potential damages in flsa cases

Proposed Changes to FLSA Overtime Rules - Part II

The Duties Test

As we discussed in our last post, the most commonly used exemptions from the FLSA overtime pay requirements are for executive, administrative, and professional employees, and are often referred to as the “white collar” exemptions.  However, the FLSA does not define the terms “executive,” “administrative,” “professional,” or “outside salesman” and the regulations have generally required that each of the following three tests be satisfied for the exemption to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (the “salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the “duties test”). 

Although the DOL did not propose any changes (in its June 30, 2015 FLSA amendment proposals) to the duties requirements it did seek comments as to whether the duties tests should be updated.  The following outlines the current duties test. 

Administrative Employees – In order for an administrative employee to be exempt, he or she must satisfy the “salary basis” and “salary level” tests described above and the duties test. A primary duty of the employee must include:

  • the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers and
  • the exercise of discretion and independent judgment with respect to matters of significance.

Executive Employees – In order for an executive employee to be exempt, he or she must satisfy the “salary basis” and “salary level” tests described above and the duties test. A primary duty of the employee must include:

  •  management of the enterprise in which the employee is employed or manages a customarily recognized department or subdivision thereof,
  • customary and regular direction of the work of two or more other employee, and
  • the authority to hire or fire other employees or input (suggestions and recommendations) regarding the hiring, firing, advancement, promotion, or any other change of status of other employees that is given particular weight.

Professional Employees – In order for certain professional employee to be exempt, he or she must he or she must satisfy the “salary basis” and “salary level” tests described above and the duties test. A primary duty of the employee must include:

  • the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character. Advanced knowledge must be in a field of science or learning, and such knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction, or;
  • work that is original and creative in a recognized field of artistic endeavor, or;
  • teaching in a school system or educational institution, or;
  • work as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field.

For each of the categories above, the employee must perform work that requires the consistent exercise of discretion and judgment or “requiring invention, imagination, or talent in a recognized field of artistic endeavor.”

Outside Sales Employees – In order for an outside sales employee to be exempt, he or she must satisfy the duties test.  The salary requirements do not apply. A primary duty of the employee must include:

  • making sales of tangible or intangible items such as goods, insurance, stocks, bonds, or real estate or obtaining orders or contracts for services or the use of facilities; and
  • Customary and regular work away from the employer’s place of business in performing the employee’s primary duty.

For more information on the current duties test and the FLSA exemptions for executive, administrative, professional and outside sales employees, please see the DOL’s Wage and Hour Division’s Fact Sheet (https://www.dol.gov/whd/overtime/fs17a_overview.htm).

Proposed Changes to FLSA Overtime Rules - Part I

On June 30, 2015, the United States Department of Labor (DOL) released proposed regulations that would amend various provisions of the Fair Labor Standards Act (FLSA).  In particular, the DOL proposed changes to the regulations governing the “white collar” exemption for executive, administrative, and professional employees.   The FLSA (and wage and hour laws, generally) are complicated but we will try to break down the key changes as simply as possible.

FLSA Overview

The FLSA generally requires employers to pay its employees at least the federal minimum wage plus overtime at a rate of at least 1.5 times the employee’s regular rate of pay for any hours worked over 40 in a week.  However, the FLSA provides for various exemptions from the overtime requirement.

The most commonly used exemptions are for executive, administrative, and professional employees, and are often referred to as the “white collar” exemptions.  However, the FLSA does not define the terms “executive,” “administrative,” “professional,” or “outside salesman” and the regulations have generally required that each of the following three tests be satisfied for the exemption to apply: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (the “salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (the “duties test”). 

The regulations also exempt “highly compensated” employees who “customarily and regularly” perform one of the exempt duties of an administrative, executive or professional employee, but who do not otherwise meet the duties test.  Currently, and since 2004, an employee earning $100,000 in total annual compensation (with at least $455 paid weekly on a salary or fee basis) would be exempt from overtime as a highly compensated employee.

Salary Basis Test – NO CHANGE

There were no proposed changes to the first requirement that employees be paid on a predetermined and fixed salary that is not subject to reduction.

Salary Level Test – BIG CHANGES!

Currently, and since 2004, any employee earning less than $455 per week ($23,660 a year) is considered “nonexempt” and therefore entitled to overtime pay for hours worked over 40 in a week, regardless of whether the employee is paid on an hourly or salary basis.

Under the DOL’s proposal, the salary level required for an executive, administrative or professional employee to qualify for exemption from the FLSA minimum wage and overtime requirements would increase from $455 a week ($23,660 a year) to $921 a week ($47,892 a year), based on 2013 data.  This means that anyone who makes less than $47,892 a year will be entitled to overtime pay for hours worked beyond 40.

The proposed regulations also set forth mechanisms for annually updating the minimum salary and if one of the annual update mechanisms is implemented, the DOL anticipates that the annual salary requirement in 2016 will be $970 a week, or $50,440 a year.

Duties Test – STAY TUNED

The DOL did not propose any changes to the duties requirements but did seek comments as to whether the duties tests should be updated.  Please stay tuned for Part II of this series for an outline of the current duties test. 

Highly Compensated Employees - CHANGED

The DOL’sproposed regulations increase the required salary for “highly compensated employees” to $122,148, indexed to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers.

The DOL’s proposed rule would effectively extend overtime protections to nearly 5 million white collar workers within the first year of its implementation.  Because the overtime regulations have not been updated in so long, employers have been able to classify more and more employees as exempt and therefore avoid paying overtime.  The overtime exception was originally meant to apply to highly-compensated executive, administrative, and professional employees although it now applies to workers earning as little as $23,660 a year. 

The DOL is expected to release its final rule later in 2016. 

I am being forced to work off the clock. What should I do?

In general, an employee’s “hours worked” include all time an employee must be on duty, or on the employer's premises or at any other prescribed place of work. All employees must be paid for all time worked. So if your employer is forcing you to work off the clock, you may be entitled to additional compensation (even if you are paid a salary).

Common examples of work off the clock:

  • Your employer asks to you set up, open a store or facility prior to clocking in.
  • Your employer makes you clock out for a meal break, but nonetheless makes you work during that period.
  • Your employer automatically deducts some period of time from your hours (usually for an assumed “break”), but does not compensate you for work you performed during that time.
  • Your employer asks you to clock out and then, after you are clocked out, perform additional work (e.g. cleaning up, shutting down, etc.).

Am I entitled to additional compensation:

Probably. This comes down to a determination of whether an employee is exempt or non-exempt. For further information that should help you determine whether or not you are exempt, these links may be helpful:

What to do if you are being forced to work off the clock:

  • Collect the facts – you need to get a sense of how much you are working off the clock, whether any additional employees are also working off the clock. Get any documents you have about off the clock work together.
  • Contact an employment lawyer – get a better understanding of your rights. We offer a free initial consultation. In most situations involving work off the clock we do not collect a fee unless we get recovery for our client.  Contact us today for a free consultation.

Business Owner Found Personally Liable, Employment Law Case Study

The ruling issued by the US Court of Appeals for the Second Circuit against John Catsimatidis is an eye-opener to employers and business owners across the US. By holding Gristedes Supermarket owner, John Catsimatidis, personally liable for a Fair Labor Standards Act class action suit, the Court fundamentally redefined the meaning of ‘employer’ under FLSA guidelines. This ruling sets a new precedence that broadens the interpretation of ‘employer’ and District Courts may now apply this analysis in other contexts, which could have a significant impact on future cases.

Qualifying as an 'employer'

The Catsimatidis case originally began in 2004 as a class action lawsuit against various Gristedes Supermarkets’ corporate and individual defendants by several manager and co-managers working in the supermarket. The plaintiffs in the case claimed they were misclassified as exempt under NYLL and FLSA and were wrongfully denied overtime. Two years of litigation led to a settlement agreement of $3.5M by the supermarket to the plaintiffs in the case with $425,000 paid initially and following with 27-month installment payments thereafter. The defendants in the case defaulted on their settlement obligations and the plaintiffs subsequently sought enforcement of the settlement against Catsimatidis, Gristedes Supermarket owner, personally. The Court found that Catsimatidis qualified as an ‘employer’, and thus, held him personally liable.

The Appeal

Catsimatidis appealed this ruling, stating that he was merely a high-level executive and made only general corporate decisions. Catsimatidis argued that the FLSA defined an ‘employer’ as one who exercises day-to-day decision making within the business and that his role in the company did not qualify under that interpretation. To determine Catsimatidis’ capacity at Gristedes Supermarket, the Court endorsed a ‘totality of circumstances’ versus ‘operational control’ test and found that Catsimatidis exercised decision-making which directly affected the conditions of the employees’ employment and made general managerial decisions, including the responsibility for decisions in respect to employee wages.

What The Decision Means

Although this decision is quite notable because of its broadening definition of ‘employer’ under the Fair Labor Standards Act, this is still a case where circumstances played a significant role in the outcome. Had the corporate defendant not defaulted on their payment obligations, Catsimatidis would not have been held personally liable. Nonetheless, the ruling by the US Court of Appeals for the Second Circuit does prompt much food for thought.

If you think your rights have been violated or have questions about a potential case contact our New York City Employment Lawyers today.