Take 5 Views You Can Use: Wage and Hour Update

By: Kara M. Maciel

The following is a selection from the Firm's October Take 5 Views You Can Use which discusses recent developments in wage hour law.

  1. IRS Will Begin Taxing a Restaurant's Automatic Gratuities as Service Charges

Many restaurants include automatic gratuities on the checks of guests with large parties to ensure that servers get fair tips. This method allows the restaurant to calculate an amount into the total bill, but it takes away a customer's discretion in choosing whether and/or how much to tip the server. As a result of this removal of a customer's voluntary act, the Internal Revenue Service ("IRS") will begin classifying automatic gratuities as service charges, taxed like regular wages, beginning in January 2014.

This change is expected to be problematic for restaurants because the new treatment of automatic gratuities will complicate payroll accounting. Each restaurant will be required to factor automatic gratuities into the hourly wage of the employee, meaning the employee's regular rate of pay could vary from day to day, thus adding a potential complication to overtime payments. Furthermore, because restaurants pay Social Security and Medicaid taxes on the amount that its employees claim in tips, restaurants are eligible for an income-tax credit for some or all of these payments. Classifying automatic gratuities as service charges, however, would lower that possible income-tax credit.

Considering that the IRS's ruling could disadvantage servers as well, restaurants may now want to consider eliminating the use of automatic gratuities. Otherwise, employees could come under greater scrutiny in reporting their tips as a result of this ruling. Furthermore, these tips would be treated as wages, meaning upfront withholding of federal taxes and delayed access to tip earnings until payday.

Some restaurants, including several in New York City, have begun doing away with tips all together. These restaurants have replaced the practice of tipping with either a surcharge or increased food prices that include the cost of service. They can then afford to pay their servers a higher wage per hour in lieu of receiving tips. This is another way for restaurants to ensure that employees receive a sufficient wage, while simultaneously removing the regulatory burdens that a tip-system may impose.

  1. The New DOL Secretary, Tom Perez, Spells Out the WHD's Enforcement Agenda

On September 4, 2013, the new U.S. Secretary of Labor, Tom Perez, was sworn in. During his remarks, Secretary Perez outlined several priorities for the U.S. Department of Labor ("DOL"), including addressing pay equity for women, individuals with disabilities, and veterans; raising the minimum wage; and fixing the "broken" immigration system.

Most notably, and unsurprisingly, Secretary Perez emphasized the enforcement work of the Wage and Hour Division ("WHD"). Just last year, the WHD again obtained a record amount—$280 million—in back-pay for workers. Employers can expect to see continued aggressive enforcement efforts from the WHD in 2013 and 2014 on areas such as worker misclassification, overtime pay, and off-the-clock work. In fact, Secretary Perez stated in his swearing-in speech that "when we protect workers with sensible safety regulations, or when we address the fraud of worker misclassification, employers who play by the rules come out ahead." By increasing its investigative workforce by over 40 percent since 2008, the WHD has had more time and resources to undertake targeted investigation initiatives in addition to investigations resulting from complaints, and that trend should continue.

  1. DOL Investigates Health Care Provider and Obtains $4 Million Settlement for Overtime Payments

On September 16, 2013, the DOL announced that Harris Health System ("Harris"), a Houston health care provider of emergency, outpatient, and inpatient medical services, had agreed to pay more than $4 million in back wages and damages to approximately 4,500 current and former employees for violations of the overtime and recordkeeping provisions of the Fair Labor Standards Act ("FLSA"). The DOL made this announcement after the WHD completed a more than two-year investigation into the company's payment system, prompted by claims that employees were not being fully compensated.

Under the FLSA, employers typically must pay their non-exempt employees an overtime premium of time-and-one-half their regular rate of pay for all hours worked in excess of 40 hours in a workweek. Employers within the health care industry have special overtime rules. Notably, for all employers, an employee's "regular rate of pay" is not necessarily the same as his or her hourly rate of pay. Rather, an employee's "regular rate of pay" includes an employee's "total remuneration" for that week, which consists of both the employee's hourly rate as well as any non-discretionary forms of payment, such as commissions, bonuses, and incentive pay. The FLSA dictates that an employee's "regular rate" of pay is then determined by dividing the employee's total remuneration for the week by the number of hours worked that week.

The DOL's investigation concluded that Harris had failed to: (i) include incentive pay when determining its employees' regular rate of pay for overtime purposes, and (ii) maintain proper overtime records. As a result, Harris owed its employees a total of $2.06 million in back wages and another $2.06 million in liquidated damages.

Because an employee's "total remuneration" for a workweek may consist of various forms of compensation, employers must consistently evaluate and assess their payment structures and payroll systems to determine the payments that must be included in an employee's overtime calculations beyond just the hourly wage. Additionally, employers should conduct periodic audits to ensure that they are maintaining full and accurate records of all hours worked by every employee.

  1. Federal Court Strikes Down DOL Tip Pooling Rule

In 2011, the WHD enacted a strict final rule related to proper tip pooling and service charge practices. This final rule was met with swift legal challenges, and, this summer, the U.S. District Court for the District of Oregon ("District Court") concluded that the DOL had exceeded its authority when implementing its final rule. See Oregon Rest. and Lodging Assn. v. Solis, No. 3:12-cv-01261 (D. Or. June 7, 2013).

Inconsistent interpretations of the FLSA among various appellate courts have created confusion for both employers and courts regarding the applicability of valid tip pools. One of the most controversial interpretations of the FLSA occurred in early 2010, when the U.S. Court of Appeals for the Ninth Circuit held that an employer could require servers to pool their tips with non-tipped kitchen and other "back of the house staff," so long as a tip credit was not taken and the servers were paid minimum wage. See Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010). According to the Ninth Circuit, nothing in the text of the FLSA restricted tip pooling arrangements when no tip credit was taken; therefore, because the employer did not take a tip credit, the tip pooling arrangement did not violate the FLSA.

In 2011, the DOL issued regulations that directly conflicted with the holding in Woody Woo. As a result, employers could no longer require mandatory tip pooling with back-of-the-house employees. In conjunction with this announcement, the DOL issued an advisory memo directing its field offices nationwide, including those within the Ninth Circuit, to enforce its final rule prohibiting mandatory tip pools that include such employees who do not customarily and regularly receive tips.

Shortly after the issuance of the DOL's final rule, hospitality groups filed a lawsuit against the DOL challenging the agency's regulations that exclude back-of-the-house restaurant workers from employer-mandated tip pools. The lawsuit sought to declare the DOL regulations unlawful and inapplicable to restaurants that pay employees who share the tips at least the federal or applicable state minimum wage with no tip credit. On June 10, 2013, the District Court granted the plaintiffs' summary judgment motion, holding that the DOL exceeded its authority by issuing regulations on tip pooling in restaurants. The District Court stated that the language of Section 203(m) of the FLSA is clear and unambiguous; it only imposes conditions on employers that take a tip credit.

The District Court's decision may have a large impact on the tip pool discussion currently before courts across the country, especially if employers in the restaurant and hospitality industries begin to challenge the DOL's regulations. Given the District Court's implicit message encouraging legal challenges against the DOL, the status of the law regarding tip pooling is more uncertain than ever. Although the decision is a victory for employers in the restaurant and hospitality industry, given the aggressive nature of the DOL, employers in all circuits should still be extremely careful when instituting mandatory tip pool arrangements, regardless of whether a tip credit is being taken.

  1. Take Preventative Steps When Facing WHD Audits

In response to a WHD audit or inspection, here are several preventative and proactive measures that an employer can take to prepare itself prior to, during, and after the audit:

  • Prior to any notice of a WHD inspection, employers should develop and implement a comprehensive wage and hour program designed to prevent and resolve wage hour issues at an early stage. For example, employers should closely examine job descriptions to ensure that they reflect the work performed, review time-keeping systems, develop a formal employee grievance program for reporting and resolving wage and hour concerns, and confirm that all written time-keeping policies and procedures are current, accurate, and obeyed. Employers should also conduct regular self-audits with in-house or outside legal counsel (to protect the audit findings under the attorney-client privilege) and ensure that they address all recommendations immediately.
  • During a DOL investigation, employers should feel comfortable to assert their rights, including requesting 72 hours to comply with any investigative demand, requesting that interviews and on-site inspection take place at reasonable times, participating in the opening and closing conferences, protecting trade secrets and confidential business information, and escorting the investigator while he or she is at the workplace.
  • If an investigator wants to conduct a tour of an employer's facility, an employer representative should escort the investigator at all times while on-site. While an investigator may speak with hourly employees, the employer may object to any impromptu, on-site interview that lasts more than five minutes on the grounds that it disrupts normal business operations.
  • If the DOL issues a finding of back wages following an investigation, employers should consider several options. First, an employer can pay the amount without question and accept the DOL's findings. Second, an employer can resolve disputed findings and negotiate reduced amounts at an informal settlement conference with the investigator or his or her supervisor. Third, an employer can contest the findings and negotiate a formal settlement with the DOL's counsel. Finally, an employer may contest the findings, prepare a defense, and proceed to trial in court.

In addition, employers should review our WHD Investigation Checklist, which can help them ensure that they have thought through all essential wage and hour issues prior to becoming the target of a DOL investigation or private lawsuit.

Following these simple measures could significantly reduce an employer's exposure under the FLSA and similar state wage and hour laws.

Texas Health Care Provider's Miscalculation of Overtime Pay Proves Costly

By: Kara Maciel and Jordan Schwartz

On September 16, 2013, the U.S. Department of Labor (DOL) announced that Harris Health System (“Harris”), a Houston health care provider of emergency, outpatient and inpatient medical services, has agreed to pay more than $4 million in back wages and damages to approximately 4,500 current and former employees for violations of the Fair Labor Standards Act’s overtime and recordkeeping provisions. The DOL made this announcement after its Wage and Hour Division (“WHD”) completed a more than two-year investigation into the company’s payment system prompted by claims that employees were not being fully compensated.   

Under the Fair Labor Standards Act (“FLSA”), employers typically must pay their non-exempt employees an overtime premium of time-and-one-half their regular rate of pay for all hours worked in excess of 40 hours in a workweek.  Employers within the health care industry have special overtime rules.  Notably, an employee’s “regular rate of pay” is not necessarily the same as his hourly rate of pay. Rather, an employee’s “regular rate of pay” includes an employee’s “total remuneration” for that week, which consists of both the employee’s hourly rate, as well as any non-discretionary forms of payment, such as commissions, bonuses and incentive pay. The FLSA dictates that an employee’s “regular rate” of pay is then determined by dividing the employee’s total remuneration for the week by the number of hours worked that week. The FLSA also requires employers to maintain accurate time and payroll records for each of its employees. Should an employer violate these provisions, the FLSA allows employees to recover back wages and an equal amount of liquidated damages.

The DOL’s investigation into Harris’s payment practices found that the company (i) had failed to include incentive pay when determining its employees’ regular rate of pay for overtime purposes, and thus had failed to property compensate its nurses, lab technicians, respiratory health care practitioners and other workers for overtime; and (ii) had failed to maintain proper overtime records. As a result, Harris owed its employees a total of $2.06 million in back wages and another $2.06 million in liquidated damages. Further, Harris has now taken steps to ensure compliance with the requirements of the FLSA by instituting changes in its payroll system and setting up a compliance program to ensure that its employees are properly compensated.

Because an employee’s “total remuneration” for a workweek may consist of various forms of compensation, employers must consistently evaluate and assess their payment structures and payroll systems to determine the payments that must be included in an employee’s overtime calculations beyond just hourly wage. Additionally, employers should conduct periodic audits to ensure that it is maintaining full and accurate records of all hours worked by every employee. Our Firm’s WHD Investigation Checklist could help employers ensure that they have thought through these and other essential wage and hour issues prior to becoming the target of a DOL investigation or private lawsuit. These simple steps could significantly reduce an employer’s exposure under the FLSA and similar state wage and hour laws.  

Wage & Hour FAQ # 3: What to Expect During a DOL "Walk Around" Inspection.

By Elizabeth Bradley

This on-going series of blog posts flows from EBG’s publication of its Wage and Hour Division Investigation Checklist for employers. The Checklist, along with this series, is aimed at guiding employers through DOL Wage and Hour Division Investigations. 

We have previously blogged our way through How to Prepare for a Wage and Hour Inspection, What to Do When a Wage and Hour Investigation Team Arrives to Start Auditing, and What Records Must be Provided to the DOL. In this post, we discuss what to expect during the “walk around” inspection portion of the on-site inspection. 

QUESTION: What is the purpose of the “walk around” inspection?

ANSWER: Quite simply, the Investigator is going to observe your employees performing their job duties and look for wage and hour violations. 

QUESTION: What will the Investigator do during the “walk around?”

ANSWER: In addition to observing the normal operations of the facility and the employees performing their job duties, the Investigator will likely stop and talk with a number of your hourly employees as he/she encounters them on the walk through. The Investigator will also provide these employees with his/her business card and advise them that they can contact the DOL directly. While the manager cannot prohibit the Investigator from conducting a “walk around” or speaking with hourly employees, the manager can ensure that these activities are done in a manner that limits the disruption to normal business operations.

QUESTION: Do you have to allow the Investigator access to the facility unaccompanied?

ANSWER: No. A manager should escort the Investigator through the facility at ALL times, except when conducting an interview of a non-management employee. 

QUESTION: What should the manager be doing during the “walk around?”

ANSWER: The “walk around” is a good opportunity for an employer to obtain information about the focus of the investigation. The manager should not be a passive passenger on the walk around. Rather, the manager should take detailed notes including tracking which employees the Investigator asks to interview, the subjects of the Investigator’s questions, and the subjects of the Investigator’s written notes. Essentially, the manager should note everything the Investigator says, does, and asks.

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Are you now wondering what your rights are during the employee interviews? If so, subscribe to this blog. As part of this on-going series, in a subsequent FAQ, we will discuss employee interviews including understanding the role of the investigator, your role in the interview process, and how to prepare both management and non-management employees for interview.

Be sure to check out our Wage and Hour Division Investigation Checklist for more helpful tips and advice about preparing for and managing a Wage Hour Inspection. 

Wage & Hour FAQ #3: What Records Must Be Provided to the Department of Labor?

By Michael D. Thompson

From restaurants in New York to childcare providers in Arkansas to the garment industry in Southern California, Department of Labor investigators continue to uncover FLSA violations by conducting unannounced workplace inspections.

Accordingly, in January, we released our Wage and Hour Division Investigation Checklist for employers and have received terrific feedback with additional questions. Following up on your questions, we will be regularly posting FAQs as a regular feature of our Wage & Hour Defense Blog.

We previously blogged about how to prepare for an audit, and how to develop a general protocol for the investigation.  In this post, we will discuss which records should be made available to Wage Hour Investigators.

QUESTION:  Do we have to allow the DOL to inspect our private business records?  What records do we have to make available, and what documents should we withhold?

ANSWER:  Your company cannot rely on general claims of privacy or property rights as a basis for keeping the DOL from inspecting its wage and hour records .  In fact, Section 11(a) of the FLSA specifically authorizes representatives of the Department of Labor to investigate and gather data concerning wages, hours, and other employment practices:

  • The inspector may review documents showing the employer’s annual dollar volume of business transactions, involvement in interstate commerce, and/or work on government contracts.  Those documents are inspected to determine if the employer is a covered enterprise under the FLSA, or if the employees are protected by the FLSA because their work involves them in interstate commerce.

If you are certain that the FLSA applies to your company or its employees, you may wish to discuss with the inspector whether you can stipulate to coverage and therefore eliminate or streamline this part of the inspection.

  • Pursuant to Section 11(a), DOL investigators may review the wage hour records required by 29 C.F.R. Part 516.  Accordingly, an inspector may require your company to produce records for each of the company’s employees showing the employee’s (i) total daily or weekly straight-time earnings, and total premium pay for overtime hours; (ii) regular rate or pay for any workweek in which overtime compensation is paid; (iii) hours worked each workday and each workweek; and (iv) date of payment and the pay period covered by that payment.  An employer’s records must also show the amount and nature of each payment which is excluded from the “regular rate”, and any additions to or deductions from wages for each pay period.

Even if an inspection is the result of a specific complaint, the DOL generally will not limit its investigation to that complaint.  Rather, the DOL will likely review all personnel time records and payroll records to determine whether your company is in compliance with all aspects of the FLSA for all current and former employees on the employer's payroll for the past two to three years.

  • The DOL’s Wage and Hour Division is responsible for ensuring compliance with the employment eligibility verification recordkeeping requirements.  Thus, the DOL inspector may demand access to your company’s I-9 forms.

Refusing to produce documents requested by DOL investigators will generally do little more than antagonize the DOL.  However, employers should endeavor to avoid producing:    

  • Documents that were not specifically requested:  For example, if the inspector only requests records of wages and hours worked, don’t produce your job descriptions.  Similarly, if the investigator asks for employees’ I-9 forms, don’t turn over their entire personnel files.

There is often one exception to this rule.  Hopefully, your company has implemented a policy (i) prohibiting improper deductions and (ii) including a complaint mechanism through which employees may seek reimbursement for any improper deductions.  If followed, such a policy creates “safe harbor” that can protect the exempt status of employees who are subject to improper deductions.  That policy, therefore, should be provided to the DOL investigator.

  • Any analysis of the company’s wage hour issues prepared or requested by the company itself:  A self- audit of your company’s wage and hour practices is useful in identifying and correcting violations of the FLSA.  However, the DOL is likely to accept your conclusions about any violations identified in the audit, while giving no deference to any conclusions in your favor.  Therefore, you should not provide DOL investigators with a copy of your self-audit or similar materials.               
  • Trade secret or confidential business information:  Question the request to inspect trade secret or confidential business information, and discuss whether confidential information may be redacted from the requested records.  If you do produce such records, label them “Confidential and Proprietary.”

After locating the records to be produced to the DOL inspector, you should retain the original copies of every record produced to the DOL and track all documents produced on a Document Control Log.

In our next FAQ, we will discuss how to handle a “walkaround” inspection of the facility, in which the DOL inspector observes employee duties and looks for wage and hour violations.

Be sure to check out our Wage and Hour Division Investigation Checklist for more helpful tips and advice about preparing for and managing a Wage Hour Inspection. 

Wage & Hour FAQ #2: What to Do When a Wage Hour Investigation Team Arrives to Start Auditing

By Douglas Weiner

Last month, we released our Wage and Hour Division Investigation Checklist for employers and have received terrific feedback with additional questions. Following up on your questions, we will be regularly posting FAQs as a regular feature of our Wage & Hour Defense Blog.

In this post, we address an increasingly common issue that many employers are facing in light of aggressive government enforcement at the state and federal level from the Department of Labor.

QUESTION: If a DOL team of Wage Hour Investigators arrive unannounced demanding the immediate production of payroll and tax records and access to employees for confidential interviews what should we do?

ANSWER: An unannounced arrival to investigate signals some adverse information has been submitted to the DOL concerning your wage and hour practices from either an employee complaint or referral from another law enforcement agency such as a state or federal taxing authority, or even possibly from a competitor or labor union. Effectively managing the investigation from the very beginning is essential to obtaining the best possible results. First, advise the leader of the DOL’s investigation team that you are contacting your designated wage and hour representative  to promptly arrive to provide the investigators with assistance. Courteously direct the investigation team to a comfortable but secure location such as a conference room where normal business operations will not be disrupted.

Upon arrival, our practice is to verify the credentials of the investigators, and conduct an opening conference to ascertain the purpose and focus of the investigation. Our immediate goal is to engage the DOL in a discussion to learn what they are seeking. Clarifying the specific focus of the DOL’s inquiry enhances initial communication, and allows narrowly tailored responses. For clarity, we ask the DOL to provide written requests for documents and employee interviews. Reminding the DOL the employer has the right to cooperate with the investigation in a manner that does not disrupt normal business operations, we ascertain from our client and discuss with the DOL an acceptable protocol for the conduct of the investigation. 

Upon ascertaining the specific focus of the investigation, we advise the DOL we understand what they seek, and propose continuing the investigation in a few days after the identified documents have been gathered (and internally reviewed). We invite the investigators to our firm’s conference rooms where payroll records and other documents may be inspected without returning to our client’s facilities. If the lead investigator is unreasonable in demanding immediate access to records and employees, we consider requiring the DOL to obtain a subpoena. If possible it is preferable to establish an agreed protocol to an investigation to avoid giving the DOL reason to believe you have something to hide, the loss of control over the scope of the investigation and the benefits of good faith cooperation. 

In sum, we suggest three things to do, and three things not to do:

Do:

1.      Notify your representative immediately.

2.      Allow your representative to take control of the management of the DOL’s investigation.

3.      Maintain a courteous and forthright demeanor until your representative arrives.

Do not:

1.      Ask if the investigation has been prompted by a complaint.

2.      Ask the DOL to identify a complainant.

3.      Allow immediate inspection of records or employee interviews to take place before your representative has arrived or an opening conference has been conducted.

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In subsequent FAQs, we will discuss in more detail a protocol to produce documents, and what information your wage-hour representative needs to respond to DOL audits, whether scheduled or surprise. But, in the meantime, regular internal reviews and audits of your wage and hour practices and documentation is key to protecting against costly exposure from a government investigation.

Be sure to check out our Wage and Hour Division Investigation Checklist for more helpful tips and advice about preparing for and managing a Wage Hour Inspection.

Wage & Hour FAQ #1: How to Prepare for a Wage Hour Inspection

By: Kara M. Maciel

Earlier this month, we released our Wage and Hour Division Investigation Checklist for employers and have received a lot of great feedback with additional questions. Following up on that feedback, we will be regularly posting FAQs as a regular feature of our Wage & Hour Defense Blog.

In this post, we address a common issue that many employers are facing in light of increased government enforcement at the state and federal level from the Department of Labor.

QUESTION: “I am aware that my industry is being targeted by the DOL for audits and several of my competitors in the area are facing wage and hour investigations.  What should I be doing now to proactively prepare my company in the event we are next for an audit?”

ANSWER:  Even though your company may not be in the midst of an investigation, there are still several action items that you can implement to place your company is the best possible position to defend against any DOL investigation.  For example:

  • Check current 1099’s as well as all 1099’s going back several years and review the actual job duties of those persons paid as independent contractors to verify that they were not, in fact, employees.
  •  Examine all written job descriptions to ensure that they: (i) accurately reflect the work done, (ii) have been updated where necessary, and (iii) indeed justify the applicable exemptions.
  • Review time keeping systems to ensure that non-exempt employees are being paid for all work performed, including work pre- or post-shift and during meal breaks
  • Ensure that required payroll records and written policies and procedures are current, accurate, and compliant.

Training staff is another key component of protecting your company from costly wage and hour claims. Not only could all managers be familiar with the FLSA and state wage and hour laws, but all employees should understand their role in proper record keeping and overtime. Key managers and personnel should be aware of the DOL’s inspection rights and what the DOL can and cannot do while on your property.

Finally, developing a response team with legal counsel is critical to being prepared if an inspection official knocks on your door unannounced. The response team should be armed with information and protocols so they know how to address the DOL’s subpoenas, questions, document requests, and other investigative demands.

In subsequent FAQs, we will discuss in more detail who should participate in a response team and what information they need to have in the event of an unscheduled DOL audit. But, in the meantime, regular internal reviews and audits of your wage and hour practices and documentation is key to protecting against costly exposure from a government investigation.

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Be sure to check out our Wage and Hour Division Investigation Checklist for more helpful tips and advice about preparing for and managing a Wage Hour Inspection.

 

Labor Secretary Hilda Solis Resigns: How Will the Enforcement Policy of the Wage and Hour Division Change?

By Douglas Weiner and Kara Maciel

“There’s a new sheriff in town.”  With those words in 2009, Secretary Hilda Solis initiated a policy at the Department of Labor that emphasized increased investigations and prosecutions of violators rather than the prior administration’s emphasis on providing compliance assistance.

Her departure – announced yesterday – is unlikely, however, to have much effect on the Department’s current aggressive enforcement policy, as the top enforcement officer of the Department remains Solicitor of Labor M. Patricia Smith.  Solicitor Smith was previously the New York State Commissioner of Labor, where she introduced task force investigations and procedures for government agencies to share information to enhance enforcement initiatives.  Under Solicitor Smith’s leadership, the Department has implemented many of these same techniques and hired additional investigators and attorneys to strengthen the Department’s enforcement of the Fair Labor Standards Act, and related wage and hour statutes. 

We expect enforcement to remain a top priority of the Department under the second term of the Obama Administration no matter who is appointed to replace Secretary Solis.  Accordingly, with the start of the new year, employers would be wise to take the time to closely examine payroll policies and practices, including exempt and independent contractor classifications, meal break deductions, and overtime calculations. Our advice is to be proactive with a self-audit that is protected by the attorney-client privilege and correct inadvertent errors before a government investigator or plaintiffs’ attorney comes knocking at your door. 

Independent Contractor Misclassification Should Remain Key Area of Concern for Employers

By Frederick Dawkins and Douglas Weiner

Earlier this month, at the ABA Labor and Employment Law Conference, Solicitor of Labor M. Patricia Smith reaffirmed that investigating independent contractors as misclassified remains a top priority of the U.S. Department of Labor’s (“DOL”) enforcement initiatives.  The DOL will continue to work with other federal and state agencies, including the IRS, to share information and jointly investigate claims of worker misclassification.  The joint enforcement effort is certainly driven by, among other things, an interest in collecting unpaid tax revenue, and could result in significant liability to employers.  

In addition to potential liability resulting from strengthened federal enforcement initiatives, in previous blog posts, we have emphasized that misclassification could become the subject of the next wave of class and collective actions, particularly in view of states enacting new legislation providing for higher penalties.  Further, the re-election of President Obama may augur the re-emergence of the Employee Misclassification Prevention Act, would require employers to keep records of all workers performing labor or services for them, and to notify each worker of their classification and exemption status.  Finally, the Affordable Care Act (“ACA”) adds yet another challenge to employee misclassifications as the reclassification of workers from independent contractors to employees could push an employer over the 50 full-time employee threshold for ACA coverage. 

The expenses of  misclassification are often significant – including calculations of unpaid overtime wages, back employment taxes, income tax withholdings, unpaid workers’ compensation and unemployment insurance premiums, contributions to Social Security and Medicare, and perhaps 401K matching and pension contributions. 

In short, over the next four years of the Obama Administration, which will continue to fund the DOL’s aggressive enforcement efforts, it is undeniable that contractor misclassification investigations will continue to increase in volume and strength.  Employers are best advised to scrutinize their own independent contractor classifications in self-audits before federal and state investigators, or perhaps even worse, plaintiffs’ class action lawyers target what had been common practices.

Landmark Fifth Circuit Ruling Allows Private FLSA Settlements Without DOL/Court Supervision

By: Greta Ravitsky and Jordan Schwartz

On July 24, 2012, the Fifth Circuit became the first federal appellate court in over thirty years to enforce a private settlement of a wage and hour dispute arising under the Fair Labor Standards Act (“FLSA”) in Martin v. Spring Break ’83 Productions LLC.

For decades, federal courts have consistently held that FLSA wage and hour disputes may not be settled privately without approval from either the Department of Labor (“DOL”) or a federal district court.  This apparently “settled” area of law was based exclusively on the Eleventh Circuit’s decision in Lynn’s Food Stores, Inc. v. United States. As a result, courts and employment attorneys alike have cautioned employers to undertake a private resolution of an FLSA dispute at their own peril.  Until now, the Eleventh Circuit wasthe only court of appeals that had ruled on this issue. In this recent groundbreaking decision, the Fifth Circuit declined to apply Lynn’s Food Stores’ requirement of supervision and approval of private settlements, finding that a private settlement unapproved by either the DOL or federal district court can be enforceable under certain circumstances.

In Martin, the plaintiffs,several unionized lighting and rigging technicians, filed a grievance claiming they had not been paid for all hours worked during the filming of the upcoming movie “Spring Break ’83.” Upon concluding that it would be impossible to determine that the plaintiffs worked the days they alleged to have worked, the union and the employer entered into a settlement agreement with regard to the disputed hours worked, waiving the claimants’ right to file any claims with regard to those disputed hours. Before the settlement agreement was signed by union representatives, the plaintiffs filed this lawsuit against Spring Break’ 83 Productions, L.L.C. Thereafter, once the settlement agreement was executed, the plaintiffs accepted and cashed the disbursed payments. The district court granted defendants’ motion for summary judgment, enforcing the private settlement agreement. 

On appeal, the Fifth Circuit upheld the district court’s decision, holding that the payment offered to and accepted by the plaintiffs pursuant to the settlement agreement constituted an enforceable resolution of their FLSA claims, which were predicated on a bona fide dispute about the time worked. The court further noted that the settlement agreement was not a compromise of guaranteed substantive rights under the FLSA, but simply a compromise of plaintiffs’ claims; therefore, it did not contravene the Supreme Court’s restriction on union representatives’ waiver of substantive FLSA rights of their members. The Fifth Circuit found Lynn’s Food Stores to be distinguishable in that, unlike the Lynn’s Food Stores employees, the Martin plaintiffs were represented by counsel who had filed a lawsuit specifically seeking overtime pay for the plaintiffs before the settlement agreement was executed, and thus, the settlement constituted a valid release.  “The money [plaintiffs] received and accepted . . . for settlement of their bona fide dispute did not occur outside the context of a lawsuit, hence the concerns that the Eleventh Circuit expressed in Lynn’s Food Stores [were] not implicated.”

Martin’s common sense reasoning is certainly welcome news for employers who have been hesitant to enter into a private settlement agreement, given the myriad of issues inherent in obtaining approval of the settlement from the DOL or federal district court.  Certainly, the ability to settle FLSA disputes privately and confidentially should help employers avoid the potential of facing “copycat” lawsuits as a result of a settlement that has been put in the public record.  While this decision provides support for entering into an unsupervised private settlement agreement of wage and hour claims in the Fifth Circuit (Texas, Louisiana and Mississippi), particularly where the FLSA claimant is represented by counsel and an adversary process is underway, it is still advisable for employers in other jurisdictions to seek DOL or court approval for FLSA settlements in order to ensure the validity of the release of claims.

We will be sure to keep you apprised of any trends or developments arising out of this landmark decision that could pave the way for private FLSA settlements to be treated and enforced in the same manner as settlement agreements in all other employment-related disputes.

The Supreme Court Holds That Pharmaceutical Sales Representatives Are Exempt From Overtime Requirements Under The "Outside Sales" Exemption

By: Michael Thompson

The United States Supreme Court has ruled that pharmaceutical sales representatives (PSRs) are “outside salesmen” who are not entitled to overtime under the Fair Labor Standards Act (FLSA). The high court’s ruling was predicated on its finding that, in the pharmaceutical industry’s “unique regulatory environment,” the commitments obtained by PSRs equate to traditional sales. Furthermore, the Supreme Court rebuked the Department of Labor (DOL) for “unfairly surprising” the industry by filing amicus briefs arguing that PSRs were not exempt from the FLSA’s overtime requirements.

PSRs provide physicians with information about the efficacy and benefits of their company’s products, but cannot “close” sales. Rather, within the regulatory scheme governing pharmaceuticals, PSRs attempt to convince doctors to make non-binding promises to prescribe their products. For that reason, the DOL (along with plaintiffs and some federal courts) has contended that PSRs do not make “sales” and thus are not covered by the “outside sales” exemption.

The Supreme Court, however, did not defer to the position asserted by the DOL. Rather than immediately diving into the language of the FLSA, the high court first considered the issue from a practical perspective. 

The Supreme Court noted the pharmaceutical industry’s “longstanding practice” of classifying its salespeople as exempt outside salespeople. The high court then pointed out that the DOL has never brought an enforcement action challenging this classification. The majority opinion concluded that, “other than acquiescence” to this practice, “no explanation for the DOL's inaction is plausible.” Accordingly, deference to the DOL's interpretation would result in “unfair surprise” to the pharmaceutical industry.

The Supreme Court pointed out that the DOL’s position was based on its interpretation of the term “sales” as used in Code of Federal Regulations (CFR). The high court stated that the definition suggested by the DOL has shifted even since the DOL began filing amicus briefs on this issue in 2009. Thus, the DOL’s interpretation of its own regulations lacked “the hallmarks of careful consideration,” and was not entitled to controlling deference.

The Supreme Court went on to discuss its own interpretation of the term “sales.” The high court noted that the CFR defines the term to include any “sale … or other disposition” of a product or service. The Supreme Court concluded that the term “other disposition” was a “catchall phrase” that should be interpreted according to the context in which it is applied. Thus, “when an entire industry is constrained by law or regulation from selling its products in the ordinary manner, an employee who functions in all relevant respects as an outside salesman should not be excluded from that category based on technicalities.” The high court therefore concluded that, in the context of the industry, the PSRs made “sales” for purposes of the FLSA and were exempt outside salespeople under the FLSA.

Finally, offering another dose of common sense, the Supreme Court pointed out that the PSRs bore the “external indicia of salesmen" because they were hired based on sales experience, were trained to close sales, worked away from the office with minimal supervision and were compensated on an incentive basis. Furthermore, the petitioners each earned more than $70,000 per year and had flexible schedules. Thus, they were “hardly the kind of employees that the FLSA was intended to protect.”

The Supreme Court’s ruling is a huge win for the pharmaceutical industry, and a signal that both employers and the DOL should consider the practical implications of classifying a position as exempt or non-exempt under the FLSA.

Spring Tune-Up: Gas Stations Should Review Their Pay Policies and Recording Practices to Steer Clear of the DOL's Recent Enforcement Initiative Targeting Them

By Douglas Weiner and Meg Thering

The U.S. Department of Labor (“DOL”) has announced that it has been finding “patterns of violative pay practices” in gas stations throughout New York, Long Island, and New Jersey. Last year, in New Jersey alone, the Department of Labor, through its multi-year enforcement initiative, conducted 74 investigations of gas stations and ordered employers to pay over $1 million in back pay to employees.

As many commuters know, long daily and weekly hours are the norm for many employees in the gas station industry. Enhanced enforcement activity is now focused on this industry. Specifically, DOL wage and hour investigators are looking for off-the-clock work, flat salaries paid for all hours without variation for overtime, minimum wage and overtime violations. 

STEER CLEAR OF THE DOL’S ENFORCEMENT INITIATIVE BY KEEPING GOOD RECORDS

 Maintaining a strong set of payroll records is the primary defense to a wage challenge. Keeping accurate records of all hours worked protects employers from claims by employees who may later exaggerate and over-generalize the number of hours they have actually worked. Also, record-keeping violations fuel investigators’ suspicions of wage violations. Failure to keep the payroll records required by law (29 C.F.R. § 516; NYLL § 195; N.J.S.A. 34:11-4.6) greatly increases an employer’s risk of exposure to wage claims. Robust payroll records showing each employee’s daily arrival and departure times, the start and stop times of rest periods and meal periods, and the amounts employees are paid in straight and overtime pay, provide the evidence an employer needs to prove proper pay for the daily and weekly hours actually worked. Of course, employers should also record the actual payments made. Records demonstrating minimum wage and overtime compliance are the best defense to a wage and hour challenge, whether questions arise from a government audit or plaintiffs’ class action lawsuit. 

DON’T GET STUCK IN TRAFFIC: MAKE SURE YOU HAVE GOOD UNDERLYING PAY PRACTICES, AS WELL AS PROPER RECORD-KEEPING PRACTICES

Good record-keeping will get you nowhere if your underlying pay practices do not comply with the law. An “industry norm” defense may not suffice. Depending upon the circumstances, employers may consider a variety of strategies to ensure compliance with federal and state wage and hour laws.  A salary method of compensating non-exempt employees may be designed to comply with the overtime requirements of state and federal law. Using the principles of the “fluctuating work week,” an employer may use the payment of half-time overtime advantageously. 

Employers should also ensure that improper deductions are not taken from wages, employees are given requisite notice of their pay, and workers are properly classified as employees versus independent contractors and as non-exempt versus exempt employees.

In light of this new enforcement initiative, we recommend all gas station employers conduct a “spring tune-up” review of their pay practices and records. Better you conduct this tune-up now rather than having to deal with picking up the pieces of a crash after the DOL or a plaintiff’s attorney comes in and finds violations.

 

EBG Complimentary Webinar: Don't Be a Target of the Wage and Hour Class Action Epidemic: Tips for Avoiding Exposure

Wage and hour investigations and class action lawsuits continue to be a potentially serious problem for many employers, resulting in an abundance of new cases filed and many large settlements procured.  In addition, in September 2011, under the guidance of the Obama Administration, the Department of Labor and IRS announced an effort to coordinate with each other to address misclassification of employees as independent contractors, which is resulting in additional investigations, fines, and/or legal liability levied on an employer.

Click here to register for this complimentary webinar.

Thursday, April 12, 2012
9:00 a.m. - 10:00 a.m. CDT - Program and Q&A Session 
 

An Overview of Wage Hour Laws and Litigation: Avoiding the Pitfalls of Back Wage Claims

Wage Hour laws and regulations are complex, non-intuitive, and constantly changing.  Mistakes in wage and salary administration have led to class actions resulting in six and seven figure recoveries against the most sophisticated employers - banks and major industrial giants as well as smaller employers without in-house legal and high level Human Resources officials.  Peter M. Panken, Lauri Rasnick and Douglas Weiner in our New York Office have recently authored an article in conjunction with a major national Continuing Legal Education program in Washington entitled: “ An Overview of Wage Hour Laws and Litigation: Avoiding the Pitfalls of Back Wage Claims” which outlines the major traps employers can fall into and outlines ways to avoid the problems before litigation begins.

The (Sort Of) Hired Help: Wage and Hour Implications of Hiring Unpaid Interns

By Amy Traub and Desiree Busching

On February 1, 2012, a former intern of the Hearst Corporations’ Harper’s Bazaar filed a class action lawsuit on behalf of herself and others similarly situated. The lawsuit alleges that the company violated the Fair Labor Standards Act (“FLSA”) and applicable state laws by failing to pay minimum wage and overtime to interns. The use of unpaid interns is a widespread practice, especially in the retail, publication, and real estate industries, as well as in Hollywood. In fact, in September 2011, a similar lawsuit was filed against Fox Searchlight Pictures, Inc., claiming that the company used unpaid interns so it could make the film “Black Swan” more cheaply.  As reported in the book Intern Nation: How to Earn Nothing and Learn Little in the Brave New Economy, internships save firms roughly $600 million every year. 

Aside from the prestige that may accompany an unpaid internship for a dream employer, recession markets lead many job seekers to try to get their foot in the door by interning without pay.  Similarly, companies often view unpaid internships as a win-win: they get additional staffing without increasing their budgets and can train them for possible future employment without incurring any costs, while the interns get field experience to help them land a paying job.  As the complaint against the Hearst Corporation asserts, “[u]npaid interns are becoming the modern-day equivalent of entry-level employees.” 

But as the recent complaints against the Hearst Corporation and Fox Searchlight Pictures, Inc. demonstrate, companies utilizing the services of unpaid interns must tread carefully or they could face significant wage and hour liability, especially in light of the increased focus on unpaid interns in the legal arena.   Federal and state wage and hour laws provide multi-factor tests to determine whether an intern is actually an “intern,” or if he/she should instead be classified as an “employee,” and thus entitled to compensation.

The U.S. Department of Labor (“DOL”), for example, uses the following six-factor test to determine whether such an individual qualifies as an “intern” under the FLSA:

  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 the above factors are met, then the intern is not entitled to minimum wage or overtime under the FLSA.  However, many states have their own wage and hour laws with additional factors to consider in determining whether a worker is an “intern,” and thus not entitled to compensation, or an “employee,” who must be paid in accordance with minimum wage and overtime laws. For example, New York utilizes an 11-factor test, and California, which also previously had an 11-factor test but departed from that precedent in April 2010, now employs a 6-factor test similar to that used by the DOL.

Therefore, in order to protect themselves from wage and hour liability for use of unpaid interns, employers must be sure to check both federal and state wage and hour laws, and should speak with counsel if they are unsure if interns are being assigned appropriate work or are otherwise classified appropriately under applicable laws.

U.S. DOL And California Team Up To Crack Down On Misclassification Of Workers As Independent Contractors

By Michael Kun

Last week, the U.S. Department of Labor’s Wage and Hour Division and the California Secretary of Labor announced that they were teaming up to crack down on employers who classify workers as independent contractors.  http://www.dol.gov/opa/media/press/whd/WHD20120257.htm

The announcement that the two groups would work together on such an initiative should not come as much of a surprise to employers.  Shortly after Hilda Solis took office as the U.S. Secretary of Labor, the Wage and Hour Division announced that it would be focusing on this issue.  And California has enacted a new statute that provides additional penalties in cases where workers are found to have been misclassified as independent contractors.  Simply put, the classification of workers as independent contractors is today’s “hot issue.”

While last week’s announcement may not be a surprise, it serves as a valuable reminder to employers that contract out services that they should review those relationships closely to ensure that workers are properly classified as independent contractors – and to make careful changes to the relationship should they not be.  Why must those changes be careful?  Because in some jurisdictions, including California, changes to practices can be construed as evidence that the past practice was unlawful.  In this way, seeking to correct a problem can lead to the very lawsuit you were seeking to avoid.

Unfortunately, there is not a single, universally accepted definition of “independent contractor.”  The IRS has one definition.  The DOL has another.  Various federal and state agencies have their own definitions, and the courts have crafted even more definitions in the tort and employment contexts. What the various definitions all have in common is the element of control.  To the extent an employer controls the manner in which a worker provides services – setting hours of work, providing the tools for the work, directing the manner in which the work is performed, or otherwise controlling the worker’s activities – those could all be indicia of an employment relationship, rather than an independent contractor relationship.  Similarly, if the worker wears the employer’s uniform, wears a badge with the employer’s name on it, or provides the worker with business cards bearing the company’s name, that could also suggest that the worker in fact is an employee, not an independent contractor.  The fact that you may call the worker an “independent contractor,” or that you have a contract using that term, ultimately means little.  It’s the actual relationship that will govern in any analysis.

Employers who have independent contractors performing the same work as their employees should be particularly concerned about these issues.  And those who reacted to the recession by laying off employees, only to bring back those same persons to perform the same job as independent contractors – without benefits, payroll withholdings and workers’ compensation – are squarely within the crosshairs of federal and state agencies.  And plaintiffs’ lawyers.

But they are not the only ones who should review their relationships with persons or companies with which they contract for the provisions of services.  Employers who contract with janitorial services -- or office management services, or catering services -- should also review those relationships, particularly if they are with companies whose funding is suspect.  If the employees of those companies don’t get paid, or don’t get paid properly, it’s not unusual for them to claim that they in fact were employed not just by that company, but you.  And if you give directions to that janitor – or office services person, or server – don’t be surprised if the DOL claims that he or she is your employee. 

The Department of Labor Issues Proposed Rule Expanding FLSA Coverage to Companionship and Live-In Workers

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.

U.S. Supreme Court Grants Review of the "Outside Sales" Exemption Found Applicable to Pharmaceutical Sales Representatives

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.

IRS Announces Voluntary Classification Settlement Program

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

Wage & Hour Division Continues Enforcement Actions against Virginia Hotels

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. 

DOL Adds Smartphone Technology To Its Enforcement Arsenal

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. 

Department of Labor Seeks Bigger Budget to Increase Wage and Hour Enforcement Efforts

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. 

 

 

U.S. Department of Labor to Refer Employees to Plaintiffs' Lawyers

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.

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.

The Department of Labor Makes It Easier for Employees to Sue for Donning/Doffing

 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.

DOL Provides Guidance For Unpaid Internship Programs Under The FLSA For For-Profit Employers

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.

Health Care Reform Legislation Amends the Fair Labor Standards Act to Give the U.S. Department of Labor Increased Enforcement Authority Over Health Care

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.

 

Department of Labor Announces New Enforcement Campaign

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.

 

 

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).

 

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.”

The Department of Labor Considers Changing Employers' Recordkeeping Requirements

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.

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.

Is the DOL Working on Its Own Stimulus Plan?

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.

 

DOL's Failures Leave Workers with Nowhere to Turn? Not in Florida

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?