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By: Ariel Fenster

Seyfarth Synopsis:  Courts across the country have frequently weighed in on the unpaid interns/ trainees versus paid employee debate.  Now, the 10th Circuit has jumped into the fray with a decision affirming that a massage therapy student was not an employee under the FLSA and thus need not be paid.

The issue of whether interns and trainees must be paid under the Fair Labor Standards Act (“FLSA”) is a hot topic among companies.  Over the years, courts hearing these suits, and agencies enforcing and interpreting the law, have applied different tests and reached different answers in determining the nature of the employment relationship and the circumstances under which interns must be paid.  Figuring out which test applies and how it applies has been for many employers a pain in the neck for which massage therapy is needed.

Fortunately, in steps a massage therapy school.

This month, in Nesbitt v. FCHN Inc., et al., the 10th Circuit affirmed the District of Colorado’s grant of summary judgment holding that massage therapy students were not employees under the FLSA and thus not entitled to payment.  As part of the curriculum to become a licensed massage therapist, the plaintiff-student was required by the defendant massage therapy school to complete both classroom and clinical education requirements.  The clinical education component included approximately 100 massages to the public, each lasting about 50 minutes.

The schools charged the public discounted rates for the massages because they were being performed by students.  The massages took place at the school where clinic managers and teaching assistants were on site to supervise and provide feedback (the extent of that supervision was disputed by the parties).

In its decision, the district court applied a six-factor totality of the circumstances test.  The six-factor test was originally set out in the landmark Supreme Court case of Walling v. Portland Terminal and later applied by the 10th Circuit in Reich v. Parker Fire Protection District.  The district court applied that test to find the students to not be employees.  It specifically held as follows:

Factor One: The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school.  Here, the students received vocational training from the school.

Factor Two: The training is for the benefit of the trainees.  Here, the training primarily benefitted the students because they were required to complete these clinical hours to obtain their licenses

Factor Three: The trainees do not displace regular employees, but work under close observation.  Here, the students did not displace regular employees and they worked under the supervision of school instructors.

Factor Four: The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion its operations may actually be impeded.  Here, there was no dispute regarding the profit that the company made from operating its school.

Factor Five:  The trainees are not necessarily entitled to a job at the completion of the training period. Here, the students were not entitled to employment upon completion of their training.

Factor Six:  The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training. Here, the students and Defendant both understood that they were not entitled to wages for time spent training.

The student appealed the district court’s decision on two bases.  First, the student argued that the district court applied the wrong test and instead should have used the “primary beneficiary test.”  Notably, the primary beneficiary test has been adopted in the 2nd, 6th, and 9th Circuits.  Additionally, on January 5, 2018, the United States Department of Labor (“DOL”) announced that going forward, it would utilize the primary beneficiary test. The DOL’s updated Fact Sheet #71, explains the test, which examines “the ‘economic reality’ of the intern-employer relationship to determine which party is the ‘primary beneficiary of the relationship.”  The 10th Circuit, however, felt bound to follow its prior Reich precedent.

Second, the student argued that even if the Reich test is applied, the factors weigh in favor of an employee-employer relationship, particularly because the massages were not carefully supervised.  But in affirming the district court’s decision, the Court explained that one factor alone is not sufficient to weigh in favor of an employer-employee relationship. As the district court had stated, “I look at the forest, not just the trees.”

The Takeaway for Employers:  Employers interested in establishing or maintaining an unpaid internship or trainee program should ensure that  the program is connected to a formal educational program.  And although no single factor is dispositive, certain factors can and should be clarified in a written agreement between the intern, the employer, and the employee with an eye toward the various tests courts use to decide whether an intern or trainee must be considered an employee, and thus whether the intern or training must be paid minimum wage and overtime.

By: Alexander Passantino

The Department of Labor issued its Fall 2018 regulatory agenda, and the Wage & Hour Division is front and center. New to the agenda is a proposed rule on joint employment under the FLSA. Acknowledging that its regulations have not been updated in 60 years and no longer reflect the realities of the workplace, WHD is proposing changes “intended to provide clarity to the regulated community and thereby enhance compliance. WHD also “believes the proposed changes will help to provide more uniform standards nationwide.” A proposed rule is expected in December.

Remaining on the agenda are WHD’s proposals to (1) update the salary level required for the FLSA exemption for executive, administrative, and professional employees and (2) clarify, update, and define basic rate and regular rate requirements. The salary level proposal is expected in March 2019, and the regular rate proposal is expected December 2018.

It’s shaping up to be an incredibly busy couple of months at WHD. We’ll update you as more information becomes available.

By: Howard M. Wexler and Vlada Feldman

Seyfarth Synopsis: The Second Circuit’s recent rulings in Munoz-Gonzalez v. D.L.C. Limousine Service, Inc. and Flood v. Just Energy Marketing Corp. further demonstrate the impact of the Supreme Court’s holding in Navarro, et al. v. Encino Motorcars, LLC as it pertains to FLSA exemptions by rejecting the traditional “narrow construction” approach in favor of a “fair interpretation.” 

We previously wrote about how the Supreme Court put the brakes on the outdated view that FLSA exemptions should be “construed narrowly” in Navarro, et al. v. Encino Motorcars, LLC.   This past week, the Second Circuit Court of Appeals issued two decisions finding two different categories of workers exempt under the FLSA based on a fair (rather than a narrow) interpretation of FLSA exemptions, as the Supreme Court held is the correct approach.

Stalling Out in Munoz-Gonzalez v. D.L.C. Limousine Service, Inc.

In Munoz-Gonzalez v. D.L.C. Limousine Service, Inc. a group of limo drivers argued that DLC, a “chauffeured car service” violated the FLSA by not compensating them for the overtime hours they worked.  When the district court granted summary judgment in favor of DLC, Munoz-Gonzalez appealed arguing that DLC was an “airport limousine service” and therefore did not qualify for the taxicab exemption.

On the second lap around the racetrack, Munoz-Gonzalez stalled out once again.  In determining whether the taxicab exemption was applicable, the Second Circuit drove straight through the tracks made by the Supreme Court in Encino Motorcars.  The court inspected the ordinary meaning of the word “taxicab”  and found that a “taxicab” is “(1) a chauffeured passenger vehicle; (2) available for hire by individual members of the general public; (3) that has no fixed schedule, fixed route, or fixed termini” and therefore DLC qualified for the exemption and the drivers were not entitled to overtime pay.

Notably, in affirming the grant of summary judgment in favor of DLC, the Second Circuit rejected Munoz-Gonzalez’s admonition to construe the FLSA narrowly.  Instead, the opinion cited Encino Motorcars holding that FLSA exemptions should be construed “‘fair[ly]’ . . . with full attention to the text” instead of in favor of the plaintiff.  In the words of the Second Circuit: “a taxicab is a taxicab is a taxicab.”

Hard Knock Life for Flood v. Just Energy Marketing Corp.

In Flood v. Just Energy Marketing Corp., the Second Circuit answered Plaintiff Flood’s door knock but ultimately rejected his sales pitch.  Kevin Flood, a door-to-door salesman, sued his employer alleging that the company violated the FLSA by failing to pay him and the class that he hoped to represent overtime for the weeks that they worked in excess of forty hours.  The district court bought into the employer’s argument that Flood was not entitled to overtime pay based on the “outside salesman” exemption, 29 U.S.C. § 213 (a)(1).  On appeal, the Second Circuit upheld the district court’s ruling and rejected Flood’s argument after quoting Flood’s own statement: “sales is ‘what I do.’”

The Second Circuit once again reiterated that although “[u]ntil recently, it was a rule of statutory interpretation [to] . . . narrowly construe an exemption to the FLSA in order to effectuate the statute’s remedial purpose,” the Supreme Court rejected that view in Encino Motorcars because “exemptions under the FLSA are ‘as much a part of the FLSA’s purpose as the overtime-pay requirement.’”

A Shifting Tide

Both cases can be viewed as lighthouses signaling a tide shift in FLSA interpretation based on Encino Motorcars and the continued banishment of the “construe narrowly” canon of construction some courts previously used in making exempt status determinations.

By: Ariel D. Fenster and Brett C. Bartlett

Seyfarth Synopsis: The Eleventh Circuit recently affirmed the district court’s grant of summary judgment to two Florida counties in an action brought against former sheriff deputies under the Fair Labor Standards Act (FLSA) and Florida Minimum Wage Act (FMWA). The court held that the deputies were not entitled to compensation for the time that they spent donning and doffing police gear at home or the time that they spent driving to and from work in marked patrol vehicles.

Should we be paying our employees before their shifts start?  The answer is highly fact dependent.  In recent weeks, the Eleventh Circuit affirmed the Middle District of Florida’s decision that the time deputies spent putting on their police gear at home and driving to and from work in their patrol cars was not compensable.  In Llorca v. Sheriff Collier County, Florida,  the Eleventh Circuit analyzed what type of pre-shift activities may qualify for hourly compensation.  The decision provided a deep analysis of the Portal-to-Portal Act of 1947, as amended by the Employee Commuting Flexibility Act of 1996.  In relevant part, the act states that an employer does not have to pay its employees for activities that are “preliminary or postliminary” to the “principal activity” of the job.   The U.S. Supreme Court has long interpreted the term “principal activity or activities” to include all activities that are an “integral and indispensable part of the principal activities.”

Continue Reading The Eleventh Circuit Affirmed It Was Not A “Crime” To Not Compensate For Dressing and Drive Time

By: Kyle Petersen and Ariel Fenster

Seyfarth Synopsis: A recent decision by the Southern District of New York clarifies common questions arising from the use of the fixed salary for a fluctuating workweek method of compensation (the “FWW”): (1) Do isolated pay deductions undermine the fixed salary requirement; (2) Must the employee’s hours fluctuate above and below 40 hours; and (3) Do employees have to subjectively understand the overtime pay calculations for there to be a mutual understanding that the fixed salary was intended to cover all hours worked at straight time? Spoiler Alert: This court answered no to each of these questions.

A Quick FWW Primer

The FWW method is one of two approved methods of calculating a salaried employee’s “regular rate” for overtime pay and may be used where a nonexempt salaried employee’s hours vary from week to week. The weekly salary covers all hours worked at straight time. When the hours fluctuate above 40 in a given week, the employee is then due an addition half-time compensation for the overtime hours. Like the hours worked, the overtime rate fluctuates from week to week and is the quotient of the weekly salary divided by the week’s hours worked. So, as the number of hours worked goes up, the regular rate goes down. If this doesn’t take you back to fourth grade math class, this example should:

Assume Donna’s Weekly Salary is $1,000 and her hours vary week to week.

  Hours Worked Salary Paid Regular  Rate for OT Overtime Pay Due
Week 1 50 $1,000 $20 ($1,000/50 hours) $100 [($20 x .5) x 10 hours)]
Week 2 40 $1,000 $25 ($1,000/40 hours) $0
Week 3 55 $1,000 $18.18 ($1,000/55 hours) $136.34 [($18.18 x .5) x 15 hours)]
Week 4 35 $1,000 $38.57 ($1,000/35 hours) $0

In order to use the FWW method, the regulations require that (1) the employee’s hours fluctuate from week to week; (2) the employee receives a fixed weekly salary regardless of the number of hours worked; (3) the fixed salary pays the employee at least minimum wage for all hours worked; and (4) the employer and employee have a clear mutual understanding that the employer will pay the employee a fixed salary regardless of the number of hours worked. If each of these factors is satisfied, the employer then need only pay the employee for overtime hours at a rate of 50% the regular rate for that week.

The Case

In Thomas v. Bed Bath and Beyond, Inc., several managers challenged the company’s implementation of the FWW method of pay, arguing that their weekly salaries were docked for absences (and thus were not “fixed”), their work hours did not fluctuate above and below 40 hours, and that there was not a “clear and mutual understanding” that the fixed weekly salary was intended to compensate the managers for all of their hours worked in a week. On each of these points, a federal district court sided with Bed Bath and Beyond, Inc’s (“BBB”).

First, the plaintiffs challenged whether they received a “fixed weekly salary” because the record contained a handful of occasions where a plaintiff’s salary was docked for absences. While the court acknowledged that the FWW method does not allow for salary deductions for time off, it ultimately took a practical approach that did not penalize BBB for isolated (and later rectified) instances of payroll errors.  The court also held that the company’s negotiated agreement with one plaintiff that she could take pre-planned vacation unpaid before she accrued paid time off did not undermine the FWW method because it did not call into question BBB’s intention to pay the employee on a fixed salary basis. Rather, it was an accommodation made during the hiring process for the benefit of the employee. This negotiated agreement before the employee took the job, the court explained, should not forever after preclude BBB from using the FWW method of pay. The real takeaway for employers here is that one-off incidents of payroll errors will not invalidate an employer’s use of the FWW.  Employers, however, should promptly rectify improper deductions when they are discovered.

Second, plaintiffs argued their hours did not actually fluctuate week to week within the meaning of the FWW regulations because their hours never dropped below forty hours per week.  In relying on the text of the regulation, the Court held the FWW requires only that an employee’s hours vary week to week.  Fluctuating does not mean the hours must go above and below forty hours. This interpretation opens the FWW method up to workers whose hours are regularly above 40, so long as they fluctuate above the 40-hour threshold.

Third, plaintiffs’ final argument is that they did not have a clear mutual understanding that they would be paid based off the FWW.  Plaintiffs advanced this argument even though they did not dispute signing acknowledgement forms that spelled out the method of pay FWW and did not dispute receiving documents informing them of their weekly salary (and sample overtime calculations), annual notices about their pay rate and method, and paystubs showing that their overtime pay was calculated under the FWW.

Despite the many ways in which BBB explained their method of pay to them, Plaintiffs argued that they didn’t really understand it. The court rejected their position, holding that an employee’s subjective lack of understanding of the details of the pay plan is irrelevant; rather, it’s an objective test as to whether employee knows they will be paid on a fixed based salary regardless of the hours worked. Given all of the notices and their own acknowledgements that they received (and understood) all the facts about their method of compensation, the court concluded that there was “no genuine dispute that the [plaintiffs] knew they would be paid a fixed based salary regardless of their hours worked.”  From this, employers can take comfort in establishing the clear and mutual understanding by providing notices that the base weekly salary is intended to compensate employees for all hours worked in a week. A particular employee’s later-claimed lack of understanding should not undermine the FWW if the communications and acknowledgments clearly laid out the facts establishing the FWW method of pay.

The FWW contains several traps for the unwary (and some state overtime laws do not permit its use), but at least here a court took a common-sense approach in assessing whether an employer fell into any of those traps.