Wage & Hour Litigation Blog

Whatcha Talkin’ Bout: Oral Complaints Made to Employer Constitute Protected Activity under FLSA, Says Second Circuit

Posted in Uncategorized

Co-authored by Steve Shardonofsky and Howard M. Wexler

In 2011, the U.S. Supreme Court held in Kasten v. Saint-Gobain Performance Plastics Corp., that oral complaints of a violation of the Fair Labor Standards Act can constitute protected activity under the FLSA’s anti-retaliation provision.  But the question whether an oral complaint made to a private employer rather than to the government qualifies as protected activity was not before the Court in Kasten, and the case did not resolve a split among the Courts of Appeals on this issue.

In Greathouse v. JHS Security Inc. et al., the Second Circuit Court of Appeals joined the First, Fourth, Fifth, Seventh, Eighth, Ninth, Tenth, and Eleventh Circuits and held that Section 215(a)(3) of the FLSA does not require an employee to complain to a government agency as a predicate for an FLSA retaliation claim.  The Court, however, took pains to emphasize that not every “oral complaint” will be enough to state an FLSA retaliation claim as the complaint must be “sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute [FLSA] and a call for their protection.”

Second Circuit’s Decision

The Greathouse plaintiff complained to his boss that he had not been paid in several months. The plaintiff alleged that his employer responded by saying that he would pay the plaintiff when he felt like it and by then pointing a gun at the plaintiff.  Understanding this exchange as ending his employment, the plaintiff two weeks later filed a lawsuit for unpaid wages as well as retaliation.  He alleged that his employer constructively discharged him in retaliation for his complaint about unpaid wages, thereby violating the FLSA and New York Labor Law’s anti-retaliation provisions.  The district court entered a default judgment in favor of the plaintiff on his claim for unpaid wages, but rejected his retaliation claim because the Second Circuit previously held that informal oral complaints to supervisors did not amount to “filing a complaint” under the FLSA and therefore could not support a retaliation claim.

The Second Circuit, “[b]oth impelled and guided by Kasten,” examined the legislative history of the FLSA and reversed its prior stance, holding that the “FLSA’s remedial goals counsel in favor of construing the phrase ‘filed any complaint’ in section 215(a)(3) broadly, to include intra-company complaints to employers.”  But the Second Circuit emphasized that not all oral complaints constitute protect activity.  Whether an oral complaint constitutes protected activity is a “context-dependent inquiry” and not all “grumbles in the hallways about an employer’s payroll practice” will rise to the level of protected activity as “some degree of formality” is required.  This holding is consistent with other Courts of Appeals that have addressed the issue, such as the First Circuit and Ninth Circuit.

Implications for Employers

Employers are well advised to be attentive to their employees’ complaints.  Following Kasten, and now Greathouse, it is even more important for employers to be sensitive to employees’ intra-company oral as well as written complaints regarding wages, overtime, and hours worked.  Managers and supervisors should be trained to recognize complaints under the FLSA and corresponding state laws and to respond to them appropriately.  Whether an internal complaint rises to the level of protected activity is a context-specific inquiry.  While the courts continue to assert that there are no “magic words” that an employee must use to assert a complaint and that generalized statements or complaints regarding pay practices may not rise to the level of protected activity under the FLSA (or even under the National Labor Relations Act), this should not embolden employers to ignore vague complaints.  After all, although you may believe today that a particular complaint is mere “venting” or “blowing off steam,” a court or a jury may later disagree.  Of course, following an employee’s complaint, employers need to ensure that any adverse action is based on legitimate, non-retaliatory reasons and not in response to the complaint.

Tech Companies Targeted For On-Demand Independent Contractors

Posted in Independent Contractors

Co-authored by Rob Whitman and Adam Smiley

If you’re working late at the office tonight, chances are you’ll order food online. Trying to get home after a fun night out? A car is just an app away. If you’re having company over but haven’t had time to clean, maybe you’ll hire a house cleaner through the online service you just read about. Want to go grocery shopping without leaving your couch? A full fridge is available with just a few clicks or swipes. Snoop Dogg is even getting into the action with a delivery app for medical marijuana.

Welcome to the “on demand” economy.

This fast growing type of commerce—largely driven by tech startups—allows consumers to quickly and easily buy goods and services with their computers, tablets, and smartphones. The speed of delivery is possible because a fleet—literally or figuratively—of contract workers is available to provide these goods and services 24/7. These workers have the flexibility to accept many jobs per day as a primary source of income, or just a few per week as a secondary source. This model creates a fluid but deep pool of workers, who are classified under the law not as “employees” but as “independent contractors,” and who may freely pick and choose when and where they perform work for these online or app-based companies.

This blog has previously chronicled the difficulties of classifying workers as independent contractors in more traditional industries, such as janitors and cable installers. Lawsuits challenging the classification under the FLSA and state law are common, with plaintiffs seeking significant back wages and liquidated damages. We’ve also blogged extensively about litigation involving interns, another non-traditional job arrangement that shares many similarities with the independent contractor analysis. Interest groups for independent workers and freelancers are growing in strength and visibility, and these organizations may embolden workers to challenge their classification status. Compounding the risk are the increased efforts of the Department of Labor, IRS, and state agencies to crack down on worker misclassification.

The first wave of lawsuits has already arrived, with suits filed in California and New York against app-based firms that provide car rides, house cleaning and home repair, and personal assistant services.

In short, the “on demand” economy appears to be the newest front of wage and hour lawsuits targeting non-traditional and independent employment arrangements.

So how is a business supposed to know if a worker may be designated an independent contractor? The Supreme Court has never created a bright-line test. Rather, the Court supports a totality of the circumstances approach that evaluates the entirety of the economic relationship between the business and the worker. The Department of Labor summarizes those key factors as follow, and notes that no single one is regarded as controlling:

  1. The extent to which the work performed an integral part of the employer’s business;
  2. Whether the worker’s managerial skills affect his or her opportunity for profit and loss;
  3. The relative investments in facilities and equipment by the worker and the employer;
  4. The worker’s skill and initiative;
  5. The permanency of the worker’s relationship with the employer; and
  6. The nature and degree of control by the employer.

The challenge of evaluating independent contractor status in app-based companies can be even more difficult. In two recent cases against Uber and Lyft, the companies sought summary judgment on the drivers’ independent contractor status. The judge in the Lyft case evaluated the relevant factors and pointedly noted, “Lyft drivers don’t seem much like employees … [b]ut Lyft drivers don’t seem much like independent contractors either.”

Although the judge in that case did not decide the ultimate issue, his balancing test highlighted the application of these legal standards to “on-demand” jobs.  Facts in favor of employee status were: the company retained a good deal of control over drivers’ conduct once they accepted a job; it published guides and FAQs that governed drivers’ behavior and their decision to choose rides and reserved the right to penalize drivers who did not follow its guidelines; the company could terminate a driver at any time, without cause; and the work performed by the drivers was “wholly integrated” into Lyft’s business. Facts supporting independent contractor status were: the drivers’ flexibility in deciding when and how often they work; the parties’ mutual belief that they were entering into an independent contractor relationship; and the drivers’ use of their own cars. Ultimately, these factors led the judge to conclude that a dispute existed as to whether Lyft drivers were properly classified as independent contractors, and that only a jury could make that factual determination.

Start-ups seeking to become the next high-profile player in the on-demand economy need to carefully consider these important legal issues. Rather than follow the lead of the established names in this space, they must evaluate the tasks their workers are performing, the permanency of the relationships, and the level of control the business will have over these individuals, among other factors. Failure to do so could be the recipe for a lawsuit, and with litigation comes potential liability for minimum wage, overtime, and a myriad of other legal obligations.

New York AG Investigates Retailers’ Call-in Practices

Posted in Misclassification/Exemptions, State Laws/Claims

Authored by Robert Whitman and Caitlin Ladd

New York Attorney General Eric Schneiderman has sent investigative letters to at least 13 nationwide retailers requesting information about their scheduling practices for non-exempt employees. The effort is part of an inquiry conducted in response to reports about widespread use in the retail industry of unpredictable on-call shifts, which are subject to strict regulation under the New York Labor Law.

The letters, sent last week by the AG’s Labor Bureau, ask the retailers whether they use on-call shifts that require non-exempt workers to make themselves available on short notice. In addition to inquiring about the use of on-call shifts generally, the AG is interested in learning about computerized scheduling systems that allow retailers to forecast staffing needs.

While the investigative letters express concern about the overall negative impact of unpredictable schedules on employees, particularly low-wage workers, the AG cited only one applicable regulation: section 142.23 of the Minimum Wage Order for Miscellaneous Industries and Occupations (12 N.Y.C.R.R. § 142.23), which provides that “an employee who by request or permission of the employer reports for work on any day shall be paid for at least four hours, or the number of hours in the regularly scheduled shift, whichever is less, at the basic minimum wage.” The New York Department of Labor has interpreted this provision to require call-in pay whenever an employer sends an employee home or otherwise directs an employee to cease working before the end of his or her regularly scheduled shift. Call-in pay may be warranted where an employee is required to work a shift of fewer than four hours or to attend a meeting or training that is not held during the regularly scheduled shift. (Although the rule requires call-in pay at the applicable minimum wage rate, the DOL has stated that an additional payment is required only where an employee’s wages for the workweek are less than the minimum wage and overtime rate for all hours worked plus any call-in pay owed.)

Schneiderman’s intentions and future actions remain to be seen. The AG has broad authority under the New York Executive Law to investigate potential violations of State law, and the Labor Bureau (according to its website) “is principally charged with, and has been nationally recognized for, defending labor standards in low-wage industries by aggressively enforcing the laws protecting low-wage workers.” In the past, the AG’s office has sent similar letters with respect to the use of payroll debit cards to investigate potential violations of the Labor Law, and has followed up with subpoenas and settlement efforts. Likewise, the AG has published informative reports and corresponding proposed legislation based on its findings.

Here, despite the initial publicity blitz regarding the investigation, the AG may find that the retailers being investigated are fully compliant with the call-in pay regulations and take no further action at all. Unfortunately for the affected employers, the office does not always notify them when they are “in the clear,” and they may remain uncertain whether the AG ever intends to take follow-up action or has simply closed its file.

In the meantime, this investigation serves as a good reminder for employers to review their on-call practices to ensure compliance with the laws of the particular states in which they operate. New York is not alone in requiring call-in pay. Other such jurisdictions include California, Connecticut, D.C., Massachusetts, New Hampshire, New Jersey, Oregon, and Rhode Island, all of which have wage-payment requirements for instances in which an employee reports to work per the employer’s instruction and works fewer than the expected hours of work or statutory minimum.

Out of the Pizza Oven, Into the Fire: Any Way You Slice It, Lenient Standard at Conditional Certification Stage Doesn’t Cut It

Posted in Conditional Certification, Decertification

Arkansas-Co-authored by Abad Lopez and Noah Finkel

The two-step “send notice now/worry later” approach to FLSA collective actions — in which courts approve notice to potential collective action members under the lenient standard but comfort defendant-employers with the bromide of “don’t worry, we can revisit the issue at the decertification stage under a more rigorous standard” — continues to leave a bad taste.

Those who follow FLSA collective action litigation are familiar with the recipe. Motions for conditional certification usually are subject to a “lenient standard” under which a plaintiff need carry only a “low burden” in making a “modest showing.” These motions thus typically result in a notice of collective action being issued to all those meeting the collective action definition. Dozens, hundreds, or even thousands then opt in to the case and substantially increase a defendant-employer’s potential exposure. Substantial discovery then occurs, and then the defendant-employer files a motion for decertification. Viewing that motion under a far more rigorous standard, courts often undo conditional certification and find that the collective action members are not in fact similarly-situated to each other. The dozens, hundreds, or even thousands who opted in then are dismissed from the case without prejudice.

So damage repaired, right? Unfortunately, no. Those former opt-ins — who would not exist but for the conditional certification order — can remain a significant cost and potential liability for an employer. They may file new lawsuits separately or in smaller groups, or they may even find their way back into the current lawsuit.

In other words, by refusing to conduct a meaningful analysis at the conditional certification stage, courts invite numerous individuals to join litigation through the collective action mechanism, even when their claims do not belong in the same lawsuit. Defendants then bear the burden of defending multiple lawsuits that, but for the ease of the two-step approach, probably would not have been brought to begin with.

A recent case in Arkansas illustrates this point. In Conners v. Catfish Pies, Inc., et al., an Arkansas federal judge conditionally certified a lawsuit accusing Gusano’s Chicago-Style Pizzeria restaurant operators of using illegal tip pools to pay waiters less than the minimum wage. Conners, who worked as a server at the Gusano’s location in Conway, Arkansas, claimed she was forced to pool her tips with cooks and other kitchen employees, who typically do not receive gratuities, in violation of the FLSA. Conners argued that because Gusano’s tip-sharing agreement was invalid, the company was required to pay her a minimum wage of $7.25 per hour, rather than the $2.75 plus tips that she was given.

Following conditional certification under the “lenient standard,” more than a dozen current and former waiters joined the lawsuit. Later, the court purportedly undid the damage when it decertified the lawsuit using the more rigorous analysis in the second step of the two-step certification process typically utilized for collective actions under the FLSA. In its decertification order, the court found that the plaintiffs were in fact not “similarly situated” because different workers were employed by different entities that operated the restaurants, and thus were subject to different pay practices.

But what seemed like a victory for the defendants turned out to be a headache. A few months later, the judge reconsidered part of his decision to decertify the collective action and split the case into four separate trials. Although the court had previously dismissed the claims of all opt-in plaintiffs in its decertification order, it allowed each opt-in plaintiff to join the lawsuit as a named plaintiff against the respective restaurant where he or she was employed. Instead of a victory, the restaurants now have to defend against multiple lawsuits by plaintiffs who were not properly before the court in the first place. For these restaurants, decertification didn’t undo the damage of the conditional certification order. Ultimately, decertification compounded their problem. And to add insult to injury, that is only after these restaurants spent a lot of time and money after conditional certification to get to decertification.

The Conners v. Catfish Pies litigation is a reminder that conditional certification, though it can be undone, has long-term consequences for defendant-employers. Even if the case ceases being a collective action, it nevertheless can transform into a multi-named-plaintiff case, or it can morph into dozens or more separate cases. Defendants need to continue to make this clear to judges when they oppose conditional certification.

The Department of Labor Investigates Retailers’ Relationships with Janitors

Posted in DOL Enforcement, Independent Contractors

Co-authored by Lynn Kappelman, Timothy Haley, and Karla E. Sanchez

Recently, we learned that the Department of Labor’s Wage & Hour Division has launched a sweeping FLSA compliance review focused on major retailers who employ janitorial workers. As part of that initiative, WHD has visited multiple retailer locations and has interviewed location management and janitorial employees. WHD has targeted retailers that hire janitors as employees, as well as those that retain janitors through independent contractors. Although these first investigations appear to be confined to the Northwest, we believe that this is part of a national initiative and retailers around the country should expect similar investigations in the coming months. The Northwest, however, is not yet out of the woods, and we understand that WHD’s investigations in that region will continue.

Keep in mind that retaining janitors through independent contractors will not necessarily shield retailers from liability for employment law violations. In 2004, janitors filed a class action lawsuit seeking unpaid overtime compensation against three of the largest supermarket chains in California and they settled it for over $22 million. The supermarket chains had treated the janitors as independent contractors. In 2005, another major retailer reportedly agreed to pay $11 million dollars to settle accusations that it retained hundreds of illegal immigrants through janitorial contractors to clean its stores. More recently, the Washington Supreme Court overturned a trial court which had granted summary judgment to a grocery store chain on its janitors’ claims that the broker company which employed them and the grocery store chain were joint employers.

We strongly recommend that retailers examine their relationships with janitors and janitorial contractors. We believe that governmental agencies and plaintiffs’ attorneys will continue to focus on these relationships.

Citibank Cashes In With Big Win On Nationwide Overtime Class and Collective Actions

Posted in Hybrid Lawsuits

Authored by Geoffrey Westbrook

After more than four years of litigation, Citibank hauled in a significant victory last week against putative class and collective actions in Ruiz v. Citibank. Personal bankers from California, New York, Washington D.C. and other states alleged that Citibank withheld overtime pay under a nationwide scheme encouraging off-the-clock work. Although finding “systematic violations at the branch level,” a New York federal district court held that the plaintiffs failed to produce sufficient evidence to connect those violations to an uniform, overarching company practice. The court denied the plaintiffs’ bid for class certification of state law claims and decertified a collective action under the Fair Labor Standards Act.

Ruiz is part of a growing trend among trial courts emphasizing the need for evidence of an unlawful company policy in nationwide class and collective actions. Modern class actions must satisfy the “rigorous” Rule 23 certification standard articulated by the U.S. Supreme Court in Wal-Mart Stores, Inc. v. Dukes. Collective actions, however, are assessed under the FLSA’s “similarly situated” test. As explained below, the court in Ruiz blurred the lines between these two distinct standards, requiring evidence of an illegal company policy or uniform nationwide managerial conduct supporting the plaintiffs’ claims in both types of actions. Without such evidence, even with nationwide violations at the local level, under Ruiz both must fail.


Digna Ruiz, a New York resident, filed a complaint seeking to represent a nationwide collective action under the FLSA and a class action under state labor law. He alleged that Citibank failed to compensate its personal bankers for overtime hours by setting high production targets and strictly limiting overtime work. A month later, residents of Washington, D.C., Illinois, Virginia and California filed nearly identical collective and class actions under the FLSA and laws of their respective states. These matters were consolidated in the U.S. District Court for the Southern District of New York.

After limited discovery, the court granted conditional certification of the FLSA collective action. More than 400 personal bankers opted in, and discovery proceeded in anticipation of the plaintiffs’ motion for class certification and Citibank’s motion to decertify the collective action.

Denial of State Law Class Certification Based on Rule 23 and Dukes

Class certification was denied based almost entirely on the “commonality” requirement of Rule 23. To certify a nationwide class, among other requirements, there must be some evidence of a common policy or management practice that is subject to testing at the class-wide level. The court likened the case to Dukes, where written corporate policies were lawful and managers were lawfully given significant discretion over pay and promotions. In the absence of an illegal policy, Dukes requires evidence showing an unlawful corporate practice connecting Citibank’s more than 900 branch offices across the country. Evidence of a local or even regional policy will not likely be sufficient to certify a nationwide class.

The plaintiffs failed to show Citibank’s lawful policies uniformly translated themselves into unlawful managerial behavior across the country. Anecdotal evidence demonstrated conflicting experiences among bankers nationwide in which some personal bankers felt pressured to work off the clock, while others had no issue meeting performance goals. There was significant evidence that certain managers pressured bankers not to report overtime hours, but at those and other branches many were properly paid overtime, indicating at best an inconsistent practice. Knowledge of overtime violations rarely percolated above the district level, and when it did, immediate efforts were made by area management to rectify the violations. Thus, the plaintiffs could not establish a common management approach — on a nationwide basis — in exercising their considerable discretion and resulting in unpaid overtime through Citibank branches as a whole. Evidence of even systematic violations at the branch level (and in some cases reaching up to senior management) was not sufficient to certify a nationwide class.

Decertification of FLSA Collective Action

In decertifying the FLSA collective action, the court followed a rising trend analogizing the “commonality” requirement of Rule 23 to the “similarly situated” test for collective action ultimate certification. In this vein, the Ruiz court granted Citibank’s decertification motion. It relied on the same evidence underlying its class action certification denial, holding that “Plaintiffs have advanced the ball very little in demonstrating a common plan or scheme.” Secondhand statements regarding an alleged companywide policy to force unpaid overtime by branch managers, in the face of Citibank’s lawful overtime and performance policies, was not sufficient to show personal bankers across the country were “similarly situated.” All told, evidence of individual overtime violations at the district level will not alone carry the day for purposes of class and collective action certification.


Ruiz represents a growing movement of the courts seeking to bridge the analytical differences between class and collective actions. The result of this trend is a greater uniformity in wage and hour decisions based on parallel theories. Logically, a putative class of plaintiffs failing to meet Rule 23 “commonality” requirements should not be permitted to proceed with a collective action either. We will continue to track district courts throughout the country in hopes that this common sense line of cases increases in popularity.

Proposed Overtime Regulations Slated for “Spring”

Posted in DOL Enforcement, Misclassification/Exemptions, Uncategorized

Authored by Alex Passantino

On Wednesday, Secretary of Labor Thomas E. Perez told a House committee that he hoped the Department’s proposed revisions to the white-collar overtime regulations would be published this Spring.

During a hearing of the House Education and Workforce Committee in which the topic was the President’s FY2016 budget request for the Department of Labor, Secretary Perez explained that the Department was “working overtime” on the proposal.  He provided no further specifics on the proposed rule’s timing, other than a hope that the proposal would be completed in the coming months.

525,600 Minutes of Overtime Consideration

Posted in DOL Enforcement

Authored by Alex Passantino

For twelve months, the employer community has been on the lookout for a regulatory proposal that would fundamentally change the application of the most-used exemption from minimum wage and overtime—the Part 541/white-collar exemption.  Increased salary obligations, a heightened requirement to establish an exempt employee’s primary rule, and a number of other changes have been rumored.

Today marks the one-year anniversary of the “Part 541 Watch,” a watch that largely has been met with silence.  One year ago today, President Obama signed a Presidential Memorandum directing the Secretary of Labor to “restore the common sense principles” related to overtime.  Still, we have no proposed regulations.

The Regulatory Process and Anticipated Categories of Change

The President’s specific directive to the Secretary was to consider how the regulations could be revised to update existing protections in keeping with the intention of the FLSA; address the changing nature of the American workplace; and simplify the overtime rules to make them easier for both workers and businesses to understand and apply.

To that end, in May 2014, in the Regulatory Agenda (pp. 56-57), the Department announced a target date of November 2014 for publication of a proposed rule on revisions to the Part 541 regulations.  In the months that followed, the Department engaged in a series of “listening sessions” with the regulated community—both employers and employees—during which the Department solicited input and ideas.  During those meetings, the Department was focused on the requisite salary level and changes to the primary duty test.  Based on all of the available information, it appears that the Department is considering:

  • an increase to the current salary level of $23,660 per year, with internal and external sources advocating for a new salary level ranging from $42,000 to $69,000 per year;
  • an adjustment to the primary duty test, presumably to implement a California-style hard 50% limitation on work deemed non-exempt, although a different—and more workable—standard (e.g., 30%, 40%) is certainly possible; and
  • other changes to the duties tests, such as limitation or elimination on the ability of managers to engage in management and non-exempt work concurrently or the re-introduction of the requirement that an administrative employee’s work be related to management “policies.

Following the meetings, the Department did not meet its November target date.  Instead, the Department identified a new target date of February (p. 55).  The Department missed this as well, and there has been no explanation for the delay.  In fact, as of this post, the proposed rule has not yet even been submitted to the Office of Management and Budget, which can sometimes take months to review a rule.

What Potential Regulatory Revisions Might Mean for Employers

Salary Test

Some estimates indicate that a salary increase to $50,400 per year would impact 5-10 million workers, many of whom are concentrated in the retail and hospitality industries.  Of course, the impact of a salary increase would depend upon the exact size of the increase.  It would, however, almost certainly have a larger impact in Southern states and rural areas than it would in the Northeast and metropolitan areas.

Notably, a sizeable increase in the salary level would (without a revision that would allow a pro rata salary) make it difficult to maintain part-time exempt positions.  Under the current salary requirement, a part-time, pro-rated salary is sufficient to establish the exemption (provided that the pro-rated amount exceeds $455 per week).  Effective elimination of part-time exempt employees would impact many flexible workplace arrangements.  If their pro-rated salary was not in excess of whatever the new salary amount is, they would—at a bare minimum—need to meticulously record their working hours, even if they never approached 40 hours, because the FLSA’s “hours worked” recordkeeping obligations apply to all non-exempt employees.

Primary Duty Test

To the extent that the Department makes significant changes to the primary duty test, those changes might eliminate (or substantially reduce) a manager’s ability to engage in “line work” and management concurrently.  This could mean the loss of the exemption for some front-line managers, particularly in smaller establishments.  For example, each time that a manager—even one who was unquestionably “in charge” of the establishment—checked a customer in or out, or wiped down a table in a restaurant, or took a reservation over the phone, her employer would need to track that time to ensure that it did not exceed whatever limitation the Department’s revisions would require.  Alternatively, the employer could simply decide in advance that the employee would be non-exempt, which could involve a significant cultural change for a company.

In addition to the obvious issues, the proposed changes could limit opportunities for exempt employees to engage in non-exempt work for training purposes (both to show hourly employees how to perform the work and to better understand how to perform the work to improve supervision), as well as to address “all-hands-on-deck” situations.  Should the Department eliminate the ability to engage in concurrent supervision, it potentially could limit application of many exemptions to corporate office employees and managers of large facilities.

Other revisions that might be under consideration would impact the application of the administrative or professional exemptions.  For example, if the Administration added the requirement that certain positions must be involved in work related to management “policies,” (instead of the current “work directly related to management of general business operations), it would dramatically limit the ability to claim the administrative exemption.

Clearly, the revisions that might be included in the proposal have the potential to make a significant impact on an employer’s operations.  The specifics of the proposal—as well as its potential impact on the nation’s economy—still appear to be under consideration at the Department.  Along with the substantive proposed revisions, the Department will have to prepare an economic analysis showing the cost of the new proposal.  In addition, the law requires a Regulatory Flexibility analysis requiring the agency to show the impact on small business and justify any increase in small business burden.  Once the Department decides, the proposed regulations will be sent to OMB, and, ultimately, published in the Federal Register for comment by the regulated community.  Only after that notice, comment, consideration—and, presumably, another long debate surrounding the salary level—will any changes become applicable to the U.S. workforce.  It can be expected that any dramatic change will generate Congressional hearings and attempts to use the appropriations process to stop the changes or even an attempt to use the Congressional Review Act to try to stop the revisions.

Employers should use this “down time” to consider the impacts these proposal might have on their operations—and their bottom line.  A robust regulatory record will allow the Department to best analyze the impacts its proposal will have on the economy.  Of course, considered economic input will be helpful to any legal challenges if the Department chooses to ignore the costs or significantly understates them in the regulatory process.  And, with only a couple of months to create that record once the proposal is made, employers need to be thinking about these issues well in advance.

In the meantime, we will keep you updated on further developments as they arise.

Supreme Court Holds that Flip-Flopping Alone Does Not Invalidate DOL’s Guidance on Exempt Status of Mortgage Loan Officers

Posted in Misclassification/Exemptions

Authored by Barry Miller

On Monday, the Supreme Court issued its ruling in Perez v. Mortgage Bankers Association, examining the validity of the Department of Labor’s 2010 Administrator’s Interpretation on the application of the FLSA’s administrative exemption to mortgage loan officers. As noted in our previous post, the D.C. Circuit struck down the Administrator’s Interpretation because the DOL had abruptly reversed its own position on the issue, finding in a series of opinion letters that mortgage loan officers were exempt administrative employees, then issuing a surprise reversal of that position in the Administrator’s Interpretation. The D.C. Circuit’s decision was based on a line of cases that required an agency to undertake full notice and comment rulemaking when reversing course in its established views. The Supreme Court not only unanimously reversed the D.C. Circuit’s ruling, but also struck down the entire line of authority on which the D.C. Circuit based its ruling.

Notably, the Supreme Court did not hold that the Administrator’s Interpretation was well reasoned or valid. The Court merely held that the D.C. Circuit’s specific grounds for invalidating the Administrator’s Interpretation—the so-called Paralyzed Veterans doctrine—was contrary to the Administrative Procedures Act. The majority noted that the APA expressly exempts agencies from notice and comment rulemaking in establishing “interpretive rules” (as opposed to more formal “legislative rules”). The statute also states that an agency need not engage in any greater formal process to modify or rescind an interpretative rule than is necessary to adopt the rule in the first place. From these points, the Court concluded that notice and comment rulemaking is not necessary to modify or reverse an interpretive rule, as the DOL did in issuing the Administrator’s Interpretation.

In reaching this conclusion, the Supreme Court did not give free rein to agencies to promulgate interpretive rules and expect that courts will defer to them. Nor did the Court extend agencies’ unfettered liberty to flip-flop in their interpretations of the law. Justice Sotomayor noted that where an agency issues an informal, interpretive rule that is arbitrary or capricious, courts will not give it effect. Quoting prior precedent, the Court observed that an agency will be required to provide a more “substantial justification” for its rules when they are based “upon factual findings that contradict those that underlay its prior policy; or when its prior policy has engendered serious reliance interests,” noting that it “would be arbitrary and capricious to ignore such matters.”

The question of whether the DOL’s Administrator’s Interpretation was arbitrary or capricious was not before the Supreme Court (or the D.C. Circuit). The parties challenging the Interpretation made the argument in their initial lawsuit, but it was not one of the arguments that they advanced on appeal. Given the abrupt nature of the DOL’s change in its views and the potential impact that it had on a large number of employees, an argument that the Administrator’s Interpretation was arbitrary and capricious may still be viable in future litigation regarding the exempt status of mortgage loan officers. Indeed, even the format of the Administrator’s Interpretation raises questions about its value as an interpretation of the underlying regulations. While the DOL’s legislative rules note that “job title alone is insufficient to establish the exempt status of an employee” and the “exempt or nonexempt status of any particular employee must be determined on the basis of … the employee’s salary and duties,” the Administrator’s Interpretation offers a sweeping generalization about the exempt status of a vast number of employees working for thousands of different employers across the country, based on nothing more than their common job title.

It is also notable that, even if the Administrator’s Interpretation were taken at face value, it would not mean that all mortgage loan officers are non-exempt and overtime eligible. Indeed, many mortgage loan officers spend a significant amount of their working time outside their employers’ places of business, and as such, courts have entered summary judgment and jury verdicts confirming those employees’ exempt status as outside sales personnel.

As we predicted based on the oral argument of this case, the Supreme Court’s ruling leaves open the ultimate questions of whether and under what circumstances mortgage loan officers can meet the FLSA’s administrative exemption. Those open questions will continue to produce substantial uncertainty and litigation in the wake of this decision.

Taking a Pass on a “Reclass” Class (or Collective): Court Denies Reclassified Employees’ Certification Motion

Posted in Conditional Certification

Authored by Jessica Lieberman

The decision whether to reclassify employees whose exempt status is arguable can sometimes create something of a double bind for employers: reclassification should be the conservative approach, but it also can be risky if it is interpreted as evidence that the prior classification was wrong.  For this reason, employers may fear that reclassification aimed at reducing potential liability may actually spur litigation.

Last week the District of New Jersey issued a decision that provides some hope and help for employers facing this conundrum.  In Henry v. Express Scripts Holding Co., an employee who had been reclassified by the defendant in 2013 sought conditional certification of a putative collective of 170 employees who had been reclassified at the same time.  She claimed that she was similarly situated to these individuals because  the defendant “did not review the job duties that the employees performed during the prior three years” and “did not pay back overtime wages to any of the 170 reclassified employees.”

The district court rejected this bid for conditional certification, stating that in the Third Circuit an employee must show the existence of a common policy or practice that arguably violates the FLSA, and “[r]eclassification, alone, does not evidence a FLSA violation” for these purposes.  The plaintiff had failed to show any additional facts that would support her claim or suggest that “the previous classifications as exempt resulted in FLSA violations.”  Accordingly, the court held that the plaintiff had failed to make the “modest factual showing” necessary for conditional certification and denied the motion.

The Henry case does not eliminate all risk associated with a reclassification, and whether and how to reclassify remains a nuanced issue that should be discussed with counsel.  Going forward however, employers should be able to point to Henry in trying to avoid certification of FLSA lawsuits stemming from such decisions.