FLSA UPDATE ON MOTOR CARRIER ACT, OUTSIDE SALES, AND HIGHLY COMPENSATED EMPLOYEES EXEMPTIONS

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1 FLSA UPDATE ON MOTOR CARRIER ACT, OUTSIDE SALES, AND HIGHLY COMPENSATED EMPLOYEES EXEMPTIONS 3rd Annual ABA CLE Meeting Conference Sam J. Smith Loren Donnell Burr & Smith, LLP November 4-7, 2009 This paper provides an update on legislative changes and recent case law impacting FLSA motor carrier act exemption, outside sales exemption, and highly compensated employees exemption. In particular, it examines the (1) the Motor Carrier Act exemption, Section 213(b)(1), as it relates to drivers, drivers helpers, loaders, and mechanics of vehicles that weigh 10,000 lbs or less, (2) the outside sales exemption, Section 213(a)(1), as it specifically relates to employees who promote goods such as pharmaceutical representatives, and (3) the highly compensated employee exemption, Section I. Motor Carrier Act Exemption On June 6, 2008, Congress passed the Safe, Accountable, Flexible, Efficient, Transportation Equity Act: A Legacy for Users - Technical Corrections Act ( SAFETEA-LU TCA ). This legislation amends the FLSA so that employees who are drivers, drivers helpers, loaders, and mechanics of vehicles weighing 10,000 lbs or less and perform tasks that affect the safety of vehicles operating in interstate commerce are no longer exempt from overtime protections because of Section 213(b)(1) of the FLSA, the Motor Carrier Act exemption. The following is a brief history leading to this legislation. A. Overview of Recent Legislation Affecting the FLSA s Motor Carrier Act Exemption Section 213(b)(1) of the FLSA, referred to as the Motor Carrier Act exemption, provides that the FLSA s maximum hour requirements do not apply to employees for whom the Secretary of Transportation has the power to establish qualifications and maximum hours of service under

2 the Motor Carrier Act of 1935 ( MCA ). The Secretary of Transportation pursuant to the MCA has jurisdiction over employees of motor carriers and motor private carriers, as defined by 49 U.S.C , who engage in performing tasks that affect safety of vehicles operating in interstate commerce. In practice, prior to legislative changes effective August 10, 2005, this exemption was used to deny overtime compensation to employees in cases in which the employees work had only a peripheral affect on interstate commerce. For example, computer technicians, satellite installation technicians, and customer repair technicians who drove in light weight trucks and cars (weighing less than 10,001 lbs) to make service calls to customers were found exempt from overtime protections of the FLSA because of the MCA exemption. See e.g., Friedrich v. U.S. Computer Services, 974 F.2d 409, (3rd Cir. 1992) (computer repair technicians), Turk v. Buffets, Inc., 940 F. Supp (N.D. Ill., 1996) (customer service technicians). On August 10, 2005, Congress enacted SAFETEA-LU. This Act amended the definition of motor carriers and motor private carriers in the MCA so that the Secretary of Transportation only had jurisdiction over commercial motor vehicles as defined by 49 U.S.C (emphasis added): A commercial motor vehicle is defined in 49 U.S.C (1) as a self-propelled or towed vehicle used on the highway in interstate commerce to transport passengers or property, if the vehicle (A) has a gross vehicle weight rating or gross vehicle weight of at least 10,001 pounds, whichever is greater; (B) is designed or used to transport more than 8 passengers (including the driver) for compensation; (C) is designed or used to transport more than 15 passengers, including the driver, and is not used to transport passengers for compensation; or (D) is used in transporting material found by the Secretary of Transportation to be hazardous under Section 5103 of this title [49 U.S.C. 5103] and transported in a quantity requiring placarding under regulations prescribed by the Secretary under Section 5103 [49 U.S.C. 5103]. 2

3 The purpose of the amendment was to eliminate the requirement for certain motor carriers to register with the Secretary of Transportation, but the result was that drivers, drivers helpers, loaders, and mechanics of vehicles weighing 10,000 lbs or less could no longer be denied overtime because of the MCA exemption. See, e.g., Dell Orfano v. Ikon Office Solutions, Inc., 2006 U.S. Dist. LEXIS 61563, * 5 (M.D. Ga., August 29, 2006) (finding it is clear that the motor carrier exemption has no application to any claims in this case after August 10, 2005 when [i]t is undisputed in this case that Plaintiff drove a vehicle that weighed substantially less than 10,001 pounds ); Musarra v. Digital Dish, Inc., 454 F. Supp. 2d 692, 701 (S.D. Ohio 2006), appeal pending on other grounds, (finding workers who were previously exempt under the old definition of motor private carrier are no longer exempt under the revised definition of motor private carrier if they travel in vehicles weighing less than 10,001 pounds); King v. Asset Appraisal Servs., Inc., 2006 U.S. Dist. LEXIS 94937, *11 (D. Neb. October 23, 2006) (supporting same view); O Neal v. Kilbourne Med. Labs., 2007 U.S. Dist. LEXIS 22620, **24-25 (E.D. Ky. March 28, 2007) (same); Kautsch v. Premier Comm ns, 502 F. Supp. 2d 1007, 1015 (W.D. Mo. 2007) (same); see also, DOL Field Assistance Bulletin confirming that as a result of passage of SAFETEA-LU, only employees engaged in transportation involving commercial motor vehicles come within scope of section 213(b)(1). Those who opposed the change, which increased the scope of employees covered by the FLSA s overtime pay requirements, argued that limiting the Secretary of Transportation s jurisdiction by altering the definition of motor carrier and motor private carriers was an unintended result. In response, on June 6, 2008, Congress passed the SAFETEA-LU TCA, which (1) reinstated the Secretary of Transportation s jurisdiction over all motor carriers and motor private carriers by restoring the definition to its pre-safetea-lu state (Section 305), 3

4 (2) extended overtime protections of the FLSA to covered employees notwithstanding the MCA exemption (Section 306(a)), i.e., as drivers, drivers helpers, loaders, or mechanics whose work affects the safety of operation of motor vehicles weighing 10,000 pounds or less or who perform duties on such vehicles, 1 and (3) created a safe harbor of one-year from August 10, 2005 to August 9, 2006 for employers who did not have actual knowledge of the change of law requiring them to pay certain employees overtime compensation (Section 306(b)). Attached is a chart that plots the legislative changes related to the MCA exemption from prior to August 10, 2005 to the present day. B. Case Law Interpreting the SAFETEA-LU Technical Corrections Act of 2008 Section 305 of the SAFETEA-LU TCA, which restored the pre-safetea-lu definition of motor carrier, is not retroactive. In Vidinliev v. Carey International, 581 F. Supp. 2d 1281 (N.D. Ga. 2008), the defendant argued that Section 305 of the SAFETEA-LU TCA, which reinstated the Secretary of Transportation s jurisdiction over all motor carriers and motor private carriers, including those that weigh 10,000 lbs or less, should be applied retroactively to August 10, 2005, the date the SAFETEA-LU was enacted. The defendants argued that pursuant to Section 121, titled Effective Date, which provides that [e]xcept as otherwise provided in this Act... this Act and the amendments made by this Act take effect on the date of enactment. Congress clearly and unambiguously intended Section 305 be applied retroactively to the date of the SAFETEA-LU s enactment. The court disagreed. First, the court recognized the demanding standard for a statute to apply retroactively. Id. at Looking to Supreme 1 See, 306(c)(1-3). Excluded from the definition of covered employee are employees whose work involves vehicles designed or used to transport more than 8 passengers (including the driver) for compensation; designed or used to transport more than 15 passengers, including the driver, and is not used to transport passengers for compensation; or used in transporting material found by the Secretary of Transportation to be hazardous under 49 U.S.C. section 5103 and transported in a quantity requiring placarding under regulations prescribed by the Secretary under section

5 Court precedent, the court stated, Congress may have wanted section 305 of the Technical Corrections Act to apply retroactively, but it failed to demonstrate that intent in terms so clear and so unambiguous that it could sustain only one interpretation. Id. at Second, the court found that Section 305 is not an amendment to the SAFETEA-LU, but an amendment to the ICC Termination Act which affects the scope of the MCA. Also, whereas other provisions throughout the SAFETEA-LU TCA expressly indicate when a provision is an amendment to the SAFETEA-LU, Section 305 does not expressly state that it is an amendment to the SAFETEA- LU. Third, the court found that if arguendo, Section 305 is an amendment, Section 306 s limitation on liability for a period of one-year following enactment of SAFETEA-LU for employers who were unaware of the change would be rendered superfluous if Section 305 was retroactive. The court stated, A legal defense is meaningless unless there is actual underlying liability. In this case, the one-year defense assumes that, as a result of the SAFETEA-LU definition, employers are liable for overtime pay to employees whose work primarily involves non-commercial motor vehicles. But that liability disappears if 305 applies retroactively. Id. at The court found that Section 305 should apply on the date the SAFETEA-LU TCA was enacted, June 6, Other courts have followed the reasoning in Vidinliev finding that Section 305 does not apply retroactively. See Benoit, et al. v. Tri-Wire Engineering Solutions, Inc., 612 F. Supp. 2d 84 (D. Mass. 2009); Loyd v. Ace Logistics, LLC, 2008 U.S. Dist. LEXIS (W.D. Mo. 2008). In Brooks v. Halsted Communication, LTD., 620 F. Supp. 2d 193 (D. Mass. 2009), the district court in Massachusetts recognized [g]iven the sharp clarify of the TCA s language, Defendants do not, and could not, dispute their obligation to pay FLSA overtime after June of 5

6 2008. The defendant instead registered itself with the U.S. Department of Transportation ( DOT ) and the Federal Motor Carrier Safety Administration and became a commercial motor carrier. The court couched the defendant s argument as follows: if an employer has at least one commercial vehicle that it uses regularly to transport people or property in interstate commerce it could vaccinate [itself] from the obligation to pay FLSA overtime to the entire body of its drivers. Id. at 199. The court found Tews v. Renzenberger, Inc., 592 F. Supp. 2d 1331 (D. Kan, 2009) and Vidinliev v. Carey International, 581 F. Supp. 2d 1281 (N.D. Ga. 2008) decisions persuasive. In both Tews and Vidinliev, the courts focused on the duties of the employee and whether those duties affected the safety of operations in interstate commerce and not simply whether an employer was a motor carrier. In Vidinliev the court rejected the defendants argument that the MCA applies if there are some commercial vehicles in the fleet because then a motor carrier could buy one commercial motor vehicle and thereafter all of its drivers would be exempt from overtime pay, no matter how remote or infrequent the possibility of an interstate trip in a commercial motor vehicle may be. Id. at (quoting Vidinliev, 581 F. Supp. 2d at 1285). In Hernandez, et al. v. Brink s Incorporated, 2009 U.S. Dist. LEXIS 2726 (S.D. Fla. Jan. 15, 2009), the court determined that the plaintiffs, who were drivers and drivers helpers, were covered by the MCA exemption even though during certain work weeks they may have worked with vehicles weighing 10,000 lbs or less. The court stated that when an employee has mixed duties using commercial and non-commercial vehicles, the MCA favors coverage. Therefore, the court determined as long as an employee s duties affect the safety of operation of vehicles covered by the Motor Carrier Act, the employee is covered by the motor carrier act exemption. Id. at *16. However, if the employee s principle duties involve tasks related to non-commercial 6

7 vehicles, and only sporadically assists with duties involving commercial vehicles, such duties would likely have no substantial direct effect on such safety of operation and would be so trivial, causal, and insignificant as to be de minimus [sic] and would not be MCA exempt. Id. (quoting 29 C.F.R (b)(3)) II. The Outside Sales Exemption The outside sales exemption covers employees: (1) Whose primary duty 2 is (i) making sales within the meaning of section 3(k) 3 of the Act, or (ii) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and (2) [w]ho is customarily and regularly engaged away from the employer s place or places of business in performing such primary duty. 29 C.F.R For the outside sales exemption to apply a plaintiff must sell in some sense. Gregory v. First Title of America, Inc., 555 F.3d 1300, 1308 (11th Cir. 2009). Recently, there have been numerous cases brought by pharmaceutical sales representatives seeking overtime compensation. In response, defendants regularly assert that pharmaceutical representatives are outside sales exempt. Courts have entered into lengthy discussions over whether pharmaceutical representatives make sales or obtain orders at all. 2 According to 29 C.F.R , primary duty is: [T]he principal, main, major or most important duty that the employee performs. Determination of an employee's primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee's job as a whole. Factors to consider when determining the primary duty of an employee include, but are not limited to, the relative importance of the exempt duties as compared with other types of duties; the amount of time spent performing exempt work; the employee's relative freedom from direct supervision; and the relationship between the employee's salary and the wages paid to other employees for the kind of nonexempt work performed by the employee U.S.C. 203(k) states: Sale or sell includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition. 29 CFR (b) indicates that [s]ales within the meaning of section 3(k) of the Act include transfer of title to tangible property, and in certain case, of tangible and valuable evidences of intangible property. 4 See also, 29 C.F.R (a) (emphasis added). Even though promotional work can be considered exempt sales work if it is actually performed incidental to and in conjunction with an employee's own outside sales or solicitations...., promotional work that is incidental to sales made, or to be made, by someone else is not exempt outside sale sales work. Id. 7

8 Courts that have found pharmaceutical representatives who make sales or obtain orders have looked to the characteristics of the industry. In Baum v. Astrazeneca LP, 605 F. Supp. 2d 669 (W.D. Pa. 2009), the district court engaged in a detailed discussion about the framework and theories behind the pharmaceutical industry to find that pharmaceutical sales representatives sell. The court determined that the statutory language does not require a final sale, completed and consummated. Id. at 680. Instead, where a pharmaceutical sales representative seeks to obtain a physician s professional commitment to prescribe certain pharmaceuticals, that representative was engaged in making sales. Id. at 681. Similarly in In re Novartis Wage & Hour Litig., 593 F. Supp. 2d 637, 649 (S.D.N.Y. 2009), the district court analyzed pharmaceutical representatives role in the sale of pharmaceuticals in the industry and stated it cannot ignore reality. The court found the purchase cycle commences with a prescription from physicians, who are therefore the appropriate target of the Reps sales efforts. When the physicians write a prescription for the [defendant s] product, then a sale can take place. Id. The court further stated that recognizing the realities of the pharmaceutical industry is not incompatible with engaging in a narrow reading of the exemption. Id. at 652. The court also found that any promotional work performed by pharmaceutical representatives was for the consummation of their own sales (thereby exempt work) and that incentive pay in the form of commissions was a strong indicator that in some sense they are making a sale. Id. at 651. Other courts have rejected the argument that the logical conclusion is that pharmaceutical representatives makes sales in the sense that sales are made in the pharmaceutical industry and have found that pharmaceutical representatives do not sell. See Kuzinski v. Schering Corporation, 604 F. Supp. 2d 385, 397 (D. Conn. 2009), interlocutory appeal granted, 614 F. Supp. 2d 247 (2009) and Ruggeri v. Boehringer Ingelheim 8

9 Pharmaceuticals, Inc., 2008 U.S. Dist. LEXIS 76034, **32-35 (D. Conn. Sept. 29, 2008). In Ruggeri and Kuzinski, the district courts found that pharmaceutical representatives visits to physicians offices do not culminate in contracts for prescriptions. In addition, the courts recognized that pharmaceutical representatives are barred by their employer and by law from selling pharmaceuticals. The courts determined that pharmaceutical representatives do not sell and are not outside sales exempt. Likewise, in Amendola v. Bristol-Myers Squibb Company, 558 F. Supp. 2d 459 (S.D.N.Y. 2008), the district court determined that the plaintiff, a pharmaceutical representative, did not make sales. The court stated that [i]nfluencing physicians to prescribe [the defendant s] drugs to patients or even obtaining non-binding commitments from the physicians to do so does not constitute a sale, exchange, contract to sell, consignment for sale[or] shipment for sale as these terms form 29 U.S.C. 203(k) are customarily understood. Id. at At least one court criticized this analysis for not addressing the obtaining orders clause of the exemption. 6 Although not in the pharmaceutical context, the Eleventh Circuit in Gregory v. First Title of America, Inc., 555 F.3d 1300 (11th Cir. 2009), rejected arguments similar to those made by plaintiffs in the pharmaceutical cases that plaintiffs did not sell. The plaintiff in Gregory was a marketing executive who argued that she was not exempt under the FLSA s outside sales exemption because she never consummated a sale, directly sold title insurance, nor was she licensed to sell title insurance. Instead, she argued that her job was to induce realtors, brokers, and lenders to refer her customers and that she was employed to promote services and stimulate sales. The court disagreed with the plaintiff s characterization of her work. The court 5 The court determined that at the present stage of litigation, in which the plaintiff moved for conditional certification and authorization of class notice, the defendant could not establish that the plaintiff was likely exempt under the outside sales exemption. However, the court denied plaintiff s motion for conditional certification and authorization of class notice because she was exempt under the administrative exemption. 6 See Gregory v. First Title of America, Inc., 555 F.3d 1300 (11th Cir. 2009). 9

10 determined the plaintiff s primary duty was to obtain orders for services. She obtained commitments to buy and was credited with the sale. She was hired for her prior sales experience, had her own book of business that she brought with her to the company, and was paid on a commission basis. The court determined that the plaintiff did not merely pave the way for other salesmen. Id. at Once she obtained an order, the sale was complete, no other salesmen was required to follow-up with the client afterwards. Accordingly, the Eleventh Circuit Court of Appeals affirmed the district court s grant of summary judgment in favor of the employer, finding the plaintiff exempt from the FLSA under the outside sales exemption. Also outside the pharmaceutical sales context, but instructive, is Burling v. Real Stone Source, LLC, 2009 U.S. Dist. LEXIS (D. Id. June 24, 2009), in which the district court determined that the plaintiff, whose job was to create a network of local dealers, educate the local dealers and contractors about the product, and bolster consumer desire to purchase the product from the local dealers did not actually make or obtain sales and therefore was not exempt under the outside sales exemption. The court found that the plaintiff did not have authority to approve prices or complete sales without his employer s approval. The plaintiff did not receive commitments from the local dealers directly, but submitted recommendations to the employer to approve the local dealer as a seller of their product. Moreover, the local dealer did not place orders with the plaintiff but instead purchased product from the employer directly. The court reasoned that the plaintiff s primary duty was to promote and market the defendant s products to create a network of local dealers and bolster consumer interest in the product, not sales. 10

11 III. Highly Compensated Employees Exemption For highly compensated employees, whose total compensation, including commission and other non-discretionary compensation, is more than $100,000 during a 52 week-period, there is a strong indicator of exempt status. See 29 C.F.R (c). Total compensation must be at least $455 per week paid on a salary or fee basis. 29 CFR (b)(1). To meet the exemption an employer may make one final payment sufficient to satisfy the $100,000 compensation level during the last pay period or within one month after the end of the 52-week period. 29 C.F.R (b)(2). An employee is exempt as a highly compensated employee under the FLSA if their total annual compensation is at least $100,000 and they customarily and regularly perform any one or more of the exempt duties or responsibilities of an executive, administrative, or professional employee. 29 C.F.R (a); see In re Novartis Wage & Hour Litig., 593 F. Supp. 2d 637, 646 (S.D.N.Y. 2009) ( Employees who earn at least $100,000 are exempt from the FLSA's overtime requirement if they perform at least one exempt administrative duty with some degree of regularity. ). Bullard v. Babcock & Wilcox Tech. Servs. Pantex, L.L.C., 2009 U.S. Dist. LEXIS 50906, (N.D. Tex. June 17, 2009) is an anomaly in that the court found plaintiffs would not be exempt even if they were highly compensated employees. However, practitioners should be aware that not all states incorporate the FLSA s highly compensated employee exemption into their state wage and hour prohibitions. For example, Pennsylvania Statutes do not incorporate the FLSA by reference nor does it exempt highly compensated employees from overtime compensation in its statutes. See Pa. Stat

12 Statute Prior to August 10, 2005 August 10, August 9, U.S.C. 213(b)(1) 49 U.S.C (b) 49 U.S.C (b) Maximum hour requirements. The provisions of section 7 [29 USCS 207] shall not apply with respect to--(1) any employee with respect to whom the Secretary of Transportation has power to establish qualifications and maximum hours of service pursuant to the provisions of section 204 of the Motor Carrier Act, 1935 [49 USCS 31502]; (b) Motor carrier and private motor carrier requirements. The Secretary of Transportation may prescribe requirements for--(1) qualifications and maximum hours of service of employees of, and safety of operation and equipment of, a motor carrier; and (2) qualifications and maximum hours of service of employees of, and standards of equipment of, a motor private carrier, when needed to promote safety of operation. (14) Motor carrier. The term "motor carrier" means a person providing motor vehicle transportation for compensation. (15) Motor private carrier. The term "motor private carrier" means a person, other than a motor carrier, transporting property by motor vehicle when--(a) the transportation is as provided in section of this title [49 USCS 13501];(B) the person is the owner, lessee, or bailee of the property being transported; and (C) the property is being transported for sale, lease, rent, or bailment or to further a commercial enterprise. SAME August 10, 2006 to June 5, 2008 SAME SAME SAME SAME (14) Motor carrier. The term "motor carrier" means a person providing transportation for compensation by commercial motor vehicle, as defined in Section 31132(1) of this title. (15) Motor private carrier. The term "motor private carrier" means a person, other than a motor carrier, transporting property by commercial motor vehicle, as defined in Section 31132(1) of this title when--(a) the transportation is as provided in section of this title [49 USCS 13501];(B) the person is the owner, lessee, or bailee of the property being transported; and (C) the property is being transported for sale, lease, rent, or bailment or to further a commercial enterprise. SAME June 6, ? SAME - But See Section 306 of SAFETEA- LU Technical Corrections Act of 2008 (14) Motor carrier. The term "motor carrier" means a person providing motor vehicle transportation for compensation. (15) Motor private carrier. The term "motor private carrier" means a person, other than a motor carrier, transporting property by motor vehicle when--(a) the transportation is as provided in section of this title [49 USCS 13501];(B) the person is the owner, lessee, or bailee of the property being transported; and (C) the property is being transported for sale, lease, rent, or bailment or to further a commercial enterprise. 12

13 49 U.S.C (1) Not Applicable (1) "commercial motor vehicle" means a self-propelled or towed vehicle used on the highways in interstate commerce to transport passengers or property, if the vehicle--(a) has a gross vehicle weight rating or gross vehicle weight of at least 10,001 pounds, whichever is greater; (B) is designed or used to transport more than 8 passengers (including the driver) for compensation; (C) is designed or used to transport more than 15 passengers, including the driver, and is not used to transport passengers for compensation; or (D) is used in transporting material found by the Secretary of Transportation to be hazardous under section 5103 of this title [49 USCS 5103] and transported in a quantity requiring placarding under regulations prescribed by the Secretary under section 5103 [49 USCS 5103]. SAME SAME Section 306 of SAFETEA-LU Technical Corrections Act of Limit on Section 213(b)(1) Not Applicable Not Applicable Not Applicable "(a) Applicability following this Act. Beginning on the date of enactment of this Act, section 7 of the Fair Labor Standards Act of 1938 (29 U.S.C. 207) shall apply to a covered employee notwithstanding section 13(b)(1) of that Act (29 U.S.C. 213(b)(1)). Section 306 of SAFETEA-LU Technical Corrections Act of Definition of Covered Employee Not Applicable Not Applicable Not Applicable covered employee' means an individual--(1) who is employed by a motor carrier or motor private carrier (as such terms are defined by section of title 49, United States Code [49 USCS 13102], as amended by section 305); (2) whose work, in whole or in part, is defined--(a) as that of a driver, driver's helper, loader, or mechanic; and (B) as affecting the safety of operation of motor vehicles weighing 10,000 pounds or less in transportation on public highways in interstate or foreign commerce, except vehicles--(i) designed or used to transport more than 8 passengers (including the driver) for compensation; (ii) designed or used to transport more than 15 passengers (including the driver) and not used to transport passengers for compensation; or (iii) used in transporting material found by the Secretary of Transportation to be hazardous under section 5103 of title 49, United States Code, and transported in a quantity requiring placarding under regulations prescribed by the Secretary under section 5103 of title 49, United States Code; and (3) who performs duties on motor vehicles weighing 10,000 pounds or less. 13

14 Section 306 of SAFETEA-LU Technical Corrections Act of Limitation on Liability Not Applicable (b) Liability limitation following SAFETEA-LU. (1) Limitation on liability. An employer shall not be liable for a violation of section 7 of the Fair Labor Standards Act of 1938 (29 U.S.C. 207) with respect to a covered employee if-- (A) the violation occurred in the 1-year period beginning on August 10, 2005; and (B) as of the date of the violation, the employer did not have actual knowledge that the employer was subject to the requirements of such section with respect to the covered employee. (2) Actions to recover amounts previously paid. Nothing in paragraph (1) shall be construed to establish a cause of action for an employer to recover amounts paid before the date of enactment of this Act in settlement of, in compromise of, or pursuant to a judgment rendered regarding a claim or potential claim based on an alleged or proven violation of section 7 of the Fair Labor Standards Act of 1938 (29 U.S.C. 207) occurring in the 1-year period referred to in paragraph (1)(A) with respect to a covered employee. Not Applicable Not Applicable 14