Take 5 Views You Can Use: Wage and Hour Update

By: Kara M. Maciel

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

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

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

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

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

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

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

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

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

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

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

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

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

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

  1. Federal Court Strikes Down DOL Tip Pooling Rule

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

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

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

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

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

  1. Take Preventative Steps When Facing WHD Audits

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

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

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

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

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

By: Kara Maciel and Jordan Schwartz

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

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

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

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

Epstein Becker Green Releases New Version of Wage & Hour Guide App

Wage & Hour Guide App for EmployersWe are pleased to announce the release of a new version of our Wage & Hour Guide app that puts federal and state wage-hour laws at employers’ fingertips. To download the app, click here.

The new version features an updated main screen design; added support for iOS 6, iPhone 5, iPad Mini, and fourth generation iPad; improved search capabilities; enhanced attorney profiles; expanded email functionality for sharing guide content with others; and easier access to additional wage and hour information on EBG’s website, including the Wage and Hour Division Investigation Checklist  and other resources.    The new version continues to be offered at no cost.   

“The wage-hour app has proved to be an incredibly valuable tool for employers, answering many of their questions in seconds, while also providing them with a link to our wage-hour blog, where they can find developments in this ever important area of the law,”said Michael Kun, co-creator of the app and national Co-Chairperson of EBG’s Wage and Hour, Individual and Collective Actions practice group, in the Los Angeles office.

How Does the App Work?

Rather than searching through a variety of cumbersome resources to locate applicable wage and hour laws, users of the Wage & Hour Guide app can follow easy-to-navigate steps to find the answers to many of their questions, including citations of federal statutes, regulations, and guidelines, as well as those of California, the District of Columbia, Georgia, Illinois, Maryland, New York, Texas, and Virginia. The following state guides were added after the initial launch of the app: Connecticut, Massachusetts, and New Jersey.  To provide the best experience possible, the app enables users to download the guide to their iPhone or iPad device for reference anywhere, at any time, with or without a connection. 

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

By Elizabeth Bradley

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

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

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

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

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

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

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

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

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

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

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

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

Supreme Court Raises Bar for Class Certification

By Stuart Gerson

Wage-hour lawsuits filed under the federal Fair Labor Standards Act (FLSA) represent one of the fastest growing and most problematic areas of litigation facing employers today, especially when such cases are brought as collective actions. A recent Supreme Court case based in class action analysis provides a potentially-useful analog for employers to stave off such collective actions.  

Class action criteria are set forth in Fed. R. Civ. P. 23, and they allow for one or more individual named plaintiffs to sue on behalf of a large – sometimes very large – group of unnamed employees, where: 1) the number of putative class members is so large that it would be impractical for them to participate; 2) where the putative class claims are defined by common questions of law or fact; 3) where the representative plaintiffs’ claims or defenses are typical of those of everyone else; and 4) where the named plaintiffs will fairly and adequately represent the interests of the rest of the putative class. 

The courts have long recognized, as did the drafters of Rule 23, that there are good reasons and bad reasons for a class action. Economy is the most prominent of the good reasons. The “opt out” feature of a Rule 23 class results in a single proceeding that allows relief for a large number of claimants. In the wage-hour context, it also protects against retaliation as to workers who benefit from the general anonymity and group force of the collective. All too frequently, however, a class action is brought to raise the economic risk to the defendant employer and so to force a large settlement of a case that might otherwise never have been mounted.

While class actions are not uncommon, it should be remembered that class treatment is an exception to the general way in which lawsuits are presented, and plaintiffs and their attorneys can go too far. The bell-weather case in that regard is Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011). However, Wal-Mart was in many ways unique, describing a potential nationwide class so large and crossing so many fields of activity for hundreds of thousands of workers at significantly different levels and locations that the lack of commonality among sometimes- competing claimants was not hard to understand. Still, the Supreme Court was divided and, in subsequent cases, some courts have tried to limit the application of Wal-Mart. The favored technique for that avoidance has been to hold that facts ultimately going to the merits of the suit cannot be explored at the class-certification phase of a case.

Plaintiffs’ lawyers took heart as to gaining such routine certification of class actions when the Supreme Court handed down its decision in Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085 (decided February 27, 2013), upholding virtually-automatic certification of a securities fraud class action. However, it is clear that the holding in that case is dependent upon the unusual, judicially-created fraud on the market theory that essentially forestalls the need to weigh facts that might distinguish the reliance element of class members. The Court has now broken that collective heart.

Within the past few days, on March 27, 2013, the Supreme Court, in Comcast Corp. v. Behrend, No. 11-864, exploded the theory that merits analysis could not be undertaken in considering class certification. Comcast, while an antitrust case, not a wage-hour case, offers an instructive conclusion that should govern at least some of the more complex versions of the latter type.

A divided Court overturned a controversial Third Circuit decision that certified a class action against the cable television provider Comcast because the plaintiffs failed to establish that the case could manageably be tried as a class action. On the required element of money damages, plaintiffs failed to provide reliable evidence that common issues of fact and law predominated over individual issues—an absolute prerequisite for certification of a class action. The case arose from a suit filed by six cable subscribers in the Philadelphia area who claimed that Comcast violated federal antitrust laws. The trial court had certified the plaintiffs as representatives of a class of all Comcast cable television subscribers from the 650 franchise areas that comprise the entire Philadelphia market. A federal district court in Pennsylvania certified the class more than five years ago. A divided panel of the U.S. Court of Appeals for the Third Circuit affirmed the certification order in 2011. The majority was no doubt moved by the apparent fact that the only reason the plaintiffs’ lawyers sought class certification in this case was to coerce the defendant into settling without regard to the merits of the plaintiffs’ claims.

The Supreme Court held that the Third Circuit ran afoul of the Court’s precedents, namely Wal-Mart, when it refused to entertain arguments against respondents’ damages model that bore on the propriety of class certification simply because they would also be pertinent to the merits determination.  Taken in conjunction with Wal-Mart, Comcast should be of clear value, by analogy, in defending against collective action in the wage-hour context,  at least in those wage-hour cases that involve complex issues, numerous potential plaintiffs, multiple locations and, for example, classification issues that depend upon non-uniform employee activities. Where individual issues can be found to predominate over allegedly common ones, or where pleaded damages models don’t adequately reflect variant situations among workers, employers and their counsel have been given useful ammunition by the Supreme Court to examine relevant factual issues and to confine litigation to individual claims where the facts and law compel it before massive litigation costs and expansive risk obtain.

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

By Douglas Weiner

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

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

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

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

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

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

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

Do:

1.      Notify your representative immediately.

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

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

Do not:

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

2.      Ask the DOL to identify a complainant.

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

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

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

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.

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

 

EBG Provides a Wage and Hour Division Investigation Checklist for Employers

Epstein Becker Green is pleased to announce the availability of a Wage and Hour Division Investigation Checklist, which provides employers with valuable information about wage and hour investigations and audits conducted by the U.S. Department of Labor (DOL). Like EBG’s first-of-its kind Wage and Hour App, which provides detailed information about federal and state laws, the Checklist is a free resource offered by EBG.

The Checklist provides step-by-step guidance on the following issues: preparation before a Wage and Hour Division investigation of the DOL; preliminary investigation issues; document production; on-site inspection activities; employee interviews; and back-wage findings, and post-audit considerations.

“The multitude of wage and hour claims and lawsuits that workers have filed under the Fair Labor Standards Act and its state law counterparts have made wage and hour law the nation's fastest growing type of litigation. And federal and state agencies are investigating and pursuing wage and hour claims more aggressively than ever,” said Michael Kun, the national Co-Chairperson of the firm's Wage and Hour, Individual and Collective Actions practice group. “We hope that our Checklist will serve as an important resource for employers to use when confronted with an audit – and perhaps help them avoid an audit altogether.”

    Click Here to Download EBG's Wage and Hour Division Investigation Checklist

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. 

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.

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.

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.

HR Guide for Employers, on Responding to Natural Disasters

HR Guide for Responding to Natural Disasters

Kara M. Maciel, contributor to this blog and Member of the Firm at Epstein Becker Green, has released the "HR Guide for Responding to Natural Disasters."  Following is an excerpt:

Natural disasters such as hurricanes, earthquakes, and tornadoes have posed unique human resource challenges for employers. While many employers are working around the clock on recovery efforts, other employers find themselves unable to function for extended periods of time because of damage or loss of utilities.

The economic effects of a natural disaster will have long-term consequences on businesses in the region.

Although no one can ever be fully prepared for such natural disasters, it is important to be aware of the federal and state laws that address these situations. This quick go-to guide can be used by employers in navigating through the legal and business implications created by events such as Hurricane Sandy. In addition, the information contained in this guide may be applicable to other disasters, such as fires, flu epidemics, and workplace violence.

Read the full advisory on the Epstein Becker Green website.

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. 

Hurricane Sandy Is About to Blow Our Way: Wage & Hour Implications for Employers

By:  Kara M. Maciel

Hurricane Sandy is approaching this weekend, so employers along the East Coast should refresh themselves on the wage and hour issues arising from the possibility of missed work days in the wake of the storm.

A few brief points that all employers should be mindful of under the FLSA:

  • A non-exempt employee generally does not have to be paid for weather-related absences. An employer may allow (or require) non-exempt employees to use vacation or personal leave days for such absences. But, if the employer has a collective bargaining agreement or handbook policies, the employer may obligate itself to pay through such policies.
  • An exempt employee generally must be paid for absences caused by office closures due to weather, if he/she performs work in that week. The Department of Labor has stated that an employer may not dock a salaried employee for full days when the business is closed because of weather. Partial day deductions for weather related absences are not permitted.
  • If certain employees are required to be on-call (such as public safety, IT, or other essential personnel) during the storm, and the employee cannot use the time effectively for his or her own purpose, the on-call time is compensable and the employee must be paid. However, if the employee is simply at home and available to be reached by company officials, then the time is not working time and an employer does not have to pay for that time.

Policies and procedures to keep in place:

  • Decide whether your company will offer “weather days” for non-exempt workers who are absent because of disasters.
  • Ensure that your payroll systems are prepared for employees working from home, longer shifts, or not taking lunches.
  • Decide whether employees absent because of weather will be allowed / required to use vacation or PTO time.
  • Ensure safety of payroll records and ability to process payroll from alternate location if needed.

Natural disasters pose a myriad of employment and HR issues from wage-hour to FMLA leave and the WARN Act. The best protection is to have a plan in place in advance to ensure your employees are paid and well taken care of during a difficult time. Our reference tool contains answers to common questions, and while aimed at employers in the Gulf Coast, if you have operations anywhere along the East Coast, you should find it helpful.

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

Navigating the Murky Waters of FLSA Compliance

On September 19, 2012, several members of EBG’s Wage and Hour practice group will be presenting a briefing and webinar on FLSA compliance.  In 2012, a record number of federal wage and hour lawsuits were filed under the Fair Labor Standards Act (FLSA), demonstrating that there is no end in sight to the number of class and collective actions filed against employers. Claims continue to be filed, raising issues of misclassification of employees, alleged uncompensated "work" performed off the clock, and miscalculation of overtime pay for non-exempt workers.

In this interactive briefing and live webinar, we will discuss the recent trend in enforcement and class action lawsuits, as well as highlight several common mistakes that managers make when trying comply with the ever-changing and confusing area of the FLSA. Specifically, this briefing will teach you how to:  

  • Determine overtime eligibility
  • Determine whether an employee is exempt
  • Calculate overtime compensation correctly
  • Avoid unauthorized overtime
  • Navigate tip credits, tip pooling, and overtime calculation for wait staff
  • Understand what constitutes off-the-clock work and other traps
  • Develop strategies for avoiding additional wage and hour risks 

You can register for the complimentary briefing here.

California One Step Closer to Mandating Overtime and Meal Periods for Private Home Housekeepers and Babysitters

By:  Adam C. Abrahms

Last week Assembly Bill 889 cleared a California State Senate Committee, advancing it one step closer to becoming state law.  The bill, authored by Assemblyman Tom Ammiano (D – San Francisco), seeks to extend most of California’s strict wage and hour regulations to domestic employees working in private homes.  While the bill excludes babysitters under the age of 18, it extends California wage and hour protections to babysitters over the age of 18 as well as any other housekeeper, nanny, caregiver or other domestic worker.

Should the bill become law individual Californians and California families who employ the services of these domestic workers will be required to follow the same overbearing regulations that currently plague California’s small and large businesses.  Specifically, absent the applicability of narrow and limited exceptions, individuals/families using domestic services from babysitting to adult caregiving and transportation to housekeeping will, among other mandates, be required to:

  • Pay their domestic workers in accordance with California overtime rules including time and half for over 8 hours in a day; ·

  • Provide duty-free meal periods for domestic workers working over 5 hours in a day; ·        

  • Permit paid rest periods for domestic workers working over 3 ½ hours in a day; ·       

  • Maintain and record the actual start and end time for all work periods (including meal periods);

  • Provide detailed and regular itemized pay check statements detailing hours of work, rates of pay and deductions; and

  • Comply with certain notice posting and record keeping requirements.

 Above and beyond the regular requirements of California law, the bill imposes a new and special requirement that individuals/families employing domestic workers provide them specific food items of their worker’s choosing if meals are part of the worker’s compensation.  The bill also explicitly provides domestic workers the protections of California’s Workers Compensation System and requires individuals/families employing the services of domestic workers to comply with the applicable workers compensation laws. 

In addition to any other damages and attorney’s fees resulting from an individual/families’ failure to comply with California’s complex wage and hour laws, the bill imposes a new $50 penalty for each day an individual/family violates the bill’s mandates. 

The bill now moves onto the full California State Senate for consideration. In unrelated news, California’s unemployment rate is amongst the highest in the nation as businesses find friendlier climates in neighboring states. 

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 Court of Appeals Upholds Arbitration Agreement With Class Action Waivers

By Michael S. Kun and Aaron F. Olsen

Earlier this week, the California Court of Appeals issued a ruling in Iskanian v. CLS Transportation Los Angeles, LLC that illustrates how the legal landscape in California has shifted in favor of enforcing arbitration agreements with class action waivers.   This, of course, is a welcome development for employers with operations in California, which have been besieged by class action lawsuits alleging wage-and-hour violations for the past 10+ years.

In 2006, the plaintiff in Iskanian filed a putative class action complaint against his employer alleging various California Labor Code violations.  The plaintiff had signed an arbitration agreement agreeing to arbitrate any claims arising out of his employment.  The arbitration agreement contained a class and representative action waiver in which the plaintiff agreed that he would not bring any claims as a class action or as a representative action.

In March 2007, the trial court granted the employer’s motion to compel arbitration.  However, the plaintiff appealed the decision in light of the California Supreme Court’s   decision in Gentry v. Superior Court, which held that a class action waiver provision in an arbitration agreement should not be enforced if “class arbitration would be a significantly more effective way of vindicating the rights of affected employees than individual arbitration.” Thus, the California Court of Appeals in Iskanian ordered the trial court to reconsider its ruling.  Accordingly, the defendant withdrew its motion to compel arbitration, and the parties proceeded to litigate their case.  In October 2009, the Court granted Plaintiff’s motion to certify the case as a class action.

In April 2011, several years after the Court of Appeals had ordered the trial court to reconsider its prior order granting defendant’s motion to compel arbitration, the United States Supreme Court decided AT&T Mobility, LLC v Concepcion, which reiterated the rule that the principal purpose of the Federal Arbitration Act (“FAA”) is to ensure that arbitration agreements are enforced according to their terms and held that “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.”  Shortly thereafter, the Iskanian defendant renewed its motion to compel arbitration and to dismiss the class claims, arguing that Concepcion  was new law that overruled Gentry.  This time, the California Court of Appeals agreed with the defendant and held that the arbitration agreement and the class and representative action waivers were effective.  Thus, the Court of Appeals upheld the trial court’s order granting the defendant’s motion to compel arbitration and dismissed the plaintiff’s class claims.

Importantly, in Iskanian, the California Court of Appeals expressly declined to follow the NLRB’s controversial decision in D.R. Horton, wherein  the NRLB held that an employers’ mandatory agreement requiring that all employment-related disputes be resolved through individual arbitration (and disallowing class or collective claims) violated the National Labor Relations Act.   In rejecting the plaintiff’s argument, the Iskanian Court noted that Concepcion made no exception for employment-related disputes.

Importantly, the Iskanian Court also held that representative claims brought under California’s Private Attorneys General Act (“PAGA”) – sometimes referred to as the “Bounty Hunter Law” or the “Sue Your Boss Law” --can be waived in arbitration agreements.  The California Court of Appeals disagreed with the opinion in Brown v. Ralphs Grocery Store, which held that Concepcion does not apply to representative actions under PAGA.  Once again, this is a welcome development as many plaintiff’s lawyers have attempted to minimize Concepcion by arguing that even if employees can waive their right to bring a class action, they cannot waive their right to bring representative actions.  However, the disagreement between the Iskanian and Brown Courts about PAGA claims seems to guarantee that the issue will have to be resolved by the California Supreme Court.

 

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.

Texas Roadhouse, Inc. Settles Its Beef With Wait Staff For $5 Million

By Kara Maciel and Casey Cosentino

The restaurant and hospitality industries are no strangers to the tidal wave of wage and hour class action lawsuits. Restaurants and hotel operators located in states with employee-friendly laws like Massachusetts, New York, and California, are particularly vulnerable. This vulnerability was recently confirmed on April 30, 2012, when Texas Roadhouse, Inc. agreed to pay $5 million to settle a putative class action suit filed by wait staff employees from nine restaurants in Massachusetts.

In Crenshaw, et. al, v. Texas Roadhouse, Inc. (No. 11-10549-JLT), the plaintiffs alleged that Texas Roadhouse violated Massachusetts Tips Law by retaining and distributing proceeds from their gratuities to managers and other non-wait staff employees, including hosts/hostesses. Additionally, because the plaintiffs did not receive all of their gratuities, they asserted that Texas Roadhouse improperly claimed the tip credit against the minimum wage in violation of Massachusetts Minimum Wage Law. As such, Texas Roadhouse allegedly paid the plaintiffs less than minimum wage. The plaintiffs, therefore, argued that they were entitled to full minimum wage for all hours worked.

Under Massachusetts law, employees who receive at least $20 per month in gratuities may be paid $2.63 per hour (“tip credit”), provided that the gratuities and hourly pay rate when added together are equal to or greater than the state minimum wage of $8.00. If the employee does not receive the equivalent of the minimum hourly wage with his or her tips, the restaurant or hotel must pay the difference. Although restaurants and hotel operators are prohibited from retaining employees’ gratuities, they may distribute properly pooled tips. Accordingly, when the tip credit is claimed to satisfy the minimum wage, only employees who customarily and regularly receive tips are eligible to participate in the tip pool. These employees include wait staff employees (e.g., banquet servers and bussers); service employees (e.g. baggage handlers and bellhops); and bartenders. Conversely, employees not eligible for tip pool arrangements include kitchen staff, cooks, chefs, dishwashers, and janitors. Also, under no circumstances are employers, owners, managers, or supervisors permitted to share in the tip pool.  

The Texas Roadhouse settlement illustrates the importance of adhering to state and federal minimum wage laws. A violation of a tip pool arrangement can lead to high exposure for restaurants and hotels, not only with respect to money wrongfully withheld from employees, but also with potential tip credit violations. With the flood of class action suits, restaurants and hotel operators must continue to make compliance with wage and hour laws a top priority. As a best practice, restaurants and hotel operators should conduct regular self-audits of their wage and hour practices, in consultation with legal counsel. Identifying and correcting wage and hour mishaps before plaintiffs collectively seek action is the first defense to preventing class action suits and reducing legal liability.

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

By Douglas Weiner and Meg Thering

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

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

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

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

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

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

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

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

 

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 Labor Commissioner Revises Wage Notice Form and Guidance

By Adam Abrahms

Last year, California passed the Wage Theft Prevention Act (AB 469) which amended several existing Labor Code sections and added several new ones. Most notably, in addition to criminalizing certain wages payment violations, the statute created a new mandate for California employers to provide each new employee a written notice upon hire containing individual information, including their regular rate of pay, overtime rates, and regular pay day. The law also required the California Division of Labor Standards Enforcement (DLSE) to prepare a template of the notice that employers could use for compliance. 

Although the new law had an effective date of January 1, 2012, the DLSE did not provide its first template with guidance until the final week of December. Its initial attempt seemed to raise more questions than provide answers, and the DLSE issued a revision within weeks. Even its second attempt, however, raised serious concerns that the notice went far beyond the requirements of the law and invited the potential for another round of class action lawsuits and employers.

Reacting to concerns raised by and on behalf of employers, the DLSE has announced revisions to both the template and the FAQ Guidance. The revisions are designed to address concerns that the prior template language could be read as evidencing an employment contract with an employee and diminishing the presumption of at-will employment. The revisions also addressed concerns related to what and how “rates of pay” must be listed, especially where employees may have multiple rates or a fluctuating regular rate of pay. Finally, the FAQs provide new guidance on the respective obligations of joint-employment situations including those involving staffing agencies.

The updated FAQ (link here) provides underlined and other notations indicating where and how the FAQ had been updated. The most helpful changes are contained in the addition of questions 16-30 at the end of the FAQ.

The new template (link here) is simplified and has removed or amended several (though not all) areas of concern. Importantly, the FAQs make it clear that employers can choose to use their own form or a modified form as long as the information from the template is included. 

Although the DLSE’s revisions are helpful and a step in the right direction, employers still must be cautious in ensuring compliance with the Wage Theft Prevention Act. The requirements of this law still contain many pitfalls that could find a well meaning employer faced with an individual lawsuit or class action despite its best efforts at compliance. We recommend employers carefully review their processes to ensure they are both in compliance with the law and have established forms and procedures designed to limit their exposure and meet their individual business needs.

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. 

In the Name of "Fairness," a New Jersey Federal Court Strikes the Confidentiality and Release Provisions from a Fair Labor Standards Act Settlement Agreement

By Douglas Weiner and Meg Thering

In one of the many “wrinkles” in Fair Labor Standards Act (“FLSA”) litigation, settlements of wage and hour disputes between an employer and its employees are only enforceable if supervised by the U.S. Department of Labor or approved by a court. Courts will approve settlements if they are “fair”; however, as demonstrated in a recent decision arising out of New Jersey - Brumley v. Camin Cargo Control - courts may need to be reminded that employers also have rights and legitimate interests. The Brumley Court took what was a bargained-for exchange between both parties and turned it into what could only be considered a one-sided deal, good only for the plaintiffs. 

After litigating and negotiating alleged overtime violations with 112 opt-in plaintiffs over a four year period, Camin Cargo Control, Inc. ultimately offered to pay $3.9 million in exchange for the release of all wage claims and a confidentiality provision. Plaintiffs then filed an unopposed motion to approve these terms of settlement.  Unfortunately for Camin Cargo Control, Inc., the Court granted Plaintiffs their full benefit of the bargain – including $1.3 million in costs and attorneys’ fees – but in the name of “fairness” denied the portion of the motion containing the confidentiality provision and release of claims.

In Brumley,the Honorable Jose Linares, citing Brooklyn Sav. Bank v. O’Neil, a U.S. Supreme Court case from 1945 and Dees v. Hyradry, Inc., a 2010 casefrom the Middle District of Florida, refused to approve the parties’ agreement as submitted because he found that the confidentiality provisions ran afoul of “the ‘public – private’ rights granted by the FLSA and thwart[ed] Congress’s intent to ensure widespread compliance with the statute.” Additionally, citing Dees, he stated: “[i]n practice, leaving an FLSA settlement to wholly private resolution conduces inevitably to mischief.” He also deemed the release unfair because he interpreted it as a release of both prior and prospective claims.

In light of this opinion, employers should double check the language of release provisions in FLSA settlement agreements to make sure that they unambiguously release all claims prior to the date of the agreement (and no claims after the date of the agreement). 

Employers should also keep in mind that courts are becoming increasingly hostile to confidentiality provisions in FLSA settlements. Thus, employers may no longer assume that their confidentiality provisions will be approved. 

We will keep an eye on this decision and report if it is appealed or distinguished by courts in other jurisdictions.

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

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

Click here to register for this complimentary webinar.

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

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

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

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

By Amy Traub and Desiree Busching

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

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

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

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

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

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

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

Epstein Becker Green Launches First-of-Its-Kind App: Wage & Hour Guide for Employers

Epstein Becker Green Wage & Hour Guide App
We are pleased to announce that Epstein Becker Green’s first app - Wage & Hour Guide for Employers - is now available for download in the App Store on iTunes, for both iPhones and iPads.  You can find this complimentary app by searching for “Wage Hour” or clicking here.

The Wage & Hour Guide app enables employers to access up-to-date federal wage and hour guidelines as well as various state guidelines, which can differ by jurisdiction. In addition, users can obtain insights and commentary about the latest wage and hour developments and issues by accessing this blog directly through the app. To provide the best user experience possible, the app provides users with the ability to download the guide to their iPhone or iPad for reference anywhere at any time – with or without an Internet connection, all at no cost.  

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

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

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

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

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

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

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

First Circuit Finds Employees Exempt from Overtime Pay

By Peter M. Panken, Michael S. Kun, Douglas Weiner, and Larissa Lalor-Rosado

Misclassification of employees as exempt from overtime compensation has become a cottage industry for plaintiff’s lawyers and for the United States Department of Labor (“DOL”) in the Obama years.  One of the most difficult issues is whether employees meet the so-called administrative exemption to the Wage Hour laws.  In Hines v. State Room, the United States Circuit Court in New England offered some clarity and help to beleaguered employers holding that former banquet sales managers were exempt from overtime requirements under the Fair Labor Standards Act (“FLSA”).

The FLSA, requires overtime pay at the rate of one and one half times the regular rate of pay for all hours worked in excess of 40 hours in a seven day period unless the employee is exempt. The three pronged test for exemption for administrative employees is whether the employee is (1) salaried (paid a regular amount of at least $455 for all hours worked in a workweek); (2) the employee’s primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and (3) the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Plaintiffs were banquet sales managers whose job included seeking potential customers for events at the employer, developing the elements of the party or other event and submitting the proposed contract terms for approval by senior officials of the Banquet Halls.

The Court found that Plaintiffs met the first two prongs for exemption: Plaintiffs were paid on a salary basis, and their work was primarily administrative because it was ancillary to the employer’s actual business of providing banquet services.

Plaintiffs claimed that they did not meet the third prong for exemption because they lacked the authority to make any decisions of financial consequence, supervisory authority or policy-making authority.

The Court found that while the plaintiffs’ discretion in matters having significant financial impact was subject to managerial approval, such restrictions did not detract from the judgment exercised in developing a proposal for the client. Plaintiffs’ duties included maintaining primary contact with a client, tailoring an event to their needs, and overseeing the event through to execution. The Court ruled that plaintiffs exercised adequate discretion as sales people to be designated as exempt.

Other Factors Considered for Exemption

The preamble to the current DOL regulations identifies a host of factors that courts have found sufficient to demonstrate that employees exercise independent judgment. 69 Fed. Reg. at 22144. Such factors include:

·                     the ability to exercise discretion and independent judgment,

·                     freedom from direct supervision,

·                     personnel responsibilities,

·                     trouble-shooting or problem-solving activities on behalf of management,

·                     use of personalized communication techniques,

·                     authority to handle atypical or unusual situations,

·                     responsibility for assessing customer needs, primary contact to public or customers on behalf of the employer, the duty to anticipate competitive products or services and distinguish them from competitor’s products or services,

·                     advertising or promotion work, and coordination of departments, requirements or other activities for or on behalf of employer or employer’s clients or customers.

Unfortunately these factors are very fact intensive and do not provide a bright line test for exemption, But the Hines case does offer some useful precedent and guidance for employers. In any event, care must be taken to be sure that the law in a particular state or in a particular circuit does not impose a stricter limitation on the discretion and independent judgment issue.

Take-Away

An employer may retain the right to review an employee’s ability to create financial and contractual obligations and still properly classify the employee as exempt. Requiring managerial approval for these purposes does not necessarily detract from the judgment exercised by the employee at arriving at the proposal in the first place. In addition, as set forth above, there are numerous other factors that courts can consider in determining whether an employee should be designated as exempt.

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

By David Garland and Douglas Weiner

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

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

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

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

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

Hurricane Irene Threatens the East Coast: Employers Don't Forget the Wage Hour Issues

By Kara M. Maciel

As Hurricane Irene is moving up the East Coast and threatening states from North Carolina, Virginia, Maryland, New Jersey, New York and Massachusetts, employers should refresh themselves on the wage and hour issues arising from the possibility of missed work days in the wake of the storm.

A few brief points that all employers should be mindful of under the FLSA:

  • A non-exempt employee generally does not have to be paid for weather-related absences. An employer may allow (or require) non-exempt employees to use vacation or personal leave days for such absences. But, if the employer has a collective bargaining agreement or handbook policies, the employer may obligate itself to pay through such policies.
  • An exempt employee generally must be paid for absences caused by office closures due to weather, if he/she performs work in that week. The Department of Labor has stated that an employer may not dock a salaried employee for full days when the business is closed because of weather. Partial day deductions for weather related absences are not permitted.
  • If certain employees are required to be on-call (such as public safety, IT, or other essential personnel) during the storm, and the employee cannot use the time effectively for his or her own purpose, the on-call time is compensable and the employee must be paid. However, if the employee is simply at home and available to be reached by company officials, then the time is not working time and an employer does not have to pay for that time.

Policies and procedures to keep in place:

  • Decide whether your company will offer “weather days” for non-exempt workers who are absent because of disasters.
  • Ensure that your payroll systems are prepared for employees working from home, longer shifts, or not taking lunches.
  • Decide whether employees absent because of weather will be allowed / required to use vacation or PTO time.
  • Ensure safety of payroll records and ability to process payroll from alternate location if needed.

Natural disasters pose a myriad of employment and HR issues from wage-hour to FMLA leave and the WARN Act. The best protection is to have a plan in place in advance to ensure your employees are paid and well taken care of during a difficult time. Our reference tool contains answers to common questions, and while aimed at employers in the Gulf Coast, if you have operations anywhere along the East Coast, you should find it helpful.

Supreme Court May Weigh in on When Employers Can Take Advantage of the "Fluctuating Workweek" Method for Calculating Overtime

By Kara M. Maciel and Jordan Schwartz

As many employers are aware, the federal Fair Labor Standards Act (“FLSA”) mandates that employers pay non-exempt employees one and one-half times their regular rate of pay for all hours worked in excess of 40 in a workweek. However, as discussed by our colleague, Richard Tuschman, in his blog post “Reducing Your Company’s Exposure on FLSA Exemption Claims,” depending on the nature of an employee’s work schedule and salary arrangement, an employer can take advantage of the “fluctuating workweek” method. In so doing, an employer may compensate a non-exempt employee for overtime compensation at a rate of one-half his or her regular rate – as opposed to the usual rate of one-and-one half times the regular rate – because such hours have already been compensated at the straight time regular rate, under the salary arrangement.     

Earlier this month, in Urnikis-Negro v. American Family Property Services, 616 F.3d 665 (7th Cir. 2010), Ms. Urnikis-Negro, a former clerical employee at a real estate appraisal firm, sought relief from the U.S. Supreme Court and requested that it clarify the “fluctuating workweek” method that employers can use in calculating overtime. Before the trial court, Ms. Urnikis-Negro contended that although she routinely worked more than 40 hours a week, she never received any overtime pay. American Family Property Services argued that she was exempt for overtime as an administrative employee. While the trial court rejected the employer’s exemption classification, it concluded that it could pay her overtime based on the Department of Labor’s (“DOL”) “fluctuating workweek” method.             

In general, pursuant to DOL regulations, the “fluctuating workweek” method applies only when all the following factors are met: 

  •  The employee’s hours fluctuate from week to week;
  •  The employee receives a fixed salary that does not vary based on the number of hours worked each workweek;
  • There is a “clear mutual understanding” between the parties that the fixed salary is compensation for all hours worked each workweek;
  •  The fixed salary is sufficient to provide compensation to the employee at a rate not less than the applicable minimum wage for all hours worked each workweek; and
  • The employee receives additional compensation (in addition to the salary compensation) for all overtime hours worked at a rate of at least one-half the employee’s regular rate of pay. 

On appeal, the U.S. Court of Appeals for the Seventh Circuit noted that the propriety of relying on the DOL’s regulations regarding the “fluctuating workweek” method in cases where the employee has been misclassified by her employer as exempt from the FLSA’s overtime provision has divided federal courts. Nevertheless, the Seventh Circuit affirmed the trial court’s application of the “fluctuating workweek” method because the evidence demonstrated that the employee’s hours varied from week to week and she understood at the time of her hiring that her fixed salary was intended to cover all of the hours that she worked in a given workweek, even if they exceeded 40 hours per week. 

If the Court reviews the case, it will resolve the question of whether the “fluctuating workweek” method can use used to calculate the amount of overtime liability in cases where an employer has misclassified an employee as being exempt from the FLSA’s overtime provisions. And, as a practical matter, the Court’s decision to hear and subsequently rule on this case will have a significant impact on the extent of employer liability in misclassification cases in the future. 

 

 

IRS Delays Payroll Reporting of Health Insurance

On October 14, the IRS announced that the Health Care Reform Law's requirement that employers report the cost of health insurance on W-2's along with wages will be delayed by one year.  Now, employers must report health insurance cost on the 2012 W-2s, which in most cases will be issued to employees in January 2013. 

The announcement explained that “the Treasury Department and the IRS have determined that this relief is necessary to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with the new reporting requirement."   The announcement also clarified that health insurance amounts listed on W-2s are not taxable as wages.

 

Hospitals and Nursing Homes Are Focus of the Department of Labor over Wage Violations

by Kara M. Maciel

The healthcare industry continues to be the main target in the onslaught of wage and hour claims asserting violations of unpaid overtime and missed meal periods. These claims often result in millions of dollars being paid out to settle lawsuits and government investigations. 

As recently reported by the New York Times, the Obama Administration and the Department of Labor continue to focus on the healthcare industry over its pay practices. Armed with significant financial resources and additional investigators, the DOL has increased its enforcement efforts across the country, with notable results. For example, the DOL recovered more than $2.7 million from a Boston hospital system for 700 employees in overtime back wages. Similarly, in St. Louis, a healthcare employer recently settled with the DOL for $1.7 million for over 4,000 employees. Residential nursing homes and assisted-living centers are facing similar investigations.    

Many of the cases focus on overtime violations as a result of missed meal breaks. Under the federal Fair Labor Standards Act, an employee is entitled to a bona fide meal period during which the employee must be completely relieved from duty. If an employee is called back to work or is otherwise performing some patient tasks during the meal break, then the entire break period becomes compensable work time. Often, employers set their time clocks to automatically deduct 30 minutes per day in accordance with their policy that employees are required to take a full meal break during their shift. If an employee fails to report to his manager or to accounting that he worked during all or part of his meal break, the employer inadvertently could fail to pay the employee for all time worked.  For hospitals and other healthcare employers, monitoring duty-free meal breaks is especially difficult considering the importance of patient care which complicates regular, set schedules. Also, these claims are difficult to defend because the employer does not have complete and accurate records of when the employee worked during the meal break.   

The explosion of wage and hour actions against healthcare employers is due in large part because it is one segment of the economy that is growing and expanding its workforce, especially now with the enactment of health reform. Plaintiffs’ attorneys are also becoming much more aggressive in their efforts to target vulnerable employers. No longer waiting for a disgruntled employee to make a complaint, plaintiffs’ attorneys are using the ease of the internet to identify potential class members and highlight their investigations against susceptible hospitals and healthcare providers.   

In response to the renewed attention by the government and plaintiffs’ counsel, all healthcare employers must be on alert and understand that they are increasingly the focus for a government investigation or a class action lawsuit. The tidal wave of claims is not receding and employers must be vigilant in their compliance with federal and state wage hour laws. Employers should ensure that they have compliance programs in place with a strategic plan for handling potential audits and enforcement actions. Additionally, establishing a defensive game plan in the event a lawsuit is filed is essential to limiting exposure to liability early in the case. If a comprehensive payroll practices compliance audit has not been performed yet this year, now is the time to spot potential vulnerabilities and implement corrective solutions. Areas to check include time spent before or after scheduled shifts, missed meal breaks, travel time spent between patients’ homes, recordkeeping and proper classification of exempt employees. Spending the time and effort proactively reviewing pay practices can pay off significantly in the event the government knocks on the door or a class action lawsuit is filed.        

 

 


 

Employers Bear a Risk When Classifying Unpaid Interns and Volunteers as Trainees

By Douglas Weiner

The following sounds like a “win-win” situation, doesn’t it? An enthusiastic and energetic individual approaches you with a proposal to volunteer his or her time and services to gain valuable experience in your industry. “After all,” reasons the prospective volunteer, “how can I get my first job if I have no experience in the field of my choice?” Ambitious job seekers may approach an employer volunteering to work as an unpaid “trainee” or “intern” to gain skills, experience and contacts in their chosen field.

However, vigilant employers will not merely accept the prospective intern’s agreement to do volunteer work, but will apply the required legal analysis.  Despite the individual's offer to work for free, the Department of Labor may reclassify the individual as an employee, and require the employer to pay back wages for all hours worked, including overtime.     

An unpaid internship must be primarily for the benefit of the trainee, rather than the employer. Certain employers have established training programs for interns that do qualify for exclusion from the Fair Labor Standards Act. The criteria an employer must satisfy is set forth in Fact Sheet #71: The Test for Unpaid Interns  When all six criteria are met, an employment relationship does not exist under the FLSA, and the federal minimum wage and overtime provisions do not apply to the individual. 

For employers considering an unpaid internship program for one or more individuals, we recommend certain policies, practices and procedures be implemented as precautionary measures.

  • Distinguish interns from employees. Create written policies devoted exclusively to the interns; avoid using the same policies and handbooks for both interns and employees.
     
  • Review handbooks to remove terminology from written policies that blurs the line distinguishing interns from employees (for example, written policies should not say that an intern is being “hired”, or refer to interns as “Associates” or “Summer Associates” .).
     
  • Require a signed written statement from the prospective intern evidencing the understanding that the intern has no expectation of wages, and the employer makes no guarantee of a job at the end of the internship.
     
  • Document expense reimbursements, if any, to specific expenses with receipts to evidence that there were bona fide expenses incurred by the intern that were, in fact, reimbursed. Without records the DOL may conclude the “expense reimbursements” were disguised wages.

Conclusion

Employers must carefully assess the benefits, and risks, of managing an unpaid internship. Unless an employer is able to establish that the criteria set forth in Fact Sheet #71 are met, the DOL is likely to find that an intern is an employee who must be paid minimum wage and overtime.

Florida Led Nation in FLSA Lawsuits in 2009

Florida led the nation in Fair Labor Standards Act lawsuits in 2009. Statistics generated from PACER (Public Access to Court Electronic Records) show that about 2000 new cases were filed in United States District Courts in Florida last year, far more than in any other state. 

Of course, Florida is not the only hotbed of wage-hour litigation. California, which has its own, more rigorous wage-hour laws, has a large number of wage-hour cases filed in its state court system. Texas and New York are also seeing increasing numbers of wage-hour cases.

But when it comes to the FLSA, the Sunshine State rules. The reasons for this are somewhat mysterious. Are Florida employees more litigious than in other states? Do Florida employers violate the FLSA more often? Is there a more active plaintiff-side employment bar in Florida? I suspect the answer is a combination of all these factors, plus good old-fashioned word of mouth. Here’s what I mean: the vast majority of FLSA cases settle before trial. FLSA settlements generally must be approved by a court, see Lynn's Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982), and many judges refuse to allow FLSA settlements to be confidential. And even if the terms of a settlement are confidential, a settling plaintiff can always disclose that the case has been “resolved amicably,” or words to that effect. Whatever the exact words, the message is clear – the plaintiff got a nice check. It’s like that old shampoo commercial from the 70’s: a settling plaintiff tells two friends, and they tell two friends, and so on and so on… Pretty soon you have 2000 FLSA cases on the docket.

So what can a Florida employer do to avoid being named in an FLSA lawsuit? Well, the best advice I can offer is to make every reasonable effort to comply with FLSA. That may seem obvious, but it’s not as easy as it sounds because the FLSA can be counterintuitive; its rules are often inconsistent with what seem to be reasonable and ethical business practices. But if you learn what the FLSA requires, and adopt policies and practices that are consistent with the law, you will go a long way toward avoiding a lawsuit. And, yes, get the advice of a qualified employment lawyer if you are unsure about what to do. Believe me, it will be far less expensive than litigation.

Year End Bonuses Can Create Hidden Liability

It is that time of the year when most companies start thinking about handing out year end or Christmas bonuses to their employees.  For exempt workers, such payments are not a concern.  For non-exempt workers, however, bonus payments raise the prospect of adding to the employee's regular rate, which could result in additional overtime liability.  For example, if an employee works overtime in the week he receives a bonus check of $400.00, the Department of Labor may require the bonus to be included in the "regular rate" upon which the time and one half overtime calculation is based (i.e. add $10 per hour to regular rate).

Companies can easily avoid the overtime problem by carefully crafting their bonus policies to fit within the Department of Labor's exclusion for "discretionary payments" (29 CFR 778.211).  The relevant regulation provides:

The employer must retain discretion both as to the fact of payment and as to the amount until a time quite close to the end of the period for which the bonus is paid. The sum, if any, to be paid as a bonus is determined by the employer without prior promise or agreement. The employee has no contract right, express or implied, to any amount. If the employer promises in advance to pay a bonus, he has abandoned his discretion with regard to it. Thus, if an employer announces to his employees in January that he intends to pay them a bonus in June, he has hereby abandoned his discretion regarding the fact of payment by promising a bonus to his employees.

For employers, this means it is critical that bonus policies be scrutinized to ensure there are no promises or guaranties of payment, and that the appropriate discretion language is included.  If not, your Company could be on the hook for a much larger Christmas bonus this year than you anticipated.

 

 

 

Update Regarding NY Wage Rate Acknowledgment Law

Several of the firm's labor lawyers in our New York office provided the following update on recent changes to New York wage and hour laws.

As we previously reported in our Summer 2009 New York State Employment Law Update, as of October 26, 2009, New York Labor Law Section 195(1) requires employers to notify all newly hired employees of the following: (i) rate of pay, (ii) regular paydays, and (iii) hourly rate and overtime pay rate (for all non-exempt employees). Employees must sign a statement acknowledging receipt of the written notice, and employers must keep the signed statement for at least six years.

On October 28, 2009, the New York State Department of Labor ("DOL") published an official form entitled, "Labor Law Section 195(1) Notice and Acknowledgement of Wage Rate Hourly Rate Plus Overtime," to be used for newly hired, non-exempt, hourly employees. The DOL also published Fact Sheets for both Employers and Workers, each of which state that notice must be given on the official form from the DOL. The notice must be provided to employees at the time of hire, before they do any work. The DOL's Forms and Fact Sheets may be accessed at the DOL Web site.

The DOL has informed us that it is currently preparing additional Notice and Acknowledgment Forms for other categories of employees, such as commissioned salespersons, non-exempt salaried employees and exempt employees. In addition to the forms, the DOL will also publish guidelines to assist employers in complying with the new requirements. The DOL has already published guidelines for temporary employment agencies on its Web site, along with a Notice and Acknowledgment Form to accommodate pay rates that vary for temporary assignments.

The DOL has advised that employers are no longer permitted to satisfy the new-hire notice and acknowledgment requirements by simply incorporating the required terms in offer letters or other "unofficial" forms. According to the DOL, employers must use the recently published official DOL Notice and Acknowledgment Form for all categories of employees (even though this form was created for use with non-exempt hourly employees). Once the DOL publishes its other Notice and Acknowledgment Forms, the appropriate form should be used. We will provide additional information regarding these other Notice and Acknowledgment Forms, as well as the related guidelines, when they are published by the DOL.

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

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

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

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

Practical Tips for Protecting Exempt Status of Working Supervisors

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

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

 

Hurricane Season Brings Unique Wage and Hour Issues

As hurricane season is fast approaching, we thought it an appropriate time to offer some thoughts and tips on the wage and hour issues that should be addressed in your company's policies and procedures.  The attached reference tool contains answers to common questions such as:

  • Can we dock the salaries of exempt employees who do not come to work during a hurricane or timely return to work afterwards?
  • What rules must we follow regarding paying employees who are absent because of weather?
  • What do we do if we can't find employees to give them their paychecks?

Although the attached brochure is aimed at Texas employers, if you have operations anywhere along the Gulf Coast, you may find it helpful.