SCOTUS Rejects Narrow Construction FLSA Overtime Exemption

FLSA Overtime Exemption

The Fair Labor Standards Act (FLSA) requires employers to pay overtime compensation to covered employees, but provides numerous categories of workers an overtime exemption. On April 2, 2018, the Supreme Court of the United States (SCOTUS) rejected the longstanding principle that these FLSA exemptions must be construed narrowly, holding that service advisors at a California automobile dealership are exempt from the overtime requirements under the FLSA.

Background

As we covered in previous posts about overtime exemptions, at issue in Encino Motorcars, LLC v. Navarro was the “exempt” classification of service advisors at a car dealership. The service advisors premised their argument for overtime on a 2011 Department of Labor rule that expressly excluded service advisors from the definition of “salesman.”  The specific section of the FLSA is section 213(b), which exempts “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles ….” Service advisors sell, but they sell mechanic service rather than cars, and they are not mechanics themselves. The advisors argued that they fall into a gap in 213(b): they are not “salesm[e]n … primarily engaged in selling … automobiles,” and they are not “partsmen, or mechanic[s] primarily engaged in … servicing automobiles.” In response, the dealer argued that service advisors are plainly “salesm[e]n … primarily engaged in … servicing automobiles ….”

The district court found that the FLSA overtime exemption applied to service advisors. The Ninth Circuit reversed, deferring completely to the 2011 DOL rule.  The Supreme Court rejected this conclusion, holding that the regulation was procedurally defective and courts should not defer to it or rely upon it.  The Supreme Court remanded the case to the Ninth Circuit for reconsideration. The Ninth Circuit again found that service advisors were entitled to overtime because they do not fall within the exemption.

SCOTUS Opinion  FLSA overtime exemption

In its second look at this particular exemption in recent years, the Supreme Court again reversed, basing its conclusion on what it called a “best reading” of the statute’s text. The Court held 5-4 with its opinion reading, “We reject this principle as a useful guidepost for interpreting the FLSA…. Because the FLSA gives no ‘textual indication’ that its exemptions should be construed narrowly, ‘there is no reason to give [them] anything other than a fair (rather than a “narrow”) interpretation.’”

Justice Clarence Thomas’ opinion noted that the FLSA contains “over two dozen” exemptions, that the exemptions “are as much a part of the FLSA’s purpose as the overtime-pay requirement,” and that “[w]e have no license to give the exemption[s] anything but a fair reading.” The Court further held that the exemption was not limited to sales employees primarily engaged in selling automobiles and ultimately held that service advisors were exempt because they are “salesm[e]n . . . primarily engaged in . . . servicing automobiles.”

In dissent, Justice Ginsburg, along with Justices Breyer, Sotomayor, and Kagan, sought to emphasize how the majority’s holding was a stark departure from precedent. Underscoring the importance of the Court’s holding regarding the interpretation of FLSA exemptions, Justice Ginsburg wrote that the Court was overruling “half a century” of precedent by rejecting the narrow construction principle.

Conclusion

The Court’s decision is significant as it abandons the longstanding principle that FLSA exemptions are to be construed narrowly in favor of non-exempt status. Generally speaking, courts will now need to place exemptions on the same statutory and interpretive footing as the substantive overtime requirements in the statute. For example, the more common FLSA exemptions, such as the executive, administrative and professional employee exemptions may now be subject to the broader “fair reading” standard in cases that come before the High Court. 

The lawyers at Kingsley & Kingsley will continue to monitor SCOTUS opinions on FLSA exemptions. In the meantime, should you have questions about California’s wage and hour laws, don’t hesitate to contact one of our leading California employment lawyers.

Call and speak to an experienced California lawyer toll-free at (888) 500-8469.

Kingsley & Kingsley
16133 Ventura Boulevard, Suite 1200
Encino, California 91436
Phone: 888-500-8469
Local: 818-990-8300 (Los Angeles Co.)

 

Labor Department Announces FLSA Self-Audit Program

Self-Audit for FLSA Violations

On March 6, 2018, the U.S. Department of Labor (DOL) announced that it would soon be implementing its Payroll Audit Independent Determination (PAID) program. The PAID program will permit employers to self-report potential Fair Labor Standards Act (FLSA) violations without fear of exposure to liquidated damages. According to the DOL news release, the PAID program seeks to expedite resolution of minimum wage and overtime violations by limiting potential damages to solely the back wages owed. The DOL’s Wage and Hour Division (WHD) intends to employ the PAID program nationwide for 6 months, at which time it will evaluate the effectiveness of the program and its future options.

How the PAID Program Works

To participate in PAID, employers must first review information about PAID and compliance assistance materials on the WHD portion of the DOL website. Employers must then self-audit their pay practices for potential non-compliance. If the employer discovers a non-compliant practice, or believes its pay practices may be compliant but wishes to proactively resolve any potential claims, the employer must take four steps: 1) Identify the specific potential violations, 2) Identify affected employees, 3) Identify the timeframes in which each employee was affected, and 4) Calculate the back wages the employer believes are owed to each affected employee.

Upon receiving such a report from an employer, the DOL will request 1) the calculations conducted during the self-audit, 2) the scope of potential violations to be included in a release, and 3) a variety of certifications regarding due diligence and pay practice adjustments to avoid the same violations in the future. The DOL will assess back wages due and will prepare releases for affected employees, tailored to waive claims only for the identified violations for the time period during which back wages are paid.

Benefits to Employers and Employees

According to the DOL, the program is designed to appeal to both employers and employees. While employee participation in any settlement under the program remains voluntary, employees will receive 100 percent of the back wages paid, without paying litigation expenses, attorneys’ fees and other costs.
Employers may be enticed because the program does not impose penalties or liquidated damages. Employers who participate in the program are expected to correct pay practices going forward; employers who resolve an FLSA violation through the PAID program are ineligible to use the PAID program a second time to resolve the same issue in the future. Also, the PAID program is unavailable for employers currently under DOL investigation or in ongoing litigation concerning the reported FLSA violations.

California Employment Law

flsa violation

 

It will remain to be seen if the pilot program provides employers with an effective method to resolve FLSA wage claims that also avoids the cost of litigation and risk of being required to pay double the wages owed. Further, additional questions remain, to include:

1) Will the DOL’s expedition of outstanding back wage payments to employees nullify the employer’s liability for the same violations?, and

2) Is PAID limited only to the federal FLSA violations or will it ever encompass state wage and hour claims?

The California employment lawyers at Kingsley & Kingsley can answer your questions about state and federal wage and hour laws and we will continue to monitor the DOL’s updates regarding the PAID program. Should you have immediate questions about your rights as an employee, call and speak to an experienced California lawyer toll-free at (888) 500-8469 or click here to contact us via email.

Kingsley & Kingsley

16133 Ventura Boulevard, Suite 1200
Encino, California 91436
Phone: 888-500-8469
Local: 818-990-8300 (Los Angeles Co.)

 

overtime pay

California Supreme Court Clarifies Overtime Pay Rules

Bottom Line for Overtime Pay 

In Alvarado v. Dart Container Corporation of California, the California Supreme Court clarified how a flat sum bonus must be enhanced to comply with overtime premium requirements. “Flat sum” bonuses are bonuses whose amounts do not vary depending on employee productivity, efficiency, or effort and include attendance bonuses, safety bonuses, and the like. In summary, the Court held that when calculating overtime in pay periods in which an employee earns a flat sum bonus, employers must divide the total compensation earned in a pay period by only the non-overtime hours worked by an employee. Failing to comply with the March 5, 2018 ruling concerning overtime pay and lump sum bonuses may expose California employers to costly class actions.

Background | California Overtime Case

Plaintiff Hector Alvarado worked for Defendant Dart Container Corporation of California, a manufacturer of food service products, from September 2010 to January 2012. Alvarado filed a class action complaint against Dart in August 2012 for Dart’s alleged failure to provide overtime and several related derivative claims. The primary dispute was Dart’s calculation of employee overtime with respect to an attendance bonus paid to employees who worked on Saturdays and Sundays. In order to encourage attendance on unpopular work days, Dart paid employees an “attendance bonus” of $15 per day for employees who worked on a Saturday or Sunday and completed their full work shift.

Dart Container relied on a federal regulation and a four-step calculation of the bonus applied to the employee’s regular rate of pay, excluding overtime pay. Alvarado presented a formula that allocated the bonus only to regular hours worked during the relevant pay period. Alvarado would then calculate overtime compensation (1.5 times regular pay), then calculate the bonus’ per hour value (for regular hours), and then multiply that per-hour value times 1.5, and that result by the number of overtime hours worked. Plaintiff’s formula resulted in more pay than defendant’s. The key distinction between the two formulas is whether the bonus is allocated to all hours worked or only to the regular hours worked.

overtime pay

Court Rulings

The trial court granted Dart’s motion for summary judgment, which was affirmed by the Court of Appeal. The Court of Appeal held that because there was no valid California law or regulation explaining how to factor a flat sum bonus into an employee’s regular rate of pay for purposes of calculating overtime, the relevant federal regulation must be followed, and the employer’s method complied with the federal method. The Court of Appeal recognized that the DLSE Enforcement Manual did address the calculation of overtime for a flat sum bonus but held that because the DLSE Manual failed to comply with the Administrative Procedure Act (APA), it is void as underground regulation that is “not entitled to any deference.”

The Supreme Court described the issue before it as needing to determine if the divisor for purposes of calculating a per hour value of a bonus should be: (1) the number of hours the employee actually worked, including overtime; (2) the number of non-overtime hours worked; or 3) the number of non-overtime hours that exist in the pay period. The Court ultimately reversed the Court of Appeal’s decision and found that Dart had used the incorrect calculation in factoring in the attendance bonus. In other words, the Court chose the second option and held that the flat sum bonus at issue should be factored into an employee’s regular rate of pay by dividing the amount of the bonus by the total number of non-overtime hours actually worked during the relevant pay period. Further, the Court’s holding adopted the DLSE’s interpretation, despite finding the DLSE Enforcement Manual was an invalid underground regulation.

Impact

The California Supreme Court’s March 5 ruling (which applies retroactively) establishes a method that results in a much higher overtime rate than the federal method. Given the court’s holding, California employers who pay nonexempt employees flat sum or other similar bonuses should review how they calculate the regular rate for purposes of paying overtime compensation to ensure compliance with the method required by the California Supreme Court. Should you have questions about California’s wage and hour laws, don’t hesitate to contact leading California employment lawyers at Kingsley & Kingsley.

Call and speak to an experienced California lawyer toll-free at (888) 500-8469 or contact us via email here.

Kingsley & Kingsley
16133 Ventura Boulevard, Suite 1200
Encino, California 91436
Phone: 888-500-8469
Local: 818-990-8300 (Los Angeles Co.)

Grubhub Independent Contractors

Judge Rules Grubhub Drivers Independent Contractors Not Employees

In a significant court decision on the status of gig-economy workers, U.S. Magistrate Judge Jacqueline Scott Corley concluded on February 8, 2018, that drivers for Grubhub Inc. are independent contractors and not employees under California law. The ruling may have implications for other sharing economy companies, including Uber and Lyft, whose business models are built on pairing customers with products and services through apps while avoiding the personnel costs of traditional employment.

Lawson v. Grubhub Inc.
The case against Grubhub was brought by Raef Lawson, who worked as a food-delivery driver for less than six months while pursuing a career as an actor and writer. In 2015, Lawson sued Grubhub claiming the company violated California labor laws by not reimbursing his expenses, paying him less than minimum wage and failing to pay overtime. Lawson claimed he should have been classified as an employee, not a contractor.

The case was originally filed as a proposed class-action lawsuit, but the judge never granted that status, so it was only limited to him and his claimed $600 in damages–consisting of back wages, overtime, and expense reimbursement. Both sides had agreed that Judge Corley, rather than a jury, would decide the case in her San Francisco federal courtroom. Closing arguments were heard in late October 2017.

Borello Test
A key element of the case centered around the Borello test, which is used to determine whether a worker is a 1099 contractor or a W-2 employee. The Borello test considers workplace circumstances like whether the work performed is part of the company’s regular business, the skills required to do the job, payment methods, and whether the work is done under the supervision of a manager.

Elements of the case in Lawson’s FavorGrubhub Independent Contractors “Grubhub did control some aspects of Mr. Lawson’s work,” Judge Corley commented. “Grubhub determined the rates Mr. Lawson would be paid and the fee customers would pay for delivery services. While the Agreement states that a driver may negotiate his own rate, this right is hypothetical rather than real. The Court finds that Mr. Lawson could not negotiate his pay in any meaningful way and therefore this fact weighs in favor of an employment relationship.”

Elements of the case in Grubhub’s Favor
In Judge Corley’s estimation, in addition to working for other gig economy companies while simultaneously working for Grubhub, Lawson was fundamentally “not credible.” By his own admission, Lawson “gamed the app” by scheduling himself for a work shift (a “block” in company parlance) but received few, if any, actual delivery orders by putting his phone in airplane mode, among other tactics.

“Mr. Lawson’s claimed ignorance of his dishonest conduct is not credible,” Judge Corley wrote. “Mr. Lawson would remember if after he filed this lawsuit against Grubhub he cheated Grubhub. If he had not moved his smart phone to airplane mode, intentionally toggled available late, or deliberately engaged in other conduct to get paid for doing nothing he would have denied doing so at trial. But he did not.”

Other aspects that were not in Lawson’s favor of being treated as an employee included 1) he could set his own schedule, 2) largely wear whatever clothes he wanted, and 3) he could choose his own route.

The Decision
Under California law, whether an individual performing services for another is an employee or an independent contractor is an all-or-nothing proposition,” Judge Corley concluded.

“If Mr. Lawson is an employee, he has rights to minimum wage, overtime, expense reimbursement, and workers compensation benefits. If he is not, he gets none. With the advent of the gig economy and the creation of a low-wage workforce performing low skill but highly flexible episodic jobs, the legislature may want to address this stark dichotomy. In the meantime the Court must answer the question one way or the other. Based on what the Court observed at trial and the facts found, and after applying the Borello test, the Court finds that during the four months Mr. Lawson performed delivery services for Grubhub he was an independent contractor.”

Reaction
Shannon Liss-Riordan, Lawson’s lawyer, said she plans to appeal the ruling. “Among other issues, the California Supreme Court is considering adopting a more protective test for employee status, so I was surprised the decision was issued before the Supreme Court has issued that decision…we should have prevailed even under the Borello standard,” Liss-Riordan said. 

Matt Maloney, chief executive officer of Grubhub, said the company is pleased with the ruling, “which validates the freedom our delivery partners enjoy from deciding when, where and how frequently to perform deliveries…We will continue to ensure that delivery partners can take advantage of the flexibility that they value from working with Grubhub,” Maloney said.

Conclusion
People who work as 1099 contractors can set their own schedules, and decide when, where and how much they want to work. Employers utilizing 1099 contractors avoid paying taxes, overtime pay, benefits and workers’ compensation. However, some companies have recognized that some people don’t want to be independent contractors, and prefer the benefits that come with employee status. 

Additional Resources: Daily Journal article by Eric B. Kingsley: Let’s talk about a ‘hybrid’ worker. 

Employers are advised to review independent contractor relationships and evaluate agreements with third parties, and contact an employment lawyer with questions. To discuss these laws, or a potential claim on your behalf, feel free to call us toll-free at (888) 500-8469 or click here to contact us via email.

Kingsley & Kingsley

16133 Ventura Boulevard, Suite 1200
Encino, California 91436
Phone: 888-500-8469
Local: 818-990-8300 (Los Angeles Co.)

 

six flags overtime pay class action

Overtime Pay Meal Rest Breaks at Heart of Six Flags Class Action

Earlier this month, a California court judge issued a tentative decision denying certification of eight subclasses of amusement park workers in Case No. BC505344, Villegas v. Six Flags Entertainment Corp.  Los Angeles Superior Court Judge Ann I. Jones did however suggest she would consider certification of several others pending further briefing. 

Background

In April of 2013, plaintiffs Andrew Villegas, Jennifer Gilmore, Dustin Liggett and Hans Gundelfinger, all former Six Flags employees, filed a putative class action accusing their former employer of numerous labor law violations, including failure to pay employees overtime wages, provide mandatory meal and rest breaks or proper seating. The four plaintiffs sought to represent a class of current and former Six  Flags Magic Mountain and Hurricane Harbor employees who worked at the parks located north of Los Angeles.

The plaintiffs worked as ride mechanics, ride operators and game attendants at Six Flags Magic Mountain and Hurricane Harbor between August 2005 and July 2012, according to the lawsuit. Around the time of the original lawsuit, the parks employed approximately 39,000 seasonal employees (2012), compared to about 1,900 full-time employees. 

Class Certification

Six Flags Magic Mountain opposed the plaintiffs’ motion for class certification citing a lack of evidence of common issues–a particular requirement for class certification. Magic Mountain cited the significant number of employees working various jobs, specifically 25,000 employees, 25 different departments, and 255 positions.  

Numerous subclasses have been defined in this case:

  • “shaved time” subclass – a class consisting of workers whose wages were not fully paid
  • “walking time” subclass – a class consisting of workers who were not compensated for time spent walking to break areas
  • “rounding subclass” – a class consisting of employees whose hours were manually reduced
  • “regular rate subclass – two subclasses consisting of employees whose overtime rates were based on hourly rates, not “regular rate of pay”six flags overtime pay class action

Superior Court Judge Jones issued a tentative decision denying certification for the majority of the subclasses, including the “shaved time” and “walking time” subclasses. However, the judge suggested she would, upon additional briefing, consider certification of additional classes, namely the “rounding subclass” and two “regular rate subclasses”. As with the tentative ruling, judge Jones is sure to closely evaluate the presence of, or lack of commonality across each subclass as examples are brought forth by the plaintiffs.  

The experienced California employment lawyers at Kingsley & Kingsley will continue to follow this case and related class action cases dealing with California or national labor laws. In the meantime, to discuss these laws, or a related claim on your behalf, feel free to call us toll-free at (888) 500-8469 or click here to contact us via email.

Kingsley & Kingsley

16133 Ventura Boulevard, Suite 1200
Encino, California 91436
Phone: 888-500-8469
Local: 818-990-8300 (Los Angeles Co.)

 

overtime rule DOL

DOL Overtime Rule Struck Down by Texas Judge

Decision strikes another blow to Labor Department’s “overtime rule”

On August 31, 2017, a federal judge in Texas struck down the controversial change to the Fair Labor Standards Act that was intended to substantially raise the minimum salary threshold required for employees to qualify for the “white collar” exemptions. The same federal court that had issued a preliminary injunction in November 2016 blocking implementation of the Obama Administration’s revised overtime rule, granted the plaintiffs’ motion for summary judgment, ending the case and leaving the injunction in place.overtime rule DOL

Background

In May 2016, the U.S. Department of Labor (DOL) unveiled the details of its final revised regulations defining the “white collar” exemptions from the federal Fair Labor Standards Act’s (FLSA’s) overtime and minimum-wage requirements. The three primary tenets of the regulations included:

  • the minimum salary threshold an employer must pay in order to characterize an employee, otherwise meeting the duties requirements, as exempt would increase from $455 to $913 per week, (up from $23,660 to $47,476 per year.
  • the minimum salary amount would be “updated” every three years (likely increased), with the first update scheduled for January 1, 2020.
  • new regulations to take effect December 1, 2016.

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