October and November were busy months in the world of wage and hour law. In our continuing efforts to keep our clients and friends apprised of recent developments in that often vexing and treacherous legal arena, we highlight some important recent developments.

FEDERAL COURTS

The U.S. District Court for the Western District of Washington (Kirchoff v. Wipro Inc., W.D. Wash., No. 2:11-cv-00568, October 2, 2012) held that Wipro Inc., a technology consulting company, did not violate the Fair Labor Standards Act (FLSA) or Washington law when it used the pay period method, as opposed to the workweek method, to prorate a terminated senior manager’s salary for the first and last weeks of his employment. The district court rejected the plaintiff’s argument that 29 C.F.R. § 778.113(b), titled “Overtime Compensation,” must be used to calculate an employee’s pay for the first and last weeks of his or her employment. The district court reasoned that 29 C.F.R. § 541.602(c), which addresses calculating deductions from payment for first and last week salaries, allows an employer to use “any [] amount proportional to the time actually missed by the employee.”

The U.S. District Court for the District of Minnesota (Escobedo v. Constr. Laborers’ Educ. Training & Apprenticeship Fund, D. Minn., No. 0:11-cv-03653, October 11, 2012) held that the FLSA’s overtime requirements do not apply to an instructor that provided classes on asbestos and hazardous waste removal, mine safety, and other skilled trade courses. In granting summary judgment in favor of the defendant, the district court concluded that the plaintiff fell within the FLSA’s bona fide professional exemption. The plaintiff was a “teacher” under the statute because 1) he referred to himself as an instructor, 2) described what he did as teaching, and 3) spent his workweek teaching or preparing for classes.

The U.S. District Court for the Southern District of Texas (McCarragher v. Ryland Grp. Inc., S.D. Tex., No. 1155, October 11, 2012) conditionally certified an FLSA collective action where employees selling homes for Ryland Group Inc. argued that they were misclassified as exempt employees. Thirteen current and former employees sued the homebuilder and a subsidiary, alleging that it violated the FLSA by classifying them as exempt employees and paying them on a straight commission basis, with no overtime even though members of the sales staff worked more than 40 hours a week. The court ruled that the employees satisfied the burden of showing that they were “similarly situated” because they all were subject to the same pay policies that purportedly violated the FLSA’s overtime provisions.

The U.S. District Court for the Southern District of Florida (Mann v. Falk, S.D. Fla., No. 2:11-cv-14432, October 15, 2012) held that the FLSA exemption for amusement and recreational establishments did not cover a recreational vehicle park when a former maintenance and landscaping worker sued the park for its failure to pay overtime wages under the FLSA. Because the park derived 92% of its income from the rental of lots and the remainder from recreational vehicle sales, the court concluded that the FLSA exemption did not apply.

The U.S. District Court for the Northern District of Alabama (Richter v. Dolgencorp Inc., N.D. Ala., No. 06-1537, October 22, 2012) granted Dollar General’s motion to decertify a collective action filed by store managers under the FLSA. Although the store managers alleged that the retailer improperly classified them as exempt from overtime pay, the district court concluded that the employees failed to show that they were similarly situated for the purposes of the FLSA’s collective action provision, 29 U.S.C. § 216(b). The court reasoned that the plaintiffs could not demonstrate that they were similarly situated regarding 1) whether their primary duty was management, 2) whether they had the authority to hire or fire other employees, or 3) whether their recommendations regarding personnel issues were given particular weight.

In determining whether Starbucks Corp. violated New York labor laws with respect to the distribution of tip pools, the U.S. Court of Appeals for the Second Circuit (Barenboim v. Starbucks Corp., 2d Cir., No. 10-4912-cv, October 23, 2012; Winans v. Starbucks Corp., 2d Cir., No. 11-3199-cv, October 23, 2012) granted summary judgment in favor of the defendant and certified certain questions regarding New York Labor Law § 196-d to the New York Court of Appeals. The Second Circuit certified the questions of what factors determine whether an employee is an employer’s agent and, therefore, may share in a tip pool under Section 196-d. The federal court also requested that the state court determine whether New York labor law allows employers to exclude eligible tip-earning employees under Section 196-d from sharing in a tip pool.

The U.S. District Court for the Eastern District of Pennsylvania (Goldstein v. Children’s Hosp. of Phil., E.D. Pa., No. 10-cv-1190, October 24, 2012) refused to approve conditional certification of an FLSA collective action in a lawsuit filed by a security guard who claimed that Children’s Hospital of Philadelphia routinely denied employees payments owed to them for work performed before and after their shifts, and during unpaid meal breaks. In denying the plaintiff’s motion for conditional certification, the Magistrate Judge concluded that she failed to make even a “modest factual showing” that other employees experienced the same FLSA violations that were alleged in her complaint. The Magistrate Judge held that the plaintiff’s observations about other employees were insufficient to sustain a claim under the FLSA.

The U.S. Court of Appeals for the Sixth Circuit (Henry v. Quicken Loans Inc., 6th Cir., No. 11-2125, October 25, 2012) affirmed a jury verdict from the U.S. District Court for the Eastern District of Michigan that mortgage bankers working for Quicken Loans Inc. were administrative employees not entitled to overtime compensation under the FLSA. The lead plaintiff joined 445 other current and former Quicken Loans employees in a lawsuit alleging that the company misclassified mortgage bankers as FLSA-exempt and failed to provide them with overtime pay from 2003 to 2007. Quicken Loans argued that the employees were exempt from the overtime protection of the FLSA because they were administrative employees who were responsible for “collecting and analyzing” client information and advising clients. The Court of Appeals affirmed the jury’s conclusion that the salesmen were exempt administrative employees because the plaintiffs exercised discretion and independent judgment in performing their duties.

The U.S. District Court for the Eastern District of California (Steele v. Am. Mortg. Mgmt. Servs. d/b/a Pinnacle, E.D. Cal., No. 12-00085, October 26, 2012) concluded that the plaintiffs must arbitrate their federal and state wage and hour claims against their employer because an agreement the employees signed before they were hired was not unconscionable. In granting American Mortgage Management Services’ motion to compel arbitration, the district court applied the Federal Arbitration Act (FAA) and concluded that the language in the arbitration agreement between the company and its maintenance employees covered the workers’ FLSA and California Labor Code claims. The district court reasoned that the agreement was procedurally unconscionable because it was a “take it or leave it” agreement that did not allow the employees an opportunity to negotiate or opt-out. Although the district court identified two provisions that may have been substantively unconscionable, the court concluded that the agreement should be enforced because it was “not permeated by substantive unconscionability.”

The U.S. District Court for the Western District of North Carolina (Ward v. Family Dollar Stores, Inc., W.D.N.C., No. 3:06-cv-00441, October 30, 2012) granted summary judgment in favor of Family Dollar Stores Inc. on an employee’s claim for unpaid overtime, holding that the executive exemption to the FLSA’s overtime pay requirements applied to the store manager’s claims. The district court rejected the plaintiff’s argument that the majority of his time as a store manager was spent performing non-managerial duties. Instead, the district court noted that the regulations expressly recognize concurrent performance, or multitasking, of exempt and nonexempt work as a managerial duty. In addition, the district court recognized that there was a “significant difference” between the compensation earned by the store manager and non-managerial employees.

The U.S. Court of Appeals for the First Circuit (Matamoros v. Starbucks Corp., 1st Cir., No. 12-1189, November 9, 2012) held that a Starbucks Corp. policy that required shift supervisors and baristas in Massachusetts to share weekly accumulated tips violated the Massachusetts Tips Act. In affirming the district court’s decision to grant summary judgment in favor of a class of more than 11,000 current and former baristas, the First Circuit found that the plain language and legislative history of the Massachusetts Tips Act supported the conclusion that shift supervisors are not “wait staff” because they engaged in some managerial responsibilities, such as opening and closing the store, handling and accounting for cash, and ensuring that baristas take their scheduled breaks.

The U.S. District Court for the Northern District of California (Mendez v. R+L Carriers Inc., N.D. Cal., No. 11-2478, November 19, 2012) concluded that federal transportation laws and regulations do not preempt a group of truckers’ claims that R+L Carriers Inc. violated California state laws requiring employers to provide meal and rest breaks for employees. The district court held that neither the Federal Aviation Administration Authorization Act (FAAA) nor the federal hours of service regulations promulgated by the Federal Motor Carrier Safety Administration (FMCSA) preempt California Labor Code provisions that require all employers in the state to grant prescribed meal and rest breaks. Despite the fact that four district courts ruled that the FAAA did preempt state meal and rest break laws, the U.S. District Court for the Northern District of California concluded that no preemption existed because the other district courts failed to take into account that California law allows employers to pay employees an additional hour of wages rather than provide rest breaks.

The U.S. Court of Appeals for the Seventh Circuit (Kasten v. Saint-Gobain Performance Plastics Corp., 7th Cir., No. 12-1671, November 30, 2012) concluded that a Wisconsin employee that was terminated within a few days of inquiring about class actions involving time clock violations had a triable retaliation claim under the FLSA. The U.S. District Court for the Western District of Wisconsin ruled that the employee did not create a material factual dispute regarding the existence of a causal link between his complaints and his discharge. Reversing this decision, the Seventh Circuit found a trial issue existed based on the temporal proximity between the employee’s last complaint and his termination. The Court of Appeals also noted that other evidence, such as a potential warning from a supervisor that the employee would be terminated if he did not stop complaining and the company’s shifting explanation for its termination decision, raised an inference of unlawful retaliation.

STATE COURTS

A divided California Court of Appeals (Elijahjuan v. Superior Ct. of L.A. Cnty., Cal. Ct. App., No. B234794, October 17, 2012) concluded that truck drivers who asserted a class action on the basis that they were misclassified as independent contractors and denied wage law protections under the California Labor Code could not be compelled to arbitrate their claims under owner-operator agreements they signed with a food delivery service. The drivers argued that their misclassification claims did not arise out of the arbitration agreements or require an interpretation of the agreements. Citing to a decision from the U.S. Court of Appeals for the Ninth Circuit (Narayan v. EGL Inc., 616 F.3d 895 (9th Cir. 2010)), the court concluded that the plaintiffs’ lawsuit did not “concern the application or interpretation of the Agreements, but instead [sought] to enforce rights arising under the Labor Code benefiting employees but not independent contractors.”

The Washington Supreme Court (Wash. State Nurses Assoc. v. Sacred Heart Med. Ctr., Wash., No. 86563-9, October 25, 2012) concluded that approximately 1,200 registered nurses at a Washington hospital were entitled to overtime pay under state law for a portion of time they spent working through 15-minute rest breaks mandated by a collective bargaining agreement. The Washington State Nurses Association (WSNA) sued the hospital under the Washington Minimum Wage Act (MWA), seeking overtime for a 10-minute portion of each missed rest break. In reversing the appellate court, the Washington Supreme Court reinstated the trial court’s ruling in favor of the WSNA, concluding that Sacred Heart Medical Center must pay 10 minutes of overtime to the nurses whenever they missed a rest break. The court concluded that the missed breaks extended the workweek beyond 40 hours and triggered state overtime requirements.

On remand from the California Supreme Court, the California Court of Appeals (See’s Candy Shops Inc. v. Superior Ct. of San Diego Cnty., Cal. Ct. App., No. D060710, October 29, 2012) held that the trial court erred in granting summary judgment to a class representative on two affirmative defenses raised by the company regarding its time keeping policy. The appellate court adopted the FLSA regulation that allows employers to use rounding for wage computation purposes as long as the practice does not under-compensate employees over the course of time.

DEPARTMENT OF LABOR

On October 15, 2012, the DOL announced that four restaurants in South Carolina have agreed to pay 85 employees a total of $485,913 in back wages for violations of the FLSA’s minimum wage and overtime provisions. For three of the employers, the DOL investigators determined that the wages of tip-earning employees fell below the mandated $2.13 per hour because the employees were made to rely primarily on tips for pay. Under the FLSA, an employer of a tipped employee must pay at least $2.13 an hour in direct wages if that amount plus tips equals at least the federal minimum wage of $7.25 per hour. For the fourth employer, the DOL concluded that wage deductions for uniforms and other expenses caused the pay of tip-earning employees to fall below the federal minimum wage.

On November 6, 2012, the voters in Albuquerque, New Mexico approved a proposition to increase the minimum wage from $7.50 to $8.50, beginning January 1, 2013. The new legislation includes a cost-of-living adjustment and provides tipped workers with a raise to 45% of regular minimum wage in 2013, and 60% of minimum wage in 2014.

Similarly, on November 6, 2012, the voters in San Jose, California approved an ordinance requiring a $10 an hour minimum wage for all workers in the city who worked more than two hours per week. The ordinance includes awards for back wages, fines of $50 a day for a violation, private enforcement through civil actions, and revocation or suspension of permits or licenses. San Jose joins San Francisco with a minimum wage above California’s $8 an hour requirement.

On November 14, 2012, the DOL announced a settlement with three firms that were involved in providing foreign students with summer jobs at a Pennsylvania facility. The firms will pay the students a total of $213,042 in back wages. The DOL stated that the firms violated FLSA minimum wage and overtime laws by applying excessive housing costs that were deducted from the foreign students’ pay, reducing their hourly wages below the minimum mandated under the FLSA.

On November 15, 2012, the DOL announced that 867 Colorado child care employees were owed more than $393,000 in minimum wage and overtime wages. Common violations included failure to pay employees for hours worked and improperly classifying FLSA-covered employees as exempt. In addition to the ongoing investigation in Colorado, the Wage and Hour Division is conducting similar enforcement initiatives in Arkansas, Louisiana, Montana, New Mexico, North Dakota, South Dakota and Texas.

On November 28, 2012, the DOL announced that it sued a wholesale animal hide business (Solis v. Boston Hides & Furs Ltd., D. Mass., No. 1:12-11997, November 28, 2012) in Massachusetts for $930,000 in back minimum and overtime wages and damages, and assessed a $100,000 fine on the company. An investigation revealed that the workers were paid $50 to $70 a day and worked 10 hours a day, six days per week. This amount fell below the federal minimum wage of $7.25 per hour, and the employees were not paid for overtime.

On December 17, 2012, California Labor Commissioner, Julie A. Su, announced that two California public works contractors face wage and penalty assessments totaling more than $1 million for state labor law violations. Following an investigation by the California Division of Labor Standards Enforcement (DLSE), Su ordered FTR International Inc. to pay $401,041 in wages and $185,725 in fines for violations on the Los Angeles Union Station Platform 7 project. According to the labor commissioner, FTR intentionally paid its workers less than the prevailing wage for work performed on the project. Similarly, DLSE found that Wirtz Quality Installations Inc., a San Diego based stone and tile contractor, failed to pay the proper prevailing wage on the Palomar Pomerado Health Systems public works project. The DLSE ordered Wirtz to pay $102,292 in wages and $402,450 in fines.

On December 27, 2012, New York Attorney General Eric T. Schneiderman announced that employers are paying a combined $2.25 million in wage restitution and monitoring costs, as the result of two settlements of investigations into alleged violations of New York labor laws. In the first settlement, 306 current and former employees of Flat Rate Moving, a multi-state moving and storage company based in New York City, are being paid $1.13 million in restitution from a settlement reached in 2010. In a second case, approximately 100 employees of the Mystique Boutique, Inc. clothing store chain in New York City have begun receiving restitution as part of a $950,000 settlement.