throw franchise, parent-subsidiary, and independent contractor relationships between businesses into disarray. Companies, particularly franchises, were particularly concerned that they could face liability at workplaces they did not directly oversee or control.

However, the DOL’s announcement today rescinded its guidance on “indirect control” and also rescinded guidance on independent contractors, which essentially stated that the DOL considered most workers to be employees under the Fair Labor Standards Act and that it was likely to apply a broad definition of “employee” and “employer” when investigating a company’s practices. This decision is a big win for businesses and business groups.

Despite the DOL’s reversal, the Obama-era standard can still be applied to businesses through the National Labor Relations Board (“NLRB”), an independent agency that serves as the government’s main labor law enforcer. The NLRB considers a company jointly liable for its contractors’ compliance with the National Labor Relations Act if they have “indirect” control over the terms and conditions of employment or have “reserved authority to do so.” The NLRB has not rescinded its interpretation. President Trump has yet to pick nominees for the five-member board’s two open seats, which will likely affect the NLRB’s interpretation of the joint employer doctrine and many other NLRB rules, interpretations, and guidance.

The DOL’s guidance does not affect actions taken by other federal agencies.

This post was written by James R. Hays and Jason P. Brown  Sheppard Mullin Richter & Hampton LLP.

Fifth Circuit Rules Employer-Mandated Transit Time May Make Lunch Break Compensable

The Fifth Circuit Court of Appeals, which has jurisdiction over Texas, Louisiana and Mississippi, ruled recently that security guards’ “off-the-clock” meal periods may be compensable when they were required to travel for 10 to 12 minutes from their work stations to get their meals.  Naylor v. Securiguard, Inc., No. 14-60637 (5th Cir. Sept. 15, 2015) available here.

The private security guards in Naylor were required to leave their work sites and travel to other locations for meals or breaks in order to preserve the appearance of the worksite. The court reasoned that a jury could find this mandated transit time predominately benefited the employer, rather than the employee, making it compensable under the Fair Labor Standards Act (“FLSA”).

The court noted that, when this mandated round trip travel time to break areas was only a few minutes in duration, it is “de minimis” and would not transform the 30-minute break to compensable time. However, at some point, employer-mandated travel time during an employee’s lunch break shortens the length of the break enough to make it a compensable “rest” period. Under the FLSA, “rest” periods of 20 minutes or less are generally compensable because they are considered to benefit the employer by rejuvenating the employee. Ten to twelve minutes of transit time cut too much into the “lunch breaks.”

Significantly, the court did not set a bright line rule for the precise number of transit minutes an employer may require away from the work station during a lunch break before the entire break becomes compensable.

The conversion to compensable time may entitle the employees to both compensation for the 30-minute meal periods and resultant weekly overtime once that time is added to other hours worked.

The ruling also raises questions of whether the mandatory transit time rationale applies to breaks required in other contexts, such as offsets to “30-minute” break requirements under collective bargaining agreements or state laws, or to other break activities, such as clothes changing, going through security or reassigning equipment. Providing employees written notice of which break-related activities are required and clearly stating their options to eat meals and engage in other break activities without mandatory transit or other activities that may reduce their meal periods might preclude any such issues.

Article By Robert E. Sheeder, Nancy M. O’Connor & Clayton M. Davis of Bracewell & Giuliani LLP

© 2015 Bracewell & Giuliani LLP

Workers Should Properly be Classified as Employees Under the FLSA

U.S. Department of Labor (“DOL”) yesterday issued an Administrator Interpretation Memorandum announcing its position that most American workers are employees (as opposed to independent contractors), and thus are covered by the Fair Labor Standards Act (FLSA). The announcement comes exactly two weeks after the DOL issued a Notice of Proposed Rulemaking that would significantly change the legal requirements for an employee to qualify as exempt from the overtime requirements of the FLSA.

Department of LaborAccording to the Memo, employers are intentionally misclassifying workers as independent contractors to cut costs and avoid compliance with various laws, which deprives workers of certain benefits of employment. Taken together, the two recent DOL actions make the DOL’s true intentions abundantly clear: to sweep more American workers under the umbrella of the FLSA, and in turn, have more of those covered employees earning overtime compensation (or significantly higher salaries).

In the Memorandum, the DOL sets forth its interpretation of the FLSA’s definition of “employ” and the multi-factored “economic realities test” utilized by the courts to guide the analysis of whether a worker is properly classified as an independent contractor under the law. According to the DOL, applying the economic realities test in view of the FLSA’s expansive definition of “employ” will result in most workers being employees, and not independent contractors. In other words, a worker is an employee unless a convincing argument can be made that the worker is properly classified as an independent contractor.

While the “economic realities test” might vary somewhat depending on the court applying the test, the traditional questions considered are:

  • Is the work done by the worker an integral part of the employer’s business?;
  • Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?;
  • How does the worker’s relative investment compare to the employer’s investment?;
  • Does the work performed require special skill and initiative?;
  • Is the relationship between the worker and the employer permanent or indefinite?; and
  • What is the nature and degree of the employer’s control over the worker?

These questions should be considered under the guiding principle that workers who are economically dependent on the employer are employees, and only workers who are really in business for themselves are independent contractors. All factors must be considered in each case, no one factor is determinative, and the ultimate determination must be the degree of the worker’s economic independence from the employer.

ARTICLE BY Jeremy M. Brenner, John P. Hasman, Robert A. Kaiser, Daniel K. O’Toole, Jovita M. Foster & Dione C. Greene of Armstrong Teasdale

© Copyright 2015 Armstrong Teasdale LLP. All rights reserved

DOL’s Upcoming Proposed Revisions to the FLSA’s White Collar Exemption Regulations

This month the Department of Labor is expected to propose, for the first time since 2004, revised regulations concerning the executive, administrative, professional, outside sales, and computer exemptions under the Fair Labor Standards Act. These revisions were prompted by President Obama’s March 13, 2014 memorandum to the Secretary of Labor, which stated that the exemptions “have not kept up with our modern economy” and which “direct[ed] [the DOL] to propose revisions to modernize and streamline the existing overtime regulations.” After the memorandum was issued, the agency began writing proposed regulations and announced on May 5, 2015, that it had completed drafting them and had submitted them (as required by Executive Order 12866) to the Office of Management and Budget for review.

Procedurally, the “proposed rules” will be published in the Federal Register (an action known as a “Notice of Public Rulemaking” or “NPRM”) for public comment following the OMB’s review, and the DOL has stated that it expects to take this step this month. After the public comment period closes, the DOL will consider the public comments in drafting “final rules;” submit them for a final review by the OMB; and then publish them in the Federal Register with an effective date on which they become law. Although implementation of the final rules may not occur until well into 2016, traditionally the final rules do not differ substantially from the proposed rules. Accordingly, employers should get a sense this month of what the future regulatory landscape will look like.

So what can we expect from these revisions? As an initial matter, it’s almost certain that the DOL will raise the $455 minimum salary requirement, which hasn’t changed since 2004. With regard to the other revisions, however, the DOL’s drafting process has been opaque, and official pronouncements have been largely limited to the Presidential Memorandum and the DOL’s description of the regulatory action on its Spring 2015 agenda, neither of which provide any specific detail. Nonetheless, unofficial pronouncements (including the Secretary of Labor’s remarks before the International Association of Firefighters on March 18, 2014) have repeatedly stressed the DOL’s position that the current regulations result in too many employees falling under the exemptions, particularly retail managers who spend a large portion of their time performing non-exempt duties. Accordingly, there is speculation that the DOL may eliminate the “concurrent duties” provision of 29 CFR 541.106, which provides that simultaneously performing both exempt and nonexempt duties will not automatically disqualify an otherwise exempt employee from the executive exemption. There is also speculation that the regulations may impose a set percentage cap on the amount of time an exempt employee may spend on non-exempt duties, similar to exemption provisions under some state laws (such as California and Connecticut) and to some provisions of the pre-2004 FLSA regulations.

In any event, one thing is certain – some employees who are properly classified as exempt under the current regulations will no longer be exempt under the new rules. Employers will shortly have a preview of just how drastic these changes will be, and should begin evaluating their compliance with the regulations well in advance of the implementation of the final rules.

ARTICLE BY Dennis M. Mulgrew, Jr. of Drinker Biddle & Reath LLP
©2015 Drinker Biddle & Reath LLP. All Rights Reserved

Proposed Labor Violation Reporting Rules Target Government Contractors

Proposal makes agency allegations of employment law violations reportable events that could result in denial of federal contracts or termination of existing contracts.

Executive Order 13673 (the Order), signed by US President Barack Obama in July 2014, imposed three new requirements addressing the labor and employment practices of federal contractors and subcontractors: (1) an obligation to report employment law violations, which would be used by contracting officers to determine whether to award a new federal contract or terminate an existing contract; (2) a requirement to provide notices to workers about their Fair Labor Standards Act (FLSA) exemption or independent contractor status; and (3) a requirement that federal contractors agree that claims arising under Title VII or any tort related to or arising out of sexual assault or harassment by their employees and independent contractors will not be arbitrated without the voluntary postdispute consent of an employee or independent contractor, with certain limited exceptions.

E.O. 13673 directed the Federal Acquisition Regulatory Council (FAR Council)—which consists of the Administrator for Federal Procurement Policy, the Secretary of Defense, the Administrator of National Aeronautics and Space, and the Administrator of General Services—to publish implementing regulations through the Federal Acquisition Regulation (FAR) system. The Order also directed the Department of Labor (DOL) to publish guidelines that address transactions deemed to be reportable employment law violations, as well as how contracting officials should use such reported information to determine whether to award a federal contract (or terminate an existing contract). The Order, while effective upon issuance, expressly applies to all solicitations for contracts only as set forth in any final rule issued by the FAR Council.

On May 28, 2015, the FAR Council published a Notice of Proposed Rulemaking implementing E.O 13673.[1] On the same day, the DOL published proposed guidance.[2] The proposed rule and guidelines contain many potentially alarming provisions for employers seeking federal contracts, some of which appear to violate contractors’ due process and Fourth Amendment rights. If adopted, the proposals would impose administrative burdens on contractors, increase the complexity of obtaining and keeping federal contracts, and likely lead to an increase in bid protests and litigation.

The proposals offer employers a 60-day period to submit comments in opposition to these provisions. We strongly encourage employers that have or may seek federal contracts to take advantage of this comment opportunity. If you are interested in sponsoring comments, please contact us in the near future; the period for filing comments only runs through July 27, 2015.

Proposed Implementation of the Employment Violation Reporting Obligations

E.O. 13673 requires employers who are prospective awardees of federal contracts to report certain labor law violations that occurred within the prior three years. Awardees of federal contracts must submit reports of labor law violations every six months during the performance of the contract. The reportable violations include “administrative merits determinations,” “arbitral awards or decisions,” and “civil judgments” involving claims or enforcement actions under many federal employment laws.[3]

The proposed guidelines define “administrative merits determinations” by reference to the specific types of determinations made by a federal enforcement agency, such as the Wage and Hour Division (WHD), Office of Federal Contract Compliance Programs (OFCCP), Occupational Safety and Health Administration (OSHA), Equal Employment Opportunity Commission (EEOC), and National Labor Relations Board (NLRB). Reportable determinations also include, broadly, complaints that a federal enforcement agency files and administrative orders issued through agency adjudication. However, complaints that private parties file with enforcement agencies or in court alleging employment law violations would not trigger a reporting obligation.

Under the proposed guidance, “administrative merits determinations are not limited to notices and findings issued following adversarial or adjudicative proceedings such as a hearing, nor are they limited to notices and findings that are final and unappealable.” Thus, contractors will be required to report mere agency allegations, such as OSHA citations, WHD investigation finding letters, OFCCP show cause notices, EEOC reasonable cause determinations, and NLRB complaints. These disclosures are required even if a contractor is challenging an allegation through formal proceedings. If, at the time of the required reporting, the enforcement agency allegation is withdrawn or reversed in its entirety through additional proceedings in the matter, then there is no reporting obligation.

The DOL will publish additional proposed guidelines that address administrative determinations that state enforcement agencies make under laws that DOL deems to be equivalent to the above-referenced federal laws.

The proposed DOL guidelines define “civil judgments” as any judgment or order entered by any federal or state court in which the court determined that an employer violated any provision of the above-referenced employment laws or enjoined the employer from committing a violation. Civil judgments include orders or judgments that are not final and are appealable, and the employer must report such judgments even if an appeal is pending. Consent judgments are subject to the reporting obligation if they contain a determination that an employment violation occurred or enjoin the employer from violating any provision of the employment laws. However, a private lawsuit that a court dismissed without a judgment would not be a reportable event.

The proposed DOL guidelines define “arbitral awards and decisions” as any award or order by an arbitrator or arbitral panel in which the arbitrator or panel determined that an employer violated any provision of the above-referenced employment laws or enjoined the employer from committing a violation. Arbitral awards include awards and orders that are not final and are appealable, and the employer must report such judgments even if an appeal is pending. Arbitral awards and orders must be reported even if they are subject to a confidentiality agreement.

Under the proposed DOL guidelines, the same alleged violation may trigger several successive reporting obligations. Each transaction must be reported even if the same alleged violation was the basis for a prior report. For example, where an initial agency allegation was reported, the same allegation must later be reported if it is sustained through an administrative order, and must be reported yet again if a federal court affirms it in a review action. However, if the initial reported transaction is reversed or vacated in its entirety through later proceedings, there is no obligation to continue to report the initial transaction in any future contract bid.

The proposed FAR regulations simply incorporate the DOL guidelines by reference and do not modify or expand on the definitions regarding reportable events.

Mechanics of the Contracting Process Under the Proposed FAR Rule

Prior to awarding a government contract, a contracting officer is required to make an affirmative responsibility determination that includes a determination that the apparent successful offeror or bidder has a satisfactory record of integrity and business ethics. The proposed rule requires that the contracting officer consider a prospective contractor’s labor violations in determining whether that contractor has a satisfactory record of integrity and business ethics. Under the proposed FAR rule, all employers bidding on a federal contract would initially provide a representation that there have been or have not been reportable employment law violations. Thereafter, once the contracting officer has initiated a responsibility determination for the prospective contractor, if the employer has indicated covered employment law violations, that employer would be required to enter detailed information describing the violations in the System for Award Management (SAM), including (1) the employment law that was allegedly violated; (2) the relevant matter or case number; (3) the date that the determination, judgment, award, or decision was rendered; and (4) the name of the court, arbitrator(s), or agency that rendered the decision. Further, the contracting officer would be required to solicit from the employer additional information that the prospective contractor views as necessary to establish affirmatively its responsibility, such as mitigating circumstances; remedial measures, including labor compliance agreements; and other steps taken to comply with labor laws.

The contracting officer would review the data provided, and, in consultation with agency Labor Contract Advisors, would determine whether the employer is a responsible source eligible to receive the federal contract. The proposals contemplate that most entities would not be deemed nonresponsible, but instead would be required to agree to a “labor compliance agreement” as a condition of award of the federal contract. The proposals provide little discussion or framework for labor compliance agreements, apparently vesting broad authority in enforcement agencies, the DOL, agency Labor Contract Advisors, and contracting officers to develop, negotiate, and monitor such agreements. Employers should pay particular attention to these proposals because they would place powers in the hands of federal regulators to extract extra-legal “remedial actions” by leveraging an award or continuation of federal contracts. The outlook for those prospective offerors found nonresponsible is equally grim; the likelihood of successfully challenging contracting officer responsibility determinations in the procurement process is very low given the high level of deference accorded such determinations by both the Government Accountability Office (GAO) and the Court of Federal Claims (COFC). Moreover, because the proposed regulation’s definition of “administrative merits determinations” effectively includes notices or findings that amount to little more than alleged violations, it is unclear whether GAO or the COFC could readily find a determination of nonresponsibility to be without a rational basis, even if that decision was predicated on alleged violations that, after contract award, may not be proven.

Post-Award Implications of Labor Violations

Employers awarded contracts would be required to enter current information regarding labor violations in SAM on a semi-annual basis. If, based on this information, the Labor Contract Advisor determines that further consideration or action is warranted… click to continue reading Proposed Labor Violation Reporting Rules Target Government Contractors

ARTICLE BY

William E. Doyle, Jr. & E. Ruscus of Morgan, Lewis & Bockius LLP
Copyright © 2015 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

Fifth Circuit Refuses Application of Bright-Line Test in FLSA Seaman Exemption Dispute

Proskauer Law firm

On November 13, 2014, the Fifth Circuit addressed the uncertainty stemming from its decision in Owens v. SeaRiver Maritime, Inc., 272 F.3d 698 (5th Cir. 2001), wherein the Court found that a plaintiff’s unloading and loading of vessels was considered “nonseaman” work subject to the Fair Labor Standards Act’s (“FLSA”) overtime requirements. Subsequent to that decision, plaintiffs have advocated for a broad application of Owens’s rule, and district courts struggled with Owens’s  application to what are often fact-driven cases.

The Fifth Circuit provided necessary clarity in Coffin v. Blessey Marine Services, Inc., No. 13-20144, 2014 WL 5904734 (5th Cir. Nov. 13, 2014), when it reversed the district court on an interlocutory appeal and held that vessel-based crewmembers tasked with loading and unloading vessels are seamen under the FLSA rendering them exempt from the FLSA’s overtime requirements under 29 U.S.C. § 213(b)(6). In so ruling, the Fifth Circuit limited its prior holding in Owens, by finding that the unloading and loading of vessels is not strictly “nonseaman” work, and that each individual and case must be analyzed under a facts-and-circumstances test. Significantly, in dicta, the Court intimated that the Department of Labor’s “twenty percent rule,” which states that an employee loses his seaman status when “nonseaman” work occupies over twenty percent of his time, is also not a bright-line test.

Plaintiffs are tankermen who lived and worked aboard Defendant’s vessels. Though the parties and the court agreed that most of Plaintiffs’ job duties were “seaman” work exempt from the FLSA’s overtime requirements, Plaintiffs filed suit alleging that their job duties related to the loading and unloading of vessels constituted “nonseaman” work for which overtime pay was owed. Plaintiffs and the district court relied on the Fifth Circuit’s prior holding in Owens, and the district court denied Defendant’s motion for summary judgment. The district court and the Fifth Circuit granted Defendant’s interlocutory appeal under 29 U.S.C. § 1292(b).

Following oral argument, the Fifth Circuit issued its decision, which disagreed with Plaintiffs’ and the district court’s interpretation and application of Owens. Importantly, the Fifth Circuit distinguished Owens and emphasized that the analysis under the FLSA’s seaman exemption is a fact-based and flexible inquiry not subject to bright-line, categorical rules. The Court reasoned that the analysis required the consideration of the character of the work performed and the context in which it is performed and not the consideration of where the work is performed or how it is labelled. Unlike in Owens where the plaintiff was a non-crewmember who was not tied to a vessel and who only sought overtime for land-based loading and unloading, the Plaintiffs in this case lived on Defendant’s towboats, and their loading and unloading duties undisputedly affected the seaworthiness of the vessels and were integrated fully with their other seaman duties. Therefore, considering the character and context of the work performed, the Court concluded that the Plaintiffs’ unloading and loading duties were seaman work, thus exempting Plaintiffs from the FLSA’s overtime requirements.  For these reasons, the Court vacated the lower court’s ruling and remanded the matter to enter judgment in favor of Defendant.

ARTICLE BY

Nicole A. Eichberger
Lindsey H. Chopin
OF
Proskauer Rose LLP

Second Circuit Finds that Entry-Level Audit Associates at Accounting Firm are Exempt from Federal Overtime Requirements

Sheppard Mullin Law Firm

In Pippins v. KPMG LLP, No. 13-889 (2d Cir. July 22, 2014), the Second Circuit Court of Appeals unanimously held that entry-level audit associates (“Plaintiffs”) at KPMG LLP qualify for the Fair Labor Standards Act’s (“FLSA”) “learned professionals” overtime exemption.  The Second Circuit explained that, while the closely-supervised employees were “the most junior members” of the KPMG accountancy team and did not “make high-level decisions,” their work still required sufficient knowledge and judgment to qualify for the exemption.

The FLSA exempts employers from paying overtime to workers whose “primary duty” is “the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction.”  Such workers may qualify for the FLSA’s “learned professional” exemption provided that their work is: (i) “predominantly intellectual in character, and requires the consistent exercise of discretion and judgment”; (ii) in a “field of science or learning,” such as accounting; and (iii) of a type where “specialized academic training is a standard prerequisite for entrance into the profession.”

While the parties in Pippins agreed that accounting qualifies as a field of “science or learning” under the FLSA, the Second Circuit’s decision provides guidance for employers seeking to determine whether an employee’s position may meet the other two necessary elements for the learned professional overtime exemption to apply.

The “Discretion and Judgment” Prong

Noting the lack of guidance in the FLSA’s regulations expounding on the “discretion and judgment” prong, the Court held that, in the learned professionals context, employees need not “exercise management authority,” particularly where they work for firms that provide professional services to other businesses, such as KPMG.  Rather, “what matters is whether [employees] exercise intellectual judgment within the domain of their particular expertise.”  As applied to the field of accounting, the Court explained that accounting requires the consistent application of a “professional skepticism” throughout the process of collecting and analyzing data in order to ensure that audits expose potential financial irregularities or accounting improprieties.

The Plaintiffs maintained that they merely exercised simple “common sense,” made only “obvious” observations, followed strict templates and guidelines, and exclusively conducted routine work that was reviewed by supervisors before being assimilated into final audit reports.

However, the Court largely characterized Plaintiffs’ contentions as “confus[ing] being an entry-level member of a profession with not being a professional at all.”  Indeed, the Court observed that the existence of guidelines and supervision is characteristic of professional firms and organizations and is simply intended to provide training and ensure quality work.  The fact that junior professionals are subject to close supervision and must adhere to guidelines “does not relegate [them] to the role or status of non-professional staff.”  The Court further explained that employees can “exercise professional judgment when their discretion in performing core duties is constrained by formal guidelines or when ultimate judgment is deferred to higher authorities.”

With respect to Plaintiffs, the Court found that their use of templates, the specific guidelines they were required to follow and the supervision of their work, did not deprive them of the need to exercise professional skepticism throughout the auditing process.  In the Court’s view, the Plaintiffs were still required to exercise their specialized knowledge of accounting in order to determine when to deviate from such guidelines, or when to bring questions to superiors. “It is a hallmark of informed professional judgment,” the Second Circuit explained, “to understand when a problem can be dealt with by the professional herself, and when the issue needs to be brought to the attention of a senior colleague with greater experience, wisdom, or authority.”

The “Specialized Academic Training” Prong

With respect to the “specialized academic training” prong of the learned professional exemption, the Court held that “the requirement will usually be satisfied by a few years of relevant, specialized training,” and that “a bachelor’s degree in a germane field [often] suffices.”   By contrast, the Second Circuit observed that generic, non-specialized educational requirements, such as a requirement that an employee possess a general bachelor’s degree in “any field,” are insufficient to establish the prerequisite.  Finally, the Court explained that to determine whether the exemption applies, the educational prerequisites for entry into the particular profession must be customary.  Because the audit associates were generally required to either be eligible or nearly eligible to become licensed Certified Public Accountants (“CPAs”) and the “vast majority” of them possessed accounting degrees and could take the CPA exam, the Court held that the Plaintiffs work required specialized educational instruction.

Plaintiffs contended, however, that they did not meet the specialized academic training requirement because their job duties didn’t actually call on them to employ the knowledge they acquired in the course of their studies.  The Court acknowledged the potential merit of this argument in the case of  a well-educated professional who is never expected to draw on her education in practice.  However, the Court quickly dispatched the argument as it pertained to Plaintiffs, finding that the “average classics or biochemistry major” would not be able to adequately perform or fully understand the auditors’ work functions.

Conclusion

The Pippins decision offers greater clarity to employers in  applying the “learned professional” exemption.  The decision establishes that, even where low-level employees are closely supervised, regularly perform routine tasks, and follow established templates and guidelines, their work can still demand enough professional judgment to qualify them as learned professionals.

ARTICLE BY

Kevin J. Smith
Jonathan Sokolowski
Of:
Sheppard, Mullin, Richter & Hampton LLP

Working Through Lunch: An Update on the Legal Risks

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Regular readers of this blog know that we’ve previously alerted you to the risks of using timekeeping software that automatically deducts the lunch hour from employees’ paychecks.  As we’ve explained before, such software can expose employers to liability under the Fair Labor Standards Act because, for one reason or another, employees sometimes work through lunch. And, even if an employer has a system in place for employees to request pay for lunchtime work, that is no “get out of jail free card,” because employees who bring FLSA lawsuits commonly argue that they did not use – or were discouraged from using – the system.

A lawsuit that was filed earlier this month in Texas federal court gives us another reason to sound the alert.  In Corcione v. Houston Methodist, the plaintiff alleges that she – and a class of some 5,000 nurses, nurses assistants, patient care assistants and other employees at seven different medical facilities – were required to keep their cellphones on hand during their meal breaks in case they were needed to respond to emergencies. And, even though the employers had systems in place for requesting pay for lunchtime work, the plaintiff claims that managers discouraged employees from making such requests. The plaintiff seeks to recover the unpaid wages (for the time claimed to have been worked, including overtime pay), liquidated damages, and legal fees.  In other words, the plaintiff wants tens of millions of dollars.

A policy requiring nurses (and similar employees) to be available so that they can respond to emergencies probably seems reasonable to you, and we feel the same way. Work “emergencies” aren’t limited to the medical field, of course, and many other types of employers have similar policies – written or unwritten. If you’re one of them, just remember that the ramifications of such policies can land you on the wrong side of the FLSA if you’re not careful. We’ve said it before, and we’ll say it again:  Work time must be compensated.  Even if that “work time” comes during what – on a normal day – would have been “lunch time.”

Article By:

James F. Ehrenberg
Of:
Barnes & Thornburg LLP