The U.S. House of Representatives will consider amending the federal Fair Labor Standards Act to permit private-sector employers to offer compensatory time off in lieu of monetary overtime compensation.  The fast-tracked "Working Families Flexibility Act of 2013" (H.R. 1406) was approved by a House committee only eight days after its introduction.

Under the proposal, eligible non-union employees could agree to a comp-time arrangement "in writing or [in an] otherwise verifiable record."  The policy could be implemented for eligible unionized employees via a collective bargaining agreement.  Participating employees would then receive at least 1.5 hours of comp time for each overtime hour worked.

The Devil Is In The Details

Private-sector employers are understandably cheered by such news – comp time has been a long-sought goal.  But the bill contains a number of impact-diluting, unclear, or complicating provisions, including these examples:

♦   No more than 160 hours of comp time could be accrued at any time (representing approximately 106 overtime hours worked).  An employee who works 10 overtime hours each workweek would reach that cap in about 10 workweeks.

♦   Employers would be required to cash-out unused comp time annually and when a worker's employment ends.  The payment would be calculated at the higher of (i) the employee's regular rate at the time the comp time was earned, or (ii) the employee's final regular rate.  But the "regular rate" is not necessarily just the employee's stated hourly rate.  Typically, it also includes remuneration such as bonuses, commissions, incentive payments, and compensation of many other kinds.  Figuring the "regular rate" for cashing-out purposes could therefore be a complex and daunting process as to employees who received such supplemental compensation over a period of time.

♦   On 30 days' notice, an employer could cash-out a worker's accrued comp time exceeding 80 hours.  But this too must be based upon the "regular rate" and entails the same potential complications.  Maybe the payment would normally be based upon the regular rate when the comp time was earned, unless the alternative "final regular rate" is later read to have some broader-than-apparent meaning.

♦   The employer would have to (i) determine and monitor each employee's eligibility to "agree to receive" or to "receive" comp time, which apparently could change over time; (ii) compute and record the hours accrued and keep up with when the balance must be (and perhaps may be) cashed-out; and (iii) administer both employees' cash-out requests and any notices that a non-union employee opts-out of the policy (including keeping up with who's "in" and who's "out").

♦   The employee would be entitled to use comp time "within a reasonable period" after requesting it, unless this would "unduly disrupt" the employer's operations.  By contrast, the employer could not so much as "attempt to" require employees to use comp time. 

The proposal would neither instruct nor even authorize the U.S. Labor Department to issue any regulations.  Nevertheless, employers should also anticipate extensive, convoluted USDOL interpretative provisions.

Is It Better Than Nothing?

We are not convinced that it is.  Many employers will see this as being more trouble than it is worth, especially if (as the bill currently provides) it would expire in five years anyway.  Some who implement such a policy might later find themselves embroiled in litigation over its pitfalls and complexities.

Perhaps there is still time to simplify and refine the measure before it becomes the latest ineffectual minimum-wage tradeoff.

UPDATE 05/09/13:  H.R. 1406 was passed by the House of Representatives on May 8 by a vote of 223 to 204.  The Obama Administration has expressed opposition to the proposal, so one may question whether the bill will even be considered by the Senate.  On the other hand, there is still reason to surmise that the atypical speed with which H.R. 1406 has moved along means that proponents want to make it part of a bargain involving a minimum-wage increase.

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Readers will recall that, in April 2011, the U.S. Labor Department declined to adopt an interpretation proposed in 2008 that would have acknowledged the federal Fair Labor Standards Act overtime-exempt status of employees doing the typical work of service writers, service advisors, etc. in automobile dealerships and truck dealerships.  Prospects were that USDOL would reverse an enforcement policy of two decades' standing and would begin challenging the FLSA Section 13(b)(10)(A) overtime exemption as applied to these workers.

However, Congress's 2012 Department of Labor Appropriations Act specifically prohibited USDOL from using any appropriated funds for this purpose.  Later comments by a U.S. Wage and Hour Division investigator led us to conclude that, unless Congress renewed this limitation in 2013 appropriations, dealerships should anticipate USDOL attacks on their treating these employees as being overtime-exempt.

Although the 2013 appropriation does not expressly refer to such a restriction, we conclude that the prohibition has been extended.  Among other things, Division F, Section 1105 of the recent appropriation calls for the continuation through September 30, 2013 of "the requirements, authorities, conditions, limitations, and other provisions" of the 2012 law.  Another example is Section 1104's statement that money allocated for 2013 may not be used to "initiate or resume any project or activity for which appropriations, funds, or other authority were not available" during the federal government's 2012 fiscal year.

Even if USDOL is unable to pursue such claims, current or former service writers or similar employees remain free to argue against overtime-exempt status in their own FLSA lawsuits.  And, as we said previously, employers embroiled in these lawsuits should be alert for any signs that USDOL is extending background assistance to these individuals.

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In April 2011, the U.S. Labor Department disavowed its 24-year-long acknowledgment that the federal Fair Labor Standards Act's Section 13(b)(10)(A) overtime exemption applies to automobile-dealership employees doing the typical work of service writers, service advisors, etc.  Instead, USDOL seemed to embrace the view that the absence of a literal reference to these kinds of employees in Section 13(b)(10)(A)'s "salesman, partsman, or mechanic" formulation meant that they are subject to the FLSA's overtime requirement.

USDOL said what it did despite the fact that, since the 1970s, five federal courts had looked at the same language and ruled the other way.  In fact, as of April 2011, every reported court decision to consider the issue determined that dealership employees who are selling service and parts to customers are within the exemption.  These courts concluded that this outcome was entirely consistent with Congress's intent.

Now, two additional rulings have continued this trend, including that these newest ones have done so notwithstanding USDOL's comments.

In Navarro v. Mercedes Benz of Encino (link to reproduction below), Fisher & Phillips LLP persuaded the U.S. District Court for the Central District of California to dismiss an FLSA overtime claim brought by several Service Advisors.  After evaluating USDOL's April 2011 statements, the court concluded that those views are "unreasonable" and unworthy of deference.  Instead, the court said, "Service Advisors .  .  . are functionally equivalent to salesmen and mechanics and are similarly responsible for the 'selling and servicing' of automobiles."  It ruled that the Service Advisors were exempt from FLSA overtime.

A few days later, the Montana Supreme Court concluded that the words of Section 13(b)(10)(A) itself demonstrate that it applies to the kind of work done by Service Advisors, Service Writers, and the like.  In Thompson v. J.C. Billion, Inc. (link to reproduction below), the court determined that USDOL interpretative material "conflicts with the plain wording of [Section 13(b)(10)(A)] by defining employees who are exempt from overtime as 'salesman' more narrowly than the statute does."  The court determined that "a plain, grammatical reading of [Section 13(b)(10)(A)] makes clear that the term 'salesman' encompasses a broader category of employees than those only engaged in selling vehicles," and that, "under a plain reading, the statute clearly exempts 'any salesman . . . primarily engaged in servicing . . . automobiles."

These decisions further bolster the decades-old proposition that the exemption applies to a dealership employee whose primary duty is to do such things as greet customers and obtain information regarding their service or repair concerns; diagnose the mechanical condition of the vehicle; attempt to sell appropriate diagnostic or repair services; provide estimates for services or repairs; write orders for work authorized by the customer; assign the work to various employees; direct and check on the work of mechanics; and communicate with customers regarding the status of their vehicles.  Only time will tell whether USDOL will continue to swim against the tide of these court rulings.

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Navarro v. Mercedes Benz of Encino.pdf (397.31 kb)

Thompson v. J.C. Billion, Inc.pdf (146.23 kb)

Readers will recall our earlier posts (accessible here) relating to the U.S. Labor Department's proposed regulatory revisions that would significantly limit the application of the federal Fair Labor Standards Act's Section 13(a)(15) exemption for companions.  While the period for public comment on these proposals closed in March, a letter from an organization representing the interests of the disabled community, the National Council on Disability, demonstrates that it might not be too late to influence the outcome through other avenues.

A copy of correspondence from NCD to USDOL recaps an August meeting in which the NCD expressed its concerns that the proposed rule could have a "devastating impact on the community of Americans with disabilities" who rely upon domestic-service providers.  NCD urged DOL to engage in a "negotiated rulemaking process" with the disability community in order to minimize these negative effects.  NCD also offered to serve as a facilitator during that process, including by offering research and identifying experts to provide input that would become a "formative part of the final rule."

Whether or in what way USDOL has responded to NCD's overture is unknown.  However, USDOL's taking into account thoughtful, considered contributions like those NCD has offered could certainly lead to a better outcome than basing final action upon the thousands of form-letter comments submitted earlier.  For example, it is at least possible that the proposals could be changed to ensure that the exemption remains available to third-party companionship-service providers through whom many disabled persons secure those services.  Whatever the likelihood is that there will be such a modification could be improved by USDOL's having a greater amount of high-quality information on the subject.

USDOL has not yet published a date for releasing a final rule, but the release might nevertheless come without forewarning.  Interested parties might want to consider promptly joining the NCD's call for a "negotiated rulemaking process."

UPDATE 12/27/12:   USDOL now projects that the final rule will be released in April 2013.

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Readers will recall our April 2011 newsletter and blog post regarding the U.S. Labor Department's having declined to recognize the overtime-exempt status of vehicle-dealership employees typically called "service writers", "service advisors", or "service salesmen".  In so doing, USDOL appears to have revived its previously-abandoned interpretation that the federal Fair Labor Standards Act's Section 13(b)(10)(A) does not apply to employees whose role is to diagnose the mechanical condition of or to determine service needed by a vehicle, to assign service work to employees, to monitor their progress and results, and otherwise to take responsibility for the service work.

Dealerships across the nation were understandably alarmed by the prospects that USDOL would resume challenging the exempt status of these employees for the first time in almost 24 years.  However, Congress's 2012 USDOL appropriation prohibited the agency from devoting any of its funding to such efforts.

A U.S. Wage and Hour Division investigator recently told a dealership that its service writers are non-exempt, but that USDOL is temporarily precluded from doing anything about it.  The investigator said that USDOL will "enforce the law" in this respect once it is able to do so.

We take from this that, unless Congress renews its limitation in the 2013 USDOL appropriation, the Wage and Hour Division fully intends to attack the Section 13(b)(10)(A)-exempt status of these kinds of employees.  Employers who are unwilling to entrust things to the political process in a presidential-election year might want to consider implementing a pay plan meeting the requirements for the FLSA's Section 7(i) overtime exception for commission-paid employees of a retail or service establishment.  We have summarized this provision in an earlier post.

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Recurring wage-hour issues tend to arise during the recovery from a natural disaster.  We posted the following item last year in connection with Hurricane Irene, and the points are equally relevant this time around:

*     *     *

Affected employers will no doubt have a variety of wage-hour questions in the aftermath of Hurricane Irene.  The number and scope of the issues raised might well be practically endless.  In this post, we address in very general ways the federal Fair Labor Standards Act topics that experience suggests will be among the most-pressing.

◊   What do we do about lost time records for work already performed but not yet paid?

If the only records of hours worked are lost or unusable, then there is no perfect solution.  Re-create the most accurate accounting you can under the circumstances.  Perhaps the preferred approach is to ask each employee to make the best-possible estimate of his or her hours worked. You should obtain the employee's written acknowledgement of his or her best recollection and should include the employee's authorization allowing later corrections in worktime and pay should more accurate hours-worked information become available.

◊   How do we track employees' worktime without our electronic/computerized time clocks?

Employees may record all hours worked by using handwritten timesheets.  To ensure accuracy, each employee should enter his or her own time and should record the actual times when the employee's work starts and stops each workday.

◊   As we recover, must we keep paying overtime on top of our other burdens?

At this time, there is no FLSA "emergency" exception that relieves the obligation to pay FLSA-required wages.  Employees subject to the FLSA's overtime provision must receive overtime premium at a rate of at least 1.5 times their regular rates of pay for all hours worked over 40 in the designated seven-day workweek.

If employees are covered by a collective bargaining agreement, it might contain additional overtime provisions requiring more than the FLSA does.  Perhaps the terms of the agreement relax those requirements in emergencies.  However, a collective bargaining agreement cannot override the FLSA's requirements.

◊   Can an employee volunteer to perform recovery services for us without pay?

The FLSA does not permit employees to "volunteer" unpaid time to the employer under any but the narrowest of circumstances.  For example, if a manufacturing facility sets up a hotline or makes other arrangements to provide a clearinghouse for information about the status of the workplace and employee reporting times, non-exempt employees volunteering to perform such services are engaged in compensable hours worked for FLSA purposes.  Employers considering any kind of unpaid "volunteer" services by their employees should evaluate the legality of doing this carefully and in advance.

◊   Must we keep paying employees who are not working?

Under the FLSA, for the most part the answer is "no".  FLSA minimum-wage and overtime requirements attach to hours worked, so employees who are not working are typically not entitled to the wages the FLSA requires.

One possible FLSA-related exception is for employees treated as FLSA-exempt whose exempt status requires that they be paid on a "salary basis".  Generally speaking, if such an employee performs at least some work in the designated seven-day workweek, the "salary basis" rules require that he or she be paid the entire salary for that particular workweek.  There can be exceptions here, too, such as might sometimes be the case where the employer is open for business but the employee decides to stay home for the day.

Also, non-exempt employees paid on a "fluctuating-workweek" basis under the FLSA normally must be paid their full fluctuating-workweek salaries for every workweek in which they perform any work.  There are a few exceptions, but these are even more-limited than the ones for exempt "salary basis" employees.

Of course, an employer might have a legal obligation to keep paying employees because of, for instance, an employment contract, a collective bargaining contract, or some policy or practice that is enforceable as a contract or under a state wage law.

◊   What can we do about charging missed time to vacation and leave balances?

The FLSA generally does not regulate the accumulation and use of vacation and leave.  The "salary basis" requirements for certain FLSA-exempt employees can implicate time-off allotments under various circumstances, some guidance on which the U.S. Labor Department has provided in opinion letters accessible here and here.

Again, however, what an employer may, must, or cannot do where paid leave is concerned might be affected by an employment contract, a collective bargaining contract, or some policy or practice that is enforceable as a contract or under a state wage law.

◊   When is travel time "hours worked" for purposes of computing FLSA wages due?

FLSA travel-time "rules" are not seamless, up-to-date, or necessarily logical or consistent with common sense.  The best-known ones are that:

•   Normal commuting between home and work typically is not considered to be hours worked, and

•   Travel between one assignment and another during a workday typically is hours worked.

However, even these principles are subject to exceptions and elaboration.  The best starting point is to consider each scenario an employer faces under the U.S. Labor Department's basic interpretations on travel time.  They are compiled at 29 C.F.R. §§ 785.33-785.41 and may be accessed here.

Remember that other requirements, such as those applying to government contractors or subcontractors and those of states or other jurisdictions, can also be relevant to these questions.

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Various websites now provide questionnaires, checklists, programs, decision-trees, and so on to guide an employer in trying to decide who qualifies as an exempt executive, administrative, professional, or outside-sales employee under the defining federal Fair Labor Standards Act regulations.  These tools are fine as far as they go, but their usefulness is normally very limited.

No such approach (whether online or otherwise) can substitute for the indispensable analysis and judgment required to determine whether one of these "white collar" exemptions applies.  Typically, these systems simply break-down the regulations into their component parts and then take the responder through them one-by-one, asking him or her to indicate whether the requirement is satisfied by clicking "Yes" or "No" or some other abbreviated answer.

You Need More Than An Outline

But many important regulatory requirements and concepts are vague or ambiguous and do not lend themselves to such quick/easy/short responses.  Moreover, most of the controlling principles have been the subjects of years or even decades of definition, refinement, explanation, elaboration, and application in numerous court decisions and in U.S. Labor Department interpretations and opinions.  These authorities have often revealed or established exemption nuances, variations, and pitfalls that are by no means readily apparent in the regulations themselves, and some of which do not actually appear in the regulations at all.  A person who can effectively bring to bear the knowledge, expertise, and experience necessary to apply the exemption rules probably has no need for an online questionnaire in the first place.

And sometimes the questions raised in or statements made by these online resources can be inaccurate and potentially misleading.  For example, even the U.S. Labor Department's "FLSA Overtime Security Advisor" asks as to the executive exemption, "Does the employee's primary duty involve management . . .."  [Emphasis added].  However, the regulatory requirement is that an exempt executive employee's primary duty must BE management; this is not a trivial difference.

Furthermore, while these websites often provide what might seem to be definitive and reliable answers, employers should not take these statements at face value.  As an illustration, after a series of exemption-supporting responses, USDOL's Advisor pronounces that the employee "appears" to meet an exemption's duties-related tests.  Even if an employer could someday prove that it had relied upon the Advisor in deciding that an employee was exempt, one likely counter-argument will be that management's Advisor responses did not reflect the proper application of the relevant legal principles to the actual content of the employee's work.

"Garbage In, Garbage Out"

No software magic is at work in these online resources.  Their results do not transcend the user's own, independent and essential understanding and analysis of each determining factor and fact.  The best these tools can do is serve as preliminary, very-general guidance to an evaluator who is undertaking:

♦   To elicit all of the relevant, current, clear, accurate, detailed, and specific facts and circumstances from someone who thoroughly understands the job in question;

♦   To evaluate those facts and circumstances against, and with a thorough knowledge and understanding of, the controlling legal tests, requirements, and related refinements and interpretations; and

♦   To make his or her own, independent judgments about what exemption-related conclusions should be drawn from this process.

Finally, remember that state and local laws might not recognize all of the exemptions available under the FLSA or might recognize them only on different or more-limited terms.  Consequently, FLSA-focused online resources do not necessarily address whether an employee is also exempt from wage-hour requirements imposed by a different jurisdiction.

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Recently introduced legislation proposes to exempt "any employee employed in insurance claims adjusting" from the federal Fair Labor Standards Act's overtime requirements under certain circumstances.  Under H.R. 6346 (link to available version below), introduced by Representative Denny Rehberg (R-MT) and Representatives Jo Bonner (R-AL) and Alcee Hastings (D-FL), these adjusters would be exempt while performing specified insurance-claims work under particular conditions following a "major disaster", including natural catastrophes (such as a hurricane, tornado, earthquake, or blizzard) or fires, floods, or explosions.

Restrictions And Conditions Imposed

The exemption would apply only for a 24-month period following the major disaster.  Each employee would have to receive an average weekly income of at least $591 per week for the period in which the work is performed.  Among the duties falling within the exemption would be interviewing insureds and others with relevant information, inspecting property damage, making recommendations about coverage, liability, or value, and negotiating settlements.

Employees of companies (or their affiliates, as defined in the exemption) that underwrite, sell, or market insurance would not be eligible.  Instead, the provision would apply only to those brought in by independent companies that possess the necessary licenses, provide worker's-compensation coverage, and make the required tax withholdings.

Exemption Would Supplant State And Local Law
 
A number of federal courts have found the FLSA's "administrative" exemption to apply to insurance adjusters in a variety of situations.  However, a California appellate court reached the opposite conclusion in July, when it held that adjusters were not exempt under that state's version of the administrative exemption.

The California decision underscores the potential for differences in or divergent interpretations of similar-sounding exemptions in the FLSA and analogous state or local laws.  The drafters of H.R. 6346 apparently intend to eliminate this possibility.  The proposal says that the new exemption would "exclusively" displace state or local provisions with respect to qualifying workers.

H.R. 6346 has been referred to the House Education and the Workforce Committee.  There is no timetable as to when it might be the subject of hearings or brought to the floor for a vote.  We will monitor the progress of this legislation in the coming months.

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HR 6346.pdf (38.82 kb)

The U.S. Supreme Court ruled today that pharmaceutical sales representatives employed by GlaxoSmithKline were exempt from overtime pay under the federal Fair Labor Standards Act's "outside salesman" exemption.  The Court's decision in Christopher v. Smithkline Beecham Corp. resolves conflicting views expressed by a number of federal courts.

For a more-complete discussion of this development, read our Legal Alert.

Ultimately, the Court's ruling dealt with whether a GSK sales representative was "making sales" within the meaning of the U.S. Labor Department's "outside salesman" exemption regulations.  This necessitated the Court's interpretation of the term "sale" as it is used in the FLSA.  The relevant Labor Department regulations contain additional requirements for exempt status, so employers should not take the Court's ruling to be broader than it is (especially those outside of the somewhat unique setting of the pharmaceutical industry).

Also, employers should keep in mind that the Court's decision did not involve the requirements or parameters of any sales- or selling-based exemptions under the wage-hour laws of states or other jurisdictions.

The Court refused to defer to USDOL's views expressed in a friend-of-the-Court brief to the effect that the sales representatives were not "making sales".  The Court said that the pharmaceutical industry had had no "fair warning" of these views, and that accepting them now would cause "unfair surprise" and would impose potentially enormous liability for conduct that occurred before USDOL's position had been announced.  The Court also observed that not until 2009 had USDOL ever challenged the decades-long, industry-wide practice of treating such employees as exempt.  The only plausible explanation the Court could see for this was that USDOL had acquiesced in the industry's practice.

Much the same thing can be said about other USDOL pronouncements in recent times, especially its April 2011 commentary embracing unprecedented fluctuating-workweek "interpretations".  Perhaps today's ruling will persuade the courts to reject those positions also.

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There have been further developments regarding the U.S. Department of Labor's proposed regulation that would drastically limit the Fair Labor Standard Act's Section 13(a)(15) "companionship" exemption.  A collection of our posts relating to these matters can be accessed here.

The comment period for the proposed regulation closed on March 21, but the fight over the exemption continues with the Senate's recent entry into the fray.  A group of 11 Republican senators has introduced S. 3280 to block the proposed regulation.  The "Companionship Exemption Protection Act" would amend the FLSA to preserve the current state of the exemption.

Two of the bill's sponsors, Senators Alexander (R-Tenn.) and Johanns (R-Neb.), argue that the proposed regulation would drive up the cost of in-home care and would force families to institutionalize seniors, thereby straining state Medicaid budgets.  Their proposal is a more-elaborate take on the matter than is the identically-named H.R. 3066, introduced in the House of Representatives last September by Nebraska Republican Lee Terry.  One feature the bills have in common is that each would remove the Secretary of Labor's authority to "define[] and delimit[]" the exemption.

The companionship exemption provides that the FLSA's minimum-wage and overtime requirements do not apply to employees "employed in domestic service employment  to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves . . .."  However, USDOL's proposed regulation would revised the exemption by, among other things, significantly reducing the scope of exempt activities and making the exemption inapplicable to workers employed by third-party staffing agencies.  The most significant practical impact of the proposed regulation would be that far fewer individuals would qualify for the exemption.

As we previously noted, proponents of the effort to narrow the exemption initially sought to do so through legislative action.  However, those efforts subsequently shifted to the regulatory arena, most likely on the basis of political considerations.  Now, the battle appears to have come full circle.

Incidentally, neither of these bills would affect the potential impact of USDOL's proposals upon the FLSA's Section 13(b)(21) overtime exemption applying to "any employee who is employed in domestic service in a household and who resides in such household . . .."

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