Co-owner of Business may also be an "Employee" for purposes of FLSA

Plaintiff was a co-owner of Madera Honda Suzuki. After investing $100,000 with her husband she then became a co-owner. Plaintiff was responsible for paying bills and she had authority to pay certain expenses, such as rent and dealership insurance, without consulting the other officers. Plaintiff was authorized to issue payroll checks to herself and others if the company had sufficient funds, and it appears Plaintiff issued a check to herself at least once during her tenure as CFO. Plaintiff interviewed prospective employees and she had a say in everybody the company hired. She also handled employee disciplinary matters 95% of the time and was not required to consult with her co-owner before terminating an employee. Defendants moved for summary judgment contending that plaintiff was a co-owner, not an employee of Madera Honda Suzuki. The Court went on to examine other evidence that plaintiff was not merely a director, officer and shareholder, but was also hired to work as the company’s office manager. She was initially paid hourly wages for working as the office manager, at a rate determined by her co-owner. After reviewing these facts, the Court conceded that its research revealed no authority — stating categorically that a co-owner and shareholder of a closely held corporation, who works for the corporation in another capacity, cannot also be the corporation’s employee for the purpose of the FLSA. Indeed, the Court stated, case law seems to suggest otherwise. The Court then cited Goldberg v. Whitaker House Co-op, Inc. , 366 U.S. 28, 32, 81 S.Ct. 933, 6 L.Ed.2d 100 (1961) (“There is nothing inherently inconsistent between the coexistence of a proprietary and an employment relationship. If members of a trade union bought stock in their corporate employer, they would not cease to be employees within the conception of [the FLSA]. For the corporation would ’suffer or permit’ them towork whether or not they owned one share of stock or none or many”). The Court concluded that the possibility an individual could simultaneously be both an owner/employer and an employee exists. Support for this proposition, one court has observed, may be found in the FLSA itself. As noted, “employee” refers to “any individual employed by an employer. 29 U.S.C. § 203(e)(1).” ’Employ’ includes to suffer or permit to work. 29 U.S.C. § 203(g). “[I]t appears from this language that if an owner or manager performs work, as here,”that person fits within the definition of employee.”

After reviewing several analogous cases involving employees who had a proprietary interest in their respective employers, the Court denied the Motion for Summary Judgment.

The Court expressed no opinion as to whether the plaintiff was an exempt employee under FLSA.

Hess v. Madera Honda, 2012 U.S. Dist. LEXIS 131584 (E.D. Cal. Sept. 14, 2012).

What is a “joint employer” and why is it important under FLSA

Under the Fair Labor Standards Act, an employee may stand in an employment relationship with more than one entity. As a result of this potential multi-employer relationship, workers frequently seek expanding targets of liability. This concept is known as a joint employer relationship.

In In Re: Enterprise Rent-A-Car Wage & Hour Employment Practices Litigation, 2012 U.S. App. LEXIS 13229 (3d. Cir. June 28, 2012), the Third Circuit Court of Appeals announced a new test for determining whether a joint employer relationship exists under the Fair Labor Standards Act. Courts first must consider: (1) the alleged employer’s authority to hire and fire the relevant employees; (2) the alleged employer’s authority to promulgate work rules and assignments and to set the workers’ conditions of employment, including compensation, benefits, and work schedules, including the rate and method of payment; (3) the alleged employer’s involvement in day-to-day employee supervision, including employee discipline; and (4) the alleged employer’s actual control of employee records such as payroll, insurance, or taxes. The court stated that this is not an exhaustive list of the relevant considerations, and thus it cannot be “blindly applied.” Courts next must consider any other indicia of “significant control” over the employee (by the potential joint employer), which it held may be persuasive to a finding of joint employment when incorporated with the other factors.

Supreme Court rules that drug reps not entitled to overtime pay

Two ex-GlaxoSmithKline employees sued their former employer for unpaid overtime. GSK and other pharmaceutical companies have historically treated drug representatives as outside salespeople exempt from overtime pay. That classification was challenged by the plaintiffs but the Supreme Court ruled in favor of pharmaceutical companies. The 5-4 decision will have a significant impact on existing lawsuits against the pharmaceutical industry. The decision from the Supreme Court originated in the Seventh Circuit Court of Appeals but it wasn't the first lawsuit about drug representative overtime pay to reach the Circuit courts. The Second Circuit Court of Appeals previously ruled that drug representatives are entitled to overtime pay. As a result of that decision, drug maker Novartis paid out a settlement to several former employees seeking overtime payment. However, the Seventh Circuit Court of Appeals' decision stated that drug representatives are exempt from overtime under the Fair Labor Standards Act. The Supreme Court upheld the Seventh Circuit's decision. In his majority opinion, Justice Samuel Alito dismissed the Department of Labor's arguments for overtime pay. He noted that the Department considered drug representatives exempt from overtime requirements until 2009, as reported by Dow Jones Newswires. Alito disagreed with the Department's decision to announce its new position in court briefs rather than the typical rulemaking process. The Court split along ideological lines, with Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor, and Elena Kagan in dissent.

Are small companies covered by the Overtime Laws?

An employer falls under the enterprise coverage section of the Fair Labor Standards Act if it (1) has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce by any person and (2) has at least $ 500,000 of annual gross volume of sales made or business done. 29 U.S.C. § 203(s)(1)(A).

Therefore, if the employee works for a company that grosses more than $500,000 on an annual basis and the employee handles goods or materials that were at any time in the past produced in or moved interstate, then that company is covered by the Fair Labor Standards Act even if it only has a few employees.

Polycarpe v. E & S Landscaping Serv.,  616 F.3d 1217 (11th Cir. 2010)

Are Paralegals entitled to Overtime?

Paralegals and legal assistants generally do not qualify as exempt learned professionals because an advanced specialized academic degree is not a standard prerequisite for entry into the field.  Although many paralegals possess general four-year advanced degrees, most specialized paralegal programs are two-year associate degree programs from a community college or equivalent institution.

Moreover, in numerous opinion letters, the Wage and Hour Division of the U.S. Department of Labor, has taken the position of the that paralegal employees are not exempt employees. Wage & Hour Op., FLSA2006-27, p. 4; see also Wage & Hour Op., FLSA2005-9 (Jan. 7, 2005), Wage & Hour Op., FLSA2006-27 (July 24, 2006), Wage & Hour Op., FLSA 2005-54 (December 16, 2005).

Therefore, if paralegals are not exempt employees under the Fair Labor Standards Act, they are entitled to be paid overtime.

See Paralegals’ Pay Rises Again in 2012, Says ALM/IPMA Survey.

Mortgage loan officers allowed overtime

WASHINGTON, June 7 (Reuters) - The Obama administration acted within its discretion two years ago when it reclassified mortgage loan officers as eligible for overtime pay, a federal judge has ruled in a case that tested the authority of U.S. labor officials to set overtime rules.

The decision on Wednesday was a loss for mortgage lending companies, which had hoped to invalidate the rule change as they face lawsuits from loan officers for back overtime pay.

The U.S. Labor Department said in 2010 that, based on the typical job duties of mortgage loan officers, they should receive overtime wages. The change restored the status of loan officers to what it had been prior to 2006, when the Bush administration termed loan officers ineligible.

The Mortgage Bankers Association, a lobbying group for banks and other lenders, sued, calling the 2010 change "an abrupt reversal" of a policy that it had come to rely on.

U.S. District Judge Reggie Walton in Washington, D.C., disagreed, ruling that the lenders failed to show that they relied on the 2006 policy in ways that had substantially hurt them.

To the extent that lenders did rely on it, it was "short lived" given that they relied for years until 2006 on the idea that loan officers were eligible for overtime wages, Walton wrote.

Bank of America, JPMorgan Chase & Co and Quicken Loans Inc are among the lenders that have faced claims from loan officers who say they are due back overtime pay.

The Mortgage Bankers Association has not decided whether to appeal the ruling, association lawyer Howard Radzely said on Thursday.

The case is Mortgage Bankers Association v. Hilda Solis, et al., U.S. District Court for the District of Columbia, No. 11-cv-73.

Exempt Employees

Supreme Court to Decide Overtime Fate for Pharmaceutical "Sales Representatives"

 On April 16, the U.S. Supreme Court will hear arguments in an important case under the Fair Labor Standards Act, Christopher v. SmithKline Beecham Corp.  The specific question in the case is whether pharmaceutical sales representatives are eligible to receive overtime pay.  The larger issue is the deference that is owed to the U.S. Department of Labor's interpretation of that statute.  The Fair Labor Standards Act and Department of Labor regulations require, in general, that employers pay 1.5 times an employee's regular hourly rate of pay for each hour worked in excess of 40 hours per week, unless the employee qualifies for an "exemption" from the overtime rules.  One of those exemptions covers "outside salespersons," employees whose primary job duty is to sell products away from their employers' offices. The Christopher case involves the overtime claims of pharmaceutical representatives who are employed by drug manufacturing giant GlaxoSmithKline, but who never received overtime pay despite working significantly more than 40 hours per week. The Glaxo reps visit doctors' offices on "detail calls," and promote Glaxo's products in the hope that doctors will prescribe and that patients will buy those products.  The sticking point is that the reps don't sell any pharmaceuticals to the physicians they visit. In fact, they are barred by federal law from doing so.  So, while at a superficial glance, their work consists of some of the same activities as traditional salespeople, federal regulations actually prohibit them from selling their employer's drugs to doctors or anyone else.  The Department of Labor has weighed in, strongly supporting the reps' position.