Tag Archives: DOL

8th Cir.: DOL’s 20% Rule, As Applicable to Tipped Employees Entitled to “Chevron” Deference; Relaxed Evidentiary Burden on Employees, Where Employer Failed to Maintain Proper Records Distinguishing Between Tipped and Non-Tipped Duties

Fast v. Applebee’s International, Inc.

This case was before the Eighth Circuit on Applebee’s interlocutory appeal of the district court’s denial of its motion for summary judgment.  The primary issue in the case was how to properly apply the “tip credit” to employees whom both sides agree are “tipped employees” but who perform both tipped and non-tipped (dual) jobs for the employer.  Relying on 29 C.F.R. § 531.56(e), the district court applied the so-called 20% rule promulgated by the D.O.L., requiring an employer to pay a tipped employee regular minimum wage to employees who spend more than 20% of their work time in a given week performing non-tipped duties.  Applebee’s challenged the ruling and asserted that the “dual job” regulations were inconsistent with 29 U.S.C. § 203(m) or the FLSA.  Affirming the decision below, the Eighth Circuit held that the D.O.L.’s regulations were entitled to “Chevron” deference and explained:

“Applebee’s argues that neither the statute nor the regulation places a quantitative limit on the amount of time a tipped employee can spend performing duties related to her tipped occupation (but not themselves tip producing) as long as the total tips received plus the cash wages equal or exceed the minimum wage. The regulation, to which we owe Chevron deference, makes a distinction between an employee performing two distinct jobs, one tipped and one not, and an employee performing related duties within an occupation “part of [the] time” and “occasionally.” § 531.56(e). By using the terms “part of [the] time” and “occasionally,” the regulation clearly places a temporal limit on the amount of related duties an employee can perform and still be considered to be engaged in the tip-producing occupation.  “Occasionally” is defined as “now and then; here and there; sometimes.” Webster’s Third New Int’l Unabridged Dictionary 1560 (1986); see also United States v. Hackman, 630 F.3d 1078, 1083 (8th Cir. 2011) (using dictionary to determine ordinary meaning of a term used in the commentary to the United States Sentencing Guidelines). The term “occasional” is also used in other contexts within the FLSA, such as in § 207, which allows a government employee to work “on an occasional or sporadic basis” in a different capacity from his regular employment without the occasional work hours being added to the regular work hours for calculating overtime compensation. See 29 U.S.C. § 207(p)(2). The DOL’s regulation defines occasional or sporadic to mean “infrequent, irregular, or occurring in scattered instances.” 29 C.F.R. § 553.30(b)(1). Thus, the DOL’s regulations consistently place temporal limits on regulations dealing with the term “occasional.”

A temporal limitation is also consistent with the majority of cases that address duties related to a tipped occupation. The length of time an employee spends performing a particular “occupation” has been considered relevant in many cases. For example, even when the nontip-producing duties are related to a tipped occupation, if they are performed for an entire shift, the employee is not engaged in a tipped occupation and is not subject to the tip credit for that shift. See, e.g., Myers v. Copper Cellar Corp., 192 F.3d 546, 549-50 (6th Cir. 1999) (noting that 29 C.F.R. § 531.56(e) “illustrat[es] that an employee who discharges distinct duties on diverse work shifts may qualify as a tipped employee during one shift” but not the other and holding that servers who spent entire shifts working as “salad preparers” were employed in dual jobs, even though servers prepared the very same salads when no salad preparer was on duty, such that including salad preparers in a tip pool invalidated the pool); Roussell v. Brinker Int’l, Inc., No. 05-3733, 2008 WL 2714079, **12-13 (S.D. Tex. 2008) (employees who worked entire shift in Quality Assurance (QA) were not tipped employees eligible to be included in tip pool even though servers performed QA duties on shifts when no QA was working; court “agrees that such work likely can be considered incidental to a server’s job when performed intermittently,” but distinguished full shifts). The same is true of nontipped duties performed during distinct periods of time, such as before opening or after closing. See Dole v. Bishop, 740 F. Supp. 1221, 1228 (S.D. Miss. 1990) (“Because [the] cleaning and food preparation duties [performed for substantial periods of time before the restaurant opened] were not incidental to the waitresses’ tipped duties, the waitresses were entitled to the full statutory minimum wage during these periods of time.”).  Conversely, where the related duties are performed intermittently and as part of the primary occupation, the duties are subject to the tip credit. See, e.g., Pellon v. Bus. Representation Int’l, Inc., 528 F. Supp. 2d 1306, 1313 (S.D. Fla. 2007) (rejecting skycap employees’ challenge to use of the tip credit where “the tasks that allegedly violate the minimum wage are intertwined with direct tip-producing tasks throughout the day”), aff’d, 291 F. Appx. 310 (11th Cir. 2008).

Because the regulations do not define “occasionally” or “part of [the] time” for purposes of § 531.56(e), the regulation is ambiguous, and the ambiguity supports the DOL’s attempt to further interpret the regulation. See Auer, 519 U.S. at 461. We believe that the DOL’s interpretation contained in the Handbook—which concludes that employees who spend “substantial time” (defined as more than 20 percent) performing related but nontipped duties should be paid at the full minimum wage for that time without the tip credit—is a reasonable interpretation of the regulation. It certainly is not “clearly erroneous or inconsistent with the regulation.” Id. The regulation places a temporal limit on the amount of related nontipped work an employee can do and still be considered to be performing a tipped occupation. The DOL has used a 20 percent threshold to delineate the line between substantial and nonsubstantial work in various contexts within the FLSA. For example, an “employee employed as seaman on a vessel other than an American vessel” is not entitled to the protection of the minimum wage or overtime provisions of the FLSA. See 29 U.S.C. § 213(a)(12). The DOL recognized that seamen serving on such a vessel sometimes perform nonseaman work, to which the FLSA provisions do apply, and it adopted a regulation that provides that a seaman is employed as an exempt seaman even if he performs nonseaman work, as long as the work “is not substantial in amount.” 29 C.F.R. § 783.37. “[S]uch differing work is ‘substantial’ if it occupies more than 20 percent of the time worked by the employee during the workweek.” Id. Similarly, an employee employed in fire protection or law enforcement activities may perform nonexempt work without defeating the overtime exemption in 29 U.S.C. § 207(k) unless the nonexempt work “exceeds 20 percent of the total hours worked by that employee during the workweek.” 29 C.F.R. § 553.212(a). And an individual providing companionship services as defined in 29 U.S.C. § 213(a)(15) does not defeat the exemption from overtime pay for that category of employee by performing general household work as long as “such work is incidental, i.e., does not exceed 20 percent of the total weekly hours worked.” 29 C.F.R. § 552.6. The 20 percent threshold used by the DOL in its Handbook is not inconsistent with § 531.56(e) and is a reasonable interpretation of the terms “part of [the] time” and “occasionally” used in that regulation.”

Determining that the issue was not properly before it, the court declined to answer the question of what duties are incidental to the tipped employee duties and what duties are not, stating:

“We note that the parties dispute which specific duties are subject to the 20 percent limit for related duties in a tipped occupation and which duties are the tip producing part of the server’s or bartender’s tipped occupation itself. The regulation lists activities such as “cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses” as “related duties in . . . a tipped occupation.”  § 531.56(e). The Handbook repeats these examples and states that the 20 percent limit applies to “general preparation work or maintenance.” (Appellant’s Add. at 32,  DOL Handbook § 30d00(e).) Although the district court stated that “it was for the Court to decide what duties comprise the occupation of a server or bartender” (Dist. Ct. Order at 6 n.3), the order under review did not do so and concluded only that “[e]mployees may be paid the tipped wage rate for performing general preparation and maintenance duties, so long as those duties consume no more than twenty percent of the employees’ working time” (id. at 15). To the extent that questions remain concerning which duties the 20 percent rule applies to, those issues are beyond the scope of this interlocutory appeal, and we do not address them. We hold only that the district court properly concluded that the Handbook’s interpretation of § 531.56(e) governs this case.”

Lastly, citing the Supreme Court’s Mt. Clemens decision, the court held that the “recordkeeping rule” applies in situations where the employer fails to maintain sufficient records to distinguish between time spent performing tipped duties and non-tipped duties.

Click Fast v. Applebee’s International, Inc. to read the entire decision.

Leave a comment

Filed under Department of Labor, Recordkeeping, Tips

DOL Debars Seattle-Based Federal Contractor for Violating Minimum Wage, Overtime and Record-Keeping Laws

The U.S. Department of Labor has debarred HWA Inc., President John Wood and Vice President Barbara Wood from future government contracts for three years, due to significant and repeated violations of the McNamara-O’Hara Service Contract Act and the Contract Work Hours and Safety Standards Act. Seattle-based HWA provided security services as a contractor to various federal facilities, government offices and public works projects in the states of Washington, Oregon, Idaho, Missouri and New York.

“The Labor Department will not allow federal contractors to misuse public funds and exploit hardworking laborers by denying their rightful wages,” said Secretary of Labor Hilda L. Solis. “Debarring violators such as HWA from future contracts ensures a level playing field, so that honest companies are not placed at a competitive disadvantage for playing by the rules, and paying their workers full and fair prevailing wages.”

According to a DOL press release:

“Most recently, in 2009, the company defaulted on seven federal contracts and failed to meet its payroll obligations, resulting in nearly $1 million in unpaid wages for 206 employees. The division ordered an emergency withholding of funds on several of the company’s federal contracts and secured the full payment of these wages. All SCA contracts held by the HWA were terminated shortly thereafter.”

The Service Contract Act (SCA) contract clauses, present in all Federal contracts, require contractors and subcontractors performing services under prime contracts in excess of $2,500 to pay service employees in various classes no less than the wage rates and fringe benefits found prevailing in the locality, or the rates contained in a predecessor contractor’s collective bargaining agreement, including prospective increases. The Labor Department issues SCA wage determinations for contracting agencies to incorporate into covered contracts, along with the required contract clauses. The fringe benefit requirements — usually vacation and holidays, known as “health and welfare” benefits — are separate and in addition to the hourly monetary wage requirement under the SCA. In addition, employers with prime contracts in excess of $100,000 under the CWHSSA must pay workers at least one and one-half times their regular rates of pay for all hours worked over 40 in a week.

Although violations of the primary federal wage and hour law, the Fair Labor Standards Act (FLSA), may be pursued by aggrieved employees in private lawsuits, alleged violations of the McNamara-O’Hara Service Contract Act and the Contract Work Hours and Safety Standards Act, may only be pursued by the DOL.  Largely due to the fact that under the prior republican leadership, the employer-friendly DOL pursued very few of these cases, such violations are commonplace on Federal worksites, despite the various laws prohibiting them.  Hopefully, as the current DOL pursues these cases more frequently, workers will once again be assured of the protections of the laws that are on the books.

4 Comments

Filed under Department of Labor, Wage and Hour News, Wage Theft

DOL Publishes New FLSA Rules, Rejecting Pro-Employer Changes to Fluctuating Workweek and Comp Time, Clarifying Tip Credit Rules

On April 5, the Department of Labor (DOL) published its updates to its interpretative regulations regarding the Fair Labor Standards Act (FLSA) in the Federal Register.  to go into effect 30 days later.  The Updating Regulations, revise out of date CFR regulations. Specifically, these revisions conform the regulations to FLSA amendments passed in 1974, 1977, 1996, 1997, 1998, 1999, 2000, and 2007, and Portal Act amendments passed in 1996.

As noted by several commentators, the final regulations are noteworthy for what was not included as much as for what was.  Below is a brief description of the most significant changes and those changes originally proposed, that were not adopted:

Fluctuating Workweek Under 29 C.F.R. §778.114

The proposed regulations issued by DOL in 2008 under the Bush administration (73 Fed. Reg. 43654) would have amended regulations on the “fluctuating workweek” method of calculating overtime pay for nonexempt employees who have agreed to received pay in the form of fixed weekly payments rather than in the form of an hourly wage.  The proposed regulations would have amended 29 C.F.R. §778.114 to permit payments of non-overtime bonuses and incentives (such as shift differentials) “without invalidating the guaranteed salary criterion required for the half-time overtime pay computation.”  The DOL left out this proposed change from the final rules however, saying it had “concluded that unless such payments are overtime premiums, they are incompatible with the fluctuating workweek method of computing overtime.”  Explaining the decision not to amend the FWW reg, the DOL noted that “several commenters … noted that the proposal would permit employers to reduce employees’ fixed weekly salaries and shift the bulk of the employees’ wages to bonus and premium pay” contra to the FLSA’s intent.  The DOL’s decision to decline the proposed amendment is consistent with virtually all case law on this issue, as discussed here and here.

Tipped Employees

The DOL has also decided to revise the proposed regulations’ interpretation of Congress’ 1974 amendment, section 3(m) of the FLSA, to require advance notice to tipped employees of information about the tip credit the employer is permitted to take based on its employees’ tips.  The final rule combines existing regulatory provisions to assure such employees are notified of the employer’s use of the tip credit, and how the employer calculates it.  This regulation too is consistent with case law on the subject, requiring advanced notice of the tip credit.

Compensatory Time

The final rules also do not include a proposed change that would have allowed public-sector employers to grant employees compensatory time requested “within a reasonable period” of the request, instead of on the specific dates requested. Instead, the final rule will leave the regulations unchanged, “consistent with [DOL’s] longstanding position that employees are entitled to use compensatory time on the date requested absent undue disruption to the agency.”

The new CFR regulations go into effect on May 5, 2011.

2 Comments

Filed under CompTime, Department of Labor, Fluctuating Workweek, Tips

U.S.S.C.: Court Denies Certiorari to Novartis and Schering on Appeals of Decisions Finding Pharma Reps Non-Exempt Under the FLSA

Novartis Pharmaceuticals Corp. v. Lopes, Simona M. and Schering Corporation v. Kuzinski, Eugene, et al.

In a case with far sweeping ramifications for the pharmaceutical industry and its employees, following the Second Circuit’s decision that found pharmaceutical representatives (pharma reps) to be non-exempt and therefore, entitled to overtime, the Supreme Court has denied Plaintiff’s Petition for Cert, and therefore the issue remains largely unresolved.  In a decision discussed here, the Second Circuit had previously held that the pharma reps were non-exempt, notwithstanding the pharmaceutical companies’ arguments that they were outside sales and/or administrative exempt.  However, the Third Circuit, on facts it acknowledged were limited to the case before it, recently reached the opposite conclusion, holding Johnson & Johnson pharma reps to be exempt under the administrative exemption.  Most recently, the Ninth Circuit held that, notwithstanding the fact that pharma reps cannot and do not consummate sales, their promotional activities are close enough to render them exempt under the outside sales exemption.

The Department of Labor had submitted an Amicus Brief in support of the employees in both the Second and Ninth Circuit cases.  While the Second Circuit relied on the DOL’s Brief in large part, reaching its conclusion that the pharma reps are non-exempt, the Ninth Circuit rejected the arguments in the Brief.

It will be interesting to see if the large pharmaceutical companies, most of whom are in the midst of FLSA collective actions and/or state wage and hour class actions, will reclassify their pharma reps based on the Novartis decision.  The stakes are huge, and the risk- if they chose not to- could be an imposition of liquidated damages, in addition to unpaid wage awards in any case(s) the employees win.

1 Comment

Filed under Exemptions

9th Cir.: Notwithstanding DOL’s Position Otherwise, Pharmaceutical Reps (PSRs) Are “Outside Sales” Exempt

Christopher v. SmithKline Beecham Corp.

This case was before the Ninth Circuit on the plaintiffs’ appeal from an order granting defendant’s motion for summary judgment, finding plaintiffs’, pharmaceutical reps (“PSRs”), to be exempt from the Fair Labor Standards Act (“FLSA”) under the “outside sales” exemption.  Although the DOL, filed an Amicus Brief, explaining that the type of work performed by the PSRs did not come within the “outside sales” exemption, because the PSR’s did not perform any sales, the Ninth Circuit disagreed.

Reasoning that the PSR employees came within the outside sales exemption, notwithstanding the fact that they did not complete sales, the court essentially held that their work was close enough to sales, that it should be deemed sales:

“Absent an agency-determined result, it is the province of the court to construe the relevant statutes and regulations. N. Cal. River Watch, 620 F.3d at 1088-89. As noted supra, Plaintiffs argue that by not transferring any product to physicians, they are not selling pharmaceuticals, but only “promoting” them. Plaintiffs say this distinction is warranted in light of the rule that the FLSA be “narrowly construed against … employers.” Webster, 247 F.3d at 914. For its part, Glaxo urges us to view “sale” in Section 3(k) in a commonsensical fashion, while contending that the meaning of “sale” is permissive. Glaxo urges us to adopt the rationale that the phrase “other disposition” in Section 3(k)’s definition of “sale” is a broad catch-all category. This view was cited with approval by the district court here, and is supported by the Secretary’s usage, dating back to 1940, of the language that an employee must “in some sense make a sale.” 69 Fed.Reg. at 22,162 (quoting “Executive, Administrative, Professional Outside Salesman” Redefined, Wage and Hour Division, U.S. Dept. of Labor, Report & Recommendations of the Presiding Officer (Harold Stein) at Hearings Preliminary to Redefinition, at 46 (Oct. 10, 1940)) (emphasis added).

Plaintiffs’ contention that they do not “sell” to doctors ignores the structure and realities of the heavily regulated pharmaceutical industry. It is undisputed that federal law prohibits pharmaceutical manufacturers from directly selling prescription medications to patients. Plaintiffs suggest that despite being hired for their sales experience, being trained in sales methods, encouraging physicians to prescribe their products, and receiving commission-based compensation tied to sales, their job cannot “in some sense” be called selling. This view ignores the reality of the nature of the work of detailers, as it has been carried out for decades. Plaintiffs’ argument also fails to account for the fact that the relevant “purchasers” in the pharmaceutical industry, and the appropriate foci of our inquiry, are not the end-users of the drug but, rather, the prescribing physicians whom they importune frequently. See, e.g., Baum v. AstraZeneca LP, 605 F.Supp.2d 669, 678-79 (W.D.Pa.2009) (discussing why the “professional paradigm” places the physician as the relevant decision maker in the health services industry), aff’d on other grounds, 372 Fed. App’x 246 (3d Cir.2010). Unlike conventional retail sales, the patient is not at liberty to choose personally which prescription pharmaceutical he desires. As such, he cannot be fairly characterized as the “buyer.” Instead, it is patient’s physician, who is vested with both a moral and legal duty to prescribe medication appropriately, who selects the medication and is the appropriate focus of our “sell/buy” inquiry. In this industry, the “sale” is the exchange of non-binding commitments between the PSR and physician at the end of a successful call. Through such commitments, the manufacturer will provide an effective product and the doctor will appropriately prescribe; for all practical purposes, this is a sale. Because pharmaceutical manufacturers appreciate who the “real” buyer is, they have structured their 90,000-person sales force and their marketing tactics to accommodate this unique environment.

When a PSR visits a doctor, he or she attempts to obtain the absolute maximum commitment from his or her “buyer”-a non-binding commitment from the physician to prescribe the PSR’s assigned product when medically appropriate. In most industries, there are no firm legal barriers that prohibit the actual physical exchange of the goods offered for sale. Because such barriers do exist in this industry, the fact that commitments are non-binding is irrelevant; the record reveals that binding or non-binding, a physician’s commitment to a PSR is nevertheless a meaningful exchange because pharmaceutical manufacturers value these commitments enough to reward a PSR with increased commissions when a physician increases his or her use of a drug in the PSR’s bag. See, e.g., Baum, 605 F.Supp.2d at 681 (“This Court believes that other courts, and perhaps regulatory agencies, underestimate the significance of this oral commitment from physicians. In part, this error emerges from a misunderstanding of the ways in which human beings are socially and informally motivated. Sometimes lawyers and judges forget that a person’s word means something; remarkably, many people do not actually need a 400-page contract to bind themselves to their word.”).

Moreover, the industry has agreed upon and abides by the PhRMA Code to regulate the marketing of medicine to healthcare professionals-just as any consumer-products maker might develop rules to limit the express warranties its sales force might offer to a customer. Such industry practice and prevailing customs should inform our disposition. Cf. Reiseck v. Universal Commc’ns of Miami, Inc., 591 F.3d 101, 106 (2d Cir.2010) (in resolving whether advertising sales director was an administrative or sales worker in the publishing industry “a careful consideration of [employer’s] business model provides some clarity”).

Under Plaintiffs’ view, PSRs are not salespeople, despite the fact that more than 90,000 pharmaceutical representatives make daily calls on physicians for the purpose of driving greater sales. See IMS Health, 616 F.3d at 14. We cannot square this view with Section 3(k)’s open-ended use of the word “sale,” which includes “other disposition[s].” While we recognize that the FLSA is to be narrowly construed in light of its remedial nature, that general principle does not mean that every word must be given a rigid, formalistic interpretation. For example, for over seventy years, the Secretary has emphasized a sensible application of the exemptions; in the Preamble to the 2004 Rule, the Secretary employs the openended concept that a salesman is someone who “in some sense” sells. 69 Fed.Reg. at 22,162-63 (emphasis added). In other words, while the Secretary asks us to narrowly interpret this exemption, she herself acknowledges that technical considerations alone and changes in the way sales are made should not be grounds for denying the exemption. See 69 Fed.Reg. at 22,162.

To further explain our common sense understanding of why PSRs make sales, we find the paradigm “outside salesman” case Jewel Tea Co. v. Williams-instructive. 118 F.2d 202 (10th Cir.1941). The importance of Jewel Tea is illustrated by the fact that both parties and the amicus offer it as favorable precedent for their conflicting positions.

Jewel Tea involved a FLSA overtime-wage suit brought by three employees of a tea, coffee, and sundry goods manufacturer and distributor. 118 F.2d at 203. The plaintiffs held the position of “route salesmen” to “sell and distribute” products to customers in their homes. Id. The area in which the company sold its goods was divided and “[e]ach salesman [was] assigned an exclusive territory which he cover[ed].” Id. The employees made no immediate deliveries but instead took orders for future delivery, although they might advance an item to a customer. Id. The company provided sales training and sent a supervisor with a new hire on early sales calls before permitting the employee to “go out on a route by himself.” Id. at 204. Further, employees were taught a “five-point sale” method to employ when speaking with customers. Id. A certain degree of knowledge about the products and potential customers was also required-“[t]he salesman must know recipes for the preparation of the Company’s products … [and] must learn the general requirements of each family, in order to avoid over-stocking his customer and in order to anticipate the family’s needs.” Id. After working in the field during the day, employees completed some clerical tasks at night. Id. at 205. Finally, employees were paid a base salary plus a commission if their collections were in excess of a sum certain. Id.

The Jewel Tea plaintiffs brought suit to collect unpaid overtime, asserting they did not fall within the “outside sales” exemption, primarily employing the argument that they were “delivery men.” Id. at 208. In its decision denying plaintiffs overtime pay, the Tenth Circuit penned the oft-quoted justification for the outside sales exemption:

The reasons for excluding an outside salesman are fairly apparent. Such salesman, to a great extent, works individually. There are no restrictions respecting the time he shall work and he can earn as much or as little, within the range of his ability, as his ambition dictates. In lieu of overtime, he ordinarily receives commissions as extra compensation. He works away from his employer’s place of business, is not subject to the personal supervision of his employer, and his employer has no way of knowing the number of hours he works per day. To apply hourly standards primarily devised for an employee on a fixed hourly wage is incompatible with the individual character of the work of an outside salesman.  Id. at 207-08.

Reviewing the undisputed facts here, we consider the rationale for applying the outside sales exemption to PSRs to be as “apparent” as it was in Jewel Tea. Of course, this case does not involve door-to-door consumer-product sales. But, the FLSA is not an industry-specific statute. As the Second Circuit recognized in Reiseck, not all FLSA claims will involve the “archetypal businesses envisaged by the FLSA,” 591 F.3d at 106. Even though there are differences, it is notable that the salesmen in Jewel Tea and Plaintiffs here each (1) worked in assigned territories, (2) did not make immediate deliveries, (3) were required to analyze client backgrounds, (4) received product training, (5) employed a pre-planned routine for client interaction, (6) were accompanied by supervisors for training, (7) were later subject to minimal supervisor oversight, (8) completed clerical activities at the end of the day, and (9) had a dual salary and commission-based compensation plan tied to their performance. Even though PSRs lack some hallmarks of the classic salesman, the great bulk of their activities are the same, as is the overarching purpose of obtaining a commitment to purchase (prescribe) something.

The primary duty of a PSR is not promoting Glaxo’s products in general or schooling physicians in drug development. These are but preliminary steps toward the end goal of causing a particular doctor to commit to prescribing more of the particular drugs in the PSR’s drug bag. Without this commitment and the concomitant increase in prescriptions, or drug volume, or market share-i.e. without more sales-the PSR would not receive his or her commission salary and could soon find himself or herself unemployed. While not all steps in the PSR’s daily activities constitute “selling,” that fact does not render the totality of those activities non-exempt promotion; “work performed incidental to and in conjunction with the employee’s own outside sales or solicitations … shall be regarded as exempt outside sales work … [and] … other work that furthers the employee’s sales efforts also shall be regarded as exempt work.” 29 C.F.R. § 541.500(b).

The Secretary’s distinction between selling and promoting is only meaningful if the employee does not engage in any activities that constitute “selling” under the Act. This much is seen from the plain language of the regulations, which gives the example of promotional work as “a company representative who visits chain stores, arranges the merchandise on shelves, replenishes stock by replacing old with new merchandise, sets up displays and consults with the store manager when inventory runs low, but does not obtain a commitment for additional purchases.29 C.F.R. § 541.503(c) (emphasis added). PSRs do far more than collect general data or provide consultations; indeed they ask for, and sometimes obtain, a commitment by the doctor to prescribe Glaxo drugs, and whether the doctor keeps that commitment is verified and traced using aggregated pharmacy data Glaxo collects. See IMS Health, 550 F.3d at 44-47 (“A valuable tool in this endeavor, available through the omnipresence of computerized technology, is knowledge of each individual physician’s prescribing history.”).

In Reisick, the Second Circuit highlighted an important distinction between selling and promoting, noting that the latter is directed to the public at large, as opposed to a particular client:

Consider a clothing store. The individual who assists customers in finding their size of clothing or who completes the transaction at the cash register is a salesperson under the FLSA, while the individual who designs advertisements for the store or decides when to reduce prices to attract customers is an administrative employee for the purposes of the FLSA. Reiseck, 591 F.3d at 107. At Glaxo, Plaintiffs had no interest in “generally” promoting sales by the company or improving sales across the board. Rather, Plaintiffs directed their sales efforts only towards certain products, only to a discrete group of physicians, and only within a defined geographic area. Targeting physicians is not based on mass appeals or general advertisements, but is the result of a personalized review of each physician’s prescribing habits and history. The process, like any sales process, is tailored to the customer’s preferences.

We also find that the Secretary’s acquiescence in the sales practices of the drug industry for over seventy years further buttresses our decision. The outside sales exemption has existed since 1938. Detail men have practiced their craft over that same period. Generally, they have been considered salespeople. Until the Secretary’s appearance in Novartis, the DOL did not challenge the conventional wisdom that detailing is the functional equivalent of selling pharmaceutical products. Indeed, the DOL has recognized as much in its Dictionary of Occupation Titles, which provides the following definition for pharmaceutical detailers:

Promotes use of and sells ethical drugs and other pharmaceutical products to physicians, [dentists], hospitals, and retail and wholesale drug establishments, utilizing knowledge of medical practices, drugs, and medicines: Calls on customers, informs customer of new drugs, and explains characteristics and clinical studies conducted with drug. Discusses dosage, use, and effect of new drugs and medicinal preparations. Gives samples of new drugs to customer. Promotes and sells other drugs and medicines manufactured by company. May sell and take orders for pharmaceutical supply items from persons contacted.

D.O.L. Dictionary of Occupational Titles § 262.157-010 (4th ed.1991) (emphases added). Likewise, although it emerged in a different context, we find Judge Posner’s observation in Yi v. Sterling Collison Centers, Inc., 480 F.3d 505, 510-11 (7th Cir.2007), informative-while it is “possible for an entire industry to be in violation of the [FSLA] for a long time without the Labor Department noticing[, the] more plausible hypothesis is that the … industry has been left alone” because DOL believed its practices were lawful.

In view of many similarities between PSRs and salespeople in other fields, pharmaceutical industry norms, and the acquiescence of the Secretary over the last seventy-plus years, we cannot accord even minimal Skidmore deference to the position expressed in the amicus brief. Under Skidmore, “[t]he fair measure of deference to an agency administering its own statute has been understood to vary with circumstances, and courts have looked to the degree of the agency’s care, its consistency, formality, and relative expertness, and to the persuasiveness of the agency’s position.” United States v. Mead Corp., 533 U.S. 218, 228 (2001) (internal citations omitted); see also League of Wilderness Defenders v. Forsgren, 309 F.3d 1181, 1189 (9th Cir.2002) (quoting Skidmore, 323 U.S. at 140) (internal quotation marks omitted). Many, if not all, of these hallmarks of “respectful” deference are absent here. The about-face regulation, expressed only in ad hoc amicus filings, is not enough to overcome decades of DOL nonfeasance and the consistent message to employers that a salesman is someone who “in some sense” sells. Moreover, we are unable to accept an argument that fails to account for industry customs and emphasizes formalism over practicality, in particular the argument that “obtaining a commitment to buy” is the sine qua non of the exemption. Under the Secretary’s view, “sale” means unequivocally the final execution of a legally binding contract for the exchange of a discrete good. In addition to the point that such stringent wording is not found in Section 3(k), or plausibly implied from phrases like “other disposition,” the Secretary’s approach transforms what since the time of Jewel Tea has been recognized as a multi-factor review of an employee’s functions into a single, stagnant inquiry.

Telephones, television, shopping malls, the Internet and general societal progress have largely relegated the professional pitchman embodied in Jewel Tea to the history books. But selling continues, and, as in prior eras, a salesperson learns the nuances of a product and those of his or her potential clientele, tailors a scripted message based on intuition about the customer, asks for the customer to consider her need for the product, and then receives a commission when the customer’s positive impression ultimately results in a purchase.

For the past seventy-plus years, selling in the pharmaceutical industry has followed this process. PSRs are driven by their own ambition and rewarded with commissions when their efforts generate new sales. They receive their commissions in lieu of overtime and enjoy a largely autonomous work-life outside of an office. The pharmaceutical industry’s representatives-detail men and women-share many more similarities than differences with their colleagues in other sales fields, and we hold that they are exempt from the FLSA overtime-pay requirement.

For the foregoing reasons, we AFFIRM the district court’s summary judgment for Defendant-Appellee SmithKline Beecham Corporation.”

Click Christopher v. SmithKline Beecham Corp. to read the entire decision.

5 Comments

Filed under Exemptions

WHD Proposes Update To FLSA Recordkeeping Requirements With “Right To Know Under The Fair Labor Standards Act” Regulation

According to the DOL’s Fall 2010 Semi-Annual Agenda, the Wage and Hour Division of the Department of Labor (WHD), intends to issue updated FLSA recordkeeping requirements in the near future.

Several of the initiatives the department is considering could have major impacts on both employees and employers.

For example, the WHD is considering a proposed rule that would require covered employers to notify workers of their rights under the FLSA, and to provide information concerning hours worked and wage computation, similar to the Wage and Hour laws some states like New York and California already have on the books.

Under the proposed rule, employers would be required to perform a written classification analysis for every worker that is excluded from FLSA coverage. In addition, the employer would have to disclose the individual analysis to each worker, and retain the documents in the event of a WHD investigation.

Thanks to Valiant for alerting us to this significant development.

Leave a comment

Filed under Department of Labor, Exemptions, Recordkeeping

DOL Issues Proposed Rulemaking Revising Wage Calculations For H-2B Workers

According to a DOL press release just issued:

A proposed rule that seeks to improve the H-2B temporary nonagricultural worker program and better protect American workers has just been promulgated. “The proposed rule, to be published in the Federal Register tomorrow, addresses the calculations used to set wage rates for H-2B workers.

The H-2B program allows the entry of foreign workers into the U.S. when qualified American workers are not available and when the employment of foreign workers will not adversely affect the wages and working conditions of similarly employed American workers. The H-2B program is limited by law to a program cap of 66,000 visas per year…

The previous administration promulgated H-2B regulations and did not seek comment in the rulemaking process on the data used to set wage rates. Since the 2008 final rule took effect, however, the department has grown increasingly concerned that the current calculation method does not adequately reflect the appropriate wages necessary to ensure American workers are not adversely affected by the employment of H-2B workers. On Aug. 30, the U.S. District Court for the Eastern District of Pennsylvania ruled that the regulations issued by the department in 2008 had violated the Administrative Procedure Act. The court ordered the department to promulgate new rules that are in compliance with the APA concerning the calculation of the prevailing wage rate in the H-2B program no later than 120 days from the date of the order. Today’s announcement begins the process of complying with the order and with achieving the department’s goal of fully protecting the job opportunities and wages of American workers. The department anticipates a future rulemaking that will address other aspects of the H-2B program.

The proposed regulation would require employers to pay H-2B and American workers recruited in connection with an H-2B job application a wage that meets or exceeds the highest of: the prevailing wage, the federal minimum wage, the state minimum wage or the local minimum wage.

Under the proposed rule, the prevailing wage would be based on the highest of the following:

  • Wages established under an agreed-upon collective bargaining agreement.
  • A wage rate established under the Davis-Bacon Act or the Service Contract Act for that occupation in the area of intended employment.
  • The arithmetic mean wage rate established by the Occupational Employment Statistics wage survey for
    that occupation in the area of intended employment.

The proposed rule eliminates the use of private wage surveys, as well as the current four-tier wage structure that differentiates wage rates by the theoretical level of experience, education and supervision required to perform the job, a system that is not relevant to the unskilled positions generally involved in the H-2B program.

Interested persons are invited to submit comments on this proposed rule via the federal e-rulemaking portal at http://www.regulations.gov.”

Leave a comment

Filed under Department of Labor, H-2B Visa - Guest Workers