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N.D.Ill.: Motor Carrier Act (MCA) Inapplicable Where Carrier/Employer Based Orders On Quarterly Forecasts And Items Did Not Have Specific Destination When Came In State
Sedrick v. All Pro Logistics, LLC
Plaintiff sued his employers, alleging that they failed to pay him time and a half for overtime hours worked, as required by the Fair Labor Standards Act (“FLSA”). Plaintiff had previously intended for this to be a representative action, but now sought to pursue relief only on his own behalf. The only question before the Court was whether Defendants are exempted from being required to pay overtime under the FLSA because of the Motor Carrier Act (“MCA”) exemption. Both parties moved for summary judgment on the issue of liability. The Court granted Plaintiff’s Motion denied Defendants’ Motion.
“APL provided transportation services to Bay Valley Foods (“BVF”). BVF produced a coffee creamer (“the product”) which APL transported for BVF. BVF produced the product at a facility in Pecatonica, Illinois. After being manufactured and placed into packaging, the product was assigned to particular customers, and a label was placed on the product to indicate the intended customer. The product was then transported to BVF’s warehouse facility in South Beloit, Illinois, one of several warehouse facilities BVF has throughout the country.
The product was allocated to customers pursuant to quarterly “forecasts” given to BVF by the customers, reflecting the customer’s likely future demand. However, because many BVF customers were large companies with multiple stores-some outside of Illinois and some within Illinois-the specific geographic destination of the product was unknown at the time it was packaged at the Pecatonica facility. The specific quantity a customer would actually receive was not known; a customer’s product allocation remained at the South Beloit facility until the customer contacted BVF and requested that part of its allocation be sent to a particular store, or stores, of the customer. Allocations of the product could remain at the South Beloit warehouse for as little as a day before being sent on to a customer, or as long as a year, after which time the product was recalled and would not be shipped to customers. Depending on the need of the customers, the product would sometimes be delivered within Illinois, and would sometimes be delivered outside of Illinois.”
In finding the MCA inapplicable to the case at bar, the Court explained,
“Applying section 782.7(b)(2) to this case, there was no fixed and persisting intent to move the product interstate at the time Sedrick transported it from Pecatonica to South Beloit. The product transported by Sedrick was assigned to particular customers, but that allocation were based on quarterly forecasts; it was not based on a specific order for a specific quantity to be moved to a specific destination beyond the South Beloit warehouse. § 782.7(b) (2)(i). The South Beloit facility served as a distribution point or local marketing facility from which specific amounts of the product were sold or allocated; the product was held in South Beloit until a customer contacted BVF and requested a specific quantity to be sent to a specific location, at which time BVF either permitted the customer to pick the product up itself, or arranged for the product to be shipped to the customer’s final destination. § 782.7(b)(2)(ii). Finally, transportation of the product from beyond the South Beloit warehouse was not arranged until after the product had arrived at South Beloit. The product remained in the warehouse from as little as one day to as long as a year before shipping arrangements were made. § 782.7(b)(2)(iii). Any product that remained over one year was recycled by BVF.
The Sixth Circuit in Baird v. Wagoner Transportation Co., 425 F.2d 407 (6th Cir.1970) reached the same conclusion based on similar facts. There, petroleum product was moved to a storage facility based on forecasts for particular customers, but was not delivered until a subsequent time when an actual order was made. Id. at 411-12. In that case, the record showed that the final location of the product was known, but the specific quantity to be delivered was unknown until after it arrived at the storage facility, as the original shipments were based on forecasts. Id. The court concluded from this that there was not a fixed and persistent intent to ship goods in interstate commerce. Id. In the case at bar, neither the quantity nor the destination is known. The quantity is unknown because, as in Wagoner Transportation Co., BVF’s production is based on forecasts, but the actual amount delivered may vary and at least some of the product will be recycled by BVF because it will remain at the South Beloit facility for over one year. Second, though the product is allocated by customer, it is not allocated to any customer’s specific destination, and many customers have several destinations where the product can be delivered.”
Thus, the Court concluded, “[b]ecause the product’s final destination was not known when Sedrick moved it from Pecatonica to South Beloit, this movement was not yet part of in an interstate journey, and the provisions of the MCA did not apply. Accordingly, the FLSA exemption for the MCA also did not apply, and Sedrick was entitled to the overtime provisions of the FLSA.”
A Proposed Law To Give New York State Agricultural Workers The Same Rights To Overtime As Other Workers
In today’s New York Times, Columnist, Bob Herbert supports a new law proposed in New York State, which would require the state’s agricultural workers to be paid overtime for their long hours of work. Read the entire Op-Ed column at New York Times. The proposed law has galvanized workers and the farming industry and has raised many questions regarding the treatment of so-called agricultural workers.
“…Farmworkers in New York do not have the same legal rights and protections that other workers have, and the state’s multibillion-dollar agriculture industry has taken full advantage of that. The workers have no right to a day off or overtime pay. They don’t get any paid vacation or sick days. When I asked one worker if he knew of anyone who had a retirement plan, he laughed and laughed.
To understand how it’s possible to treat farmworkers in New York this way you have to look back to the 1930s when President Franklin Roosevelt was trying to get Congress to pass the Fair Labor Standards Act to provide basic wage and hour protections for workers. Among the opponents were segregationist congressmen and senators who were outraged that the protections would apply to blacks as well as whites.
Most agricultural and domestic workers were black, and the legislation was not passed until those two categories of workers were excluded. New York State lawmakers, under heavy and sustained pressure from the agriculture lobby, have similarly exempted farmworkers (the vast majority of whom are now Latino) from most state labor law protections.
There was a good chance — right up until Monday, when the State Senate went through a sudden and cataclysmic change from Democratic to Republican control — that something might be done about this legislatively. On Monday evening, the Assembly passed (and Gov. David Paterson has promised to sign) a bill extending much-needed labor protections to farmworkers, including the right to at least one day of rest per week and, more important, the right to bargain collectively…”
To read Bob Herbert’s entire piece go to the New York Times website.
D.Mass.: Motor Carrier Act (MCA) Exemption Not Fleet-wide For Drivers Of Vehicles Less Than 10,000 Pounds, Where Defendant Not Overwhelmingly Commercial Carrier
Brooks v. Halsted Communications, Ltd.
This case was before the Court on cross motions for partial summary judgment filed by the parties with respect to the fleet-wide applicability of the Motor Carrier Act (MCA), to the entire putative class, Defendants’ employees who drove vehicles weighing less than 10,000 pounds, prior to August. The Court framed the issue as “whether, for the period following SAFETEA-LU but prior to the enactment of the TCA, Defendants have carried their burden of showing that the MCA exemption applied to employees who exclusively operated light vehicles.” Whereas Defendants asserted, as a “commercial carrier” all of its drivers were/are exempt, Plaintiffs cited to well-established law that only those individual drivers coming within the MCA’s definition could be potentially exempt. The Court agreed with Plaintiffs entering a detailed Order discussing the issue, and denying Defendants’ motion for summary judgment:
“Plaintiffs are technicians employed by Defendant Halsted Communications, Ltd. (“Halsted, Ltd.”). Defendants are Halsted Ltd.; Halsted Communications, LLC; and Kirk Halsted. The heart of the issue is whether, for a certain period of time, Defendants were obliged to pay Plaintiffs time and a half for overtime as required by the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 201 et seq., and Mass. Gen. Laws ch. 151, §§ 1A and 1B, or were freed from any such obligation by virtue of an exemption set forth in the Motor Carrier Act (“MCA”), 29 U.S.C. § 213(b)(1) and adopted by Massachusetts, Mass. Gen. Laws ch. 151, § 1A(8). The maze-like weave between the FLSA requirement and the MCA exemption has evolved through three different federal statutory enactments and has generated a modest burst of conflicting decisional law. The parties’ cross motions seek contrasting interpretations of the law.”
Reciting the relevant facts the Court said, “[e]ach Plaintiff was employed as a technician by Halsted Ltd. at some point between August 10, 2005 and the present. A technician’s job responsibilities included driving vehicles between work sites in connection with the activation, installation and service of satellite television equipment. Not a single plaintiff ever drove a vehicle that weighed more than 10,000 pounds. Indeed, at the relevant time, less than one percent of Halsted Ltd.’s entire fleet comprised vehicles weighing over 10,000 pounds. Since March 13, 2007, Defendant Halsted Ltd. has been a motor carrier registered with the United State Department of Transportation (“USDOT”) based on its operation of one or more vehicles weighing over 10,000 pounds.”
The Court discussed the differing case law at length, “As noted, the question of whether a “hybrid” motor carrier-i .e., one with drivers operating vehicles weighing both above and below 10,000 pounds-was obliged to pay FLSA overtime to its drivers of lighter vehicles before June 6, 2008 has produced conflicting answers. The weight of district court authority (no appellate decision has as yet appeared), however, strongly favors Plaintiffs. Cases supporting Plaintiffs’ position include Hernandez v. Brink’s, Inc., No. 08-20717-CIV, 2009 U.S. Dist. LEXIS 2726 (S.D.Fla. Jan. 15, 2009) (ruling that mixed fleets containing both commercial and non-commercial vehicles should be treated for FLSA purposes as two separate sub-fleets); Tews v. Renzenberger, Inc., 592 F.Supp.2d 1331, 1346 (D.Kan.2009) (rejecting argument that “the mere presence of commercial motor vehicles in [a] fleet renders all employee-drivers exempt under the MCA exemption”); Vidinliev v. Carey International Inc., 581 F.Supp.2d 1281 (N.D .Ga.2008) (denying summary judgment regarding the applicability of the MCA exemption for claims arising after August 10, 2005 where the defendant operated a mixed fleet of commercial and noncommercial motor vehicles); Kautsch v. Premier Communications, 502 F.Supp.2d 1007 (W.D.Mo.2007) (ruling that the MCA exemption did not apply to the plaintiffs’ claims after August 10, 2005 because they did not operate commercial motor vehicles). Cases supporting Defendants include Collins v. Heritage Wine Cellars, Ltd., No. 07-CV1246, 2008 U.S. Dist. LEXIS 104555 (N.D.Ill.Dec. 29, 2008) and Tidd v. Adecco USA, Inc., No. 07-11214-GAO, 2008 U.S. Dist. LEXIS 69825 (D .Mass. Sept. 17, 2008).”
With its detailed analysis of the issue the Court concluded, “the court will side with Plaintiffs here and will hold that Defendants did not enjoy the exemption and Plaintiffs were entitled to overtime pay during the pertinent time period… a contrary ruling would lead to the absurd result that an employer with 1,000 employees all driving vehicles weighing less than 10,000 pounds would be able rid itself of any obligation to pay FLSA overtime to these otherwise covered employees simply by buying one vehicle weighing over 10,000 pounds and assigning one employee to drive it occasionally across state lines. It is a crazy world, but we can hope that it is not yet that crazy.”
W.D.Va.: “Assistant Manager” At Auto Parts Store Not Administrative Exempt; Damages To Be Calculated At Time And A Half Not Half-time
Brown v. Nipper Auto Parts and Supplies, Inc.
The case was before the Court on cross motions for summary judgment pertaining to whether Plaintiff was exempt from the FLSA’s overtime provisions under the FLSA. Additionally, Plaintiff moved for summary judgment on the issues of willfulness (3 year statute, as well as liquidated damages), and for a finding that the method under which his overtime should be calculated was the default time and a half method. As discussed below, the Court found Plaintiff nonexempt and further held that his damages were due to be calculated based on time and a half and not the fluctuating workweek’s half-time formula.
Addressing the exemption issue first, the Court noted, “Brown’s primary duties were sales and other non-exempt work, not running or servicing; the business. Nipper Auto attempts to characterize Brown’s duties as procurement and quality control, exempt activities; but since his activities generally concerned ordering auto parts based on customers’ requests, these duties are more aptly described as sales, a non-exempt activity. Roger Nipper has indicated no significant managerial decisions or changes that he has made during Brown’s tenure at Nipper Auto in which Brown had input. Indeed, Nipper Auto’s music section, where Brown is purported to have had primary authority, existed before Brown’s hiring and has continued to exist after his termination. Finally, Brown’s intermittent supervision of Shultz fails to show that his primary duty was an exempt activity.” Therefore, the Court found Brown nonexempt.
Later in the decision, the Court addressed the issue of calculating Plaintiff’s damages: “Nipper Auto argues that if Brown is entitled to overtime compensation, it should be calculated using the fluctuating workweek method of payment (the “FWW”), under which an employee’s overtime pay rate is half his regular pay rate. Brown argues that the FWW should not apply and that his overtime compensation rate should be one and one-half times his regular rate. The court agrees with Brown.
Generally, the rate for overtime compensation is one and one-half times the regular rate of pay, 29 U.S.C. § 207(a)(1), but when the FWW method applies, the rate for overtime compensation is one-half the regular pay. 29 C.F.R. § 778.114(a) (2003); Knight v. Morris, 693 F.Supp. 439, 445 (W.D.Va.1988). The FWW method is not an exception to the normal method of computing overtime compensation under the FLSA, “[i]t merely provides an alternative means by which an employer can determine its employees’ regular and overtime rate of pay.” Flood v. New Hanover County, 125 F.3d 249, 252 (4th Cir.1997). The employer must satisfy five conditions in order to take advantage of the FWW calculation: (1) the employee’s hours must fluctuate from week to week, (2) the employee must receive a fixed salary, (3) the salary must meet the minimum wage standards, (4) the employee and the employer must have a clear mutual understanding that the salary (not including overtime premiums) is fixed regardless of the number of hours the employee works, and (5) the employee must receive overtime compensation for hours worked in excess of forty hours, not less than the one-half rate of pay. Id.; 29 C.F.R. § 778.114(a). Though the first three FWW requirements are established, the court finds that the FWW method does not apply because Nipper Auto cannot fulfill the fourth and fifth requirements.
Under the fourth requirement, the parties must have a clear mutual understanding that “the fixed salary is to be compensation for all straight time hours worked, whether few or many.” Mayhew, 125 F.3d at 219. The burden is on the employer to show the existence of a clear mutual understanding. Monahan v. County of Chesterfield, 95 F.3d 1263, 1275 n. 12 (4th Cir.1996). If the employer believed the employee was exempt from overtime compensation, “then it was not possible … to have had a clear mutual understanding … that [the employee] was subject to [a] calculation method applicable only to non-exempt employees who are entitled to overtime compensation.” Cowan v. Treetop Enter., 163 F.Supp.2d 930, 942 (M.D.Tenn.2001); (quoting Rainey v. Am. Forest & Paper Ass’n Inc., 26 F.Supp.2d 82, 102 (D.D.C.1998)).
Nipper Auto cannot establish the fourth requirement because its principal argument is that Brown is an FLSA-exempt employee not entitled to any overtime compensation; in the alternative, Nipper Auto argues that the parties had an implied understanding with Brown regarding his salary and overtime compensation. If Nipper Auto believed Brown was exempt, the requisite clear mutual understanding for the application of the FWW method could not have existed. Rainey, 26 F.Supp.2d at 102. Both parties understood that Brown would receive no additional salary no matter how many hours he worked in a given week, but § 778.114(a) specifies that the fixed salary does not include overtime premiums. The court finds that, because Nipper Auto believed Brown was an FLSA-exempt employee, it has failed to create a material issue of fact as to the clear mutual understanding required to apply the FWW method.
In addition to this clear mutual understanding, under the fifth FWW requirement, the employer must also demonstrate that the employee has actually received some form of overtime compensation. See Cowan, 163 F.Supp.2d at 941 (“Moreover, to comply 29 C.F.R. Section 778.114 requires a contemporaneous payment of the half-time premium for an employer to avail itself of the fluctuating workweek provision.”). Indeed, the Fourth Circuit has applied the FWW method only when the employee has received contemporaneous payment for overtime. See generally Flood, 125 F.3d at 252 (applying the FWW where the employer contemporaneously provided some form of overtime compensation); Griffin, 142 F.3d at 715 (same); Mayhew, 125 F.3d at 218 (same). It is undisputed that Nipper Auto did not pay Brown any overtime compensation during his employment. Because no form of overtime compensation was provided, Nipper Auto cannot apply the FWW method retroactively. Flood, 125 F.3d at 249; Griffin, 142 F.3d at 716. The court finds that Nipper Auto’s evidence is insufficient to allow a reasonable jury to conclude that Brown is subject to the FWW method of compensation; therefore, Brown’s overtime pay rate is one and one-half times his regular rate of pay. The court grants Brown’s motion for summary judgment on this matter.”
M.D.Fla.: “Field Supervisor” For Company Performing Finishing Services For Residential Builders Not Subject To Administrative Exemption
Cotten v. HFS-USA, Inc.
This case was before the Court on Defendant’s motion for summary judgment, alleging that Plaintiff, a “Field Supervisor,” for a construction “finishing” company, was exempt from the overtime provisions of FLSA under the “administrative exemption.” After reviewing the elements of the Administrative Exemption, the Court found that Plaintiff was not Administratively Exempt, because his primary duty was not directly related to the management of general business operations of Defendant, and because he did not exercise the requisite independent judgment or discretion with regard to matters of significance.
Addressing the “related to management of general business operations” prong first, the Court stated, “[b]ased on the undisputed evidence before the Court, it cannot be said that Cotten’s primary duties as a field supervisor were directly related to the management or general business operations of HFS. Although it can be said that Cotten “managed” certain assigned installation sites, his duties were concerned with ensuring that the installers received their work orders, retrieved the correct materials from the warehouse, and completed the installation job as specified in the contract and the work order and in compliance with specified standards. Cotten was not responsible for negotiating or executing contracts, creating work orders, or developing the applicable standards….
Cotten’s job duties are precisely the type that have been found to be consistent with production rather than administration. For example, in Sack v. Miami Helicopter Service, Inc., a court in the Southern District of Florida determined that an employee’s duties of opening work orders, planning repair work, ordering required materials, directing mechanics as to what work to perform, determining whether certain parts complied with F.A.A. standards, and directing repair or replacement of parts that failed inspection did not qualify as administrative tasks related to operation of the business. 986 F.Supp. 1456, 1470-71 (S.D.Fla.1997). The court found that these activities were an integral part of the production of the business and therefore did not directly relate to management policies or general business operations. Id.”
Next, the Court analyzed the “discretion or independent judgment” prong of the Administrative Exemption, stating, “Cotten spent much of his time performing inspections, which took place at all phases of the installation process. These inspections were conducted according to pre-established industry standards or the terms of the particular contract. (Id. at 5). Cotten had no specialized training and simply compared what he saw at the job site with the standards he had previously been directed to conform with. (Id.). He filled out forms documenting the inspection results, and spoke with builders or his supervisors when defects were noted.(Id.). These routine inspection duties did not require the exercise of significant discretion or independent judgment…
Of course, Cotten’s duties were not limited to inspections. If an installation was not completed properly or on time, Cotten was responsible for bringing the job into compliance, either by directing the original installer to make the necessary repairs or, on rare occasions, by retaining a second installer to do the necessary work. Although Crowder has attested that field supervisors were free to assign “the installers of their choice” to a particular job, this is not entirely true. HFS maintained a list of qualified installers that field supervisors were required to use. (Id.). Cotten has sworn that he never used an installer that was not on the approved list.”
Therefore, the Court concluded, “[u]pon due consideration of the record evidence regarding Cotten’s work activities, the Court concludes that Cotten’s primary duties at HFS did not involve the exercise of discretion and independent judgment with respect to matters of significance. As previously discussed, cases considering employees with very similar duties to Cotten have declined to apply the administrative exemption.”
The Plaintiff in this case is represented by Andrew Frisch. If you believe that you have been similarly misclassified as exempt under the FLSA, and wrongly denied overtime, call 1-888-OVERTIME or go to EMAIL CONSULTATION for a free consultation with Andrew Frisch today.
6th Cir.: Effect Of Impermissible Deductions On Exempt Status; Under Old Regs “Significant Likelihood” Standard All Weeks Rendered Non-Exempt; Under New Regs Only Weeks Where Impermissible Deductions Actually Occurred
Baden-Winterwood v. Life Time Fitness, Inc.
In this case, the 6th Circuit addressed a common issue raised in mis-classification cases: the effect of a compensation plan which makes impermissible deductions to otherwise exempt employees, whose exemptions require they be paid on a “salary basis.”
On July 10, 2007, the district court granted in part Plaintiffs’ motion for summary judgment, finding “that the deductions from the salaries of eight Plaintiffs were deductions resulting from ‘variations in the quality or quantity of the work performed,’ in violation of the salary-basis test.”Baden-Winterwood v. Life Time Fitness, No. 2:06-CV-99, 2007 U.S. Dist. LEXIS 49777, at *42 (S.D.Ohio July 10, 2007) (quoting 29 C.F.R. § 541.602(a)). However, the district court limited Plaintiffs’ recovery to overtime pay for the three pay periods in 2005-the periods ending November 9, November 23, and December 9-during which Life Time Fitness took actual deductions from Plaintiffs’ salaries. Id. The court dismissed all other claims for overtime pay, including, in their entirety, the claims of the ten Plaintiffs who appealed.
The issue before the Court was whether Plaintiffs’ compensation plans satisfy the salary-basis test. Prior to August 23, 2004, the salary-basis test, as defined by regulation, provided:
“An employee will be considered to be paid “on a salary basis” within the meaning of the regulations if under his employment agreement he regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of his compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. 29 C.F.R. § 541.118(a) (1973). In August 2004, the DOL updated the regulations defining the salary-basis test. The new regulation states: An employee will be considered to be paid on a “salary basis” within the meaning of these regulations if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. 29 C.F.R. § 541.602(a) (effective August 23, 2004). Under both versions, Life Time Fitness bears the burden of proving that Plaintiffs were paid: (1) a predetermined amount, which (2) was not subject to reduction (3) based on quality or quantity of work performed. Notably, however, rather than include the term “employment agreement,” the updated regulations focus on pay received. Compare29 C.F.R. §§ 541.118(a), 541.602(a).”
Significantly, the Court explained, “[f]or our purposes, the salary-basis test has two interpretations of the phrase ‘subject to,’ both of which are relevant here. In 1997, in Auer v. Robbins, 519 U.S. 452 (1997), the Supreme Court adopted the interpretation offered by the Secretary of Labor that the salary-basis test denies exempt status “if there is either an actual practice of making … deductions [based on variations in quality or quantity of work performed] or an employment policy that creates a ‘significant likelihood’ of such deductions.” Id. at 461. Specifically, the Auer Court held
‘The Secretary’s approach rejects a wooden requirement of actual deductions, but in their absence it requires a clear and particularized policy-one which “effectively communicates” that deductions will be made in specified circumstances. This avoids the imposition of massive and unanticipated overtime liability … in situations in which a vague or broadly worded policy is nominally applicable to a whole range of personnel but is not “significantly likely” to be invoked against salaried employees.’
Thus, under Auer, an employee is not paid on a salary basis if (1) there is an actual practice of salary deductions or if (2) an employee is compensated under a policy that clearly communicates a significant likelihood of deductions. Id.
Following Auer, on March 31, 2003, the DOL provided published notice on a proposed set of new FLSA regulations. See Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 68 Fed.Reg. 15,560 (Mar. 31, 2003). After a 90-day comment period, the DOL revised and released its final regulations, defining the exemptions under the FLSA. See Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 69 Fed.Reg. 22,122 (Apr. 23, 2004). The new regulations became effective on August 23, 2004. Id.
Under the new regulations, the Secretary of Labor reinterpreted the salary-basis test. Life Time Fitness argues that the DOL specifically eliminated the “policy” part of the Auer test, whereby a “significant likelihood” of improper deductions was sufficient to cause an employee to lose his or her FLSA exemption. The new regulations (” § 541.603“) provide that “[a]n actual practice of making improper deductions demonstrates that the employer did not intend to pay employees on a salary basis.” 29 C.F.R. § 541.603(a). Moreover, Life Time Fitness argues that the new regulations limit the scope of recovery by providing that “[i]f the facts demonstrate that the employer has an actual practice of making improper deductions, the exemption is lost during the time period in which the improper deductions were made for the employees in the same job classification working for the same managers responsible for the actual improper deductions.” 29 C.F.R. § 541.603(b).
In its comments, the DOL explains that while the new rule represents a departure from the Secretary’s position in Auer,”[t]he ‘significant likelihood’ test is not found in the FLSA itself or anywhere in the existing Part 541 regulations. Moreover, nothing in Auer prohibits the [DOL] from making changes to the salary[-]basis regulations after appropriate notice and comment rulemaking.” Defining and Delimiting the Exemptions, 69 Fed.Reg. at 22,180. The DOL stated its reasoning behind the changes:
Any other approach, on the one hand, would provide a windfall to employees who have not even arguably been harmed by a “policy” that a manager has never applied and may never intend to apply, but on the other hand, would fail to recognize that some employees may reasonably believe that they would be subject to the same types of impermissible deductions made from the pay of similarly situated employees.
Under the Auer test, the Court, found that Defendants’ policy whereby deductions would be made (although they were not in practice violated the salary basis requirements) violated the salary basis test, explaining:
The district court erred in concluding that there was not enough evidence to suggest Life Time Fitness intended to enforce its permissive policy. The Auer subject-to-reduction test requires only a “clear and particularized policy-one which ‘effectively communicates’ that deductions will be made in specified circumstances.” 519 U.S. at 461. The test does not require a formulaic set of “magic words” indicating that the test is mandatory. If employers can avoid overtime liability by crafting payment policies with permissive (may ) language instead of mandatory (will ) language, then the purposes of the FLSA would clearly be frustrated. Rather, as set out by this Court in Takacs and Whisman, Auer’s test is better satisfied by a policy that demonstrates that deductions are “more than a mere theoretical possibility” and that “permit[s] disciplinary or other deductions in pay ‘as a practical matter.’ ” 246 F.3d at 781
Here, Life Time Fitness’s pre-August 23, 2004 compensation plan subjected employees’ pay to reductions under the Auer test. The compensation plan at issue does more than create a theoretical possibility of deduction; instead it plainly lays out a policy under which Life Time Fitness would make future deductions. Therefore, under the old regs, the Court found the Plaintiffs were non-exempt for all weeks within the relevant statute of limitations period.
However, since the current regulations require an actual violation, the Court held that the otherwise exempt employees were only stripped of their exempt status, and thus entitled to overtime for the 3 weeks when the pay practice was actually used to reduce their “salary.” In all other weeks, the Court found the salary basis test met, and thus found that, aside from three weeks where actual reduction were made, the Plaintiffs remained exempt, notwithstanding the three weeks where deductions were actually made.”
N.D.Ga.: Apartment Broker, Whose Customers Were The Apartment Homes And Not Renters, Not A “Retail Establishment” Subject To 7(i) Exemption Of The FLSA
Russell v. Promove, LLC
This case was before the Court on all parties’ motions for summary judgment. Plaintiffs had cross-moved for summary judgment, seeking a finding from the Court that Defendant, an apartment broker, was not a “retail” establishment, subject to the 7(i) exemption of the FLSA as a matter of law. Granting this branch of Plaintiffs’ Motion, the Court stated, in part:
“A retail or service establishment is defined as “an establishment 75 per centum of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry.”29 U.S.C. § 213(a)(2) (1988); 29 C.F.R § 779.312. First, Plaintiffs argue that the Defendants’ business is not regarded as retail and that such a concept cannot be artificially created in an industry that lacks a traditional concept of retail and servicing.; Schussler v. Employment Consultants, 333 F.Supp. 1387, 1390 (N.D.Ill.1971). Plaintiffs argued that the “mom and pop” type shops which conduct similar business to the Defendants do not comprise an apartment locator industry. In response, Defendants assert that when Defendant Todd White founded the predecessor of ProMove in 1990, he relied on industry standards to determine employee payment and commission structure.
The record before the Court sufficiently establishes the nature of ProMove’s business to allow the Court to reach a conclusion regarding the claimed exemption. Though the parties disagree as to the conclusions to be drawn from the evidence, the underlying facts are largely undisputed. Prospective renters come into ProMove’s business locations and receive referrals to apartment homes. These renters pay nothing for the referral. ProMove’s compensation, if any, comes from the apartment homes if the prospective renter chooses the apartment, identifies ProMove as the referral source, and pays the first month’s rent. Based on the undisputed facts, the Court concludes that the apartment homes are ProMove’s customers. The payment for ProMove’s service comes entirely from the apartment homes. The fact that the payment is not made until the first month’s rent is paid does not alter the fact that the payment is from the apartment home. ProMove’s business serves the apartment homes as its customers, not the general public.
Also, the Court finds that ProMove’s business is closely akin to a broker. Even though ProMove does not have the authority to negotiate terms of the lease agreements, it serves the function of bringing the landlords and tenants together much as a real estate agent would do in a real estate transaction. Such businesses have been identified by the DOL as lacking the retail concept. 29 C.F.R. § 779.317. Also, its brokering function occurs prior to the “very end of the stream of distribution,” and thus, does not meet the examples of retail and service establishments provided by the DOL. 29 C.F.R. § 779.318.
Based on the foregoing, the Court concludes that Defendants failed to prove the applicability of the Section 7(i) retail or service establishment exemption. Accordingly, Plaintiffs’ motion for summary judgment as to Defendants’ retail or service exemption defense is GRANTED.”
D.Kan.: Mortgage Broker Not “Retail Establishment”; Financial Specialists Not “Retail” Exempt
Underwood v. NMC Mortg. Corp.
This case was before the Court on Defendant’s Motion for Summary Judgment. Defendant, a mortgage broker, moved for summary judgment asserting that it was a “retail establishment” and that, therefore, Plaintiffs, who were “financial specialists” facilitating their loans, were exempt for the overtime provisions of the FLSA, under the so-called retail exemption. The Court found that Defendant is not a retail establishment, and therefore Plaintiffs are not retail exempt.
“Plaintiffs assert that the facts are analogous to the facts in Saunders v. Ace Mortgage Funding, Inc, in which that court distinguished Gatto and found that the retail or service establishment exemption did not apply. In Saunders, plaintiffs brought a collective action under the FLSA seeking overtime and minimum wage compensation from their employer. The employer, Ace Mortgage (”Ace”), matched mortgage borrowers with lenders for a fee. Ace primarily brokered loans, but it also engaged in a small amount of direct lending called “table funding” where the bank provided the funding for the loan but the loan closed in Ace’s name. Ace also closed a small number of loans in its own name using its warehouse line of credit.
In Saunders, the District of Minnesota examined whether Ace was part of the “financial industry” because the businesses listed in 29 C.F.R. § 779.317 that lacked a retail concept included “credit companies,” “small loan and personal loan companies,” and “finance companies.”
29 C.F.R. § 779.317 specifically cites to Mitchell for the proposition that these type of financial businesses lack a retail concept. The Saunders court found that the facts in Gatto were factually distinguishable because Ace engaged in a small amount of direct lending and declined to use the reasoning in Gatto. It concluded that Ace was part of the financial industry and therefore could not qualify as a retail or service establishment as a matter of law and that the Gatto court ultimately “strained to bring a financial business within the definition of a retail or service establishment on the basis that its activities were limited to brokering, not lending.”
The facts in this case are similar to the facts in both Gatto and Saunders. NMC matched customers with lenders in finding residential loans but did not represent the consumer or the lender. Unlike the defendant in Gatto but similar to the defendant in Saunders, NMC engaged in table funding in which the loan closed in NMC’s name. Although NMC did not use its own line of credit for closing loans like the defendant in Saunders, the Court finds the facts more analogous to the facts in Saunders.
Everything about NMC’s business is related to the financial industry. NMC matched consumers with loans. NMC processed the loan applications. NMC engaged in table-funding so the loan closed in the name of NMC. In contrast to Illinois law where mortgage brokers are defined as “nonfinancial intermediaries,” in Kansas, NMC’s name appeared on the closing loan documents as a “lender” because NMC engaged in table-funding. In its annual report to Kansas, NMC had to report that it was a “lender” from 2004 through 2006 on 422 loans totaling $57,653,391. Finally, NMC underwrote these table-funded loans which indicates more than peripheral involvement in the financial aspects of providing the loan to the consumer. Accordingly, this Court concludes that NMC is within the financial industry and therefore should not be considered a “retail or service establishment.”
Even if this Court were to conclude that NMC was not within the financial field, NMC still lacks the characteristics that would qualify it as a “retail or service establishment.” As the Department of Labor’s regulations make clear, the three characteristics of a retail or service establishment include (1) selling to the general public; (2) serving the everyday needs of the public; and (3) being at the very end of the stream of distribution. Examples of such establishments include grocery stores, furniture stores, and restaurants. NMC is not similar to these retail establishments as it does not appear to the Court that matching individuals with residential mortgage lenders would qualify as selling to the “general public” or serving the “everyday needs” of the public. In any event, NMC is not at the very end of the stream of distribution. In Partida v. American Student Loan Corporation, the District of Arizona addressed this third element when determining whether a company in the business of matching individuals with third-party lenders to consolidate student loans was a retail or service establishment. The court stated that the defendant’s business was “an integral and upstream part of the loan origination business and therefore is on the non-retail end of the establishment spectrum.” As the Partida court noted, “[a] loan referral provides the basis for a subsequent transaction in which an individual obtains what he or she ultimately seeks-a [residential] loan.” The court in Partida concluded that because the business was not at the end of the stream of distribution, the business could not be considered a “retail or service establishment.”
NMC’s business was similar to the business in Partida in that it matched individuals with residential loans. NMC was not providing the end product but was directing the individual to the residential loan. The Tenth Circuit has noted that “[b]usinesses that serve only other commercial establishments are generally not within the ‘retail concept’ of the exemption.” This Court cannot conclude that NMC was at the very end of the stream of distribution. As such, it lacks the characteristics of a retail or service establishment.
Finally, this Court finds 29 C.F.R. § 779.317 instructive. This regulation provides a list of establishments that lack a retail concept and includes freight brokers, insurance brokers, and stock or commodity brokers. Although “mortgage brokers” were not included, the regulation specifically states that it is a “partial list” of businesses. A “mortgage broker” is similar to an “insurance broker” or “stock or commodity broker” because the broker assists the customer in obtaining the mortgage, insurance, or stock. The majority, if not all, of Defendant’s business was done as a “broker.” Because a mortgage broker is similar to the brokers listed in section 779.317, the Court finds that NMC lacks the “retail concept” to be qualified as a “retail or service establishment.” Exemptions are to be narrowly construed under the FLSA, and NMC is not a retail or service establishment under 29 U.S.C. § 207(i) and therefore is not entitled to this exemption.”
D.Mass.: SAFETEA-LU Does Not Apply Retroactively To Bar Claims Of Employees Who Drive Vehicles Of Less Than 10,001 Lbs.
Benoit v. Tri-Wire Engineering Solutions, Inc.
The parties filed cross-motions for partial summary judgment on the issue of the applicability of the Motor Carrier Act (“MCA”) exemption as a defense to Plaintiffs’ complaint which seeks to recover unpaid overtime from August 10, 2005, to the present. The issue was the retroactive applicability of the SAFETEA-LU Technical Corrections Act of 2008 (“SAFETEA-LU”). Addressing numerous arguments from both Plaintiffs and Defendants, the Court concluded that SAFETEA-LU does not apply retroactively.
Plaintiff filed the instant complaint on December 11, 2007, and since then at least 125 additional technicians have filed consent-to-sue forms. On or about June 5, 2008, the court granted Plaintiffs’ motion for preliminary recognition of this case as a FLSA collective action and established a discovery schedule. Coincidentally, on the very next day, June 6, 2008, the FLSA was amended in a manner potentially applicable here, i.e., it called into question whether a long-standing overtime exemption for employers of light-weight vehicle drivers-the MCA exemption-should retroactively apply to August 10, 2005. Accordingly, on October 15, 2008, the court entered a new scheduling order which allowed the parties to file cross-motions for partial summary judgment addressing that issue. The motions were filed and the court heard oral argument on March 26, 2009. In deciding in Plaintiffs favor the Court discussed the nature of the SAFETEA-LU amendments and their affect on the FLSA and the MCA:
“On August 10, 2005, however, Congress passed the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (hereinafter “the SAFETEA-LU”).Pub.L. No. 109-59, 119 Stat. 1747 (2005). Among other things, the SAFETEA-LU narrowed the definition of a “motor carrier” to include only “person[s] providing commercial motor vehicle (as defined in section 31132) transportation for compensation.”49 U.S.C. § 13102(14) (emphasis added). In turn, the “commercial motor vehicle” definition required that the vehicle have “a gross vehicle weight rating or gross vehicle weight of at least 10,001 pounds, whichever is greater.”49 U.S.C. 31132(1) (emphasis added). The practical effect of this amendment-i.e., the narrowing of the MCA exemption to include only operators of motor vehicles weighing more than 10,000 pounds-was that qualified employees who operated light-weight vehicles were entitled, apparently for the first time, to overtime pay under the FLSA.
On June 6, 2008, however, the SAFETEA-LU was enacted. Pub.L. No. 110-244, 122 Stat. 1572 (2008). Among other things, the SAFETEA-LU, in section 305, re-amended the definition of “motor carrier” by striking the word “commercial” and, hence, restoring the definition to its pre-SAFETEA-LU state. Id. § 305(c), 122 Stat. at 1620. The effective date of this part of the SAFETEA-LU, however, is a bit unclear. Accordingly, the court focuses its analysis on the question of whether section 305 applies retroactively to August 10, 2005.
Defendant argued that section 305 of the SAFETEA-LU is an amendment “to the SAFETEA-LU” and that, according to subsection (b) of section 121, it should apply retroactively beginning August 10, 2005. As Plaintiffs argued, however, a close look at the text of section 305 reveals that it is not an amendment to the SAFETEA-LU. Rather, it is an amendment to a portion the United States Code that was created by the ICC Termination Act of 1995. See generally Vidinliev, 581 F.Supp.2d at 1288-90.
Perhaps more importantly for purposes of statutory construction, the court agrees with the following point made in Vidinliev: “If the definition of motor carrier in section 305 applies retroactively, then the one-year defense in section 306 is nothing more than surplusage.” Id. Or, put another way, “applying section 305 retroactively would violate the rule that a statute should be ‘interpreted so that no words shall be discarded as meaningless, redundant, or mere surplusage.’ ” Id. (quoting United States v. Canals-Jimenez, 943 F.2d 1284, 1286 (11th Cir.1991)). See also Wood v. Spencer, 487 F.3d 1, 7 (1st Cir.2007) (”It is common ground that all words and provisions of statutes are intended to have meaning and are to be given effect.”) (citation, alteration and internal quotation marks omitted). Other courts have come to this very conclusion, i.e., “to suggest that the court interpret § 121 in a way that renders the safe harbor in § 306 a nullity is at odds with basic rules of statutory construction.” Tews, 592 F.Supp.2d at 1349 n. 8 (citing Mountain States Tel. & Tel. Co. v. Pueblo of Santa Ana, 472 U.S. 237, 249 (1985)).See, e.g., Villegas, 2008 WL 5137321, at *21 n. 9 (”As this Court must presume that [all the] words of statutes are intended to have meaning, the Court will conclude that § 305 does not apply retroactively, and § 306 provides a one-year defense to liability.”); Veliz, 2008 WL 4911238, at * 6 (”For the one-year defense in Section [306(c) ] to have any relevance, Section 305(b) cannot apply retroactively.”).See also Hernandez v. Brink’s, Inc., 2009 WL 113406, at *7 (adopting reasoning of Vidinliev ); Loyd, 2008 WL 5211022, at *8 (following reasoning of both Vidinliev and Veliz );Horn v. Digital Cable & Communications, Inc., No. 1:06 CV 325, slip op. at 8-10 (N .D.Ohio Nov. 18, 2008) (following Vidinliev to hold that “Section 306 of the [TCA] undermines retroactivity finding”). And the Supreme Court recently reiterated, “one of the most basic interpretive canons [is] that ‘a statute should be construed so that effect is given to all of its provisions, so that no part will be inoperative or superfluous, void or insignificant.’ ” Corley v. United States, — U.S. —-, 2009 WL 901513, at *8 (Apr. 6, 2009) (quoting Hibbs v. Winn, 542 U.S. 88, 101 (2004)). In this court’s view as well, Plaintiffs’ section 306 surplusage argument cinches the result in their favor.”
9th Cir. Seeks Clarification From California Supreme Court Re: Proper Classification Of Pharmaceutical Sales Reps
On May 5, the 9th Circuit Court of Appeals certified the question of exempt status (under California state law) of pharmaceutical sales representatives to the California Supreme Court.
The 9th Circuit asked for guidance from the California Supreme Court to determine two issues, pertaining to the oft-litigated issues of whether Pharmaceutical Sales Reps are outside sales exempt and/or administrative exempt under those so-called exemptions in the California Wage and Hour law, which is similar to the FLSA. The first question focuses on whether or not pharmaceutical representatives fall within the “outside sales exemption.” The other question focuses on the administrative exemption and whether or not application is applicable to the pharmaceutical sales reps at issue as well.
Pharmaceutical sales reps across the country will be watching this and other key cases in the months to come. If you worked as a pharmaceutical sales rep within the last 3 years, you may may entitled to overtime pay which was incorrectly denied to you, if you worked more than 40 hours per week.
Call 1-888-OVERTIME or visit http://www.overtimeadvocate.com to learn more about your overtime rights today.
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