From the Courts

March 1, 2015 | Appeals | Insurance Coverage

U.S. Supreme Court Rules that Time Spent to Undergo Antitheft Security Screening is Not Compensable under the FLSA

Integrity Staffing Solutions, Inc., a company that provides warehouse staffing to Amazon.com throughout the United States, required its employees to undergo a security screening before leaving the warehouse at the end of each day. During this screening, employees removed items such as wallets, keys, and belts from their persons and passed through metal detectors.

Two individuals who worked as hourly employees of Integrity Staffing at warehouses in Las Vegas and Fenley, Nevada, where they retrieved products from the shelves and packaged those products for delivery to Amazon customers, sued Integrity Staffing on behalf of similarly situated employees in the Nevada warehouses for alleged violations of the Fair Labor Standards Act of 1938 (FLSA). The employees contended that they were entitled to compensation under the FLSA for the time they spent waiting to undergo and actually undergoing the security screenings. They alleged that the time amounted to roughly 25 minutes each day and that it could have been reduced to a de minimis amount by adding more security screeners or by staggering the termination of shifts so that employees could flow through the checkpoint more quickly. They also alleged that the screenings were conducted “to prevent employee theft” and thus occurred “solely for the benefit” of Integrity Staffing and its customers.

The district court dismissed the complaint, holding that the time spent waiting for and undergoing the security screenings was not compensable under the FLSA. It explained that, because the screenings occurred after the regular work shift, the employees could state a claim for compensation only if the screenings were an integral and indispensable part of the principal activities they were employed to perform. The district court held that these screenings were not integral and indispensable but instead fell into a noncompensable category of “postliminary” activities.

The U.S. Court of Appeals for the Ninth Circuit reversed in relevant part. The court of appeals asserted that post-shift activities that ordinarily would be classified as noncompensable postliminary activities nevertheless were compensable as integral and indispensable to an employee’s principal activities if those post-shift activities were necessary to the principal work performed and done for the benefit of the employer. Accepting as true the allegation that Integrity Staffing required the security screenings to prevent employee theft, the court of appeals concluded that the screenings were “necessary” to the employees’ primary work as warehouse employees and were done for Integrity Staffing’s benefit.

The dispute reached the U.S. Supreme Court, which reversed the circuit court.

In its decision, the Supreme Court explained that under the FLSA, as amended by the federal Portal-to-Portal Act, an employer was not obligated to pay an employee for activities that were “preliminary to or postliminary to” the employee’s “principal activity or activities.” The Supreme Court added that the term “principal activity or activities” embraced all activities that were an “integral and indispensable part of the principal activities.”

The Supreme Court pointed out that it previously held compensable the time that battery-plant employees spent showering and changing clothes because the chemicals in the plant were “toxic to human beings” and the employer conceded that “the clothes-changing and showering activities of the employees [were] indispensable to the performance of their productive work and integrally related thereto.” The Supreme Court also noted that it previously held compensable the time meatpacker employees spent sharpening their knives because dull knives would “slow down production” on the assembly line, “affect the appearance of the meat as well as the quality of the hides,” “cause waste,” and lead to “accidents.”

By contrast, the Supreme Court continued, it previously held noncompensable the time poultry-plant employees spent waiting to don protective gear because that waiting was “two steps removed from the productive activity on the assembly line.”

The Supreme Court noted that U.S. Department of Labor regulations similarly provided that, for example, the time spent by an employee in a chemical plant changing clothes was compensable if the employee could not perform his or her principal activities without putting on certain clothes but was not compensable if changing clothes were “merely a convenience to the employee” and not directly related to the employee’s principal activities. The Supreme Court noted that the Labor Department’s regulations explained that, “when performed under the conditions normally present,” activities including “checking in and out and waiting in line to do so, changing clothes, washing up or showering, and waiting in line to receive pay checks” were noncompensable “preliminary” or “postliminary” activities.

The Supreme Court then decided that the security screenings at issue in this case were noncompensable postliminary activities. It found that the screenings were not the “principal activity or activities” that the employees were employed to perform, adding that Integrity Staffing “did not employ its workers to undergo security screenings, but to retrieve products from warehouse shelves and package those products for shipment to Amazon customers.”

In addition, the Supreme Court continued, the security screenings also were not “integral and indispensable” to the employees’ duties as warehouse workers given that Integrity Staffing could have eliminated the screenings altogether without impairing the employees’ ability to complete their work.

The Supreme Court found that the Ninth Circuit had erred by focusing on whether an employer required a particular activity, declaring that the test was tied to the productive work that the employee was employed to perform. It also rejected the employees’ argument that time spent waiting to undergo the security screenings was compensable under the FLSA because Integrity Staffing could have reduced that time to a de minimis amount, stating that the fact that an employer could conceivably reduce the time spent by employees on any preliminary or postliminary activity did not change the nature of the activity or its relationship to the principal activities that an employee was employed to perform. These arguments, the Supreme Court said, were “properly presented to the employer at the bargaining table” and “not to a court in an FLSA claim.”

Thus, the Supreme Court concluded, an activity was “integral and indispensable” to the principal activities that an employee was employed to perform, and was compensable under the FLSA, if it was an “intrinsic element of those activities” and one with which the employee could not dispense if the employee was to perform his or her principal activities. The employees’ time spent waiting to undergo and undergoing Integrity Staffing’s security screenings did not meet these criteria, the Supreme Court decided. [Integrity Staffing Solutions, Inc. v. Busk, 190 L. Ed. 2d 410 (U.S. 2014).]

Non-Exempt Hourly Worker Who Claimed She Had to Work During Meal Breaks Loses FLSA Action

The plaintiff in this case alleged that she was employed by Dollar General as an assistant store manager from May 31, 2010 to June 15, 2012 and was paid between $10.25 and $10.75 per hour. During that time, the minimum wage under the Fair Labor Standards Act (FLSA) was $7.25 per hour.

The plaintiff asserted that, under Dollar General’s policy, employees who were scheduled to work six or more hours per shift were entitled to a 30 minute break and those who were scheduled to work eight or more hours per shift were entitled to a one hour break. At most, the plaintiff was entitled to take five hours of meal break time per week. The plaintiff said that she “clocked out” during some, but not all, of her meal breaks, and that she was not paid for the time that she was clocked out.

The plaintiff said that she was a “key carrier” and, therefore, that she was responsible for a number of specific job duties that only key carriers could perform. According to the plaintiff, she sometimes was required to perform these duties on her meal breaks because she routinely was the only key carrier on duty. Dollar General agreed with the plaintiff that she was required to perform compensable work during approximately 60 to 70 percent of the time that she was clocked out for meal breaks.  The parties also agreed that Dollar General had paid the plaintiff for all of the hours that she had worked except for the time periods during meal breaks where she had clocked out and had performed work.

The plaintiff filed an action on behalf of herself and all others similarly situated, alleging that her employer had violated the FLSA by failing to compensate her for work she had performed during her meal breaks.

The court granted the employer’s motion for summary judgment.

In its decision, the court explained that the FLSA required an employer to pay each employee engaged in commerce or the production of goods for commerce a minimum wage per hour of work. Work time, the court continued, included meal periods where an employee was “required to perform any duties, whether active or inactive, while eating.” For example, the court noted, where an office employee was required to eat at his or her desk or where a factory worker was required to eat at his or her machine, the employee was working while eating. Under the FLSA, employers that failed to pay the minimum wage per hour of work “shall be liable to the employee or employees affected in the amount of their unpaid minimum wages . . . and in an additional equal amount as liquidated damages.”

To evaluate whether an employer appropriately paid minimum wage per hour of work, the court used the “workweek standard.”  Using this standard, no violation of the FLSA occurred so long as the total weekly wage paid by the employer met the minimum weekly requirements of the statute, such minimum weekly requirement being equal to the number of hours actually worked that week multiplied by the minimum hourly statutory requirement.

The court then ruled that Dollar General had not violated the FLSA in this case because the plaintiff had been paid “well above minimum wage for all hours that she claimed she worked.” The court noted that Dollar General had submitted records indicating both the hours that the plaintiff had logged each day and the pay that she had received per week and said that, even assuming that the plaintiff had performed compensable work during every possible meal break – thereby adding five additional hours of work per week to the plaintiff’s records – the plaintiff’s pay averaged over $9.00 per hour, or nearly $2.00 per hour greater than the FLSA minimum wage. (The five additional hours of work per week assumed that the plaintiff was entitled to five hours of meal breaks per week, which was the maximum that she stated was possible per week; that she clocked-out during each meal break, which she admitted did not happen; and that she worked during every minute of every meal break, which she also admitted did not happen.)

Thus, the court concluded, the plaintiff’s FLSA claim was unmeritorious as a matter of law. [Wass v. Dolgencorp, LLC, 2014 U.S. Dist. Lexis 147613 (W.D. Mo. Oct. 16, 2014).]

Sixth Circuit Overrules Plan Administrator’s Refusal to Make Group Life Payment Where Ex-Employee Died During Extended Conversion Period

Del Tonguette began work at LoBue Associates in August 2009. LoBue maintained an employee benefits plan governed by the Employee Retirement Income Security Act of 1974 (ERISA) and administered by Sun Life and Health Insurance Company (U.S.) that included group life insurance coverage in the amount of $95,000.

Mr. Tonguette left LoBue on October 16, 2009, at which time, pursuant to the terms of the group policy, his coverage ended.

The plan gave Mr. Tonguette the option to convert his group life insurance policy to an individual one. As a general matter, under the plan, that option remained available only for 31 days, but the period was extended to 91 days if neither LoBue nor Sun Life provided a departing employee with notice of the option.

Mr. Tonguette neither received notice of his conversion option nor exercised it before he died. That he had not received notice of his conversion option meant that his conversion period ran for the full 91 days, until January 15, 2010. Mr. Tonguette, however, died six days before then, on January 9, 2010.

Mr. Tonguette’s widow, Diane Tonguette, subsequently requested payment of his death benefit under the group policy, citing a plan provision entitled “Death within the Conversion Period.” The plan’s administrator, Sun Life, read that provision differently and denied payment.

Ms. Tonguette sued Sun Life, arguing that its denial of her claim was contrary to the plan’s terms. The district court granted summary judgment to Sun Life, and Ms. Tonguette appealed to the U.S. Court of Appeals for the Sixth Circuit.

The Sixth Circuit reversed.

In its decision, it explained that the provision of the plan dealing with death during the conversion period stated that a claim could be made for a death benefit if a participant in the plan died “during the 31 day period during which your insurance may be converted to an individual policy.” Thus, under this provision, if a plan participant died within the period described by the italicized language, Sun Life would pay the participant’s death benefit (in Mr. Tonguette’s case, $95,000) under the group insurance policy. The circuit court then considered whether the italicized language referred to the length of the applicable conversion period under the plan (31 days or 91 days – Ms. Tonguette’s view), or instead referred only to a death that occurred in the first 31 days following the termination of group coverage, even if the conversion period ran longer than 31 days (Sun Life’s view).

The Sixth Circuit resolved the apparent ambiguity in favor of Ms. Tonguette. It said that a “careful reading of the plan’s terms” – including that the section heading referred to “death within the conversion period” – led it to rule that Ms. Tonguette’s interpretation was “demonstrably better than Sun Life’s.” As a plan fiduciary, the circuit court concluded, Sun Life was “obligated to read the plan carefully” and it “lacked discretion” to reject Ms. Tonguette’s interpretation of the disputed language. Its interpretation, therefore, was arbitrary and capricious, according to the Sixth Circuit. [Tonguette v. Sun Life and Health Ins. Co. (U.S.), 2014 U.S. App. Lexis 24402 (6th Cir. Dec. 22, 2014).]

Circuit Court Upholds Decision Refusing to Enforce EEOC’s Broad Subpoena

In June 2010, Jose Morabito, an Argentinean national who was employed by Royal Caribbean Cruises, Ltd. (RCCL) as an assistant waiter on one of its cruise ships, filed a charge of discrimination with the Equal Employment Opportunity Commission (EEOC). Mr. Morabito alleged that RCCL had violated the Americans with Disabilities Act (ADA) when RCCL had refused to renew his employment contract after he had been diagnosed with HIV and Kaposi Sarcoma even though he had been declared fit for duty by his physician.

RCCL responded to the charge with a position statement contending that: (1) the ADA was inapplicable because Mr. Morabito was a foreign national who was employed on a ship flying the flag of the Bahamas; and (2) because RCCL’s ships were registered under the law of the Bahamas, RCCL was required to follow the Bahamas Maritime Authority (BMA) medical standards for seafarers, which allegedly disqualified Mr. Morabito from duty at sea.

After receiving RCCL’s position statement, the EEOC requested a list of all employees discharged by RCCL since 2010 pursuant to the BMA medical standards. RCCL objected, asserting that the ADA did not cover foreign nationals working on foreign-flagged ships and that the information sought was not relevant to Mr. Morabito’s charge.

The EEOC ultimately issued an administrative subpoena that included requests for the following information:

(1)   Names of all employees who were discharged or whose contracts were not renewed [from August 25, 2009, through present] due to a medical reason.

(2)   For each employee listed in response to request number 1, the employee’s name, citizenship, employment contract, position title, reason for and date of discharge, a copy of the separation notice, and the last known contact information for each individual.

(3)   For each employee listed in response to request number l, the employee’s application and related correspondence, any interview notes, the identity of the person who hired the employee, how the employee obtained the position (i.e., online, in person, recruiter), the location where the employee was interviewed, and the identity and location of the person who made the final hiring decision.

(4)   Names of all persons who applied for a position but were not hired within the relevant period due to a medical reason.

(5)   For each employee listed in response to request number 4, the employee’s citizenship, employment application and related correspondence, any interview notes, the identity of the person [who] hired the employee, how the employee learned of the position (i.e., online, in person, recruiter), the location where the employee was interviewed, and the identity and location of the person who made the final hiring decisions.

RCCL partially complied with the EEOC’s administrative subpoena by providing records for employees or applicants who were United States citizens. The EEOC then went to court for an order requiring RCCL to comply with its request for the remaining records regarding non-U.S. citizens who had been discharged or denied employment because of a medical condition.

The magistrate judge ruled against the EEOC and recommended that the petition to enforce the subpoena be denied on the grounds that the information sought was not relevant to Mr. Morabito’s charge and that compliance with the disputed portions of the subpoena would be unduly burdensome. After the district court rejected the EEOC’s contentions and affirmed and adopted the magistrate judge’s report and recommendation, the EEOC appealed to the U.S. Court of Appeals for the Eleventh Circuit.

The Eleventh Circuit affirmed.

In its decision, the circuit court explained that, in investigating allegations of unlawful employment practices, the EEOC was entitled to inspect and copy “any evidence of any person being investigated or proceeded against that relates to unlawful employment practices … and is relevant to the charge under investigation.” It then stated that it was “not immediately clear” why company-wide data regarding employees and applicants around the world with any medical condition, including conditions not specifically covered by the BMA medical standards or similar to Mr. Morabito’s, would shed light on Mr. Morabito’s individual charge that he was fired because of his HIV and Kaposi Sarcoma diagnoses. The Eleventh Circuit said that this was especially so as RCCL had admitted that Mr. Morabito had been terminated because of his medical condition, which RCCL alleged was required by the BMA medical standards.

The Eleventh Circuit rejected the EEOC’s argument that its subpoena should be enforced because it was entitled to expand its investigation to uncover other potential violations and victims of discrimination on the basis of disability and because RCCL’s reliance on the BMA standards suggested that others might have been discriminated against. The circuit court explained that the relevance necessary to support a subpoena for the investigation of an individual charge was relevance to the contested issues that had to be decided to resolve that specific charge, not relevance to issues that might be contested when and if future charges were brought by others. Because RCCL had admitted that the reason that it had refused to renew Mr. Morabito’s contract was his medical condition, the Eleventh Circuit said, whether it had refused to renew other employee’s contracts for the same reason was “irrelevant to [Mr. Morabito’s] charge” as that issue was settled.  The circuit court also noted that RCCL had raised a legitimate question regarding whether the EEOC had jurisdiction over the claims of foreign nationals on foreign flagged ships, when doing so would likely interfere with the internal order of the vessels.

The circuit court concluded by ruling that even if the information the EEOC sought had some tenuous relevance to the charge filed by Mr. Morabito, the district court had not erred when it also had determined that compliance with the subpoena would be unduly burdensome to RCCL, especially in light of the jurisdictional issues raised by RCCL. [Equal Employment Opportunity Comm’n v. Royal Caribbean Cruises, Ltd., 771 F.3d 757 (11th Cir. 2014).]

Second Circuit Rejects Bausch & Lomb Retirement Plan’s Interpretation of “Change-in-Control” Provision

The plaintiffs in this case, three retired Bausch & Lomb executives, brought suit under the Employee Retirement Income Security Act of 1974 (ERISA), alleging that after Bausch & Lomb was bought out by a private equity firm, new management had misconstrued the “change-in-control” provision in their retirement plan and unlawfully had reduced their pension benefits.

For its part, Bausch & Lomb argued that the compensation committee of its board of directors properly had interpreted the “change-in-control” provision (Section 13 of the plan) to apply to the plaintiffs, as “Retired Participants,” because, reading the plan as a whole, “Retired Participants” was a subset of “Participants.”

The district court disagreed with Bausch & Lomb’s interpretation, and granted the plaintiffs’ cross-motion for summary judgment, whereupon Bausch & Lomb appealed to the U.S. Court of Appeals for the Second Circuit.

The Second Circuit affirmed the district court’s decision.

The Second Circuit said that the “major problem” with Bausch & Lomb’s interpretation was that Section 13 of the retirement plan explicitly mentioned “Participants” but contained no mention of “Retired Participants.” In the circuit court’s view, that omission could “not be ignored,” because the definitions section of the plan defined the two categories to be mutually exclusive:

(f) Participant means an employee of the Company who has been selected to participate in the Plan pursuant to Section 4. […]
(h) Retired Participant means a former Participant who is receiving benefits under this Plan.

In addition, Section 13 provided that for purposes of “determining the Participant’s accrued benefit,” the “date of the Change of Control” would act as a stand in for “the date of Termination of Employment.”  In other words, Section 13 created an artificial employment termination date in the event of a change in control.  Obviously, the circuit court noted, this provision made no sense with respect to a Retired Participant, who already had a termination date: his or her actual retirement or separation date.

Accordingly, the Second Circuit determined: (1) Retired Participants such as the plaintiffs were retired, so they were no longer “employee[s] of the Company,” as was required to be a Participant; and (2) a Retired Participant, as a matter of logic, could not be both a “former Participant” and a current Participant (due to the temporal element inherent in the word “former”). [Gill v. Bausch & Lomb Supplemental Retirement Income Plan I, 2014 U.S. App. Lexis 22980 (2d Cir. Dec. 3, 2014).]

Reprinted with permission from the March 2015 issue of the Employee Benefit Plan Review – From the Courts.  All rights reserved.

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