Why Should Employers Have To Pay Overtime To Employees Who Only Worked Overtime Because They Played Fantasty Football Or Shopped Online During Regular Hours?

 By Michael Kun

At virtually every point in time, we have thought of ourselves as being technologically advanced. 

Older readers of this blog will recall the first time they ever saw a calculator.  It was the size of a paperback novel, it cost more than $100, and it was spectacular.  It was unfathomable that anyone would ever design anything more advanced.  Now, you can get a calculator at the checkout stand of your local supermarket for about $2.  And you will probably raise a few eyebrows if you buy one, if only because most people have no need for calculators.  They are built right into most laptop computers, tablets and smartphones – devices that only science fiction writers could possibly have dreamed of.

As a result of all of these technological advances, many employees work in front of a computer screen, and most have tiny computers in their shirt pockets, briefcases or purses at all times. 

In other words, most employees are no more than inches away from the internet, from email and from a phone at any moment during their working days. 

And employees cannot resist the temptation of those devices.  (How long was it after the introduction of the Blackberry before the first person referred to it as a “Crackberry”?)

How often have you been at a store, only to find the sales clerk off in a corner on a personal call on his or her smartphone, or checking emails?

How many times have you walked past a co-worker’s desk as he or she hurries to change the screen so you won’t see the fantasy football standings, or the webpage for a bookstore, or a social media site, or a lengthy exchange of emails with friends?  (Full disclosure: had you walked into my office 5 minutes ago, my browser was open to www.espn.com.  Specifically, the major league baseball page.)

Some employers have tried to minimize time spent in these activities by putting up firewalls on their computers.  What has this done?  It has led to discontented employees, who have just turned to using their smartphones for such activities.

Some employers have tried to put an end to time spent on smartphones at work.   What has been the result?  More discontent from employees, who take their smartphones to the restrooms or hallway.  While I personally can only attest to what I have observed in men’s rooms, I have little doubt that women’s rooms are quite similar -- people having personal telephone calls, often about exceedingly private matters, or clicking away on their smartphones, while others try to remain quiet or wait patiently to use the restroom for its intended purpose.  (I won’t comment on how downright weird it is for you to be talking to someone while you’re in the restroom other than to say that any time I get a call from someone and hear a flush in the background, everything he or she has just said immediately loses 20% of its value.  And I become much more cautious about discussing anything confidential with them when I know they are on a smartphone.)

While most employers try to minimize such personal activities, few have been able to stop it entirely.  And most understand the serious morale issues that would follow were they to try. 

Like it or not, employees are going to continue to use some work time each day on personal emails and calls, and on social media or the internet.

They’re going to continue to shop online when no one is looking.

They’re going to play fantasy football or fantasy baseball while they’re on the clock. 

They’re going to check their social media sites to see if someone has posted a new picture of a cat or shared the most recent “Which member of One Direction are you?” quiz.  (Full disclosure:  apparently, I am Harry.  Fuller disclosure: with a soon to be eight-year-old daughter, I know all of One Direction’s songs far too well and can actually name all of the band’s members – first and last names.  And feel free to quiz me on Taylor Swift or anything on the Disney Channel or Nickelodeon.)

Most employers understand all of this and, within reason, tolerate it.  It is a part of doing business in the second decade of the twenty-first century.

But it also raises a wage-hour issue that few employers think about:  if an employee has to work an additional hour of overtime because he spent an hour of the workday dealing with his fantasy football team, why should the employer have to pay for that time – and at an overtime rate, to boot?

 Why?

If you say, “Because the employee was on the employer’s premises,” try again.  An employer doesn’t have to pay an employee for all of the time he was on its premises.  If the law were otherwise, employees could grant themselves significant raises just by showing up for work a few hours early each day and reading the newspaper in the break room or taking a nap in a nice warm corner at the end of each day. 

And if you say, “The employer should have to pay because it didn’t catch the employee playing fantasy football, or shopping, or whatever,” ask yourself if that is what you really want – management standing over an employee’s shoulder all day or otherwise monitoring the employee’s ever workday activity to make sure the employee is not taking advantage.  You don’t want Big Brother in the workplace.  Don’t pretend you do. (A personal note: if you believe the reference to “Big Brother” relates to a TV show by that name, I’d encourage you to pick up the seminal George Orwell novel 1984, wherein the phrase was born.)

Practically speaking, this hypothetical – the employee who works an hour of overtime because he spent an hour on the clock playing fantasy football – speaks to the need for management to try to minimize such personal activities in a way that does not hurt employee morale.  The time spent on such entirely personal activities is costly, particularly where it leads to unnecessary overtime at overtime rates.  Every time the employee who makes $20 per hour spends an hour engaged in such personal activities, the employer has effectively paid him or her $20 for doing so.  And if they have to work an hour of overtime because they spent an hour playing fantasy football, that costs the employer an additional $30 – time-and-a-half of the employee’s regular rate. 

In other words, the employer has just paid the employee $30 to play fantasy football.  Or to shop.  Or to check Facebook. 

Where this really hits employers is in litigation.

We have written many times in this blog about the prevalence of wage-hour class actions and collective actions.  Many of them contend that employees were not paid for all of the time they worked.  Many claim that employees performed a few minutes of work before their shifts began, or after they ended.  They seek to be paid for an additional 10 minutes per day, or 15, or 20, or more.  And they seek statutory penalties.  And, always, attorney’s fees. 

But what if that same employee who contends he was shortchanged by 10 minutes of pay per day spent 30 minutes each day on social media, or shopping, or playing fantasy football, or exchanging personal emails?

Isn’t there something so clearly wrong about an employee who has been paid for engaging in personal activities turning around and seeking additional compensation under such circumstances?

Hasn’t that employee already been overpaid

Having had the pleasure of representing a great many companies in the defense of wage-hour class actions, I am always pleasantly surprised to see that most employers take a very realistic approach to the workplace, that they understand that employees probably spend some time engaging in these activities.

And I am often unpleasantly surprised to see how much time the people who sue spend in such activities, and how they believe it is their right to do so and to be paid for it – and to seek more money on top of it.

The employee who made thousands of personal telephone calls while on the clock still thinks she is entitled to more pay for a few minutes she claims she worked at the end of her shift.

The employee who regularly napped while being paid still thinks he should be paid more.

The employee who has his ugly fantasy football championship trophy on his desk forgets that his employer not only paid him for much of the time he spent earning that trophy, but had to pay him for overtime, too, because he didn’t get his work done during the business day. 

The employee who has box after box of merchandise shipped to the workplace thinks he is not only entitled to be paid for the time he spent online, but for more time.

In the litigation context, shouldn’t the time employees spend in personal activities be weighed against the additional time for which the employee is seeking recovery?

If an employee contends he or she was not paid for 6 minutes of off-the-clock work each day, but the employer can show that he or she spent 30 minutes a day engaged in personal activities, shouldn’t that employee recover nothing?

Very generally speaking, the courts haven’t weighed in on this issue yet. 

But someday, perhaps soon, they will.

And if they begin subtracting the time spent on personal activities on their smartphones or laptops from an employee’s claim the he or she was not paid for all of the time worked, they are likely going to find that many of the employees claiming they were underpaid were actually overpaid. 

That just makes sense, doesn’t it?

In this way, perhaps technology will meet its match in something that has been around for centuries – logic. 

Are You Sure You Want Your Employees Accessing Work-Related Emails After Hours?

by Michael Kun

The workplace used to be a lot easier to manage.  That’s because the workplace used to be, well, the workplace.

Employees went to work, they worked, and they went home.  And when they went home, they were usually done working for the day, unless they got an emergency phone call from the boss. 

There was the workplace, and there was home, and (with those rare exceptions) never the twain shall meet.

For better or worse, those days are long gone.

First, there was the answering machine at home. 

Then, the cellphone.

Now, few are those employees who do not have a device connecting them to work in their shirt pockets or their purses.  I’m speaking, of course, about smartphones. 

A great many employees, particularly those in engaged in non-manual labor, have workplace email addresses. 

And, more and more, employers allow their employees to send and receive emails from their workplace email addresses through their smartphones. 

And, more and more, employees are sending and receiving emails after-hours on those smartphones.

As employment lawyers, we have long warned clients and prospective clients that it was only a matter of time before non-exempt employees – and their lawyers – started filing suits contending that they were entitled to be paid for the additional time they spent after-hours reviewing and responding to work-related emails.  And, whenever those lawsuits would be filed, we anticipated that they would be filed as class actions or collective actions. 

Well, that day apparently has come.

 Although there have been more than a few lawsuits filed over the years alleging that non-exempt employees were entitled to be paid for the time spent “off the clock” dealing with work-related emails, those claims are more prevalent now than ever. 

Perhaps recognizing that the time spent on after-hours emails might be sporadic or that it might be only a few minutes on many occasions – which would create an argument that such time is non-compensable, de minimis time – employees and their attorneys are not simply filing suit over email time.  Instead, they are filing suit over all alleged “off the clock” time, including not only time spent on emails, but also time spent booting up computers at the beginning of the day and shutting them down at the end, as well as other, similar activities. 

Checking emails after hours may only take 5 or 6 minutes a day, they argue, but when you add it to the other “off the clock” time, it is significant.  And, they argue, they are entitled to be paid for all of that time.

Fifteen minutes a day, they argue, adds up for one employee.  Multiply it by an entire workforce, and the potential exposure could be significant.

There are a number of ways employers can address this phenomenon:

(1)   Employers can reassess their needs and determine whether it would be wise to prevent employees from receiving work-related emails anywhere other than at work.  In other words, they can determine whether to prevent employees from even accessing emails to and from their work email addresses on their smartphones (or on their home computers, laptops or tablets).  If there is an emergency after hours, you can contact them the old-fashioned way – pick up the phone and call them. 

(2)   Should employers decide not to cut off email access outside of the workplace, they – and management employees in particular – can address how often and under what circumstances they send emails to employees after hours.  When you send an email to an employee at 10:00 pm, you may well intend that he or she not look at it until the morning.  But you know your employees are likely to do the same thing you do when their smartphones buzz to let them know they have received new emails – they are going to check.  Yes, that may be a reflex.  But the employee will not know if it is an emergency until he or she opens your email. 

(3)   If employers are not going to cut off access to emails, they should consider revising their time reporting systems to allow employees to report time spent dealing with after-hours emails.  At the very least, that would help to cut off exposure on an “off the clock” claim.  And should employees report significant time spent after hours engaged in such conduct, the employer can then reconsider (1) and (2). 

Supreme Court: CBA May Provide Time Spent Donning & Doffing Protective Gear is Not Compensable

by Stuart M. Gerson

On January 27, 2014, the United States Supreme Court resolved a long-standing and hotly-contested issue of importance to unions, when it held that time spent donning and doffing required protective gear was not compensable under the Fair Labor Standards Act and the terms of a collective bargaining agreement.   Sandifer v. United States Steel Corp., No. 12–417. 

The plaintiffs had filed a putative collective action under the FLSA, seeking back pay for time spent donning and doffing pieces of protective gear that they were required to wear because of hazards in the workplace.

U. S. Steel contended that this donning-and-doffing time, which would otherwise be compensable under the FLSA, was not compensable based on a provision in the collective bargaining agreement with the petitioners’ union.  The Supreme Court stated that the “validity of that provision depends, in turn, upon the applicability of 29 U. S. C. §203(o) to the time at issue.”

Under §203(o), which was added to the FLSA in 1949, a labor union and an employer may agree (in a collective-bargaining agreement) on whether “time spent in changing clothes . . . at the beginning or end of each workday” will be compensable.  (Emphasis added.)

In Sandifer, both the District Court and the Seventh Circuit had sided with the employer.  The Supreme Court agreed, holding that the time the workers spent donning and doffing their protective gear was not compensable by operation of the collective bargaining agreement and §203(o). 

The Supreme Court’s ruling turned on whether the donning and doffing of protective gear qualified as “changing clothes” under §203(o).

In determining that donning and doffing protective gear qualifies as “changing clothes,” the Court held that “[d]ictionaries from the era of §203(o)’s enactment indicate that ‘clothes’ denotes items that are both designed and used to cover the body and are commonly regarded as articles of dress… That is what we hold to be the meaning of the word as used in §203(o).” 

The Supreme Court then stated: “We see no basis for the proposition that the unmodified term ‘clothes’ somehow omits protective clothing.”

The Court further held that “time spent in changing clothes” includes any time spent in “altering dress.”

Accordingly, The Supreme Court held that whether one completely puts on different clothes in the workplace, or put a uniform over what he was wearing, the time spent on such activities may be non-compensable under the terms of a collective bargaining agreement.

This has been a matter of considerable interest to manufacturing labor unions and so it is notable that the decision of the Court was unanimous (though Sotomayor, J., disagreed with one footnote). 

Unionized employers ranging from hospitals and hotels and restaurants to manufacturers will be interested in the holding in the Sandifer case, and should consider its impact in future collective bargaining negotiations.

Employee Training: Paid or Unpaid?

by Jordan B. Schwartz

Virtually all employers are aware that, pursuant to the Fair Labor Standards Act (“FLSA”), they are required to compensate employees for all hours worked.

What is not as clear, however, is whether the time an employee spends at training programs, lectures, meetings, and other similar activities should be considered hours worked. As a result, clients often ask whether they are required to compensate employees for time spent in such training activities.

The short answer to this question is that an employee’s time spent in training sessions should be considered compensable “working time” unless the following four factors are met:

Attendance is outside of the employee’s regular working hours;

Attendance is voluntary;

The training is not directly related to the employee’s job; and

The employee does not perform any productive work during the training.

This “four-factor test,” however, is not as straightforward as it may seem. Indeed, as demonstrated by the below “Common Employer Inquiries and Responses,” these factors contain many nuances that may make it difficult for an employer to easily determine whether training time should be compensable.

Common Employer Inquiries and Responses

i. How should an employer determine whether attendance at a training session is outside “regular working hours?”

By default, some employers interpret the term “regular working hours” to mean the, standard hours of 9:00 a.m. to 5:00 p.m. As a result, these employers automatically compensate all employees for any training that takes place during these hours, even for those who do not work this standard schedule. Such an interpretation, however, may result in significant overpayments to your employees.

The term “regular working hours” refers to the particular shift worked by an individual employee.

Thus, if an employee regularly works a shift from 2:00 p.m. to 10:00 p.m., an employer would not be required to compensate her for attending a training session from 9:00 a.m. to 11:00 a.m. (assuming all three other factors were satisfied), since the training session would be outside of her specific regular working hours.

ii. How can an employer ensure that attendance will be considered “voluntary”?

The Department of Labor (“DOL”) classifies training as “voluntary” if (1) the employer does not require the employee to attend the training; and (2) the employee is not led to believe that her employment would be adversely affected if she does not attend the training. If an employer takes an adverse action against the employee as a result of her failure to attend the training, attendance clearly is not voluntary and the employee must be compensated.

Therefore, an employer should explicitly convey to its employees that any unpaid training is not required and ensure that its supervisors and managers do not give any indication that non-attendance will result in an adverse employment action against the non-attending employee.

iii. When is a training considered “directly related to” an employee’s job?

Of all the factors set forth in the four-factor test, the question of whether training is directly related to an employee’s job generates the most employer uncertainty.

In short, training is directly related to an employee’s job if it is designed to make her more effective in her position or to teach her something new she needs to know to perform her current job duties.

Conversely, training is not directly related to an employee’s job when its primary focus is to prepare an employee for advancement or train her for another position, even if it results in incidental improvement to an employee’s ability to perform her regular duties. Furthermore, training is not considered to be directly related to an employee’s job when an employer’s non-mandatory training program is of general applicability and corresponds to courses offered by independent, bona fide institutions of learning.

Questions from employers often arise as to whether non-mandatory training offered by the employer to facilitate attainment or renewal of a license, permit or certification is directly related to an employee’s job.

For example, a furniture distributor may offer non-mandatory training sessions to its delivery drivers so that they can obtain their required commercial driver’s license. Although the training would arguably make an employee more effective in her position as a driver, the program is of general applicability and corresponds to courses offered by other entities in accordance with the requirements of the state licensing division. Moreover, while the employee’s receipt of the license is mandatory, the employer’s training program is non-mandatory, as it is simply one means of achieving the required documentation.

Consequently, as long as the training offered by the employer corresponds to the requirements outlined by the state licensing division, an employee’s attendance at the employer-sponsored program would not be compensable.

iv. What type of work performed during training constitutes “productive work”?

The DOL defines “productive work” as any work that an employer is able to use for business purposes.

Therefore, so long as an employer does not permit an employee to actually perform work that could benefit it during the training session (as opposed to simply learning to perform such work), an employee would not be considered to have performed productive work during the training.

Conclusion

Although the FLSA creates a presumption in favor of compensation for training sessions, there are many instances in which an employer is not required to pay employees for such time. As a result, employers should consistently evaluate their policies and practices regarding their training sessions to ensure they are not compensating employees for time when there is no obligation to do so.

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.

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.

* * * * * * * * * *

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. 

Work at Home Overtime Claim Blocked by Employer's Timekeeping Systems

By Evan J. Spelfogel

In recent years employees have asserted claims for time allegedly worked away from their normal worksites, on their Blackberries, iPhones or personal home computers.  Until now, employers have been faced with the nearly impossible task of proving that their employees did not perform the alleged work.  The US Department of Labor and plaintiffs’ attorneys have taken advantage of the well-established obligation of employers to make and maintain accurate records of the hours worked by their non-exempt employees, and to pay for all work “suffered or permitted” to be performed.

Now, the United States Court of Appeals for the Tenth Circuit has issued a decision holding that an employer is shielded from an employee’s FLSA overtime claim where it has an automated time keeping system that the employee failed to utilize, to report the hours allegedly worked at home.  Frank Brown v. ScriptPro LLC, Case No. 11-3293 (10th Cir. Nov. 27, 2012).

The three judge panel held that a plaintiff has the burden of proving that he performed work for which he was not properly compensated, citing earlier Tenth Circuit and US Supreme Court precedent:  Baker v. Barnard Construction Co., Inc., 146 F 3d. 214, 220 (10th Cir. 1998); Anderson v. Mt. Clements Pottery Co., 328 US 680, 687 (1946).  It was plaintiff’s burden, the Tenth Circuit held, to produce evidence to show the actual amount and extent of his work.

Here, the Court held, plaintiff had failed to set forth the specific facts showing there was a genuine issue for trial, and granted the company’s summary judgment motion. 

In so doing, the Tenth Circuit acknowledged that plaintiff had produced to the district court in opposition to the company’s motion for summary judgment, “uncontroverted evidence that he actually worked overtime.”  This evidence, the Appeals Court said, included plaintiffs own testimony, his wife’s testimony and certain discussions between plaintiff and one of his supervisors concerning plaintiff’s work at home. 

However, plaintiff failed to show the actual amount of overtime by any justifiable or reasonable inference. 

The key to the Tenth Circuit’s decision was that ScriptPro kept accurate records of employees’ time worked, and had installed an automated recordkeeping system that allowed employees to access the timekeeping system from home and enter their daily time onto that system.  The burden on individual employees to show the amount of overtime worked is only relaxed, the Tenth Circuit held, where an employer fails to keep accurate records. 

In this case, the Court held, there was no failure by ScriptPro to keep accurate records, only a failure by plaintiff to comply with ScriptPro’s timekeeping system.  In summary, the Court concluded, where the employee fails to report time to the employer through the established overtime recordkeeping system, the failure by an employer to pay overtime is not an FLSA violation. 

In view of the Tenth Circuit’s ScriptPro decision, employers should review their recordkeeping and timekeeping systems, and may be well advised to implement systems that allow employees to enter asserted home work time into the systems directly.  Of course, this will require monitoring by employers to ensure employee accuracy and honesty in time reporting. 

Many employers utilize employee time recording systems for employees who spend significant amounts of their workdays away from a centralized jobsite.  Such a system could be easily be adapted to include time reporting for employees who legitimately spend time working from home or at other remote jobsite locations. 

The remedy historically available to employers where employees assert they are working unauthorized overtime hours (against company policy or in direct and flagrant disregard of orders from supervisors) has been to discipline the employee and, if necessary, terminate the employment relationship – but the employer has always been required to pay for the asserted overtime work. 

The Tenth Circuit’s ScriptPro decision is a wakeup call to employers to review their timekeeping systems and, where appropriate, to implement new techniques that would apply to employees allegedly working at home.

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 
 

Payday for Unpaid Interns?

By Amy Traub and Desiree Busching

Like the fashions in the magazines on which they work and the blockbuster movies for which they assist in production, unpaid interns are becoming one of the newest, hottest trends— the new “it” in class action litigation. As we previously advised, there has been an increased focus on unpaid interns in the legal arena, as evidenced by complaints filed by former unpaid interns in September 2011 against Fox Searchlight Pictures, Inc. and in February 2012 against Hearst Corporation. In those lawsuits, unpaid interns working on the hit movie “Black Swan” and at Harper’s Bazaar magazine, respectively, alleged that their high-profile employers violated federal and state wage-and-hour laws by failing to pay them for work they claim was more aptly suited for paid employees.

The newest case to hit the scene on this issue has been filed by Lucy Bickerton, a former unpaid intern of “The Charlie Rose Show” on PBS. In her March 14, 2012 complaint, Bickerton alleges that she worked for the show in 2007 for approximately 25 hours per week and that the show and its host had her performing “productive work”—work for which she claims she, and other interns like her, should have been paid.

According to a press release issued by the plaintiffs’ firm that has filed all three of these prominent unpaid intern cases, “[s]ince filing a lawsuit on behalf of unpaid Fox [Searchlight Pictures, Inc.] interns late last year, our office has received numerous calls from other current and former interns who were not paid for the productive work they performed. This [Bickerton] lawsuit should send a clear message to employers that the practice of classifying employees as ‘interns’ to avoid paying wages runs afoul of federal and state wage and hour laws.”

The clear message received is that this firm is on the offensive, and others will undoubtedly soon follow suit. For employers who have checked their unpaid internship programs to ensure that they are in compliance with the tests utilized by both federal and state agencies and courts in analyzing whether individuals qualify as “interns,” it is time to double-check. With the attention this issue is seeing in the media and before the courts, it is clear that if misclassified unpaid interns are not paid now, employers may just be paying later.

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.

Compensating Non-Exempt Employees for Completing Web-Based Training

By:  Kara M. Maciel and Casey Cosentino

We were recently asked by a client to provide guidance on the wage and hour issues associated with company-provided on-line training programs for non-exempt employees.  Questions were raised as to when the training is "voluntary" and whether the time must be compensated if the training is completed at home using a personal computer.  The answer stems from federal wage and hour law, which provides that such time is likely compensable for non-exempt employees.     

The Fair Labor Standards Act requires employers to compensate employees for all hours worked regardless if the work performed is on or off the job site. Consequently, most time employees spend in training programs is compensable hours worked. Attending training is not compensable, however, if all of the following four criteria are met:

1. Attendance is outside of the employee’s regular working hours;

2. Attendance is in fact voluntary;

3. The training is not directly related to the employee’s job; and

4. The employee does not perform any productive work during such attendance.

Typically, it is the second and third factors that generate most of the wage and hour issues associated with employee training.      

First, training is not voluntary when it is required by the employer, or the employee understands or is led to believe that non-attendance would negatively affect his/her present working conditions or the continuance of his/her employment. Therefore, for attendance to be voluntary, employers must not directly or indirectly pressure employees to attend training programs, or impose employment-related consequences for non-attendance.  

Second, training is not directly related to an employee’s job when the training is designed to prepare the employee for advancement or promotion.  Conversely, training intended to improve employees’ efficiency and/or effectiveness in their current jobs is directly related to the employees’ job.

If an employer offers online training outside paid working hours and do not want to pay non-exempt employees for their time spent on the training, employers should do the following:  

·         Restrict employees’ participation in the training to non-working hours only;

·         Do not mandate employees’ participate, explicitly or implicitly;

·         Do not impose adverse consequences for employees non-participation;

·          Do not condition employees’ continued employment on completing the training;

·         Analyze the training to ensure it is designed to qualify employees for a new job or promotion (and is not intended to enhance employees’ current job skills); and

·         Ensure the employees do not perform other work during the training.

If all of the above factors are not satisfied, then employers must compensate their employees for any time spent completing the online training.  Because the requirements for providing non-compensable training are particular and precise, and the cost of non-compliance can be costly under the FSLA for unpaid time and/or missed overtime, the conservative wage and hour approach is to offer online training during paid working hours.    

 

 

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.”

New Technology Brings New FLSA Claims

A number of recent lawsuits illustrate how changing workplace technology can form the basis for creative FLSA lawsuits.  A wave of claims have been brought against Fortune 500 companies alleging that non-exempt employees have not been paid for "off the clock "duties such as logging into computer systems and responding to email and text messages after work hours and on weekends.

Putting aside the merits of these cases, this trend illustrates the legal implications of introducing technology into the workplace, especially when used by non exempt employees to work remotely.  These cases are a good reminder of why every company should make sure that its payroll practices keep up with the fast pace of technological change, and capture all work related activities, whether they occur at work, at home, or via new channels of communication like blackberries or text messaging.

Some practical tips to minimize these types of claims include:

  • Implement a clear "off the clock" policy requiring employees to report all work time regardless of where and when it occurs.
  • Train supervisors to never request an employee to work off the clock.
  • If issuing blackberries or remote access technology to non-exempt employees, consider requirement for them to sign an acknowledgment form noting the obligation to report all work time.
  • If non-exempt employees log in and out of work on their computers, consider allowing employees to manually input time instead of automatic time stamping (which will eliminate claims for lost time due to lengthy start ups or other required steps before accessing payroll software).

Staying one step ahead of creative FLSA attorneys is no doubt difficult in today's ever changing workplace.  For that reason, we strongly recommend annual audits of payroll practices to ensure that polices and procedures are updated to adapt to technological or other changes which might have significant wage and hour implications.

 

Tough Economy Makes it More Important to Be Vigilant About Off the Clock Work

Times are tough out there.  Company budgets are being slashed, along with the number of employees and available hours.  Many supervisors suddenly find their departments doing the same amount of work with half the people.  On the overtime front, this is a recipe for a disaster.

Under these conditions, many supervisors are trapped with little ability to approve overtime.  Hard working employees may not even request approval for overtime knowing that it will be viewed as an admission they cannot perform their job at the expected level (and thus place them at the top of the list for the next round of layoffs).   Overtime therefore goes underground - a tacit understanding exists between management and employees that no one will mention how the work gets done as long as it gets done and everyone keeps their jobs.

Of course, the above scenario is unlawful, and whatever the company saves in wages will be dwarfed by attorneys fees and damages in the class action lawsuit surely to follow.  For that reason, now is the time to remind all managers and supervisors of the importance of the company's off the clock policy.   Looking the other way to save in the short run is not a smart business move, and will inevitably come home to roost in the form of a disgruntled employee or ex-employee who reveals the practice.