Advocates for interns seeking wage payments under federal and NY law received some welcome news this week with the decision in Glatt v. Fox Searchlight Pictures, Inc. [here].  As we have discussed previously [See here, here, here], Glatt is one of a number of recent cases brought on behalf of interns, paid or unpaid, who allege that they should have been classified as employees and entitled to receive minimum wage (and, if applicable, overtime).

Just a few weeks ago, the trendlet of internship filings may have appeared to be waning after a decision denying class certification in a case involving interns for a number of Hearst publications [See here].  The Glatt decision – a grant of summary judgment on the merits – is sure to ease the sting for plaintiffs of the loss in Hearst, and signals that employers should not be complacent or expect this wave to subside any time soon.

Glatt involved interns who worked on production of the film Black Swan.  Judge William Pauley of the Southern District of New York, after first deciding a complex issue of joint-employment and dismissing one intern’s claims (under California law) as untimely, held that the interns should have been classified as employees and paid wages under the FLSA and NY Labor Law.

The court applied the six-factor test articulated by the U.S. Department of Labor for determining whether a worker is a bona fide intern [See here].  In deferring to the DOL factors, the judge refused to adopt the “primary beneficiary” test advocated by the defendants and adopted by other courts.  Under that test, the court decides whether the benefits of the internship accrue more to the intern than to the engaging entity.  Judge Pauley said that test is “subjective and unpredictable,” such that “an employer could never know in advance whether it would be required to pay its interns.”

The court then held that five of the six DOL factors weighed in favor of employee status for the Black Swan interns.  Specifically:

• they did not receive any formal training or education during the internship;
• they benefitted from the experience only in a manner “incidental to working in the office like any other employee” and not as “the result of internships intentionally structured to benefit them”;
• they “performed routine tasks” – such as filing, taking lunch orders, and answering phones – that “would otherwise have been performed by regular employees”;
• the company “obtained an immediate advantage” from the interns’ work; and
• the interns did not appear to be entitled to a job at the end of the internships.

As to the sixth factor – whether the interns were paid – the court acknowledged that the interns “understood they would not be paid,” but said this factor “adds little,” since the FLSA does not allow employees to waive their entitlement to wages.

While other courts may not follow Judge Pauley’s lead, Glatt is sure to serve as a roadmap for plaintiffs’ counsel who are looking to capitalize on the recent growth (if anecdotal reports are to be believed) of internships in private-sector workplaces as a consequence of the sluggish job market.

The case should thus be an object lesson for employers:  the mere fact that a worker is labeled an “intern,” and is willing to work for free (or work for pay without getting minimum wage and overtime premiums), is not by itself enough to remove the worker from the coverage of wage-hour laws.  After Glatt, careful compliance remains as important as ever.

A federal judge in Oregon recently gave the Secretary of Labor a very important tip:  Just because the FLSA appears to be silent on a particular issue does not give the U.S. Department of Labor authority to fill the gap with regulations.  In a June 7, 2013 opinion [here], a district court ruled that the DOL’s April 2011 amended tip-pool regulations were invalid because they conflicted with the clear intent of Congress in the FLSA, even though the FLSA is silent regarding the use of tip pools when an employer does not take a tip credit.

In a “tip pool,” employees contribute a portion of their tips to a general fund that is later distributed and shared with other employees.  Although the FLSA permits the use of tip pools, the statute and its regulations limit the types of employees who can participate in a tip-pool to those who “customarily and regularly” receive tips like waiters, bartenders, busboys, bellhops, and other front-of-the-house employees.  But, if the employer does not take a tip credit (that is, if the employer does not pay less than the federal minimum wage to tipped employees), employers and employees can agree to include non-tipped employees like dishwashers and cooks in the tip pool.  At least this was the general consensus before April 2011, as illustrated by the Ninth Circuit’s decision in Cumbie v. Woody Woo, Inc.  In Woody Woo, the Ninth Circuit found that under the clear and unambiguous text of Section 3(m) of the FLSA, Congress intended only to limit the use of tips by employees when the employer claims a tip credit.  If the employer does not take a tip credit and restaurant employees thus receive wages at or above minimum wage, then federal minimum wage law does not regulate the tip pool.

In April 2011, however, the DOL expressly rejected Woody Woo and revised its regulations (29 C.F.R. §§ 531.52 and 531.54) to state that tips are the property of the employee whether or not the employer has taken a tip credit and that a valid tip pool may only include “those employees who customarily and regularly receive tips”—without exception.  As we discussed previously [here], the DOL issued a Field Assistance Bulletin (an internal document explaining its enforcement position to DOL personnel) in February 2012 in which the Wage Hour Division outlined its intent to actively enforce the revised regulations on a nationwide basis.  And enforce it they did.  Since 2012, the DOL has challenged tip pools in the hospitality industry, particularly in the western United States.

Some employers and industry groups have fought back, however, by suing the DOL and challenging the validity of the revised regulations in court.  The DOL’s Wage and Hour Division is authorized to enforce the FLSA’s minimum wage and overtime provisions.  Thus, many practitioners argue that the DOL lacked authority to issue the revised regulation and lacks authority enforce the regulation unless an employee’s tips are being used in violation of one of those provisions.  The district court in Oregon agreed, holding that the amended regulations were invalid because the clear intent of Section 3(m) of the FLSA was “only to limit the use of tips by employers when a tip credit is taken” and because “an employment practice does not violate the FLSA unless the FLSA prohibits it.”

Although Section 3(m) is silent regarding the use of tip pools when an employer does not take a tip credit, the court chastised the DOL’s practice of trying to fill this apparent gap with the revised regulations:

To express its intention that certain activities be left free from regulation, Congress need not lace the United States Code with the phrase, ‘You shall not pass!” . . .  For the DOL, silence is always an implicit gap to be filled by regulation.  The DOL’s position seems to be that Congressional silence regarding an area of economic activity is never a considered decision to let the economic actors make their own choices.  . . .  The Court’s ability to discern Congressional intent is no so limited.

Ultimately, the court concluded that it would “not alter the text of a statute in order to satisfy the policy preferences of the Secretary of Labor.”

Although this decision is significant for restaurants and other business in the hospitality industry, the court’s reasoning will have broader implications when the DOL or other federal agencies overstep their regulatory authority.  This much is sure: Just because the FLSA appears to be silent on a particular issue does not give the DOL authority to fill the gap with regulations.

Surprising many observers, the Supreme Court on Monday upheld an arbitrator’s decision to permit class arbitration even though the parties’ agreement did not explicitly provide for such procedures.

In Oxford Health Plans LLC v. Sutter [here], the arbitration clause stated in part that “[n]o civil action concerning any dispute arising under this Agreement shall be instituted before any court.”  The Court said that the arbitrator, who read the clause to permit arbitration on a classwide basis rather than limiting it to bilateral disputes between the contracting parties before him, did not exceed his powers in doing so.

Pundits had expected that the Court’s grant of certiorari in Sutter – in combination with the Justices’ comments at oral argument – signaled its intention to follow its 2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. [here], in which the Court held that an arbitration panel exceeded its powers under section 10(a)(4) of the Federal Arbitration Act by imposing class action procedures where the parties’ agreement was silent on whether such procedures were permitted.  The Sutter arbitrator had reached a similar result, and Oxford argued that Stolt-Nielsen required a similar reversal.

But the Court distinguished Stolt-Nielsen by noting that the parties in that case “had entered into an unusual stipulation that they had never reached an agreement on class arbitration.”  Thus, the Court said, the panel’s imposition of class procedures was not based on a reading of the contract or the parties’ intent, but on a policy choice in favor of class proceedings.

Not so in Sutter.  Noting a “stark” contrast with the facts of Stolt-Nielsen, the Court said that the Sutter arbitrator did base his decision, “through and through,” on the parties’ contract, which the parties had authorized him to interpret.  And because he “did what the parties had asked,” he could not be said to have exceeded his powers, regardless of what the Justices may have thought about the merits of the ruling.

Perhaps more important is what the Court, in a long footnote, said it would not decide:  whether the availability of class arbitration is a “question of arbitrability.”  If it is, then absent “clear[] and unmistakabl[e]” evidence that the parties agreed to submit that threshold issue to the arbitrator, the availability of class arbitration is reserved for a court.  That issue was not presented in Sutter, although the apparent message of its footnote is that the Court may be interested in taking up this issue soon.  (The Court similarly left this issue unresolved a decade ago in Green Tree Financial Corp. v. Bazzle.)

Sutter was decided on this relatively narrow basis, without any sweeping pronouncements (or reiterations of earlier sweeping pronouncements) about the propriety of class arbitration.  Even the concurring opinion by Justice Alito (author of Stolt-Nielsen), in which Justice Thomas joined, merely nodded in that direction.

Yet despite the narrowness of the ruling, Sutter does contain important lessons for companies with arbitration agreements with their employees:

• A forceful reaffirmation of limited judicial review of arbitration awards – Again and again, Justice Kagan’s opinion – often deploying strategic use of parenthetical clauses – reminds courts of their extremely limited role in reviewing arbitrators’ decisions.  After discussing the parties’ arguments in support of and opposition to the arbitrator’s decision to permit class arbitration, the Court explicitly refused to weigh in.  Instead, it offered the following, all of which are sure to be cited repeatedly in coming years by parties defending arbitral rulings in court:  “[C]onvincing a court of an arbitrator’s error – even his grave error – is not enough.”  “The potential for those mistakes is the price of agreeing to arbitration.”  “The arbitrator’s construction holds, however good, bad, or ugly.”  “[A]n arbitral decision even arguably construing or applying the contract must stand, regardless of a court’s view of its (de)merits.”  “So the sole question for us is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.”                                                                                          
• A lesson on clear drafting – The Sutter case, like Stolt-Nielsen before it, concerned an arbitration clause that was silent on the class action issue.  For employers, the takeaway is clear:  going forward, if you like arbitration but don’t want your arbitrations to proceed on a class basis, make sure the agreement states explicitly that such procedures are not permitted.  That avoids the “silence” issue altogether, and renders Stolt-Nielsen, Sutter and their ilk irrelevant.

That last point likely illustrates why, as one veteran Supreme Court observer noted, Sutter “is unlikely to have much if any broader significance.” [here]  The number of arbitration clauses that are silent on the issue of class procedures is, or should be, rapidly dwindling, as is the number of cases construing those clauses.  Ever since AT&T Mobility v. Concepcion [here], the real battleground has been whether agreements with explicit class waivers can be upheld.

On that score, while some questions of enforceability are still lingering [here], the judicial trend has been strongly in favor of enforcement.  Employers interested in that issue will want to stay tuned for decisions this summer from the Supreme Court, the Second Circuit, and other federal courts.

Despite the lenient standard employed by many courts on motions for conditional certification, a federal judge in Pennsylvania recently denied conditional certification of an FLSA collective action based on scant factual support.  In Moore v. PNC Bank, N.A. [here], the court concluded that the plaintiff could not bring her claim as a collective action because there was no factual nexus between her alleged experiences and the experiences of a proposed nationwide class of over 2,000 current and former assistant branch managers.  The opinion demonstrates that just a common job title and job description do not make employees similarly situated to each other, even at the conditional certification stage.

The plaintiff was a former PNC Bank assistant branch manager (“ABM”) who worked at two branches in southern Ohio.  According to the plaintiff, PNC Bank classified her as exempt from overtime wages, yet required her to perform non-exempt duties, such as customer service, the vast majority of the time she spent on the job.  The plaintiff further alleged that PNC Bank ABMs across the country were misclassified as exempt and improperly denied overtime wages under the FLSA. 

Although the court allowed pre-certification discovery, the plaintiff did not file any supporting declarations nor included deposition testimony of any other current or former ABMs.  Instead, she relied on evidence that all PNC ABMs were governed by common, uniform policies, while PNC disputed the argument that all ABMs were required to perform non-exempt tasks. 

In denying conditional certification, the judge held that it was not appropriate to conditionally certify an entire class of employees simply based on the testimony of one employee who said she was required to perform non-exempt tasks.  Even under the lenient standard afforded to a plaintiff seeking conditional certification, the plaintiff failed to meet make a modest factual showing that the proposed class members were similarly situated to her.  Aside from mere allegations, the plaintiff did not demonstrate a “factual nexus” between her experiences and a nationwide class of ABMs.

Moore follows a line of cases that have denied conditional certification where plaintiffs have relied on a common exemption status established by a corporate-wide policy, without more, as the only factor that binds a putative class.  In those cases, courts have denied conditional certification absent evidence that others in the putative class are also performing non-exempt duties. 

These decisions demonstrate that courts will not hesitate to deny motions for conditional certification if they lack evidentiary support.  Despite the so-called lenient standard, courts are willing to scrutinize motions for conditional certification where plaintiffs offer little or no evidence that a factual nexus exists between their alleged experiences and the experiences of the entire putative class. 

This week, a federal judge in the Southern District of New York confirmed that an FLSA plaintiff cannot win certification of a sweeping collective action by talking only about himself. 

In Ikikhueme v. Culinart, Inc., [here] a Sous Chef originally sought to represent a class of all food services employees, not just fellow Sous Chefs, that Culinart employed across 200 locations.  By the time briefing closed, he’d limited his proposed class to just Sous Chefs, whom he claimed Culinart misclassified as overtime-exempt.  The court denied his motion, finding that his evidence was not enough to satisfy a lenient conditional certification standard.

Perhaps by virtue of cases like Comcast, which we’ve reported on several times before, it seems most plaintiffs’ attorneys are beginning to understand that evidence regarding the experience of one individual is unlikely to merit certification of a class of droves more.  The plaintiff in this case anticipated otherwise. 

In support of his bid for conditional certification, the Sous-Chef-turned-plaintiff served up two self-serving declarations.  As the Court acknowledged, they spoke only of his own employment and circumstances at the single location where he worked as the only Sous Chef.  He made “no allegations regarding the responsibilities or pay practices of the Sous Chefs who preceded him or succeeded him” at his location, much less at the hundreds of other locations.  “This,” wrote the Court, “is exactly the type of ‘unsupported assertion[]’” that falls short in the Second Circuit.

In sending this flawed conditional certification bid back to the kitchen, the judge offered several instructions that are sure to whet future defense counsel’s appetites.  Among them was a recognition that while a plaintiff’s burden for conditional certification “is lax, and their burden modest, a court must nonetheless take a measured approach when addressing [such] a request . . . , mindful of the potential burden associated with defending against an FLSA claim involving a broadly defined collective group of plaintiffs.”

Certainly, the plaintiff in this case was left wanting much more.  He will now be forced to litigate the question of whether he, individually, performed duties as a Sous Chef that qualified him for exemption from the FLSA’s overtime requirements.  On his motion for conditional certification, however, his proof should have been in the pudding. . . it was not.

As we posted last month [here], district courts throughout the country have indicated that the Supreme Court’s recent decision in Comcast Corp. v. Behrend makes it harder for plaintiffs to pursue wage and hour claims as class actions.   Earlier this week, the Ninth Circuit issued a decision that some commentators have interpreted as bucking this trend, however, the case turns on unusual facts:  unlike in Comcast and most wage and hour cases, the defendant had submitted an affidavit establishing that damages for each putative class member could be calculated readily and mechanically through the Company’s electronic payroll records by applying basic math to undisputed timekeeping and payroll data.

In Leyva v. Medline Indus., Inc.[here], the plaintiff sued a medical product manufacturer alleging violations of California’s labor laws—including the company’s alleged use of improper time-rounding and bonus policies.  The plaintiff claimed that the company’s alleged policy of rounding time by 29 minutes and supposed failure to include non-discretionary bonuses in the calculation of the employees’ regular rate was unlawful.  The plaintiff sought class certification on behalf of approximately 538 current and former hourly employees who worked in the company’s three California distribution warehouses. 

The district court denied the plaintiff’s motion for class certification, holding that common questions did not predominate over individual questions because “although Plaintiff appears to have established that common questions exist with respect to Defendant’s liability under state law, the damages inquiry will be highly individualized.”  

The Ninth Circuit reversed, holding that the damage calculations required would not predominate over common questions as to liability.  In reaching this conclusion, the court explicitly distinguished the straight-forward damages at issue in Leyva from the complex damages in Comcast, noting that “unlike in Comcast, if putative class members prove [defendant’s] liability, damages will be calculated based on the wages each employee lost due to [defendant’s] unlawful practices.”  The court found the damage inquiry to be limited since the company’s payroll and time-keeping database “would enable the court to accurately calculate damages and related penalties for each claim.”  For example, if the company’s rounding policy is determined to be unlawful, then damages could be easily calculated by comparing time clock data to payroll data to determine the difference between when an employee clocked in versus when they were paid based on the company’s rounding data.  Likewise, because there is no dispute regarding the amount paid to employees in bonuses, recalculating the regular rate is a matter of simple math.    

The facts here are in stark contrast to those in Comcast and in most wage and hour cases.  Unlike Comcast and every other reported wage and hour Rule 23 certification decision since Comcast, Leyva did not involve any argument that individual damages calculations would be expensive, extensive, time-consuming, or complex.  Nor was there any suggestion of any dispute about the data from which damages could be calculated:  the hours worked, rates of pay and bonus amounts.  In other words, there was no evidence that calculating individual damages would be anything other than mechanical or that damages issues would in any way predominate over common issues.  Thus, while plaintiffs lawyers may be expected to argue that Leyva undermines the district court cases, in fact, Leyva merely stands for the unexceptional proposition that individual damage calculations will not necessarily prevent class certification if they are mechanical and based on undisputed data.   

Leyva’s holding should have little application in other wage and hour cases such as those involving claims of unpaid overtime due to off the clock work or misclassification.   By way of illustration, consider a case alleging that 2,000 employees worked off-the-clock,  Even if liability could be determined on a class-wide basis, damages for each plaintiff’s alleged off-the-clock work likely would still be a highly individualized endeavor requiring individual testimony and evidence to establish whether each employee worked off the clock on any particular day, and if so, for how long and who knew about it.  Damage calculations would require individual mini-trials and, unlike Leyva,  would not be based on undisputed objective data that lends itself to simple math.

Judge Pregerson’s opinion also cites a pre-Comcast Ninth Circuit decision stating that “damages calculations alone cannot defeat certification.”  If “calculations” refers to mere mathematical computation of damages based on known data, the quoted statement seems consistent with Comcast.  On the other hand, if it means that the need for individualized inquiries regarding damages can never predominate over common liability issues, with all due respect to Judge Pregerson, it cannot be squared with Comcast.  Indeed, the Supreme Court stated in Comcast that even if the damages model had not been flawed, individualized damages issues might well have overwhelmed common liability issues anyway. 

Can the right to bring a collective action under the Fair Labor Standards Act (“FLSA”) be waived by an arbitration agreement? 

While we await the Second Circuit’s decisions in the appeals of two Southern District of New York decisions that said no to this question [here and here], employers that want to enforce waivers for FLSA collective claims recently received good news.

Judge Paul Engelmayer, also of the Southern District of New York, recently held [here] that “the right to proceed collectively under the FLSA can be waived by agreeing to arbitrate.”  This is another in a trend of cases upholding collective action waivers.

The core issue in these cases is whether the right to bring a FLSA collective action is “substantive,” or if it can be waived by an arbitration agreement.   While the Federal Arbitration Act favors arbitration agreements, employees cannot be required to waive substantive rights under employment statutes.

In the recent decision, a television network coordinator claimed she was required to work off the clock.  She sued under the FLSA on behalf of herself and similarly situated others.  The employer moved to enforce its arbitration agreement and its waiver of class or collective proceedings.  The plaintiff countered that arbitration agreements can never waive FLSA collective action rights. 

The Court disagreed in siding with the employer.  Judge Engelmeyer cited multiple Circuit and District court decisions holding that an employee’s right to proceed collectively under the FLSA can be waived in an arbitration agreement.  The Court directly took on the contrary decisions in Raniere v. Citigroup (from a fellow S.D.N.Y. judge) and D.H. Horton (from the National Labor Relations Board), saying that those decisions are contrary to the U.S. Supreme Court’s Concepcion decision (generally upholding class-action waivers in arbitration agreements).

The Court also pointed out that other Supreme Court cases suggest that the right to collective actions under the FLSA is not “substantive” and can be waived.  Finally, the Court mentioned the FLSA itself:  the plain text and legislative history of the statute, it said, do not show any intent by Congress to prevent waivers of FLSA collective action claims. 

Although cases rejecting FLSA collective action waivers remain on the books, this is another decision tipping the balance toward enforcement of those waivers.

We’ve known since the Supreme Court’s 1982 decision in General Telephone Company of Southwest v. Falcon that in determining whether the prerequisites for class certification have been satisfied, a court must engage in a “rigorous analysis.”  But what does that mean?  According to the Second Circuit, at a minimum it means that a court must resolve material disputed facts relevant to each Rule 23 requirement before certifying a class, even where there is evidence of a common practice or policy.

Cuevas v. Citizens Financial Group [See here] involved an appeal of a district court’s order granting certification of a class of Assistant Branch Managers (“ABMs”).  The plaintiffs alleged that the bank violated the New York Labor Law by classifying all ABMs as exempt from the state law’s overtime requirements.  The district court [See here] found that commonality was satisfied because of company-wide documents that described the duties of the ABM position and limited ABMs from deviating from company-wide policies. It noted that the record reflected some differences among the exact daily activities of ABMs but concluded that the bank failed to submit any evidence showing that the company-wide policy documents were not an accurate representation of the general ABM responsibilities. 

The district court ruled similarly with respect to the issue of predominance.  In doing so, it stated that “the existence of some variation among the daily activities of putative class members does not automatically show that individual issues predominate.”  It found that there was no evidence that the differences among class members are of such magnitude as to cause individual issues to predominate.

But not so fast, said the Second Circuit.  It reversed and remanded the grant of class certification, holding that in determining whether Rule 23(a) prerequisites have been satisfied, a court must conduct a rigorous analysis, which can only be done if the judge resolves factual disputes relevant to each Rule 23 requirement.

The Second Circuit found that, notwithstanding the bank’s policy documents and ABM job descriptions suggesting that ABMs performed primarily the same duties company-wide, declarations submitted by the bank, if credited, suggested that ABM’s primary duties varied in respects material to whether they were exempt or nonexempt employees.  It concluded that the district court erred in finding that the commonality and predominance prerequisites had been satisfied without rigorously analyzing the conflicting evidence before it and resolving the material disputed facts.  In other words, a court can’t certify a class just by looking at the plaintiff’s evidence.  It must analyze the defendant’s evidence too, and if the evidence of the parties is conflicting, resolve that conflict.

What does this decision mean for employers?  Despite being a summary order, Cuevas is a strong indicator of a court’s obligations when presented with conflicting evidence on a Rule 23 requirement, particularly in exempt status cases arising in the Second Circuit.  While noting that exempt status does not involve an “inherently individualized inquiry,” the court remarked that district courts have correctly certified such matters when they “rigorously analyzed the record, weighed the conflicting evidence, resolved material factual disputes, and determined that subsidiary questions involved in resolving exemption will be answerable through evidence generally applicable to the class.” Merely assuming the truth of Plaintiff’s evidence on class certification won’t cut it.

As part of the Wage & Hour Division’s fissured industries initiative, which focuses on those industries where there is something less than a direct employee-employer relationship, temporary and other staffing agencies -- and the companies that use the services of those agencies -- have come under increased WHD scrutiny over the past several years.  WHD reports that it has conducted approximately 1,000 investigations involving temporary employment agencies since 2009, resulting in more than $11.5 million in back wages for more than 1,000 employees.

In one recent investigation, WHD an agreement to pay nearly $500,000 from a storage and packaging facility that used a temporary employment agency to provide up to 600 workers per day.  Consistent with our previous reporting on the increased use of liquidated (i.e., double) damages, the agreement to pay includes $249,000 in back wages and an equal amount as liquidated damages.  WHD determined that the storage company and the employment agency were joint employers and, thus, were jointly responsible for minimum wage and overtime compliance.

WHD’s investigation found that workers on the production line at the facility were required to be present 15 minutes before the scheduled start of the shift to ensure full staffing and to receive instructions, but were not paid for those 15 minutes.  In addition, temporary employees were occasionally assigned to unload trailers and were paid at a piece rate of $40 per trailer, but the piece rate was not included in the regular rate of pay for overtime hours.

We Have to Pay Overtime for Piece Rate Payments on Top of “Regular” Overtime?

Yes.  Piece rate -- and many other forms of “supplemental” payments over and above a normal hourly rate -- must be included in the “regular rate of pay” for the purposes of overtime compensation.  The “regular rate” is determined by dividing the total compensation (less permissible exclusions) by the number of hours worked in the work week.  So, assuming that an employee earns $10 per hour, works 50 hours, and unloads two trailers at $40/trailer, total compensation is determined as follows:

“Regular” Pay:  $10 x 50 hours (straight time) = $500.00

Piece Rate Pay:  $40 x 2 trailers = $80.00

Total Straight-Time Compensation:  $580.00

Regular Rate:  $580/50 = $11.60

Because the regular rate calculation includes all straight-time remuneration, the overtime compensation due is determined by taking one-half of the regular rate for all overtime hours worked:

$11.60 x 0.5 x 10 = $58.00

Total Compensation Due:  $580.00 + $58.00 = $638.00

Another way to approach the calculation, which results in the same total compensation due, is to simply calculate the additional overtime premium due on the piece rate payments:

Hourly Compensation:  (40 x $10) + (10 x $15) = $550.00

Piece Rate Per Hour:  $80/50 = $1.60

Additional Overtime Premium for Piece Rate:  $1.60 x 0.5 x 10 = $8.00

Total Compensation Due:  $550 + $80 + $8 = $638.00     

Although there are multiple methods by which the appropriate overtime compensation can be determined, the important thing to remember is that it must be determined.  Although there are several forms of additional compensation -- e.g., discretionary bonuses, the “premium” portion of a daily overtime payment -- that may be excluded, many other forms of additional compensation -- e.g., non-discretionary bonuses, shift differentials, piece rate payments -- must be included in the regular rate calculation. 

Well . . . What Should We Do?

First, review your payroll practices to ensure that the calculation of non-exempt employees’ pay includes overtime payments based on the proper regular rate of pay. 

Second, ensure that employees are being paid for all hours worked under the FLSA (or applicable state law).  Where an employee has been instructed to arrive at his or her workstation at a particular time for the purposes of receiving instructions about the day’s work, that time is almost certainly compensable and should be included in the employees’ work hours.

Finally, whether you are a staffing agency or the user of a staffing agency, you should take care to ensure that temporary/staffing agency workers are being paid in compliance with the law.  With WHD’s efforts to use all of its enforcement tools -- including liquidated damages, the “hot goods” provisions, and civil money penalties -- we’re going to keep hearing about these large back wage/liquidated damages recoveries, particularly in industries such as hotel, restaurant, construction, and, yes, employee staffing.  These types of investigations are not going away any time soon.

W.H.D.? (“What Happened, Dude?”) is a weekly blog post in which we break down recent enforcement activity by the U.S. Department of Labor’s Wage & Hour Division (WHD), look at what went wrong for the employer, and share some lessons for other employers.

Earlier this year, we commented [here] that the Supreme Court agreed to review the Seventh Circuit’s decision in Sandifer v. U.S. Steel rejecting claims by 800 factory workers that they are owed wages for time spent before and after their shifts in a locker room changing into and out of their job-required protective gear.  The Supreme Court in this case will decide “[w]hat constitutes ‘changing clothes’ within the meaning of Section 203(o).”  In earlier blogs [here and here], we discussed the contradictions between the plain language of Section 203(o) of the FLSA -- which allows parties to specify in collective bargaining agreements that time spent “changing clothes” is not compensable -- and various DOL interpretations, including its current view that protective gear is excluded from the definition of “clothes.”  The AFL-CIO and the United Food and Commercial Workers International Union recently filed an amicus brief [here] with the Supreme Court siding with the DOL and arguing that the Seventh Circuit’s decision should be reversed.

According to the unions, the Seventh Circuit incorrectly decided that the safety equipment at issue -- including work gloves, steel-toed work boots, and a protective item covering the employees’ head and neck -- were “clothes” within the meaning of Section 203(o).  Instead, the unions argue that when Section 203(o) was added to the FLSA in 1949, the phrase “changing clothes” had a well-established meaning under National War Labor Board decisions involving the baking and meat-packing industries that did not include protective gear or safety equipment.

In particular, the unions claim the NWLB considered that time spent changing from street clothes to uniforms was distinct from time spent preparing safety and protective devices.  For instance, the amicus brief cites a 1954 decision by the NWLB ruling that time spent preparing “tools and working equipment” was compensable, and including “metal guards, and other protective and safety equipment” within the definition of such “tools.”  Other NWLB decisions explained that “safety equipment” included items like mesh gloves, writs guards, knife guards, leather aprons, helmets and goggles.  According to the unions, the NWLB considered those activities to be different from merely changing one’s clothing because it “is an activity which is an integral part of a man’s work.”  By excluding from working time “any time spent changing clothes,” the unions argue, Congress intended to adopt this distinction and the contemporary meaning of “changing clothes,” and to require payment for time spent donning and doffing protective gear.

Although there is currently a split of authority on whether time spent donning and doffing safety equipment is compensable, there are no reported cases that rely on the National War Labor Board decisions to decide the issue.  The employees here did not raise this issue in their petition for certiorari.  Because the FLSA does not contain a definition of the term “clothes,” however, there is a chance that the Supreme Court could consider the NWLB opinions when it hands down its final decision (which is expected in 2014).  Until then, employers should take steps to reduce potential liability from donning and doffing claims, including consulting with legal counsel regarding the state of the law in different jurisdictions and, if appropriate, rearranging schedules to allow employees to change into and out of their protective gear during their normal shifts.  In addition, because it is not always clear what personal protective clothing or equipment is required by OSHA regulations, employers may want to consider any FLSA ramifications before accepting an OSHA citation regarding safety gear.