Welcome to The WAGE HOUR REPORT, Constangy’s newest publication.  The Wage Hour Report will be published quarterly and will review federal and state legal and political developments in this critical area.

by: Maureen Knight
Fairfax, Virginia

THE BUSINESS SECTION

Congress is unsuccessful at raising federal minimum wage, but several states take matters into their own hands.  In early August 2006, Senate Democrats blocked a bill, which had passed the House, that would have raised the federal minimum wage in several steps over the next three years.  The bill was tied to various tax breaks that the Democrats opposed.  The issue of a federal minimum wage increase is unlikely to surface again until after the November elections.

With the federal minimum wage unchanged for ten years, many states are taking action. Because there is no federal preemption for wage hour laws, employers subject to both laws must pay the higher of the federal or state minimum wage. State legislatures that have increased hourly minimum wages this year include the following:

Arkansas (to $6.25 October 2006)
California (to $7.50 January 2007 and $8.00 January 2008)
Delaware (to $6.65 January 2007 and $7.15 January 2008)
Maine (to $6.75 October 2006 and $7.00 October 2007)
Maryland (to $6.15 February 2006)
Massachusetts (to $7.50 January 2007 and $8 January 2008)
Michigan (to $6.95 October 2006, $7.15 July 2007 and $7.40 July 2008)
North Carolina (to $6.15 January 2007)
Pennsylvania (to $6.25 January 2007 and $7.15 July 2007)
Rhode Island (to $7.10 March 2006 and $7.40 January 2007)

Several other states – such as Florida, Oregon, Vermont, and Washington – had made or will make increases this year or next year to their minimum wages based on required consumer price indexing.  Still others – such as Connecticut, the District of Columbia, Hawaii, New Jersey, and New York – had or will have minimum wage increases this year and/or next based on legislation passed in prior years.  Finally, proposed increases in other states – including Arizona, Colorado, Missouri, Montana, Nevada, and Ohio – are also in the works, either as proposed bills in the state legislatures or voter initiatives on the upcoming November ballots.

Do your “exempt” executives have the authority to hire and fire or effectively recommend those decisions?  They’d better!  This requirement, which before August 2004 was only part of the obsolete “long test” for the executives, became a requirement for all exempt executives with the August 2004 revisions to the white-collar regulations.  On July 20, the U.S. Court of Appeals for the Third Circuit (Delaware, New Jersey, Pennsylvania) ruled that there were material facts in dispute as to whether the “hire and fire” requirement was met in a case before it.  The Third Circuit noted that the plaintiffs did not have “hire and fire” duties in their job descriptions and that their staffing duties included ensuring proper staffing numbers through borrowing current employees, not recruitment or hiring.  All employers should ensure that their exempt executives have an active role in the hiring and firing process.

To read the Third Circuit decision, click here.

No-overtime rule doesn’t stop recovery when employer has actual or constructive notice.  Many employers have policies prohibiting overtime work and think that those policies relieve them of the obligation to pay for overtime.  But a federal judge in Florida recently ruled that such a rule – in itself – is not enough to protect the employer:  if the employer has actual or constructive knowledge, then it will probably be liable, even when the employee does not record the time.  (In this context, “actual” knowledge means that the employer in fact knew that the overtime was being worked, and “constructive” knowledge means that the employer should have known with reasonable diligence.)  Employers who want to control overtime should keep their policies, but always pay for any overtime worked that they’re aware of, even if it has not been authorized.  Employees who violate the rules can be dealt with through progressive discipline, up to and including termination.   

A free link to the Florida decision is not available, but Westlaw customers may find it at 2006 WL 2297041 (Fletcher v. Universal Technical Inst., Inc.).

Sears pays $15 MM settlement in suit alleging failure to pay for commuting time.  The settlement, approved this summer, resolves class actions filed in four states, in which 16,000 in-home service technicians of Sears alleged that they should have been paid for time commuting from their homes to their first assignments.  The technicians alleged that they were required to download information about their daily assignments at their homes before their commutes began.  Although ordinary commuting time is generally not compensable, employers should be aware that requiring employees to perform some work-related duty before the commute begins may render the commute time compensable.

They may be your employees, Part 1:  Temporary staffing agencies.  A nurse’s aide worked for one hospital through three separate staffing agencies.  Although her time for any one agency did not exceed 40 hours a week, her cumulative time was in excess of 40 hours per week.  She sued the hospital for unpaid overtime and won summary judgment.  The federal court in New York that found in her favor used the “economic reality” test to determine whether the hospital was the aide’s “employer” for purposes of the FLSA.  Given that the aide worked on the hospital premises, performed a job integral to the hospital’s process, was supervised by the hospital, and worked almost exclusively for the hospital during the relevant period, the court found that the hospital was her employer.

They may be your employees,  Part 2:  Independent contractors . . . or are they? The U.S. Department of Labor has determined that three construction companies working to rebuild casinos in the Gulf Coast after last year’s hurricanes were paying approximately 680 individuals who should have been employees as if they were independent contractors.  The significance?  The companies had not paid these employees overtime and were therefore in violation of the FLSA.

LITIGATION DEVELOPMENTS

Finance industry continues to be under attack for unpaid overtime for some of its highest paid employees.  Arguably the most lucrative recent FLSA collective action trend involves overtime claims by financial brokers.  Proving that overtime is not just a requirement for low-wage earners, staggering settlements in the last year between financial companies and their well-compensated brokers include $37 million by Merrill Lynch, $42.5 million by Morgan Stanley, $89 million by Switzerland-based UBS, and $98 million by Smith Barney.  In August, a federal court in California denied A.G. Edwards’ motion for summary judgment in a lawsuit filed by its high-paid financial brokers for unpaid overtime. 

Brokers in various finance-related companies are bringing claims for overtime because, despite their high pay, they often do not fit into any of the white-collar exemptions.  They are not “professionals” or managers, but are more like inside salespersons.  They also generally do not meet the retail sales exemption, given the courts’ longstanding position that finance companies are not “retail establishments” for purposes of that exemption.

A free link to the decision is not available, but Westlaw customers may find it at 2006 WL 2297616 (Takacs v. A.G. Edwards & Sons, Inc.).

Motor Carrier Act exemption may apply to intra-state travel.  A federal judge in Tennessee ruled that even route sales supervisors who did not cross state lines qualified for the Motor Carrier Act exemption from the FLSA’s overtime obligations.  The Act exempts employees if their duties affect the safety of a vehicle traveling in interstate commerce.  Although the deliveries at issue in the Tennessee case were intra-state, the judge noted that the products came to the company’s warehouse from out of state, were ordered for specific in-state customers, and were delivered to those customers without processing or modification.  Thus, applying well-established precedent, the judge found that the products were part of a “continuity of interstate commerce” and therefore that the exemption applied.  The supervisors also met the “affect the safety” part of the test because they drove the vehicles, albeit only occasionally, usually as substitutes for regular drivers.  Courts have determined that the positions of driver, drivers’ helper, loader, and mechanic normally satisfy this requirement.  According to the judge, the supervisors likewise satisfied the requirement because they were occasionally drivers and the exemption applies even if only part of an employee’s services affect safety.

A free link to the decision is not available, but Westlaw customers may find it at 2006 WL 2035729 (Ballou v. DET Distrib. Co.).

THE POLITICAL SCENE

DeCamp to head U.S. Wage and Hour Division.  Paul DeCamp, a private practitioner whose clients included Wal-Mart, was nominated earlier this year to head the Wage and Hour Division of the U.S. Department of Labor, and some senators had voiced their intention to try to block the appointment.  Presumably to make an end run, the White House announced on the final day of Congress's August recess, that DeCamp would be given a recess appointment.  DeCamp, whose recess appointment will expire at the end of the Senate session in 2007, was officially re-nominated on September 7.