Tuesday, September 14, 2010

Federal Court Rejects Employer's Claim of "Rolling" FMLA Policy and Allows Employee's FMLA Suit To Go To Trial

In a recent decision handed down in the case of MacFarland v. Ivy Hill, No.: 09-cv-2246 (E.D. Pa. 7/28/2010), the U.S. District Court for the Eastern District of Pennsylvania denied an employer's motion for summary judgment in a claim brought against it by a former employee who alleged that he was terminated in violation of his leave rights under the Family Medical Leave Act (FMLA). The issue before the court was whether the employee's FMLA leave expired on April 8, 2008, or sometime thereafter.

Plaintiff, Alan MacFarland, was an employee of Ivy Hill, who was eligible for FMLA leave. On October 23, 2007 Mr. MacFarland took two weeks of FMLA leave through November 7, 2007. In January of 2008, Mr. MacFarland suffered a stroke and requested FMLA leave, which listed his anticipated date of return as April 8, 2008. Plaintiff later testified that he told Ivy Hill that his April 8, 2008 doctor's appointment in which he was to recieve clearance to return to work, had been rescheduled for April 16, 2008. Plaintiff also testified that he was never informed by Ivy Hill that he would be terminated if he did not return to work by April 8, nor was he ever told by Ivy Hill that he was not eligible for additional FMLA leave past April 19, 2008.

Mr. MacFarland did not report to work on April 8, 2008, and on April 10, Ivy Hill terminated Mr. MacFarland for failing to do so. Mr. MacFarland sued, alleging improper interference with his FMLA leave rights. Specifically, Mr. MacFarland argued that he was entitled to 12 weeks of FMLA leave beginning in January of 2008, i.e., 12 weeks per calendar year, and as such, the FMLA leave following his stroke did not expire until well after April 8, 2010.

Ivy Hill argued that it employed a "rolling" FMLA period for the company, which did not run on a calendar-year basis, but provided that an employee's available FMLA leave would be counted backwards from the first date the employee took approved FMLA leave. So in this case, for example, Ivy Hill maintained that Mr. MacFarland's 12-week FMLA allowance was properly calculated beginning with his two-week FMLA leave from October 23 through November 7, which left Mr. MacFarland with 10 weeks of FMLA leave remaining when he went out in January, 2008. Therefore, his FMLA leave for his stroke would have expired on April 8, 2010.

The Court rejected Ivy Hill's argument, finding that despite its claims, Ivy Hill had failed to introduce any evidence establishing its official policy concerning FMLA leave time. While it appeared that Ivy Hill had employed a "rolling" method of calculating Mr. MacFarland's FMLA leave time, it did not produce "any evidence that demonstrated that this policy was officially chosen or that it was the policy that was applied to all employees." The Court noted that Mr. MacFarland also testified that he was never specifically informed by Ivy Hill that his FMLA leave would expire on April 8, nor that his leave could not be extended. In denying Ivy Hill's motion for summary judgment, the Court noted that while an employer is free to determine the twelve-month period in which its employees are eligible for their 12 weeks of FMLA leave, if the employer fails to make a selection, the method of calculation that is most favorable to the employees will be applied.

Therefore, an employer needs to make sure that if it chooses to select the method of calculation for eligible employees' FMLA leave, its selection needs to be properly documented and applicable to all employees. An employer should also make sure that it informs all of its employees of the selection and get employees to acknowledge that they have been so informed of the selection.

Tuesday, September 7, 2010

Third Circuit Clarifies Definition Of "Commissions" Under FLSA

In Parker v. NutriSystem, Inc., the Third Circuit was asked to rule on the validity of the compensation plan offered by NutriSystem to its call-center employees. In holding that NutriSystem's employee compensation plan did not violate the Fair Labor Standards Act (FLSA), the Court clarified what constitutes a "commission" for purposes of the FLSA.

NutriSystem's plan compensated its call-center employees using one of two methods: (1) an hourly rate of $10/hour with overtime work compensated at $15/hour; or (2) payment of a flat-rate for each NutriSystem meal plan sold to consumers, which varied from $18 to $40 depending upon the time of day the meal plan was sold and whether such a sale was completed by an incoming or outgoing call. The majority of the employees in NutriSystem's call center were compensated using this second method.

The FLSA provides for an exception for employees in the retail or service industries whose compensation is more than one and one-half times the federal minimum wage and at least half of which represents commissions on goods or services. The plaintiffs, NutriSystem call-center employees, filed suit against NutriSystem arguing that the "flat-rate" payment option described above violated the FLSA because it did not constitute a "commission." Specifically, the plaintiffs argued that in order to be a "commission" under the FLSA, payments received by employees must be based upon the final cost to the consumer. Since the flat rates under the NutriSystem plan were based upon the times of day the sales were completed and whether those sales were originated via incoming or outgoing calls, the payment method did not constitute "commissions."

The Third Circuit disagreed, and held that so long as flat-rate payments made to an employee based on sales are proportionally related to the charges passed on to the consumer, those payments may be considered "commissions" for purposes of the FLSA. The Court specifically refused to adopt a test that required a "commission" under the FLSA to be strictly based on a percentage of the end cost to the consumer.

In this case, the Court held that because NutriSystem's flat-rate plan constituted a "commission" under the FLSA because: (1) the payments available to call-center employees were proportionally related to the costs of the various meal plans charged to consumers; (2) the plan clearly made compensation under the plan contingent upon sales made by call-center employees;(3) under the public policy goals of the FLSA it was reasonable for NutriSystem to offer different commissions depending upon the time of the sale and whether the sale was the result of an incoming or outgoing call, because such a pay structure encouraged staff to take undesirable shifts and work harder on closing sales on outgoing calls; and (4) the purposes of the FLSA were not offended by NutriSystem's flat-rate plan, because the call-center employees at issue were not the lower-income employees the FLSA was enacted to protect, employees must meet certain goals in order to be eligible to earn higher payment rates, and working long hours in a call-center does not carry with it the same danger of fatigue, health risks or accidents that can occur to manual labor employees.

You can read the Court's full opinion here: http://www.ca3.uscourts.gov/opinarch/093545p.pdf