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Service Advisors Exempt from FLSA

Encino Motorcars, LLC is an automobile dealership. Encino’s service advisors filed a lawsuit alleging that Encino violated the FLSA by failing to pay them overtime compensation when they worked more than 40 hours in a week. At issue in this case is whether the Department of Labor’s interpretation of the service advisor exemption is valid.

History of Service Advisors Exemption under the FLSA

The Fair Labor Standards Act (FLSA) requires employers to pay over­time compensation to covered employees who work more than 40 hours in a given week. In 1966, Congress enacted an exemption from the overtime compensation requirement for “any salesman, parts-man, or mechanic primarily engaged in selling or servicing automo­biles” at a covered dealership. Congress authorized the Department of Labor to promulgate necessary rules, regulations, or orders with respect to this new provision. The Department exercised that authority in 1970 and issued a regulation that defined “salesman” to mean “an employee who is employed for the purpose of and is primarily engaged in making sales or obtaining orders or contracts for sale of the vehicles . . . which the establishment is primarily engaged in selling.” 29 CFR §779.372(c)(1) (1971).

The regulation excluded service advisors, who sell repair and maintenance services but not vehicles, from the ex­emption. Several courts, however, rejected the Department’s conclusion that service advisors are not covered by the statutory exemption. In 1978, the Department issued an opinion letter departing from its previous position and stating that service advisors could be exempt under 29 U. S. C. §213(b)(10)(A). In 1987, the Department confirmed its new interpretation by amending its Field Operations Handbook to clarify that service advisors should be treated as exempt under the statute. In 2011, however, the Department issued a final rule that followed the original 1970 regulation and interpreted the statutory term “salesman” to mean only an employee who sells vehicles. 76 Fed. Reg. 18859. The Department gave little explanation for its deci­sion to abandon its decades-old practice of treating service advisors as exempt under §213(b)(10)(A).

Does the FLSA Apply to Service Advisors?

Encino argued that the FLSA overtime provisions do not apply because service advisors are covered by an exemption in §213(b)(10)(A).The District Court granted the motion, but the Ninth Circuit reversed in relevant part. Deferring under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, to the interpretation set forth in the 2011 regulation, the court held that service advisors are not covered by the §213(b)(10)(A) exemption.

The Ninth Circuit held that section 213(b)(10)(A) must be construed without placing controlling weight on the Department’s 2011 regulation.

According to the court:

When an agency is authorized by Congress to issue regulations and promulgates a regulation interpreting a statute it enforces, the interpretation receives deference if the statute is ambiguous and the agency’s interpretation is reasonable. See Chevron, supra, at 842–844. When Congress authorizes an agency to proceed through notice-and-comment rulemaking, that procedure is a “very good indicator” that Congress intended the regulation to carry the force of law, so Chevron should apply. United States v. Mead Corp., 533 U. S. 218, 229–230. But Chevron deference is not warranted where the regulation is “procedurally defective”—that is, where the agency errs by failing to follow the correct procedures in issuing the regulation. 533 U. S., at 227.

One basic procedural requirement of administrative rulemaking is that an agency must give adequate reasons for its decisions. Where the agency has failed to provide even a minimal level of analysis, its action is arbitrary and capricious and so cannot carry the force of law. Agencies are free to change their existing policies, but in explaining its changed position, an agency must be cognizant that longstanding policies may have “engendered serious reliance interests that must be taken into account.” FCC v. Fox Television Sta­tions, Inc., 556 U. S. 502, 515. An “[u]nexplained inconsistency” in agency policy is “a reason for holding an interpretation to be an arbitrary and capricious change from agency practice,” National Cable & Telecommunications Assn. v. Brand X Internet Services, 545 U. S. 967, 981, and an arbitrary and capricious regulation of this sort re­ceives no Chevron deference.

Applying those principles, the Ninth Circuit determined that the 2011 regulation was issued without the reasoned explanation that was required in light of the Department’s change in position and the significant reliance interests position that service advisors are exempt from the FLSA’s overtime pay requirements. Employers had negotiated and structured compensation plans against this background understanding. In light of this background, “the Department needed a more reasoned explanation for its decision to depart from its existing enforcement policy.” The Department instead said almost nothing. It did not analyze or explain why the statute should be interpreted to exempt dealership employees who sell vehicles but not dealership employees who sell services. “This lack of reasoned explication for a regulation that is inconsistent with the Department’s longstanding earlier position results in a rule that cannot carry the force of law, and so the regulation does not receive Chevron deference.”

This is not the first time the DOL has changed courses and reinterpreted the law. In this instance, the court found that the DOL’s failure to include a reasoned explanation regarding the change of course was sufficient to render the DOL’s interpretation void.

HR Director Can Sue When Fired for Retaliation

The FLSA provides that it is unlawful for an employer to: “discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or related to this chapter, or has testified or is about to testify in any such proceeding, or has served or is about to serve on an industry committee[.]”  29 U.S.C. § 215(a)(3).  Employees fired for retaliation in violation of the FLSA can sue their employer.

But what if the employee’s job is to report violations of the company to the employer so the employer can decide whether to fix the problem?  Has the employee “filed a complaint,” or just done the employee’s job?  In Rosenfield v. Globaltranz Enterprises, the Ninth Circuit held an HR Director can state a claim that she was fired for retaliation when she reported violations of the FLSA to the employer.

Alla Rosenfield was the Director of Human Resources for Globaltranz. Throughout her employment, Plaintiff reported to her superiors that the company was not compliant with the FLSA, and she repeatedly sought changes to attain statutory compliance.  After GlobalTranz fired Plaintiff, she filed a lawsuit alleging that she was fired for retaliation in violation of the FLSA.  Plaintiff claimed GlobalTranz fired her for complaining to other managers and to executives that GlobalTranz was failing to comply with the FLSA.  The court had to decide whether an HR Director can state a claim for retaliation under the FLSA when it was her job to bring FLSA violations to the employer’s attention.

HR Directors and Managers Can Sue when Fired for Retaliation

Even though the district court recognized that Plaintiff had “advocated consistently and vigorously on behalf of . . . GlobalTranz’s employees whose FLSA rights Plaintiff thought were being violated,” the district court held that she nevertheless was not entitled to the protections of § 215(a)(3) because she had not “filed any complaint” for purposes of the FLSA.

Unlike some laws, congress did not create a detailed federal supervision system or process requiring government payroll inspections. Rather, it chose to rely on information and complaints received from employees seeking to vindicate rights claimed to have been denied. The FLSA is not supposed to be a “gotcha” statute and “seeks to establish an enforcement system that is fair to employers.” “To do so, the employer must have fair notice that an employee is making a complaint that could subject the employer to a later claim of retaliation.” Kasten v. Saint-Gobain Performance Plastics Corp., 563 U.S. 1, 131 S. Ct. 1325, 1334 (2011).

In Kasten, the Supreme Court established a “fair notice” test for deciding whether an employee has “filed any complaint” under the anti-retaliation provision of the Fair Labor Standards Act of 1938 (“FLSA”), 29 U.S.C. § 215(a)(3): “[A] complaint must be sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute and a call for their protection.”

If an entry-level employee reported that someone is underpaid in violation of the FLSA and requested that the employee be compensated in compliance with the Act, a reasonable employer almost certainly would understand that report as a “complaint.” But if the identical report were made by a manager tasked with ensuring the company’s compliance with the FLSA, a reasonable employer may not understand that report as a “complaint.” Rather, the employer think the manager was just carrying out his or her duties. Therefore, when determining whether an employee has “filed any complaint,” the employee’s role as a manager often is an important contextual element.

According the Ninth Circuit:

The employee’s job title and responsibilities—in particular, whether he or she is a manager—form an important part of that “context.” Generally speaking, managers are in a different position vis-a-vis the employer than are other employees because (as relevant here) their employer expects them to voice work-related concerns and to suggest changes in policy to their superiors. That may be particularly true with respect to upper-level managers who are responsible for ensuring compliance with the FLSA.

The Ninth Circuit held that a complaining employee’s position as a manager is an important part of the “context” that the fact-finder must consider, and a jury reasonably could find that Plaintiff, a managerial employee, filed such a complaint. Because Kasten requires consideration of the content and context of an alleged FLSA complaint, the question of fair notice must be resolved on a case-by-case basis. An employee’s managerial position is only one consideration.

The court declined to formulate or adopt a special bright-line rule to apply when considering whether a manager has “filed any complaint” within the meaning of the FLSA.

Even if an employee is responsible for reporting violations of the law to the employer, such reports can constitute “filing a complaint,” and serve as the basis for a retaliation complaint.  Employers must carefully consider a number of factors before terminating an employee (even and at-will employee).  Employers may need to take particular care when terminating HR employees or other managers whose job requires them to report violations of the law.

Original article by Robert E. Nuddleman of Nuddleman Law Firm, P.C.

Feel free to suggest topics for the blog. We are happy to consider topics pertaining to general points of Labor and Employment Law, but we cannot answer questions about specific situations or provide legal advice. If you desire legal advice, you should contact an attorney.

Your use of this blog does not create an attorney-client relationship between you and Nuddleman Law Firm, P.C. The use of the Internet or this blog for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be posted in this blog and Nuddleman Law Firm, P.C. cannot guarantee the confidentiality of anything posted to this blog.

The Nuddleman Law Firm, P.C. represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Pleasanton, Oakland, San Ramon, Hayward, Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.

Home Care Companions Are Entitled to Overtime Under the FLSA

A D.C. Court of Appeals confirms that home care companions are entitled to overtime under the FLSA.  The appellate court confirmed that home care agencies and families using caregivers must pay overtime unless the employee meets the narrow “companion” definition.  The new regulations gained a lot of press in late 2014 and early 2015 when the regulations were set to go into effect.  A D.C. Circuit court judge held the provisions invalid, and stayed implementation of the new regulations.  The Department of Labor appealed, and many have been waiting to see what the appellate court will do.

Home care companions are entitled to overtime under the FLSA

The appellate court issued its decision in Home Care Association of America, et al. v. David Weil on August 21, 2015.  The appellate court disagreed with the lower court’s analysis, and found the regulations enforceable.  What does this mean for California employers (at least until the case is appealed to the Supreme Court)?

California and federal rules are different

The federal companion regulations mark one of the first instances where the federal wage and hour laws are more strict than California’s wage and hour laws.  Under California law, caregivers–which California usually calls personal attendants–are only entitled to overtime when they work more than 9 hours in a day or more than 45 hours in a week.  Those same home care companions are entitled to overtime under the FLSA after working 40 hours in a week.  This means many California caregivers will receive overtime after 9 hours in a day or after 40 hours in a week.

The definition of companion is also more limited than California’s personal attendant exemption.  Federal companions cannot spend more than 20% of their time providing care (e.g., assisting with the activities of daily living).  Their primary job is limited to providing fellowship and protection.  California’s personal attendants are allowed to spend 80% of their time providing care, fellowship and protection.

Another major difference between federal and state law is that, under the federal regulations, companions employed by third party care agencies can never be exempt from the FLSA.  California law does not differentiate between private employers and third-party employers.

If you or someone you know has questions about caregiver overtime rules in California, contact the Nuddleman Law Firm, P.C.  Robert Nuddleman assists families, care agencies and caregivers understand the law and ensure employees are paid correctly.

Original article by Robert E. Nuddleman of Nuddleman Law Firm, P.C.

Feel free to suggest topics for the blog. We are happy to consider topics pertaining to general points of Labor and Employment Law, but we cannot answer questions about specific situations or provide legal advice. If you desire legal advice, you should contact an attorney.

Your use of this blog does not create an attorney-client relationship between you and Nuddleman Law Firm, P.C. The use of the Internet or this blog for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be posted in this blog and Nuddleman Law Firm, P.C. cannot guarantee the confidentiality of anything posted to this blog.

The Nuddleman Law Firm, P.C. represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Pleasanton, Oakland, San Ramon, Hayward, Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.