Some retailers utilize on-call shift scheduling in order to ensure flexibility and control labor costs. Indeed, it is an important tool in industries where the demand for labor is unpredictable. For instance, some retailers do not know when a day will be busy enough and whether they will need additional labor to handle increased workload. To deal with this problem, some retailers tell their managers to schedule some employees for “on-call” shifts where they are asked to check in to learn whether their services are needed on a certain day.

In addition to making specific requests for documents and information, the Attorney General’s office cited 12 NYCRR § 142-2.3 in its letter, which governs when “call-in” pay is to be paid to New York employees. Interestingly, New York’s call-in pay regulation makes no mention of on-call shifts, and the practice is not per se unlawful under any other law or regulation. Instead, the regulation states that “[a]n employee who by request or permission of the employer reports for work on any day shall be paid for at least four hours, or the number of hours in the regularly scheduled shift, whichever is less, at the basic minimum wage.”

It is unclear what the goal of the Attorney General’s office is in requesting documents and information from New York retailers. It is clear, however, that with this request, the Attorney General is keeping an eye on New York employers in the area of New York labor law. Retailers, as well as other New York employers, should take note and work with their counsel to navigate any similar inquiry that comes the office of the New York Attorney General.

In Ramon Alvarado, et al. v. Corporate Cleaning Services, Inc., et al., No. 13-3818 (7th Cir. April 1, 2015), the plaintiffs were 24 window washers employed currently or formerly by Corporate Cleaning Services (“CCS”), one of Chicago’s largest providers of window-washing services to high-rises. They filed a lawsuit against CCS for failure to pay overtime wages under the FLSA, alleging they worked in excess of 40 hours in individual work weeks for CCS but were not paid at a rate of one and a half times their regular hourly rate of pay for all the time they worked in excess of 40 hours per week.

There is a commission-related exception to the FLSA that requires satisfaction of three conditions: (i) the worker’s regular pay exceeds one and a half times the federal minimum wage; (ii) more than half of the worker’s compensation represents commissions on goods or services; and (iii) the worker must be employed by a retail or service establishment. See 29 U.S.C. § 207(i). CCS conceded that it did not pay the window washers for work in excess of 40 hours a week; and the window washers conceded that their regular pay exceeds one and a half times the federal minimum wage (under the exception’s first required condition).

Examining the “commission” issue, Circuit Judge Richard Posner reviewed certain facts, including CCS’s assignment of “points” to jobs based on complexity and the number of hours that the window washers took to complete the job, as well as how each worker usually received the same amount of points allocated to the job. CCS then used the number of points assigned to the job to determine the amount it charged the customer and often made price adjustments for the costs of permits, equipment rentals, competition, or the desire to maintain good relations with customers. Because the plaintiffs’ compensation was based on the points assigned to each job on which they worked, their compensation would vary from job to job.

Posner analyzed the differences between two compensation systems - commission based and piecework based compensation. In a piece-rate system the worker is paid by the item produced by him; but in a commission system, a worker is paid by the sale. Varying compensation does not invalidate the compensation system as a commission system. See Yi v. Sterling Collision Centers, Inc., 480 F.3d 505, 509-10 (7th Cir. 2007). Another important consideration is that commission-compensated work involves irregular hours of work. See Id. at 510. Furthermore, if sales are made at a uniform rate, so that the hours worked-to-pay ratio is constant, then an employee who is paid by the sale is not a commission worker. Piece-rate workers are not within the FLSA commission exception because they keep producing even when no sale is imminent – the hours-to-output tend to be constant.

Here, however, the plaintiffs could only work when CCS was hired (or sold its services), and therefore, their employment was irregular because of the peculiar conditions of the window-washing business. In addition, Posner listed other reasons why their work was irregular, such as: weather, unable to amass an inventory, delays due to other work being done on the buildings or failure to notify residents, slowdown in demand, and, oddly enough, peregrine falcon attacks. Posner concluded that the plaintiffs’ compensation represented commission because they were paid only if there had been a sale of window washing services.

With respect to whether CCS was a “retail or service” establishment, Posner stated that the terms are not defined in the statute, and concluded that the CCS met the “retail or service establishment” requirement under the FLSA (section 207(i)), and was probably best described as a “retail services establishment.” The Court found that CCS was a retailer as opposed to a wholesaler, and that it sold its services by the building – which is a unit of sale recognized in the industry. Posner then discredited the plaintiffs’ and The Department of Labor’s (which filed an amicus curiae brief), attempts to establish that CCS “lacks a retail concept” and that the building managers “resell” CCS’s services to the occupants. According to the Department of Labor regulation, 29 C.F.R. § 779.317, although it is impossible to give a complete list of the types of establishments that have no “retail concept,” it is possible to give a partial list of establishments to which the retail concept does not apply. The partial list does not reference window washers. Moreover, The Department of Labor cited to definitions from regulations that come from a section of the statute that pertains to the intrastate business exemption – which has no connection to this case.

This opinion is a management-side victory and will likely be cited by FLSA defendants in industries whose business models are substantially similar to CCS’s, including those with commission-based compensation systems and employees who work irregular hours. Companies and their counsel, however, are well advised to carefully review the regulations listing the establishments to which the “retail concept” does not apply.

The complaint in the initial suit accused Payless of purposefully misclassifying store leaders and managers as exempt, despite requiring them to work overtime without being paid a premium and to perform non-managerial duties such as operating cash registers, cleaning, answering phones and greeting customers.

Payless is simply another example of how employers can fall victim to Fair Labor Standards Act claims by failing to properly classify their employees and pay due overtime wages, even after having ample opportunity to do so. Indeed, this wasn’t the first suit of its kind for Payless. In 2006, managerial employees filed suit in Mississippi alleging the retailer consistently required they work 60 to 90 hour weeks doing non-managerial tasks without overtime. The parties ultimately agreed to a confidential settlement.

Payless isn’t alone – earlier this month grocery chain Publix Super Markets Inc., which operates over 1,000 supermarkets in six states, also agreed to pay a whopping $30 million to settle a 2012 collective action filed in Tennessee federal court, alleging the retailer failed to pay the required amount of overtime to department managers. Publix, too, denied all liability but settled to avoid the “burden, expense, and uncertainty” of continuing litigation.

Employers everywhere would be well-advised to seek legal counsel to ensure their employees are properly classified and properly paid all due overtime – or risk paying much more in litigation and potential settlement costs in the long run.

The craft supply retailer Michaels Stores, Inc. was sued with a proposed class action in January alleging that the company’s background check notices to prospective employees are inadequate. The lawsuit specifically alleges that Michaels fails to supply employees with a separate document explaining that the company may obtain consumer reports on them, required by the FCRA and U.S. Federal Trade Commission regulations.

This lawsuit represents a trend of litigation against employers, retailers in particular, for violations of background check laws. Further, these lawsuits have been coming in the form of class actions which can result in large settlements if the allegations have a basis. Dollar General Corp. and Publix Super Markets Inc. recently agreed to pay nearly $11 million to settle similar class actions and Whole Foods Market Group, Inc. has also been sued recently.

Employers large and small should take the time to analyze their background check procedures to ensure compliance with FCRA and related guidelines now to help avoid potentially large liabilities. It is one of those simple internal reviews that can save the company a lot of money and stress later.

Earlier this month, the NLRB rejected Macy’s argument that a cosmetics bargaining unit was too narrow and ordered the retailer to bargain with the unit. Macy’s had tried to argue that an entire store bargaining unit was more appropriate and that the cosmetics union was an inappropriate subset of the store. Macy’s is appealing the Board’s decision to the Fifth Circuit.

This decision by the Board is a result of its 2011 decision in Specialty Healthcare which heightened the standard for employers challenging narrow collective bargaining units. In that decision, which was affirmed by the Sixth Circuit, the Board held that when an employer is challenging a proposed bargaining unit on the grounds that it improperly excludes certain employees, the employer must show that the excluded workers share “an overwhelming community of interest” with those in the proposed unit.

Employers, particularly brick and mortar department stores, will want to think twice before challenging smaller bargaining units in their stores – at least if the challenge is that they’re just too small. The NLRB hasn’t found any unit to be “too small,” at least not yet.

Whitlow, who interned at Burberry in the summer of 2012, claims she worked 32 hour weeks doing administrative tasks like washing dishes and serving pastries at meetings, which she claims amounted to free labor. Her complaint alleges that the work she did benefitted Burberry and were it not for her and other interns, the company would have had to hire and pay another employee to perform her tasks.

Like Burberry, this past month alone sports marketing giant IMG Worldwide LLC and Kenneth Cole Productions Inc. were both hit with unpaid intern class actions. And these claims can surely get expensive. Just ask Madison Square Garden, which settled an unpaid intern class action for $795,000 back in November.

While washing dishes and serving pastries may at one time have been considered to be the price of admission to certain industries, the slew of internship lawsuits we have seen indicates that is no longer the case. Any employer contemplating an internship program (and it should be a formal program) must ensure, among other things, that the internship offers education value and training, that the internship experience is for the benefit of the intern and that the intern does not displace regular employees.

The Second Circuit is hearing arguments today in cases brought by former interns at Fox Searchlight Pictures and Hearst Corporation. The ruling in that case should provide greater certainty for employers in this area. In the meantime, Kelley Drye will continue monitoring and updating you of further developments in this area.

Blog co-editors Barbara Hoey and Mark Konkel will be speaking at IN FASHION, Kelley Drye’s Fashion & Retail Law Summit, on January 22^nd. The event, taking place at the Affinia Manhattan, will feature discussion on the latest legal and regulatory issues facing executives and in-house counsel in the fashion and retail sectors. Speakers include Roger Farah, co-Chief Executive Officer at Tory Burch LLC, as well as executives from Ralph Lauren, ANN Inc. and the United States Fashion Industry Association, among others.

Barbara and Mark’s session is titled “Watching the Clock: Wage and Hour Risks in the Fashion and Retail Industry.” For more information, click here or email [email protected].