Tag Archives: overtime

Fifth Circuit Expedites DOL’s Appeal Concerning Overtime Rule

In June, we wrote about the United States Department of Labor’s new overtime rule which was scheduled to take effect on December 1, 2016.  The overtime rule would have increased the salary threshold for overtime pay to $47,476, nearly double the current level.  Employees earning less than that amount would have been owed overtime, or time-and-a-half, for working more than 40 hours per week.  As a result of a recent decision by a federal judge, the rule did not take effect on December 1. MORE

For further information about this issue or any other employment-related issue, please contact: Sam Samaro, Maxiel Gomez or Jim Boyan.

Are Your “Independent Contractors” Entitled to Overtime?

By James W. Boyan III, Esq.
jboyan@pashmanstein.com

The United States Department of Labor recently proclaimed that “most workers are employees under the FLSA.”  On July 15, 2015, the DOL issued new guidance concerning the standard for determining whether an employee has been misclassified as independent contractor under the Fair Labor Standards Act’s (“FLSA”).   The FLSA, which was originally enacted 1938, is a federal law that requires employers to pay all covered employees overtime for all hours worked in excess of 40 hours per week.   Under the law, an individual is considered to be an “employee” of a person or entity that “suffer[s] or permit[s]” him or her to work.  Although the FLSA’s broad definition of the term “employ” has been around for over 75 years, courts have interpreted the standard in a variety of ways.

The DOL’s new guidance, entitled “Administrator’s Interpretation No. 2015-1,” makes it clear that the agency intends to interpret that definition in the broadest way possible.  To that end, the agency has concluded that the liberal “economic realities test” should be used to determine whether a worker is an employee or an independent contractor under the FLSA.  This test focuses on whether the worker is economically dependent on an employer or in business for him or herself.  If the worker is economically dependent on the employer, then he or she is deemed to be an employee who is potentially eligible for the protections of the FLSA.  Based on this expansive interpretation, the DOL has boldly asserted that “most workers are employees under the FLSA.”

The DOL’s economic realities test contains six factors:

  • the extent to which the work performed is an integral part of the employer’s business;
  • the worker’s opportunity for profit or loss depending on his or her managerial skill;
  • the extent of the relative investments of the employer and the worker;
  • whether the work performed requires special skills and initiative;
  • the permanency of the relationship; and
  • the degree of control exercised or retained by the employer.

The DOL has explained that each factor in the test must be “examined and analyzed in relation to one another, and no single factor is determinative.”  The agency has also emphasized that the “control” factor should not be given undue weight.  Finally, the DOL has stated that: “[t]he application of the economic realities factors is guided by the overarching principle that the FLSA should be liberally construed to provide broad coverage for workers.”

Companies that engage workers on a contract basis should carefully review the DOL’s recent guidance.  Employers who fail do so could be liable for back overtime wages, liquidated damages and attorneys’ fees under the FLSA.

Significant Changes to Overtime Rules in the Works

By Jim Boyan, Esq.
jboyan@pashmanstein.com

On March 13, 2014, President Barack Obama issued a Presidential Memorandum directing the Secretary of Labor, Thomas Perez, to revise the Fair Labor Standard Act’s (“the Act”) “outdated” overtime rules.  The Obama Administration believes that federal overtime regulations “have not kept up with our modern economy.”

The Memorandum indicates that the new overtime rules should “update existing protections consistent with the intent of the Act and address the changing nature of the workplace.”  Based on President Obama’s comments on this issue the following changes are likely:

  • A sharp increase to the minimum salary requirement for the administrative, executive and professional exemptions (currently $455 per week or $23,660 per year) and
  • New requirements that will make it more difficult for employers to rely on the administrative, executive or professional exemptions to the Act’s overtime requirements.

Although it may be several years before any changes to the overtime rules will take effect, employers would be wise to monitor this issue.  New Jersey employers should be aware that any changes to the federal overtime regulations will automatically change the state’s overtime rules which incorporate the federal rules by reference.

Pharmaceutical Sales Representatives Are Exempt from Overtime Pay

By Elisabeth Rowley Wall, Esq.
erowley@pashmanstein.com

On June 18, 2012, the U.S. Supreme Court, in a 5-4 opinion by Justice Samuel Alito, ruled on the issue of whether pharmaceutical sales representatives are entitled to receive overtime pay under the Fair Labor Standards Act (“FLSA”).  The Court held that pharmaceutical sales reps, who promote the sales of prescription drugs and obtain nonbinding commitments from doctors to prescribe those drugs, but do not themselves, sell the drugs to doctors or patients, are “outside salesmen” and are exempt from the federal overtime pay requirements.  The Court’s landmark holding has brought much needed clarity to the scope of the FLSA’s “outside salesman” exemption, on which lower courts have been split.

The highly anticipated decision came by way of Christopher v. Smithkline Beecham Corp., in which GlaxoSmithKilne was defending legal claims from two former salesmen seeking overtime pay on behalf of a nationwide class of representatives employed by the drug maker.  Though the FLSA does not actually define “outside salesman,” it defines “sale” as “any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.”  The heavily regulated pharmaceutical industry regulations legally prohibit representatives from actually closing sales, and as the Court advised, sales representatives’ responsibilities should be viewed in the context of the particular industry in which they work.  Pharmaceutical sales reps regularly call on physicians in their assigned sales territory to discuss the features, benefits, and risks of prescription drugs.  Thus, the Court found that although they do not actually close sales, pharmaceutical reps nevertheless act “in the capacity of a salesman,” in that the primary objective of these visits is to obtain non-binding commitments from physicians to prescribe the drugs to their patients.

Pharmaceutical sales reps were found to spend approximately forty hours per week calling on physicians and approximately ten to twenty hours each week attending events, reviewing product information, returning phone calls and other miscellaneous tasks.  Under the FLSA, employers must compensate non-exempt employees for time worked in excess of forty hours per week at the rate of one-and-a-half times the employees’ regular wages.  SmithKline did not pay their sales reps time-and-a-half wages as provided by the FSLA because the company classified them as exempt from overtime. As a result, the sales reps brought suit alleging violations of the FLSA for failing to compensate them for overtime.  Not only was the Court not persuaded by the argument for the reasons herein, but it also noted that the specific petitioners each received average compensation in excess of $70,000 per year, did not perform manual labor and were “hardly the kind of employees that the FLSA was intended to protect.”

In addition to the impact this decision has made on the pharmaceutical industry, it is equally notable that the Court declined to give controlling deference to the Department of Labor’s (“DOL’s”) interpretation of its own regulation. In an amicus brief filed by the DOL, it took the position that pharmaceutical sales reps are not exempt outside salesmen because to qualify for this exemption, an employee must “actually transfer[] title to the property at issue,” which is something that pharmaceutical sales reps cannot do. In so holding, the Court noted the DOL’s “decades long” silence on the pharmaceutical industry’s practice of classifying its sales reps as exempt employees. It further opined that non-exempt classification for pharmaceutical sales reps could expose drug companies to retroactive liability and cost the industry billions of dollars for years of employment that “occurred before the [DOL’s] interpretation was announced.”

This decision is a victory for employers in the pharmaceutical industry and provides other employers with similar sales models some peace of mind.  However, while other employers may find themselves in situations where the same arguments can be made for applying the “outside salesman” exemption, they should conduct an analysis of their individual circumstances and not rely on Christopher unconditionally.  Employers should consult with counsel when making these assessments.