Posted on September 23, 2009 by David Barron

Changes to New York Wage and Hour Laws Take Effect in October

In a recent Client Alert prepared by Jeff Landes, the firm summarized several new laws passed by the New York legislature which will affect employers.  Among these laws was a very important change to the wage and hour laws, which will affect all companies with employees in New York.

Rate of Pay, Regular Pay Day and Overtime Rate Must Be in Writing and Acknowledged by New Hires

Labor Law Section 195(1) currently requires employers to provide newly hired employees with information regarding their rate of pay and the employer's regular pay days – such notice need not be written. On July 28, 2009, however, the New York Labor Law was amended to require employers to provide all employees hired on or after October 26, 2009, with written notice of their rate of pay and the employer's regular pay days. In addition, employees who are eligible for overtime (including non-exempt, salaried employees) must be notified of their regular hourly rate and their overtime rate of pay. Employers will be required to obtain a written acknowledgment of receipt of such notice from each new employee. The legislature has not specified the content and form of the acknowledgment, but indicated that the Commissioner of Labor may provide guidance.

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Posted on September 9, 2009 by Richard Tuschman

California Labor Commissioner Changes Course On Salary Reductions for Exempt Employees

By Betsy Johnson

On August 19, 2009, the Chief Counsel of the California Division of Labor Standards Enforcement ("DLSE") issued an Opinion Letter on behalf of the Labor Commissioner, Angela Bradstreet, in which the DLSE reversed its enforcement stance on the issue of shortened workweeks with reduced salaries for exempt employees. In the Opinion Letter, the DLSE opined that there is nothing in California law that would prevent an employer from implementing a reduction in exempt employee salaries that is directly proportional to a reduction in the number of days worked per week.

This change in the DLSE enforcement policy brings California law more in line with the federal Fair Labor Standards Act ("FLSA") regarding "furloughs" and salary reductions for exempt employees. For more information regarding the FLSA rules regarding furloughs, please see our March 2009 Client Alert.

Question Presented to the DLSE

The employer sought to reduce the work schedule of its exempt employees and implement a corresponding reduction of their salaries as an alternative to layoffs. Specifically, the employer proposed reducing the number of workdays from five (5) days to four (4) days per week and making a proportionate reduction in the salaries of the exempt employees by 20 percent. The employer represented to the DLSE that the reduction in workdays and salaries would be a temporary measure to assist the employer in weathering the current economic downturn. The employer intends to restore both the full five-day work schedule and the full salaries of its exempt employees.

The question presented to the DLSE was whether the employer's planned salary reduction is consistent with the "salary basis test" for exempt employees under California law.

The DLSE's Analysis

In order to qualify for an exemption from the overtime and minimum wage requirements of California law, an employee must meet both the "duties test" and the "salary basis test." For the purposes of the Opinion Letter, the DLSE assumed that the employees in question met the "duties test" for the "white collar" (executive, administrative and professional) exemptions described in the California Wage Orders.

At issue was whether the planned change ran afoul of the "salary basis test" as set forth in Labor Code § 515(a) and the Wage Orders. The Wage Orders provide that, in order for employees to meet the "salary basis test" portion of the exemption, the employees "… must also earn a monthly salary equivalent to no less than two (2) times the state minimum wage for full-time employment. Full-time employment is defined in Labor Code Section 515(c) as 40 hours per week." At present, the California minimum wage is $8.00 per hour, which equates to a minimum salary of $2,733.33 per month for exempt employees.

The DLSE concluded that there is no express provision in the California Labor Code, the Wage Orders or in any California cases that would restrict or prevent and employer from implementing a fixed reduction in exempt employee salaries during a period when the employer operates a shortened workweek due to economic conditions. Since the DLSE found no precedent in California law, the DLSE looked to the federal interpretations under the FLSA for guidance.

The DLSE found that the applicable federal regulations and interpretations by the federal Department of Labor ("DOL") support the conclusion that an employer may reduce its exempt employees' work schedule and salary without violating the salary basis test. Specifically, the DLSE looked at 29 CFR § 541.602, which sets forth the general rule that exempt employees must be paid their pre-determined salary in any week in which they perform work, and the series of DOL opinion letters interpreting this regulation.

The DLSE reviewed DOL opinion letters, dating as far back to 1970, in which the DOL consistently concluded that the salary basis test does not preclude a bona fide fixed reduction in the salary of exempt employees to correspond with a reduction in the normal workweek, so long as the reduction is not designed to circumvent the requirement that the employees be paid their full salary, and in no event less than the legal minimum salary, in any week in which they perform work.

The DLSE cited, with approval, several federal decisions which address this issue (see Archuleta v. Wal-Mart Stores, Inc., 543 F.3d 1226 (10th Cir. 2008); In re Wal-Mart Stores, Inc., 395 F.3d 1177 (10th Cir. 2005); and Caperci v. Rite Aid Corporation, 43 F.Supp.2d 83 (Dist. Mass 1999)). These decisions support the conclusion that the employer's proposal to reduce simultaneously its exempt employees' work schedule and salary for the specific reasons described above does not violate the salary basis test.

Finally, the DLSE addressed its previous enforcement position, which is found in an e-mail Opinion Letter issued by the DLSE in 2002 (see DLSE Opinion Letter 2002.03.12). In that opinion, the DLSE concluded that the federal and state regulations preclude an employer from reducing the salary of an exempt employee during a period in which the company operates a shortened workweek due to economic conditions. This conclusion relied in part upon the federal trial court decision in Dingwall v. Friedman Fisher Associates, P.C., 3 F.Supp.2d 215 (N.D. NY 1998). In Dingwall, the defendant employer reduced the workweek of its staff from five days to four and simultaneously reduced their salaries by 20 percent.

The DLSE analyzed the decision in Dingwall in relation to the more recent federal precedent and determined that Dingwall is not well reasoned and should not form the basis of the DLSE's enforcement position. Although the DLSE did not withdraw Opinion Letter 2002.03.12, the DLSE determined that the employer was not prohibited under California law from implementing the proposed reduction in the work schedule and salary of the exempt employees.

The DLSE's Conclusion

The DLSE concluded that, while there are differences between the federal and state salary requirements (e.g., minimum dollar amounts), the DLSE will follow the interpretation under the FLSA regarding the validity of a reduction in the work schedule and salary of exempt employees. The DLSE stressed that the exempt employees must still meet the salary basis test by earning a monthly salary of at least $2,733.33 (the equivalent of two times the state minimum wage for a 40-hour week), as provided in Labor Code §§ 515 and the Wage Orders.

The DLSE cautioned that its conclusion is based on the employer's representations that: 1) the "proposal to reduce the number of its employees' scheduled work days from five days to four days per week, with a corresponding reduction in salary, is based upon the employer having experienced significant economic difficulties due to the present severe economic downturn"; and 2) "as soon as the business conditions permit, the employer intends to restore both the full five-day work schedule and the full salaries of its exempt employees."

What the DLSE Opinion Letter Means To Employers

While the DLSE Opinion Letter is not legally binding precedent in civil litigation, it should be given significant weight by the California courts. However, the Opinion Letter is binding precedent in any DLSE proceeding and signifies a favorable shift in the DLSE's enforcement policy in favor of giving employers more flexibility in implementing cost-cutting measures to address changing economic conditions. By implementing reductions in exempt employees' salaries and work schedules, an employer may be able to avoid layoffs and be in a better position to adjust to changes in the economy.

 

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Posted on September 4, 2009 by David Barron

New York Adds New Teeth to Wage and Hour Enforcement

by Doug Weiner

Employers have been experiencing a new wave of wage and hour lawsuits with significant six and seven figure recoveries and, in some cases, liability for managers who are responsible for failures to pay the wages required by the federal Fair Labor Standards Act ("FLSA") and state wage and hour laws. At the same time, state legislatures have been amending the laws to increase protection for employees.

Governor David A. Paterson announced on August 27, 2009 that he had signed a bill (A. 6963) into law to enhance wage and whistleblower protections for workers. The new law takes effect on November 24, 2009. Following the national trend of expanding the rights of workers, New York's legislature stated that "strengthening the recovery of unpaid wages will also help the state and local economies." Further, "the penalty increases are estimated to generate $75,000 in state revenues."

The bill increases penalties against employers who retaliate against employees for exercising their rights under the New York State Labor Law. Minimum penalties are increased from $200 to $1,000, and maximum penalties are increased from $2,000 to $10,000.

The bill also provides that when an employer is found to have violated New York State Wage Laws, liquidated damages of 25 percent of the unpaid wages will automatically be added unless the employer proves a "good faith belief that the underpayment complied with the law." Under the prior law, liquidated damages were awarded only upon a finding that the employer's failure to pay the wage was "willful."

As a result, under the new law, liquidated damages can be awarded if the employer had not inquired about whether its wage system was in compliance with state law. Since New York State liability can go back as many as six years, liquidated damages can be significant indeed. This suggests that a periodic audit of pay practices is a wise course for employers to take to ensure they are in compliance with applicable laws and regulations and not vulnerable to class actions and administrative proceedings.

Section 1 of the bill amends New York Labor Law 198(1-a) to allow the Commissioner of Labor to bring either a court action or an administrative proceeding to collect wage underpayments and liquidated damages on behalf of workers.

Section 2 of the bill amends New York Labor Law 215(1) to expand the categories of conduct protected against employer retaliation. Significantly, the new state law now expressly prohibits retaliation when an employee has made a complaint to his or her supervisor. This expands whistleblower protection beyond the federal FLSA, which in the Second Circuit pursuant to Lambert v. Genesee Hospital, 10 F. 3d 46 (2d Cir. 1993), requires an employee to "file" a formal complaint before his or her conduct is protected from reprisal.

In light of this new law particularly, and the prevailing national climate generally, employers now must redouble internal efforts to verify that their pay practices comply with applicable state and federal wage and hour requirements. Even though a pay practice has prevailed in an industry for decades without challenge, the practice still could be challenged today or tomorrow and found to be in violation of laws passed recently or over 70 years ago.

When employees are disciplined, it is vital to document the reasons for the discipline. A contemporaneously written explanation for imposing legitimate discipline is the best defense to a claim of retaliation.

Questions about pay practices and discipline are best brought to the attention of experienced employment counsel to prevent inadvertent and costly mistakes.

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Posted on September 3, 2009 by David Barron

Practical Tips for Protecting Exempt Status of Working Supervisors

A client this week asked us to provide an opinion letter regarding the exempt status of certain supervisors, and some tips on how to avoid lawsuits regarding mis-classification.  Although some of the advice was specific to the client's business, much of the advice is applicable to a wide variety of industries.  An excerpt from the memo is below.

  • Carefully craft job descriptions to emphasize exempt duties over non-exempt duties – require employees to acknowledge their job descriptions in writing.
  • List the two or more employees supervised by an exempt manager in the job description (either by name or by title). This ensures this requirement is not inadvertently overlooked.
  • Ensure that managers are involved in both hiring and termination decisions.  The Company should have a paper trail easily proving this element.  Even if managers do not typically make termination decisions, consider having them “sign off” on the termination of employees at their location, thus establishing their participation in the process.
  • Supervising two or more employees is a minimum requirement, not necessarily a safe guidepost. Often, supervising only a handful of employees is not a full time job, leaving a manager with most of their time spent on non-exempt work. If the manager does not have a sufficient number of subordinates to justify spending most of his or her time on management, reconsider whether the employee should be classified as exempt.
  •  Exempt managers should be paid differently than non-exempt workers. For example, a manager’s pay should be notably different from those he or shesupervises, not only in amount but also in type. A manager’s pay should be related primarily to management performance (i.e. performance of the department or office as a whole), not the performance of non-exempt tasks. Likewise, bonuses and other incentives should not be tied to non-exempt tasks.
  • Consider how the number of managers in an office or location will be perceived by a judge or jury reviewing the facts. Someone has to be in charge, and one manager of a department or office is likely to pass muster as a valid exempt employee. As the number of exempt managers in a single location rises, however, the defensibility of the exemptions goes down. 

 

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