Magistrate Judge Carlson recently entered a Memorandum Order wherein he refused to recognize the purported “self-critical analysis privilege” in a case in which over 1,000 Rite Aid assistant store managers allege that they were misclassified as exempt from the Fair Labor Standard Act’s (FLSA) overtime compensation mandates.  Rite Aid argued that the self-critical analysis privilege should shield from discovery any documents concerning its voluntary internal assessment of its compliance with the FLSA.   Judge Carlson refused to recognize the self-critical analysis privilege as valid within the Third Circuit.  Indeed, the Third Circuit in Alaska Elec. Pension Fund v. Pharmacia Corp., 554 F.3d 342, 351 n.12  (3d Cir. 2009) was clear about the validity of the self-critical analysis privilege in the Third Circuit (comprised of Pennsylvania, New Jersey, and Delaware) stating that it “never been recognized by this Court and we see no reason to recognize it now.” 

Moreover, Judge Carlson pointed out that in the limited circumstances where courts have applied such a privilege, it was in the context of where a defendant had prepared mandatory reports at the direction of the government.  Further, Judge Carlson declined to recognize that the self-critical analysis privilege should exist under federal common law.  Thus, Judge Carlson held that the privilege would not apply in this case.

In an FLSA action where liquidated damages are being sought, it is imperative that plaintiffs are able to request documents concerning whether a defendant’s violations of the FLSA were “willful” – a necessary requirement for a recovery of liquidated damages.  Of course, a defendant will argue that even if it did violate the FLSA, its conduct was not willful; but this defense admits the potent relevance of documents concerning a defendant’s willful violations of the FLSA .  Accordingly, this is why courts have often opined that a defendant cannot assert the use of a “privilege as both a sword and a shield” to prevent the production of documents.  See Nguyen v. Excel Corporation, 197 F.3d 200, 207 n. 18 (5^th Cir. 1999).

In this case, Plaintiffs allege that despite their job titles at Rite Aid of “Assistant Store Manager,” their primary duty did not involve management of the store and that they did not otherwise meet any of the overtime exemptions under federal law.  As such, the Rite Aid Assistant Store Managers in this case allege that they were not properly compensated for overtime hours worked over forty within a single workweek.

The Boss has found so many ways to violate federal and state overtime law that it’s not really possible to say which violation is most pervasive.  In this edition of The Wage and Overtime Quarterly, however, we explore a violation that certainly ranks near the top of the list of overtime rip-offs: Misclassifying salaried employees as “executives” who are exempt from overtime coverage.

This is an important topic for all you Trial Lawyers, advocates, and Winebrake Law Firm clients who receive this newsletter.  Government investigators cannot possibly clean up America’s wasteland of wage and overtime violations.  So it is up to Trial Lawyers and Workers to recognize workplace abuses and refer the abuses to lawyers who are dedicated to wage and overtime litigation.  History has proven that lawsuits are the most effective way to vindicate the rights of American workers.

The “Executive” Employee Exemption from Overtime Coverage   

The Fair Labor Standards Act (“FLSA”) and state laws such as the Pennsylvania Minimum Wage Act (“PMWA”) generally require that employees receive overtime pay equaling one-and-one-half-times their regular rate of pay for hours worked over 40 during the workweek.  Under these laws, however, “executive” employees are exempt from receiving overtime pay.

The Executive Exemption makes good sense.  After all, real company “executives” are not the types of employees who need the protections of the FLSA’s overtime provision.  That is because real executives have the clout and bargaining power to fend for themselves in negotiating with The Boss for fair pay.

Unfortunately, as discussed below, many companies use the Executive Exemption to deny overtime pay to mid-level and low-level employees who lawmakers never intended to exempt from overtime pay protections.  Year after year, these abuses of the Executive Exemption illegally deprive working American families of millions of dollars in hard-earned wages.

Corporate America’s Abuse of the Executive Exemption

The Executive Exemption is a bonanza for American business.  And far too many companies abuse the exemption to force supposedly exempt “Managers,” “Assistant Managers,” “Department Managers,” “Office Managers,” and “Team Leaders” (the list of exaggerated job titles is endless) to work absurdly long hours performing routine tasks for free.  For sure, there is nothing “executive” about the day-to-day work performed by many of these employees.  Working the cash register, completing routine paperwork, stocking the shelves, unloading delivery trucks, taking inventory, cleaning the work area, and performing manual labor are not the types of job duties that are supposed to fall within the Executive Exemption to overtime coverage.

Abuse of the Executive Exemption is devastating to America’s working families. I am very sorry to report that The Winebrake Law Firm represents many supposedly exempt “executives” who  routinely work 60, 70, and even 80 hours per week.  Some of these individuals barely make minimum wage when their weekly salaries are divided by their hours worked.  Their classification as exempt from the overtime laws is disgraceful.

Recognizing Abuses of the Executive Exemption

The Executive Exemption rip-off thrives when employees do not understand their rights.  Too many employees believe they are “exempt” from overtime coverage just because they are “salaried.”  This belief is simply wrong.  Under the law, a salaried employee qualifies as an exempt “executive” only if the employee’s real-life job duties entail work of a truly executive nature.

Most overtime misclassification lawsuits turn on whether the employee’s real-life job duties actually entail executive work.  Importantly, in determining whether the Executive Exemption applies, the employee’s job title is not particularly relevant.  The federal regulations specifically state that “[a] job title alone is insufficient to establish the exempt status of an employee.”  29 C.F.R. § 541.2.  Thus, it does not matter whether the supposedly exempt employee has the term “Manager” in his or her job title.

To qualify for the Executive Exemption, all of the following requirements must be satisfied:

•           The employee must receive a guaranteed weekly salary of at least $455 per week;

•           The company generally may not make deductions from the fixed weekly salary;

•           The employee’s primary duty must be managing the business operation or a recognized department or subdivision of the business operation;

•           The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent; and

•           The employee must have the authority to hire and fire other employees, or, at least, his/her recommendations as to hiring and firing must be given particular weight.

Moreover, under Pennsylvania law, any employee classified under the Executive Exemption must spend at least 60% (and, sometimes, 80%) of his/her time performing the types of tasks listed above.

Application of the above requirements requires a careful analysis of the employee’s actual job experience and a detailed review of federal/state regulations and court decisions.  If you have any reason to suspect that you, a co-worker, or a client might have been improperly denied overtime under the Executive Exemption, you should call a law firm that concentrates in wage and overtime law (e.g. The Winebrake Law Firm!!!) for a detailed evaluation.

Examples of Salaried Employees who are Commonly Misclassified as Exempt from Overtime Coverage

Here are some examples of salaried employees who commonly are misclassified as exempt from overtime coverage under the Executive Exemption and other “white collar” exemptions:

•           Managers and Assistant Managers of small retail stores such as “dollar stores,” “convenience stores,” and retail shops within shopping malls;

•           Managers of departments within larger retail establishments such as department stores, “big box” stores, supermarkets, and drug stores;

•           Newspaper sales managers;

•           Bookkeepers or Accountants without CPAs;

•           Social Workers and Case Managers working for social service agencies;

•           Licensed Practical Nurses (LPNs), Medical Assistants, and similar line-level health care employees;

•           Computer technicians and computer support staff (including help desk staff) who do not regularly write code;

•           Warehouse managers and supervisors;

•           Work crew captains or foremen;

•           Mortgage loan officers;

•           Home health aids or visiting nurses employed in Pennsylvania;

•           Call center sales representatives; and

•           Trainees for exempt positions.

 “Only YOU Can Prevent Overtime Abuse”

Smokey the Bear used to appear on TV to tell us: “Only You Can Prevent Forest Fires.”  Well, the same can be said of overtime abuse.  Too many Trial Lawyers, advocates, and workers believe that the overtime laws are too complicated for them to understand, so they leave it to The Boss to interpret the law.

But The Boss is under pressure to feed the bottom line, so his interpretation of the overtime law might not be too worker-friendly.  If you believe the overtime rights of you or your client are being violated, give us a call.  Stop guessing at your overtime rights.

The overtime pay requirements of the Fair Labor Standards Act (“FLSA”) cover millions of American workers, including thousands of workers who have been misclassified as “independent contractors.”  If you represent workers who have been designated as independent contractors, you should be aware of the “striking breadth” of FLSA coverage.  As one appellate court has observed, the FLSA contains “the broadest definition [of employment] that has ever been included in any one act.”

 Whether an employer truly is an independent contractor exempt from overtime coverage depends on the “economic realities” of her work experience, not the language of her employment contract.  The Third Circuit Court of Appeals has instructed Pennsylvania district courts to apply a six-factor test to determine whether a worker has been properly classified as an independent contractor.  The six factors include:

    (1) the extent of the company’s control over performance of the work;

   (2) the worker’s opportunity for profit or loss depending upon her managerial skill;

   (3) the worker’s investment in equipment or materials required for her task and her employment of helpers;

   (4) whether the service rendered requires a special skill;

   (5) the permanence of the working relationship; and

   (6) whether the service rendered is an integral part of the company’s business.

 Recent court decisions demonstrate the continued viability of FLSA independent contractor cases.  For example, in April 2007, a Florida district court granted summary judgment in favor of a worker hired to provide maintenance services at trailer park facilities, reasoning that the defendant company exerted substantial control over the plaintiff’s work, which required no special skill.  Likewise, in March 2007, a Texas district court granted summary judgment in favor of a group of insurance agents who alleged that they were misclassified as independent contractors, reasoning that the agents “did not exercise any meaningful control over the insurance business they allegedly ran” and that the insurance company “retained control over major variables that determined [the agents’] ability to make profit, held them captive to the business, and made them dependent on [the company] for their success.”  Even more recently, a Nevada district court conditionally certified an FLSA collective action brought on behalf of a class of commercial painters, observing that “the labels parties use in contract documents do not control whether overtime pay is required by the FLSA.”

 The Winebrake Law Firm has successfully fought for workers allegedly misclassified as independent contractors.  For example, in May 2007, a Pennsylvania district court approved an FLSA settlement on behalf of thirteen clients who sought overtime pay, alleging that they were misclassified as independent contractors.  Likewise, in In re. FedEx Ground Package System, Inc. Employment Parctices Litig., MDL 1700 (N.D. Ind.), The Winebrake Law Firm, working with co-counsel throughout the country, seeks to recover overtime benefits on behalf of FedEx delivery workers who allege they were misclassified as independent contractors. 

If you represent workers who you believe may have been misclassified as independent contractors, you should contact a law firm with experience litigating wage and hour cases.

On November 20, 2009, the Second Circuit decided Davis v. J.P. Morgan Chase & Co., 2009 U.S. App. LEXIS 25481 (2d Cir.  Nov. 20, 2009), wherein it reversed a summary judgment finding against a loan underwriters who allege that they are entitled overtime pay under the FLSA.  The Court flatly rejected the district court’s holding that such employees are covered by the FLSA’s administrative exemption.  This is an important victory for loan underwriters, loan officers, staff accountants, non-licenced accountants, bank tellers, and other financial service employees who are frequently misclassified as FLSA exempt.  The Court emphasized that, to fall within the administrative exemption, employees perform work that is related to the management policies or general business operations.  In other words, true administrative employees are “at the heart of the company’s business operations,” and those “functional” employees who perform day-to-tasks of the business – even if those tasks are comples — are not covered by the exemption.  In sum, this is a big victory for the plaintiffs and their New York overtime lawyers.