Category Archives: Wages and Hours

Last week, two unpaid interns who worked on the film “Black Swan” won a lawsuit against Fox Searchlight Pictures. The interns claimed that they should have been paid for their work, which included such important cinematic tasks as taking out the garbage, ordering lunch, booking flights for their bosses, and assembling office furniture. The judge for the federal District Court in Manhattan agreed, finding that the two interns were treated as employees and were, therefore, entitled to compensation for their time.

These days, internships are an increasingly popular option, especially for students and recent graduates who can’t find paid work in their fields. CNN Money recently reported an 8.8% unemployment rate — and an almost 19% “underemployment” rate — among recent college grads, both rates still higher than before the economic downturn began. Many young people are willing (or desperate enough) to work without pay to get their foot in the door of their chosen profession. Of course, they’d rather get paid. But if the only way to break into a field is by doing grunt work day and night without pay, some people will take that deal.

This is where the law steps in to set some boundaries. Employment law pushes back against the metric of “whatever the market will bear” to require employers to pay at least the minimum wage, to protect employees from unsafe working conditions, and to prohibit harassment, for example — even if plenty of employees might tolerate mistreatment and subsistence wages just to get and keep a job. That desperate job seekers are willing to put up with almost anything in exchange for work doesn’t mean it’s legal.

That’s what Fox learned last week, and what employers in other popular industries are starting to understand. According to an article about the case in the New York Times, similar lawsuits have been filed against television, modeling, and fashion magazine employers, claiming interns should have been paid. Employers in these sexy fields have been some of the worst offenders in not paying interns, presumably because so many people are desperate to work in film and fashion.

There’s nothing shocking about desperate job seekers or employers willing to exploit them, sadly. There’s nothing surprising about the outcome of the case, either. The law about unpaid internships is very clear. Employers may hire people to work without pay only if the job meets a strict six-part test, including that the job must benefit the intern, must not provide the employer with an immediate advantage, must be closely supervised, and must not be a required stepping stone to a paid position. (You can find details on the six factors in Am I really an intern or just an employee who isn’t getting paid?) But Fox argued that the judge should forget the factors and instead simply weigh whether the intern or the employer gained more from the arrangement. If the intern benefitted more, then it’s a legal internship. The judge was not impressed by this argument, nor by the college credits offered for some internships, nor by the fact that the interns who sued undoubtedly did learn some things about the film industry during their unpaid time at Fox.

All beside the point, as the judge made clear. The six-part test is strict for a reason: Internships are a somewhat disruptive exception to the usual workplace exchange of labor for money. As such, they are intended to be rare.

This month’s issue of Corporate Counsel includes an interesting article on wage and hour lawsuits brought under the Fair Labor Standards Act. The article includes a graph showing that the number of FLSA cases filed in federal court has risen steadily over the last five years. More than 7,700 cases were filed in the 12 months that ended on March 31, 2013, a new record.

According to Noah Finkel, a partner at Seyfarth Shaw who was interviewed for the article, the cases fall into three categories:

• overtime exemptions, particularly employees who are paid a salary but believe they are entitled to overtime. 
• hours worked cases, in which employees claim that they were not paid for all of their work time, and
• disputes about the tip credit.

Finkel said he’s seen an increase in tip credit cases recently. Not all states allow a tip credit. In states that allow it, a tip credit lets employers pay less than the minimum hourly wage, as long as the tipped employee earns enough in tips to make up the difference. (The credit is the amount the employer doesn’t have to pay. For example, if a state’s minimum wage is $7.25, and the state allows employers to pay tipped employees a minimum wage of $4.25, the tip credit is $3.)

In 2011, the Department of Labor issued revised regulations on tip credits. Among other things, these regulations clarify the rules for tip pooling and require employers to give employees notice if they will be subject to a tip credit. Often, new regulations lead to more lawsuits, as employees and their attorneys test how the new rules will play out in practice. So, I guess the increase in tip credit cases isn’t much of a surprise. (For more on the rules, see our update Labor Department’s Final Regulations Clarify Tip Credit Rules.)

Last week, the Supreme Court decided a case about collective actions under the Fair Labor Standards Act (FLSA). Collective actions are similar to class actions, in that they give an employee the right to file a lawsuit on behalf of a group of employees who have the same basic claim against the employer. The Court’s decision took a strange turn, resulting in a victory for the employer that skirted a primary issue in the case.

Here’s what happened: Laura Symczyk filed a collective action against her employer, Genesis Healthcare, claiming that it had an unfair policy of docking employees for a 30-minute meal break every shift, whether or not the employee had to work during that time. (If an employee must work through a meal, the employee is entitled to be paid; nobody disputes this basic assertion underlying the employee’s case.) Symczyk was the only named employee in the case, but anticipated that others would join in once the collective action was conditionally certified: that is, once the court found that the group of employees were similarly situated to Symczyk because they were subject to the same policy or practice.

Before Symczyk tried to certify the collective action, Genesis offered to settle her claim. Genesis said it would pay her $7,500, plus fees and costs. Symczyk didn’t respond, and Genesis withdrew the offer.

This settlement offer was made under Rule 68 of the Federal Rules of Civil Procedure. Under Rule 68, if one party doesn’t accept a settlement offer, that party will be responsible for all of its lawsuit costs after the date the offer was made, unless that party gets a judgment that’s better than the settlement offer. The purpose of this Rule is to give both sides a strong incentive to settle: The defendant has good reason to offer a generous settlement, both to get out of the lawsuit and to make it more likely that the plaintiff won’t do better at trial. The plaintiff has a good reason to accept, both because the offer is likely to be generous and because the plaintiff may have to foot a large litigation bill if the judgment isn’t better than the settlement.

With me so far? Because here’s where things get weird. The trial court threw out the lawsuit, finding that Symczyk no longer had an active dispute against the company because she had been offered all of the relief to which she was entitled. Because Symczyk no longer had a claim, she couldn’t represent other employees, and so the whole case got tossed.

The problem is that Symczyk didn’t accept the settlement offer; she turned it down. She didn’t get any money in settlement and, because the court tossed her case, she won’t get any money at trial. This should not be possible: Plaintiffs who turn down a Rule 64 settlement offer have a right to take their chances in court. The plaintiffs may win or they may lose, but they buy the opportunity to take their best shot by forgoing the settlement. It isn’t fair to throw a case out when the plaintiffs have neither settlement nor judgment in hand. Nonetheless, one federal judiciary circuit has interpreted Rule 64 to allow this type of penalty, presumably in an effort to put a stop to unnecessary litigation.

But the Court skipped right past this issue to decide that, if Symczyk’s case was properly dismissed, then she can no longer represent the group. Employee attorneys take issue with this, arguing that employees should have a chance to replace the named plaintiff-employee when this happens and continue with the lawsuit. Otherwise, defendant-employers could “pick off” the named employee (by making a Rule 68 offer) and get any collective action filed against it thrown out of court.

This is an interesting argument, but not the one the Court should have decided. In almost any federal court, Symczyk’s case would not have been dismissed and she would still be capable of representing the group. By leaving this fundamental issue undecided, the Court hasn’t clarified things very much for those on either side of an FLSA collective action.

In last week’s State of the Union address, President Obama spoke of many things. Not shoes and ships and sealing wax, but immigration reform, proposals to stop gun violence, climate change, and energy policy. The proposal that seemed to get the most press afterwards, however, was his call to raise the minimum wage to $9 (from the current rate of $7.25 an hour) and tie further increases to the cost of living.

Perhaps one reason this got the most press is that it’s so concise. Unlike, for example, immigration reform or steps to halt climate change, raising the minimum wage is simple and straightforward. The details of the proposal are clear. No comprehensive plan is necessary, and there aren’t a lot of moving parts. Of course, that doesn’t mean the proposal is without controversy. The Chamber of Commerce has long opposed increases in the minimum wage, and other business groups have come out against any increases.

What would be the practical effect of the President’s proposal? Currently, 19 states and the District of Columbia require employers to pay a higher minimum wage than the federal rate of $7.25 an hour. As of today, however, only one state — Washington — has a minimum wage of at least $9. As a practical matter, this means wages would go up in virtually every state if the rate were raised all at once. (Except in cities that have their own higher minimum wages. In San Francisco, for example, employers must pay at least $10.55 an hour; where I work, in Berkeley, vendors with the city must pay at least $13.03 an hour with medical benefits, or $15.20 an hour without.)

On February 6, 2013, the Department of Labor issued its final regulations implementing statutory amendments to the FMLA. These regulations incorporate the amendments Congress passed in 2010. Among other things, the 2010 amendments:

• tweaked the way eligibility and hours are calculated for flight crews
• expanded the right to take qualifying exigency leave to cover not only employees with family members in the National Guard and Reserves, but also employees with family members in the regular armed forces, and
• expanded the right to take military caregiver leave to cover not only employees with family members who were seriously injured while on active military duty, but also employees with family members who exacerbated a preexisting injury while on active duty and employees with family members who are veterans suffering from a serious injury incurred while on active duty.

About a year ago, the Department of Labor issued proposed regulations implementing these provisions and seeking input from the public on a few key issues, including how to implement the leave provision to care for a veteran. Rather than issuing proposed regulations on this topic, the Department decided to hold off until it had received comments and issued its final regulations. As a result, the Department delayed the effective date of this provision. Until it issued final regulations defining the key terms (including who qualifies as a veteran and what constitutes a serious injury for a veteran), the Department took the position that employers were not legally required to provide this type of FMLA leave.

That has now changed. As of the effective date of the final regulations (March 8, 2013), employers are now required to provide FMLA leave to employees who need time off to care for a family member who is a veteran and suffered a serious injury while on active duty.

The final regulations have changed military family leave in a few important ways:

• Veterans defined. One of the reasons why Congress amended the FMLA was to allow time off for employees to care for family members who had served in the military and later manifested serious health problems, notably PTSD. The final regulations define “serious injury,” and make clear that injuries are covered whether they manifest before or after the veteran leaves the military. The veteran must have been in the military in the five years before the employee first takes FMLA leave. However, the time between the Congressional amendments (October 28, 2009) and the effective date of the final regulations (March 8, 2013) doesn’t count against this five-year limit. The Department excluded this time because employers weren’t required to give leave to care for an injured veteran during this period. 
• Qualifying exigencies expanded. As required by Congress, the final rule expands qualifying exigency leave to cover not only family members who are members of the National Guard and Reserves, but also family members who are in the regular armed forces and are deployed to a foreign country. This type of leave is intended to allow employers to handle practical matters arising from a family member’s deployment. The final regulations make a few changes to this type of leave. For example, employees may take up to 15 days off for a family member’s rest and recuperation leave (the previous limit was five days). The final regulations also add a new type of qualifying exigency leave, to allow employees to take time off to make arrangements for a military family member’s parent who is incapable of self-care. For example, the employee might need to hire a caretaker for the parent, tour care facilities, and so on.

The Department of Labor has issued a helpful FAQ set on the final regulations.

If you’ve gotten a paycheck since the beginning of 2013, you’ve no doubt noticed one effect of the fiscal cliff deal Congress reached last week: It did not extend the payroll tax holiday. Employees had been getting a break on their Social Security taxes, but now it’s over. The tax on Social Security went back up by 2% to its former level, resulting in lower paychecks for everyone.

I’ve fielded a few questions this week from people wondering if there’s anything else in the 11th hour deal that should interest them, given that they don’t earn enough to be affected by the expiration of the Bush tax cuts on very high earners. The answer, as always, is that it depends. There were certainly extensions and changes that trickle down to the 99%, starting with the extension of the Bush tax cuts for the rest of us. Here are a few of the job-related items:

• If you are out of work, you no doubt know about this one: The federal government extended its emergency unemployment benefits program. For unemployed people who have exhausted the benefits available from their state, this program provides additional weeks of benefits. The program was set to expire at the end of 2012. 
• Employees can continue to exclude from their income — and therefore,  not pay tax on — certain benefits paid by their employers, including educational assistance and adoption assistance. The bill also allows employers to continue claiming tax deductions or credits for certain benefits, such as child care.
• The CLASS Act is gone. This program was part of the larger healthcare reform legislation. It created a long-term care insurance program to be paid by payroll withholding from employee paychecks, if employers opted to participate in the program. Critics claimed it was inadequate at both ends, from the funding to be paid in to the benefits to be paid out. I don’t know enough about it to weigh in, but no matter: The program got killed.

Finally, a very restricted group of employees — the ones who created this mess in the first place — got a pay freeze. So if you are a Senator or Congressperson, you will just have to continue living on your $174,000 annual salary. If you are the majority or minority leader of either house, you get $193,400. And if you are John Boehner, you will have to budget yourself to only $223,500 a year. Performance-based salaries? You be the judge.

In a 5-4 split, the Supreme Court decided yesterday that pharmaceutical detailers qualify as outside salespeople and are therefore not entitled to overtime pay. This case was closely watched in the pharmaceutical industry, which estimated that a change in industry practice to require overtime to these employees would cost billions of dollars.

The job of a detailer is to visit doctors in a particular sales territory and explain the uses, benefits, and risks of a particular set of the company’s prescription drugs. In the heavily regulated field of pharmaceuticals, the detailer’s goal is to obtain a “nonbinding commitment” from the doctor to prescribe the company’s drugs when appropriate. A portion of the detailer’s pay is incentive-based, determined by sales of the featured drugs in the detailer’s territory.

In this case, everyone agreed that the detailers routinely worked more than 40 hours a week and did not receive overtime pay. Their employer, GlaxoSmithKline, classified them as “outside salespeople,” a job category that is exempt from the overtime requirements. The issue before the court is whether what they do can really be called selling.

For the majority, Justice Alito found that it could. He determined that the regulations interpreting the outside salesperson exemption were intended to be broad enough to cover various industry practices, including the use of detailers. Although there is no sales contract (other than that oxymoronic “nonbinding commitment”), no money changes hands, and no orders are placed, the detailers were doing all that’s legally allowed in this heavily regulated field to sell the company’s products. Ultimately, doctors must be free to prescribe the medications appropriate to a patient’s condition, and patients may ultimately decide not to follow that advice, or to purchase a generic equivalent. The company can’t control this part of the transaction, but it can promote its products to those who write the prescriptions.

For the dissent, Justice Breyer pointed out that, unlike representatives who sell drugs to doctors for their own use (such as vaccines and medications to be administered in the doctor’s office), the detailers do not make any sales. Rather, their work looks more like promotional work, a category which the regulations treat as separate when the person performing it does not also make sales. The only sale is made at the pharmacy counter, not in the doctor’s office.

Interestingly, all of the Justices agreed that the Department of Labor’s recent efforts to interpret the outside salesperson exception more strictly (to entitle more employees to overtime) had failed. In opinion letters and in amicus briefs, the DOL stated that detailers didn’t qualify as outside salespeople because they did not transfer title to the property in question. (This is the most recent interpretation; the DOL had previously said that the employee would have to be involved in a “consummated transaction” in order to have made a sale.) Both the majority opinion and the dissent disregarded this recent reinterpretation and focused on the language of the statute and regulations, finding that the DOL’s opinion had been too much of a moving target to warrant deference to the agency.

Last week, the California Supreme Court issued a long-awaited decision in Brinker Restaurant Corp. v. Superior Court, a huge class action lawsuit alleging that employees were denied meal and rest breaks and required to work off the clock. Brinker owns a number of restaurant chains, including Chili’s and Romano’s Macaroni Grill. The lawsuit, initially filed by five employees, turned into a class action on behalf of almost 60,000 Brinker employees statewide. That group was divided into three subclasses: employees who were required to work more than five hours without a meal break; employees who were required to work more than three-and-a-half hours without a rest break; and employees who were forced to work off the clock (that is, to do work for which they were not paid).

California law requires employers to provide a ten-minute paid rest break for every four hours “or major fraction thereof” an employee works. However, no rest break need be provided to employees who work less than three-and-a-half hours total. As for meals, California law prohibits employers from requiring employees to work more than five hours without giving them a 30-minute meal break; this time is unpaid. In the Brinker case, the parties argued about when (that is, in what part of an employee’s shift) these breaks must be provided and what obligation the employer had to make sure the employee didn’t work through breaks. They also disputed whether these issues could properly be decided for the whole class or whether they should instead be decided on a case by case basis.

The Court issued a broad opinion, deciding not only the issues directly before it but a few more that are sure to come up as the lawsuit proceeds. Here’s the upshot:

Rest breaks: The Court had a math fight with the Court of Appeals on the “major fraction” language. (The Court of Appeals found that an employer could provide only one break in a seven-and-a-half hour shift.) The Supreme Court concluded that employees who work at least three-and-a-half hours but no more than six hours are entitled to one rest break; employees who work at least six hours but no more than ten are entitled to a second rest break; and so on. The Court also rejected the employees’ argument that one rest break must be provided before the meal period and one after in an eight-hour shift. Although the Court agreed that this made sense “as a general matter,” it declined to state a rigid rule regarding the timing of meals and breaks.

Meal breaks: There were a couple of big questions here. First, what is the employer’s duty during meal breaks? The Court found that the employer must provide a 30-minute meal break, during which the employee is entirely relieved of duties and is free to leave the work site. The employees wanted to impose an additional requirement that employers ensure employees do no work during their lunch, but the Court refused. If the employer pressures employees to work through their breaks, however, it violates this provision, and is liable not only to pay the employee for the break time, but also to pay a penalty. Second, the employees wanted the Court to require a meal break every five hours, so that if the first one was taken toward the start of a shift, the employee would be entitled to a second break five hours later. The Court disagreed: Employees are entitled to a meal break before they finish five hours of work; if an employee works ten hours, the employee is entitled to a second break. There is no requirement that the meal breaks be no more than five hours apart.

Class claims: The Court decided that the rest break claims could proceed as a class action, because they were based on the employer’s policies and procedures. The Court sent back the meal break claim so the trial court could decide whether a class should be certified under the Court’s interpretation of the five-hour rule. The Court rejected the idea of class certification on the employees’ claim that they were required to work off the clock, finding that it was based not on a company-wide policy, but on the actions of individual employees and managers.

This case has been touted as a win for employers, and it is — but mostly in the sense that adopting the employees’ arguments would have greatly expanded their rights as previously understood under California law. The Court didn’t take away any established employee rights with this opinion. While it’s not fun to have to take your “lunch” shortly after starting an eight-hour shift, then work on without a substantial break for many hours (and trust me, I’ve been there), it’s also a fairly common practice, especially in service industries where employees can’t all take their breaks at the same time. In this case, the trial court found entirely for the employees, then the Court of Appeal reversed and went entirely for the employer. The Supreme Court’s opinion seems to just rebalance the scales to where most people thought they were in the first place.

Last week, Connecticut passed a law requiring private employers to give paid sick days to service employees. Currently, San Francisco and Washington, D.C. mandate paid sick leave; a handful of other states are considering similar legislation. But Connecticut is the first to impose this requirement statewide. The New York Times reports that the new law will cover an estimated 200,000 to 400,000 employees in the state.

Here are some details about the law, Connecticut Public Act 52:

• It applies only to companies with at least 50 employees. Manufacturers aren’t subject to the law, nor are nationally chartered nonprofits that provide recreation, child care, and education services. Employers that already provide employees with at least 40 hours of paid time off each year that can be used as sick leave (such as sick days, personal days, or vacation time) don’t have to provide any additional time off under the law.
• Only service workers are covered. This includes those employed in the retail, hospitality, food preparation and service, administrative, health care, janitorial and cleaning, claims processing, and a number of other industries. (You can find the full list of covered job categories in the law, at the link above.) Independent contractors, day laborers, and temporary workers aren’t covered.
• Services workers are covered only if they are entitled to earn minimum wage and overtime. In other words, exempt employees aren’t covered by the law; only nonexempt employees are protected.
• Covered employees will accrue one hour of paid sick leave for every 40 hours worked, up to a maximum entitlement of 40 hours per year. Employees may also carry over up to 40 hours into the next year.
• Employees may use the time off for their own illness, injury, or health condition; for a spouse’s or child’s illness, injury, or health condition; or to handle certain medical, legal, and practical issues stemming from family violence or sexual assault.

The law goes into effect on January 1, 2012.

Earlier this week, the federal Department of Labor (DOL) announced the release of its first smartphone application: a timesheet that allows employees to keep track of their work hours and calculate how much they are owed, in straight wages and overtime. (I learned about it over at the Workplace Prof Blog.) The DOL says it hopes to provide updates to the free app that allow employees to keep track of bonuses, commissions, tips, holiday pay, and more.

As the DOL press release says, the information this app helps employees track “could prove invaluable” in a Wage and Hour Investigation. Here’s why: If an employer fails to keep accurate records of hours worked by its employees (as required by the Fair Labor Standards Act), then the DOL will presume that any records the employees can produce are correct. The employer can try to overcome this presumption, but without proper wage and hour records — and facing employees who have tracked their hours in real time on their smartphones, using an app created by the government agency conducting the investigation — it’s going to be a steep uphill battle.