Wage & Hour Defense Blog : Wage & Hour Lawyer & Attorney : Epstein Becker Green Law Firm : DOL Enforcement, FLSA Coverage

By: Dean Silverberg, Evan Spelfogel, Peter Panken, Douglas Weiner and Donald Krueger

Reversing its prior stance, the U.S. Department of Labor (“DOL”) proposes to extend the minimum wage and overtime requirements of the Fair Labor Standards Act (“FLSA”) to domestic workers who provide in-home care services to the elderly and infirm. See Notice of Proposed Rulemaking to Amend the Companionship and Live-In Worker Regulations. In 1974, when domestic service workers were first included in FLSA coverage, the DOL published regulations that provided an exemption for such “companions”, whether employed directly by the families of the elderly and infirm, or by a third party employer/staffing agency. Now, heeding calls from organized labor and certain members of Congress, the DOL is moving to close this “loophole.” See“Is the Department of Labor Considering a Revision to the Domestic Service Exemption for Home Health Care Aides?” .

Specifically, the proposed rule would eliminate the exemption for third-party employers, like service staffing agencies, even if the employee is jointly employed by the staffing agency and the family. The new proposal if implemented, would likely drive up costs for families who wish to care for their elderly and infirm at home.

The change would be particularly onerous for Home Health Agencies if it is deemed to be merely a correction of a “misinterpretation” and given retroactive effect. This could lead to claims of past liability for extra overtime compensation for Home Health Agencies that had relied on the Department of Labor’s prior interpretation. The DOL’s prior interpretation, exempting third party employers and staffing agencies from FLSA overtime requirements had been upheld by the United States Supreme Court in the Coke case.

The change in the federal DOL’s interpretation could also affect State Wage Hour Regulations (like New York). These provide favorable treatment for employers of employees who are exempt under the FLSA.

The public has been invited to comment on the proposed new rule. Potentially adversely affected employers may use the public comment period to point out the impropriety of the proposed change after thirty five years of consistent industry wide application of the current rule. Employers might also point out that an unintended effect of the changed rule may be to force the care of the elderly and infirm from their homes to an institutional setting, such as a nursing home or assisted care facility.

By:      David Garland and Douglas Weiner

In February 2011, the U.S. Court of Appeals for the Ninth Circuit gave a resounding victory to employers in the pharmaceutical industry by finding that pharmaceutical sales representatives are covered by the outside sales exemption of the Fair Labor Standards Act (“FLSA”). Christopher v. SmithKline Beecham, No. 10-15257 (9th Cir. Feb. 14, 2011). Plaintiffs, and the U.S. Department of Labor (“DOL”) in an amicus brief, had argued the exemption did not apply because sales reps are prohibited from making the final sale. Prescription medicine in the heavily regulated pharmaceutical industry can only be sold to the ultimate consumer with the authorization of a licensed physician. Sales reps use their “selling skills” to persuade doctors to prescribe their employer’s products when the doctor’s patients have a medical need for them. Sales reps do not transfer title to the medicine themselves.

Previously the Second Circuit, in In Re Novartis, took a contrary view and adopted the Secretary of Labor’s position that the outside sales exemption did not apply to pharmaceutical sales representatives specifically because they were prohibited by regulation from making direct sales. The Ninth Circuit rejected the plaintiffs’ and DOL’s “rigid, formalistic interpretation” of the FLSA’s definition of “sale,” which provides that “Sale” … includes any “sale … or other disposition.” 29 U.S.C. 203(k). Because of the uncertainty in this unsettled area of law, both the employee plaintiffs and the employer asked the U.S. Supreme Court to review the Ninth Circuit’s decision.

Pertinent to the aggressive approach the DOL has recently taken in submitting unsolicited amicus briefs in significant cases, another issue the Supreme Court may review is the degree of deference, if any, the court owes to an amicus brief submitted by the DOL. Again in stark contrast, the Second Circuit gave the DOL’s amicus brief “controlling deference” to interpret the DOL’s own regulations while the Ninth Circuit gave the DOL’s amicus brief “no deference” finding it was a departure from established industry norm that the DOL used to short-cut the public notice – and – comment rule making procedures.       

It would be a most welcome development for the Supreme Court to affirm the Ninth Circuit and resolve this dramatic split in the circuit courts. However, even if the Second Circuit’s view of the “outside salesman” exemption is upheld, there are circumstances when sales reps may be exempt by virtue of the administrative exemption. Employers need clarity to structure employment practices without the ever-present threat of class action litigation.

by Dean L. Silverberg, Jeffrey M. Landes, Susan Gross Sholinsky, and Jennifer A. Goldman

On September 21, 2011, the Internal Revenue Service ("IRS") announced a new program that will give businesses the opportunity to resolve prior worker classification issues by voluntarily reclassifying their non-employee workers (such as consultants, freelancers, and independent contractors) as employees for federal employment tax purposes. Officially called the "Voluntary Classification Settlement Program" ("VCSP"), this program is part of a larger "Fresh Start" initiative at the IRS to aid taxpayers and businesses in addressing their federal tax liabilities.

Read the full advisory online

By:  Kara M. Maciel

The Department of Labor’s Wage and Hour Division in Norfolk, Virginia has announced that it will be stepping up its compliance audits and enforcement efforts against area hotels. In the past few years, the DOL stated it found violations at about 60% of local hotels. According to the DOL, the agency recently made spot checks at 10 area hotels since April. This is just one part of the agency’s nationwide enforcement program and its “Plan/Prevent/Protect” initiative against the hospitality industry. Common violations assessed by the DOL include:

·         Payment of overtime. Under the FLSA, employees are entitled to overtime for any hours worked over 40 per week. For employers who have multiple hotels or facilities, when employees work at different locations in a work week, it is imperative that the employer coordinate its payroll systems to aggregate the employee’s time worked at both jobs in order to ensure that proper overtime is being paid. The DOL is finding that when an employee works at one hotel 20 hours per week, and 25 hours at another hotel, the employee is not paid overtime.   

·         Unlawful deductions. Many hospitality employers require employees to reimburse the hotel for a uniform through payroll deductions. However, an employer may not lawfully deduct from an employee’s wages for the cost of a uniform if it reduces the employee’s hourly wage below the minimum wage. Thus, for employees who are paid the minimum wage or tipped employees for whom the employer takes the tip credit, the hotel cannot deduct for a uniform if it drops the employee below the minimum wage.     

·         Working through meal breaks. Another common violation in the hospitality industry relates to workplaces in which the employer voluntarily provides a meal break. Under the FLSA, an employee, who is provided with a bona fide meal break, must be completely relieved of duty.  If an employee clocks out for lunch, and then is asked to clock back in to perform some work, the employee must be paid for the entire meal break, and not just for the time back on the clock. For many employers who automatically deduct for meal breaks or who fail to pay for the full meal period when it is interrupted, this could represent a significant liability. 

Now, more than ever, employers in the hospitality industry should be vigilant in their wage and hour compliance with federal and state law. Especially in light of the DOL’s recent roll-out of its Smartphone “app,” which allows workers to track their hours and evaluate the amount of overtime earned, workers are being armed with ample resources to bring claims of unpaid wage against the employers. 

By Michael Kun and Betsy Johnson

Under the Obama administration, the U.S. Department of Labor (DOL) has implemented a number of initiatives in support of its enforcement of federal wage and hour laws and its mission of making employers more accountable for compliance with these laws.  These include the “We Can Help” and “Bridge to Justice” initiatives.

The DOL has now announced that it is launching a free application for smartphones.  This new “app” provides non-exempt employees with an electronic “timesheet” that allows them to independently track the hours they work and determine the amount of wages owed. The new application is available in both English and Spanish, and it allows users to track regular work hours, break time and overtime hours for themselves and/or co-workers.  The DOL intends to explore other applications that would allow employees to independently track tips, commissions, bonuses, deductions, holiday pay, pay for weekends, shift differentials and pay for regular days of rest.

The DOL believes that this new technology will become a significant tool for employees, allowing them to keep their own records instead of relying on their employers’ records. The DOL envisions that these employee records may prove “invaluable” to the DOL during investigations in cases where an employer has not maintained accurate employment records.

The free app is currently compatible with the iPhone and iPod Touch, but the feature may be expanded to other smartphone platforms, such as Android and BlackBerry.  For workers without a smartphone, the DOL has designed a printable work hours calendar in English and Spanish that allows employees to track their hours worked, breaks and rates of pay. The calendar also includes information about workers’ rights and how to file a wage violation complaint.

What Should Employers Do Now?

Under the Fair Labor Standards Act (FLSA), employers bear the burden of maintaining accurate records.  Where employers fail to do so, the DOL will accord a presumption of accuracy to any records that the employees produce. The DOL has not indicated how it will deal with situations where an employer maintains records that appear to be accurate but are in conflict with the employees’ own records.  However, it is quite possible that the DOL will look for ways to disregard employer records if there appear to be any defects, inaccuracies or gaps in the manner in which the employer maintains its records. As the DOL continues to use the latest technology to assist both the DOL and employees in the enforcement of federal wage and hour laws, it is imperative that employers develop, implement and rigorously enforce their time keeping and reporting policies to ensure that they have accurate time, attendance and payroll records for all employees, especially non-exempt employees. 

by Kara Maciel

Once again, the U.S. Department of Labor is requesting additional funding from Congress in its 2012 budget proposal to increase its efforts toward regulation and enforcement of wage and hour and employment laws.  While the DOL’s budget proposal would reduce its overall discretionary spending by 5%, the budget cuts will not affect the staff and resources that enforce wage and hour laws.  Instead, the Wage and Hour Division is asking for $241 million – an increase of $13.3 million from last year’s estimated budget. 

In particular, the Wage and Hour Division is seeking to add 107 full-time staff to support the DOL’s initiative against misclassification of independent contractors and other labor violations arising from misclassification.  Along with the budget and staff increases, the DOL expects its investigations to increase as well in 2012.  According the DOL’s budget summary, the DOL is planning on conducting an additional 3,250 investigations.  These investigations will target industries with higher rates of violations, including:

· Construction

· Home health care

· Grocery stores

· Janitorial businesses

· Poultry and meat processing

· Child care

· Business services

· Landscaping

The Wage and Hour Division is also developing a proposed rule to update the FLSA’s recordkeeping requirements which would require employers to notify their workers of their rights under the FLSA.  The proposed rule would essentially require employers to perform a written classification analysis for exempt employees and share that analysis with the worker.

Notably, the DOL is also seeking $23 million to help states establish paid leave programs to help workers who must take time off to care for a seriously ill child, spouse, parent or bond with a newborn or recently adopted child.

Despite the budget showdown that is currently taking place in Congress and the fact that Congress still has yet to approve the budget for Fiscal Year 2011, the DOL’s 2012 budget request is a strong indication that employers should continue to be vigilant and prepare for increased enforcement efforts from the DOL and the Wage Hour Division. 

 by Michael Kun and Doug Weiner

  It is no secret that employers have been beseiged by wage-hour litigation, including wage-hour class actions and collective actions.  It is also no secret that the persons who benefit most from these actions are often plaintiffs' counsel, who frequently receive one-third or more of any recovery.  Now, as a result of an unprecedented new program initiated by the the Department of Labor's Wage and Hour Division ("WHD"), the WHD will be practically delivering potential plaintiffs to the doors of plaintiffs' counsel -- and the WHD has invited plaintiffs' counsel to let it know if it wants a piece of the action. 

    Despite the fact that the WHD has an increased enforcement budget and has hired 350 new investigators over the last two years, the WHD has said that it is unable to handle all of the claims it receives.  Rather than seek more funding or implement new procedures to handle the claims, the WHD has made a stunning announcement that can only lead to an increase in wage-hour litigation across the country.  It has announced that it will begin referring employees directly to attorneys to assist them with their claims under the Fair Labor Standards Act ("FLSA") and the Family and Medical Leave Act ("FMLA").   The WHD's new program, which is referred to as the "Bridge to Justice," is part of collaboration with the American Bar Association.  

    The Department of Labor's guidance on the "Bridge to Justice" program may be found here :    Attorney Referral System Webpage  Under the new initiative, employees will be given a toll-free number to obtain referrals to attorneys in their area.  And attorneys who wish to be included on the referral list are invited to submit their names. 

    For employers, the "Bridge to Justice" is likely to be seen as little more than the latest effort by the WHD to encourage employees to sue their employers, rather than to raise any concerns with their employers and try to resolve them amicably.  

    For plaintiffs' counsel, the "Bridge to Justice" is likely to be seen as an early holiday gift from the WHD, one that they will reap the benefits of for years to come. 

 On June 16, the Department of Labor issued an “Administrator’s Interpretation” addressing the compensability of time spent by employees changing clothes and equipment before and after work (commonly referred to as “donning and doffing). The Interpretation reversed opinion letters on the subject  issued by the Bush administration in 2002 and 2007, and lowered the standard for employees to seek compensation for such activities.

The Interpretation addressed two issues. First, the advisory notes that Section 203(o) of the Fair Labor Standards Act (FLSA), which allows employers to negotiate with a Union to exclude from compensable time certain donning and doffing activities, should be narrowly interpreted. The DOL concluded that time spent “changing clothes” (which can be lawfully excluded under the express terms or by custom or practice under a collective bargaining agreement) does not include time spent donning and doffing safety or protective equipment in the meat packing and other industries. Second, the DOL opined that even non compensable time spent “changing clothes” would constitute the start of the continuous work day, thus making any walking or waiting time after that point compensable.

Employers in industries where workers regularly change clothes, wear safety equipment, or clean up after work should take note of this important change in DOL position, including meat packing, healthcare, manufacturing, and hazardous jobs. Although the decision is aimed primarily at unionized workforces, it has much broader implications. Companies in these industries should:

·         Review any applicable collective bargaining agreements to determine the scope of any agreed upon exclusion (or limitation) of employee compensation for donning and doffing time and seek legal advice on whether such agreement is still enforceable after this Interpretation.

·         For both union and non-union employers, it is critical to conduct an audit of payroll practices to verify the point at which employees don any protective equipment or changes clothes and whether employees are being compensated for all time after this point until the employees change back into street clothes or remove the protective equipment.

·         Employers should not allow employees to change into any specialized work clothing (such as gloves, smocks, or special boots) or don any safety equipment before the shift starts or the intended start of the work day, since this could trigger an obligation to pay employees for all time thereafter (even if they are simply walking or waiting and not performing any work).

·         Employers should review the location of changing areas and their proximity to time clocks to ensure that any walking time after employees have started their work day by donning specialized clothing or equipment is adequately captured in the payroll system.

            If you have any questions, please contact Michael Kun, Co-Chair of the Firm’s Wage and Hour Subpractice Group.

By Douglas Weiner and Brian Molinari

In the current economic downturn, competition for desirable positions of employment is keen. Ambitious job seekers may approach an employer asking for an unpaid position to gain experience, skills and contacts. While such a relationship may prove mutually advantageous, employers should remember that the DOL recently emphasized the FLSA’s compensation requirements apply to employees who are required or allowed to work. The terms “to suffer or permit to work” have been construed expansively in order to effectuate the broad remedial purposes of the Act.

Volunteering Does Not Mean Waiving

It has been determined that employees subject to the Act may not choose to “decline” the protections of the Act by performing activities characterized as “volunteer” services. Tony and Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290, 302 (1985). In that case, the Supreme Court was concerned that unless employees were barred on a general basis from “volunteering” to perform any services for their employers there would be potential for the coercion of uncompensated services, to the detriment of the purposes of the Act. The Court did not wish to allow the prohibition against employees waiving their protections under the Act to be circumvented by characterizing work as “volunteer” services, citing Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S. 728 (1981) and Brooklyn Savings Bank v. O’Neil, 324 U.S. 697 (1945). Accordingly, covered and non-exempt individuals who are “suffered or permitted” to work must be compensated under the law for the services they perform for an employer. Thus, internships in the “for-profit” private sector will most often be viewed as employment, unless the test described below relating to trainees is met.

Fact Sheet #71: The Test For Unpaid Interns

Individuals who participate in “for-profit” private sector internships or training programs may do so without compensation, according to DOL, only under certain circumstances. Whether an internship or training program meets this exclusion depends upon all of the facts and circumstances of each such program.

The following six criteria must be applied when making this determination:

1.                  The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

2.                  The internship experience is for the benefit of the intern;

3.                  The intern does not displace regular employees, but works under close supervision of existing staff;

4.                  The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

5.                  The intern is not necessarily entitled to a job at the conclusion of the internship; and

6.                  The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If all of the factors listed above are met, an employment relationship does not exist under the FLSA, and the Act’s minimum wage and overtime provisions do not apply to the intern. 

Accordingly, employers must tread carefully when entertaining what is certain to be many offers from job seekers to work as an unpaid intern. Unless all 6 factors above support an unpaid internship, individuals working for “for-profit” employers typically must be paid at least the minimum wage and overtime compensation for hours worked over forty in a workweek.

By Allen B. Roberts and Douglas Weiner 

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the "Act"), significantly impacting the delivery of health care, also amends the Fair Labor Standards Act ("FLSA"). The FLSA amendments impose certain employer responsibilities in providing health care benefits, confer whistleblower protections and authorize the U.S. Department of Labor ("DOL") to undertake increased enforcement related to health care. Employers have new requirements to learn, and to implement, under the FLSA, irrespective of their size or the number of employees in their workforce.

The most significant features of these amendments to the FLSA are summarized below.
 

Automatic Enrollment in Health Plans for Employers with at Least 200 Employees

• Under the Act, a new Section 18A is added to the FLSA that requires employers with 200 or more full-time employees to automatically enroll new full-time employees in one of the health plans offered by the employer and to continue the enrollment of current employees in the health plans offered. Under the automatic enrollment requirements, automatically enrolled employees must be given adequate notice and an opportunity to opt-out of the health plan. Any applicable state laws regarding payroll, such as permissible deductions of wages, will continue to be in effect except to the extent the state laws prohibit employers from implementing automatic enrollment.
• This provision is effective upon the promulgation of regulations by the DOL. It is unclear when the DOL will issue regulations implementing this requirement, and officials at the DOL have confirmed that they have yet to issue official guidance on any of the amendments to the FLSA.

Required Health Care Notice to Employees

• The Act adds a new Section 18B to the FLSA that requires employers to provide a detailed notice to employees of significant provisions of the Act regarding the American Health Insurance Exchange (“Exchange”). The Act requires each state to establish an Exchange by January 1, 2014, through which individuals (and small businesses) may purchase insurance coverage under qualified health plans that provide certain standards of health benefit coverage. For more information regarding the Exchange and its impact on employers, please see our Client Alert of April 8, 2010, entitled “Health Care Reform: What Employers Need to Know.” The notice must inform each employee at the time of hire of the existence of the Exchange, that the employee may be eligible for a premium tax credit if the employer’s share of the total cost of benefits is less than 60 percent of such costs and that, if the employee purchases a policy through the Exchange, the employee may lose the employer contribution to any health benefits offered by the employer (except as otherwise required by a “free choice voucher”). 
• This provision is effective for employers beginning March 1, 2013, and the notice must be provided to current employees no later than March 1, 2013. 

Non-Discrimination and Whistleblower Protections

• A new Section 18C, “Protections For Employees,” is added to the FLSA, prohibiting employers from taking adverse action against any employee because the employee: 
• received a premium tax credit or subsidy for a health plan;
• provided information to the employer or the federal or state government concerning a violation, act or omission the employee reasonably believes to be a violation relating to Title I of the Act. (Title I of the Act, among other things, provides rules for the establishment and operation of the Exchange and imposes certain mandates on employers, including the provision of certain standards of benefits for health coverage, the automatic enrollment requirements described above and the elimination of certain restrictions in health coverage, such as pre-existing condition exclusions and lifetime and annual dollar limitations in coverage);
• testified or is about to testify in a proceeding concerning such violation;
• assisted or participated, or is about to assist or participate, in such a proceeding; or
• objected to, or refused to perform, any activity or assigned task the employee reasonably believes to be such a violation.
   
• The new employee protections under the Act are significant in that they provide employees with the authority to challenge actions of employers in implementing the requirements of Title I of the Act.
• Enforcement of these protections incorporates the procedures, notifications, burdens of proof, remedies and statute of limitations set forth in the Consumer Product Safety Improvement Act of 2008 (“CPSIA”), 15 U.S.C. 2087(b). The DOL is likely to assign complaints under this section to the whistleblower investigations unit within OSHA, as are 17 other statutes, including CPSIA. Finally, these protections do not diminish any other rights under federal or state law or under a collective bargaining agreement and are not waivable.
• This provision is effective immediately.

Nursing Mothers 

• A new paragraph (r) is added to Section 7 of the FLSA that requires employers to provide unpaid, reasonable break time for nursing mothers to express breast milk, as such employee has need to express the milk, for one year after the child’s birth and a place to express the milk “other than a bathroom, that is shielded from view and free from intrusion.” An employer with less than 50 employees will not be required to implement this provision if doing so would cause the employer an “undue hardship.”
• This provision is effective immediately.

On April 1, 2010, Secretary of Labor Hilda Solis announced a new campaign entitled "We Can Help," aimed at assisting low income workers in reporting wage and hour violations to the Department of Labor.    The campaign consists of a new website and 1-800 number, combined with bilingual public service announcements by celebrities such as Esai Morales and Jimmy Smits.

The campaign is primarily targeted at employees in the construction, food service, janitorial, hospitality and health care fields.  Employers in these targeted industries should be congnizant of these stepped up enforcement efforts and conduct regular audits to ensure compliance.

For more information, please see the Client Alert prepared by Michael Kun, Jay Krupin, Kara Maciel and Allen Roberts.

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.

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.”

 by Doug Weiner

The U.S. Department of Labor (“DOL”) has announced an intention to initiate a rule making process concerning the records employers are required to make and keep pursuant to the Fair Labor Standards Act (“FLSA”). Section 11 of the FLSA requires employers to keep specified records of the hours employees work, and the wages they are paid. The DOL proposes to update the recordkeeping regulations under the FLSA in order to enhance the transparency and disclosure to workers of how their pay is computed, and to modernize other recordkeeping requirements for employees under “telework” and “flexiplace” arrangements. 

The DOL states there is a need to modernize the recordkeeping regulations to foster more openness and transparency in demonstrating employers’ compliance with applicable requirements to their workers, to better ensure compliance with the increasing emphasis on flexi-place and telecommuting, to allow for automated or electronic recordkeeping systems instead of the mandatory manual preparation of “homeworker” handbooks currently required for all work that an employee may perform at home.

The DOL intends to develop alternatives to consider revisions to the current recordkeeping requirements. The public will be invited to provide comments on the proposed revisions, and possible alternatives.

Developments in this proposed recordkeeping rulemaking will be posted on this blog as they become available.

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.

After the recent seventy cent increase in minimum wage to $7.25, there were some interesting statements being made by Labor Secretary Hilda Solis.  In a press conference on July 24, Secretary Solis announced that the increase will help 3 million to 5 million workers and is "projected to generate $5.5 billion in consumer spending over the next year."  Of course, this statement implies that the money, if kept by businesses, would have just sat in a vault in the boss' office, and not have been spent on additional equipment, more employees, or expanding the business.

Under Solis, employers can expect increased enforcement and a more aggressive eye towards litigation.  During the first six months of 2009 alone, DOL has collected a total of $82 million in back wages from employers.  DOL is in the process of hiring 250 new field investigators for the Wage and Hour Division, who will be tasked with targeting industries with poor track records of compliance.

So, don't be surprised if you get a knock on the door from DOL in the near future looking to collect back wages  Just look on the bright side -- your company is doing its part to boost consumer spending and stimulate the economy.

A report by the Government Accountability Office found that the Department of Labor's Wage and Hour Division, the federal agency charged with enforcing minimum wage, overtime and other labor laws, "is failing in that role, leaving millions of workers vulnerable," according to an article in today's New York Times.

One of the reports concerned the Division's office in Miami:

When an undercover agent posing as a dishwasher called four times to complain about not being paid overtime for 19 weeks, the division’s office in Miami failed to return his calls for four months, and when it did, the report said, an official told him it would take 8 to 10 months to begin investigating his case.

The report concludes that "Labor has left thousands of actual victims of wage theft who sought federal government assistance with nowhere to turn." 

Nowhere to turn? In Florida that's simply not true.  As anyone who pays attention to court filings can tell you, dozens of workers each week, many on the low end of the pay scale, file claims for overtime and minimum wage violations in Florida state and federal courts.  Indeed, as previously reported here, according to the Administrative Office of the United States Courts, for the past five years the Southern District of Florida alone has averaged 28.7% of all Fair Labor Standards Act cases filed in the United States.  The notion that workers have "nowhere to turn" is absurd.  They need only turn to one of Florida's many wage-hour lawyers, who have turned wage-hour litigation into a cottage industry in the sunshine state.  Does the GAO not realize that the FLSA permits private lawsuits, and in fact encourages them through its fee-shifting provisions? Why would an employee need the Wage and Hour Division when he has the Shavitz Law Firm or The Celler Legal Group in his corner?