Courts Address when Donning and Doffing Time is Compensable

Early this year, in Sandifer et al. v. United States Steel Corp. (Jan. 27, 2014), the Supreme Court provided guidance on the meaning of "changing clothes" as used in Section 3(o) of the Fair Labor Standards Act (FLSA) to describe permissible non-compensable time. Section 203(o) excludes from a worker's compensable time any time spent "changing clothes" if excluded under a collective bargaining agreement, expressly or in practice. Citing to the definitions of "changing" and "clothes" when Section 203(o) was enacted, the Court held that Section 203(o) was intended to exclude "items that are integral to job performance," regardless of whether clothes or safety gear. As for the meaning of "changing," the Court stated it was immaterial that the clothes were put on over the worker's regular attire, holding "time spent in changing clothes [under Section(o)] includes time spent in altering dress."

While the Court determined that only nine of the twelve items in question qualified as "clothes," it nevertheless held that the donning and doffing of all the items qualified under Section 203(o) as "changing clothes," and therefore could be excluded from compensable time under the CBA. In reaching its holding, the Court rejected the use of the de minimis doctrine as a benchmark for whether the time is compensable. Instead, the Supreme Court stated that "[t]he question for courts is whether the period at issue can, on the whole, be fairly characterized as 'time spent in changing clothes or washing'."

For unionized workforces, the Supreme Court's decision inSandifer provides more flexibility for non-payment for time spent donning and doffing clothes if permitted by the CBA, expressly or in practice.

Late last year, the Seventh Circuit Court of Appeals addressed donning and doffing time, holding that the potentially harmful health effects of chemical exposure could render showering and changing clothes compensable work time. In DeKeyser v. Thyssenkrupp Waupaca, iron foundry employees were encouraged, but not required, to change clothes and shower while off the clock before and after their shifts, and were not paid for the time. The district court granted summary judgment, concluding that “the fact that OSHA has promulgated a standard for [hazardous material] exposure that does not mandate changing clothes and showering after work requires the conclusion that such activities are not required by the nature of the work.”

Under Department of Labor regulations and decisions of other appellate courts, off-the-clock time is compensable under three scenarios: if such activities are (1) required by law; (2) required by the employer; or (3) required by the "nature of the work." In this case, while neither OSHA regulations nor the employer required clothes changing or showering, the Seventh Circuit held that these facts were not dispositive and that the unique "nature of the work" could still require showering. On this point, the court held that more discovery was required, such as the health impacts of the workers' duties and the reasons why precautions such as showering and changing clothes may be necessary. Accordingly, the Seventh Circuit reversed the district court's order granting summary judgment and remanded the case to the district court to consider these issues.

Planning Tip:     Off the clock work is always risky, especially with respect to donning and doffing issues. As a rule of thumb, if a non-union employer requires (or strongly suggests) employees to do something before or after a shift, the employer should consider whether to pay for such time. Beware - the test is not always the same! Circuit courts apply differing standards to determine whether an activity is compensable. In addition, the determination of whether the work is or is not sufficiently required by the employee's job duties is typically fraught with factual issues, making summary judgment difficult.

Litigation Challenging the Status of Unpaid Interns Continues

Employers' ability to engage unpaid interns has come under attack in recent years, with an upsurge in the number of wage and hour lawsuits filed by interns. Courts continue to weigh in on the issue, yielding mixed results for companies using unpaid interns.

In Kaplan v. Code Blue Billing & Coding, Inc., the Eleventh Circuit ruled in favor of several companies who engaged students as unpaid externs. The students, who were enrolled in a medical billing and coding specialist program, performed what they alleged was "repetitive" work for the companies in their externships. The students filed suit, alleging that because they received an insignificant educational benefit and conferred economic benefits on the companies, they qualified as "employees" under the FLSA and were entitled to the minimum wage. The district court granted summary judgment in favor of the companies, and the Eleventh Circuit affirmed.

The Eleventh Circuit concluded that the companies received little, if any, economic benefit from the externship programs, while the students received academic credit for their work and gained experience through hands-on work directly related to their degree program. The court further found that the training benefitted the interns and caused the businesses to run less efficiently, with at least some duplication of effort; the interns were supervised; and the interns were not entitled to a job after their externships. Accordingly, under the "economic realities" test, the plaintiffs were not "employees" within the meaning of the FLSA.

The court noted that its conclusion was supported by guidance from the Department of Labor's Wage and Hour Administration. Under the Administration's six-factor test, an intern is not an "employee" if:  "(1) 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; (2) the training is for the benefit of the trainees; (3) the trainees do not displace regular employees, but work under close supervision; (4) the employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion his operations may actually be impeded; (5) the trainees are not necessarily entitled to a job at the completion of the training period; and, (6) the employer and the trainees understand that the trainees are not entitled to wages for the time spent in training."

In November 2013, two separate appeals in intern cases were filed before the Second Circuit U.S. Court of Appeals. The first case challenges a district court decision granting class and collective action certification and summary judgment in favor of former interns who worked on the movie Black Swan (Glatt v. Fox Searchlight Pictures, Inc., No. 13-2467 (2d Cir. Nov. 26, 2013)). The second case challenges U.S. District Judge Harold Baer's May order refusing to certify a class of former Hearst Corporation interns and denying a motion for partial summary judgment on whether the interns qualified as employees under the FLSA and New York law. (Wang v. Hearst Corp., No. 13-2616 (2d Cir. Nov. 26, 2013)). In its November 2013 order, the Second Circuit indicated that the class certification and "employee" issues would be "heard in tandem." The court's decision is expected to settle an intracircuit dispute regarding the issue. 

Planning Tip:     U.S. companies may be required to pay interns regardless of their title or position with the company, depending upon the particular job assignment and degree program the workers are involved in, among other factors. For now, US companies should be wary of engaging interns in unpaid roles. The DOL's guidance suggests that unpaid internships should be limited to a very select set of circumstances. Until this area of law is settled, employers using unpaid interns should have those arrangements reviewed by counsel so they are in the best defensive posture in the event of litigation or compliance challenges.

Court of Appeals Upholds Inclusion of Hourly Shift Supervisors in Tip Pool

In November 2013, in Barenboim v. Starbucks Corporation, the Second Circuit affirmed a district court decision holding that the inclusion of hourly shift supervisors in the employer mandated tip allocation arrangement was lawful under New York's wage payment statute, which provides that no employer or his agent or officer shall demand or accept any part of the gratuities received by an employee. N.Y. Labor Law § 196-d. The case involved a putative class action lawsuit filed by baristas alleging that it was unlawful for shift supervisors to participate in the tip pool because they are "agents" under New York Labor Law.

In an earlier appeal in the case, the Second Circuit had certified two questions to the New York Court of Appeals regarding the interpretation of § 196-d: (1) what factors determine whether an employee is an "agent" of his employer for purposes of the New York Labor law and (2) whether the law permits an employer to exclude an otherwise eligible tip-earning employee from receiving distributions from the tip pool. In June 2013, the New York Court of Appeals held that employees who provide services to patrons as a principal or regular part of their duties may participate in an employer mandated tip pool even if they possess limited supervisory responsibilities, whereas employees who have meaningful authority and control over subordinates may not. The Court of Appeals defined meaningful and significant authority to include the ability to discipline subordinates, assist in performance of evaluations, participate in the hiring and firing of employees, and provide input in the schedule or otherwise influence the hours and compensation of co-workers. The court further found that the company was under no obligation to require the sharing of tips with assistant managers.

Given this interpretation and based on the record, the Second Circuit held that no factfinder could conclude that shift supervisors have such a "substantial" degree of "managerial responsibility" that they are no longer akin to "general wait staff" under § 196-d. Accordingly, the district court correctly awarded summary judgment to Starbucks.

Planning Tip:     While the Second Circuit issued its decision as a "Summary Order," which does not have precedential effect, the decision is nonetheless favorable to hospitality industry employers. Moreover, since the New York statute mirrors similar wage payment laws in other states, the New York Court of Appeals' decision is likely to have nationwide implications.

California Developments Pose New Compliance Challenges for Employers

California Minimum Wage and Exempt Salary Basis Increases

  • Effective January 1, 2014, the minimum pay rates for employees classified under California's Computer Software Exemption increased as follows:
    • The minimum hourly rate increased to $40.38 (up from the current rate of $39.90)
    • The minimum monthly salary increased to $7,010.88 (up from the current rate of $6,927.75)
    • The minimum annual salary increased to $84,130.53 (up from the current rate of $83,132.93)
  • Effective January 1, 2014, the minimum pay rates for employees classified under the Licensed Physician Exemption increased to a minimum hourly rate of $73.57 (from the current rate of $72.70)
  • Effective January 2014, the new San Francisco minimum wage increased to $10.74 per hour.
  • Effective January 2014, the new San Jose minimum wage increased to $10.15 per hour.
  • Effective July 1, 2014, the minimum wage in California increased to $9.00 per hour. This will impact overtime rates, insurance premiums for workers compensation, and the salary exception for exempt employees. To meet the salary requirement for exempt status in California under the administrative, professional, and executive exemptions, an employee's annual salary must be at least $37,440 starting on July 1, 2014.

Action:              California employers should review their compensation scales to ensure they are paying these minimum wages or salaries, and that their wage postings are current.

Courts Clarify Compensation Requirements for Piece-Rate Workers

Recent California state and federal district court decisions clarify the pay requirements for workers paid on a piece rate basis.

In Gonzalez v. Downtown LA Motors, a California appellate court held that an employer must pay a separate hourly rate of at least minimum wage for the non-piece rate time. This differs from the FLSA, which permits minimum wage compliance by ensuring an average hourly rate for the pay period that is at least minimum wage. Employers in California cannot use the FLSA's compensation scheme, but instead must focus on each employee's individual hours (or minutes) of the day and ensure employees receive minimum wage for non-piece rate time.

In Bluford v. Safeway Stores, Inc., a California appellate court held that rest breaks must be separately compensated if missed and cannot be built into mileage and activity rates. Because the employer's pay system did not provide for such rest break payments, the court directed certification of a class of truck drivers.

Similarly, in Quezada v. Conway Freight, Inc., a federal district court ruled that truck drivers paid on a piece rate must be separately compensated for work time that is not covered by the piece rate. Conway employed truck drivers to transport freight and calculated the drivers' driving time compensation by multiplying a pre-set mileage rate by the number of miles in a trip. Conway also paid drivers a separate hourly rate for work performed at Conway's facilities, such as loading and unloading freight. However, Conway's policies explicitly stated that  drivers were not compensated for pre-and post-trip vehicle inspection time, paperwork completion, or for the first hour of wait time over the course of a shift. Instead, Conway argued that this time was compensated by the per-mile driving rate. The appellate court found that Conway's failure to pay employees for these activities violated California law and that plaintiffs were entitled to the minimum wage for duties or activities otherwise uncompensated under the parties' contractual agreement.

Planning Tip:     California courts are increasingly holding that piece rate employees must be paid at least minimum wage for all non-piece rate activities, including those to which the piece rate doesn't apply. This is true even when employees are, on balance, receiving at least minimum wage for all hours worked. Accordingly, companies with California employees paid on a piece rate (which can include employees paid solely on commission or other non-time measure) must keep accurate records of compensable rest breaks and other "non-productive" work hours, and pay employees minimum wage or missed rest break premiums for this time.

California Wage and Hour Laws Raise New Barriers and Increase Penalties

New laws and recent developments serve as a reminder to employers in California to stay vigilant to minimize wage and hour risk.

Effective January 1, 2014, a new California law will make it even more difficult for employers that prevail in cases over non-payment of wages, benefits, or pension contributions to recover their attorney's fees.  Employers must now show that the employee sued them in bad faith before being able to recover prevailing party attorney's fees.

Effective January 1, 2014, employers that wrongfully withhold amounts from employee wages and wilfully or with intent to defraud do not remit the withheld amounts are subject to fines and/or imprisonment. 

Late last year, a California court awarded treble damages to a wholesale representative under the seldom-used Independent Wholesale Sales Representatives Contractual Relations Act of 1990, which provides that a manufacturer or distributor who willfully fails to enter into a commission contract with a wholesale sales representative, or who willfully refuses to pay the wholesale sales representative commissions in accordance with a written contract, can be liable for treble damages. Under the statute, such commission contracts must specify the rate and method by which the commission is computed, the time when commissions will be paid, the territory assigned to the sales representative, any exceptions to the territory and customer assignments, and what deductions will be made from commissions that are not required by state or federal law. The statute applies to contractors or non-employee sales agents who solicit orders on the wholesaler’s behalf and are compensated in whole or in part by commission, subject to limited exceptions. A "wholesaler" is a company engaged in the business of producing and selling its own products, or purchasing or invoicing products, intended for resale to or use by consumers of the state.

Planning Tip:     California's wage and hour laws differ from federal law in numerous respects, and compliance can be a "gotcha" to nationwide employers. These developments are a reminder that employers in California should be uber-vigilant to ensure compliance with statutory wage and hour requirements in order to avoid risks under California's heightened damages and penalties claims.