Retaliation seems to be the new “go to” claim in employment law.  For example, it formed the basis for more than one-third of all discrimination charges filed last year with the Equal Employment Opportunity Commission ("EEOC"), surpassing race discrimination as the most frequently filed claim.  We may now be headed that way under the Fair Labor Standards Act ("FLSA") as well.

In Kasten v. Saint-Gobain Performance Plastics Corp., No. 09-834 (March 22, 2011), the United States Supreme Court reviewed the claim of an employee who was fired after complaining that the company’s time clocks violated the FLSA because they were positioned in a way that prevented workers from being paid for time spent donning and doffing protective clothing.  The Supreme Court upheld the claim, ruling that the FLSA’s anti-retaliation provision (which prohibits discharging or otherwise discriminating against an employee who has “filed any complaint”) applies to informal, oral complaints as well as more official, written reports.  Therefore, what used to be viewed as mere griping about hours or compensation might now be viewed as protected whistleblower activity.

The Court noted that not every grumbling remark is a protected “complaint.”  Instead, a complaint is “filed” only when “a reasonable, objective person would have understood the employee to have put the employer on notice that the employee is asserting statutory rights under the FLSA.”  Unfortunately, the Supreme Court declined to explain how to evaluate when a complaint meets this standard – that will have to wait further decisions by the lower courts.

Many people have asserted that anti-retaliation provisions should only apply to actual complaints filed with governmental entities.  Unfortunately, the Supreme Court declined to address this issue because the litigants failed to raise it in the papers filed with the Court.  The dissenting judges wrote (quite justifiably) that it made “little sense” to decide the formal vs. informal distinction if they are just going to rule in a future case that neither complaint is valid unless it is actually filed with a governmental agency.

Bottom Line

Right now, employers have to be careful when dealing with employees who have made any sort of complaint about practices that they claim are prohibited under the FLSA.  Examples might include failing to give them adequate break time, not counting on-call hours as time worked for overtime, etc.   Of course, all of this could be moot if future cases limit protection to complaints just to those that are actually “filed” with the government.  We’ll be monitoring this for you.

The lower court decision by the Ninth Circuit Court of Appeals in California is believed to have forged a new standard for wage-based class claims that the other federal appeals courts have not followed.  The Supreme Court often seeks to resolve interpretive differences between the various appellate courts, and this issue seems particularly worthy of their attention since the Ninth Circuit case was decided by a 6-5 vote.  By ruling one way or the other, the Supreme Court may clear up the confusion over which standard is to be applied.

The Supreme Court also wants to address how the ordinary threshold requirements for a class action are applied in this case.  Typically, class actions require a sufficiently large group of litigants with similar claims in order to justify treating the litigants as one big class.  In this instance, the Supreme Court will want to examine whether the use of subjective decision-making policies supports a class type of claim.  Wal-Mart has argued that it does not since store managers at their almost 3,400 United States stores make individualized hiring and promotional decisions that have to be decided on their unique facts.  In other words, there is no overriding policy or practice being applied – just localized decisions seeking to distinguish between small groups of candidates for particular jobs.

Bottom Line

The eventual decision could have momentous consequences.  A decision in favor of the applicants and employees could pave the way for many more wage-based class actions in the courts.  On the other hand, a decision for Wal-Mart could signal the end of this litigation for the company, and the death knell for wage-based class action cases in general.

Potential for Loss of Exempt Status

In addition to requiring performance of bona fide exempt duties, the so-called “White Collar” exemptions (executive, administrative, and professional) require that employee be paid a salary of at least $455.00 per week. If this is not done, the employee will not be exempt and overtime pay will be owed for any excess hours worked.

Paying a salary means providing the full agreed-upon compensation in any week in which the employee performs any work at all. Thus an exempt employee who works only 30 minutes one day during the week must still receive the full agreed-upon salary for that entire week. For this reason, an employer can not save any salary by making exempt employees take some, but not all of a week off.

On the other hand, the FLSA tells us that an employee is not owed anything for any workweek in which no work was performed. This is true regardless of why the employee did not work or whether not working was voluntary or involuntary.

Employers hoping to reduce costs by requiring employees to take time off (a practice often referred to as “furloughing”), can use one of these three methods:

     1.     Mandatory Use of PTO for a Partial Work Week

Employees can be required to use accrued vacation, paid time off (PTO) or other paid leave for any absence, including a plant shutdown, without affecting their exempt status, provided they have enough accrued time to equal their regular salary amount. The reason this is acceptable is that the employee is still receiving the required salary amount and the law does not care what the payment is called.

If an employee does not have paid time off available, forcing a day off during a partial furlough will not work since the employee will not be paid the entire salary amount that week and, as explained below, an employer cannot require an employee to take a day off without pay.

     2.     Voluntary Furloughs

If an employee does not have any accrued paid time off available, the employer may ask employees to take one or more day off without pay. This must be purely voluntary with no pressure or hint of penalty for refusing.  Such time must be taken in full day increments.

     3.     Mandatory Furloughs for Entire Workweeks

As explained above, an employee need not be paid for any work week in which no work is performed.  If an employer wishes to shut down for an entire week, exempt and non-exempt employees alike may be given the entire week off without pay.  Remember – this applies only to actual workweeks.

If your workweek runs from Sunday through Saturday, you must furlough the employees during that precise period of time.  This would work for the Christmas to New Year time frame this year because both holidays fall on Saturday.  It won’t work in 2012, however, because both holidays fall on Tuesdays.  You would end up laying employees off for parts of two different workweeks and owing them their full salary in each of those weeks.

Bottom Line

Be sure to consult with a knowledgeable expert before planning to furlough your employees in order to anticipate and avoid the pitfalls that await you.

The problem, however, is that an employee who fails to meet performance standards may receive more in advanced bonus payments than he or she has earned by year-end.  While it may seem obvious that the employer may deduct these "overpayments" at the end of the year, a recent case by the Minnesota Supreme Court reminds us that such deductions should be made from exempt employees with extreme caution.

Life Time Fitness

In Erdman v. Life Time Fitness, Inc., --- N.W.2d ----, 2010 WL 3502811 (Minn. Sept. 9, 2010), the Minnesota Supreme Court analyzed whether deducting unearned, prepaid bonus payments  from exempt employees' paychecks caused the employees to lose their exempt status under Minnesota’s Fair Labor Standards Act (“MFLSA”).  The suit involved state law because the plaintiffs' federal Fair Labor Standards Act ("FLSA") claims were venued in Ohio.

Life Time paid its managers an annual base salary, with the potential to earn an annual performance bonus.  Although the bonus was earned yearly, the managers were paid monthly based on year-to-date performance.  Accordingly, advancing annual bonuses in monthly installments could lead to overcompensation if the manager was unable to sustain the department’s performance through the year.

In Erdman, twelve Life Time Fitness managers in Minnesota failed to meet their performance expectations and Life Time deducted as much as $1,000 of "prepaid bonus" compensation from their final paychecks.  The managers argued that the deductions caused them to lose their exemption under the MFLSA.

The Minnesota Supreme Court disagreed and held that the managers were exempt notwithstanding the wage deduction because the managers still received their predetermined weekly wage (i.e., base pay).  This amount was contractually guaranteed and therefore the managers "never received less than their promised compensation on a year-to-date basis."  Id. at *6.

FLSA vs. MFLSA

The Minnesota Supreme Court recognized that federal courts have found that Life Time’s deductions rendered its employees non-exempt pursuant to the federal law. Specifically, in Baden-Winterwood v. Life Time Fitness, Inc., 566 F.3d 618 (6th Cir. 2009), the court held that the Life Time Fitness' bonus deductions caused their managers to lose exempt status under the federal FLSA.

Nevertheless, in Erdman, the court noted that “[t]here is a difference in language between the FLSA and the MFLSA that is determinative.”  Id. at *7.  The federal FLSA requires the employee “receive the full salary” for each week where work is performed, 29 C.F.R. § 541.602(a), and that amounts cannot be deducted from that salary.

In contrast, “there is no regulation in the MFLSA regarding deductions and the effect a paycheck deduction has on an employee’s exemption status.” Id.  Therefore, the fact that Life Time Fitness' deductions caused the managers to receive a meager paycheck at the end of the year did not effect their exempt status under the MFLSA.

Bottom Line

Employers not subject to the federal FLSA may consider a prepaid bonus compensation structure similar to the one employed by Life Time.  However, employers subject to the FLSA  may cause their exempt employees to become non-exempt by taking deductions based on a similar  compensation structure.  Therefore, in general, Minnesota employers should exercise extreme caution before deducting any wages from an exempt employee.

• a reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth; and
• a place, other than a bathroom, that's shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk.

This new law provides two exceptions:

1. employers are not required to pay employees who take a breastfeeding break—unless a state law says otherwise; and
2. an employer with less than 50 employees is exempt if the requirements would “impose an undue hardship” by causing “significant difficulty or expense” as compared to the employer’s size, resources and business structure.

Minnesota has had a similar law for approximately 10 years but there are some important distinctions.  For one thing, the Minnesota statute simply requires “reasonable efforts” to provide a location, other than a toilet stall, for the mother to express the milk.  The new federal law, on the other hand, seems to make finding a suitable location mandatory by declaring that the employer “shall” do this. 

In addition, Minnesota merely requires that the location not be a “toilet stall” and that the employee be allowed to express milk “in privacy”.  The new federal law mandates a location “other than a bathroom” that is “free from intrusion.” Therefore, even a comfortable lounge area inside a women’s restroom might not be sufficient unless it was physically separated from the rest of the facility to prevent “intrusion.”

Finally, while the Minnesota statute specifically states that the break must, if possible, run concurrently with other scheduled breaks, the federal law contains no such limitation.  An argument can be made, then, that this new law authorizes an additional break from female employees who are nursing. 

Minnesota employers must be ready to accommodate these new and somewhat more expansive requirements the next time a nursing mother in the work force raises this issue.

In addition, President Obama included in his proposed 2011 budget $25 million for a joint Labor-Treasury initiative to strengthen and coordinate federal and state efforts to enforce statutory prohibitions, and to identify and deter misclassification of employees as independent contractors.

Furthermore, if compliance was not hard enough, in March 2010 the WHD not only did an about face with regard the exempt status of mortgage loan officers—withdrawing two previous Opinion Letters from 2006—but the WHD announced that it would, for all practical purposes,be eliminating the issuance of Opinion Letters. Instead, the WHD will provide only references to statutes, regulations, interpretations and cases that are relevant to the specific request. Coupling the decision to stop issuing opinion letters with increased enforcement efforts indicates that the DOL is becoming more focused on punishing employers rather than helping them.