February 18, 2012: The California Court of Appeal handed down an important decision giving us much needed guidance on the commissioned sales exemption. In Muldrow v. Surrex Solutions Corporation, the court held that a class of “senior consulting service managers” was exempt from overtime pay requirements. Typically, California courts require that an employee be “involved principally” in “selling” in order to qualify for the commissioned sales exemption. There has been very little guidance on the meaning of this requirement. Muldrow supplies that guidance Muldrow also answers another important question: must a commission be based solely on the price of goods or services sold, or may it include other factors? Plaintiffs were employed by Surrex to locate candidates to fill positions with Surrex’s clients. The job was to convince the candidate that the job was a good match and convince the client company that the candidate was a good fit for the job. Plaintiffs were required to determine the client’s rate, the candidate’s rate and to make sure the deal was closed. Surrex was paid only when a placement was complete. Some candidates were retained by Surrex as consultants, and their services were leased to Surrex’s clients. Plaintiffs’ compensation for this type of placement was a percentage of the “adjusted gross profit” earned by Surrex. The starting point of this calculation was the rate received from Surrex’s client for the services of the consultant. From this, Surrex subtracted the costs of employing the particular consultant – typically the consultant’s pay, benefits, and expenses as well as an overhead adjustment factor. Commissions were paid as a percentage of the resulting “adjusted gross profit.” Plaintiffs contended that only time spent finding new client companies was time spent selling, and that none of their work to identify and recruit candidates was sales activity. The court rejected this argument. Plaintiffs’ “primary duty was to recruit ‘candidates’ for employer ‘clients,’” the court agreed with the trial judge that ignoring all the activity that must be done before the actual point in time when a sale is made “perceives the word sales in a vacuum contrary to the job description of any salesman.” The tasks associated with identifying job candidates were “essential prerequisites necessary to accomplishing the sale.” Finding these activities to be sales related, the court concluded that the plaintiffs were “employed principally in selling a product or service.” The plaintiffs also argued that pay earned as a percentage of the “adjusted gross profit” could not qualify as a commission because the formula was “far too complex” and was not based solely on the price of services sold. They contended that California courts require that a “commission” be based solely on a percentage of price. The Muldrow court rejected this argument, branding it an “excessively narrow and wooden application” of the law. The court also distinguished decisions cited by the plaintiffs because the employees in those cases increased the profitability of their companies by increasing revenue, while plaintiffs’ efforts affected not only the revenue received by Surrex, but the costs incurred. The court noted that “a commission based on profits is hardly a concept foreign to California law.” The court concluded that “Surrex’s commissions were sufficiently related to the price of services sold to constitute commissions for purposes of the commissioned employees exemption (Cal.Code. Regs., tit. 8, § 11070, subd. (3)(D)).” The Muldrow decision will be a welcomed by business because it applies a more common sense approach than was expected of the court.

February 17, 2012 An internal company complaint regarding a possible FLSA violation is protected activity under the FLSA The Fair Labor Standards Act (FLSA) provides that an employer may not: “discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to [the Act], or has testified or is about to testify in such proceeding, or has served or is about to serve on an industry committee.” The meaning of the phrase “filed any complaint” was recently defined by the U.S. Supreme Court in Kasten v. Saint-Gobain Performance Plastics Corp. and we are now certain it includes unwritten, oral complaints as long as “a reasonable, objective person would have understood the employee to have put the employer on notice….” Supreme Court decided that “filed any complaint” includes internal complaints to the employer. The Fourth Circuit took up the issue of “internal complaints” in Minor v. Bostwick Laboratories Inc.  In Minor plaintiff worked as a medical technologist. Plaintiff claimed she and several coworkers met with the company’s chief operating officer to report that their supervisor was altering their timesheets to reflect that they had not worked the overtime that they had recorded, when they had worked the overtime hours. The COO told them that he would look into the issue, but her employment was terminated on the following Monday. Plaintiff sued Bostwick claiming FLSA retaliation. Bostwick moved to dismiss the complaint on the ground that an employee’s informal internal company complaint regarding a possible FLSA violation was not protected activity under the FLSA. The district court agreed and dismissed the complaint. Plaintiff appealed. The Fourth Circuit reversed, holding that “filed any complaint” includes internal company complaints, joining the First, Third, Sixth, Seventh, Eighth, Ninth, Tenth and Eleventh Circuits. The court reasoned that protecting internal company complaints would further the remedial purposes of the FLSA and was consistent with agency enforcement positions.

Pay Increase 2012

Pay Increase Announcement The California Division of Labor Standards Enforcement adjusted the rates that computer software, physician and surgeon employees must be paid to be considered overtime-exempt, effective January 1, 2012. Licensed Physicians or Surgeons 11/9/11 Effective January 1, 2012, a $1.73 increase in the hourly rate for licensed physicians and surgeons, from $69.13 to $70.86 per hour. Computer Software Employee Effective January 1, 2012, a 95-cent increase in the hourly rate for computer professionals, from $37.94 to $38.89 per hour. The monthly rate increases $164.69, from $6,587.50 to $6,752.19 per month. Finally, the annual salary increases $1,976.25, from $79,050 to $81,026.25 per year.

1/11/12 A California appellate court issued a published decision holding that insurance agents are not employees under the California Labor Code. Arnold vs. Mutual of Omaha Insurance Company. The trial court granted the defendant summary judgment, finding that the plaintiff was an independent contractor

December 26, 2011 The U.S. Supreme Court has decided to hear Christopher v. SmithKline Beecham Corp. whether the Fair Labor Standards Act’s (FLSA) outside sales exemption applies to pharmaceutical sales representatives. The FLSA’s outside sales exemption relieves from the Act’s overtime requirements “any employee employed . . . in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the Secretary).” Specifically, the regulations explain that an employee who works as an outside salesman is one: (1) Whose primary duty is: (i) making sales within the meaning of section 3(k) of the Act; or (ii) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and (2) Who is primarily and regularly engaged away from the employer's place or places of business in performing such primary duty. There has been a split among the courts, most notably the Ninth and Second Circuits, as to whether pharmaceutical representatives’ activities constitute sales because PSRs are prohibited by law from directly selling pharmaceuticals to physicians. The DOL has consistently taken the position that pharmaceutical sales representatives do not qualify for the outside sales exemption because they do not transfer ownership or property. The Second Circuit relied heavily on and agreed with the DOL’s interpretation and assessment in 2010. December 20, 2011 Holidays Printer friendly version      Hours worked on holidays, Saturdays, and Sundays are treated like hours worked on any other day of the week. California law does not require that an employer provide its employees with paid holidays, that it close its business on any holiday, or that employees be given the day off for any particular holiday. If an employer closes its business on holidays and gives its employees time off from work with pay, such a circumstance exists pursuant to a policy or practice adopted by the employer, pursuant to the terms of a collective bargaining agreement, or pursuant to the terms of an employment agreement between the employer and employee, as there is nothing in the law that requires such a practice. Additionally, there is nothing in the law that mandates an employer pay an employee a special premium for work performed on a holiday, Saturday, or Sunday, other than the overtime premium required for work performed in excess of eight hours in a workday or 40 hours in a workweek. 1. Q. Last week I worked eight hours on the 4th of July holiday, which fell on Wednesday.  For the whole week I worked 40 hours.  When I got my paycheck this week I was paid for 40 hours at my straight time rate.  Aren’t I entitled to extra pay, of at least double time, for working on a holiday? A. There is nothing in state law that mandates an employer pay an employee a special premium for work performed on holidays, Saturdays, or Sundays, other than the overtime premium required for work in excess of eight hours in a workday or 40 hours in a workweek. Unless your employer has a policy or practice of paying a premium rate for working on a holiday, or you are subject to a collective bargaining or employment agreement that contains such a term, your employer is only required to pay you your regular rate of pay for all the straight time hours worked on the holiday, and the overtime premium required for work in excess of eight hours in a workday or 40 hours in a workweek. Since you did not work over eight hours on the holiday, or more than 40 hours during the workweek, you were paid correctly. 2. Q. My employer is open for business on every holiday, some of which I have to work. Isn’t this against the law? A. No. There is nothing in state law that mandates that an employer must close its business on any particular day, if at all. It is up to your employer to select which days, if any, it chooses to be open and closed for business, and if your employer is open on a holiday and schedules you to work that day, there is nothing in the law that obligates your employer to pay you anything but your regular pay and any overtime premium for all overtime hours worked. 3. Q. Last week we were closed for business on Monday to celebrate Memorial Day. Consequently, I worked Tuesday through Saturday that week, eight hours each day. When I got my paycheck this week I was paid for 48 hours last week at my straight time rate. Shouldn’t eight of those hours be paid at time and one-half, the overtime rate, since I was paid for more than 40 hours in the workweek? A. No, you were paid correctly. In this situation, even though you did not work on the holiday your employer chose to pay you for it, which it has the absolute right and discretion to do. However, the determination of whether overtime pay is due is based upon hours worked, more than eight in a workday or more than 40 in a workweek, and not upon pay received. Thus, since you did not work more than eight hours in any one workday, or more than 40 hours in the workweek, you are not entitled to any overtime pay for the workweek. 4. Q. We get 11 holidays off each year without pay. My sister gets the same 11 holidays off, and she gets paid for all of them. Is my employer breaking the law because he’s not paying us for these holidays when he’s required to, even though we don’t work on any of them? A. No, your employer is not breaking the law. There is nothing in state law that mandates that employees be paid for holidays that are not worked.

June 2011 In Campbell v. Price Waterhouse Coopers, LLP, the Ninth Circuit Court of Appeals ruled that unlicensed accountants were not ineligible, as a matter of law, from being exempt from overtime under either the professional or administrative exemptions. June 2011 Sullivan vs. Oracle Corporation In June 30, 2011, the California Supreme Court in Sullivan vs. Oracle Corporation ruled on a claim by three nonresidents of California who traveled to California from Colorado and Arizona for periods of time ranging from several weeks to several months to work with customers on Oracle products. The California Supreme Court ruled as follows: California's overtime laws apply to the non-resident plaintiffs for the time they were temporarily working in California since Oracle was a California-based employer and the employees worked at least a full day in the state. The court also ruled that the work in California provided a basis to seek overtime compensation under California's unfair competition law, Business and Professions Code 17200 et seq.

5/28/11 AGREEMENTS TO INCLUDE OVERTIME IN A SALARY FOR NON-EXEMPT WORKERS The time for the California Supreme Court to grant review of Arechiga v. Dolores Press, 192 Cal. App. 4th 567 (2011), has passed and the court apparently decided to let the decision stand. This is good and bad news for employees and employers. The opinion in Arechiga does not resolve certain questions that will have to remain open until the next cases is decided on the subject. Arechiga held that an employer can include a specific amount of overtime in a fixed salary pay check. The court confirmed that each of the requirements for doing so was met: (1) the days that the employee would work each week; (2) the number of hours the employee would work each day; (3) the specific amount of the guaranteed salary; (4) the hourly rate on which the salary was based; and (5) that the salary covered both regular and overtime hours. Under federal and California law, an employer must always pay overtime when an employee exceeds the number of overtime hours built into the salary. An employer can include a guarantee of overtime hours in a salary only where all of the extensive requirements for a “Belo” plan are met.

5/15/11 Keeping track of wages: The US Labor Department has an app for that! New timesheet app to help ensure workers receive all wages earned WASHINGTON — The U.S. Department of Labor today announced the launch of its first application for smartphones, a timesheet to help employees independently track the hours they work and determine the wages they are owed. Available in English and Spanish, users conveniently can track regular work hours, break time and any overtime hours for one or more employers. Glossary, contact information and materials about wage laws are easily accessible through links to the Web pages of the department's Wage and Hour Division. Additionally, through the app, users will be able to add comments on any information related to their work hours; view a summary of work hours in a daily, weekly and monthly format; and email the summary of work hours and gross pay as an attachment. This new technology is significant because, instead of relying on their employers' records, workers now can keep their own records. This information could prove invaluable during a Wage and Hour Division investigation when an employer has failed to maintain accurate employment records. "I am pleased that my department is able to leverage increasingly popular and available technology to ensure that workers receive the wages to which they are entitled," said Secretary of Labor Hilda L. Solis. "This app will help empower workers to understand and stand up for their rights when employers have denied their hard-earned pay." The free app is currently compatible with the iPhone and iPod Touch. The Labor Department will explore updates that could enable similar versions for other smartphone platforms, such as Android and BlackBerry, and other pay features not currently provided for, such as tips, commissions, bonuses, deductions, holiday pay, pay for weekends, shift differentials and pay for regular days of rest. For workers without a smartphone, the Wage and Hour Division has a printable work hours calendar in English and Spanish to track rate of pay, work start and stop times, and arrival and departure times. The calendar also includes easy-to-understand information about workers' rights and how to file a wage violation complaint. Both the app and the calendar can be downloaded from the Wage and Hour Division's home Web page at http://www.dol.gov/whd. For more information about state of California and federal wage laws call: Steven Kesten, Esq. 415-457-2668. or write stevekesten@gmail.com

Reporting time pay To guarantee at least partial compensation for employees who report to their job expecting to work a specified number of hours but who are deprived of that amount of work because of inadequate scheduling or lack of proper notice by the employer, the Industrial Welfare Commission Orders require that employers pay nonexempt employees, in addition to the hours the employee actually works, for certain unworked but regularly scheduled time. IWC Orders 1-16, Section 5 Such payments are known as "reporting time pay." Reporting time pay for hours in excess of the actual hours worked is not counted as hours worked for purposes of determining overtime. The specific requirements for reporting time pay are: Each workday an employee is required to report to work, but is not put to work or is furnished with less than half of his or her usual or scheduled day's work, the employee must be paid for half the usual or scheduled day's work, but in no event for less than two hours nor more than four hours, at his or her regular rate of pay. For example, if an employee is scheduled to report to work for an eight-hour shift and only works for one hour, the employer is nonetheless obligated to pay the employee four hours of pay at his or her regular rate of pay (one for the hour worked, and three as reporting time pay). Only the one-hour actually worked, however, counts as actual hours worked. If an employee is required to report to work a second time in any one workday and is furnished less than two hours of work on the second reporting, he or she must be paid for two hours at his or her regular rate of pay. Exceptions to the requirement for reporting time pay found in IWC Orders 1-16, Section 5(C) are as follows: When operations cannot begin or continue due to threats to employees or property, or when civil authorities recommend that work not begin or continue; or When public utilities fail to supply electricity, water, or gas, or there is a failure in the public utilities, or sewer system; or When the interruption of work is caused by an Act of God or other cause not within the employer's control, for example, an earthquake. Additionally, employers are not obligated pay reporting time pay under the following circumstances: If the employee is not fit to work. If the employee has not reported to work on time and is fired or sent home as a disciplinary action. The reporting time pay provisions do not apply to employees on paid standby status or when an employee has a regularly scheduled shift of less than two hours, such as a relief cashier who works only during a one-hour period in the middle of the day.

Employees’ oral complaints to employers regarding wage and hour violations now may protect employees from retaliation   By Jeremiah Stephens-Smiddy   The United States Supreme Court has recently handed down a decision that champions the right of employees.  The U.S. Supreme Court ruled in favor of an employee who was terminated for orally complaining about his employer’s improper time keeping procedures.   On March 22, 2011 the court in Kasten v. Saint-Gobain Performance Plastics Corp., held that the Seventh Circuit erred in determining that oral complaints cannot fall within the scope of the phrase “filed any complaint” in the [Fair Labor Standards] Act’s anti-retaliation provision.            The portion of the Fair Labor Standards Act of 1938 which the Court is referring to provides minimum wage, maximum hour, and overtime pay rules; and forbids employers “to discharge . . . any employee because such employee has filed any complaint” alleging a violation of the Act. 29 U. S. C. §215(a)(3).   The opinion in Kasten makes it so an oral complaint to an employer will have the same affect as a “filed” written compliant.  Employees now have protection against retaliation for oral complaints to supervisors.  This allows employees to speak their mind and makes employers accountable for their Wage and Hour violations.   Kasten originally brought this action because he was discharged for orally complaining to his supervisor about the company’s time clocks.  He had orally complained that his employer placed its time clocks in locations that prevented workers from receiving credit for time spent putting on and taking of work related gear, which is a violation of federal labor laws.  The district court agreed with Kasten that it was a violation, but the case was brought before the U.S. Supreme Court on the issue of whether the verbal warning was a proper “filing” of a complaint.               As Chief Justice Roberts points out in his opinion, the original intent of this act, laid out in a speech to congress by President Franklin Roosevelt, was to help the poorest  “those who toil in the factory,” particularly those that were illiterate and educated or overworked workers. The Courts holding allows for workers with limited English writing skills to air their grievances without having to worry about filing restrictive written grievances.   However, this does not mean that every trivial or off hand complaint will be considered “filing” of a complaint, and protect workers from retaliation for complaining about long working hours, or time keeping violations.  An employer still needs to have proper notice that a complaint is filed, and this requires some degree of formality.  The employer needs fair notice that a grievance has been lodged.  The standard put forth by the Judge Robert’s opinion, “is a reasonably objective person should have understood the employee” to have “put the employer on notice that the employee is asserting statutory rights under the Act.”

Meal and Rest Break News The California Court of Appeal finally found in favor of California employees on Wednesday.  In United Parcel Service, Inc. vs. Superior Court the court held that California Labor Code section 226.7 permits an employee to recover up to two premium payments per work day: one for failure to provide a meal period and another for failure to provide a rest period.   Labor Code section 226.7 provides:   (a) No employer shall require an employee to work during any meal or rest period mandated by an applicable order of the Industrial Welfare Commission.   (b) If an employer fails to provide an employee a meal period or rest period in accordance with an applicable order of the Industrial Welfare Commission, the employer shall pay the employee one additional hour of pay at the employee’s regular rate of compensation for each work day that the meal or rest period is not provided.   Looking to the language of the statute: “for each work day”, employers have long argued that under California law, an employer is only obligated to pay a maximum of one premium payment per work day regardless of the number of missed meal and rest periods occurring on a given work day. Following the recent federal court decision in Marlo v. United Parcel Service, Inc., 2009 U.S. Dist. Lexis 41948 (C.D. Cal. May 5, 2009), the court however, disagreed.   In reaching its decision, the court took note of the language in the IWC Wage Orders, noting that the Wage Orders treat meal periods and rest periods in separate sections, and each section provides for an additional hour of pay per work day for the designated type of violation. The court reasoned that permitting the recovery of two premium payments under Section 226.7 would draw consistency between Section 226.7 and the applicable Wage Orders. The court also held that allowing recovery of two premium payments per work day would further the intent behind Section 226.7 of providing “an incentive to employers to comply with labor standards and compensate employees when those standards are violated.”   The ruling will likely be appealed, but employers should evaluate their meal and rest period compliance.

12/9/10 Tax reform just proposed by the Governor of Puerto Rico would exempt employers from their obligation to withhold Puerto Rico income tax from wages paid in December 2010 and from the 2010 Christmas Bonus. Finally, a law we can all give two thumbs up.

12/3/10 Starting December 13, 2010, the Wage and Hour Division of the U.S. Department of Labor will begin assisting employees to find attorneys, and providing employees and their attorneys with information and documents gathered during investigations. Historically, obtaining information prior to the investigation having been complete was extremely difficult. This latest development comes as good news to employees.

Are Insurance Adjusters Exempt or Non-Exempt?    3/13/11   In Bell vs. Farmers Insurance Exchange 87 Cal. App. 4th 805 (2001), the California Court of Appeal determined that insurance claims adjusters were nonexempt administrative employees and were entitled to overtime pay. That decision resulted in a $90 million dollar judgment against Farmers Insurance.  Since 2001 many court decisions have produced decisions with the opposite result finding that claims adjusters are exempt from overtime. In Hodge vs. Aon Insurance Services (2011) the California Court of Appeal followed this trend and held that Aon’s claims adjusters were properly classified as exempt administrative employees.

11/29/10 The Ninth Circuit Court of Appeals has recently held that the City of Oakland, California did not violate the Fair Labor Standards Act (“FLSA”) when it required its police officers to repay the City for the cost of their training if they voluntarily resigned before completing five years of employment. (Gordon v. Oakland, No. 09-16167 (9th Cir. Nov. 19, 2010)).

11/25/10 Last week the state Supreme Court dealt an unsurprising blow to California employers in Pineda v. Bank of America, N.A. The Court announced that the penalties recoverable under California Labor Code Section 203 are subject to a three-year statute of limitations rather than a one-year statutory period, irrespective of whether the employee seeks to recover unpaid pages along with the penalties.

Employee Can Agree To Include Overtime Compensation Is Salary 3/13/11   The California Court of Appeal, in Arechiga vs. Dolores Press, affirmed the trial court’s decision that the employee’s salary included his overtime compensation and he wasn’t owed additional overtime wages. The Court of Appeal held that Arechiga’s employer had adequately set forth the six factors needed to have an enforceable wage agreement that included all required overtime.  The Court also said that the wage agreement prevailed over section 515(d) of the Labor Code, which some believed outlawed such agreements.   The trial court found that Arechiga’s supervisor satisfied all of the requirements necessary to have an enforceable wage agreement despite Labor Code Section 515(d). The six factors are: (1) the employee was told the days he would work each week; (2) the number of hours he would work each day; (3) the guaranteed salary of a specific amount that the employee would be paid; (4) the basic hourly rate upon which his salary was based; (5) that his salary covered both his regular and overtime hours; and (6) the agreement was reached before the work was performed.   There are times when such a salary agreement is best for both the employee and employer.  Call for information and a sample agreement.

8/8/11 A California Courtl upheld a pay plan that compensates sales employees at a fixed rate for each product sold as opposed to relying on a percentage commission of the sales price.    In Areso v. CarMax, Inc., a former sales consultant of CarMax filed a an action against the company alleging that CarMax violated the California Labor Code by classifying sales consultants in California as exempt and failing to pay overtime.  The compensation plan for its sales people, who sold vehicles, warranty plans, and accessories, with a uniform dollar payment for each sale of a vehicle or service plan. CarMax modified its pay plan for California employees and used a formula that took into account the number of vehicles sold and the average price of the vehicles. – A sales consultant would earn approximately the same uniform payment per vehicle sold. CarMax used this uniform payment based on the number of vehicles sold instead of a percentage of the sales price so that its salespeople did not push higher priced cars. The California Supreme Court had previously approved a two-part test to determine whether an employee is a commissioned salesperson exempt from overtime. First, an employee must be involved principally in selling a product or service. Second, the amount of the employee’s compensation must be a percent of the price of the product or service.  Although CarMax’s compensation plan used a formula that resulted in a uniform payment per vehicle sold as opposed to a strict percentage of the price, the court in Areso found that under the language of the statute, the pay plan was based proportionately on the amount of vehicles sold, and thus qualified as a commission.  The court rejected the position of the California Division of Labor Standards Enforcement, which had published in its enforcement manual that uniform payment constitutes “piece-rate” work and not commissioned sales work. The court ruled that despite the uniform fee was a one to one proportion, the compensation was still proportionate to the amount of vehicles sold, and was thus a commission under California law.

11/9/11 Pay Increase Annoucement The California Division of Labor Standards Enforcement adjusted the rates that computer software, physician and surgeon employees must be paid to be considered overtime-exempt, effective January 1, 2012. Licensed Physicians or Surgeons Effective January 1, 2012, a $1.73 increase in the hourly rate for licensed physicians and surgeons, from $69.13 to $70.86 per hour. Computer Software Employee Effective January 1, 2012, a 95-cent increase in the hourly rate for computer professionals, from $37.94 to $38.89 per hour. The monthly rate increases $164.69, from $6,587.50 to $6,752.19 per month. Finally, the annual salary increases $1,976.25, from $79,050 to $81,026.25 per year.