Wage & Hour Litigation Blog

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.

Background

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.

Conclusion

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.

WHD Recovers $240 Million for More Than 270,000 Workers

Posted in DOL Enforcement

Authored by Alex Passantino

In a post today on the U.S. Department of Labor’s blog, WHD Administrator, Dr. David Weil, announced that WHD recovered more than $240 million in back wages for more than 270,000 workers in FY2014. This recovery was slightly down from FY2013’s $249 million. Since 2009, WHD has recovered more than $1.3 billion as a result of its enforcement efforts.

Notably, 43% of WHD’s investigations were targeted or “directed” investigations (as opposed to complaint-based), which is up from years past. In those investigations, WHD investigators found violations 78% of the time.

Dr. Weil’s post references the Division’s strategic enforcement efforts, as well as its fissured industry initiative. As we’ve discussed previously on the blog, the fissured industry initiative is focused on those industries more likely to use independent contractors, subcontractors, franchise relationships, and employment agencies, such as hotel, restaurant, construction, janitorial services, and staffing.

Employers in these industries should take some time and consider whether their payment practices comply with the FLSA and other wage and hour laws. Are your exempt employees properly classified? Are bonuses and other incentive payments being included in the regular rate? Are you capturing all hours worked?

Conducting an audit of these practices before WHD shows up at your door can help keep you out of next year’s enforcement numbers. As Dr. Weil’s post makes clear, enforcement is the fissured industries will continue, and less than a quarter of the time do employer make it out unscathed.

Wage and Hour Division Requests $49 Million Increase to Pressure Fissured Industries

Posted in DOL Enforcement

Co-authored by Alex Passantino and Kevin Young

Although widely regarded as being “dead on arrival,” the President’s recently released FY2016 budget request provides many insights into the Administration’s priorities.  Those insights are crystal clear when it comes to the Labor Department:  the Administration will continue to focus on equipping the Department with the resources necessary to aggressively increase its investigation, identification, and penalization of workplace violations.

Certainly included in the Administration’s plans is the DOL’s Wage & Hour Division.  WHD has requested a 22% budget increase, from about $227 million in FY2015 to about $277 million in FY2016.  This proposed increase to WHD’s budget would provide it with more than 300 new full-time positions.  The increase would also allow WHD to upgrade its technology, which would in turn improve WHD’s employer targeting and violation tracking.

Not surprisingly, WHD’s Congressional Budget Justification—which is WHD’s explanation to Congress of what it intends to do with the money it requests—identifies “Addressing the Fissured Workplace” as a key enforcement initiative.  As we’ve discussed plenty of times on this blog, WHD has focused investigative efforts in “fissured industries,” which include industries using independent contractors, employee leasing, and franchise relationships, such as restaurants, hotels, staffing companies, cleaning services, and construction, among several others.

Notably, WHD has dramatically increased its targeted cases.  In FY2014, 44% of its investigations were directed (i.e., not complaint-based), a 27-point increase from FY2010.

WHD also identifies a “reengineered” approach to FMLA enforcement.  WHD is developing strategies so, when conducting local establishment FMLA compliance, it will also provide a more in-depth review of the employer’s business practices and leave policies.  WHD hopes to have a broader impact on compliance, rather than simply resolving an individual complaint.

The budget proposal reflects the Administration’s desire to raise the minimum wage, which would require a legislative act.  The Administration’s talking points also identify another legislative proposal:  a change to the FLSA’s civil monetary penalties provisions that would allow WHD to assess a $5,000 penalty per violation against employers that intentionally keep fraudulent wage and hour records or no records at all.

Of course, the budget also notes the Administration’s current effort to revise the FLSA’s overtime exemptions for the first time since 2004.  The Administration has signaled a full-court press on narrowing the class of workers who may be classified as overtime-exempt by heightening the exemptions’ salary requirements and tightening their duty requirements.  A proposed rule is expected in the coming weeks.

Although the President’s budget proposal is not likely to be enacted by Congress in anything close to its current form, it provides a good look into WHD’s priorities for the coming year.  Targeted enforcement—particularly in the fissured industries—is at the top of the list.  We will, of course, keep you apprised of further developments.

Live From New York – It’s The Second Circuit (Unpaid Intern Case)!

Posted in DOL Enforcement, Misclassification/Exemptions

Co-authored by Robert S. Whitman and Adam J. Smiley

The Second Circuit heard arguments this morning in two cases that raise critical issues for the fate of internships in for-profit businesses: Fox Searchlight’s appeal of the decision granting summary judgment and class certification to interns who worked on film productions, and the appeal by former Hearst Corporation interns whose motion for class certification was denied.

Lawyers from both sides, and from the U.S. Department of Labor, sought to persuade the Court of the appropriate test to evaluate whether interns are employees, subject to the minimum wage and overtime provisions of the FLSA, or “trainees” who are not entitled to compensation.  Under the common law “primary benefit” test advanced by the companies, if the internship primarily benefits the intern rather than the employer, the intern is properly deemed a trainee.  The interns and the DOL voiced support for the DOL’s strict 6-factor test, which provides that if each factor is not satisfied, the intern is entitled to compensation.

The panel of Judges Walker, Jacobs, and Wesley peppered the lawyers with questions, at times joking about the lack of internships when they were students in the “stone age.”  Overall, they were critical of the application of the rigid DOL test, with Judge Wesley candidly noting that the three judges are “skeptics” of the 6-factor approach.

Here are the highlights of the arguments:

  • The panel focused on the utility of the primary benefit test for judges who are accustomed to conducing balancing inquiries.  The primary benefit test, they said, allows for such a balancing analysis, with consideration of all the key issues, while the DOL test is rigid and does not allow for the consideration of important issues such as the receipt of academic credit, the brevity of internships, or the fact that an internship may end at the same time as the academic semester.
  • In further challenging the rigidity of the 6-factor test, Judge Jacobs wondered what a reference letter for an intern would look like if the program fully conformed with the DOL test – suggesting that such a letter would be an “absurd” read that would not paint the intern in a favorable light.
  • In response to this tough questioning, the DOL made what appeared to be an important admission:  that its test is not absolutely rigid, and that under certain circumstances, an intern may properly be deemed a trainee even if the internship did not meet all 6 of the DOL factors.  Lawyers for Fox jumped on this statement as an additional indication that the DOL test is facially contradictory and is in essence encompassed by the primary benefit test.
  • The panel also commented that an intern’s decision to accept no compensation, and no expectation of a future job, suggests that the intern was in fact gaining a benefit from the program – because there would be no reason to accept such a position without other benefits.  Lawyers for the interns countered that, since the 2008 recession, students are desperate to get their feet in the door and are willing to take internships with no benefits in exchange for the remote possibility of a job down the road.
  • The panel, picking up on the interns’ argument, questioned how an intern could gain an educational benefit from performing menial tasks, such as getting coffee and running errands.  The employers argued that being immersed in a particular industry’s work environment and evaluating a type of job are tangible benefits that should be considered under the primary benefit test.  While he acknowledged that this was just one part of the analysis, Judge Wesley expressed disagreement with the proposition that simply “[learning] to co-exist in a work environment” is educational.
  • The panel, and Judge Jacobs in particular, seemed persuaded that the grant of academic credit by an educational institution was an important consideration in favor of finding that an internship had a valid educational component.  Judge Jacobs also criticized the interns’ suggestion that the payment of minimum wage was an easy fix, suggesting that the slew of other legal protections that come with employee status might make it impossible to fire an intern – an observation that drew laughter from the audience.
  • The panel seemed to believe that any internship would necessarily require interns to perform some “real work.”  Judge Jacobs, in fact, gave an example of law school clinic programs where law students clamored for “real work” in writing briefs and meeting with witnesses, and how this is what makes internships desirable.

It may be months before the court issues its decision, and we will provide an update as soon as that happens.  In the meantime, employers should continue to carefully scrutinize their internships to ensure that, at a minimum, the interns are the primary beneficiaries of the program.  We also recommend that employers at least look to the DOL factors as a guide in this analysis, as some of those factors may be adopted by the Court as part of a balancing test, even if it rejects the strict 6-factor approach.

Whatever Happened to those Overtime Rules?

Posted in Overtime

Authored by Alex Passantino

Over the past several weeks, we have received an increasing number of questions about the status of the Department of Labor’s revisions to the “white collar” overtime exemptions.  As regular readers know, last March, the President directed the Secretary of Labor to begin the regulatory process on those regulations.  At that time, the President directed the Secretary to consider how the regulations could be revised to:

  • Update existing protections in keeping with the intention of the Fair Labor Standards Act.
  • Address the changing nature of the American workplace.
  • Simplify the overtime rules to make them easier for both workers and businesses to understand and apply.

Since the initial direction by the President, indications are that the anticipated revisions to the overtime regulations may involve:

  • A (potentially significant) increase to the current salary level of $455 per week.
  • 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.

The details of the proposed revisions, however, remain in the Department of Labor.

In May of last year, the Department of Labor identified a target date of November 2014 for publication of a proposed rule.  In the months that followed, the Department engaged in a series of “listening sessions” with the regulated community, soliciting input and ideas.  The Department, however, did not meet its November target date.

In December, the Department identified a target date of February.  As of this post, the proposed rule has not yet been submitted to the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA).  Given that OIRA can sometimes take months to review a rule, it is difficult to see how the Department can meet its February date, but there has been no formal announcement of a delay.

There has, however, been much speculation about what may be holding the regulations up at the Department.  That speculation typically focuses on the proper salary level for the exemption.  Earlier this month, the Economic Policy Institute, a think-tank that receives a significant portion of funding from organized labor, posted a letter sent by a number of labor economists to Secretary Perez.  In that letter, the economists noted that the Department had been considering a salary level of $42,000.  The economists pushed for a $50,000 threshold.

The U.S. Senate also jumped into the salary level debate today, when a group of 25 Democratic Senators (as well as Sen. Bernie Sanders, an Independent who caucuses with the Democrats) sent a letter to President Obama requesting that the salary level be increased to at least $56,680 per year.

Clearly, the proper salary level to be included in the proposal is something under careful consideration at the Department.  Presumably, once that level is determined, the proposed regulations will be sent to OIRA, 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.

We will keep you updated on further developments as they arise.

Unpaid Internship Showdown at the Second Circuit

Posted in DOL Enforcement

Co-authored by Robert S. WhitmanNadia S. Bandukda, Adam J. Smiley, and Jade Wallace

The Super Bowl isn’t the only major showdown coming this weekend.

On Friday morning, a three-judge Second Circuit panel will hear argument in two cases raising critical issues for the fate of internships in for-profit businesses:  (1) Fox Searchlight’s appeal of the decision granting summary judgment and class certification to interns who worked on film productions and (2) the appeal by former Hearst Corporation interns whose motion for class certification was denied.

At issue in both cases is the test to be used to evaluate whether interns are “employees” under the FLSA or “trainees” who are exempt from minimum wage and overtime requirements.  Under the common law “primary benefit” test, if the internship primarily benefits the intern rather than the employer, the intern is properly deemed a trainee and not entitled to compensation.  The Department of Labor (“DOL”) has declared that internship status should instead be determined by a strict 6-factor test and that if each factor is not satisfied, the intern is entitled to compensation.  The lower courts have applied modified versions of these tests and reached differing results.

We have written frequently on this topic (in May 2013, November 2013, and April 2014), but to tide you over until kickoff, we break down the matchup by looking at what the many friends of the Court have to say about the issue.

Five groups have filed amicus curiae briefs in the two appeals: the Secretary of Labor, the U.S. Chamber of Commerce, the Economic Policy Institute, Organized Labor (AFSCME, SEIU, CWA, UFCW), and the American Council on Education.  Here is where each group stands on the key issues before the Court:

 

DOL

Chamber of Commerce

EPI

Organized Labor

ACE

What test does group support? DOL 6-Factor Test Primary Benefit Test Brief does not urge the court to adopt any specific test DOL 6-Factor Test Functional standard similar to Primary Benefit Test:  leaves the determination of intern status with educational institutions rather than DOL
Key arguments DOL test is based on Supreme Court’s Portland Terminal decision.DOL test provides a consistent, objective standard for analyzing internship programs. Focuses on the benefits to interns and businesses from internship programsDOL test: 1) impedes students’ ability to develop skills in meaningful internship experiences; 2) will reduce available internship opportunities; and 3) places an onerous burden on employers to ensure interns are not engaging in productive work FLSA must be expansively construed to cover internships where “workers are suffered or permitted to work.”“Many… non-traditional jobs come under the broad FLSA definitions of employment, and when scrutinized do not pass muster.” The Primary Benefit test could deny traditional common-law employees from FLSA protection Primary Benefit analysis allows courts to develop a standard that prevents abuse but also permits varied and flexible learning experiences without fear of liabilityThe approval of an internship by a college or university should provide a presumption of compliance with the FLSA
Notable Quotes: “In an internship context, a primary benefit test could be applied to exclude from the protections of the FLSA interns who are receiving very basic training on the employer’s operation while performing productive work for the employer on the theory that because interns are new entrants to the workforce, even the most rudimentary instruction or general exposure to a particular industry inures to their benefit.” “Prohibiting interns from performing any productive work is antithetical to a meaningful internship.” “Unpaid interns are likely to receive jobs with lower median wages than paid interns and applicants with no internship experience.” Applying the Primary Benefit test would “strip [workers] of a slew of other statutory workplace rights – concerning sexual harassment, discrimination on the basis of race and gender, workplace safety, and collective bargaining – that apply only to wage earners.”“Unpaid internships are a hallmark example of the race to the bottom in wages that result when, in the perceived absence of FLSA coverage, workers at the lowest rung of the labor market are forced to compete against one another to offer their services at the cheapest possible rate.” The DOL 6-factor test would be insufficient to address experiential learning and “cannot be used to evaluate the educational value of a particular internship.”“The uncertain and chilling prospect of employer FLSA liability for a legitimate educational internship restricts, if not altogether eliminates, opportunities which college students need in the public sector, in the non-profit sector, and in the business world.”The business concern about employing the 6-factor test and about civil liability under the FLSA has brought a “profound negative impact on the availability of internships” and allowing businesses to feel that such programs are “too risky.”

 

It is of course too soon to know whether the Second Circuit panel will be swayed by any of this.  Given the DOL’s primary enforcement role under the FLSA, its views will surely be given respectful consideration and perhaps strong deference.  But the amicus briefs come from a range of interested parties and reflect the importance of the internship issue to the various constituencies.  As of this post, only the DOL has been allowed any argument time in addition to the parties.

We will report on the arguments shortly after they close on Friday, and update readers as soon as possible thereafter.