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Supreme Court Confirms That a Day Rate is Not a Salary
Helix Energy Solutions Group Inc. v. Hewitt
In a widely anticipated opinion, on February 22, 2023, the Supreme Court of the United States ruled that an employee who was paid a daily rate more than $684 per day, who received a total of more than $200,000 per year, was not paid on a “salary basis” as required for application of the highly-compensated employee (HCE) exemption. As such, the court held that he was entitled to overtime pay under the Fair Labor Standards Act (FLSA) notwithstanding his high total annual earnings.
The ruling will have wide-ranging implications the oil and gas industry, the nursing field, and other industries which often rely on “day rate only” pay schemes and pay schemes which pay high hourly rates (but no overtime) to attract workers to remote locations, often on short notice.
Relevant Facts
The case concerned an employee who alleged he had been misclassified as exempt from the FLSA’s overtime provisions, and improperly denied overtime premium compensation. He worked twenty-eight day “hitches” on an offshore oil rig where he would work daily twelve-hour shifts, often seven days per week, totaling 84 hours a week. Throughout his employment, the plaintiff was on a daily-rate basis, without overtime compensation, earning between $963 and $1,341 per day, an amount that equated with more than $200,000 annually.
Helix had argued that the plaintiff fell under the DOL’s exemption for highly compensated employees found in 29 C.F.R. §541.601. At the time of the toolpusher’s employment, the highly compensated employee (HCE) exemption applied to employees whose primary duties included performing office or non-manual work; who customarily and regularly performed at least one duty of an exempt executive, administrative, or professional employee; and who were paid at least $455 per week on a “salary or fee basis”; and who earned at least $100,000 annually. (Currently, the threshold salary and total compensation amounts are $684 per week and $107,432 annually, respectively.)
Opinion of the Court
In its decision, the high court stated that the “critical question” in this case was whether the plaintiff was paid on a “salary basis” pursuant to 29 C.F.R. §541.602(a). That regulation states that an employee is paid on a “salary basis” when 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.”
Helix had argued that in any week in which the employee performed any work, he was guaranteed to receive an amount above the $455 weekly threshold, such that his compensation met the requirements of the salary basis test.
The court rejected this argument, holding that §541.602(a) “applies solely to employees paid by the week (or longer)” and the test is “not met when an employer pays an employee by the day.” The court noted that a companion regulation, 29 C.F.R. §541.604(b), allows an employee’s earnings to be computed on an hourly, daily, or shift basis without violating the salary basis requirement, that regulation states that the arrangement must include a guarantee of at least the minimum weekly required amount paid on a salary basis and that there be a reasonable relationship between the guaranteed amount and the amount actually earned. However, the parties in this case agreed that the plaintiff’s compensation failed the reasonable relationship test, such that the sole issue was whether his admitted day rates qualified as a “salary basis” within the meaning of §541.602(a).
Writing for the court, Justice Elena Kagan stated that “[i]n demanding that an employee receive a fixed amount for a week no matter how many days he has worked, §602(a) embodies the standard meaning of the word ‘salary’” which generally refers to a “steady and predictable stream of pay.” Justice Kagan stated that even a “high-earning employee” who is compensated on a “daily rate—so that he receives a certain amount if he works one day in a week, twice as much for two days, three times as much for three, and so on” is “not paid on a salary basis, and thus entitled to overtime pay.”
Key Takeaway
The court’s decision will likely have wide-ranging impact. Employers have long-argued that the FLSA was not intended to protect highly-compensated employees, notwithstanding the unambiguous language of the statute itself and the DOL’s regulations. The majority squarely rejected this reasoning, adopting a typically conservative textualist approach and holding that the regulations mean precisely what they say and must be strictly construed to protect employees, both low-wage and higher-wage.
Click Helix Energy Solutions Group Inc. v. Hewitt to read the entire opinion of the court and the dissents.
DOL Publishes Final Rule Increasing Salary Thresholds for White Collar Exemptions
Following a court decision which struck down the prior regulations promulgated by the Obama administration, which would have rendered for more employees overtime eligible, the Trump has now increased the salary threshold for white collar exemption. This marks the first increase since 2004.
In addition to limiting the number of workers who will now receive overtime (versus the more expansive Obama-era rule), the current DOL rejected a provision automatically increasing the salary threshold over time, to ensure that another 15-20 years does not pass before the thresholds are re-examined and increased again.
The updated and revised the regulations issued under the Fair Labor Standards Act (FLSA) to allow 1.3 million workers to become newly entitled to overtime by updating the earnings thresholds necessary to exempt executive, administrative or professional employees from the FLSA’s minimum wage and overtime pay requirements.
The DOL has updated both the minimum weekly standard salary level and the total annual compensation requirement for “highly compensated employees” or HCEs to reflect growth in wages and salaries. The new thresholds account for growth in employee earnings since the currently enforced thresholds were set in 2004.
Key Provisions of the Final Rule
The final rule updates the salary and compensation levels needed for workers to be exempt in the final rule:
raising the “standard salary level” from the currently enforced level of $455 to $684 per week (equivalent to $35,568 per year for a full-year worker);
raising the total annual compensation level for “highly compensated employees (HCEs)” from the currently-enforced level of $100,000 to $107,432 per year;
allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices; and
revising the special salary levels for workers in U.S. territories and in the motion picture industry.
Standard Salary Level
The DOL set the standard salary level at $684 per week ($35,568 for a full-year worker).
HCE Total Annual Compensation Requirement
In addition, the DOL set the total annual compensation requirement for HCEs at $107,432 per year. This compensation level equals the earnings of the 80th percentile of full-time salaried workers nationally. To be exempt as an HCE, an employee must also receive at least the new standard salary amount of $684 per week on a salary or fee basis (without regard to the payment of nondiscretionary bonuses and incentive payments).
Special Salary Levels for Employees in U.S. Territories and Special Base Rate for the Motion Picture Producing Industry
The DOL is maintaining a special salary level of $380 per week for American Samoa. Additionally, the Department is setting a special salary level of $455 per week for employees in Puerto Rico, the U.S. Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands.
The DOL also is maintaining a special “base rate” threshold for employees in the motion picture producing industry. Consistent with prior rulemakings, the Department is increasing the required base rate proportionally to the increase in the standard salary level test, resulting in a new base rate of $1,043 per week (or a proportionate amount based on the number of days worked).
Treatment of Nondiscretionary Bonuses and Incentive Payments
The DOL’s new rule also permits employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, they must make such payments on an annual or more frequent basis.
If an employee does not earn enough in nondiscretionary bonus or incentive payments in a given year (52-week period) to retain his or her exempt status, the Department permits the employer to make a “catch-up” payment within one pay period of the end of the 52-week period. This payment may be up to 10 percent of the total standard salary level for the preceding 52-week period. Any such catch-up payment will count only toward the prior year’s salary amount and not toward the salary amount in the year in which it is paid.
When Will the Current Thresholds Be Updated?
Although initially proposed, the Trump DOL inexplicably rejected a provision of the rule, overwhelmingly supported by workers and workers advocates which would have automatically raised the thresholds over time without the necessity of further rulemaking. As a result it is possible if not likely that there will be no further increase to the current thresholds for another 15 years if not more. In its final rule the DOL reaffirms its intent to update the earnings thresholds more regularly in the future through notice-and-comment rulemaking, but given the anti-worker sentiment of the current DOL, including the recent confirmation of a steadfast anti-worker advocate as the head of the DOL, this is most-likely best viewed as lip service.
The DOL’s final rule is available at Final Rule to Update the Regulations Defining and Delimiting the Exemptions for Executive, Administrative, and Professional Employees.
DOL Issues Final Overtime Rule, Expanding Overtime Pay for Over 4 Million Workers; New Rule to Go Into Effect Dec. 1, 2016
The United States Department of Labor (DOL) Announced its long-awaited final rule regarding the update to the existing overtime rules. The new rule is set to take effect on December 1, 2016.
Most significantly, whereas the previous rule employees who met certain duties tests under the so-called “white collar” exemptions had to make at least $455 per week on a “salary basis,” the new rule brings that threshold to $913 per week (or $47,476 annually). This is approximately $3,000 less on an annual basis that an estimated $50,440 per year that a proposed version of the rule promulgated by the DOL had set last year, but over two times the current threshold amount.
The new salary basis threshold equates with the 40th percentile of weekly earnings for a full-time, salaried work in the United States’ lowest income region.
The final rule also raises the overtime eligibility threshold for highly compensated employees from $100,000 to $134,000.
While the rule raises the applicable thresholds for various exemptions, it also allows employers to count earnings paid to employees as bonuses and commissions toward meeting the salary threshold. Specifically, the rule permits employers to meet up to ten (10%) of the salary threshold with amounts paid to employees as bonus and commission payments.
Although the DOL had also asked for input on a proposed rule which would have tracked the California white collar exemptions and created a more bright-line test requiring that a worker spend at least 50 percent of his or her time on exempt duties each week to qualify for an exemption, the final rule abandoned any such change to the duties’ portions of the executive, administrative, professional, outside sales, and computer employee exemptions.
In a lesser publicized 2nd final rule, the DOL carved out certain employers from the new rule. Specifically, the 2nd rule announced a non-enforcement policy with regard to the 1st rule, for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential homes and facilities (i.e. group homes) with 15 or fewer beds. Under the 2nd final rule announced, from December 1, 2016 to March 17, 2019, the DOL will not enforce the updated salary threshold of $913 per week for this subset of employers covered by the non-enforcement policy.
For further information on all things pertaining to the new rules, visit the DOL’s website.
President Obama Announces That Threshold Salary for FLSA’s White Collar Exemptions Will Rise From $23,660 ($455/week) to $50,400 ($969/week)
In an Op-Ed penned by President Obama on the website Huffington Post, the new proposed overtime rules from the administration officially began their roll-out. Most significantly, the new rules more than double the current salary threshold for exempt employees from $23,660 per year (or $455 per week) to $50,400 per yer (or $969 per week), and continue to increase automatically in years to come.
“In this country, a hard day’s work deserves a fair day’s pay,” Obama wrote in an op-ed published Monday evening by the Huffington Post — an outreach to the president’s base on the left. “That’s at the heart of what it means to be middle class in America.”
The President continued:
Without Congress, I’m very hard-pressed to think of a policy change that would potentially reach more middle class earners than this one,” said Jared Bernstein, a former economic adviser to Vice President Joe Biden who’s now a senior fellow at the Center on Budget and Policy Priorities.
According to an article published last night on Politico.com:
The new threshold wouldn’t be indexed to overall price or wage increases, as many progressives had hoped. Instead, it would be linked permanently to the 40th percentile of income. That would set it at the level when the overtime rule was first created under President Franklin Delano Roosevelt.
The timing reflects an administration increasingly feeling the clock ticking: it expects the overtime rule to be challenged in court, and will press to complete by 2016 the review process during which comments are submitted by the public and then considered by the Labor Department and the White House as it prepares the final rule. If all goes according to plan, the rule will go into effect before Obama leaves office.
The proposed rule comes after months of pitched internal debate, with Labor Secretary Tom Perez and Domestic Policy Council director Cecilia Muñoz pushing to keep the threshold at the 40th percentile, and other members of the White House economic team, including Council of Economic Advisers chairman Jason Furman, trying to lower it to the 37th percentile.
Perez spent months conferring with business groups while his team wrote the rule. Obama made the decision to go forward in a meeting of his economic team several months ago, and originally the plan had been to roll out the rule last week. That was put on hold so that Obama could instead deliver the eulogy Friday at Rev. Clementa Pinckney’s funeral in Charleston, S.C.
For years the White House has faced the frustrating reality that despite consistently improving economic numbers, wages have been largely stagnant. Obama’s 2014 push to raise the minimum wage struck many middle class voters as not having much to do with them. But the overtime rule would affect workers whose salaries approach the median household income.
As explained by Politico:
The regulation would be the most sweeping policy undertaken by the president to assist the middle class, and the most ambitious intervention in the wage economy in at least a decade. Administration aides warn that it wouldn’t always lead to wages going up, though, because in many instances employers would cut back employee hours worked rather than pay the required time-and-a-half. Even so, they say, the additional hires needed to make up for that time could spur job growth, and give existing workers either more time with their families or more opportunities to work second jobs and put more money in their pockets.
This change was badly needed. The overtime threshold has been updated only once since 1975 and now covers a mere 8 percent of salaried workers, according to a recent analysis by the left-leaning Economic Policy Institute. Raising the threshold to $50,440 would bring it roughly in line with the 1975 threshold, after inflation. Back then, that covered 62 percent of salaried workers. But because of subsequent changes in the economy’s structure, the Obama administration’s proposed rule would cover a smaller percentage — about 40 percent.
The current overtime rules contain a white collar exemption, which excludes “executive, administrative and professional” employees from receiving overtime pay. Advocates for changing the rule say the white collar exemption allows employers to avoid paying lower-wage workers overtime. The proposed rule contains no specific changes to this “duties test,” but instead solicits questions from the public about how best to alter it.
Click Huffington Post to read the President’s Op-Ed piece or Politico, to read Politico’s article. Of course, we will continue to update our readers as further details of the new regulations are rolled out.
S.D.Ohio: Compensation System Based on Number and Type of Cases Managed, Did Not Qualify as “Fee Basis,” For Purpose of Applying Learned Professional Exemption
This case was before the court on the parties’ cross-motions for summary judgment regarding the application (or lack thereof) of the learned professional exemption to plaintiffs, nurse case managers. As discussed here, the court held that the case managers were non-exempt as a matter of law, because the defendants’ compensation plan was neither a salary nor a fee basis plan. As such, the court granted the plaintiffs’ motion in part (regarding their non-exempt status) and denied the defendants’ motion.
The court outlined the relevant undisputed facts regarding the plaintiffs compensation plan as follows:
The facts of Carestar’s compensation system for case managers are not in dispute. Each case manager is assigned a number of consumers or cases that he or she is responsible for managing. Each case is assigned one of three acuity levels depending upon the “needs/situation” of that particular case. The acuity levels have an associated point value ranging from 1.66 to 2.00 to 3.33. A case manager’s total caseload is determined by totaling the point value of his or her assigned cases.
Upon hiring, a case manager is given a dollar value for each point in his or her caseload. This amount is determined based upon the individual case manager’s educational level, credentials (i.e., RN/LSW/LISW) and experience. The Case Manager’s compensation per pay period is determined by adding up the total number of points in his or her caseload and multiplying that by the dollar value of the points. (See Case Manager Compensation Review, Doc. 34–7.)
The compensation system pays case managers an amount for each case managed, regardless of the time expended in performing such management duties. As Plaintiffs point out, Carestar’s compensation system guidelines nowhere discuss the amount of time expected to be worked by case managers in performing their duties.
Based on their compensation plan, the court held that the plaintiffs were neither paid on a salary or fee basis. Discussing the issue, the court explained:
To qualify for the “learned professional” exemption, Plaintiffs must first be “[c]ompensated on a salary or fee basis at a rate of not less than $455 per week….” 29 C.F.R. § 541.300(a)(1) (emphasis added).5 Defendants concede that Case Managers are not compensated on a “salary basis,” but rather assert that they are compensated on a “fee basis.” The DOL regulation on “fee basis” compensation, explains:
An employee will be considered to be paid on a “fee basis” within the meaning of these regulations if the employee is paid an agreed sum for a single job regardless of the time required for its completion. These payments resemble piecework payments with the important distinction that generally a “fee” is paid for the kind of job that is unique rather than for a series of jobs repeated an indefinite number of times and for which payment on an identical basis is made over and over again. Payments based on the number of hours or days worked and not on the accomplishment of a given single task are not considered payments on a fee basis.
Defendants rely on Fazekas v. Cleveland Clinic Foundation Health Care Ventures, Inc., 204 F.3d 673 (6th Cir.2000), to argue that Carestar case managers are compensated on a “fee basis.” In Fazekas, the Sixth Circuit considered whether certain home health nurses were paid on a fee basis for the purposes of the FLSA’s “professional” exemption. See id. at 675–79. The Fazekas plaintiffs were compensated on a per-visit basis, regardless of the time spent on each home health visit. Although the nurses performed multiple tasks within a single visit, including case management and care coordination tasks, and even expended some time outside consumers’ homes on “attendant transportation and administrative duties,” all such tasks were “connected with the actual visits themselves.” Id. at 675. Thus, while the nurses often provided ongoing treatments and implemented ongoing care plans over the course of multiple visits, such services were divisible in to discrete components (i.e., the individual visit), and compensated as such. Accordingly, the disputed matter in Fazekas was not whether the nurses were compensated for performing a “single job,” but rather whether each job was “unique” and, therefore, unlike “piecework payments.” Id. at 676. Analogizing a home health nurse to “a singer, who may, after all, perform the same song or set of songs over and over again during a series of performances, or … an illustrator, who may similarly repeat the same drawings or set of drawings as necessary,” id. at 679, the Court determined that each home health visit was indeed unique. Because this was consistent with the controlling DOL opinion on the matter, see id. at 676–678, the Court concluded that home health nurses paid on a per-visit basis were professionals compensated on a fee basis and therefore FLSA-exempt.
Here, in contrast, throughout a two-week pay period, case managers perform multiple individual tasks in connection with a particular consumer, which cannot be linked back to a single discrete job like a visit, a performance, or a project. Indeed, the pay-period does not correlate with a discrete set of tasks or goals. (Case Mgmt. Practice Guidelines, Doc. 29–11, 2–4; Bowman Aff., Doc. 33–1, ¶ 5 (“The points system used to compensate me was not based on my completion of any single task. Rather, this compensation system required I provide consumers with a series of services which were repeated an indefinite number of times per year based on the consumer’s particular needs.”); Cook Aff., Doc. 33–2, ¶ 5 (same); Gildow Aff. Doc. 33–3, ¶ 5(same); Kurtz Aff., Doc. 33–4, ¶ 5 (same); Potelicki Aff., Doc. 33–5, ¶ 5 (same); Steele Aff., Doc. 33–6, ¶ 5(same)). Rather, Carestar’s Case Management Practice Guidelines identifies numerous ongoing duties, such as periodic reevaluations and a number of required contacts with the consumer during the first and subsequent six month periods. (Case Mgmt. Practice Guidelines, Doc. 29–11; see also Job Description, Doc. 29–5 (“The Case Manager is responsible for on-going case management services to the consumer, including … the on-going monitoring of consumer outcomes, health, safety, eligibility and costs.”)).6 Thus, unlike a nurse’s home health visits, a singer’s performances, or an illustrator’s drawings, the on-going work done by case managers in connection with a case cannot be reduced a series of two-week-long “single job[s].” Therefore, the only basis for delineating and distinguishing case managers’ unit of compensation is the duration of the pay period. As DOL regulations make plain, however, “[p]ayments based on the number of hours or days worked and not on the accomplishment of a given single task are not considered payments on a fee basis.” 29 C.F.R. § 541.605(a). Carestar’s case manager compensation system thus fails to meet the DOL’s definition of a “fee basis” of payment as a matter of law.
Because Case Managers are not compensated on a “salary or fee” basis, they cannot satisfy the requirements for a “professional” exemption under the FLSA. See 29 C.F.R. § 541.300(a)(1). Accordingly, this alone is sufficient to grant Plaintiffs’ Motion for Partial Summary Judgment with respect to Carestar’s misclassification of its Case Managers as “exempt” employees.
The court went on to discuss the duties element of the learned professional exemption, but declined to resolve issues of fact at the summary judgment stage, and noted that resolution of the issue was not necessary in light of the defendants’ inability to meet the salary or fee basis prong of the exemption.
Click Cook v. Carestar, Inc. to read the entire Opinion & Order.
N.D.Ga.: Where Weekly Compensation of RNs and PTs Not Guaranteed and Comprised of Fees Per Visit as Well as Other Pay Based on Time Worked, Not “Salary” or “Fee Basis;” Clinicians Entitled to Overtime
Rindfleisch v Gentiva Health Services, Inc
As discussed here, this case was before the court on the parties’ respective cross-motions for summary judgment. Plaintiffs, registered nurses (RNs) and physical therapists (PTs)(collectively “clinicians”), paid in part by-the-visit to defendant’s patient’s homes asserted that they were entitled to unpaid overtime under the FLSA. Defendant contended that plaintiffs were exempt from overtime pursuant to the so-called “professional exemption.” Granting the plaintiffs’ motion and denying that of the defendant, the court held that the plaintiffs did not qualify for such exemption, because they were not paid on a “salary basis” or “fee basis,” a requisite element for application of the exemption.
Describing the pay policy at issue, the court stated:
Gentiva provides home healthcare services to patients throughout the United States[Doc. No. 508, 1].1 To provide these services, Gentiva employs registered nurses and physical or occupational therapists to provide in-home healthcare to Gentiva’s patients (collectively “Clinicians”) [Doc. No. 508, 1]. Since December of 2008, Gentiva pays the majority of its Clinicians on a pay per-visit plan (the “PPV Plan”) [Doc. No. 586, 4–5].2 Under the PPV Plan, Clinicians are paid a set fee for a “routine visit” to a patient’s home (“visit fees”) [Doc. No. 586, 14]. These visit fees do not vary based on the time it takes Clinicians to complete a specific in-home visit [id. at 15]. In addition, Clinicians under the PPV Plan are also paid on what Gentiva describes as a “flat rate” for non-visit related work (“non-visit fees”) [id. at 19]. In setting the amount of non-visit fees, Gentiva factors in the amount of time it takes Clinicians to perform a specific non-visit related activity [id.].
Gentiva maintains that the PPV Plan constitutes a “fee basis” payment under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq. [id. at 14]. Therefore, Gentiva classifies all of its Clinicians compensated under the PPV Plan as professional employees exempt from overtime compensation under the FLSA [id. at 10].
The court framed the issue before it as follows:
In summary, the only issue for the Court to determine at this stage of the litigation process is whether or not the PPV Plan is unlawful under the FLSA.
After explaining the elements required for the application of the professional exemption, and noting that here it was undisputed that plaintiffs me the duties prong of the exemption, the court addressed whether or not the defendant’s pay scheme was a “fee basis” or “salary basis” within the meaning of the applicable regulation:
The DOL regulations state that, in order to satisfy the salary basis test, a professional employee can be paid “on a fee basis, as defined in § 541.605.” 29 C.F.R. § 541.600(a). Section 541.605 states an employee can be paid on a “fee basis” that satisfies the salary basis test if “the employee is paid an agreed sum for a single job regardless of the time required for its completion.” 29 C.F.R. § 541.605(a). Subsection (b) of section 541.605 states that, in order for a particular fee payment to satisfy the salary basis test, “the amount paid to the employee will be tested by determining the time worked on the job and whether the fee payment is at a rate that would amount to at least $455 per week if the employee worked 40 hours.” 29 C.F.R. § 541.605(b).
In the alternative, the DOL regulations, under section 541.604, allow an employee exempt from overtime pay to receive “extra” compensation that does not satisfy the salary basis test. Specifically, section 541.604 allows two forms of “extra” payment, articulated respectively in subsections (a) and (b). Anani v. CVS RX Servs., Inc., 788 F.Supp.2d 55, 66 (E.D.N.Y.2011). Subsection (a) of section 541.604 allows an employee to receive “additional compensation,” that does not satisfy the salary basis test, “based on hours worked for work beyond the normal workweek.” 29 C.F.R. § 541.604(a). Subsection (b) allows an employee to receive payment on an hourly, daily, or shift basis without losing the overtime exemption, so long as he is guaranteed weekly payment of at least $455 and there is a “reasonable relationship” between the guaranteed weekly payment and the employee’s usual weekly earnings. 29 C.F.R. § 541.604(b).
Summarizing the parties’ respective positions, the court explained:
In its motion for partial summary judgment, Plaintiffs argue that the PPV Plan, because the non-visit fees vary based on the amount of time it takes a Clinician to complete a non-visit activity, violates the salary basis test. Therefore, Plaintiffs argue the PPV Plan violates the FLSA and, as a result, that they are owed overtime compensation. In its response to Plaintiffs’ motion, as well as in its own motion for partial summary judgment on the lawfulness of its fee payments, Gentiva asserts the following two arguments: 1. Pursuant to subsection (b) of section § 541.605, the non-visit fees can vary based on the time it takes Clinicians to complete a non-visit activity and still satisfy the salary basis test; and 2. Even if Gentiva’s non-visit fees improperly consider time, Gentiva’s visit fees properly satisfy the salary basis test and, therefore, the non-visit fees constitute “extra” payments under section 541.604. The Court will discuss each of Gentiva’s arguments below.
The court rejected both of the defendant’s arguments in this regard. First, the court concluded that the defendant’s payment of non-visit fees did not satisfy the salary basis test under 29 C.F.R. § 541.605, because they were variable and depended on the amount of time a clinician spent on non-appointment activities:
Subsection (a) of § 541.605 clearly states that a fee for an activity, in order to satisfy the salary basis test, cannot be based on “the time required for [the activity’s] completion.” 29 C.F.R. § 541.605(a). Subsection (a) further states that “[p]ayments based on the number of hours or days worked and not on the accomplishment of a given single task are not considered payments on a fee basis.” Id. Based on this clear and unambiguous language, a “fee” that varies based on the amount of time it takes to complete a specific activity does not satisfy the DOL regulation’s salary basis test. See Bread Political Action Comm. v. Fed. Election Comm’n, 455 U .S. 577, 580 (1982) (stating that, in the absence of clearly expressed legislative intention, the plain language of a statute controls its construction and must be considered conclusive); see also Evenson v. Hartford Life & Annuity Ins. Co., 244 F.R.D. 666, 667 (M.D.Fla.2007) (“As a general rule of interpretation, the plain meaning of a regulation governs.”).
Gentiva argues that subsection (b) of § 541.605 allows it to alter the amount of its non-visit fees based on the time it takes Clinicians to complete a non-visit activity. Subsection (b) of § 541.605 provides that, in order for a fee to satisfy the salary basis test, the fee must “amount to at least $455 per week if the employee worked 40 hours.” 29 C.F.R. § 541.605(b). To illustrate this point, subsection (b) provides the following example: “[t]hus, an artist paid $250 for a picture that took 20 hours to complete meets the minimum salary requirement for exemption since earnings at this rate would yield the artist $500 if 40 hours were worked.” Id. Based on this language, Gentiva argues that subsection (b) allows an employer to alter the amount of a fee based on the time it takes an employee to complete a specific activity, so long as the fee is not set on a straight hourly basis.
In essence, Gentiva argues that it can consider the amount of time it takes Clinicians to perform certain non-visit activities prospectively, thereby allowing its non-visit fees to vary based on time. Specifically, Gentiva argues that its non-visit fees factor in time “for the purpose of accommodating the clinician for missed visits that she would have otherwise performed” [Doc. No. 512–1, 25]. In support of this argument, Gentiva provides the following example:
in accordance with one of its conversion charts, Gentiva may pay a visit rate equivalent of $30 for a training that lasted 45 minutes and a rate of $60, equivalent to two visits, for a different training that lasted 3 hours. If, however, Gentiva simply set a flat rate for all trainings at the visit rate equivalent of $30, the training that took 3 hours would not qualify as a bona fide fee ($30 ÷ 3=$10 an hour or $400 over a 40–hour work week)
[id. at 54]. In comparison, Plaintiffs argue that subsection (b) of § 541.605 “describes how to evaluate the payments after the job is completed to determine whether the clinician has been compensated sufficiently to meet the exemption or is instead overtime eligible” [Doc. No. 584, 13]. In summary, Gentiva argues that subsection (b) is in place to allow an employer, in setting a fee for a specific activity, to vary the fee based on the amount of time it takes to complete said activity before it is complete. In contrast to Gentiva’s position, Plaintiffs argue subsection (b) is in place for the purpose of determining if a set fee satisfies the $455/40 hour requirement after the specific activity is complete.
The 2003 version of the fee basis regulation, former 29 C.F.R. § 541.313, is persuasive authority on this point. In the preamble to rule 29 C.F.R. § 541.605, the Department of Labor (the “DOL”) states that “[p]roposed section 541.605 simplified the fee basis provision in the current rule, but made no substantive change.” Dep’t of Labor, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 69 Fed.Reg. 22122, 22184 (Apr. 23, 2004). Based on the lack of substantive change, it can be inferred that 29 C.F.R. § 541.605 is consistent with the language of former 29 C.F.R. § 541.313. See Belt v. Emcare, Inc., 444 F.3d 403, 414 (5th Cir.2006) (“The amendments effectively adopted § 541.314 after notice and comment, without substantive change, [ ] thereby tending to show that the text of § 541.3(e) does not contradict the former § 541.314.”).
Former 29 C.F.R. § 541.313 provides that “[t]he adequacy of a fee payment … can ordinarily be determined only after the time worked on the job has been determined.” 29 C.F.R. § 541.313(c) (2003) (emphasis added). To illustrate this point, 29 C.F.R. § 541.313 provides the following example:
An illustrator is assigned the illustration of a pamphlet at a fee of $150. When the job is completed, it is determined that the employee worked 60 hours. If the employee worked 40 hours at this rate, the employee would have earned only $100. The fee payment of $150 for work which required 60 hours to complete therefore does not meet the requirement of payment at a rate of $170 per week and the employee must be considered nonexempt.
29 C.F.R. § 541.313(d)(3) (2003). Based on this language, the Court agrees with Plaintiffs that 29 C.F.R. § 541.605(b) articulates how to determine a fee for a specific activity satisfies the salary basis test after the activity is completed. Therefore, 29 C.F.R. § 541.605(b) does not authorize an employer to prospectively alter a fee based on the amount of time it takes an employee to perform a specific work activity.
Without question, Gentiva’s non-visit fees vary based on the amount of time it takes Clinicians to complete a specific non-visit activity. Therefore, the non-visit fees violate the clear language of 29 C.F.R. § 541.605(a), which specifies a fee only satisfies the salary basis test when it is “an agreed sum for a single job regardless of the time required for its completion.” Subsection (b) of 29 C.F.R. § 541.605 merely provides a basis for determining whether or not a fee for a specific activity satisfies the salary basis test after the activity is complete. Therefore, Gentiva cannot rely on subsection (b) as justification for varying its non-visit fees based on the amount of time it takes Clinicians to complete a non-visit activity. Such a reading of subsection (b) would completely contradict and negate the clear and unambiguous language of subsection (a). Therefore, Gentiva’s non-visit fees do not satisfy the salary basis test under 29 C.F.R. § 541.605.
The court also rejected the defendant’s alternative argument that the non-visit fees constituted an “extra” payment under 29 C.F.R. § 541.604:
Section 541.604 provides that “[a]n employer may provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly-required amount [$455] paid on a salary basis.” 29 C.F.R. § 541.604(a). Gentiva argues that, because its visit fees satisfy the salary basis test, its non-visit fees constitute extra payments under section 541.604. The Court does not find this argument persuasive under either subsection (a) or subsection (b) of section 541.604.
Subsection (a) of section 541.604 allows an exempt employee to receive “extra” payment as “additional compensation … paid on any basis (e.g., flat sum, bonus payment, straight-time hourly amount, time and one-half or any other basis), and may include paid time off.” Id. However, such “extra” or “additional” compensation is only available under subsection (a) for “extra” or “additional” work, meaning “hours worked for work beyond the normal workweek.” Id. Under subsection (a), “beyond the normal workweek” signifies hours worked in excess of forty. See Anani, 788 F.Supp.2d at 67 (stating “common sense as well as the purpose of the FLSA supports the interpretation that the words ‘the normal workweek’ clearly contemplate a forty (40) hour workweek because the FLSA itself generally establishes the right to overtime for hours worked in excess of forty (40) hours.”) (internal quotation marks, alterations and citation omitted).
Here, Gentiva does not designate non-visit activities as additional work only performed after Clinicians have completed forty hours of in-home visits [Doc. No. 586, 34–35]. Instead, in the weeks non-visit activities are performed, non-visit fees are a part of the Clinicians’ compensation for a normal forty hour workweek. Therefore, non-visit fees are not a form of compensation separate from the Clinicians’ forty hour workweek, but are instead a part of the Clinicians’ compensation for a forty hour workweek that includes non-visit activities. Because non-visit activities, and by extension the non-visit fees, are not designated as separate from the Clinicians’ normal workweek, it is irrelevant that Gentiva’s visit fees satisfy the salary basis test. The visit fees do not encompass the complete form of payment for a Clinicians’ normal workweek and, therefore, do not justify payment of the non-visit fees which do not satisfy the salary basis test. As a result, the non-visit fees cannot be considered “extra” payment under subsection (a) of 29 C.F.R. § 541.604.
Subsection (a) of 29 C.F.R. § 541.604 does not allow an employee to receive two forms of payment, with one form failing to satisfy the fee basis test, for two forms of activities completed as part of an employee’s forty hour workweek. An additional form of payment that does not satisfy the salary basis test can only be awarded for work outside of an employee’s normal workweek. As Gentiva’s non-visit fees are a part of the Clinicians’ compensation for a normal workweek that includes non-visit activities, they do not constitute an “extra” payment under subsection (a) of section 541.604.
Subsection (b) of section 541.604 allows an employer to pay its employee on an hourly, daily or shift basis without negating the overtime exemption “if the employment arrangement also includes a guarantee of at least the minimum weekly required amount paid on a salary basis [$455] regardless of the number of hours, days or shifts worked, and a reasonable relationship exists between the guaranteed amount and the amount actually earned.” 29 C.F.R. § 541 .604 (emphasis added). In summary, subsection (b) allows an employee to be paid on an hourly, daily, or shift basis without losing the overtime exemption, so long as the “reasonable relationship” test is met. Anani, 788 F.Supp.2d at 62. Subsection (b) provides that “[t]he reasonable relationship test will be met if the weekly guarantee is roughly equivalent to the employee’s usual earnings at the assigned hourly, daily or shift rate for the employee’s normal scheduled workweek.” 29 C.F.R. § 541.604(b).
Perhaps most significantly, the court noted that the defendant apparently conceded that there was no guarantee that the clinicians would receive at least $455.00 per week, regardless of the characterization of the non-visit fees:
In its reply brief regarding its motion for summary judgment on the lawfulness of its fee payments, Gentiva appears to concede that the visit fees do not guarantee Clinicians paid under the PPV Plan even $455 in a given week [Doc. No. 617, 24–25]. Based on this concession, Gentiva argues that “fee-based employees need not be guaranteed pay of at least $455 per week to be eligible for extras under section 541.604, they only need to be guaranteed fees that pay them at a rate that would result in at least $455 if they were to work a full 40–hour week performing those fee-compensated tasks” [id. at 25]. This argument, when applied to Clinicians and their usual weekly earnings, supports the very form of payment scheme that the reasonable relationship test of subsection (b) is attempting to guard against…
Here, Gentiva argues in favor of a compensation framework, without even establishing a set amount of “guaranteed” weekly payment, that allows an even greater discrepancy between the Clinicians’ normal weekly earnings and their “guaranteed” weekly payment. Specifically, Gentiva argues that Clinicians can receive one visit fee in a given week and still meet the guarantee requirement of subsection (b), so long as that single fee satisfies the fee basis test under section 541.605. However, under that scenario, Clinicians would have to receive an amount of non-visit fees that is significantly greater than the amount received from the one visit fee. For example, Gentiva asserts “the more productive opt-in clinicians in this action were able to earn more than $150,000 per year, and one plaintiff earned over $240,000” [Doc. No. 512–1, 15].11 To earn this amount of compensation in a given year, Clinicians have to receive a weekly amount of earnings that greatly exceeds $455, let alone an undetermined amount that is less than $455. Therefore, under the compensation framework put forth by Gentiva, Clinicians’ “guaranteed” payment is an illusion, having no reasonable relationship to the amount of pay that Clinicians usually receive in a given week. See Dep’t of Labor, 69 Fed.Reg. at 22184 (stating “if an employee is compensated on an hourly basis, or on a shift basis, there must be a reasonable relationship between the amount guaranteed per week and the amount the employee typically earns per week. Thus, if a nurse whose actual compensation is determined on a shift or hourly basis usually earns $1,200 per week, the amount guaranteed must be roughly equivalent to $1,200; the employer could not guarantee such an employee only the minimum salary required by the regulation.”). Therefore, Gentiva’s non-visit fees do not constitute an “extra” payment under subsection (b) of 29 C.F.R. § 541.604.
Thus, the court held that the defendant’s payment plan failed to satisfy the salary or fee basis requirement and thus the professional exemption was inapplicable to the plaintiffs.
Click Rindfleisch v. Gentive Health Services, Inc to read the entire Order.
2 Recent Decisions Hold That an Employer-Defendant Cannot Avoid Liquidated Damages By Relying on Involuntary Administrative Governmental Audits
As FLSA cases have proliferated in recent years, among the formally sleepy areas of jurisprudence that has seen a dramatic rise in litigation is the so-called “good faith” defense. Although in its earliest years the FLSA provided for mandatory liquidated damages, a subsequent amendment to the FLSA, through the Portal-to-Portal Act, now allows for a defendant to avoid the imposition of liquidated damages (in addition to the underlying unpaid wages damages) if it can demonstrate that it took affirmative steps to attempt compliance with the FLSA, but violated the FLSA nonetheless. Two recent cases reiterate that a defendant’s burden is not met solely by demonstrating that it had a subjective belief that it was complying.
McLean v. Garage Management Corp.
In the first case, the defendant sought to avoid liquidated damages by relying on a series of involuntary misinformed DOL audits, which it claimed it reasonably relied upon in establishing their belief that its illegal pay methodology, whereby it treated hourly employees as executive exempt from the FLSA’s overtime provisions. While the DOL has in fact found the defendant’s classification to be proper, the court noted that the DOL’s finding was based on its examination of the employees’ duties alone, because the defendant had misrepresented to the DOL that the employees were paid on a salary basis, at the required rate under the applicable regulations in the initial audit. Subsequent audits simply compounded this initial incomplete investigation, based on the information the defendant provided to the DOL in the initial audit.
Significantly, the court rejected the defendants’ claimed reliance on the DOL audits for 3 separate reasons. First, it found that any informal conversations do not constitute “active steps” to ascertain the dictates of the law. Second, the court noted that the audits were involuntary and defendant had not requested same and thus, giving government investigators access to records and employees did not relieve defendant of its own obligation to determine what the labor laws require. Third, the court noted that defendant had not shown that any government investigator focused with care on its time and payroll records for the employees in question, and thus the DOL had not undertaken a review to see whether the defendant indeed paid a predetermined amount that did not vary, as required to meet the “salary basis” prong of the executive exemption. “Without such full disclosure, [the defendant] cannot reasonably rely on the existence of the investigations and their failure to find any inadequacies in the compensation system for [the employees].”
Finally, the court held that the defendant was not entitled to rely on the fact that it periodically consulted with outside counsel, because it had invoked its attorney-client privilege. The court explained that absent a waiver of the privilege, the defendant could not sustain a defense based on good faith reliance on the advice of counsel.
Click McLean v. Garage Management Corp. to read the entire Opinion and Order.
Solis v. R.M. Intern., Inc.
In the second case- concerning an alleged misclassification of drivers under the Motor Carrier Act (MCA) exemption- the defendant sought to avoid the imposition of liquidated damages, by relying on a prior involuntary Department of Transportation (DOT) audit/citations and the advise of counsel it received as part of the audit process. As in McLean above, the court rejected this evidence of “good faith” as insufficient to meet the defendant’s heavy burden.
The court noted:
Defendants maintain they have demonstrated both their subjective good faith and objectively reasonable belief that their failure to pay overtime wages to their drivers did not violate FLSA. To meet their burden, Defendants rely almost exclusively on their compliance with DOT rules and the DOT’s citation of “some” of their intrastate-only drivers. The DOT’s citation of “some” of Defendants’ intrastate-only drivers, however, does not provide a sufficiently reasonable basis for concluding all such drivers were under the DOT’s jurisdiction and, therefore, exempt from FLSA. The objective reasonableness of Defendants’ failure is undermined by the fact that the determination as to whether the Department of Labor or the DOT has jurisdiction is resolved on a driver-by-driver basis, as the Court explained at length on summary judgment, and, in any event, DOT jurisdiction for a driver who only occasionally drives in interstate commerce lasts only 4 months from the last such trip. See Reich v. Am. Driver Serv., Inc., 33 F.3d 1153, 1155–56 (9th Cir.1994). Furthermore, exemptions to FLSA, such as the Motor Carrier Exemption relied on by Defendants, are to be construed narrowly and only apply to employees who “plainly and unmistakably” fall within their terms. See Solis v. Washington, 656 F.3d 1079, 1083 (9th Cir.2011). Thus, the Court concludes Defendants’ generalizations about entire classes of their drivers on the basis of DOT citations of some of its drivers are insufficient to establish the objective reasonableness of Defendants’ failure to comply with FLSA. Similarly and in light of the lack of testimony in this regard, the fact that Defendants required both their interstate and intrastate drivers comply with DOT regulations neither establishes Defendant’s subjective belief nor its objective reasonableness.
Defendants also maintain their belief that their drivers were exempt from FLSA is reasonable in light of the fact that they hired counsel to assist with the November 2009 DOT compliance audit. Although there is not any direct evidence as to the purpose of counsel’s representation, the Court concludes it is fair to infer that counsel was hired to ensure Defendants’ compliance with DOT regulations rather than to ensure Defendants were compliant with FLSA. In any event, there is not any evidence on this record from which the Court can find that Defendants took “the steps necessary to ensure [its] practices complied with [FLSA].” Alvarez, 339 F .3d at 910 (“Mistaking ex post explanation and justification for the necessary affirmative ‘steps’ to ensure compliance, [the defendant] offers no evidence to show that it actively endeavored to ensure such compliance.”). Thus, the Court concludes on this record that Defendants did not satisfy their “difficult” burden to show their subjective good faith failure to comply with FLSA or the objective reasonableness of their actions, and, therefore, the Court concludes Plaintiff is entitled to liquidated damages in the amount equal to the unpaid overtime wages.
Click Solis v. R.M. Intern., Inc. to read the entire Supplemental Findings of Fact and Conclusions of Law and Verdict.
E.D.Pa.: Hourly-Paid Physician Assistant (PA) Not Professional Exempt; Not A Practitioner “Licensed and Practicing In The Field Of Medical Science”
Cuttic v. Crozer-Chester Medical Center
This case was before the court on the parties’ cross-motions for summary judgment regarding whether plaintiff was exempt from the FLSA’s overtime provisions under the professional exemption. Because it was undisputed that Plaintiff was paid on an hourly rather than salary basis, the sole issue before the court was whether plaintiff, a physician assistant (PA), qualified as a “professional” within the meaning of § 541.304, the regulation that exempts certain “other practitioners licenced and practicing in the field of medical science” from the typical salary requirements for the professional exemption. Holding that PA’s do not fall within this definition, the court granted plaintiff’s motion and denied defendant’s motion.
The court reasoned:
“The issue in dispute is whether PAs are intended to be included within § 541.304 and, thus, exempt from the salary requirement in § 541.300(a)(1). In particular, the parties contest whether the language “other practitioners licenced and practicing in the field of medical science” includes PAs. See 29 C.F.R. § 541.304(b).
Defendant argues that PAs are explicitly included among those who qualify for the salary-basis exemption enunciated in § 541.304 because the regulation makes an exception to the salary-basis requirement for employees holding valid licenses or certifications permitting the practice of medicine and actually engaging in the practice thereof. 29 C.F.R. § 541.304(d). Defendant states that because Plaintiff admitted he possesses a valid licence to practice as a PA in Pennsylvania and that he “practice[s] medicine under the direct supervision of [his] attending physicians,” Plaintiff is a “practitioner licensed and practicing in a field of medical science” and qualifies under the salary-basis exemption. (Def.’s Mot. for Summ. J. at 9-12.)
Plaintiff, on the other hand, argues that the salary-basis exemption is narrow in scope and does not include PAs. To support this argument, Plaintiff compares the examples given in § 541.600(e) and § 541.304(b). Section 541.600(e) states that “[i]n the case of medical occupations, the exception from the salary or fee requirement does not apply to pharmacists, nurses, therapists, technologists, sanitarians, dieticians, social workers, psychologists, psychometrists, or other professions which service the medical profession.” 29 C.F.R. § 541.600(e) (emphasis added). Section 541.304(b) states that “the exemption applies to physicians and other practitioners…. The term ‘physicians’ includes doctors including general practitioners and specialists, osteopathic physicians …, podiatrists, dentists …, and optometrists ….” 29 C.F.R. § 541.304(b).
Plaintiff argues that a PA is more akin to one of the named professions which “service the medical profession” as opposed to a doctor, osteopathic physician, podiatrist, dentist, or optometrist. Plaintiff points out that any work he does as a PA must be performed under the direct supervision of a physician, and his main function “is to serve and provide support to the medical profession .” (Pl.’s Mot. for Summ. J. at 8.)
B. Examination of § 541.304
In interpreting the language and meaning of § 541.304, the Court must first determine whether the terms used in § 541.304 are ambiguous as to PAs. Defendant argues that PAs unambiguously practice medicine or a branch of medicine within the meaning of § 541.304, and Plaintiff maintains that the regulation does not speak to this issue. “A regulation is ambiguous when it is not free from doubt … and where no particular interpretation of the regulation is compelled by the regulation’s plain language or by other indications of the [agency’s] intent at the time of promulgation of the regulation.” Sec’y of Labor v. Beverly Healthcare-Hillview, 541 F.3d 193, 198 (3d Cir.2008) (internal marks omitted) (holding the term “cost” in Bloodborne Pathogens Standard regulation was ambiguous based on preamble language and fact that neither party “pointed to any indication contemporaneous with promulgation unequivocally stating the agency’s intent to interpret the provision in a particular way”).
Here, the regulations do not define the terms used in § 541.304. In particular, the term “other practitioners licensed and practicing in the field of medical science” is broad and undefined. See Belt v. Emcare, Inc., 444 F.3d 403, 409-12 (5th Cir.2006) (finding § 541.304‘s language is ambiguous and resorting to DOL for interpretative guidance); Clark v. United Emergency Animal Clinic, Inc., 390 F.3d 1124, 1127 (9th Cir.2004) (considering the applicability of § 541.304 to veterinarians); Parker v. Halpern-Ruder, M.D., No. 07-401S, 2008 WL 4365429, at *1 (D.R.I. Sept.16, 2008) (considering the applicability of § 541.304 to registered nurse practitioners and holding nurse practitioners do not fall within § 541.304). Consequently, the Court must construe the language of § 541.304 by giving controlling weight to the agency’s interpretations unless they are “arbitrary, capricious, or manifestly contrary to the statute.” Chevron U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837, 842-44, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). An agency’s interpretation is controlling “unless plainly erroneous or inconsistent with the regulation.” Auer v. Robbins, 519 U.S. 452, 461, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997) (internal marks omitted).
There is limited law on the question of whether PAs are exempt from the overtime requirements of the FLSA pursuant to § 541.304. The Fifth Circuit, the only circuit to consider the matter, gave deference to the DOL’s informal interpretative statements because that court held that there was limited law on the matter. Belt, 444 F.3d at 405 (using DOL interpretative statements to determine that PAs are not exempt from the salary-basis test); see also Parker, No. 07-401S, 2008 WL 4365429, at *4 (denying Defendant’s motion to dismiss because Defendant did not establish that nurse practitioners are subject to salary-basis exemption in § 541.304). This Court will do the same.
The DOL has consistently interpreted the regulations set forth in § 541 to require a PA to satisfy both the duties test and the salary-basis test, as set forth in § 541.300(a)(1)-(2), in order to qualify for an exemption from the FLSA’s overtime requirements. The DOL has refused to extend § 541.304‘s exception to the salary-basis requirement beyond actual physicians and has consistently taken the position that the salary-basis exception does not apply to PAs. The DOL issued an interpretative regulation in 1949, which was revised in 1973, regarding the meaning of § 541.304(a)‘s phrase “or any of its branches”. See Belt, 444 F.3d at 413 (examining DOL’s interpretative regulations to interpret 29 C.F.R. § 541.3(e) which is a predecessor to 29 C.F.R. § 541.304). This interpretative regulation stated:
Exception for physicians, lawyers, and teachers.
(a) … The exception applies only to the traditional professions of law, medicine, and teaching and not to employees in related professions which merely serve these professions.
(b) In the case of medicine:
(1) … The term physicians means medical doctors including general practitioners and specialists, and osteopathic physicians…. Other practitioners in the field of medical science and healing may include podiatrists …, dentists …, optometrists….
(2) [omitted]
(3) In the case of medical occupations, the exception from the salary or fee requirement does not apply to pharmacists, nurses, therapists, technologists, sanitarians, dieticians, social workers, psychologists, psychometrists, or other professions which service the medical profession.
Id. (quoting 29 C.F.R. § 541.314(a), (b)(1)-(3) (1973)) (emphasis added). This language indicates that the DOL intended for the salary-basis exemption, set forth in § 541.304, to only apply to the “traditional professions of law, medicine, and teaching….” Defendant does not assert any arguments as to why PA’s should be considered members of the “traditional professions of law, medicine, and teaching.” The PA occupation did not develop until 1960; as such, it could not have been within the traditional practice of medicine when the exception was first enacted in 1940.
The 2004 amendments to the regulations continue to use a salary-basis test to determine whether an employee qualifies for the “bona fide professional” exemption pursuant to § 541.300. Additionally, the 2004 amendments specifically reference PA’s. Section 541.301(e)(4) states that PAs who meet certain educational and certification requirements “generally meet the duties requirements for the learned professional exemption.” 29 C.F.R. § 541.301(e)(4). The learned professional exemption that is referenced is found in § 541.300, and this exemption requires an employee to meet the duties and salary requirements. Other occupations explicitly recognized in § 541.301 include registered or certified medical technologists and nurses. See § 541.301(e) (1)-(2). These recognized professions are explicitly excluded from § 541.304‘s salary-basis exemption in § 541.600(e). Further support for the Plaintiff’s position is found directly in the DOL’s statements. In Belt, the DOL, as amicus curiae, “unambiguously adopt[ed] the position that [nurse practitioners] and PA’s do not qualify for the professional exemption.” 444 F.3d at 415; see also Auer, 519 U.S. at 462 (finding that Secretary’s amicus brief sufficed to show how the DOL interpreted its own ambiguous regulation).
Under these circumstances, the Court will give deference to the DOL’s position which is consistent with the 1973 interpretative regulations and 2004 amendments. In deferring to the DOL’s interpretive statements, the Court holds that PAs are not included in the salary-basis exemption found in § 541.304.”
Click Cuttic v. Crozer-Chester Medical Center to read the entire opinion.
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11th Cir.: Despite Variable Premium/Bonuses That Fluctuated With Quantity/Quality of Work Performed, Bookkeeper/Accountants Were Paid on “Salary Basis”
Bell v. Callaway Partners, LLC
Plaintiffs were bookkeepers/accountants classified by Defendant as exempt from the Fair Labor Standards Act’s (FLSA) overtime pay requirement. This appeal concerned solely the issue of whether Plaintiff- who was paid a combination of a guaranteed weekly salary plus a variable bonus (at a straight-time rate rather than time and a half)- was paid on a “salary basis” for the purposes of satisfying the so-called “white collar” exemptions of the FLSA. The Court ruled that she was and affirmed the ruling of the lower court, holding that variations in bonus or extra pay do not affect the underlying analysis of whether the first 40 hours are paid at on a “salary basis.”
Describing the pay structure at issue, the Court stated:
“Plaintiffs’ pay consisted of two distinct components. First, Plaintiffs received a guaranteed weekly salary of $1600 or more that did not depend on the quality or quantity of the work performed. This weekly salary was reduced by one-fifth of the weekly salary for every full day a Plaintiff took off from work for personal reasons during the normal workweek without substituting Paid Time Off (“PTO”). But, a Plaintiff could work fewer than eight hours during any given workday without any reduction in his or her weekly salary. Second, Plaintiffs were eligible to receive additional incentive compensation (a “bonus”) paid at a straight-time hourly rate based on the cumulative number of billable hours that Plaintiffs worked. Any bonus to be awarded was determined based on how many additional hours over forty a Plaintiff worked in a given week minus any “deficit” hours a Plaintiff had accumulated in past weeks. For example, if a Plaintiff worked seven and not eight hours on each regularly-scheduled workday in a given week, thus totaling 35 hours of work, he or she still earned the full predetermined weekly salary, but would not earn a bonus in a subsequent week until he or she made up the bonus-hour deficit of five hours and then worked more than 40 hours in a given week.”
Holding that this compensation methodology complied with the “salary basis” test, the Court reasoned:
“An employee is considered “paid on a salary basis” if “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. § 541.602. Plaintiffs argue that they were not paid on a salary basis because the amount of their bonuses fluctuated based on the cumulative number of hours worked. But, as we have previously determined, “as long as there is a non-deductible minimum, additional compensation on top of the non-deductible salary is permissible.” Hogan v. Allstate Ins. Co., 361 F.3d 621, 625 (11th Cir.2004) (citation omitted). And, while additional compensation is permissible, the regulations do not require additional compensation, nor do they prescribe a set method for setting up a bonus system. 29 C.F.R. § 541.604(a) (“An employer may provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirement, if the employment arrangement also includes a guarantee of at least the minimum weekly-required amount paid on a salary basis…. Such additional compensation may be paid on any basis ….”).
After a review of the record, we agree with the district court’s well-reasoned analysis concluding that Callaway’s bonus system conformed to the requirements of the salary basis test. (R.374 at 13-24.) While Callaway’s incentive program may have been designed in a way that encouraged overtime work, as Plaintiffs argue it was, because it deducted for “deficit” hours, it nevertheless conformed to the requirements of the FLSA. Because there was a non-deductible minimum weekly salary, Callaway was free to structure any bonus program as it saw fit.
Plaintiffs also argue that Callaway violated the salary basis test when it deducted a full day’s pay for personal days missed during the workweek (Monday through Friday) but did not pay Plaintiffs for a “full day” for partial days worked on Saturday or Sunday. Again, we agree with the district court’s analysis concluding that such deductions were allowable under the provisions of 29 C.F.R. § 541.602(b)(1). (R.374 at 25-34.) Therefore, we hold that the district court did not err in finding Callaway’s pay policies to be in compliance with the FLSA.”
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.”
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