Wage-Hour Update: Class Actions on the Rise
March 2006
The pace of change of wage-hour and wage payment
laws continues to accelerate. Most directly affecting the home care industry
are challenges to the companionship exemption. These claims are susceptible
to class action status, presenting substantial and costly risks.
by Paul
J. Siegel, Esq.
Jackson Lewis
LLP
Coke v. Long Island Care at Home, Ltd., involved
an overtime claim by a companion providing home care through a home care agency.
She asserted that the "home care" exemption set forth in Section 213 of the
Fair Labor Standards Act was not applicable because she was not employed by
the client-patient or family. The employer sought dismissal of the action. The
U.S. District Court for the Eastern District of New York dismissed the claim,
holding that companions are not entitled to overtime pay under the Fair Labor
Standards Act (and, as such, under New York law). Dismissal was appropriate
because the U.S. Department of Labor's regulations define the scope of the companionship
exemption to include employees of home care agencies and companions employed directly by the
person receiving the care (or his or her family).
To the surprise of many, the Second Circuit Court of Appeals reversed that
order of dismissal and invalidated the regulation extending the exemption to
agency-paid companions. The Second Circuit's ruling placed home care agencies
at risk of liability for overtime wages at the rate of time and one-half of
the regular rate of pay (not, for example,
time and one-half of the minimum wage as required by New York law). Thus, a
companion earning $10 per hour would be entitled to overtime at the rate of
$15/hour ($10 x 1½), rather than time and one-half of the minimum wage ($6.75
x 1½) for overtime hours, which would be due under New York law.
The Supreme Court vacated the Second Circuit's ruling in Coke and directed the Second Circuit Court of
Appeals to reconsider its decision in Coke in
light of the Department of Labor's position that the exemption should be applied
to companions employed by home care agencies. Attached to the Supreme Court's
brief ruling was the Department of Labor's Wage and Hour Advisory Memorandum
2005-1 (12/01/05), which is consistent with the position enunciated by the Department
of Labor promptly after the Coke ruling was rendered.
In its post-Coke opinion letter, the U.S. Department
of Labor reiterated that the companionship exemption should not be curtailed.
The Deputy Administrator wrote in pertinent part that:
- The Division has not changed this regulation or its interpretation thereof
as a result of the circuit court's opinion in Coke
v. Long Island Care at Home, 376 F.3d 118 (2nd Cir. 2004). Therefore,
it is still our opinion that employees engaged in companionship services,
as defined in 29 CFR 552.6, who are employed by a third party are exempt
from the minimum wage and overtime requirements of the FLSA, and you may
continue to rely on the August 16, 2002 Opinion Letter signed by former
Administrator Tammy McCutchen (copy enclosed) for practices outside states
within the jurisdiction of the Second Circuit.
How the Second Circuit will rule on Coke is
uncertain. While the Department of Labor makes strong and clear arguments in
favor of the exemption, the Second Circuit already has rejected many of these
issues. As they should have done after Coke was
decided by the Second Circuit, home care agencies should evaluate their business
models in light of the possibility that the Second Circuit again will limit
the companionship exemption to bar its use by home care agencies.
Spread of Hours Work Day
Also of concern to employers is the recent decision of the U.S. District
Court for the Southern District of New York in Yang
v. ACBL Corp., which radically altered New York law with respect to the
spread of hours (or "10-hour" day) rule. As District Judge Sands ruled in Yang, when an employee's work day (from beginning
to end regardless of breaks) exceeds 10 hours, an extra hour must be paid at
the minimum wage. As of January 1, 2006, the minimum wage under New York law
increased to $6.75.
For many years, the New York State Department of Labor required only that
total gross pay was equal to or greater than the minimum wage for all hours
of work, including 1 additional hour for each work day of more than 10 hours.1 District Judge Sands rejected that interpretation of the 10-hour day rule, holding
that an extra hour of minimum wage is due, regardless of the employee's regular
hourly rate of pay or weekly gross pay. The Yang decision was not appealed to the Second Circuit. Whether the New York Department
of Labor will revisit this issue, and how it will enforce the provision following Yang, is uncertain.
Commission Plans
State laws strictly limit an employer's ability to make deductions from employees'
wages. For example, under New York law, deductions from wages for taxes and
other deductions are permitted solely if required by law or if made for the
benefit of the employee (e.g., insurance premiums, pension, 401k contributions,
or union dues); the law prohibits most other deductions. For example, requiring
employees to reimburse employers for case shortages or breakages by reducing
their salary to recover the loss are expressly forbidden. See N.Y. Lab. Law § 193(1); NYCRR 142.210.
To avoid a claim of unlawful wage deductions, employers often define "wages"
or "commissions" to include several types of deductions. For example, a commission
plan might state that an employee will earn a 6 percent commission on sales,
less the costs expended on entertainment and marketing incurred in obtaining
the sale. By defining wages to already include specified deductions, as opposed
to making deductions after the commissions are calculated, has an employer complied
with the antideduction rules? Not so says a recent decision from a federal court
in New York, further tightening the restrictions imposed by Labor Law Section
193.
In Pachter v. Bernard Hodes Group, Inc., No.
03 Civ. 10239 (S.D. N.Y. Aug. 25, 2005), the plaintiff, who worked as an account
representative, was compensated in the form of commissions based on billings
to clients. In defining the commission payment, the Company advised the sales
person that the percentage earned on billings would be reduced by various "Charges,"
including finance charges on clients' unpaid bills; errors made by the employee
when placing or purchasing advertising; half of any debt a client was unwilling
or unable to pay; a percentage of the salary of an assistant who worked for
her; and, miscellaneous costs for travel, entertainment, marketing, and out-of-pocket
expenses. The salesperson filed suit, claiming these deductions were improper
deductions from wages. The employer argued the deductions were proper because
the "wages" to which she was entitled consisted of the commissions less the
charges. There was no deduction from that figure. The court rejected the employer's
argument, noting that even if the employee consented to this definition of wages,
"to allow employer to prove an employment agreement permitting deductions from
commissions, other than those expressly permitted by Section 193, would permit
employers to do precisely what Section 193 forbids them to do."
In sum, any deduction from an employee's wages must be carefully scrutinized
for compliance with Section 193. Here, the employer could not escape liability
under Section 193 by deducting from the commissions, expenses incurred in making
the sale. Given this decision, a more prudent approach to avoid Section 193
liability might be simply to give the employee a lower commission rate. While
it may be more difficult to attract new employees without the lure of a high
commission rate that is subject to deductions, the employer could market the
position by focusing on the no-charge resources it makes available to employees
to generate the commission (which previously had been deducted from the commission)
and the net result for the sales person.
This article is provided for informational purposes only.
It is not intended as legal advice nor does it create an attorney/client relationship
between Jackson Lewis LLP and any readers or recipients. Readers should consult
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