DOL Extends FLSA Protection to Direct Care Workers

by Jeffrey H. Ruzal

On September 17, 2013, the U.S. Department of Labor (“DOL”) issued a final rule extending the federal minimum wage and overtime pay protection under the Fair Labor Standards Act (the “FLSA”) to many direct care or domestic service workers, including home health aides, personal care aides and nursing assistants. The rule will take effect on January 1, 2015. 

For almost 40 years, an exemption from the minimum wage and overtime requirements of the FLSA has applied to domestic service workers employed to provide “companionship services” for an elderly person or a person with an illness, injury, or disability. 

Under the new rule, direct care workers employed by home care agencies and other third parties will no longer be exempt from the minimum wage and overtime requirements. Individual workers who are employed directly by the person or family receiving companionship services will remain exempt under the FLSA. 

Furthermore, the tasks that comprise “companionship services” are now more clearly defined. “Companionship services,” according to the DOL, means services for the care, fellowship, and protection of persons who because of advanced age or infirmity cannot care for themselves. Such services include meal preparation, bed making, and clothes washing.

Direct care workers who perform medical or medically-related services for which training is a prerequisite are not considered companionship workers, and thus are not exempt from protection under the FLSA.

General household work can be “companionship services,” as long as it does not exceed 20% of the total weekly hours worked by the companion employee. If this 20% limit is exceeded, the employee must be paid in compliance with the minimum wage and overtime pay requirements of the FLSA. 

According to the DOL’s news release, there are an estimated 1.9 million direct care workers in the United States, nearly all of whom are currently employed by home care agencies. 

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

By: Kara M. Maciel

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

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

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

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

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

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

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

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

* * * * * * * * * *

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

 

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.

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

By Allen B. Roberts and Douglas Weiner 

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

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

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

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

Required Health Care Notice to Employees

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

Non-Discrimination and Whistleblower Protections

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

Nursing Mothers 

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

 

The Obama Administration's Agenda for the DOL -- What Employers Need to Know

By Betsy Johnson

President Obama just celebrated his first year in office and his Administration has been busy! Employers of all sizes are starting to see the effects of the Obama Administration’s workplace agenda; especially at the Department of Labor (DOL). The watchword for all employers in the wage/hour arena for 2010 is “compliance.”  The DOL is slated to receive a substantial budget increase this year and it is going on a hiring spree to increase the number of investigators and enforcement personnel. 

The DOL’s agenda includes increased audit and enforcement proceedings related to “off the clock” work and the misclassification of employees as “exempt” under the Fair Labor Standards Act (FLSA). In addition, the DOL (in cooperation with the IRS) will focus its audit and enforcement proceeding on employers who misclassify individuals as independent contractors.  Now, more than ever, employers must have programs in place to ensure compliance with the myriad of wage/hour laws and regulations, and implement a clear strategy for handling government audits and enforcement actions. While the thought of conducting a comprehensive payroll practices compliance audit can be daunting, employers can efficiently conduct “spot” audits of particular areas where they may be vulnerable. 

 

As an initial matter, employers should determine who will conduct the audits. Utilizing internal resources such as the Human Resources and/or Payroll Departments and/or the company’s General Counsel will help keep the costs down. However, using internal resources may not guarantee that the results will be protected by the attorney-client privilege should the company become involved in litigation regarding the subject matter of the audit. As such, employers may wish to seek assistance of outside counsel to conduct the audit and analyze the results.

 

The purpose of these “spot” audits is to: 1) identify areas of non-compliance; 2) identify policies, procedures and/or practices that can be improved; 3) develop a plan for improvement; and 4) implement the plan. The areas where most employers are vulnerable to government actions and employee claims in the wage/hour area are:

 

         Overtime calculation and payment

         Off the clock work

         “Donning and doffing” issues

         Classification of employees (exempt v. non-exempt)

         Time keeping

         Recordkeeping

         Proper classification of independent contractors

 

In planning a “spot” audit, employers should determine: 1) the scope and depth of the audit; 2) what data needs to be collected; 3) what documents need to be reviewed; 4) which managers should be interviewed to obtain relevant information; and 5) whether the employees should be surveyed for relevant information. On a cautionary note, if the employer believes there may be too many “skeletons in the closet” that may be exposed in an audit, consideration should be given to retaining outside counsel to assist in the audit so that the process and the results can be protected by the attorney-client privilege.

 

Finally, employers must decide what to do with the results of the audit. Some things to consider are: 1) who will be apprised of the results and how (written or verbal); 2) will the person who conducted the audit make recommendations regarding problem areas; 3) what, if anything, is going to be done about any problems; 4) how should any changes be implemented (a “spin doctor” may be needed); and 5) how is the employer going to address employee questions and challenges.

 

In the short-term, the exercise of conducting internal audits may be viewed as a distraction from an employer’s business purpose. In the long run, however, getting the company’s “house in order” before a government agency knocks on the door will save time, attorneys’ fees and the intangible costs of being embroiled in administrative or civil litigation. Remember the old adage: “An ounce of prevention is worth a pound of cure.”

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

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

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

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

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

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

Reducing Hours and Pay of Exempt Employees May Run Afoul of "Salary Basis" Test

The U.S. Department of Labor's Wage & Hour Division has issued two new opinion letters addressing circumstances under which employers may not reduce the hours of exempt employees without running afoul of the "salary basis" test and risking loss of the employees' exempt status.  

First, some background.  Employees exempt from the FLSA's minimum wage and overtime requirements as professional, executive, or administrative employees must be paid a salary of at least $455 per week. Under 29 C.F.R. § 541.602(a),

[a]n employee will be considered to be paid on a "salary basis" . . . if the employee regularly receives each pay period . . . a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. . . . An employee is not paid on a salary basis if deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business. If the employee is ready, willing and able to work, deductions may not be made for time when work is not available.

In the first opinion letter, the employer sought to reduce the hours worked by employees using the following system:

Your client proposes occasionally reducing the hours worked by exempt employees due to short-term business needs (e.g., low patient census). In such cases, the employer offers “voluntary time off” (VTO), where employees may, at their option, use paid annual, personal, or vacation leave, but continue to accrue employment benefits. The employer approves VTO on a first-come, first-served basis. If there are insufficient volunteers for VTO, the employer requires “mandatory time off” (MTO) under a seniority-based rotational method. Exempt employees required to take MTO may use accrued paid leave or take unpaid MTO. If the employee elects not to use accrued paid leave or does not have sufficient accrued paid leave to cover the VTO or MTO, the employer deducts the amount equal to the VTO or MTO from the employee’s salary, if it is shorter than one workweek. For unpaid VTO or MTO lasting an entire workweek, the employer does not pay the salary for that pay period. Salaried exempt employees may take VTO or be assigned MTO in one-day increments.

The DOL opined that salary deductions due to MTO lasting less than a workweek violate the salary basis requirement and may cause the loss of exempt status.  "Deductions from salary due to day-to-day or week-to-week determinations of the operating requirements of the business are precisely the circumstances the salary basis requirement is intended to preclude." 

In the second opinion letter, the employer proposed requiring salaried exempt employees to stay home or leave work early during periods of insufficient work.  The employer would deduct the non-work time from the employees’ accrued paid time-off accounts. The employees would receive their regular salaries so long as they had sufficient hours in their PTO accounts to cover the non-work periods. If an employee’s accrued PTO was exhausted, the employee’s salary would be reduced in full-day increments, except that in no event would an employee’s salary be reduced below the $455 per week.

The DOL opined that this proposal would also run afoul of the salary basis test. 

If an employer requires that an exempt employee work less than a full workweek, the employer must pay the employee’s full salary even if: (1) the employer does not have a bona-fide benefits plan; (2) the employee has no accrued benefits in the leave bank; (3) the employee has limited accrued leave benefits, and reducing that accrued leave will result in a negative balance; or (4) the employee already has a negative balance in the accrued leave bank. 

The DOL also opined that if an exempt employee’s accrued PTO is exhausted and the periods of insufficient work continued, the employer would not be permitted to send the employee home and pay him a reduced salary for the week.  The DOL distinguished this situation from the scenario discussed in a 1970 opinion letter, in which the employer was considering a permanent change in the work schedule from 52 five-day workweeks to 47 five-day workweeks and 5 four-day workweeks. "In that case," the DOL noted, "the salary basis requirement was not circumvented because all the exempt employees were to be paid according to a bona fide reduction of one-fifth of their salaries for a fixed schedule of five annually recurring four-day workweeks."

The distinguishing principle was stated in a 1995 DOL opinion letter:

... a fixed reduction in salary effective during a period when a company operates a shortened workweek due to economic conditions would be a bona fide reduction not designed to circumvent the salary basis payment. Therefore, the exemption would remain in effect as long as the employee receives the minimum salary required by the regulations and meets all the other requirements for the exemption.

My takeaway from these opinion letters is this:  Employers that are considering reducing their exempt employees' hours due to insufficient work must proceed very carefully.  Reducing exempt employees' hours of work, and reducing their pay correspondingly, may be permissible if the changes are carried out in accordance with a fixed schedule over an extended period of time.  An employer may not make reductions in work hours and pay based on day-to-day or week-to-week determinations of how much work is available.  Such reductions will run afoul of the salary basis test, risk forfeiture of the employees' exempt status, and expose the employer to overtime claims from the employees when their workload increases.