Posted on March 10, 2010 by David Barron

New York Issues Guidelines, Instructions and Additional Model Notices of Pay Rates and Pay Days

The New York State Department of Labor ("DOL") has recently made available important new information for employers regarding their obligations under Section 195.1 of the Labor Law including notice of pay rates, pay dates and other information.

 

As we previously reported (see EBG Client Alerts of December 11, and October 30, 2009), pursuant to Section 195.1 of the Labor Law (the "Statute"), as of October 26, 2009, employers must provide newly hired New York employees with written notice of their: (1) pay rate; (2) overtime pay rate (if they qualify for overtime pay); and (3) regular paydays.

 

Such notice must be given at the time of hiring, before the employee performs any work. The employer must keep the original notice for at least six years, and the employee must be provided with a copy.

 

The DOL initially did not provide guidance on what type of form an employer was required to utilize for this purpose. Then, late last year, it decided that employers must use the "official" form issued by the DOL on its Web site. Next, as we advised in December 2009, the DOL determined that no particular form is required; rather, employers are permitted to create their own forms (or simply include the requisite information in an offer letter), or use any "official" form published by the DOL.

 

Model Notices, Guidance and Instructions on the DOL's Web site

 

The DOL recently made available on its Web site: (1) additional forms for employers' use (the "Model Notices"); (2) guidelines (the "Guidelines") for complying with the Statute; and (3) instructions (the "Instructions") for completing the Model Notices. Model Notices for the following categories of employees have been published on the DOL's Web site at http://www.labor.state.ny.us/workerprotection/laborstandards/workprot/lshmpg.shtm:

 

  • Hourly Rate Employees
  • Employees with Multiple Hourly Rates (if employee is paid more than one rate for different types of work or different shifts)
  • Employees Paid a Weekly Rate or Salary for a Fixed Number of Hours (if employee works 40 or fewer hours in a week)
  • Employees Paid a Salary for Varying Hours, Day Rate, Piece Rate, Flat Rate or Other Non-Hourly Pay
  • Prevailing Rate and Other Jobs
  • Exempt Employees

Important Information Regarding Notice to Exempt Employees

As stated above, employers need not use the Model Notices published by the DOL. However, if employers create their own forms, or simply include the required information in the text of an offer letter, they must be aware of certain additional requirements, aside from those set forth in the Statute. This is because the text of the Statute includes a statement that the required notices "shall conform to any requirements established by the [Commissioner of Labor] with regard to content and form." While neither the Guidelines nor the Instructions referenced above have the force of an order or a legal opinion issued by the DOL, both can be interpreted as requirements "established by the [Commissioner of Labor] with regard to content and form" of the required notice.

The Guidelines and Instructions both include certain requirements that are not found anywhere within the text of the Statute. For example, and most significantly, the Guidelines and Instructions provide that employers are to include the specific overtime exemption(s) under which an exempt employee falls (e.g., executive, administrative and/or professional). While currently, the Guidelines state that employers "should" include this information, and the Instructions state that employers "must" include this information, we have been informed by the DOL that the Instructions will be changed such that specifying the applicable exemption(s) will be required by both documents (i.e., not merely suggested). Other requirements found in the Guidelines and/or Instructions but that do not appear in the Statute include a requirement that notice must be provided "before any work is performed" and that the employer must maintain the form for at least six years.

No Model Notices for Commissioned Salespersons

As of this date, no Model Notice has been made available by the DOL for commissioned salespersons. The Guidelines, however, provide that employers may include the required information from the Statute within the text of a commission agreement between the employer and the employee, so long as that agreement satisfies the requirements of both Section 191.1(c) of the Labor Law (e.g., the terms of employment must be in writing and include how wages, salary, drawing account, commissions and all other monies earned and payable shall be calculated, and must be signed by both the employer and the employee and kept on file by the employer) and Section 195.1.

 

Should Employers use the Model Notices?

Employers who elect to use the Model Notices should be aware that those models contain information that is not required in the Statute, the Instructions or the Guidelines, such as the name, title and signature of the employer's representative who prepared the form, as well as a general statement regarding overtime pay in New York State (i.e., the Model Notices state that "[m]ost employees in New York State must be paid overtime wages of 1½ times their regular rate of pay for all hours worked over 40 hours per workweek. A very limited number of specific categories of employees must be paid overtime at a lower rate or not at all."). Although it is unclear whether the DOL will deem an employer to be in compliance with the law if this information is omitted from forms prepared by the employer, as discussed above, inclusion of this information could be deemed to be a "requirement[ ] established by the [Commissioner of Labor] with regard to content and form."

 

Finally, although the DOL permits employers to use their own forms to satisfy the requirements of the Statute, if they opt to do so, employers must ensure that those forms meet all of the requirements of the Statute (including the requirements set forth in the recently published Guidelines and Instructions). It should be noted that the DOL advised that employers should review the Guidelines and Instructions online from time to time, as the contents of those documents are subject to change. Finally, regardless of whether employers choose to comply with the requirements of the Statute by using the Model Notices (or a modified form of the Model Notices), their own forms, or by simply including the applicable information in offer letters or commission agreements, it is prudent to include an at-will statement, confirming the employer's right to change an employee's pay rate, pay day or other terms and conditions of employment in the future.

 

For more information about this Client Alert, please contact:

William J. Milani
New York
212-351-4659
Wjmilani@ebglaw.com

Jeffrey M. Landes
New York
212-351-4601
Jlandes@ebglaw.com

Susan Gross Sholinsky
New York
212-351-4789
Sgross@ebglaw.com

Anna A. Cohen
New York
212-351-4922
 Acohen@ebglaw.com

 

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Posted on March 4, 2010 by Richard Tuschman

Miami-Dade County Passes New Wage Theft Ordinance

By Teresa Maestrelli

The Miami-Dade Board of County Commissioners recently approved a Wage Theft Ordinance designed to make it easier for employees to take legal action against employers that fail to pay (or underpay) them. Under the new ordinance, the county will rely on a streamlined hearing examiner process to address complaints by employees.

 

The unanimous vote made Miami-Dade the first county in the nation to adopt a countywide wage theft law.[1]  For nearly a year, members of the South Florida Wage Theft Task Force - a coalition of union, immigrant, faith, women’s and legal services organizations - worked with County Commissioner Natacha Seijas, the principal sponsor of the ordinance, to craft and introduce the ordinance. 

 

The ordinance bars wage theft, and allows the county to use its police powers to intervene and help recover workers’ back pay. The ordinance specifically applies to private sector employees and employers in cases involving at least $60 (the “threshold amount”). Under the ordinance, wages include pay for daily, hourly, or piece work at a rate no less than the highest applicable rate established under federal, state, or local law.

 

Wage-Theft Violations:

 

An employer that fails to pay a portion of wages due to an employee, according to the wage rate applicable to that employee, within a “reasonable time” from the date on which the work was performed by the employee, shall be wage theft. The ordinance establishes a presumption that a “reasonable time” is no later than 14 calendar days from the date on which the work is performed. Employers may lengthen the period of time between the date work is performed and the date the employee is paid wages, for a period not to exceed 30 days, upon express written agreement signed by the employee.

 

Procedures for Wage-Theft Complaints:

 

An aggrieved employee may file a complaint with the county alleging a violation of the ordinance.  The complaint must set forth the facts upon which it is based with sufficient specificity to identify the employer and for the county to determine both that an allegation of wage theft has been made, and that the threshold amount has been met. Upon determining that the complaint alleges wage theft, the county will then serve the complaint on the employer, which will have 20 days to file an answer.

 

Hearing Before Hearing Examiner:

 

Upon request by either party, a hearing will be held before a Hearing Examiner appointed by the county. In conducting any hearing to determine whether a violation of the ordinance has occurred, the Hearing Examiner will have the authority to administer oaths, issue subpoenas, compel the production of and receive evidence. The burden of proof by a preponderance of the evidence rests upon the complainant/employee.

 

Upon the conclusion of the hearing, an adjudicative final order will be issued and served upon the parties setting forth written findings of fact and conclusions of law.

 

Enforcement of Violations:

 

At the conclusion of the hearing and upon a finding of a wage violation, the employer will be ordered to pay wage restitution to the affected employee in an amount equal to three times the amount of back wages that the employer is found to have unlawfully failed to pay the employee. The county will further order the employer to pay the Board of County Commissioners an assessment of costs not to exceed actual administrative processing costs and costs of hearing.  The new ordinance provides for additional penalties for failing to comply with the Hearing Examiner’s order.  

 

As demonstrated above, the penalties for violation of the ordinance can be costly. Employers in Miami-Dade County need to be sure that they comply with the new ordinance by timely paying wages due to their employees. As stated, the new ordinance establishes a presumption that a reasonable time is no later than 14 calendar days from the date on which the work is performed, however, employers are free to modify that (for a period not to exceed 30 days) by an express written agreement signed by the employee.  

             

  [1] San Francisco has an ordinance similar to Miami-Dade’s, but it only covers the city.  Los Angeles and New Orleans also are considering wage theft legislation.
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Posted on March 3, 2010 by Richard Tuschman

Tip Pools and Mandatory Service Charges - Wage and Hour Class Actions Continue to Target Hospitality Employers

By Kara Maciel

Another luxury New York hotel is the latest target in a constant stream of wage and hour class actions against the hotel and restaurant industry challenging the industry’s practices relating to tip pools and service charges. At issue in the lawsuit filed in February 2010 is the common practice in the hotel and restaurant industry of charging private dining/banquet customers a mandatory service charge in lieu of the customer leaving a voluntary tip or gratuity on the day of the event. According to the plaintiffs’ complaint, a 21.5 percent service charge is added to the customer’s bill for the event, but only 15 percent of that amount is distributed to the waitstaff. The complaint asserts that customers are led to believe that the entire service charge is a gratuity to be paid to the employees who worked the event. The plaintiffs also complain about the hotel’s practice concerning “special banquet gratuities” that are received from customers and distributed to non-banquet employees, instead of to the waitstaff who worked the particular event. The plaintiffs claim to represent a class of more than 100 employees and seek more than $5 million in damages.

 

Mandatory service charges and their distribution among waitstaff have plagued the hospitality industry for years. Federal courts interpret the federal law differently and states have enacted their own statutes that place employers in constant uncertainty, depending on where they are located. Under the Federal Fair Labor Standards Act (FLSA), a mandatory service charge is not a “tip” because customers are not given the discretion to determine whether to pay it or how much to provide to the server. Accordingly, under federal law, a hotel may retain any or all of the service charge, and the hotel must decide whether to distribute some – or any – of the service charge to an employee, so long as the employee earns at least the minimum wage.

 

Some state laws, however, vary and require employers to distribute 100 percent of the mandatory service charge to the servers or other members of the waitstaff. In Massachusetts and New York, for example, no portion of the mandatory service charge may be distributed outside of the non-supervisory waitstaff if the customer reasonably believed that the charge constituted a gratuity. In the case mentioned above that was filed recently in New York, the plaintiffs are relying on a 2008 New York State Court of Appeals case, Samiento v. World Yacht, Inc., which concluded that when a mandatory service charge has been represented to the customer as compensation for the waitstaff in lieu of a tip or gratuity, that service charge must be distributed to the waitstaff. In New York, the statute of limitations extends six years, rather than the three years under the FLSA. The Massachusetts Tip Statute, which was amended in 2004 to clarify who is defined as “waitstaff,” similarly restricts any non-waitstaff personnel from sharing in the distribution of the mandatory service charge. In 2008, Massachusetts amended its statute to provide for mandatory treble damages for a violation of the wage and hour law.

 

Employers have received some good news from courts recently. In early February, employers in Massachusetts received a favorable opinion in Hernandez v. Hyatt Corp., when the Chief Judge of the Business Law Section determined that the 2008 amendment calling for mandatory treble damages only applies prospectively. On February 23, 2010, the U.S. Court of Appeals for the Ninth Circuit concluded that, under the FLSA, a restaurant is permitted to require its waitstaff to participate in a tip pool that redistributes some of the tips to the kitchen staff, so long as the employer does not use the tip credit to satisfy an employee’s minimum wage.

 

To avoid the customer confusion and exposure seen in these cases, banquet documentation given to customers should clearly delineate how much is billed for a mandatory service charge intended as compensation for employees and how much is billed as an “administrative fee” that the hotel retains to cover overhead and other costs. Moreover, hotels and restaurants should communicate to their employees how much the employees will receive of the mandatory service charge and who will share in that service charge. Hospitality employers in Massachusetts and New York should closely monitor judicial developments of their respective state’s laws to ensure compliance, as violations can lead to costly settlements and verdicts.

 

With the flood of class actions, hotel and restaurant employers must make compliance with federal and state wage and hour laws a top priority throughout the remainder of 2010. Conducting regular self-audits, in consultation with legal counsel, should be a best practice for all employers. Every investigation and lawsuit is unique and cannot be defended with a one-size-fits-all defense. Having, as part of your team, counsel who knows the hospitality industry and the unique challenges facing your hotel or restaurant will help keep companies out of court and exposure to a minimum.
 

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Posted on March 1, 2010 by Richard Tuschman

Tip Pool May Include Employees Not Customarily Tipped If No Tip Credit is Taken

By Kathryn T. McGuigan and Douglas Weiner

In a landmark decision upholding the validity of the employer’s mandatory tip pool, on February 23, 2010, the U.S. Court of Appeals for the Ninth Circuit issued its opinion in Misty Cumbie v. Woody Woo, Inc. No. 08-35718. The court held that where the employer paid a direct wage of at least minimum wage to restaurant wait staff, requiring them to participate in a tip-pooling arrangement with other restaurant employees does not violate the Fair Labor Standards Act. (“FLSA”)..

The Oregon restaurant took no tip credit, rather paid its wait staff a direct hourly wage in excess of the applicable minimum wage requirement. In addition to their hourly wage, the servers received a portion of the daily tips, distributed to employees through a tip pool. The restaurant required the wait staff to participate in its tip pool that included all restaurant employees, except managers. The largest portion of the pool went to the kitchen staff, employees not customarily tipped in the restaurant industry. 

A server filed a class action lawsuit against the restaurant alleging that the tip-pooling arrangement violated the minimum wage, and tip provisions of the FLSA. In granting the restaurant’s motion to dismiss the case, the District Court found that there is nothing in the text of the FLSA that restricts employee tip pooling arrangements when no tip credit is taken, thus the restaurant’s tip pooling arrangement was valid. In a well reasoned opinion specially refuting the Secretary of Labor’s arguments submitted in an amicus brief, the Ninth Circuit affirmed citing the Supreme Court’s adage that an agreement is per se valid, “unless subject to statutory interference”.

The Cumbie Court held when an employer does not take a tip credit, it may lawfully require servers to participate in a tip pool with employees who are not customarily tipped. 

Although the court’s ruling appears reasonable and persuasive, it is not clear what the Department of Labor’s enforcement policy will be, or whether this court’s ruling will be adopted in other circuits. As this issue develops we will update this blog.

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Posted on March 1, 2010 by David Barron

A New Bill May Mean Relief is in Sight for California Employers Facing Wage-Hour Class Actions

by Michael Kun

    The California wage-hour epidemic has entered its second decade.

    While there is little on the horizon to suggest that these cases are about to come to an end, there are a few glimmers of hope now. 

    The first glimmer of hope comes from a case that has been pending before the California Supreme Court since 2008.  California employers continue to await a ruling on meal and rest breaks from the California Supreme Court in Brinker.  A ruling that breaks need only be "made available," not "ensured," may not put an end to meal and rest break class actions, but it should slow them down considerably and make it exceedingly difficult to certify a class in most cases.

    The second glimmer of hope comes from this week's Hertz decision from the United States Supreme Court, which suggests that more class actions in California will now be removable to federal court under the Class Action Fairness Act.  Foreign companies previously had difficulty removing cases in California because they often did the most business in California or had the most employees there simply because of its size. As the court explained in Arellano v. Home Depot U.S.A., Inc., 245 F.Supp.2d 1102, 1107 (S.D. Cal. 2003), “it is unlikely that Congress intended that every corporation that does more business in California than any other state should be considered a citizen of California.”  It looks like the Supreme Court agrees, and now a "nerve center" test will be used.  Employers with headquarters outside California now should be able to remove many class actions filed in California as a result. 

    Now, there is a third glimmer of hope in the form of new bill that could change the game further. 

    The key word is "could."

    In an interview I did with EmploymentLaw360 last year, I mentioned the need to reform California's class action procedures to provide more guidance to the trial courts. Too much discretion for the trial courts, and not enough guidance, has created an untenable situation in which one judge could certify a class where the judge in the very next courtroom might have denied certification, leaving employers lost and often with no recourse other than to settle in the face of uncertainty. I also mentioned the need to address a form of litigation that rewarded plaintiff's attorneys, often for doing little work and often at the expense of their own clients. http://www.law360.com/articles/123717

    I wish I could say that my comments were profound, or that someone read my comments and decided to act.  It's enough to know that someone shared my thoughts and decided to do something about it.

    California Assembly Member Audrey Strickland has introduced a bill to reform California's class action procedures based on the "lack of clear standards for certifiction and management of class actions":  http://info.sen.ca.gov/pub/09-10/bill/asm/ab_0001-0050/abx8_38_bill_20100210_introduced.html

    The bill proposes standards modeled after Rule 23 of the Federal Rules of Civil Procedure, removing "any presumption or policy in favor of class certification," and only allowing class actions to proceed where all criteria are met. 

    That change alone would be a welcome one for class action defendants in California.

    But the bill goes further.  It also proposes a system by which a defendant can propose a settlement to the court that has not been approved by plaintiff's counsel, essentially removing one of the largest obstacles to settlement -- plaintiff's counsel who hold up settlements out of self-interest.

    Sounds logical to you and me.  And sounds like something the plaintiff's bar will fight to the death.  (Feel free to insert your own joke here about class action plaintiff's lawyers taking 40% of multi-million dollar settlements, often for doing little more than showing up for a mediation, where they meet their clients for the first time.  Think that doesn't happen?  I'm handling a class action now where plaintiff's counsel met their client for the first time 2 years after the lawsuit had been filed.  And, no, you didn't misread that last sentence.)

    Will this bill get passed?

    Will it gain any traction at all?

    If it were anywhere other than California, you would have to think there was a chance, perhaps even a significant one, that the bill would become law, even with some revision.

    But it's California. 

    The plaintiff's bar, and legislators counting their votes for the next election, may not let Ms. Strickland's bill get far.  And they will make Ms. Strickland's next election hellish.  In fact, they're probably already preparing fliers explaining to voters how Ms. Strickland is trying to make it more difficult for them to get money in lawsuits. 

    Now you can insert your own joke about why California is teetering on the edge of bankruptcy.  Again.   

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Posted on March 1, 2010 by Richard Tuschman

Florida Led Nation in FLSA Lawsuits in 2009

Florida led the nation in Fair Labor Standards Act lawsuits in 2009. Statistics generated from PACER (Public Access to Court Electronic Records) show that about 2000 new cases were filed in United States District Courts in Florida last year, far more than in any other state. 

Of course, Florida is not the only hotbed of wage-hour litigation. California, which has its own, more rigorous wage-hour laws, has a large number of wage-hour cases filed in its state court system. Texas and New York are also seeing increasing numbers of wage-hour cases.

But when it comes to the FLSA, the Sunshine State rules. The reasons for this are somewhat mysterious. Are Florida employees more litigious than in other states? Do Florida employers violate the FLSA more often? Is there a more active plaintiff-side employment bar in Florida? I suspect the answer is a combination of all these factors, plus good old-fashioned word of mouth. Here’s what I mean: the vast majority of FLSA cases settle before trial. FLSA settlements generally must be approved by a court, see Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982), and many judges refuse to allow FLSA settlements to be confidential. And even if the terms of a settlement are confidential, a settling plaintiff can always disclose that the case has been “resolved amicably,” or words to that effect. Whatever the exact words, the message is clear – the plaintiff got a nice check. It’s like that old shampoo commercial from the 70’s: a settling plaintiff tells two friends, and they tell two friends, and so on and so on… Pretty soon you have 2000 FLSA cases on the docket.

So what can a Florida employer do to avoid being named in an FLSA lawsuit? Well, the best advice I can offer is to make every reasonable effort to comply with FLSA. That may seem obvious, but it’s not as easy as it sounds because the FLSA can be counterintuitive; its rules are often inconsistent with what seem to be reasonable and ethical business practices. But if you learn what the FLSA requires, and adopt policies and practices that are consistent with the law, you will go a long way toward avoiding a lawsuit. And, yes, get the advice of a qualified employment lawyer if you are unsure about what to do. Believe me, it will be far less expensive than litigation.

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Posted on February 23, 2010 by Richard Tuschman

Is the Department of Labor Considering a Revision to the Domestic Service Exemption for Home Health Care Aides?

By Doug Weiner and Brian Molinari

We live in a time of change. Last summer fifteen United States senators wrote an open letter to Secretary of Labor Hilda Solis to urge the U.S. Department of Labor ("DOL") to repeal the Domestic Service exemption from the minimum wage and overtime requirements of the ("FLSA") for home health care workers. Secretary Solis has expressed support for the effort to review this exemption, with a view toward closing this "loophole." Citing a $9 an hour industry-wide average wage, the senators argued in favor of extending federal overtime requirements to "thousands of low-wage workers, primarily women, who are doing difficult, dangerous, yet extremely important work."   Furthering public debate on the subject, the New York Times on January 28 ran an editorial in support of eliminating the Domestic Service exemption for home care aides.

 

The Domestic Service Exemption

Under current federal regulations, home health care aides who assist the elderly and infirm are exempt from the minimum wage and overtime requirements of the FLSA pursuant to 29 U.S.C. Section 213(a)(15) (exempting "any employee employed on a casual basis in domestic service employment to provide babysitting services or any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves (as such terms are defined and delimited by regulations of the Secretary)").  In 2007 the United States Supreme Court upheld the current Department of Labor regulation allowing this exemption against a strong legal challenge from organized labor.  Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158 (2007).

The exemption applies to all workers in domestic service who provide companionship services for individuals unable to care for themselves due to either physical or mental infirmity. Domestic service is work performed within the residence of the family using the services. Companionship services are those that provide fellowship, care and protection to the elderly and infirm.  29 C.F.R. § 552.109(a). Home health care workers, whether employed directly by the family or by an employer or agency other than the household using their services, are currently exempt from the FLSA

Some state laws have already narrowed the federal exemption. Pennsylvania, for example, exempts only home health care aides employed directly by a family for work performed within their home, excluding from the exemption workers employed by a placement agency. New York requires the payment of time-and-one-half the minimum wage for overtime hours worked. Wherever a state law provides greater protection to employees than the FLSA, the state law prevails over federal law.

Potential Effects

Eliminating or modifying this federal exemption may increase the burden to working families who want to care for their loved ones at home. A change in the Domestic Service exemption may also have significant consequences for employers who provide home health care workers to families. Employers of home health aides often conduct background checks and provide training to workers before they arrive in the home to offer care for a family’s loved ones. There is an ever present danger that if costs of home care become prohibitive, economics will operate to push the elderly and infirm out of the home into nursing homes, or other institutionalized setting.

We will continue to monitor and post developments on this significant issue.

 

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Posted on February 11, 2010 by David Barron

President Obama Backs Department of Labor Misclassification Fight

by Evan Spelfogel

On February 1, 2010, President Barack Obama released his federal budget for the coming fiscal year, including $117 billion for the United States Department of Labor, of which $25 million was set aside expressly to help the DOL combat employee misclassification. This includes, specifically, identifying and litigating against employers that categorize workers as independent contractors when, in fact, they are employees, and that classify as exempt from overtime those employees who do not meet the requirements of the White Collar Exemptions under Part 541 of the Wage and Hour Regulations.

The DOL will use a large portion of these funds to hire hundreds of investigators and other enforcement staff. The new Department of Labor Solicitor, Patricia Smith, will pursue a “Misclassification Initiative” to obtain, for misclassified employees, the wages, overtime pay, unemployment insurance benefits, social security contributions and health, welfare and pension benefits available to employees, but not to independent contractors.

Smith, it should be noted, was most recently Commissioner of Labor in New York State. In that capacity, she publicly identified misclassification as one of the most serious workplace problems today, and created a dedicated taskforce to attack the problem, encompassing representatives from a number of state government agencies, including labor, tax, unemployment insurance, workers compensation and labor relations.

 Now, more than ever, employers must have programs in place to insure the validity of their classification of workers as independent contractors or as exempt from overtime, and must have a clear strategy for handling government audits and enforcement actions. 
 
Employers should engage in proactive self-audits, in order to seek out and eliminate vulnerability. Companies should take the appropriate first steps to limit liability and protect their businesses, without raising “red flags.” Employers should check their IRS Form 1099s to identify those they have been paying as independent contractors. They should then audit their outside contractor and employee job descriptions, actual job duties and functions, and the degree of day-to-day control exerted by management, to determine who, in fact, is an independent contractor and who is an employee, and whether the employees are exempt or non-exempt under applicable wage and hour tests.
 
Employers should pay particular attention to matching duties and functions with the requirements for exemption under the managerial/supervisory, administrative and professional white-collar exemptions. Getting the company’s house in order before the government’s “knock on the door” may save time, attorneys fees and the actual and intangible cost of administrative and civil litigation.
 
The consequences of worker misclassification, both as to independent contractors and overtime exempt employees, may be severe. Individual, class and collective actions concerning workers’ status are proliferating. Companies are facing larger judgments, ramifications and costs, as one case sparks another. The expense to employers can be staggering, including back-pay with interest, liquidated damages, stock options awarded at years-ago, lower prices and legal fees. Misclassification cases are lucrative for plaintiffs’ lawyers, particularly when they can assert class and collective claims and work on a contingent-fee basis. The announcement of additional funds made available to the DOL under the president’s budget and the confirmation of Patricia Smith as Solicitor of the Department of Labor should provide a wake-up call to employers. 
 
For additional information, please see Mr. Spelfogel’s published article titled: “Misclassification: The Profusion, The Cost, and the Remedy” (NYSBA L&E Newsletter, Vol. 34, No. 1 at page 7, Spring 2009).

 

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Posted on February 3, 2010 by Richard Tuschman

Child Labor Penalties Increased for Violations that Cause Death or Serious Injury

By Doug Weiner

Hazardous occupations are no place for employees under the age of 18. Employers must be certain to prohibit minors from operating power driven wood working machines, metal working machines, bakery machines, fork lifts, balers and compactors, meat slicers, and nail guns. The full list of hazardous occupations are set forth in the Code of Federal Regulations, 29 C.F.R. 570, et. seq. Protecting America’s children in the workplace has long been a stated objective of the U.S. Department of Labor, and the civil money penalties for serious violations have recently been strengthened.

On January 20 the Labor Department’s Wage and Hour Division issued guidelines to enforcement personnel for determining appropriate civil money penalties against employers who violate the child labor provisions of the Fair Labor Standards Act. As stated in Field Assistance Bulletin 2010-1, the guidelines “draw heavily on the child labor civil money penalty process the WHD [Wage Hour Division]  has developed over the past 25 years.” In addition, there is new advice resulting from the FLSA amendments that became effective May 21, 2008 with the enactment of the Genetic Information Nondiscrimination Act (GINA).

 

The DOL has created a Child Labor Enhanced Penalty Program (CLEEP) to incorporate GINA’s stiffer penalties. A “CLEEP serious injury” is defined as one caused by a child labor violation resulting in a permanent loss or substantial impairment of one of the senses, or of the function or movement of specified body parts. The bulletin identifies categories of injuries, and provides higher penalties for more serious injuries. 

 

GINA included an amendment to the FLSA, 29 U.S.C. 216(e), providing a penalty of $50,000 for a violation causing death or serious injury to an employee under the age of 18. The penalty may be doubled to $100,000 if the violation is willful or repeated. Prior to GINA’s amendment, the maximum child labor civil money penalty was $11,000.

 

For GINA’s enhanced penalties to be applicable there must be evidence to prove the violation of a specific Child Labor Hazardous Order directly caused the death or serious injury of an employee under 18. The January 20 Field Assistance Bulletin sets forth detailed examples of violations that cause injuries as opposed to injuries that occur while employed in violation of a child labor hazardous order.

 

Of course no one wants an accident to occur to anyone at any time. However, in light of the DOL’s increased enforcement authority in the area of child labor, employers are well advised to verify the ages of their employees. If an employee is under the age 18, it is mandatory to ensure the employee is not permitted to engage in any prohibited activities.

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Posted on January 26, 2010 by Richard Tuschman

The Obama Administration's Agenda for the DOL -- What Employers Need to Know

By Betsy Johnson

President Obama just celebrated his first year in office and his Administration has been busy! Employers of all sizes are starting to see the effects of the Obama Administration’s workplace agenda; especially at the Department of Labor (DOL). The watchword for all employers in the wage/hour arena for 2010 is “compliance.”  The DOL is slated to receive a substantial budget increase this year and it is going on a hiring spree to increase the number of investigators and enforcement personnel. 

The DOL’s agenda includes increased audit and enforcement proceedings related to “off the clock” work and the misclassification of employees as “exempt” under the Fair Labor Standards Act (FLSA). In addition, the DOL (in cooperation with the IRS) will focus its audit and enforcement proceeding on employers who misclassify individuals as independent contractors.  Now, more than ever, employers must have programs in place to ensure compliance with the myriad of wage/hour laws and regulations, and implement a clear strategy for handling government audits and enforcement actions. While the thought of conducting a comprehensive payroll practices compliance audit can be daunting, employers can efficiently conduct “spot” audits of particular areas where they may be vulnerable. 

 

As an initial matter, employers should determine who will conduct the audits. Utilizing internal resources such as the Human Resources and/or Payroll Departments and/or the company’s General Counsel will help keep the costs down. However, using internal resources may not guarantee that the results will be protected by the attorney-client privilege should the company become involved in litigation regarding the subject matter of the audit. As such, employers may wish to seek assistance of outside counsel to conduct the audit and analyze the results.

 

The purpose of these “spot” audits is to: 1) identify areas of non-compliance; 2) identify policies, procedures and/or practices that can be improved; 3) develop a plan for improvement; and 4) implement the plan. The areas where most employers are vulnerable to government actions and employee claims in the wage/hour area are:

 

•         Overtime calculation and payment

•         Off the clock work

•         “Donning and doffing” issues

•         Classification of employees (exempt v. non-exempt)

•         Time keeping

•         Recordkeeping

•         Proper classification of independent contractors

 

In planning a “spot” audit, employers should determine: 1) the scope and depth of the audit; 2) what data needs to be collected; 3) what documents need to be reviewed; 4) which managers should be interviewed to obtain relevant information; and 5) whether the employees should be surveyed for relevant information. On a cautionary note, if the employer believes there may be too many “skeletons in the closet” that may be exposed in an audit, consideration should be given to retaining outside counsel to assist in the audit so that the process and the results can be protected by the attorney-client privilege.

 

Finally, employers must decide what to do with the results of the audit. Some things to consider are: 1) who will be apprised of the results and how (written or verbal); 2) will the person who conducted the audit make recommendations regarding problem areas; 3) what, if anything, is going to be done about any problems; 4) how should any changes be implemented (a “spin doctor” may be needed); and 5) how is the employer going to address employee questions and challenges.

 

In the short-term, the exercise of conducting internal audits may be viewed as a distraction from an employer’s business purpose. In the long run, however, getting the company’s “house in order” before a government agency knocks on the door will save time, attorneys’ fees and the intangible costs of being embroiled in administrative or civil litigation. Remember the old adage: “An ounce of prevention is worth a pound of cure.”

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