Employment Law Update in Tennessee: Wage and Hour

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July 31, 2018

A. Lawsuit Trends

The Fair Labor Standards Act (“FLSA”) was enacted by Congress in 1938 and established, among other things, a national minimum wage and overtime premium payments to certain employees. The FLSA permits an aggrieved employee (e.g., one who did not receive minimum wage for all hours worked) to file a lawsuit against his/her employer, and these lawsuits are commonly referred to as “wage-and-hour” claims. These types of lawsuits have increased tremendously and can result in significant liability for employers. In addition, it is increasingly common for plaintiffs to couple their FLSA claims with a state wage and hour claim in the same lawsuit. This has been especially true in certain jurisdictions, such as California, which are largely seen as having very employee friendly laws. It is also increasingly common for employers to face multiple claims from multiple plaintiffs under wage and hour laws. Approximately 90% of all class/collective actions (i.e., multi-plaintiff lawsuits) are wage and hour claims.

The Federal Judicial Caseload Statistics Reports reveal an increase of 517% in FLSA claims since 1990. In 2012, there were 7,064 FLSA claims filed, which increased in 2013 to a total of 7,764 — representing a 10% increase from 2012. The basis for this trend in increasing FLSA claims is the subject of much speculation. Contributing factors, while not all-encompassing, include the following:

• Successful plaintiffs’ attorneys are entitled to “reasonable attorney’s fees” from the employer, increasing obvious incentives for filing claims;
• High-profile settlements/judgments spawning additional claims;
• Increased employer demands in a recovering economy causing employees to question workloads and pay practices;
• Employees becoming more wage-and-hour savvy as minimum wage frequently makes headlines;
• Department of Labor (“DOL”) initiatives to educate the workforce (e.g., employee misclassification as independent contractors) and even the introduction of an “app” by the DOL to help employees keep track of their compensable time on their smartphones;
• More locations can constitute the workplace as technological advances help employees stay connected to their work but make it more difficult for employers to capture “off-the-clock” work (e.g., remote logins, smartphones, tablets, etc.); and
• New businesses emerging out of the recovering economy may not be as aware of wage and hour laws as established businesses.

The foregoing represents just some of the factors causing this tidal wave of wage and an hour claims. It is possible that the wave will crest in 2014, but early signs point to another record breaking year of claims. Employers must be diligent in their compliance with wage and hour laws.

B. Trends for Minimum Wage Increases
The FLSA represents the federal minimum wage, which is currently $7.25. The federal minimum wage was initially $0.25 and has been increased incrementally by Congress over the years. The federal minimum wage has not been increased since 2009. There are current political initiatives to raise the minimum wage again. In his recent State of the Union address, President Obama called on lawmakers to raise the federal minimum wage to $9.00 by 2015 and peg it to inflation. In addition, President Obama stated he was not going to wait for Congress to act, and he was going to sign an executive order to raise all federal government contractors’ wages to $10.10. President Obama subsequently signed the executive order on February 12, 2014. That executive order established a minimum wage of $10.10, which will start on January 1, 2015, for all employees working under new federal contracts or subcontracts. The executive order did not change existing federal contracts.

States are free to adopt higher minimum wage standards. The federal minimum wage, however, is considered the “floor.” Thus, if an employer operates in one of the nine (9) states that either does not have a minimum wage or has a minimum wage lower than the federal minimum wage, the employer must comply with the federal minimum wage. Many states have passed laws establishing higher minimum wages than the federal minimum wage. Fourteen (14) states passed minimum wage law increases which take effect in 2014. As of January 1, 2014, twenty-one (21) states and the District of Columbia have their minimum wage set above the federal minimum wage. The highest state minimum wage is currently in Washington, which is set at $9.32. Many other states are considering bills to increase the state minimum wage. For instance, legislators in Iowa are currently proposing a minimum wage increase to $10.10. Employers should expect this trend to continue. Employers operating in multiple states must be especially diligent in complying with each state’s respective wage and hour laws.

The FLSA has two major wage components. First, employees must be paid a regular hourly rate that is at least equal to the applicable minimum hourly wage. Second, unless specifically exempted, employees who work more than 40 hours in a workweek must be paid at least one-and-one-half times their regular hourly rate for all hours worked in excess of 40. Under the FLSA, a workweek is seven consecutive calendar days comprising a total of 168 hours. The workweek may start on any day of the week and at any hour of the day.

The FLSA does not require overtime pay for work on Saturdays, Sundays, or holidays. Also, the averaging of hours over two or more weeks is not permitted. Normally, overtime pay earned in a particular workweek must be paid on the regular pay day for the pay period in which the wages were earned.

An employee’s regular rate of pay cannot be less than the minimum wage. The regular rate includes all remuneration for employment except certain payments excluded by the FLSA itself. Payments that are not part of the regular rate include:

• Pay for expenses incurred on the employer’s behalf;
• Premium payments for overtime work or true premiums paid for work on Saturdays, Sundays, and holidays;
• Discretionary bonuses, gifts, and payments in the nature of gifts on special occasions; and
• Payments for occasional periods when no work is performed due to vacation, holidays, or illness.

Earnings may be determined on a piece-rate, salary, commission, or some other basis. However, regardless of the manner in which earnings are computed, overtime pay must be calculated on the basis of the average hourly rate derived from such earnings. This is calculated by dividing the total pay for employment (except for the noted statutory exclusions) in any workweek by the total number of hours actually worked.

Employees must be paid for all work time. The FLSA defines work time as including not only work requested or required by an employer but also work suffered or permitted by the employer. Thus, if an employer knows or has reason to know an employee is continuing to work after a shift is over, the extra time the employee works is compensable working time. The rule applies regardless of whether the work is performed on the employer’s premises, off its premises, or at the employee’s home. The employer is responsible for exercising its managerial control to see that work is not performed if the employer does not want it performed. An employer cannot reap the benefits of an employee’s work without compensating the employee for that time.

A practice of rounding off an employee’s starting and quitting times to the nearest five minutes or the nearest one-tenth or one-quarter hour is permitted if the practice is consistently followed. For example, if an employee is eight minutes late, the employer may deduct one-quarter of an hour from his work time. However, if the employee works eight minutes extra, the employer must add one-quarter hour to his work time. If a time clock is used, employees who clock in before their regular starting time or remain after their quitting time do not have to be paid for these periods if they do not engage in any work.

1. Waiting Time
Whether an employee who is waiting for work must be compensated depends on the circumstances. An employee is not working and need not be compensated if he is free to use the time during which he is waiting for his own purposes. On the other hand, if the employee cannot use the waiting time for his own purposes, he is working and must be compensated.

2. On-Call
As a general rule, an employee is not considered to be working simply because he/she is on-call and required to leave word where he may be reached or carry a cell phone with them. The employee is free to use his time for his own purposes subject only to the restriction of being available if needed. However, the courts have provided confusing and sometimes conflicting decisions related to on-call time.

Employees must be paid for any time spent working while on-call, including time spent answering questions or troubleshooting by telephone. Accordingly, an employee who receives 15 to 20 phone calls at home per night on nights when he is on-call must be compensated for his time spent on the phone. Rutlin v. Prime Succession, 220 F.3d 737, 744 (6th Cir. 2000). Even if an employee’s on-call time is compensable, the Court in Townsend v. Mercy Hospital of Pittsburgh, 862 F.2d 1009 (3d Cir. 1988), found employees may be paid a different rate for their on-call time than their regular work because the time is different than regular work.

3. On Duty
In UTU, Local 1745 v. City of Albuquerque, 178 F.3d 1109 (10th Cir. 1999), the Court found bus drivers, who work “split shifts,” are not entitled to be compensated for waiting time between shifts.

4. Meal Breaks
Meal breaks are usually non-compensable time but on occasion an employer can create a situation where meal breaks are compensable time. In Bernard v. IBP, Inc., 154 F.3d 259 (5th Cir. 1998), the Court held employees’ meal breaks were compensable work because they were used predominantly for the benefit of the employer. The employees were required to carry a radio and tools during lunch, could not leave the site, and received frequent instructions during lunch due to work demands.

5. Travel Time
The time an employee spends traveling from normal home to work and from work to home is not considered hours worked and therefore is not compensable. See Kavanagh v. Grand Union Co, Inc., 192 F.3d 269 (2d Cir. 1999) (home to work commuting is not compensable regardless of the length of commute, even if to benefit the employer). If an employee is required to report to a meeting place to receive instructions or to pick up tools or equipment, the employee need not be compensated for driving from home to the meeting place, but the travel time from the meeting place to the place of work is compensable work time.

Travel which is considered “all in a day’s work” is compensable work time. For example, the time a plumber spends traveling from location to location during the day to make repairs is considered hours worked. If an employee travels out of town on a oneday assignment, the time spent traveling is work time. If the employee travels by train or air, the employer may deduct the travel time between the employee’s home and the train terminal or airport as regular home-to-work travel.

If an employee travels out of town for more than one day, the time spent traveling during his or her normal working hours on regular work days and during the corresponding time on non-work days is compensable work time. Time spent driving an automobile is compensable even during non-work hours. Time spent as a passenger on an airplane, train, boat, bus, or automobile during non-work hours is not compensable unless the employee performs work during transit (e.g., preparing a work report while on the plane).

6. Preparatory and Concluding Activities
The Department of Labor regulations state preparatory and concluding activities are not compensable time unless they are an integral part of the principal activity. Among the activities included as an integral part of a principal activity are those so closely related activities as to be indispensable to the performance of the principal activity. If changing clothes is merely a convenience to the employee and not directly related to his principal activities, it would be considered as a “preliminary'' or “postliminary'' activity rather than an integral part of the activity.

1. Introduction
The FLSA provides several exemptions from its requirement to pay overtime. Generally, the so-called “white collar” exemptions are for bona fide executive, administrative, and professional employees, computer employees, and outside sales persons. Employees are not exempt simply because they have a professional title or because they are paid a salary. Instead, FLSA regulations provide specific tests to determine whether an employee is exempt.

The exemptions “do not apply to manual laborers or other ‘blue collar’ workers who perform work involving repetitive operations with their hands, physical skill and energy.” These workers, because they gain their skills and knowledge through apprenticeships and on-the-job training rather than through prolonged intellectual instruction, cannot meet the requirements of the learned professional exemption.

2. Executive Exemption
An employee is an exempt executive if he or she:
• Is compensated on a salary basis at a rate of not less than $455 per week, exclusive of board, lodging, or other facilities;
• Has a primary duty of management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof;
• Customarily and regularly directs the work of two or more other employees; and
• Has the authority to hire or fire other employees or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees are given particular weight.

“Primary duty” means “the principal, main, major or most important duty that the employee performs.” Furthermore, the new regulations state:

(a) Determination of an employee's primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee's job as a whole. Factors to consider in determining the primary duty of an employee include, but are not limited to, the relative importance of the exempt duties as compared with other types of duties; the amount of time spent for the exempt work; the employee's relative freedom from direct supervision; and the relationship between the employee's salary and wages paid to other employees for the kind of nonexempt work performed by the employee.

(b) The amount of time spent performing exempt work can be a useful guide in determining whether exempt work is the primary duty of an employee. Thus, employees who spend more than fifty percent of their time performing exempt work will generally satisfy the primary duty requirement. Time alone, however, is not the sole test, and nothing in this section requires that exempt employees spend more than fifty percent of their time performing exempt work. Employees who do not spend more than fifty percent of their time performing exempt duties may nonetheless meet the primary duty requirement if the other factors support such a

“Management” includes, among other things, interviewing, hiring, and training employees; setting hours, pay rates, and directing the work of employees; planning the work; and planning and controlling the budget. The phrase “a customarily recognized department or subdivision” refers to a specific unit with a permanent status and function. The executive’s suggestions and recommendations must be given “particular weight.” Factors in determining whether this element is met include whether making suggestions and recommendations are part of the employee’s job duties; the frequency with which he or she makes or is requested to make suggestions and recommendations; and the frequency with which the employer relies upon his or her suggestions and recommendations.

3. Administrative Exemption
In order to be an exempt administrative employee, one must:
• Be compensated on a salary basis at a rate of not less than $455 per week, exclusive of board, lodging, or other facilities;
• Have a primary duty of performing office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
• Exercise discretion and independent judgment with respect to matters of significance. In order to satisfy the requirement of performing work “directly related to the management or general business operations,” an employee must perform work “directly related to assisting with the running or servicing of the business.” Working on a production line or selling a product does not meet this requirement. Examples of work meeting the requirement include: auditing; budgeting; finance; accounting; tax; Insurance; research; safety and health; personnel management; human resources; employee benefits; labor relations; quality control; purchasing; advertising; marketing; public relations; government relations; computer network, internet, and database administration; legal and regulatory compliance; and other similar activities. Employees may also satisfy the exemption if they perform work directly related to the management or general business operations of their employer’s customers.

The exercise of discretion and independent judgment involves the comparison and evaluation of possible courses of conduct and acting or making a decision after the alternatives have been considered. Thus, employees who satisfy this requirement will perform duties such as formulating, interpreting, or implementing management policies or operating practices; work that affects business operations to a substantial degree; committing the employer in matters with significant financial impact; providing consultation or expert advice to management; planning business objectives; and handling complaints, arbitrating disputes, or resolving grievances.

4. Professional Exemption
The regulations provide a “general rule for professional employees,” which sets out the basic rule followed by individual regulations pertaining to the individual classes of professional employees. In order to be an exempt professional, an employee must:
• Be compensated on a salary basis at a rate of not less than $455 per week, exclusive of board, lodging, or other facilities;
• Have as his primary duty the performance of work:
• Requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction; or
• Requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.

a. Learned Professionals
To qualify as a learned professional, an employee must perform as his primary duty work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction. “Work requiring advanced knowledge” means the work must be predominantly intellectual in character and involve the consistent use of discretion and judgment.

The work must be in a field of science or learning. This includes law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, various types of physical, chemical, and biological sciences, pharmacy, and similar occupations that have a recognized professional status.

b. Creative Professionals
To qualify as a creative professional, the employee’s primary duty must be performing work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual, mechanical, or physical work. It does not apply to work that can be produced by a person with general manual or intellectual ability or training. A “recognized field of artistic or creative endeavor” includes music, writing, acting, and the graphic arts.

The requirement of “invention, imagination, originality, or talent” is meant to distinguish the creative professions from work primarily depending on intelligence, diligence, and accuracy.

5. Computer Employees
The regulations include several provisions covering the exempt status of computer employees. Since 1996, the FLSA has included a specific exemption for certain computer employees. The computer employee exemption has been unique in allowing the exemption to employees who meet the primary duty requirement and who are paid at least $27.63 per hour - the only exemption permitting an hourly rate to satisfy the salary level.

A computer employee paid at least $455 per week on a salary basis may satisfy one of the preceding exemptions. A computer employee paid $27.63 on an hourly basis may still satisfy the computer employee exemption. However, these exemptions are limited to computer employees whose primary duty consists of:
• The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications;
• The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
• The design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or
• A combination of duties described above, the performance of which requires the same level of skills.

6. Outside Sales Employees
An employee is an exempt outside sales person if he or she:
• Has a primary duty of
• Making sales; or
• Obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
• The employee is customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.

In determining the primary duty, work performed by an outside sales employee that is incidental to and in conjunction with the employee’s outside sales or solicitations, including deliveries and collections, are considered exempt work. Similarly, other work that furthers the employee’s sales activity, including writing sales reports, updating a sales catalog, and attending sales conferences is also exempt. The salary level requirement also does not apply to the outside sales employee exemption.

7. Highly Compensated Employee Exemption
An employee is an exempt highly compensated employee if he or she is paid total annual compensation of at least $100,000 if the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee.

Additionally, the new regulation requires the “total annual compensation” to include at least $455 per week paid on a salary or fee basis. This compensation may also include commissions, non-discretionary bonuses, and other non-discretionary compensation earned during a 52-week period. 29 C.F.R. §541.601(b)(1). It does not include board, lodging, or other facilities or payments for medical insurance or other fringe benefits.

The exemption is based on compensation received during a 52-week period. However, the period can be extended for purposes of a lump sum payment sufficient to reach the salary plateau.
If the salary level is met, the employee must only customarily and regularly perform office or non-manual work listed in the primary duties tests for the executive, administrative, or professional exemptions to satisfy the requirements. As such, an employee paid $100,000 who customarily and regularly directs the work of two or more other employees is exempt even if she does not satisfy the other requirements for the executive exemption.

8. Combination Exemptions
Employers are permitted to “tack” or combine the various exemptions to determine whether an employee’s combined duties are exempt. 29 C.F.R. § 541.708. For example, an employee who performs exempt executive duties part of the day, exempt administrative duties another part of the day, and outside sales duties the rest of the day qualifies under a combination exemption.

9. Exemptions from Maximum Hours
The FLSA has numerous exemptions from maximum hours for certain specific types of work. The following are a few of the important exemptions.

10. Motor Carrier Act Exemption
The Motor Carrier Act exemption states employers do not have to pay overtime compensation to any employee to whom the “Secretary of Transportation has the power to establish qualifications and maximum hours of service." The Secretary of Transportation need not actually regulate the employee or the employer. Rather, the exemption exists "whenever the Secretary has the authority to regulate a driver's hours and safety." Klitzke v. Steiner Corp., 110 F.3d 1465, 1468 (9th Cir. 1997). Even minor involvement in interstate commerce as a regular part of an employee's duties subjects the employee to the jurisdiction of the Secretary of Transportation. A driver is engaged in interstate commerce for purposes of the motor carrier exemption if he or she: (1) makes interstate runs; (2) is reasonably likely to make interstate runs; or (3) carries goods as they move through the interstate chain of commerce. A single interstate trip can meet the exemption requirements. Moreover, even drivers who do not make interstate trips may be exempt if they are reasonably likely to drive interstate routes. Drivers are also exempt if, even though they only drive intrastate routes, they carry goods that are themselves part of the flow of interstate commerce.

Intrastate transportation of goods or people satisfies the interstate commerce requirement where such transportation is part of the “practical continuity of movement” from the origin to the destination.

However, “indefinite storage in a warehouse may transform goods shipped from out-of-state into intrastate deliveries.” Therefore, the exemption applies when a driver transports goods entirely within one state where the goods originated in or are destined for another state and, at the time the employee carries them, the company has already specifically arranged for further distribution to a customer.

11. Auto Salesmen, Partsmen or Mechanic Exemption
The FLSA also includes an overtime exemption for "any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles, trucks or farm implements" if the establishment is primarily in the business of selling those vehicles.

12. Miscellaneous Exemptions from Overtime
The FLSA has a number of other exemptions from maximum hours (overtime). Many of the exemptions demonstrate who had significant power in 1935 when the FLSA was enacted. The exemptions include:

(1) any employee employed by an air carrier or railroad;
(2) any employee employed as a seaman;
(3) any employee employed as an announcer, news editor, or chief engineer by a radio or television station in a city of less than 100,000;
(4) any employee engaged in the processing of maple sap into sugar or syrup;
(5) taxicab drivers;
(6) domestic service employees; and
(7) any employee employed by a movie theater.

Employees paid on a salary basis, must receive a predetermined amount each pay period that is not subject to reduction because of variations in the quantity or quality of work performed. An employee is not paid on a salary basis if his pay is reduced for absences caused by the employer or its operating requirements. An employee who is ready, willing, and able to work must be paid even for time when work is not available. The new regulations do clarify, however, that exempt employees need not be paid for any workweek in which they perform no work.

1. Deductions from Pay
a. Permissible Deductions
The law requires an employee, with a few exceptions, to receive his full salary for every week in which he performs any work. Employers can only make deductions for:
• Absences of one or more full days for personal reasons;
• Absences of one or more full days due to sickness or disability where –
• The deductions are made in accordance with a bona fide plan, practice, or policy that provides
compensation for lost salary resulting from sickness or injury; or
• Before the employee has qualified for paid leave under a sickness or disability plan or after she has exhausted her paid leave under such plan; or
• If salary replacement benefits are provided under a state disability insurance or workers’ compensation law.
• To offset any amounts received for serving on a jury, as a witness, or in the military;
• Employees can be paid a proportionate part of their salaries during their initial and terminal weeks of employment;
• A major safety rule violation, even for less than a day of suspension;
• Unpaid absences, even for less than a day, taken pursuant to the Family and Medical Leave Act;
• Unpaid disciplinary suspensions of one or more days imposed in good faith for violation of workplace conduct rules, where the employer has a written policy permitting disciplinary pay deductions applicable to all employees.

If the employer has promulgated a written policy applicable to all employees allowing deductions from pay based on violation of workplace conduct rules, including the sexual harassment policy and any other policies used by the employer to regulate employee conduct, the employer can suspend an employee who violates a rule and dock his or her pay for the suspension period. Not surprisingly, more serious violations can justify longer suspensions.

2. Safe Harbor
The new regulations create a new safe harbor provision for employers meeting certain criteria who improperly dock the pay of a salaried employee. An employer who:

(1) has a clearly communicated policy prohibiting improper pay deductions that includes an employee complaint mechanism; (2) reimburses employees for any improper deductions; and (3) makes a good faith commitment to comply with the law in the future will not lose the exemption for any employees unless it willfully violates the policy by continuing to make improper deductions after receiving employee complaints. If an employer fails to reimburse employees for any improper deductions or continues to make improper deductions after receiving employee complaints, it will lose the exemption during the time in which the improper deductions were made but only for employees in the same job classification and working for the same manager(s) responsible for the improper deductions. The regulations state the best evidence of a clearly communicated policy is a written policy that is distributed to employees prior to the improper pay deduction, such as upon hire, in an employee handbook, or on the company intranet. All employers should enact such a policy.

An employer will lose an exemption if the facts demonstrate the employer did not intend to pay employees on a salary basis. This can be shown by an actual practice of making improper deductions. Factors in determining whether an actual practice of improper deductions exists include: the number of improper deductions, particularly as compared to the number of employee infractions warranting discipline; the time period during which the employer made improper deductions; the number and geographic location of employees whose salary was improperly reduced; the number and geographic location of managers responsible for taking the improper deductions; and whether the employer has a clearly communicated policy permitting or prohibiting improper deductions.

When the facts show the employer has an actual practice of making improper deductions, the exemption is lost but only during the time in which the improper deductions were made and only for employees in the same job classification and working for the same managers responsible for the actual improper deductions. Employees in different job classifications or who work for different managers do not lose their status as exempt employees. The regulations provide an example -- if a manager at a company facility routinely docks the pay of engineers for partial-day personal absences, all engineers at that facility whose pay could have been improperly docked by the manager would lose the exemption. However, engineers working at other facilities or for other managers would remain exempt.

Improper deductions that are isolated or inadvertent will not result in loss of the exemption for any employee subject to the improper deductions if the employer reimburses the employees for the improper deductions.

3. Additional Compensation
Employers can provide employees with additional compensation, beyond their weekly salary, without violating the salary basis. Thus, an employee guaranteed $455 per week may also be given a percentage of sales or profits. Employers may also, without affecting the salary basis, pay additional compensation for hours worked beyond the normal workweek to an exempt employee so long as he is guaranteed at least $455 per week.

4. Fee Basis
Administrative and professional employees can be paid on a fee, rather than on a salaried, basis. An employee is paid on a fee basis when she is paid an agreed sum for a single job regardless of the time required for completion. To determine whether the fee payment satisfies the minimum required salary, the amount paid is tested by determining the time worked on the job and whether the rate of the fee payment would equal at least $455 per week if the employee worked 40 hours.

A. Donning and Doffing
Donning and doffing claims refer to the time spent either changing into (i.e., donning) and/or changing out of (i.e., doffing) work clothes. The Portal-to-Portal Act established that certain preliminary and postliminary activities (discussed above in Preparatory and Concluding Activities), such as changing into normal work clothes, are not compensable activities. Thus, employers ordinarily do not have to compensate their employees for donning and doffing time. Additionally, the FLSA permits employers who have a unionized workforce to exclude the time it takes its employees to “chang[e] clothes” either by the terms of a collective-bargaining agreement with their employees or if this time is ordinarily excluded by “custom or practice.” Certain industries, such as the steel and meat packaging industries, have seen a rise in donning and doffing claims. These employees frequently bring claims alleging that their donning and doffing time should be compensable because they are not donning and doffing “clothes” but rather protective gear which is integral and indispensable to their principal work activities.

The U.S. Supreme Court recently issued a decision in a case dealing with steel workers in Sandifer v. U.S. Steel, 134 S.Ct. 870 (2014). Each steel worker in Sandifer was required to don and doff the following “a flame-retardant jacket, pair of pants, and hood; a hardhat; a ‘snood’; ‘wristlets’; work gloves; leggings; ‘metatarsal’ boots; safety glasses; earplugs; and a respirator” before and after working their shift. The employer and the workers had a collective bargaining agreement that called for the noncompensability of the time spent “changing clothes.” The workers argued, however, that the protective gear did not constitute “clothes” under the FLSA. The Court disagreed and held that the phrase “changing clothes” covered all but three of the items the workers were required to wear. Of the remaining three (earplugs, safety glasses, and respirator), the Court held that the period as a whole should be considered as time changing clothes and not compensable.

B. Security Checks
Many employees are required to pass through security checks or clearances either before and/or after their principal work activities. Security checks occur for various reasons. Some employers simply have to abide by the established protocols of the worksite. For instance, employees may have to go through airport screening procedures to get to their worksite. See Bonilla v. Baker Concrete Construction, Inc. 487 F.3d 1340 (11th Cir. 2007). Some employees may have employer-imposed screening procedures instituted for workplace safety or to prevent workplace theft, such as retail establishments. There have been a number of recent FLSA claims by employees who allege that the time spent going through his/her employer’s screening procedures should be compensable time. Often employers place the time clocks on the other side of the security screens, which results in their employees going through “off-the-clock” both before and after their shifts. Apple, Inc. is currently facing multiple lawsuits from its retail employees (i.e., “Geniuses”) who allege that their time spent waiting in line and passing through Apple’s security checks, often multiple times a day, is compensable time under the FLSA. See, e.g., Adam Kilkner v. Apple, Inc., Case No. 13-cv-3775 (N.D. Cal.).

On March 3, 2014, the U.S. Supreme Court granted a petition to review the Ninth Circuit’s decision in Busk v. Integrity Staffing Solutions, Inc., 713 F.3d 525 (9th Cir. 2013). The workers in Busk were employees of a staffing company that worked for various Amazon warehouses fulfilling orders. The employees alleged that after each shift they had to wait in line to pass through security checks which often took approximately twenty-five (25) minutes. The Ninth Circuit held the employees stated a sufficient claim that this time was integral and indispensable to the employees’ principal work activities and was compensable time. The Ninth Circuit distinguished cases from the Second Circuit and the Eleventh Circuit on the basis that the employees in those cases had to follow the same security screening procedures imposed upon everyone entering the buildings, including non-employees. In contrast, the Ninth Circuit held the workers in Busk were required to pass through the security screens for the benefit the employer and served to prevent or reduce inventory “shrinkage.”

C. Individual Liability
Liability under the FLSA is not limited to the business entity itself. Rather, individual liability can attach to any “employer.” The FLSA very broadly defines “employer” as “any person acting directly or indirectly in the interest an employer in relation to an employee.” Moreover, for a particular employee, there may be several simultaneous employers. It is common for a plaintiff to allege one or more corporate officers are liable, along with the business entity, for an FLSA violation. The Eleventh and Second Circuits have recently held that personal liability attaches to individuals regardless of whether they are corporate officers or not. In these cases the circuit courts have focused on whether the individuals had operational control over the business. In Lamonica v. Safe Hurricane Shutters, Inc. 711 F.3d 1299, (11th Cir. 2013) two members of the employer’s board of directors argued that individual liability should not attach to them for overtime violations under the FLSA because they were not corporate officers. In support of their argument, the directors cited Patel v. Wargo, 803 F.2d 632 (11th Cir. 1983), for the assertion that individual liability only applies to corporate officers. The Eleventh Circuit disagreed and stated that Wargo “did not purport to limit personal liability to officers, and the [FLSA]’s broad definition of ‘employer’ does not admit of such a limitation . . . . [W]hether an individual fits that definition ‘does not depend on technical or isolated factors but rather on the circumstances of the whole activity.” The Eleventh Circuit further reasoned that job titles should not be dispositive of whether individuals are personally liable under the FLSA because individuals in certain positions may assume the operational responsibilities of other positions.

Although the two individual defendants were not corporate officers, they each owned 22.5% of the corporation, which the Eleventh Circuit found to constitute significant ownership interests. Additionally, they exercised substantial control over the day-to-day operations, even though they were present only a few times a month, because they handled work orders, met with employees, and informed the employees that the company was suffering financial difficulties and may not be able to pay them. One of the directors even used $20,000 of his own money to cover payroll obligations for the company. Although the court did not state that their actions caused the FLSA violations, it did point out that they were the ones in a position to cause the corporation to violate the FLSA, which was sufficient.

This case did not significantly expand the concept or definition of individual liability other than to hold that members of the board of directors can be individually liable. It is also important to recognize that the court did not require a showing that the directors’ actions gave rise to the FLSA violations, rather it was sufficient that they were in a position to cause them.

The Second Circuit also recently addressed individual liability in Irizarry v. Catsimatidis, 722 F.3d 99 (2d Cir. 2013), which involved an individual corporate officer and owner who was not actually responsible for the business entity’s FLSA violations. In this case, individual liability attached to John Catsimatidis, chairman, president, and CEO of a major supermarket chain in New York City with over 30 stores and approximately 1,700 employees. Catsimatidis argued against liability because he did not exercise managerial control in stores on the day-to-day level of a manager, rather he worked in his office at the corporate headquarters. While recognizing that he was not actually responsible for any FLSA violations, the Second Circuit found that Catsimatidis was a substantial presence in his stores on a regular basis and exerted sufficient influence on daily operations for individual liability to attach.

The actions the court deemed relevant included the following: (1) developing merchandising concepts; (2) visiting stores to provide thoughts on how managers can improve merchandising; (3) making hiring and firing decisions for high-level employees who report directly to Catsimatidis; and (4) personally promoting employees. These factors, along with Catsimatidis’ control of the financial operations as a corporate officer, led the court to conclude that he should be liable for the company’s FLSA violations.

D. Interns and Trainees
Unpaid internship programs have recently been a target for FLSA claims. Many businesses, and especially particular industries, have such programs, which involve various degrees of educational experience provided to the inexperienced interns who, in turn, assist in the business operations. A number of interns have recently brought collective and class actions against their employers alleging that even though they are working as interns they were “employees” under the FLSA. If interns are considered “employees” as that term is defined under the FLSA, then employers are obligated to comply with the FLSA’s requirements, such as paying minimum wage for all hours worked and overtime compensation for non-exempt employees. An “employee” is defined under the FLSA as “any individual employed by an employer.” Further, “employ” is defined as “to suffer or permit to work.” Shortly after the passage of the FLSA, the U.S. Supreme Court, in Walling v. Portland Terminal, 330 U.S. 148 (1947), recognized a trainee exception. In Walling, the Court held that those individuals who, without any express or implied compensation agreement, work for their own advantage on the premises of another are not necessarily employees. Walling dealt with a railroad company who provided practical training courses of up to seven (7) or eight (8) days to prospective yard brakemen under close supervision. The trainees observed, received instruction, and then were “gradually permitted to do actual work under close scrutiny” but never expected to receive any compensation for this training period and were not entitled to a job at the completion of the training. The Walling Court held that the trainees in this case provided no “immediate advantage” to the railroad and were not “employees” under the FLSA.

In Glatt v. Fox Searchlight Pictures, Inc., 2013 WL 2495140 (S.D.N.Y., June 11, 2013), unpaid interns, who worked on the production of Fox Searchlight Pictures Inc’s films such as the Black Swan, alleged they were “employees” and did not fall under the FLSA’s “trainee” exception. The District Court for the Southern District of New York declined to adopt the “primary benefits” test, which would have exclusively focused on whether ‘the internship’s benefits to the intern outweigh the benefits to the engaging entity.’ Rather, the court adopted the Department of Labor’s six-factor test to determine whether the interns were employees:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but work under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and,
6. The employer and intern understand that the intern is not entitled to wages for the time spent in the internship.

After analyzing the totality of the circumstances of the internship program as applied to these factors, the court stated the interns “worked as paid employees work, providing an immediate advantage to their employer and performing low-level tasks not requiring specialized training. The benefits they may have received-such as knowledge of how a production or accounting office functions or references for future jobs-are the results of simply having worked as any other employee works, not of internships designed to be uniquely educational to the interns and of little utility to the employer. They received nothing approximating the education they would receive in an academic setting or vocational school. This is a far cry from Walling, where trainees impeded the regular business of the employer, worked only in their own interest, and provided no advantage to the employer.” Therefore, the court granted the interns motion for summary judgment and concluded they were “employees” covered both by the FLSA and New York’s wage and hour laws.

E. Misclassifications
A misclassification occurs when an employer, either mistakenly or purposefully, treats a non-exempt employee as an exempt employee under the FLSA. Misclassifications can also occur when an employer, either mistakenly or purposefully, treats an employee as an independent contractor and fails to comply with the obligations imposed by the FLSA. Claims involving misclassifications are very common and can involve significant liability for employers. A recent high-profile case highlights the often utilized (but unsuccessful) employer defense of “but she was a salaried employee.” In Jennifer L. O’Neil v. Mermaid Touring, Inc. & Stefani Germanotta, a/k/a “Lady Gaga,” Case No. 11-cv-9128 (S.D.N.Y.), Lady Gaga’s former personal assistant brought an FLSA claim against Lady Gaga for unpaid overtime for the three (3) years she was employed in that capacity. The personal assistant alleged she worked for Lady Gaga between 2009-2011 and was paid a salary of $75,000 but never received overtime pay as was required by the FLSA due to her non-exempt status. The personal assistant alleged her assigned duties did not meet any of the recognized tests for any exempt status. She alleged she confirmed Gaga’s schedule, reviewed Lady Gaga’s credit card statements, ordered meals, carried Lady Gaga’s luggage, helped Lady Gaga with her wardrobe, and often served as her personal alarm clock. She further alleged she was “on duty during all hours of each twenty-four (24) hour day, with no entitlements to breaks, for meals or otherwise, or, at times, even sleep.” The court denied Lady Gaga’s motion to dismiss, and the case was settled shortly before the trial in November of 2013 for an undisclosed sum.

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