Wage and Hour Defense Blog

Wage and Hour Defense Blog

NLRB Alleges McDonald’s and Franchisees Are Joint-Employers

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By Steven M. Swirsky

On our Management Memo blog, my colleagues Adam Abrahms, Martin Stanberry, and I posted “NLRB Issues 13 Complaints Alleging McDonald’s and Franchisees Are Joint-Employers.”

The National Labor Relations Board continues to focus on the changes in the nature of the employer-employee relationship, and the question of what entity or entities are responsible to a company’s employees for compliance with the range of federal, state, and local employment laws, including wage payment and overtime laws.

The Board’s General Counsel has now taken another big step in his effort to broaden the definition of “employer,” issuing a series of 13 complaints alleging that McDonald’s shares responsibility for franchisees’ employees. At the same time, the Board is poised to answer the question of whether the long standing test that the NLRB has relied on for more than 30 years to determine joint employer status should be replaced with a broader definition, and if so what it should be.

Read our full post here.

Unusual Wage Payment Issue in 2015 for Many Employers: 27 Bi-Weekly Pay Periods, Not 26

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There is an unusual wage issue for 2015 that will affect many employers that pay exempt employees on a bi-weekly basis (rather than weekly, semi-monthly or monthly).

It is an issue that may have both financial and legal repercussions.

And it is an issue we suspect many employers had not noticed or considered.

With 52 weeks in a year, there normally are 26 bi-weekly pay periods in a calendar year.  In 2015, however, there will be 27 for many employers.

This oddity occurs every 11 years.  In short, it happens because 26 bi-weekly paychecks only cover 364 days in a year, not 365 (or 366 in Leap Years).  Those extra one or two “unaccounted for” days add up to create an additional pay period every 11 years.

The extra pay period is more than just an oddity.  It raises a dilemma for those employers that pay exempt employees on a bi-weekly basis – either pay employees more than intended, or face a possible wage payment claim.

If an employer were to pay exempt employees the same amount in each bi-weekly paycheck in 2015 as in 2014, it would effectively give each of those employees two additional weeks of pay in 2015.  Or, to put it another way, it would effectively give each employee a 3.846% raise for 2015.

By way of example, if an employer has agreed to pay an exempt employee a salary of $100,000 per year, it would have paid him or her $3,846 in each of 26 bi-weekly paychecks in 2014.  But if it pays the employee that same $3,846 in each of 27 bi-weekly pay periods in 2015, it would end up paying the employee $103,846 in 2015 – not the $100,000 salary it had agreed to pay.

And that would be true of every exempt employee paid in that manner.

As you can see, depending upon the number of exempt employees an employer has, this could have a substantial financial impact.  And it could create budgeting and cash flow issues for some employers whose payrolls could increase significantly and unexpectedly.

If, instead of keeping the amount of each paycheck the same as in 2014,  the employer were to reduce slightly the amount of each paycheck in 2015 – paying the employee discussed above $3,703 per paycheck rather than $3,846, such that his or her compensation in 2015 would total $100,000 — not only might there be morale issues, but there could be legal repercussions.

Depending on the amount of the resulting payment, the salary requirement for an employee’s exemption might no longer be met.  That would seem to be require an individual-by-individual analysis.

Just as importantly, it is possible that employees will claim that they have not been paid everything they are owed for work already performed or that their contracts have been breached, bringing wage theft claims in court or before a government agency.

At this time, there does not appear to be any case law, regulations or other guidance directly addressing this unique issue.  That is not entirely surprising as the last time this issue arose was in 2003, when the wage-hour climate was very different than it is now.  In the time since, we have seen massive wage-hour class actions, the passage of wage theft statutes, and a heightened focus on wage theft issues by government agencies.  As a result, any employer who choses to reduce exempt employees’ bi-weekly paychecks in 2015 to address this issue should be aware that such a decision may be challenged, perhaps even in a class action lawsuit.

In making this decision and assessing the risks, employers should start by looking at employees’ offer letters, contracts or other documents setting forth their compensation.  If they provide for a specific amount to be paid bi-weekly, then there would not appear to be any choice to be made – it would seem clear that the specified amount should be paid in each bi-weekly paycheck, even if there is an extra pay period in 2015.  But if the offer letter or contract provides instead for the salary to be paid on an annualized basis, the employer will then need to weigh the risks of the approaches discussed above, or perhaps consider switching to semi-monthly paychecks.

Supreme Court Update: Bar Is Lowered for Class Action Removal

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Our colleague Stuart M. Gerson at Epstein Becker Green wrote a new blog post that discusses the Supreme Court’s recent Dart decision: “Supreme Court Lowers the Bar for Class Action Removal.”

Following is an excerpt:

On December 15, 2014, the Supreme Court of the United States decided Dart Cherokee Basin Operating Co. v. Owens, a class action removal case.

 In short, the Dart case is welcome news to employers. Standards for removing a case from state to federal court have been an abiding point of concern for employers faced with “home town” class actions. In more recent times, this problem has become a point of interest to employers in health care and other industries that are beset by cybersecurity and data breach cases originating in state courts but calling for the application of federal privacy standards. Dart should help them substantially.

 Read the full post here.

Supreme Court Holds That Time Spent in Security Screening Is Not Compensable Time

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US Supreme CourtIn order to prevent employee theft, some employers require their employees to undergo security screenings before leaving the employers’ facilities. That is particularly so with employers involved in manufacturing and retail sales, who must be concerned with valuable merchandise being removed in bags, purses or jacket pockets.

Often in the context of high-stakes class actions and collective actions, parties have litigated whether time spent undergoing a security screening must be compensated under the Fair Labor Standards Act (“FLSA”). On December 9, 2014, a unanimous United States Supreme Court answered that questionno.

The Court’s decision in Integrity Staffing Solutions v. Busk may have a far-reaching practical and legal impact. Not only may it make more employers comfortable conducting security screenings of their employees, but it may bring an end to most class actions and collective actions filed against employers seeking compensation for employees’ time spent in such screenings.

Background

The employees at issue in Integrity Staffing were employed to retrieved products and package them for delivery to Amazon customers.  Several former employees filed a putative class action lawsuit, contending that they were entitled to be paid for the time spent undergoing security screenings before leaving the warehouse, which they estimated took 25 minutes a day.

The United States District Court in Nevada dismissed the lawsuit, holding that the time spent in screenings was postliminary, noncompensable time as it was not integral and indispensable to the employees’ principal activities.  The Ninth Circuit Court of Appeal reversed that decision, concluding that activities that might normally be considered postliminary and noncompensable become compensable if they are required and performed for the employer’s benefit.

The Supreme Court granted certiorari.  And, reversing the Ninth Circuit’s opinion, it has concluded that time spent in security screenings by Integrity Staffing employees is not compensable under the FLSA.

The Supreme Court’s Analysis

The Supreme Court’s analysis in Integrity Staffing began where it must – with a discussion of the Portal-to-Portal Act, which exempts employers from paying employees for activities that are preliminary and postliminary to the “principal activity or activities.”

The Court explained that “principal activity or activities” include all activities that are an “integral and indispensable part of the principal activities.” In turn, the Court explained, “An activity is … integral and indispensable to the principal activities that an employee is employed to perform if it is an intrinsic element of those activities and one with which the employee cannot dispense if he is to perform his principal activities.”

In reaching its conclusion that security screenings are noncompensable postliminary activities, the Court first found that the screenings were not the employees’ “principal activities” – Integrity Staffing had not hired them to undergo security screenings.  And they also were not “integral and indispensable” to the employees’ work as warehouse workers as the employees could do their jobs – retrieving packages – without such screenings.

Where the Ninth Circuit erred, according to the Court, was in focusing on whether an employer “required” a particular activity. As the Court explained, “If the test could be satisfied merely by the fact that an employer required the activity, it would sweep into ‘principal activities’ the very activities that the Portal-to-Portal Act was designed to address.”

Not unimportantly, the Court also rejected the argument that the time spent in security screenings became compensable because Integrity Staffing could have reduced the time considerably such that it was a de minimis amount: “The fact that an employer could conceivably reduce the time spent by employees on any preliminary or postliminary activity does not change the nature of the activity or its relationship to the principal activities that an employee is employed to perform.”

What Employers Should Do Now

There can be no question that Integrity Staffing is a significant victory for employers.

While there could conceivably be individuals who are employed in positions whereby security screenings could be considered to be an “integral and indispensable” part of their jobs and therefore must be paid for them – such as the persons who conduct the screenings – the Supreme Court’s decision should have far-ranging practical implications.

Excepting for unusual circumstances, employers who require employees to undergo security screenings can feel more comfortable than ever that such time is not compensable and that their practices are less likely to be challenged than before.

Those employers who have refrained from requiring employees to undergo such security screenings because of their concern that they may have to pay for such time should also feel more comfortable implementing such screenings.

But employers should nevertheless proceed with caution, particularly if their screenings result in employees waiting significant amounts of time. The Supreme Court’s near-final words should not be ignored: “These arguments are properly presented to the employer at the bargaining table, not a court in an FLSA action.” (Citations omitted.) Requiring employees to wait significant amounts of time for security screening could trigger union organizing efforts or, in unionized workforces, demands to be paid for such time.

Epstein Becker Green’s Free Wage-Hour App Has Added More Checklists for Employers

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Wage Hour Guide ChecklistsAs readers of this blog know, EBG’s free wage-hour app is now available for download on Apple, Android, and Blackberry devices. The app puts federal wage-hour laws and those of many states at users’ fingertips.

Now, the app also includes 7 checklists that employers should find helpful.

Each of the following checklists can be accessed through the “Downloads” icon on the app, then downloaded in seconds:

  • Applying the Administrative Exemption
  • Applying the Computer Employee Exemption
  • Applying the Executive Exemption
  • Applying the Highly Compensated Employee Exemption
  • Applying the Learned Professional Exemption
  • Common FLSA Exemption Pitfalls to Avoid
  • Wage and Hour Division Investigation

We hope you will find these checklists helpful as you try to navigate the sea of complex wage hour laws with which employers must comply.

Ninth Circuit Requires Plaintiffs To Plead Facts In Support Of Their Wage-Hour Claims

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In a great many wage-hour complaints alleging unpaid overtime or failure to pay minimum wage, plaintiffs will bring suit without identifying any specific instances in which the plaintiffs ever worked unpaid overtime or worked for a period of time without being paid at least the minimum wage.  The absence of such basic facts plagues many class action and collective action complaints, in particular.  The Ninth Circuit’s recent opinion in Landers v Quality Communications rejects the notion that plaintiffs can survive a motion to dismiss by relying on cookie-cutter allegations.  The Ninth Circuit has made it clear that plaintiffs must plead facts in support of their wage-hour claims.

To provide some context to the Landers decision, the Ninth Circuit stated that before the Supreme Court’s decisions in Ashcroft v. Iqbal and Bell Atlantic Corp. v. Twombly, a complaint for unpaid minimum wages or overtime wages merely had to allege that the employer failed to pay the employee minimum wages or overtime wages. No other facts were necessary at the pleading stage. After Iqbal and Twombly, which discussed what types of facts must be pled in cases where there is no heightened pleading standard, district courts were split. Some required plaintiffs to approximate the overtime hours worked while others have foregone such a requirement. Until Landers, the Ninth Circuit had not addressed the degree of specificity required to state a claim for failure to pay minimum wages or overtime wages.

In Landers, the Ninth Circuit held that, at a minimum, the plaintiff must allege at least one workweek when he or she worked in excess of 40 hours and was not paid for the excess hours in that workweek, or was not paid minimum wages.  However, the Ninth Circuit stated that it was not imposing a requirement that a plaintiff alleging failure to pay minimum wages or overtime wages must approximate the number of hours worked without compensation.

The Ninth Circuit’s opinion in Landers is a welcome development for employers.  Although the pleading standard would not seem difficult to meet, forcing plaintiffs to plead some facts may help weed out frivolous lawsuits – and, in the class action and collective action context, it may demonstrate the differences in employees’ claims and circumstances.

Non-specific Testimony Regarding “Typical” Hours Cannot Sustain a Claim for Unpaid Overtime

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In Holaway v. Stratasys, Inc., the plaintiff was employed as a field service engineer and classified as exempt from the FLSA’s overtime requirements.  Based on that classification, the plaintiff’s employer did not keep records of his hours worked.

After being discharged, the plaintiff filed lawsuit in the U.S. District Court for the District of Minnesota claiming he was non-exempt, seeking overtime wages and alleging that he worked sixty hours per week every week of his employment.  The District Court concluded that the plaintiff failed to produce sufficient evidence to show he worked more than forty hours per week, and granted the employer’s motion for summary judgment.

Standard of Proof in the Absence of Timekeeping Records

On appeal, the Eight Circuit Court of Appeals noted that an employee who sues for unpaid overtime has the burden of proving that the employee performed work for which he or she was not properly compensated.  However, if an employer has failed to keep records, an employee need not prove “the precise extent of uncompensated work,” but instead may establish his or her entitlement to compensation “on the most accurate basis possible.”

Specifically, the Eight Circuit relied on the U.S. Supreme Court’s longstanding decision in Anderson v. Mt. Clemens Pottery Co.  In Anderson, the Supreme Court stated that once the employee has shown work hours for which the employee was not compensated, and “sufficient evidence to show the amount and extent of that work as a matter of just and reasonable inference,” the employer must provide evidence to rebut that interference.

Sweeping Assertions about Hours “Typically Worked” are Insufficient

In Holoway, the Eighth Circuit stated that the plaintiff’s testimony regarding his hours worked was often contradictory and, at various times, estimated his work hours from forty-five to seventy hours per week.

Furthermore, the plaintiff did not attempt to establish his entitlement to compensation “on the most accurate basis possible.”  In fact, he failed to check his hours worked against any business records kept by his employer, and failed to take into account any paid holidays, any paid vacation or any days he was on duty at home without receiving a service call.

Thus, the plaintiff failed to put forth any evidence regarding specific weeks where he worked beyond forty hours, and failed to provide a meaningful explanation of how he arrived at his final estimate of sixty hours per week for every week of his employment.Most importantly, the plaintiff offered no specific evidence regarding the amount and extent of his overtime work.  Rather, he offered only bare assertions that he “typically worked” five to seven hours per week before the official start of his workday, “typically worked” eleven to fifteen hours per week after his official quitting time and “typically worked” two to three hours each weekend.

The Eighth Circuit concluded that the plaintiff therefore failed to come forward with sufficient evidence to allow a fact-finder to determine the amount of any overtime hours “as a matter of just and reasonable inference.”  Thus, summary judgment in favor of the employer was affirmed.

The Eight Circuit’s decision offers some support for the proposition that employers who fail to keep records of hours worked are not always bound by an employee’s assertions regarding hours worked.  However, the decision also suggests that employers will have difficulty defending against reasonably specific allegations that make a minimal effort to address the evidence that is available.

Accordingly, employers should continue to make every effort to keep accurate wage and hour records for all non-exempt personnel.

NLRB’s Murphy Oil Decision Reaffirms Board’s Position on Class or Collective Action Waivers Despite Rejection by Federal Courts

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By Jill Barbarino

On October 28 a three-member majority of the National Labor Relations Board in Murphy Oil revisited and reaffirmed its position that employers violate the National Labor Relations Act (the “Act”) by requiring employees covered by the Act (virtually allnonsupervisory and non-managerial employees of most private sector employees, whether unionized or not) to waive, as a condition of their employment, participation in class or collective actions.

As previously reported in an Act Now Advisory, in 2012 the NLRB held in D.R. Horton that the home builder unlawfully interfered with employees’ Section 7 right to engage in concerted activity by requiring them to sign an arbitration agreement prohibiting class or collective claims in any judicial or arbitral forum.  As we have also previously reported, however, on December 3, 2013, the Fifth Circuit rejected the NLRB’s position and held that the Act does not prohibit employers from requiring employees to sign class or collective action waivers.  The Second Circuit and the Eighth Circuit have likewise rejected the Board’s position.

Notwithstanding having “no illusions” that the Board’s decision would be the “last word on the subject”, in a 59-page decision, it reiterated and endorsed its prior position and addressed its critics head on, including the two lengthy dissents from Members Harry Johnson and Philip Miscimarra.

The Decision

Murphy Oil is the owner and operator of over 1,000 retail fueling stations.  Prior to March 6, 2012, Murphy Oil required all job applicants and current employees to execute a “Binding Arbitration Agreement and Waiver of Jury Trial,” which provided in pertinent part that all disputes related to an individual’s employment shall be resolved by binding arbitration and that the parties to the agreement “waive their right to commence or be a party to any group, class or collective action claim in arbitration or any other forum.”  The Charging Party, Sheila Hobson, signed this Agreement when she applied for employment in 2008.  Two years later, Hobson filed a collective action pursuant to the Fair Labor Standards Act alleging that Murphy Oil failed to pay her and others for work-related activities performed off the clock.  Murphy Oil moved to compel arbitration and to dismiss the FLSA claims based on the plaintiffs having signed the Agreement.  Hobson, thereafter, filed an unfair labor practice charge and the NLRB’s General Counsel issued a complaint, alleging that Murphy Oil had violated Section 8(a)(1) of the Act.

At the heart of the dispute between the Board and its critics is the interpretation of Section 7 and 8(a)(1) of the Act as well as the application of the Federal Arbitration Act (“FAA”) and Supreme Court jurisprudence interpreting same.

Section 8(a)(1) of the Act states that it “shall be an unfair labor practice for an employer . . . to interfere with, restrain, or coerce employees” in the exercise of their Section 7 rights.  Section 7 of the Act states that employees shall have the right to “engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection[.]”  

The Supreme Court, on the other hand, in CompuCredit Corp. v. Greenwood, 132 S.Ct. 665, 673 (2012), held that where there is no specific “contrary congressional command” as to whether a claim can be arbitrated, the FAA “requires the arbitration agreement to be enforced according to its terms.”   The CompuCredit decision, however, only addressed the enforcement of an arbitration clause that barred access to courts, not a waiver of class or collection actions.  Moreover, the CompuCredit decision was not an employment-related dispute and did not involve the NLRA.  Thus, the specific issue at play in D.R. Horton and Murphy Oil remains unaddressed by the Supreme Court.

The Board’s rationale for upholding D.R. Horton is as follows:

(1)   Section 7 of the Act grants employees the  substantive right to act “concertedly for mutual aid or protection” and mandatory arbitration agreements that bar an employee’s ability to bring join, class, or collective workplace claims restrict this substantive right.

(2)   The conclusion that mandatory class action waivers are unlawful under the Act does not conflict with the FAA or its underlying policies because:

(a)    such a finding treats arbitration agreements no less favorably than any other private contract that conflicts with federal law;

(b)   Section 7 rights are substantive, which means that they cannot be waived under the FAA like procedural rights found in other statutes;

(c)    the “savings clause” in the FAA affirmatively provides that an arbitration agreement’s conflict with federal law is grounds for invalidating an agreement;

(d)   if there is a direct conflict between the NLRA and the FAA, the Norris-LaGuardia Act – which prevents private agreements that are inconsistent with the statutory policy of protecting employees’ rights to engage in concerted activity – requires the FAA to yield to the NLRA as necessary to accommodate Section 7 rights.

The Board criticized the Fifth Circuit’s decision for, among other things, giving too little weight to the “crucial point” that “the Board, like the courts, must carefully accommodate both the NLRA and the FAA” and not treat the FAA and its policies as “sweeping far more broadly than the statute or the Supreme Court’s decisions warrant.”

As to Member Johnson’s argument in his dissent that “there was no such thing as a class or collective action in any modern sense when the Act was passed in 1935” the Board majority found this point to be irrelevant because the language of “Section 7 is general and broad.”  As an example, the Board stated that the pursuit of unionization is “obviously protected” through the use of “modern communication technologies such as social media . . . regardless of whether workers during the Depression had access to Facebook.”

The Board also stated that contrary to the suggestion in Member Miscimarra’s dissent, it has not taken the position that the Act creates a guarantee to class certification or the equivalent; it does, however, create a right to “pursue joint, class or collective claims if and as available, without the interference of an employer-imposed restraint.”

What Does This Mean for Employers

After Murphy Oil, it is clear that the Board’s position and the position of at least some federal courts on this issue remain at odds.  If employers require employees covered by the Act to sign class action waivers, they should be aware that it could take significant time and money to ultimately have such an agreement upheld in federal court.  Clearly the last word on this issue will come only when the Supreme Court, as it is likely to do, considers the issue.  Until then employers that require such waivers should recognize that challenges through unfair labor practice charges will remain a fact of life.

California Controller Launches “Operation Pay-Up”

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As if California employers were not already besieged with wage-hour class actions and agency complaints, the state’s controller has now decided to get in on the action.

As The Los Angeles Times reported last week, Controller John Chiang has initiated a new program he calls “Operation Pay-Up” to recover unpaid wages.  The article may be found here

In short, the Controller is using California’s Unclaimed Property Law to attempt to gain restitution of wages believed to be withheld from employees.  Any recovered wages that are unclaimed will be transferred to the state treasury, with the controller’s office attempting to locate the employees.

At this stage, it is too early to tell how broad “Operation Pay-Up” will be or the companies or industries that it will focus on – let alone how the program will interact with class actions or agency complaints. 

But, at the very least, it is yet another reminder to employers doing business in California that they need to get up to speed on the state’s intricate wage-hour laws and take steps to ensure compliance.

And for those employers who need a primer on California wage-hour laws, EBG’s free wage-hour app puts those laws — and federal laws and the laws of other states – at your fingertips. 

Illinois Employers Will Soon Be Able To Legally Pay Their Employees by Payroll Cards, But Beware Of The Fine Print

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In August, Illinois Governor Pat Quinn signed into law HB 5622, amending the Illinois Wage Payment and Collection Act (IWPCA), which now recognizes for the first time payment of wages by payroll card. The law goes into effect on January 1, 2015. While the law provides a new option for Illinois employers, they must be careful to comply with the conditions under which payroll cards may be used.

Under the current Illinois law, employers are required to pay employees via check or direct deposit. The current law is silent as to whether payroll cards, which operate like debit cards, can be used to pay wages. Some businesses prefer using payroll cards because, by simply loading the card electronically, they can save the costs involved in preparing physical checks. Employees, however, have been adverse to payroll cards because of fees that have been deducted from their wages. The Illinois Attorney General’s Office found that these fees were both excessive and unfair.

Under the new law, payroll cards will be a recognized method of wage payments, but only if the following criteria are met:

• The employee must voluntarily agree to the use of a payroll card as the method the employee chooses to receive his or her wages and/or final compensation. It is not voluntary if the employee is given to understand that it is a condition for hire or his or her present working conditions or continuance of his or her employment would be adversely affected by non-acceptance. An employer cannot mandate the use of a payroll card.

• If an employee voluntarily chooses to accept the use of a payroll card for the payment of wages and/or final compensation, the employer must disclose in writing to the employee all fees, penalties, and costs associated with the use of the payroll card. The employee must be able to deposit and/or obtain the full monetary value on the payroll card without discount.

• If the employee chooses the payroll card as a method of payment, the employer is required to provide an itemized statement of all hours worked, rate of pay, and all lawful deductions made from the wages and/or final compensation for each pay period.

• An employee can revoke his or her authorization of the payroll card as a method of payment at any time, and the employer is obligated to provide to the employee another alternative method for the payment of wages and/or final compensation.

• An employer is not permitted to offer employees only the choice between two voluntary methods of payment. Because payment by either payroll card or direct deposit must be voluntary, an employer offering either or both of these payment methods must also provide an additional choice of payment by cash or check, in accordance with the IWPCA.

Despite the clear financial and practical benefits of using payroll cards for wages, employers must strictly comply with the specific requirements under the law which takes effect on January 1, 2015. As a new law, it is likely that the Illinois Department of Labor and Office of Attorney General will be watching closely.

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