Labor: Employment Litigation in Three Major Industries

In recent years, many companies in the pharmaceutical, financial services and retail industries, to name a few, have been tagged with the same type of wage-hour and discrimination class actions and governmental investigations.

Financial services industry: For years, the financial services industry in general and brokerage companies in particular have struggled with discrimination and harassment claims by women and other minorities asserting that these companies operated with an "old boys" network and tolerated "fraternity house" behavior by its white male employees.

Earlier this year, another financial services industry attack may have been born. The Dodd-Frank Wall Street Reform and Consumer Protection Act expanded whistleblower protections to a wide range of financial services industry employees for the first time. It also allowed employees of privately held companies that were not previously covered by the Sarbanes-Oxley Act to bring whistleblower claims to federal court and bypass the administrative process and most companies' internal complaint resolution procedures.

Retail industry: In recent years, large retailers have been hit with a rash of wage and hour lawsuits by store managers in which the predominant claim is that they spent most of their time waiting on customers, stocking shelves and performing nonexempt duties, and/or that their ability to exercise independent judgment and discretion were curtailed or nonexistent because their activates were controlled by higher-ups in their regions and divisions.

In an apparent effort to combat this wave of litigation by retail store managers, Dollar Tree Inc. had its store managers state on their payroll certification forms each pay period whether or not they had spent the majority of their time performing managerial tasks. This did not stop 718 managers who worked at 273 Dollar Tree retail stores in California from bringing a class action that they were misclassified as exempt employees. However, on September 9, 2010, a federal district court judge used the answers on the payroll certification forms to limit the class only to managers who answered "no" on the forms.

Pharmaceutical industry: Given the large number of pharmaceutical sales reps, their substantial compensation and their somewhat unique status in the prescription drug-selling process, the pharmaceutical industry's almost universal classification of these sales reps as exempt employees has been repeatedly challenged.

The attacks on the exempt status of the pharmaceutical industry's sales reps have implications and lessons for employers in other industries.

o When "outside sales" employees in any industry do not actually consummate or close sales (such as those who merely recommend or promote products and services that are actually sold by others), they may not qualify as exempt under the FLSA's outside-sales exemption.

o When service techs, on-site customer-consulting employees and other employees merely make recommendations, promote or market products and services using designated scripts or presentations, or simply exercise "skill in applying well-established techniques, procedures, or specific standards," they may need to be classified as nonexempt employees.

Just because your company or others in the same industry have not been subjected to extensive employment litigation, do not think that you are immune. Here are some strategies to avoid complacency:

Think like a plaintiff: Try to think like a plaintiffs attorney or a governmental investigator and anticipate how they might attack your company. If competitors in your industry have been sued, do not revel in their misfortune; realize that your company may be the next target. If the Department of Labor or some other governmental regulatory agency has taken a position that is adverse to your company's policies or practice, ignoring the government's stance may result in harsher penalties if you are ever sued or audited.

Don't rely on industry custom: As all of the above examples illustrate, just because others in your industry pay or classify employees in a particular way does not mean the industry-wide practice will pass muster if challenged.

Do the right thing: Sometimes, the hardest decision for organizations in any industry is how to fix an employment problem once it becomes apparent. Often, the "fix" may involve paying substantial back pay, even though it may be uncertain whether the company will ever be sued, much less incur liability. Even forward-looking fixes may involve significant changes in policies, procedures and compensation, but both strategies can avoid litigation, leading to long-term benefits.

Read Paul Starkman's previous column. Read Paul Starkman's next column.

Contributing Author

Paul E. Starkman

Paul Starkman is one of the leaders of the labor and employment law practice group at Pedersen & Houpt.

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