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2008-RBF-EmergingEmploymentLawIssues

2008-RBF-EmergingEmploymentLawIssues

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Jeffery M. Schlossberg & Kimberly B. Malerba, Tech-Toch, N.Y. L.J. , May 21, 2007 at 2,
available at http://lawprofessors.typepad.com/adjunctprofs/files/052107labor1.pdf (Authors
discuss whether employee time spent away from the office using technology such as
Blackberries, cell phones and laptops, constitutes compensable overtime under the FLSA).

IntraComm, Inc. v. Bajaj, 2007 U.S. App. LEXIS 15951 (4th Cir. July 5, 2007). The Fourth
Circuit issued this decision addressing the scope of FLSA minimum wage act claims, specifically
the FLSA’s “combination exception.” The court, finding for the plaintiff, Habibi, ruled that the
FLSA’s “combination exception” did not apply to the plaintiff because he did not meet either the
salary requirement of the administrative exception (as he did not make more than $455 per week)
or the outside sales exception (as he worked only in the defendant’s office).

Anderson v. Cagle's Inc., 2007 U.S. App. LEXIS 13654 (11th Cir. June 11, 2007). The Court of
Appeals held that employees in a chicken processing plant were not entitled to compensation
under the FLSA for time spent donning and doffing protective clothing. The court held that the
time spent changing clothes at the beginning and end of the work day had been excluded from
working time by the express terms of or by custom or practice under a bona fide collective
bargaining agreement.

Bonilla v. Baker Concrete Constr., Inc., 2007 U.S. App. LEXIS 12431 (11th Cir. 2007). The
appeals court in Florida rejected claims by airport employee plaintiffs that they should be
compensated for time spent traveling or clearing security before arriving at their actual
worksites. The court followed similar reasoning to that of Gorman. The court affirmed
summary judgment for the employer.

Gorman v. Consol. Edison Corp., 2007 U.S. App. LEXIS 12450 (2d Cir. 2007). The Second
Circuit affirmed the dismissal of two cases regarding the Fair Labor Standards Act (FLSA),
wherein the plaintiffs alleged that they were entitled to pay for time spent going through
security, donning and doffing uniforms and safety gear, and walking to and from the areas

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where they worked and where the gear was located. The appeals court, relying on IBP v.
Alvarez, 546 U.S. 21 (2005), ruled that these activities were not compensable, as they had to be
both integral and indispensable to principal work activities. Merely because something is
required by the employer does not make it integral, and donning and doffing uniforms is a
“relatively effortless” activity.

Yi v. Sterling Collisions Ctrs., Inc., 480 F.3d 505 (7th Cir. 2007). The Seventh Circuit held that
when auto mechanics are paid based on a formula related to hours worked and job performance,
their pay is commission-based and thus exempt from overtime under the Fair Labor Standards
Act (FLSA). Although the FLSA does not define “commission,” the court stated that “the
essence of a commission is that it bases compensation on sales.” The type of formula at issue
here is also based on sales, as the rate of pay increases the faster the mechanics work.

Loving v. Johnson, 2006 U.S. App. LEXIS 16968 (5th Cir. July 7, 2006)(per curiam). Plaintiff,
an inmate in a Texas working prison, where he worked as a drying machine operator, contended
that he was qualified for protections under the FLSA, specifically minimum wage. The court
found that prisoners are not employees and are not entitled to minimum wages.

McGavock v. Water Valley Miss., 452 F.3d 423 (5th Cir. 2006). The Court of Appeals held that
a Department of Labor regulation had been rendered obsolete by a 1999 amendment to the
FLSA. The regulation, 29 C.F.R. § 553.212 held that and employee was not engaged in “fire
protection activities” if the employee performed non-exempt work for more than 20% of the
employee’s total working time. In 1999, the FLSA was amended to add 29 U.S.C. § 2003(y)
which defined employees engaged in “fire protection activities” without reference to the 20%
rule set forth in the regulation.

Adair v. County of Wayne, 452 F.3d 482 (6th Cir. 2006). The Court of Appeals held that airport
authority officers were not entitled to overtime compensation for the off-duty time that they were
required to wear pagers and stay close to home. The court held that for the employees to be
entitled to compensation when on call at home, the restrictions on movement must be so onerous
as to prevent them from effectively using their time for personal pursuits.

Rogers v. Sav. First Mortgage, LLC, 362 F. Supp.2d 624 (Md. 2005). Judge William M.
Nickerson, Senior United States District Judge for the District of Maryland, granted plaintiffs’
motion for partial summary judgment in a case for additional compensation under the Fair Labor
Standards Act of 1938 (FLSA) and the Maryland Wage Payment and Collection Law (Maryland
Wage Law). Plaintiffs, former loan officers for Defendant Savings First Mortgage, LLC (SFM),
sued their former employer for unpaid overtime compensation, as well as underpayments in pay
periods where their compensation was below the minimum wage required under the FLSA.
Additionally, plaintiffs asked for unpaid commissions and bonuses, along with damages, under
the Maryland Wage Law. As loan officers, plaintiffs received no base salary and no hourly
wage, but were paid a bi-monthly commission on loans that were closed at the time of payment.
If an employee was terminated prior to the closing of a loan, he was not paid the commission on
that loan. Plaintiffs were eligible for a year end bonus based on the profit they generated
throughout the year. These bonuses were paid on June 30 of the following year, as long as they
were still employed by SFM. Also, loan officers received referral bonuses for referring a new

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loan officer to the company. The referring employee was entitled to receive 5 percent of the
gross profit of the funding that occurred in the second, third, and fourth months of the new
officer’s employment.

Under the FLSA, an employee who is paid on commission, in whole or in part, must still be paid
an amount at least equal to the minimum wage for all hours worked in a pay period. Plaintiffs
were thus entitled to summary judgment on their minimum wage claims. Judge Nickerson also
found that SFM did not meet the requirements of a private motor carrier as the file the loan
officers carried with them did not constitute the transporting of property. Therefore, SFM was
subject to the overtime provisions of FLSA. To avoid liquidated damages, SFM had to show that
their failure to follow the statute was in good faith and was based upon reasonable grounds.
SFM failed to satisfy their burden and therefore was liable for liquidated damages in an amount
equal to the minimum wage and overtime payments. The court relied on Medex v. McCabe, 811
A.2d 297 (Md. 2002), wherein the Maryland Court of Appeals found that an employer cannot
avoid paying earned wages to an employee by terminating the employee before the time the
wages would have been paid. Employers cannot use a contract with the employee to eliminate
this requirement. Plaintiffs were therefore entitled to summary judgment on their claims for year
end bonuses. Plaintiffs provided evidence that they were entitled to a referral bonus and
defendants failed to sufficiently rebut such evidence. As such, summary judgment was granted
on plaintiffs’ referral bonus claim. There were two issues where Judge Nickerson felt that
summary judgment would be inappropriate, plaintiffs’ claims on terminal commissions and
treble damages. Often additional work was needed on loans up until the time of their closing,
and it is unclear how substantial that work was on many of the loans that closed after plaintiffs
were terminated. Additionally, on the claim for treble damages, there was sufficient evidence to
raise questions as to whether defendants had a legitimate reason for withholding wages upon the
termination of the plaintiffs.

Bahramipour v. Citigroup Global Mkts., Inc., 2006 U.S. Dist. LEXIS 9010 (N.D. Cal. Feb. 22,
2006). Judge Claudia Wilken, United States District Judge for the Northern District of
California, denied defendant’s motion for partial summary judgment in a case where defendant
claimed that the California Unfair Competition Law (UCL) was preempted by the Fair Labor
Standards Act (FLSA). Plaintiff Guita Bahramipour, a former securities broker for Defendant
Citigroup Global Markets, Inc., sued to recover restitutionary damages for wage and hour
violations by defendant which fell within the UCL’s four year statute of limitations. Plaintiff
also moved to certify an opt-out class under Rule 23 of the Federal Rules of Civil Procedure.

Congress passed the Portal to Portal Act (Portal Act), under which the FLSA places a two year
statute of limitations on wage and hour claims, although a finding of willful statutory violations
will increase that period to three years. Additionally, the FLSA prohibits any employee from
pursuing a claim unless he gives his written consent to become a party. The court relies on the
Ninth Circuit’s decision in Williamson v. General Dynamics Corp., 208 F.3d 1144 (9th Cir.
2000), wherein it was held that the FLSA, despite the Portal Act amendments, was designed to
set minimum wage and maximum hour provisions in order to protect employees. Defendant’s
evidence failed to prove that the UCL procedures were a barrier to this central purpose of the
FLSA. Further, the purpose of the FLSA’s opt-in requirement is to limit liability for employers
threatened by wage and hour claims filed after the enactment of the Portal Act. As plaintiff’s

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claim was a state law claim, that purpose was not directly implicated. Therefore, the UCL’s opt-
out procedure did not stand as an obstacle to the FLSA’s central purpose. As neither of the UCL
claims invoked by plaintiff stood as a barrier to the purposes of the FLSA, defendant’s motion
for partial summary judgment was denied.

The case settled for $98 million (reported to be one of the largest involving the financial services
industry) for an estimated 20,000 plus brokers in California, New Jersey, and New York.

McLaughlin v. Murphy, 436 F. Supp.2d 732 (Md. 2005). Judge Catherine C. Blake, United
States District Judge for the District of Maryland, granted summary judgment for defendant in a
case where plaintiff claimed defendant violated the minimum wage and overtime provisions of
the Fair Labor Standards Act (FLSA). Plaintiff Michael McLaughlin, a former employee of
Freedmont Mortgage Corporation (Freedmont), brought suit against Defendants Kevin Murphy
and Freedmont. Cross-motions for summary judgment were filed on the issue of whether
McLaughlin was an “outside salesman” who was not subject to the overtime and minimum wage
provisions of the FLSA. While employed by Freedmont, McLaughlin was paid on a commission
basis on the loans he sold, never receiving hourly wages. Although there was evidence that loan
officers often worked as late as 9 p.m., McLaughlin did not keep any records of his time worked.

Defendant’s liability turns on whether plaintiff is classified as an outside salesman under the
FLSA, and the employer bears the burden of proving an employee’s exempt status. In this case,
there was no independent evidence that established what percentage of his time plaintiff spent
doing sales outside the office as compared to sales done in the office. To satisfy their burden,
defendant must have shown that plaintiff worked on sales inside the office for less than 20% of
the hours worked in a week by nonexempt employees. The evidence did not establish this fact,
and therefore defendant failed to satisfy their burden of proving plaintiff’s exempt status.
Assuming plaintiff was found not to be an outside salesman, the burden was on him to show the
number of uncompensated hours he worked, and that defendant permitted those hours.

Plaintiff was only able to estimate the number of hours he worked, and he was unable to show
that defendant was aware of any specific uncompensated hours that he worked.

Gatto v. Mortgage Specialists of Illinois, Inc., 442 F. Supp.2d 529 (N.D. Ill. 2006). Judge
Geraldine Soat Brown, United States Magistrate Judge in the Northern District of Illinois,
granted defendants’ motion for summary judgment in a case concerning plaintiff’s eligibility for
overtime pay. Plaintiff Paula Gatto, a former loan officer for Defendant Mortgage Specialists of
Illinois, Inc. (MSI), sued defendant claiming a right to overtime compensation. Loan officers
work solely on a commission basis and receive no draw, salary, base pay, hourly wages, or
overtime compensation. Loan officers are paid bi-monthly, and only on loans that have closed
with approved lenders. Gatto was told that her work was to be completed at the MSI office. She
claims that she was expected to work a minimum of eight hours per day; however, she did not
have to account for her time. Prior to the filing of this lawsuit, Gatto did not submit records to
MSI indicating that she worked more than 40 hours in any particular week. In order to
supplement the record in the case, Gatto provided handwritten documents containing the hours
she claims to have worked each week, and a declaration asserting that she worked more than 40
hours most weeks.

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As an initial matter, plaintiff was required to present evidence demonstrating that she performed
work which would entitle her to overtime compensation. Then, it was necessary for defendant to
establish that there was no issue of material fact regarding plaintiff’s exempt status under the
FLSA. Plaintiff failed to provide admissible evidence signifying her performance of eligible
overtime work. The documents listing her working hours are inadmissible hearsay, and the
declaration alone did not create an issue of fact. Additionally, defendant satisfied the conditions
for showing that plaintiff is exempt from the overtime requirements of the FLSA. Defendant
meets the requirements of the “retail or service establishment” exemption under the FLSA as it
satisfies the requirements of both the FLSA and the Department of Labor. As plaintiff did not
produce evidence establishing a genuine issue of material fact regarding her eligibility for
overtime compensation, and defendant eliminated any issue of material fact with respect to
whether they were exempt from the overtime provisions under the retail or service establishment
exception, summary judgment was granted for defendant.

Olivo v. GMAC Mortgage Corp., 274 F. Supp.2d 545 (E.D. Mich. 2004). Judge Lawrence P.
Zatkoff, Chief United States District Judge for the Eastern District of Michigan, denied
plaintiffs’ Motion for Court Facilitation of Notice to Potential Plaintiffs. Plaintiffs, former retail
loan officers of Defendant GMAC Mortgage Corporation (GMAC), sued their former employer
for the failure to pay for overtime work under the Fair Labor Standards Act (FLSA). GMAC
loan officers are paid purely on commission, based on their actual production.

The FLSA does not apply to any employee who is considered an outside salesman. Defendant’s
loan officers are outside salesmen as they primarily engaged in sales, a substantial percentage of
their time was spent generating sales outside the office, and time spent in the office was
incidental to their outside sales efforts. Defendant has demonstrated that the individual character
of the loan officers’ work excludes them from FLSA coverage. Since the outside sales
exemption applied to defendant’s loan officers, plaintiffs were unable to show they were
similarly situated with other GMAC loan officers who might have been potential plaintiffs.

Mitchell v. Kentucky Finance Co., 359 U.S. 290 (1959), rev’g, 254 F.2d 8 (6th Cir. 1958).
Justice Harlan, writing for a unanimous Court, held the respondents were not exempt from the
Fair Labor Standards Act (FLSA). Petitioner Mitchell, the Secretary of Labor, brought suit
against respondents, Kentucky Finance Company to enjoin them from violating the overtime and
record-keeping provisions of the FLSA. Respondents were in the business of making personal
loans and in purchasing conditional sales contracts from dealers in furniture and appliances. At
issue is whether respondents should be considered “retail and service” establishments engaged in
the making of sales of goods or services under the FLSA.

The retail and service establishment exemption has not been held to apply to enterprises in the
financial field, regardless of the class of persons with whom they dealt, or with whether they
were thought of as engaging in retail financing. Legislative history indicates that Congress has
not intended for this to change. Respondents were not a retail or service establishment engaged
in the making of sales of goods and services in satisfaction of the “retail and service” exemption.
As such, businesses like that of respondents were not intended to be exempted from the overtime
and record-keeping provisions of the FLSA.

©Copyright, 2008, Robert B. Fitzpatrick, Esq., Robert B. Fitzpatrick, PLLC, Washington, D.C.

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Casas v. Conseco Finance Corp., 146 Lab. Cas. (CCH) P34,502, 2002 U.S. Dist. LEXIS 5775
(Minn. March 31, 2002). Judge John R. Tunheim, United States District Judge for the District of
Minnesota, granted plaintiff’s Motion for Summary Judgment as to Liability as to all non-lead
loan originators, and granted defendants’ Motion for Summary Judgment with regard to the
dismissal of certain classes of employees. Plaintiffs, current and former loan originators, sued
defendant, Conseco Finance Corp (Conseco), alleging entitlement to overtime compensation
under the Fair Labor Standards Act (FLSA). Defendant was a financial company that designed,
created, and sold lending products. Loan originators were paid a base salary plus commissions.
Defendants asserted that plaintiffs fell within an exemption listed under the FLSA, and therefore
were not subject to the overtime compensation provisions.

The court held that defendant was not a retail or service establishment and so the retail and
service exemption did not apply. Defendant, as a financial company, lacks the retail aspect
necessary to fit within the exemption. The administrative employee exemption did not apply
because the employees were not administrative employees and lacked discretion and independent
judgment. That the plaintiffs’ are the sales force with the duties of soliciting, selling and
processing loans established they were involved in carrying out the business, as opposed to
running the business. Additionally, any judgment made by the plaintiffs was made within pre-
established guidelines. Defendant fails to satisfy its burden in establishing that the loan
originators fell within the outside salesperson exception. Conflicting evidence was submitted as
to how much time the loan originators spent in the office, and the court could not simply credit
the evidence in favor of defendants. An issue of fact was established in determining whether the
lead loan originators fell within the executive exemption. There was conflicting evidence as to
the time spent conducting duties which may fall under this exemption, and so this was not a
matter for summary judgment.

Steelman v. Hirsch, 2007 U.S. App. LEXIS 450 (4th Cir. Jan. 10, 2007). The Court of Appeals
found that a former same-sex partner of an owner of a pet grooming shop, “Hair of the Dog”, is
not an employee within the meaning of the Fair Labor Standards Act, and therefore could not sue
her former lesbian lover for wages and overtime.

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