Category Archives: Exemptions

April 8, 2012 · 3:54 pm

E.D.Pa.: Following Third Circuit Precedent, Pharmaceutical Rep Administratively Exempt

Kesselman v. Sanofi-Aventis U.S. LLC

Continuing a split with virtually every other circuit, another court within the Third Circuit has held that a pharmaceutical representative, performing typical duties is administratively exempt under the FLSA (and PMWA, which requires exercise of discetion and independent judgment, but not that same be exercised with regard to matters of significance) is exempt from overtime under the administrative exemption.

Discussing the Third Circuit precedent, the court stated:

The Third Circuit has recently found pharmaceutical sales representatives exempt as administrative employees under the FLSA and the PMWA. In Smith v. Johnson & Johnson, the Court held a sales representative was engaged in work directly related to the management or general business operations of the employer because the “position required her to form a strategic plan designed to maximize sales in her territory,” which “involved a high level of planning and foresight.” Because Smith “executed nearly all of her duties without direct oversight” and considered herself “the manager of her own business who could run her own territory as she saw fit [,]” the Court concluded that Smith was subject to the administrative employee exemption under the FLSA.

In Baum v. AstraZeneca, the Court, relying on Smith, held that plaintiff’s work related to her employer’s general operation because she marketed and advertised its pharmaceutical products. The plaintiff also had “significant discretion in how she would approach physicians, whether it be through access meals, peer-to-peer meetings, or other means,” “spent the majority of her time in the field, unsupervised,” “decided how much time she would spend with a given physician …. [and] whether she would use a detail aid,” such that her “day-to-day activities involved making numerous independent judgments on how best to promote [her employer's] products.” The Third Circuit therefore held that plaintiff was subject to the administrative employee exception to the PMWA.

The court rejected plaintiff’s contention that her duties were distinguishable from prior cases within the Third Circuit:

Having carefully considered the undisputed and stipulated facts of this case, Kesselman’s deposition testimony, and record documents reflecting Kesselman’s own assessment of her job responsibilities and accomplishments, the Court finds Smith and Baum controlling. Like the plaintiffs in Smith and Baum, Kesselman spent most of her working hours unsupervised and was responsible for developing her own target list of physicians, daily and monthly sales call itineraries, and a business plan for her territory based on her extensive knowledge of clients and sales data. Although, like Smith and Baum, she often worked from company-approved materials and was expected to convey certain product information during calls, she otherwise had discretion as to how to organize and conduct the calls. In general, she considered herself the “boss” of her territory.

These activities, which closely parallel the activities of Smith and Baum, “reflect [her] ability to develop strategies; to approach, communicate, and cultivate relationships with physicians; and to operate without constant supervision in the field.” Furthermore, they “are consistent with relevant definitions of exempt administrative work because they affect Defendant’s business operations to a substantial… work on behalf of Defendant that reflect the exercise of discretion and independent judgment with respect to matters of significance….”

While the issue of whether the outside sales exemption applies to pharmaceutical representatives has reached the Supreme Court, with a resolution to be forthcoming shortly, it is not clear whether the administrative exemption issue will have the same fate. Whereas the outside sales exemption issue hinges on the legal definition of the term “sale,” the administrative exemption requires a more fact specific inquiry. Thus, for the foreseeable future, pharmaceutical representatives whose cases are decided in New Jersey, Delaware and Pennsylvania may be exempt from the FLSA under the administrative exemption, while those whose cases are adjudicated in the other 47 states are not. Of course, to the extent that the Supreme Court holds that their positions are outside sales exempt, the whole issue will be rendered moot.

Click Kesselman v. Sanofi-Aventis U.S. LLC to read the entire Memorandum Opinion and Order.

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February 28, 2012 · 3:31 pm

D.N.J.: Absent Exercise of Discretion in Loading Trucks, Loader Not Subject to Motor Carrier Act (MCA) Exemption

Chellis v. New Century Transp., Inc.

This case was before the court on the defendant’s motion to dismiss the complaint for failure to state a claim.  Defendant asserted that, on its face, plaintiff’s complaint demonstrated that plaintiff was exempt under the motor carrier act, because plaintiff pled that he was a truck loader.  However, the court disagreed, citing plaintiff’s additional allegation that he did not exercise any discretion in loading the trucks.

Significantly, the Complaint alleged the following:

“(1) Plaintiff worked as a truck loader for Defendant. (Compl.¶ 16) Plaintiff’s duties consisted of executing load plans developed by his superiors. (Id. at ¶¶ 19–20) Plaintiff did not have responsibility for exercising his own discretion or judgment when loading. (Id. at ¶¶ 22–24) Despite working in excess of forty fours a week, Plaintiff was not paid overtime.”

Holding that Plaintiff’s allegations were sufficient, the court reasoned:

“To fall within the exemption, a loader’s duties must include “the proper loading of his employer’s motor vehicles so that they may be safely operated on the highways of the country.” 29 C.F.R. § 782.5(a). An employee has safety of operation duties when:

he has responsibility when such motor vehicles are being loaded, for exercising judgment and discretion in planning and building a balanced load or in placing, distributing, or securing the pieces of freight in such a manner that the safe operation of the vehicles on the highways in interstate or foreign commerce will not be jeopardized.

Id.

The parties’ disagreement stems principally from statutory construction. Defendant argues that the regulation is disjunctive. Therefore, Plaintiff need only have duties “in placing, distributing, or securing the pieces of freight” to fall within the exemption. Id.

Plaintiff argues that “for exercising judgment and discretion in planning” modifies subsequent clauses. Id. Merely placing freight on a truck does not fall within the exemption absent the responsibility for using discretion and judgment for such placement. Because Plaintiff alleges that he could not exercise discretion, he was not a loader as defined by the regulation.

Considering the staggering use of disjunctives and conjunctives in the same sentence, the disagreement is understandable. Although this Circuit has not addressed the issue, the balance of courts around the country tend to agree with Plaintiff.  See, e.g., Lewis v. Eskridge Trucking Co., 2011 WL 4598189, *1 (11th Cir.2011) (emphasizing discretion and responsibility in analyzing the loader exemption); Vaughn v. Watkins Motor Lines, Inc., 291 F.3d 900, 904 (6th Cir.2002) (“the plaintiffs and [defendant] disagree as to whether these two dockworkers exercised the judgment and discretion necessary to be considered loaders.”); Shultz v. Kelley, 431 F.2d 1364, 1368 (10th Cir.1970) (a loader must “exercis[e] judgment and discretion in (1) planning and building a balanced load or (2) placing, (3) distributing, or (4) securing the pieces of freight.”). The Court agrees with this analysis.

Here, Plaintiff clearly alleges that he did not have responsibility for exercising judgment or discretion when loading the trucks. (See Compl. ¶¶ 22–26) Therefore, the exemption does not apply and the Motion will be denied.”

Click Chellis v. New Century Transportation, Inc. to read the entire Order Denying Defendant’s Motion to Dismiss.

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January 30, 2012 · 9:07 am

N.D.Cal.: Life Insurance Broker Not a “Retail or Service Establishment;” 7(i) Retail Sales Exemption Inapplicable

Burden v. SelectQuote Ins. Services

This case was before the court on the defendant’s motion for summary judgment.  As discussed here, Defendant, a life insurance agency, argued that plaintiffs, its life insurance brokers, were exempt from the FLSA’s overtime provisions pursuant to the so-called retail sales exemption.  While the court held that defendant could make out 2 of the 3 elements required for application of the exemption, ultimately it held that the exemption was inapplicable because defendant lacked a retail concept.

Pursuant to Section 7(i), certain employees are exempt from the FLSA’s overtime provisions if three conditions must be met: (1) the employee must be employed by a retail or service establishment; (2) the employee’s regular rate of pay must exceed one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked; and (3) more than half the employee’s total earnings in a representative period must consist of commissions.  Here, the court held that the defendant could not satisfy element (1) and therefore the exemption did not apply.

Analyzing the issue, the court reasoned:

“Section 779.317 expressly identifies “insurance” as being among the “list of establishments to which the retail concept does not apply.” 29 C.F.R. § 779.317 (identifying: “Brokers, custom house; freight brokers; insurance brokers, stock or commodity brokers” and “Insurance; mutual, stock and fraternal benefit, including insurance brokers, agents, and claims adjustment offices.”) (emphasis added). SelectQuote acknowledges that “[i]nsurance” and “insurance brokers” are expressly identified in § 779.317, but nonetheless asserts that § 779.317 is inapposite because it is operating a “new type of business” that is “not covered by the Insurance Industry exclusion from the ‘retail concept’ in the FLSA regulations.” Mot. at 18.

As support for its position, SelectQuote relies principally on two out-of-circuit cases, which ostensibly concluded that a business lacking a retail concept under § 779.317 may nonetheless qualify for the retail or service exemption. Mot. at 18–19. In Hodgson v. Centralized Servs., Inc., 457 F.2d 824 (4th Cir.1972), the court held that an income tax preparation service qualified as a retail or service establishment under the FLSA, notwithstanding a prior DOL interpretation stating that “accounting firms” lacked the retail concept. Id., 457 F.2d at 827. In reaching its decision, the court noted that the DOL’S pre–1949 exclusion of “accounting firms” should not “arbitrarily embrace the unsophisticated business activities of the defendants in an area of service which came into being and had developed throughout the country only during the past decade.” Id.

In Selz v. Investools, Inc., No. 2:09–CV–1042 TS, 2011 WL 285801 (D.Utah Jan.27, 2011), the court ruled that a company that marketed products and services to educate individuals on how to personally invest in exchange markets online and aid them in doing so did not qualify as one of the specific establishments exempt from the retail exception. While noting that that § 779.317 specifies that educational institutions, finance companies and investment counseling firms lack a retail concept, the employer, “as a marketer of materials that teach and aid individuals to do their own financial investing, does not fit into the traditional concept of an educational institution, such as a for-profit university; a finance company, such as a bank; or an investment counseling firm.” Id. at *6 (emphasis added). The court concluded that “marketing tools to aid individuals in independently investing personal funds is its own industry” and therefore § 779.317 was not a bar to the FLSA exemption afforded under 29 U.S.C. § 317(i). Id .

SelectQuote claims that like the businesses in Hodgson and Selz, it too has developed a business model that is not encompassed in § 779.317. According to SelectQuote, its direct marketing approach “turned the life insurance industry on its head” by having its agents contact prospective customers by telephone instead of in person-more like the independent broker model traditionally existing in the property and casualty insurance business. Mot. at 2. In SelectQuote’s words, “One of the old adages in the insurance industry before 1985 was that property and casualty insurance was bought and life insurance was sold. SelectQuote’s insight was to change that paradigm so that life insurance too could just be bought by the average consumer.” Id.

SelectQuote’s self-aggrandizing arguments for avoiding the preclusive effect of § 779.317 are unavailing. In both Hodgson and Selz, the type of businesses operated by the defendants did not previously exist. In Hodgson, the court noted that the defendant’s tax preparation service had then only come into existence within a relatively recent period of time. 457 F.2d at 827. Likewise, in Selz, the court focused on the fact that the defendant’s business of selling do-it-yourself investment materials did not fall under the rubric of a bank, finance company or educational institution. 2011 WL 285801, at *6. In contrast, SelectQuote’s business bears none of the hallmarks of a new type of business establishment. Although SelectQuote has changed the method by which an agent sells life insurance—namely, directly by telephone instead of face-to-face—the fact remains that SelectQuote is still selling life insurance.

Moreover, SelectQuote’s own statements purporting to explain why its business supposedly is so revolutionary underscores the logical flaws in its argument. Section 779.317 identifies “Insurance” and “insurance brokers”—not “life insurance” or “term life insurance”—as establishments lacking a retail concept. See 29 C.F.R. § 779.317. Ironically, what SelectQuote claims to be “new” is not new at all; rather, as SelectQuote itself acknowledges, it simply is employing direct marketing methods that have long been used in the property and casualty insurance business. Singh Decl. ¶ 5. In other words, SelectQuote has made life insurance sales more like the traditional insurance brokerages, which clearly are within the scope of § 779.317. In Hodgson and Selz, the defendants changed a specifically-listed industry so fundamentally as to distinguish it from an industry listed in section 779.317. See Selz, 2011 WL 285801, at *6; Hodgson, 457 F.2d at 827. The logic of those cases does not apply in cases such as the present, where a company simply has changed its business to be more like a business which indisputably falls within the scope of § 779.317. For these reasons, the Court finds that SelectQuote falls within the insurance brokerage industry that section 779.317 finds to lack the requisite retail concept to qualify for an exemption from the FLSA’s overtime requirements.

As an alternative matter, SelectQuote argues that the Court should decline to apply § 779.317 on the ground that it lacks a rational basis for concluding that insurance establishments are not exempt as a retail or service establishment. Mot. at 20–22. According to SelectQuote, “[s]ection 779.317 is an ‘antiquated interpretation’ that does not take into account the fundamental changes over the past four decades regarding what is considered a ‘retail or service establishment,’ and it should not preclude SelectQuote from applying the section 7(i) exemption to Burden.” Id. at 22.

To support its position, SelectQuote points to cases where courts have declined to defer to the DOL’s list of non-retail establishments set forth in § 779.317 where there is no discernable rational basis for the DOL’s determination that type of business lacks a retail concept. See Martin v. The Refrigeration Sch., Inc. ., 968 F.2d 3 (9th Cir.1992) (holding that there was no rational basis for § 779.317‘s distinction that “[s]chools (except schools for mentally or physically handicapped or gifted children)” lack a retail concept); Reich v. Cruises Only, Inc., 1997 WL 1507504, at *5 (M.D.Fla. June 5, 1997) (finding that there was no rational basis for the DOL’s inclusion of “[t]ravel agencies” as establishments lacking a retail concept). However, these cases are distinguishable in that they did not involve the insurance industry. Moreover, the Supreme Court has held that the inclusion of financial companies, including insurance establishments, in § 779.317 is proper. See Mitchell, 359 U.S. at 290–91.

In light of the above, the Court finds that § 779.317 is a persuasive embodiment of the Department of Labor’s “body of experience and informed judgment.” See Skidmore, 323 U.S. at 140. The Court further finds that SelectQuote has not shown “plainly and unmistakably” that Burden’s exemption was within the “terms and spirit” of the FLSA. See Arnold, 361 U.S. at 392. As an insurance broker, SelectQuote is not a “retail or service establishment” and thus is not exempt from the FLSA’s overtime requirements. See 29 U.S.C. § 207(a); 29 C.F.R. § 779.317. Therefore, SelectQuote is not entitled to summary judgment of Burden’s second cause of action. See Fed.R.Civ.P. 56(a).”

Click Burden v. SelectQuote Ins. Servicesto read the entire Order Granting in Part and Denying in Part Defendant’s Motion for Summary Judgment.  For further information on the the 7(i) exemption generally, see DOL Fact Sheet #20: Employees Paid Commissions By Retail Establishments Who Are Exempt Under Section 7(i) From Overtime Under The FLSA.

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December 16, 2011 · 8:53 am

DOL to Issue Notice of Proposed Rulemaking to Amend the Companionship and Live-In Worker Regulations

The DOL announced yesterday that it would be issuing proposed amended rules regarding companionship and live-in workers’ eligibility for overtime under the FLSA.  A preview of the announcement from the DOL’s website explains:

“While Congress expanded protections to “domestic service” workers in 1974, these Amendments also created a limited exemption from both the minimum wage and overtime pay requirements of the Act for casual babysitters and companions for the aged and infirm, and created an exemption from the overtime pay requirement only for live-in domestic workers.

Although the regulations governing exemptions have been substantially unchanged since they were promulgated in 1975, the in-home care industry has undergone a dramatic transformation. There has been a growing demand for long-term in-home care, and as a result the in-home care services industry has grown substantially. However, the earnings of in-home care employees remain among the lowest in the service industry, impeding efforts to improve both jobs and care. Moreover, the workers that are employed by in-home care staffing agencies are not the workers that Congress envisioned when it enacted the companionship exemption (i.e., neighbors performing elder sitting), but instead are professional caregivers entitled to FLSA protections. In view of these changes, the Department believes it is appropriate to reconsider whether the scope of the regulations are now too broad and not in harmony with Congressional intent.

Proposed Changes to the Companionship and Live-In Worker Regulations

On December 15, 2011 the Department announced that it will publish a Notice of Proposed Rulemaking (NPRM) to revise the companionship and live-in worker regulations for two important purposes:

  • To more clearly define the tasks that may be performed by an exempt companion
  • To limit the companionship exemption to companions employed only by the family or household using the services. Third party employers, such as in-home care staffing agencies, could not claim the exemption, even if the employee is jointly employed by the third party and the family or household.

Although the Office of Management and Budget (OMB) has reviewed and approved the attached Notice of Proposed Rulemaking (NPRM), the document has not yet been published in the Federal Register. The NPRM that appears in the Federal Register will specify the dates of the public comment period and may contain minor formatting differences in accordance with Office of the Federal Register publication requirements. The OMB-approved version is being provided as a convenience to the public and this website will be updated with the Federal Register’s published version when it becomes available.”

Among other things, the proposed rule would overrule the 2007 holding of the Supreme Court in Long Island Care at Home, Ltd. v. Coke, and require 3rd party employers such as staffing agencies to pay companions and home health workers overtime under the FLSA when they work in excess of 40 hours per week.

Click Notice of Proposed Rulemaking to read more.

 

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November 13, 2011 · 10:49 am

W.D.Tex.: Plaintiffs Retained Right to Open and Close at Trial; Defendants’ Attempt to Shift Burden With Admissions on the Eve of Trial Denied

Ransom v. M. Patel Enters, Inc.

This case was before the court on the Defendants’ Motion to Open and Close Evidence and Case.  Apparently seeking to gain the tactical advantage of addressing the jury first and last (opening and closing), normally reserved for the plaintiff in a typical case, the defendants sought leave just prior to trial to file a third amended complaint.  If granted, defendants’ motion would have permitted them to admit the plaintiffs’ prima facie case (i.e. that they worked uncompensated overtime), and rendered the issue of whether plaintiffs were exempt the sole issue at trial.  The plaintiffs refused to accept defendants stipulations regarding their prima facie case, instead preferring to retain the right to open and close the case.  Largely due to the fact defendants’ filed their motion on the eve of trial, the court denied defendants’ motion.

Denying defendants’ motion(s), the court reasoned:

“This presents the Court with an atypical controversy—and one which the Court could not find case law discussing: the Plaintiffs oppose the Defendants’ motion to admit facts proving a portion of the Plaintiffs’ case, facts that the Plaintiffs have the burden of proving at trial. Defendants argue that the Plaintiffs’ refusal to agree to the amendment demonstrates that they are trying to unnecessarily prolong the evidence solely to hold on to the right to open and close.

The deadline to amend pleadings passed months ago. Therefore, the Defendants must demonstrate good cause to obtain leave to amend. Meaux Surface Prot., Inc. v. Fogleman, 607 F.3d 161, 167 (5th Cir.2010). “Four factors are relevant to good cause: (1) the explanation for the failure to timely move for leave to amend; (2) the importance of the amendment; (3) potential prejudice in allowing the amendment; and (4) the availability of a continuance to cure such prejudice.” Id. As the Defendants admit, this is a strategic move. They want to present their evidence first. Obtaining a strategic advantage is not good cause for leave to amend. Had the Defendants wished to obtain this advantage, they should have admitted these facts early in the case, instead of contesting them until the final pretrial conference. The Plaintiffs note that they spent time and money gathering evidence on both their prima facie case and on the issue of the individual defendants’ status as “employers” under the FLSA. Therefore, the Court DENIES Defendants’ Motion for Leave to File Third Amended Original Answer (Clerk’s Doc. No. 135).

That still leaves the order of proof. The Defendants argue that, regardless of whether the Plaintiffs accept the stipulations they have offered, the Defendants bear the burden of proof on the primary issue at trial, whether the Plaintiffs were exempt employees under the FLSA.  Because the Defendants bear the burden of proof on that issue, they contend that they should present their evidence first.

It appears that there are three primary issues for trial: (1) whether the Plaintiffs can demonstrate a prima facie case under the FLSA (on which there appears to be little or no controversy); (2) whether the Plaintiffs were exempt employees under the FLSA; and (3) whether the Defendants failed to pay overtime “willfully.” The Plaintiffs bear the burden of proof on the first and last of these three items, and the Defendants on the second. As the Defendants note, the bulk of the evidence at trial will no doubt relate to the issue on which they bear the burden of proof. This does not mean that the Defendants should automatically be permitted to open and close, however. The Plaintiffs were the parties who were forced to take the initiative to file this lawsuit, the Defendants have vigorously defended it, and only in the last few days have they sought the right to open and close the evidence. Rule 16 makes it clear that these issues should be raised early in the case, not late. See FED. R. CIV. P. 16(c)(2)(A), (D), (N) and (P) (directing courts at the pretrial conference to address, among other things, “formulating and simplifying the issues,” “avoiding unnecessary proof and cumulative evidence,” “ordering the presentation of evidence early in the trial on a manageable issue that might, on the evidence, be the basis for a judgment,” and “facilitating in other ways the just, speedy, and inexpensive disposition of the action”).

The Court has wide discretion on these matters. Moreau v. Oppenheim, 663 F.2d 1300, 1311 (5th Cir.1981) (“The matter of a court’s allocation of the right to open and close … does not go to the merits of a controversy and has long not been the subject of writ of error, even when coupled with the denial of requested party realignment.”) (citing Day v. Woodworth, 54 U.S. 363, 370, 13 How. 363, 14 L.Ed. 181 (1851)). On balance, considering all of the above, the Court believes that it is appropriate to leave the order of proof as is, so that the Plaintiffs shall open and close. Accordingly, the Court DENIES the Defendants’ Motion to Open and Close Evidence and Case (Clerk’s Doc. No. 128).”

Click Ransom v. M. Patel Enters, Inc. to read the entire Order.

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October 25, 2011 · 7:26 am

5th Cir.: Weight of Pickup and Trailer Combined to Calculate Gross Vehicle Weight (Whether 10,001 LBs) Under MCA Exemption

Albanil v. Coast 2 Coast, Inc.

Following an award of summary judgment to the defendants in this case plaintiffs appealed.  Specifically, the court below determined that plaintiffs were exempt from the FLSA’s overtime provisions, pursuant to the so-called Motor Vehicle Act (MCA) exemption.  As discussed here, the plaintiffs disputed the methodology used to calculate the gross vehicle weight of the vehicles they drove for defendants and subsequently, whether same qualified as “commercial motor vehicles” under the motor carrier act.  Affirming the court below, the Fifth Circuit held that the weight of both the pickup truck hauling the trailer and the trailer itself must be considered together in calculating the gross vehicle weight.  Here, since the weight of the vehicle, when added to the trailer was over 10,000 pounds (and the nature of plaintiffs’ interstate driving was undisputed), the Fifth Circuit affirmed the holding below.

Discussing this issue the Fifth Circuit reasoned:

“The first issue on appeal is whether the Motor Carrier Act (“MCA”) exemption to the FLSA’s overtime requirements applies. Appellants challenge the district court’s conclusion that it does. This issue involves determining whether C2C operated “commercial motor vehicles” during the relevant time period. A “commercial motor vehicle” is defined by statute as a “self-propelled or towed vehicle used on the highways in interstate commerce to transport passengers or property, if the vehicle has a gross vehicle weight rating or gross vehicle weight of at least 10,001 pounds, whichever is greater” or meets certain other criteria not relevant here. The parties dispute whether the weight of the pickup truck and the trailer may be combined to reach the 10,001 pound threshold, as stated in a Department of Transportation regulation, or whether the use of the disjunctive “or” in the statutory definition requires them to be considered separately. We hold that the district court correctly combined the weights of the pickup and trailer to conclude that the MCA exemption applies, and that summary judgment was appropriate on Plaintiffs’ overtime claims.”

Also addressed in the opinion, but not discussed here at length, the Fifth Circuit reversed the trial court’s sua sponte order granting defendants summary judgment on plaintiffs’ minimum wage allegation– an issue no party briefed in their papers.  The appellate court reasoned that such a sua sponte order denied plaintiffs the fair opportunity to address the issues.

Click Albanil v. Coast 2 Coast, Inc. to read the entire Opinion.

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October 4, 2011 · 7:19 am

D.Conn.: In “Salary Misclassification” Case, Unpaid OT Calculated at Time and a Half Rate, Not FWW

Perkins v. Southern New England Telephone Co.

This case, concerning allegations that the plaintiffs were “salaried misclassified” was before the court on the parties’ cross-motions in limine for a determination as to how damages should be calculated by the jury.  While the defendants argued that they should be entitled to calculate any back wages due at “half-time” pursuant to the fluctuating workweek (“FWW”), the plaintiffs argued that the damages must be calculated using the FLSA’s default methodology of time and a half.  Because the FWW would result in back wages of less than 1/3 of the amount of a time and a half calculation, the stakes were big.  Because this case was not one of first impression, the court surveyed the previous cases from around the country, as well as DOL interpretive bulletins in reaching its decision.  Significantly, the court declined to follow prior Circuit decisions, which it reasoned were not well-founded, instead opting to follow a series of district court decisions that discussed the issue in far more detailed and well-reasoned opinions.

Holding that plaintiffs’ damages were to be calculated at time and a half, the court reasoned:

“Although the Second Circuit has not addressed the use of the fluctuating workweek method in a misclassification case, other Courts of Appeal have applied section 778.114 to misclassification cases. See Clements v. Serco, Inc., 530 F.3d 1224, 1230–31 (10th Cir.2008); Valerio v. Putnam Assocs. Inc., 173 F.3d 35, 40 (1st Cir.1999); Blackmon v. Brookshire Grocery Co., 835 F.2d 1135, 1138 (5th Cir.1988).  None of these cases, however, provide any meaningful analysis regarding the merits of adapting the fluctuating workweek method to the misclassification context.  Instead, the Tenth Circuit and the First Circuit base their finding on another case, Bailey v. County of Georgetown, wherein the Fourth Circuit held that section 778.114 does not require that the employee understand the manner in which overtime pay is calculated in order to apply the fluctuating workweek method. See Bailey v. Cnty. of Georgetown, 94 F.3d 152, 156 (4th Cir.1996). The plaintiffs in Bailey, however, were contesting the rate of overtime they were receiving, not whether they were entitled to overtime at all. See id. at 153–54 (describing the facts of the case). Consequently, Bailey is easily distinguishable from the case at hand. Also failing to address the applicability of the fluctuating workweek method to misclassification cases, Blackmon provides only a cursory explanation of computing overtime according to section 778.114. Blackmon, 835 F.2d at 1138–39.

In contrast, several district courts have held that applying the fluctuating workweek method to a misclassification violates the plain language of section 778.114. Generally, these courts hold that the language of section 778.114 requires both “(1) a clear mutual understanding that a fixed salary will be paid for fluctuating hours, apart from overtime premiums; and (2) the contemporaneous payment of overtime premiums.” See Russell v. Wells Fargo & Co., 672 F.Supp.2d 1008, 1013 (N.D.Cal.2009) (emphasis in original); Ayers v. SGS Control Servs., Inc., 2007 U.S. Dist. LEXIS 19634 at *40–42 (S.D.N.Y. Feb. 27, 2007); Rainey v. Am. Forest & Paper Assoc., Inc., 26 F.2d 82, 100–02 (D.D.C.1998) (finding that as a matter of law, the employer cannot prove a clear mutual understanding or contemporaneous payment of overtime premiums in a misclassification case); see also Urnikis–Negro, 616 F.3d at 678 (“Besides looking forward rather than backward, the interpretive rule plainly envisions the employee’s contemporaneous receipt of a premium apart from his fixed wage for any overtime work he has performed.”); 29 C.F.R. 778.114, supra at 4–5. Because the employer in a misclassification case has necessarily not made any contemporaneous payment of overtime premiums, these courts find that section 778.114 is inapplicable in a misclassification case. In addition, courts have found that assessing damages according to section 778.114 may actually frustrate the purpose of the FLSA. See, e.g., In re Texas EZPawn Fair Labor Standards Act Litig., 633 F.2d 395, 404–05 (W.D.Tex.2008) (using a hypothetical situation to demonstrate that the fluctuating workweek method may result in overtime compensation that is 375% lower than the traditional method, and asserting that using the fluctuating workweek method to calculate damages in misclassification cases allows employers to “escape the time and one-half requirement of the FLSA”).

This court agrees with other district courts that have analyzed this issue and concludes that section 778.114 does not support the use of the fluctuating workweek method in the circumstances presented in this misclassification case.”

As noted by the court, the Second Circuit has not weighed in on this issue as of yet.  Therefore, it will be interesting to see if this case ends up there, giving another Circuit an opportunity to weigh in on this issue, which the Supreme Court recently declined to take up.

Click Perkins v. Southern New England Telephone Co. to read the entire Ruling on the cross-motions in limine.


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September 12, 2011 · 12:02 pm

9th Cir.: Social Workers Not Exempt Under FLSA; Not “Learned Professionals” Due to Non-Specialized Course of Studies

Solis v. Washington

This case was before the Ninth Circuit of the Secretary of Labor’s appeal of an order granting the defendant summary judgment.  The court below had held that plaintiffs- social workers employed by the State of Washington- were exempt as so-called “learned professionals,” because a prerequisite for their position was a 4 year degree academic degree.  The Ninth Circuit reversed, holding that the court below misconstrued the 4 year degree (B.A.) requirement as having met the prong of the exemption pertaining to “advanced knowledge customarily acquired by a prolonged course of specialized intellectual instruction.”  Specifically, the Ninth Circuit held that the plaintiffs were not “learned professionals,” because “the social worker positions at issue… require[d] only a degree in one of several diverse academic disciplines or sufficient coursework in any of those disciplines.”  Thus, because the position did not require a degree in a specific discipline the Ninth Circuit held the position did not plainly and unmistakably come within the exemption.

After reviewing the relevant law from various circuits, the court held that the plaintiffs here did not meet the rigorous requirements for application of the “learned professional” exemption.  The court reasoned:

“Whether a position requires a degree in a specialized area, see Reich, 993 F.2d at 739, or merely a specific course of study, see Rutlin, 220 F.3d at 737, a “prolonged course of specialized intellectual instruction” must be sufficiently specialized and relate directly to the position. An educational requirement that may be satisfied by degrees in fields as diverse as anthropology, education, criminal justice, and gerontology does not call for a “course of specialized intellectual instruction.” Moreover, in this case the net is cast even wider by the acceptance of applicants with other degrees as long as they have sufficient coursework in any of these fields.

DSHS nonetheless contends that it has presented evidence that each of the acceptable degrees relates to the duties of its social workers. However, while social workers no doubt have diverse jobs that benefit from a multi-disciplinary background, the “learned professional” exemption applies to positions that require “a prolonged course of specialized intellectual instruction,” not positions that draw from many varied fields. While particular coursework in each of the acceptable fields may be related to social work, DSHS admits that it does not examine an applicant’s coursework once it determines that the applicant’s degree is within one of those fields. For the “learned professional” exemption to apply, the knowledge required to perform the duties of a position must come from “advanced specialized intellectual instruction” rather than practical experience. 29 C.F.R. § 541.301(d). The requirement of a degree or sufficient coursework in any of several fields broadly related to a position suggests that only general academic training is necessary, with the employer relying upon apprenticeship and experience to develop the advanced skills necessary for effective performance as a social worker.”

The court also discussed the significance of the fact that the defendant required each social worker to undergo a six-week on-the-job training session.  Interestingly, whereas the trial court had relied on this in support of finding the plaintiffs to be exempt “learned professionals,” the Ninth Circuit reasoned that it actually supported a finding of non-exemption, stating:

“The district court also gave weight to the six-week formal training program required for accepted applicants. However, such a program was determined to be insufficient in Vela, where the court concluded that 880 hours of specialized training in didactic courses, clinical experience, and field internship did not satisfy the education prong of the “learned professional” exemption. 276 F.3d at 659. If six weeks of additional training, only four weeks of which is in the classroom, were sufficient to qualify as a specialized course of intellectual instruction, nearly every position with a formal training program would qualify.

The district court concluded that the requirement of eighteen months of experience in social work was another factor weighing in favor of a determination of specialized instruction. However, the regulation states clearly that the exemption does not apply to “occupations in which most employees have acquired their skill by experience.” 29 C.F.R. § 541.301(d). Owsley, upon which the district court relied, is not to the contrary, as the position at issue in that case included a requirement of specific academic courses as well as the apprenticeship requirement. 187 F.3d at 521. Indeed, Owsley distinguished Dybach on this exact point. Id. at 525.“

This decision gives an important roadmap to employees, employers and courts alike in determining the applicability of the learned professional exemption. 

Click Solis v. Washington to read the entire opinion.  Click Secretary of Labor Brief, to read the SOL’s successful Brief in support of her appeal.

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July 24, 2011 · 4:21 pm

S.D.Fla.: Pharma Rep (PSR) Entitled to Overtime If She Worked Over 40 Hours; Administrative and Outside Sales Exemptions Inapplicable

Palacios v. Boehringer Ingelheim Pharmaceuticals, Inc.

Pharmaceutical companies have been involved in a series of cases in recent years, regarding the exempt status of their pharmaceutical sales representatives (“PSRs”).  While the DOL has stated in a multiple amicus briefs that PSRs performing typical duties are not exempt under either the outside sales exemption or administrative exemption, the industry has stubbornly refused to reclassify its PSRs as non-exempt and begin paying overtime.

In the most recent case, Judge Ursula Ungaro in the Southern District of Florida joined the Second Circuit, the DOL and several other District-level courts around the country, and held that a Boehringer PSR was neither outside sales exempt nor administratively exempt. 

First, the court rejected the contention that the plaintiff was subject to the outside sales exemption.  Noting that she could not be outside sales exempt, if she did not perform sales, the court explained:

“Here, there is no dispute that Plaintiff was not permitted to give healthcare providers drugs in exchange for anything of value. It is also undisputed that the employees in Boehringer’s Trade Relations and Managed Markets sell drugs to retailers, and the retailers sell the drugs to patients with prescriptions for them. Moreover, there is no dispute that Plaintiff was not an employee in the Trade Relations and Managed Markets groups. Thus, none of the work that Plaintiff performed involved the “transfer of title to tangible property.” At best, Plaintiff’s presentation of Boehringer’s core message to physicians was non-exempt promotional work that was incident to the sales made by individuals in the Trade Relations and Managed Market groups. Accordingly, the Court agrees with the Second Circuit’s rationale. Plaintiff’s inability to transfer ownership of any one of the drugs she was responsible for in exchange for money, her inability to take a purchase order for any of the drugs, and her inability to obtain a binding commitment from physicians to prescribe a drug, renders her unable to make a “sale” as defined under the FLSA and its implementing regulations. See In re Novartis, 611 F.3d at 154.” 

In a footnote, the court discussed the fact that it was declining to follow the Ninth Circuit’s liberal reading of the phrase “sale.”

Specifically, the court said:

“The Court declines to follow the Ninth Circuit’s liberal reading of the phrase “sale” and its tenuous application of the outside sales exemption to PSRs. The crux of the Ninth Circuit’s reasoning in SmithKline Beecham is as follows: Because the products for which PSRs are responsible may be legally dispensed only with a prescription written by a licensed healthcare provider, the relevant purchaser is the healthcare provider, and thus PSRs make a “sale” when they obtain non-binding commitments from providers that they will write a prescription. 635 F.3d at 396. The undersigned disagrees with the contention that the relevant purchaser is the healthcare provider. First, the healthcare provider is not bound to write a prescription just because she tells a PSR that she will. Second, even if the provider writes a prescription, she does not actually purchase anything. The prescription merely allows a patient to purchase a given drug; it does not guarantee that there will be a “transfer of title to tangible property” because the prescription does not obligate the patient to purchase the drug. Accordingly, PSRs like Plaintiff cannot make a “sale” to physicians, because physicians cannot purchase the drugs.”

The court also held that plaintiff’s duties failed to satisfy either prong of the administrative exemption’s duties requirements.  The court explained:

“Here, Plaintiff was not involved in “running or servicing” Boehringer’s business. Instead, Plaintiff worked out of her vehicle or in physicians’ offices communicating to physicians Boehringer’s carefully scripted core message. Boehringer has separate departments in its corporate headquarters that are responsible for preforming administrative duties and running and servicing its business. For example, Boehringer has separate Trade Relations and Managed Markets groups, and separate advertising, sales operation, and commercial analytics departments. Plaintiff never worked in any of these groups or departments. Plaintiff’s role was to merely perform promotional work that aided these departments in their duties. Plaintiff also was not involved in Boehringer’s “management policies or general operations.” She never performed any work in the functional areas of tax, finance, accounting, auditing, advertising, research and development, personnel management, human resources, labor relations, government relations, or information technology. Accordingly, Plaintiff’s role was not related to the management or general business operations of Boehringer.”

After holding that plaintiff’s role was not related to the management or generatl business operations of defendant, it also addressed the plaintiff’s lack of independent discretion:

“In comparing Plaintiff’s primary duties against the factors set forth in § 541.202(b), the Court finds no evidence in the record that Plaintiff had any authority to formulate, affect, interpret, or implement Boehringer’s management or operating policies, or that she was involved in planning Boehringer’s long-term or short-term business objectives, or that she carried out major assignments in conducting the operation of Boehringer’s business, or that she had any authority to commit Boehringer in matters that have significant financial impact. See In re Novartis, 611 F.3d at 157. For example, although Plaintiff could decide how to use funds reserved for promotional events, her managers gave her a strict budget for each event, which she was not permitted to exceed. The record does not indicate that Plaintiff was allowed to negotiate and bind Boehringer to any significant matters, or waive or deviate from Boehringer’s established policies and procedures without its prior approval. Moreover, Plaintiff’s ability to determine how best to engage physicians, develop a rapport with them, and address their questions and concerns about a particular product are all skills that Plaintiff developed and honed through Boehringer’s training sessions. And, although Plaintiff determined how best to approach physicians, Boehringer never allowed her to stray outside the core message. Finally, even though Plaintiff had discretion in determining the order in which she would visit physicians, Boehringer determined which physicians she would visit, required her to visit every physician on its list, and mandated how many times she had to visit each physician in a six-month period. If Plaintiff did not visit every physician on the list the specified number of times, she was subject to discipline. In light of all the controls that Boehringer placed upon Plaintiff, the Court finds that Plaintiff did not exercise discretion or independent judgment relating to matters of significance.”

Click Palacios v. Boehringer Ingelheim Pharmaceuticals, Inc. to read the entire Order on Motions for Summary Judgment.

Andrew Frisch, the publisher of the Overtime Law Blog, represents Ms. Palacios.  If you are a Pharmaceutical Sales Rep who believes you have been wrongly denied overtime, call Mr. Frisch at (888)OVERTIME or click here to learn about your wage and hour rights today.

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June 28, 2011 · 7:58 am

Direct Care Job Quality Improvement Act Would Amend the FLSA to Include Basic Labor Protections for Home Care Workers

The Direct Care Job Quality Improvement Act [S. 1273/H.R. 2341] – a bill that would help create a more stable, valued direct care workforce was introduced on 6/23/2011, by Rep. Linda Sanchez (D-CA) and Sen. Robert P. Casey, Jr. (D-PA). Senator Tom Harkin (D-IA), Chairman of the Senate Health, Education, Labor and Pensions committee and Sen. Bernie Sanders (I-VT) were also original co-sponsors of the Senate bill. The House bill had twenty-one original co-sponsors. This legislation takes major steps towards ensuring the health, autonomy and well-being of more than 13 million Americans with long-term care needs today and an estimated 27 million by 2050.

The Direct Care Job Quality Improvement Act would amend the Fair Labor Standards Act (FLSA) to include basic labor protections for home care workers. Currently, FLSA covers domestic service workers and most direct care workers in institutional settings such as nursing homes; however, the law continues to exclude home care workers from basic minimum wage and overtime protections.

In addition to extending wage and overtime protections for home care workers, The Direct Care Job Quality Improvement Act would:

  • Establish data collection and reporting requirements to monitor important workforce indicators such as size, compensation levels, turnover rates and vacancies.
  • Improve the recruitment and retention of direct care workers by providing grants to states to expand and support efforts aimed at recruiting, training and retaining an adequate supply of direct care workers.
Under current regulations, most home health care workers who perform companionship services in or about the private home of the person by whom he/she is employed are exempt from the FLSA’s minimum wage and overtime requirements.  The current regulation has previously been upheld by the United States Supreme Court in the case of Long Island Care at Home, LTD. v. Coke.

To read more about the proposed legislation click here.

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