New Jersey Minimum Wage Increased to $8.25 per Hour, with Automatic Future Increases Tied to the Consumer Price Index

by Michael D. Thompson

New Jersey voters have approved a ballot question that will raise the state’s minimum wage from $7.25 to $8.25 an hour, and to provide for future increases based on changes in the consumer price index.

After Gov. Chris Christie vetoed the minimum wage increase earlier this year, both houses of the New Jersey Legislature approved a referendum on the issue.  Accordingly, voters were asked: 

Do you approve amending the State Constitution to set a State minimum wage rate of at least $8.25 per hour? The amendment also requires annual increases in that rate if there are annual increases in the cost of living.

Sixty-one percent of voters answered “yes.”

Based on the referendum, the New Jersey Constitution will be amended to require employers to pay employees $8.25 per hour as of January 1, 2014.  Furthermore, “on September 30 of each subsequent year, the State minimum wage rate shall be increased effective the following January 1 by any increase … in the consumer price index for all urban wage earners and clerical workers...”

In the event of an increase in the federal minimum wage, the New Jersey minimum wage “shall be immediately increased to the level of the federal minimum wage,” and that rate will subsequently adjusted upwards based on changes in the consumer price index.

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.

* * * * * * * * * *

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.

Ninth Circuit Rules That Employees Need Not "Request" A Seat Under California's Obscure "Suitable Seating" Law

By Michael Kun

We have written previously in this blog about California’s obscure “suitable seating” law, which requires that some employers provide “suitable seating” to some employees. 

In short, the plaintiffs’ bar recently discovered a provision buried in California’s Wage Orders requiring employers to provide “suitable seating” to employees when the nature of their jobs would reasonably permit it.  Although the provision was written to cover employees who normally worked in a seated position with equipment, machinery or other tools, employers in a variety of industries have been hit with class actions alleging that they have violated those provisions – and those cases are typically brought by a single plaintiff who was well aware that the employer expected him or her to be standing while performing the job at the time he or she applied.  Just as typically, those employees have not even requested a seat before filing suit.

Now, reversing a district court decision that dismissed a “suitable seating” class action on the grounds that there had been no request for a seat, the Ninth Circuit has held that an employee need not request a seat to be entitled to one. 

The Ninth Circuit explained that the district court had read into the Wage Orders something that was not there – a requirement that employees affirmatively request seats.  Importantly, the Ninth Circuit expressly declined to comment on whether the nature of the work would reasonably permit seats in the case at issue.  As before, it appears that will be the dispute in most “suitable seating” cases. 

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.

 

The First "Suitable Seating" Trial In California Results In A Victory For The Employer - And Guidance For Plaintiffs For Future Cases

By Michael Kun

As we have written before in this space,  the latest wave of class actions in California is one alleging that employers have not complied with obscure requirements requiring the provision of “suitable seating” to employees – and that employees are entitled to significant penalties as a result.

The “suitable seating” provisions are buried so deep in Wage Orders that most plaintiffs’ attorneys were not even aware of them until recently.  Importantly, they do not require all employers to provide seats to all employees.  Instead, they provide that employers shall provide “suitable seats when the nature of the work reasonably permits the use of seats.” 

Because the “suitable seating” provisions were so obscure, there is scant case law or other analysis for employers to refer to in determining whether, when and how to provide seats to particular employees.  Among other things, the most important phrases in the provisions – “suitable seats” and “nature of the work” – are nowhere defined.  While those terms would seem to suggest that an employer’s goals and expectations must be taken into consideration – including efficiency, effectiveness and the image the employer wishes to project – plaintiffs’ counsel have not unexpectedly argued that such issues are irrelevant.  They have argued that if a job can be done while seated, a seat must be provided. 

The first “suitable seating” case has gone to finally gone to trial in United States District Court for the Northern District of California.  The decision issued after a bench trial in Garvey v. Kmart Corporation is a victory for Kmart Corporation on claims that it unlawfully failed to provide seats to its cashiers at one of its California stores.  The decision sheds some light on the scope and meaning of the “suitable seating” provisions.  But it also may provide some guidance to plaintiffs’ counsel on arguments to make in future cases. 

Addressing the “suitable seating” issue at Kmart’s Tulare, California store, the court rejected plaintiffs’ counsel’s arguments that Kmart was required to redesign its cashier and bagging areas in order to provide seats.  Importantly, the court recognized that Kmart has a “genuine customer-service rationale for requiring its cashiers to stand”:  “Kmart has every right to be concerned with efficiency – and the appearance of efficiency – of its checkout service.”  That concern is one likely shared by many employers. 

In reaching its decision, the court expressed concern not only about safety, but also about the cashiers’ ability to project a “ready-to-assist attitude”: “Each time the cashier were to rise or sit, the adjustment exercise itself would telegraph a message to those in line, namely a message that the convenience of employees comes first.”  The court further explained:  “In order to avoid inconveniencing a seated cashier, moreover, customers might themselves feel obligated to move larger and bulkier merchandise along the counter, a task Kmart wants its cashiers to do in the interest of good customer service.” 

While recognizing that image, customer service and efficiency goals must all be taken into consideration in determining whether seating must be provided, the court then appeared to provide some guidance to plaintiffs.  The court addressed the possibility that these issues could be addressed through the use of “lean-stools.”  Acknowledging that the use of “lean-stools” had not been developed at trial, the court invited arguments about them at the trial of “suitable seating” claims for the next Kmart store.  Thus, while expressly refusing to decide whether Kmart employees should have been provide “lean-stools,” the court may have provided plaintiffs’ counsel with an important argument to make in future trials.

And, as a result, employers in California – particularly in the hospitality and retail industries – should now be expected to address whether they could or should be providing “lean-stools” to employees whom they expect to stand during their jobs. 

Waivers and Releases of Massachusetts Wage Claims

By Evan J. Spelfogel

On December 17, 2012, in Crocker v Townsend Oil, the Massachusetts Supreme Judicial Court invalidated a settlement agreement, waiver and release to the extent it purported to release claims under the Massachusetts Wage and Hour Laws, but did not expressly include that statute by name among the claims being released. Specifically, the Court held:

We...conclude that a settlement or contract termination agreement by an employee that includes a general release, purporting to release all possible existing claims will be enforceable as to the statutorily provided rights and remedies conferred by the Wage Act only if such an agreement is stated in clear and unmistakable terms.  In other words, the release must be plainly worded and understandable to the average individual, and it must specifically refer to the rights and claims under the Wage Act that the employee is waiving.  Such express language will ensure that employees do not unwittingly waive their rights under the Wage Act.  At the same time, this course preserves our policy regarding the broad enforceability of releases by establishing a relatively narrow channel through which waiver of Wage Act claims can be accomplished.

In settling claims with departing employees and offering severance packages in return for all-encompassing written waivers and releases, employers often list by category in the settlement papers, among others, all tort and contract claims, claims for emotional distress, all public policy and statutory claims including, without limitation, all claims that might arise under anti-discrimination laws and wage and hour laws.  We have frequently advised employers that they would be better protected if they listed expressly at least the relevant major federal and state statutes.  In light of Crocker, employers who wish to obtain binding waivers of wage and overtime claims under Massachusetts law must be careful to list the Massachusetts Wage Act expressly, in the settlement documents.

Clarification of California's Obscure "Suitable Seating" Requirement Should Be Forthcoming In Two Pending Cases

By Michael Kun

Employers with operations in California have become aware in recent years of an obscure provision in California Wage Orders that requires “suitable seating” for some employees.  Not surprisingly, many became aware of this provision through the great many class action lawsuits filed by plaintiffs’ counsel who also just discovered the provision.  The law on this issue is scant.  However, at least two pending cases should clarify whether and when employers must provide seats – a case against Bank of America that is currently before the Ninth Circuit Court of Appeal, and a case against K-Mart that is now being tried in the United States District Court for the Northern District of California.

The wave of representative and class action lawsuits alleging that employers failed to provide suitable seating in violation of Labor Code § 1198 and Wage Orders was triggered by the Court of Appeal ruling in Bright v. 99 Cents Only Stores, 189 Cal.App.4th 1472 (2010), permitting “suitable seating” claims to proceed under California Private Attorney General Act.    

Prior to that ruling, “suitable seating” lawsuits were few and far between.   All it took was a single published opinion to let the plaintiffs’ bar know about this potential claim and to begin to seek plaintiffs to bring these claims against their employers.

Importantly, the seating provisions of the Wage Orders do not require all employers to provide seating to all employees.  Instead, the provisions state that “[a]ll working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.” 

As the former Chief Deputy Labor Commissioner explained in 1986, these seating provisions were “originally established to cover situations where the work is usually performed in a sitting position with machinery, tools or other equipment.  It was not intended to cover those positions where the duties require employees to be on their feet, such as salespersons in the mercantile industry.”

In Green v. Bank of America, the district court relied upon this opinion in dismissing a putative “suitable seating” class action with prejudice, holding that an employer need only give seats to individuals who request them – and there was no allegation in the complaint that any employee had requested a seat.  That decision is now on review before the Ninth Circuit, which presumably will determine what “provide” means in the context of the “suitable seating” requirements.  The Court may well look to the California Supreme Court’s Brinker v. Superior Court decision for guidance on that issue.  There, in the context of requirements that employers “provide” meal and rest periods to employees, the California Supreme Court determined that “provide” means that the employer make the meal and rest periods available, but need not ensure they are taken.  That would suggest that, in the “suitable seating” context, an employer must make seats available to appropriate employees, but need not ensure they take them.  That, of course, would beg the question of who is entitled to seats in the first place.

The “suitable seating” trial relating to K-Mart’s cashiers that has commenced in San Francisco – Garvey v. Kmart -- promises to look at that and other issues.  Among other things, that trial should address the impact employers’ expectations and preferences have upon whether “the nature of the work reasonably permits the use of seats.” 

Plaintiffs in “suitable seating” cases normally argue that a seat must be provided if the job “could” be done seated.  Of course, that is not what the Wage Orders state.  Many jobs “could” be done while seated.  Whether they can be done as well while seated is a different issue entirely.  (One is reminded of the famous Seinfeld episode where George Costanza insisted on getting a rocking chair for a jewelry store security guard; the guard then fell asleep as the store was robbed right in front of him.)

Among other things, employers in the hospitality and retail industries often wish to have persons in some positions standing in order to make eye contact with customers, establish a relationship with them and be in the best position to assist them.  It is too easy for customers to ignore someone who is seated, or not even notice that person.  The Kmart trial should provide some guidance as to whether such expectations and preferences are to be given weight.

These two cases should provide some much needed clarity as to whether and when seats must be provided to certain employees.  In the meantime, employers would be wise to let employees know whether and why certain jobs are expected to be performed while standing. 

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.

Modifying Workweeks to Avoid Overtime: Employers Should Still Proceed With Caution

By:  Elizabeth Bradley

The U.S. Court of Appeals for the Eighth Circuit recently confirmed that the Fair Labor Standards Act (“FLSA”) does not prohibit an employer from modifying its workweek in order to avoid overtime costs. The Court’s ruling in Redline Energy confirms that employers are permitted to modify their workweeks as long as the change is intended to be permanent. Employers are not required to set forth a legitimate business reason for making the change and are permitted to do so solely for the purpose of reducing their overtime costs. The only requirement on employers is that the change must be intended to be permanent.

While the ruling appears to provide employers with the green light to go forward unrestrained in changing the definition of their workweek to avoid overtime costs, employers should proceed with caution by taking the following steps to best protect against potential claims:

·         Provide Written Notice to Employees – The change will not go unnoticed by employees, especially if it impacts their compensation. Employers should provide employees with advanced written notice of the change so that no employees are “surprised” when their paychecks arrive. Open communications between employers and employees is the first defense to potential wage claims. The written notice should provide an explanation of the reason for the change, when it will go into effect and how employee compensation may be impacted. 

·         Comply with FLSA Regulations FLSA regulations provide direction on how employee compensation is to be calculated when a permanent change in the defined workweek results in “overlapping” hours that fall within both the old and new workweeks. Employers should ensure that they comply with these rules and, when in doubt, pay the higher of the two rates for that pay period.

·         Internally Document the Business Reasons – While employers are not required to establish a legitimate business reason for making the change, having contemporaneous documentation of the rationale will provide employers with defenses against potential retaliation claims and can establish that the change was intended to be permanent.

·         Review State and Local Requirements – Employers outside the Eighth Circuit can rely on this decision because there are no conflicting decisions in the federal circuit or district courts; however, this decision is applicable only to changing workweeks under the FLSA. Many states and local municipalities have enacted laws that provide employees with greater protections.  Employers must ensure that there are no state or local wage and hour provisions that restrict the ability to modify the defined workweek. 

California Supreme Court To Review Class Action Waiver Issue

By Michael Kun and Aaron Olsen

To the surprise of few, the California Supreme Court has decided to review the Court of Appeal’s decision enforcing a class action waiver in Iskanian v. CLS Transportation Los Angeles, LLC. 

We wrote in detail about that decision on this blog earlier this year.  

In reaching its conclusion, the Court of Appeals relied on the April 2011 United States Supreme Court’s landmark decision in AT&T Mobility, LLC v. Concepcion.  Whether the California Supreme Court will follow Concepcion or attempt to distinguish it is impossible to predict.   Unfortunately, while they await that decision, employers may not rely on Iskanian, which has been depublished pending review.

EBG's Free Wage-Hour App Has Been Updated To Include Massachusetts Law

By Michael Kun

EBG’s free wage-hour app, which allows users to access federal law and the laws of many states, has been updated to include Massachusetts law. 

The app can be dowloaded here: http://itunes.apple.com/app/wage-hour-guide/id500292238?mt=8

EBG's Free Wage-Hour App Has Been Updated to Include New Jersey Law And Changes In California Law

By Michael Kun

Earlier this year, we were pleased to introduce our free wage-hour app for iPhones and iPads.  The app puts federal wage-hour law, as well as that for many states, at users’ fingertips.

We have recently added New Jersey law to the app, as well as updated it to reflect changes in California law following the long awaited Brinker v. Superior Court decision clarifying meal and rest period laws.

The app may be found here:  http://itunes.apple.com/app/wage-hour-guide/id500292238?mt=8

Unpaid Internships May Prove to be Meal Ticket After All . . .

By Amy Traub and Desiree Busching

Just as designers must be cognizant of copycat fashions, employers must be cognizant of copycat lawsuits.  In February of this year, Xuedan “Diana” Wang filed a lawsuit against her former employer, Hearst Corporation, on behalf of herself and others similarly situated, alleging that the company violated federal and state wage and hour laws by failing to pay minimum wage and overtime to interns working for Harper’s Bazaar.  Wang had worked for Harper’s Bazaar during the fall of 2011.  Her lawsuit was filed in February 2012, only five months after a similar one had been filed by interns working for Fox Searchlight Pictures, Inc., who claimed that unpaid interns were performing compensable work in connection with the production of the film, “Black Swan.”  Following Wang’s February lawsuit, in March 2012, a third intern filed suit against her employer, “The Charlie Rose Show,” citing the same claims as her predecessors.

On Tuesday, July 3rd, yet another lawsuit was filed.  This time, however, the copycat was Wang herself.  Wang’s second lawsuit is now against Dana Lorenz and her company, Fenton Fallon, for whom she worked in the summer of 2011 – before she worked for Hearst Corporation at Harper’s Bazaar.  Not surprisingly, the allegations in the lawsuit are strikingly similar to the allegations in her previous lawsuit against Hearst Corporation, and those against Fox Searchlight Pictures, Inc., and those against the “The Charlie Rose Show.”  Wang is alleging that she and interns with whom she worked side-by-side were not paid appropriate wages for their work.

As we previously advised in February and March, these cases should have alerted employers to examine their own practices and policies with regard to their internship programs in order to protect themselves from future wage and hour liability under both federal and state wage and hour laws.  Considering that the FLSA has a 2-year statute of limitations, or a 3-year statute of limitations if a violation is “willful,” employers should now be looking back to examine past practices and proactively assessing potential risk and liability in the event a former intern of their own “follows suit.”  In fact, although Wang’s first lawsuit against Hearst Corporation was filed in February 2012, the company now finds itself defending against alleged violations from three years ago.  On Thursday, July 12, 2012, U.S. District Court Judge Harold Baer in Manhattan conditionally certified a class of interns that includes all persons who worked as unpaid or underpaid interns at any of Hearst’s magazines dating back to February 2009.

In assessing the potential exposure associated with a wage and hour claim by unpaid interns, employers should also consider ancillary costs, such as the effect of negative publicity on a company’s image, disclosure of confidential business information during litigation proceedings, or the substantial litigation costs of defending against a potential class action claim.  If an employer believes that it may be vulnerable to a potential lawsuit by former unpaid interns, understanding its potential liability and legal options before a lawsuit is filed could prove to be an invaluable decision.

Bottom line – Employers must be wary of the fact that copycat lawsuits are continuing in this arena and take affirmative steps to avoid being the subject of one.  Indeed, as soon as the first “unpaid intern” potential class/collective action hit the scene, other interns immediately took note, following with their own similar lawsuits.  And now, some may even be considering making careers as full-time plaintiffs.

California Legislature Moves to Limit Non-Exempt Employee Contracts

By Adam Abrahms

Outside of California, employers frequently enter into agreements with non-exempt salaried employees that provide for a set weekly salary that includes overtime for a specific number of hours and is based on a defined regular rate of pay.  For example, an employer may agree to pay an employee as salary of $950 a week for 45 hours of work resulting in the employee being paid $20/hour for the first 40 hours and time and half ($30) for the overtime hours.  These agreements typically provide that if an employee works more than the established hours, the employee would be paid additional overtime pay for each hour worked.  If an employee works fewer the hours specified, he or she is generally still guaranteed the full weekly salary, including the built-in overtime.

Such agreements are often referred to as Belo contracts after the US Supreme Court case Walling v. Belo, 316 U.S. 624 (1942), which validated these types of non-exempt salary agreements under federal law.  Regardless of the form such agreements, they are often viewed favorably by both employers and employees as they provide both parties predictability and consistency.

Notwithstanding the federal approval of these arrangements, the California Division of Labor Standards Enforcement has long viewed Belo contracts as contrary to California law.  See  DLSE Opinion Letter 2000.09.29.  Nevertheless, some California employers (including many in the entertainment industry) continued to use these type of non-exempt salary agreements.

Last year, a California Court of Appeal upheld a similar agreement, which seemed to indicate that it would be safe for California employers to enter into what California courts have called “explicit mutual wage agreements” with their salaried non-exempt employees.  Specifically, in validating an explicit written agreement for an employee to work 66 hours a week for a fixed weekly salary of $880 (resulting in a regular rate of $11.14 and overtime rate of $16.71), the court held that “although parties may not waive overtime protections, the law permits an employer and employee to enter into an explicit mutual wage agreement” that provides a guaranteed salary and provides for at least one and on-half times the regular rate for any overtime hours.   Arechiga v. Dolores Press, 191 Cal. App. 4th 567, 573 (2011). 

California Assembly Bill 2103 authored by Assemblyman Tom Ammiano (D – San Francisco) seeks to legislatively overturn Dolores Press.  The proposed law would invalidate all explicit mutual wage agreements or Belo contracts in California and would provide that any salary paid to a non-exempt employee be considered payment only for non-overtime hours (i.e. first 8 hours in any day or 40 hours in a week).  Any hours an employee works beyond 8 in a day or 40 in a week would require additional pay at time and a half the regular rate.  Under the proposed legislation, regardless of any written agreement to the contrary, the regular rate would have to be calculated by dividing the established salary by 40.  Had the proposed legislation been in effect in the Dolores Press case, the $880 a week salary Dolores Press mutually agreed upon with its employee would have resulted in the employer having to pay a total of $1,738 a week -- or almost double the amount of the agreement.

AB 2103 cleared a major hurdle last week, passing the California Assembly by a 51-24 vote.  It now heads to the State Senate and, if it passes that body, to Governor Brown for signature.

If AB 2103 becomes law, it will become yet another explicit difference from federal law that employers in California will need to adapt to.  It may also require a restructuring of pay practices in the entertainment and other industries that frequently make use of “day rate” or “weekly rate” agreements that build in overtime.

California Supreme Court Holds That Attorney's Fees Are Not Recoverable On Meal And Rest Period Claims

By Michael Kun

Yesterday, only weeks after its long-awaited Brinker v. Superior Court decision, the California Supreme Court issued another important ruling on California meal and rest period laws. 

In Kirby v. Immoos Fire Protection, Inc., the Supreme Court ruled that neither party may recover attorney’s fees on claims involving meal and rest periods.  The Court analyzed the legislative history of the meal and rest period provisions and concluded, “We believe the most plausible inference to be drawn from history is that the Legislature intended [meal and rest period] claims to be governed by the default American rule that each side must cover its own attorney’s fees.” 

Although plaintiffs’ counsel throughout the state have tried to put a happy face on this decision, claiming a victory because plaintiffs cannot be made to pay an employer’s attorney’s fees should the employer prevail, the decision is plainly a victory for employers.  Rarely, if ever, are plaintiffs made to pay an employer’s attorney’s fees in a meal and rest period case, while employers are routinely asked to do as part of the resolution of such cases.  And as employers who have faced meal and rest period class actions know, the resolution of those cases has often turned on disputes over plaintiffs’ counsel’s fees, where it has not been unusual for plaintiffs’ counsel to seek fees that dwarf the recovery they seek for the employees themselves. 

While Kirby will have a great impact on meal and rest period cases, it is unlikely to spell the end of those cases.  Instead, employers can expect that plaintiffs’ counsel will include claims for which attorney’s fees can be recovered, such as claims for unpaid overtime or claims under the Private Attorneys General Act, and that they will later contend that most of their time was devoted to those claims, not the meal and rest period claims.

Additionally, employers should be aware that the Supreme Court all but invited the state legislature to add an attorney’s fees provision for meal and rest period violations: “it is up to the Legislature to decide whether [minimum wage law’s] one-way fee-shifting provision should be broadened to include [meal and rest period] actions.”

California Supreme Court Issues Largely Employer-Friendly Ruling In Long-Awaited Brinker Decision

By:  Michael Kun

This morning, the California Supreme Court has just issued its long-awaited decision in the Brinker case regarding meal and period requirements.   It is largely, but not entirely, a victory for employers.  A copy of the decision is here.

A few highlights of the decision:

On rest periods, the Court confirmed the certification of a rest period class because Brinker’s written policy arguably did not comply with the law as to the second rest period in a day.  In so doing, it clarified when employees are entitled to rest periods:

·         Employees are entitled to 10 minutes’ rest for shifts from three and one-half to six hours in length, 20 minutes for shifts of more than six hours up to 10 hours, 30 minutes for shifts of more than 10 hours up to 14 hours, and so on. (page 20)

On meal periods, the Court confirmed that meal periods need not be “ensured,” and that employers have no obligation to “police” them:

·         An employer’s duty with respect to meal breaks under both section 512, subdivision (a) and Wage Order No. 5 is an obligation to provide a meal period to its employees. The employer satisfies this obligation if it relieves its employees of all duty, relinquishes control over their activities and permits them a reasonable opportunity to take an uninterrupted 30-minute break, and does not impede or discourage them from doing so….. On the other hand, the employer is not obligated to police meal breaks and ensure no work thereafter is performed. Bona fide relief from duty and the relinquishing of control satisfies the employer’s obligations, and work by a relieved employee during a meal break does not thereby place the employer in violation of its obligations and create liability for premium pay under Wage Order No. 5, subdivision 11(B) and Labor Code section 226.7, subdivision (b). (page 36)

The Court also rejected the plaintiffs’ argument in favor of “rolling” meal periods (i.e., the argument that an employee who takes an early meal period is entitled to another meal period within the next five hours, even if he or she works less than 10 hours):

·         We conclude that, absent waiver, section 512 requires a first meal period no later than the end of an employee’s fifth hour of work, and a second meal period no later than the end of an employee’s 10th hour of work. (page 37)

Unfortunately, confirming that meal period claims will continue to be litigated in California for years to come, the Court added the following caveat:

·         What will suffice may vary from industry to industry, and we cannot in the context of this class certification proceeding delineate the full range of approaches that in each instance might be sufficient to satisfy the law.   (page 36)

A more comprehensive analysis of the decision and its impact upon California employers – and the meal and rest period class actions that have besieged California employers – will be forthcoming. 

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.

New California Laws Increase Penalties for Employee Misclassification and Wage Theft

by Michael S. Kun, Eric A. Cook, and Jennifer A. Goldman

California Governor Jerry Brown has signed two employment-related bills into law, raising the stakes for employers doing business in California. The two laws, which increase the penalties for employers that wrongly classify employees as independent contractors or engage in "wage theft," both go into effect on January 1, 2012.

Read the full advisory online

New Jersey State Department of Labor Proposes Repeal of Existing Overtime Exemption Rules and Adoption of Federal Overtime Exemption Regulations

by Suzanne K. Brown

On August 23, 2004, the U.S. Department of Labor overhauled the Federal overtime exemption regulations with amendments that included elimination of the former “long” and “short” tests for exemption (the application of one or the other being determined by the employee’s salary level), in favor of a single, streamlined duties test for each category of exemption, including executive, administrative, professional and outside sales employees. Since that time, New Jersey’s overtime exemption regulations, which were modeled on the Federal regulations in effect prior to August 2004, have been inconsistent with Federal law. Now, nearly seven years later, it appears that the New Jersey Department of Labor is ready to amend its regulations to eliminate those inconsistencies.

The New Jersey DOL recently proposed “repeal[ing] its existing rules regarding exemptions from overtime for bona fide executive, administrative, professional and outside sales employees and replac[ing] them with the analogous Federal overtime exemption regulations.” The proposed adoption by reference of 29 CFR Part 541 would have a significant, positive impact on New Jersey employers.

First, New Jersey’s existing overtime regulations impose a quantitative limitation on the amount of non-exempt work performed by exempt employees, regardless of the nature of their other duties and responsibilities. In particular, exempt executive and administrative employees are expressly limited to devoting “less than 20 percent of his or her workweek to non-exempt work or less than 40 percent if employed by a retail or service establishment.” N.J.A.C. 12:56-7.1(a)(5) (executive); 12:56-7.2(a)(4) (administrative). Similarly, exempt professionals and outside sales persons are limited to less than 20 percent of their workweek engaged in non-exempt work. 12:56-7.3(a)(4) (administrative); 12:56-7.4(a)(2) (outside sales). Notably, New Jersey’s quantitative limitation on the performance of non-exempt work is distinct from the qualitative “primary duty” analysis, and is, therefore, an independent basis for excluding employees from exemption.

By contrast, the Federal regulations do not impose an express quantitative limitation on the performance of non-exempt work, and the elimination of that requirement from New Jersey’s overtime exemption regulations would be a welcome change for non-government employers.

Second, New Jersey’s existing overtime regulations include various iterations of the requirement that exempt employees exercise “discretion and independent judgment.” Executive employees must “customarily and regularly exercise[] discretionary powers,” administrative employees must “customarily and regularly exercise[] discretion and independent judgment,” and the work of professional employees must “require[] the consistent exercise of discretion and judgment.” N.J.A.C. 12:56-7.1(a)(4) (executive); 12:56-7.2(a)(2) (administrative; 12:56-7.3(a)(2) (professional). 

By contrast, Federal regulations require that the primary duty of administrative employees “include[] the exercise of discretion and independent judgment with respect to matters of significance,” but impose no express requirement concerning the discretion and/or independent judgment of executive or professional employees.  Here again, elimination of the inconsistencies between the New Jersey and Federal regulations will avoid unnecessary confusion.

The New Jersey DOL’s proposal, if adopted, represents a substantial change in New Jersey’s overtime exemption rules. Employers with a presence in New Jersey should be mindful of the proposal in connection with any training, policy and/or classification efforts presently underway. Further, those employers vulnerable to class misclassification claims, such as the increasingly popular claim by assistant managers in retail and service establishments, may soon experience a positive shift in their level of risk.  

The full proposal can be found at 43 N.J.R. 725(a). A public hearing is scheduled for April 15, 2011, and the 60-day comment period ends May 20, 2011.

Does the FLSA Preempt State Wage and Hour Law Regarding Donning and Doffing?

By: Joseph D. Guarino and Jesse G. Pauker

The Supreme Court has once again been asked to address the question of whether time spent by employees donning and doffing has to be compensated. On October 29, 2010, the Court received a petition filed by Kraft Food Global, Inc., asking it to review the Seventh Circuit’s ruling in Spoerle v. Kraft Foods Global, Inc., that Section 203(o) of Fair Labor Standards Act (“FLSA”), allowing unions and employers to agree to forgo pay for donning and doffing, does not preempt state law. 

Section 203(o) of the FLSA provides that time spent putting on (“donning”) or taking off (“doffing”) integral and indispensable safety gear is generally regarded as “working time” and thus must be paid; however, the FLSA allows labor and management to vary that general rule through the collective bargaining process so that the workers get paid a higher hourly rate, in exchange for agreeing to exclude some time as compensable.

In Spoerle, over the previous 25 years the parties’ Collective Bargaining Agreement (“CBA”) had expressly excluded donning and doffing from hours worked in exchange for a higher hourly wage. The employees disagreed with the terms of the CBA and wanted not only to be paid for time spent donning and doffing but also to be paid for that time at the same increased hourly rate stipulated to in the CBA. While Wisconsin state law requires time spent donning and doffing be compensated at or above minimum wage and that this time counts towards the accumulation of overtime, it is silent on the issue of whether parties may collectively bargain to alter the State requirements similar to what is allowed by Section 203(o) of the FLSA. The Court of Appeals held, that because Wisconsin’s own wage-and-hour legislation lacked any equivalent to Section 203(o), the donning and doffing time counted as work time (and overtime) under state law.

The Court of Appeals relied upon Section 218(a) of the FLSA, or the “saving clause”, which provides that no provision of the Act “shall excuse noncompliance” with any state law that establishes a higher minimum wage or a lower overtime threshold.  According to the Court, management and labor acting jointly through a CBA could not override state substantive law, thus the existing state statute required the court to disregard the CBA where the parties attempted to avoid the obligations imposed by state wage and hour law.

According to Kraft, by enacting Section 203(o) of the FLSA, Congress believed that allowing labor and management to alter donning and doffing compensation through collective bargaining was in the best interest of the employees and that any such agreement should be enforceable despite any potential contradictory State law, consistent with Congress’s mandate that collective bargaining be governed exclusively by federal law. Kraft believes the Seventh Circuit’s opinion is inconsistent with Supreme Court precedent and misinterprets federal law

Although Kraft’s petition states that if left to stand, the Seventh Circuit’s opinion “will undermine the very collective bargaining process Congress intended to protect and cause other harms that Congress sought to avoid,” it will also create great potential exposure for employers to donning and doffing claims under state law. Unlike federal law, i.e. Section 203(o) of the FLSA, most state laws and regulations lack any defenses to donning and doffing claims.