Employer Does Not Violate FLSA by Changing Workweek So Employees Earn Fewer Hours of Overtime

December 31, 2012 | Appeals | Employment & Labor | Insurance Coverage

Five current and former employees of Redland Energy Services, LLC, who worked as operators of Redland’s two drilling rigs, sued Redland, alleging that it had violated an overtime provision of the federal Fair Labor Standards Act (FLSA) by changing the designation of their workweek, but not their work schedule, so that fewer hours qualified as “overtime.”

According to the plaintiffs, each crew of operators worked 12 hour shifts for seven consecutive days, followed by seven days off. Redland scheduled its 32 drill rig employees to work from Tuesdays through Mondays, so they would have one weekend off every two weeks. Prior to changing the designation of their workweek, Redland used a Tuesday-to-Monday workweek to calculate overtime owed to drill rig employees. It used a Sunday-to-Saturday workweek for its 20 other employees, who worked a traditional Monday-to-Friday schedule in positions such as truckers, office staff, and operators of other kinds of equipment.

In May 2009, Redland reduced the size of drill rig crews from five operators to four and changed the designation of their workweek from Tuesday-to-Monday to the Sunday-to-Saturday workweek used for other employees. Redland announced the change in a memo distributed to drill rig employees that advised: “There will be no adjustment to your work week, which will remain from Tuesday-Monday [but] you will begin to have a reduction in overtime hours as your work week will be split into 2 payroll periods.”

The plaintiffs alleged that, after this change, they were “only paid twenty (20) hours overtime within the same work week, even though [they] actually worked eighty-four (84) or more hours in each work week.”

In support of its motion for summary judgment, Redland presented evidence that putting all employees on the same workweek increased efficiency by reducing the time it took the office manager to prepare payroll from five to two days a month and decreased payroll expense by reducing the number of hours that drill rig employees had to be paid at the FLSA-mandated overtime rate. The employees argued that the FLSA prohibited an employer from changing an existing workweek for the purpose of reducing employee overtime, that Redland’s true purpose in changing their workweek was to reduce work at overtime rates, and that Redland’s claim of administrative efficiencies was pretextual.

The district court found no FLSA violation and granted Redland’s motion for summary judgment. The employees appealed, arguing that the district court had misinterpreted the FLSA provision that provided that covered workers employed “for a workweek longer than forty hours” must be compensated “at a rate not less than one and one-half times the regular rate” for work in excess of 40 hours.

The U.S. Court of Appeals for the Eighth Circuit affirmed the district court’s decision. It explained that the FLSA’s “maximum hours” provision did not define the term workweek, but that the Department of Labor’s regulations provided that it meant:

a fixed and regularly recurring period of 168 hours – seven consecutive 24-hour periods. It need not coincide with the calendar week but may begin on any day and at any hour of the day…. Once the beginning time of an employee’s workweek is established, it remains fixed regardless of the schedule of hours worked by him.

The circuit court first found that an employer did not violate the FLSA merely because, under a consistently-designated workweek, its employees earned fewer hours of overtime than they would have if the workweek were more favorably aligned with their work schedules. It then examined whether the FLSA limited an employer’s freedom to change an existing workweek designation.

The circuit court observed that Department of Labor regulations directly addressed the issue, stating: “The beginning of the workweek may be changed if the change is intended to be permanent and is not designed to evade the overtime requirements of the Act.” The circuit court noted that the “intended to be permanent” limitation was not an issue in this case, but that, instead, the plaintiffs argued that Redland’s change violated the FLSA because it was made for the purpose of reducing the number of hours in their normal work schedules that must be paid at the overtime rate, and therefore it was “designed to evade the overtime requirements of the Act.”

The Eighth Circuit disagreed with the plaintiffs’ position that a workweek change intended to reduce hours of overtime earned was contrary to the purposes of the FLSA’s overtime requirements and therefore was “designed to evade” those requirements. Indeed, the circuit court decided, an employer’s effort to reduce its payroll expense was “not contrary to the FLSA’s purpose.” Moreover, the appeals court rejected the plaintiffs’ contention that an employer’s permanent change in the designated workweek violated the FLSA unless it was justified by a “legitimate business purpose,” ruling that so long as the change was intended to be permanent, and was implemented in accordance with the FLSA, the employer’s reasons for adopting the change were “irrelevant.” Accordingly, the Eighth Circuit concluded, whether Redland in fact adopted the change to achieve administrative efficiencies in calculating and paying wages and overtime, and if so, whether that was a “legitimate business purpose” justifying the change, were not genuine disputes of material fact that precluded the grant of summary judgment in favor of Redland. It then affirmed the district court’s decision.

The case is Abshire v. Redland Energy Services, LLC, 2012 U.S. App. Lexis 20977 (8th Cir. Oct. 10, 2012).

Finding that Other Employees Were Not Similarly Situated to Plaintiff, Court Refuses to Certify FLSA Class

The plaintiff in this case sued Wells Fargo Bank, N.A., on behalf of herself and all similarly situated employees, alleging that Wells Fargo followed a pattern or practice of requiring loan processors to perform “off the clock” work and failed to maintain accurate records of the number of hours that loan processors worked in violation of the Fair Labor Standards Act.

After several months of discovery, the plaintiff filed a motion to conditionally certify a class consisting of all of Wells Fargo’s loan processors nationwide. Wells Fargo opposed certification on numerous grounds, principally that the plaintiff had failed to demonstrate that other loan processors at Wells Fargo were similarly situated with respect to their job responsibilities and Wells Fargo’s purportedly unlawful overtime practices.

In its decision denying the plaintiff’s motion, the court explained that Section 216(b) of the FLSA permits an employee to bring an action “for and [on] behalf of himself . . . and other employees similarly situated.” However, it continued, no employee may be a party plaintiff to such an action unless the employee gives his or her consent in writing to become a party and the consent is filed in the court in which the action is brought. Thus, unlike a class action under Federal Rule of Civil Procedure 23, a representative action under § 216(b) follows an “opt-in” rather than an “opt-out” procedure.

The court then stated that employees might be “similarly situated” to the named plaintiff with regard to their positions and responsibilities, but would be dissimilar for purposes of FLSA class treatment where the named plaintiff failed adequately to allege that their employer subjected them to uniform pay practices or policies – and it found that that was the case here.

The court observed that although the bank had a written, company-wide policy requiring employees to record their time accurately and stating that it paid employees for all overtime, the plaintiff contended that unwritten policies and the realities of loan processors’ work-loads resulted in employees frequently working overtime hours for which Wells Fargo did not compensate them. The court, however, agreed with Wells Fargo’s argument that the plaintiff had failed to adequately demonstrate the existence of any company policy or practice of denying overtime pay and that the resolution of the plaintiff’s claims required highly individualized inquiries into the circumstances of each individual’s off-the-clock work. The court rejected the plaintiff’s contentions that Wells Fargo’s use of time-keeping software constituted or contributed to a violation of FLSA; that loan processors were under so much pressure to perform efficiently that they felt compelled to work overtime without seeking compensation for any additional hours; and that Wells Fargo maintained an unlawful, company-wide practice of not paying overtime on non-discretionary bonuses. Instead, the court found that the record indicated that Wells Fargo required loan processors to report all overtime hours and automatically paid the hours that loan officers reported through the time-keeping software.

The court determined that the plaintiff’s arguments were flatly rejected by the evidence and that she had failed to meet her burden of demonstrating the existence of a class of similarly situated loan processors. Accordingly, the court ruled that the plaintiff had failed to show that other employees were similarly situated for the purposes of conditional certification.

The case is Griffith v. Wells Fargo Bank, N.A., No. 4:11-CV-1440 (S.D.Tex. Sept. 12, 2012).

ADA Requires Employers to Appoint Disabled Employees to Vacant Positions Unless It Would Create Undue Hardship for Employer, Circuit Rules

This case arose after United Airlines set out Reasonable Accommodation Guidelines that addressed accommodating employees who, because of disability, could no longer do the essential functions of their current jobs even with reasonable accommodation. Although the guidelines noted that “transfer . . . [to] an equivalent or lower-level vacant position” might be a reasonable accommodation, the guidelines specified that the transfer process was competitive. Accordingly, under the guidelines, employees needing accommodation would not be automatically placed into vacant positions but instead would be given preferential treatment. This allowed employees needing accommodation to submit an unlimited number of transfer applications, be guaranteed an interview and receive priority consideration over a similarly qualified applicant – that is, if two candidates were equally qualified, the employee-applicant seeking accommodation would get the job.

The Equal Employment Opportunity Commission (EEOC) sued United, contending that “reassignment” under the Americans With Disability Act (ADA) required employers to appoint employees who were losing their current positions due to disability to a vacant position for which they were qualified, and that United’s policy violated the ADA. The district court granted United’s motion to dismiss, deciding that the law in the Seventh Circuit Court of Appeals provided that a competitive transfer policy did not violate the ADA. The case reached the Seventh Circuit.

The circuit court reversed the district court decision. It ordered the district court to consider if mandatory reassignment ordinarily was, in the run of cases, a reasonable accommodation. Then, the circuit court continued, assuming that the district court were to find that mandatory reassignment ordinarily was reasonable, it had to determine if there were fact-specific considerations particular to United’s employment system that would create an undue hardship and render mandatory reassignment unreasonable.

The case is EEOC v. United Airlines, Inc., 693 F.3d 760 (7th Cir. 2012).

Comment:  Two other circuit courts also have determined that the ADA requires employers to appoint disabled employees to vacant positions, provided that such accommodations would not create an undue hardship (or run afoul of a collective bargaining agreement): the Tenth Circuit, in Smith v. Midland Brake, Inc., 180 F.3d 1154 (10th Cir. 1999) (en banc), and the D.C. Circuit, in Aka v. Washington Hospital Center, 156 F.3d 1284, 332 U.S. App. D.C. 256 (D.C. Cir. 1998) (en banc).

Circuit Upholds Dismissal of Suit Seeking Long Term Disability Benefits as Late-Filed

In this case, the plaintiff challenged Hartford Life & Accident Insurance Company’s denial of her application for long term disability benefits. The district court dismissed her lawsuit as untimely because she filed her action outside of the policy-prescribed three year statute of limitations.

On appeal to the U.S. Court of Appeals for the Second Circuit, the plaintiff argued that Hartford’s contractual limitations period did not begin to run until the final denial of benefits. In affirming the district court’s decision, the appellate court explained that Hartford’s plan provided that its three year limitations period ran from the time that proof of loss was due under the plan. The circuit court ruled that the policy language was “unambiguous” and it did not offend applicable law in the Second Circuit to have the limitations period begin to run before the claim accrued. Because the plaintiff filed her claim challenging the denial of long term disability benefits more than three years after her proof of loss was due, her suit was time-barred, the circuit court decided.

It then found that because the plaintiff’s counsel had received a copy of the plan containing the unambiguous limitations provision long before the three year period for the plaintiff to bring the claim had expired, she was not entitled to equitable tolling to extend the limitations period since she had actual knowledge of her right to bring an action.

The case is Heimeshoff v. Hartford Life & Accident Ins. Co., No. 12-651-cv (2d Cir. Sept. 13, 2012).

How Are FLSA Damages Calculated? A Court Explains

A decision by a federal district court in New York explains how overtime damages are calculated under the Fair Labor Standards Act (FLSA) and a similar state law, including how to calculate offsets to lower the damages award payable to victorious plaintiffs.

On July 15, 2011, the plaintiff in this case sued her former employer VisuaLex, LLC, under the FLSA and the New York Labor Law (NYLL), alleging that she had been improperly denied overtime payment when VisuaLex stopped paying its graphics consultants overtime on April 1, 2009. After a bench trial, the court found that Kadden was a non-exempt employee under the FLSA and NYLL, and thus was entitled to unpaid overtime in the form of one and one-half times her hourly rate for all hours worked per week above 40.

To determine the damages payable to the plaintiff, the court noted that the plaintiff’s regular hourly pay was $36.06 and that her overtime rate therefore was $54.09. The court then explained that VisuaLex’s timekeeping software, Quickbooks, reflected that the plaintiff worked 416.7 hours of unpaid overtime, adding that the plaintiff acknowledged that a reduction of 14.3 hours was warranted to reflect inconsistencies between her handwritten timesheets and the time entered in Quickbooks. Therefore, the court decided, the total number of unpaid overtime hours was 402.4. The court found that 303.6 of those hours fell within the FLSA’s two year statute of limitations and that the remainder, 98.8 hours, were covered under NYLL’s six year limitations period.

The court next considered possible offsets. It observed that FLSA Section 207(h) explicitly listed the types of “[e]xtra compensation creditable toward overtime compensation.” The court noted that Section 207(h) states that, except for “extra compensation” paid at a “premium rate” for certain “hours worked,” payments not included in the regular rate of compensation “shall not be creditable toward … overtime compensation required under this section.” Moreover, payments made for occasional periods when no work was performed due to vacation, holiday, illness, failure of the employer to provide sufficient work, or other similar causes were not creditable toward overtime payments. In this case, the court found, because VisuaLex had not established that the plaintiff had ever been paid a premium for hours worked after VisuaLex stopped paying overtime in April 2009, VisuaLex was not entitled to any offsets.

Next, the court considered whether to award prejudgment interest to the plaintiff, noting that it ordinarily was an abuse of discretion not to award pre-judgment interest on an award of lost wages. It explained that the federal interest rate was based on the average rate of return on one year Treasury bills for the relevant time period between the time the claim arose until the entry of judgment pursuant. Thus, the court continued, the prejudgment interest for the two years of overtime payment covered by the FLSA was calculated as follows:

First, the award should be divided pro rata over the appropriate time period. Second, once the award is divided, the average annual United States treasury bill rate of interest is applied. Third, in order to guarantee complete compensation to the plaintiff, the interest will be compounded annually.

Using this methodology, the court determined that the interest on the back pay award of $16,421.72 ($54.09 x 303.6) from July 15, 2009, to the date of the judgment was $248.02.

The court then stated that for the damages that fell only within the NYLL limitations period, New York law provided for a nine percent annual rate of interest computed from a single reasonable intermediate date. Nine percent interest on the back pay of $5,344.09 ($54.09 x 98.8) calculated from the intermediate (with respect to the NYLL limitations period) date of June 1, 2009 was $1,633.97, the court decided.

Finally, the court also noted that the FLSA and NYLL mandate reasonable attorney’s fees and costs, and it ordered the plaintiff to submit an application for attorney’s fees and costs within 14 days.

The case is Kadden v. VisuaLex, LLC, 11 Civ. 4892 (S.D.N.Y. Oct. 22, 2012).

Plaintiff in Wage and Hour Case, an Undocumented Immigrant Who Had Returned to Ecuador, May Be Deposed Remotely and Need Not Appear in Person at Trial, Court Finds

Carlos Angamarca was among the named plaintiffs in a lawsuit against restaurant Da Ciro, Inc., for violations of federal and state wage and hour laws. After the suit began, the restaurant was notified that Mr. Angamarca had returned to his native Ecuador and would be unable to appear in person for his deposition, or for trial, because as an undocumented immigrant, he was unauthorized to return to the United States. The plaintiffs’ counsel offered to have Mr. Angamarca deposed via remote means, including by video or telephonic conferencing, but the restaurant rejected that suggestion.

Da Ciro moved to dismiss Angamarca as a party plaintiff because of his failure to appear in person for his deposition and his assertion that he would not appear in person to testify at trial. The court denied Da Ciro’s motion, finding that the restaurant offered no authority to undermine Mr. Angamarca’s assertion that compelling circumstances existed that justified his providing virtual testimony for both his deposition and trial. The court rejected the restaurant’s argument that Mr. Angamarca’s departure to Ecuador did not constitute “good cause” and “compelling circumstances” and that he should have remained in the country with an undocumented status given his pending litigation.

Moreover, the court added, the restaurant appeared to have been aware of Mr. Angamarca’s undocumented status, and his departure to Ecuador therefore “should not come as a surprise.” The court stated that the restaurant “should not be allowed to assert [Mr.] Angamarca’s immigration status as a defense to a FLSA claim, particularly when the status was known at the time of employment.”

In conclusion, the court held that Mr. Angamarca could appear remotely for his deposition, and the parties should determine the appropriate means for deposing him. Additionally, he could not be compelled to appear in-person for trial and his claims were not subject to dismissal based on his inability to appear physically, the court decided.

The case is Angamarca v. Da Ciro, Inc., No. 10 Civ. 4792 (S.D.N.Y. Oct. 15, 2012).

Reprinted with permission from the January 2013 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

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