Tips Do Not Count Towards the Minimum Wage Unless a Worker Qualified as a “Tipped Employe"In Romero v. Top-Tier Colorado LLC, the Tenth Circuit Court of Appeals ruled that tips received by a restaurant server for hours in which she did not qualify as a tipped employee were not “wages” under the FLSA, and therefore should not be considered in determining whether she was paid the minimum wage.

Tipped Employees & the FLSA

The FLSA provides that employers may take a “tip credit” and pay employees as little as $2.13 per hour if: (i) the tip credit is applied to employees who customarily and regularly receive tips; (ii) the employee’s wages and tips are at least equal to the minimum wage, and (iii) all tips received by a tipped employee are retained by the employee or pooled with the tips of other tipped employees.

In Romero, the Tenth Circuit noted that an employee may hold both tipped and non-tipped jobs for the same employer.  In those cases, the employee is entitled to the full minimum wage while performing the job that does not generate tips.

Moreover, the Circuit Court cited to the directive in the Wage Hour Division’s Field Operations Handbook stating that, if a tipped employee spends more than 20% of his or her time performing related-but-nontipped work, then the employer may not take the tip credit for the amount of time the employee spends performing those duties.

The Plaintiff’s Claims

The plaintiff in Romero worked as a server at the defendants’ restaurant.  The defendants paid her a cash wage of $4.98 an hour, and took a tip credit to cover the gap between the cash wage rate and the federal minimum wage.

The plaintiff contended that she also worked in nontipped jobs for the defendants, and that she spent more than 20% of her workweek performing related-but-nontipped work. Therefore, she concluded she was entitled to a cash wage of at least $7.25 per hour during certain hours, and filed a lawsuit in the U.S. District Court for the District of Colorado claiming violations of the federal minimum wage.

The defendants’ moved to dismiss the complaint because plaintiff did not allege that her total weekly earnings, when divided by the number of hours worked, ever fell below the federal minimum wage rate. The District Court reasoned that a minimum wage violation is determined by dividing an employee’s total pay in a workweek by the total number of hours worked that week.  Because the plaintiff did not allege facts that would establish such a violation, the District Court granted the defendants’ motion and dismissed the complaint.

In light of that reasoning, the District Court never considered whether the plaintiff was properly considered a tipped employee.

When are Tips Considered “Wages” Paid by the Employer?

The Tenth Circuit Court of Appeals reversed the judgment of the District Court. The Tenth Circuit “assumed” that the district court correctly stated that an employer satisfies the FLSA’s minimum wage requirements so long as, after the total wage paid to each employee during any given week is divided by the total time that employee worked that week, the resulting average hourly wage is $7.25 per hour or more.

But the Tenth Circuit held that the existence of a minimum wage violation depends on the “wages” paid by an employer to an employee. The Court stated that tips are “wages” paid by an employer only when the tips are received by a worker who qualifies as a tipped employee under the FLSA.

Accordingly, the Tenth Circuit reversed the District Court’s dismissal of the plaintiff’s complaint. The Tenth Circuit directed the District Court to reconsider its ruling by examining the threshold question of whether the tips received by the plaintiff were “wages” for purposes of the minimum wage requirements of the FLSA.

What is the Impact of an Improper Tip Credit?

Assume, for example, that the plaintiff worked 40 hours in a given week, was paid cash wages of $199.20 (or $4.98 per hour) and received tips of $90.80.

If the evidence demonstrates that the plaintiff was a tipped employee at all times, she was paid wages of $290.00 (or $7.25 per hour) and the defendants did not violate the federal minimum wage.

However, the evidence could demonstrate that the plaintiff performed so much related-but-nontipped work that she did not qualify as a tipped employee at any time. As explained by the Tenth Circuit, the plaintiff’s tips would not count as wages and therefore she was paid $90.80 below the minimum wage.  The defendants could then be liable to her for that amount (as well as potential liquidated damages and attorneys’ fees).

The Tenth Circuit’s decision is consistent with the rulings of other circuit courts. Therefore, employers who are taking tip credits therefore must pay close attention to the specific requirements of the FLSA, and should not consider themselves insulated from liability merely by the fact that their tipped employees are earning more than the minimum wage.

Our colleague Michael Kun, co-editor of this blog, shared his thoughts on various wage and hour issues in the publication of “7 Deadly Sins,”  which discusses FLSA violations that must be avoided to ensure compliance at your company, published by TSheets.

Following is an excerpt:

“The most common issues we see regarding meal and rest periods occur in states like California where state laws – rather than the FLSA – require that employees be provided those breaks at certain times during the day, and employees are entitled to significant penalties if they are not provided breaks in compliance with the law. …”

Read the full post here.

Michael D. Thompson
Michael D. Thompson

In Gonzalez v. Allied Concrete Industries, Inc., thirteen construction laborers filed suit in the Eastern District of New York.  The plaintiffs claimed they worked in excess of forty hours per week, but were not paid overtime in violation of the Fair Labor Standards Act and the New York Labor Law.

To obtain information regarding the plaintiffs’ activities during hours they claimed to have been working, the defendants sought an order compelling discovery of their ATM and cell phone records.

ATM Receipts

The defendants asserted that records of the plaintiffs’ ATM transactions were likely to lead to the discovery of admissible evidence because they could reveal each plaintiff’s “whereabouts and activities during hours they claim to have been working.” The defendants relied in large part on Caputi v. Topper Realty Corp., a 2015 case decided by the same court.  In Caputi, a plaintiff asserting overtime claims was ordered to produce “a sampling of records of her ATM transactions” for the time period in question.

In denying the defendants’ motion, the Court acknowledged the ruling in Caputi.  However, the Court concluded that the discovery of ATM records was allowed in that case because the Caputi defendants stated that witnesses would testify that the plaintiff attended prolonged lunches during the workweek and withdrew cash from ATMs for that purpose.

Conversely, in Allied Concrete, the Court concluded that the defendants had not shown any “evidentiary nexus between the en masse discovery sought and a good faith basis to believe that such discovery material is both relevant and proportional to the needs of the case.”

Cell Phone Records

The defendants in Allied Concrete also sought the release of the plaintiffs’ cell phone records in order to determine whether the plaintiffs “engaged in personal activities such as non-work related telephone calls, extended telephone calls, [and] frequent text messaging” during times they claimed to have been working.

The defendants cited to Caputi and to Perry v. The Margolin & Weinreb Law Group, another Eastern District of New York case from 2015.  In both cases, the plaintiffs asserting wage hour claims were ordered to produce cell phone records based on testimony that they had made personal telephone calls during the workday.  Allied Concrete had not obtained any such testimony.  Accordingly, the Court stated that the defendants’ speculation that the cell phone records might contain relevant evidence did not warrant a “wholesale intrusion into the private affairs” of the plaintiffs.

Employers, therefore, should be aware that electronic evidence of an employee’s activities may be discoverable in FLSA cases – provided that there is a sufficient basis for seeking the discovery.

Beauty and fashion background with open notebook, lipstick and pearls.Following recent precedent by the Second and Eleventh Circuits, the U.S. District Court for the Northern District  of California dismissed the claims of cosmetology and haircutting students who claimed they acted primarily as workers rather than students. 

In Benjamin v. B&H Education, Inc., the plaintiffs sought to represent a putative class of students seeking wages from their schools under the federal Fair Labor Standards Act (“FLSA”) and the wage hour laws of California and Nevada.

The District Court held that the putative class representatives had not established that the educational benefits they received from attending the defendant’s schools were outweighed by the unpaid work they performed.

Primary or Secondary Status?

The District Court expressly agreed with the Second and Eleventh Circuit’s interpretations of the United States Supreme Court’s decision in Walling v. Portland Terminal Co.

The Court held that, when assessing whether the students were employees when they did their clinical work, it would examine “all the circumstances” to determine whether the relationship chiefly benefits the student or the entity for which the student is working. 

In the context of a for-profit school’s clinical education program, “this means a court should inquire whether a school’s efforts to make money from the clinic relegated the educational function of the clinic to a secondary status.”

Standard Applicable under the FLSA and California & Nevada Law

The District Court applied this standard to the plaintiffs’ claims under the FLSA and the wage-and-hour laws of California and Nevada.

In regard to California law, the District Court noted that in distinguishing between “employees” and “independent contractors,” the California Supreme Court has stated that “[i]n no sense is [California law’s] definition of the term ’employ’ based on federal law.”  Furthermore, the District Court stated that California law tends to focus on a putative employer’s right to control its putative employee.

However, the District Court stated that it “makes no sense to” extend this principle to the educational context because schools typically exercise significant control over their students without their becoming “employers” of the students.

“Small Doses” on Non-educational Work

 The plaintiffs were required to do some non-educational work such as cleaning and answering telephones.  However, the District Court stated that because professionals could expect to do similar work, the tasks were relevant in preparing for the plaintiffs’ chosen professions and “in small doses” would not relegate the educational function of the clinics to secondary status. 

Furthermore, the plaintiffs failed to provide specific evidence that they did not receive meaningful clinical instruction.

Finally, the mere fact that the clinics charged customers for services was not independently sufficient to support a finding that the “business functions” of the position had been elevated above the educational purposes of the work.

Employers who allow unpaid student trainees to work at their facilities should examine their programs to ensure that the educational benefits to the student are not subordinate to the benefits of the work received by the employer.

 

by Steven M. Swirsky

An NLRB Administrative Law Judge issued a decision on April 29th in which he found that when a waiter in a restaurant in New York City, acting alone, instituted a class action lawsuit claiming violation of state or federal wage and hour laws, he was engaging in concerted activity on behalf of himself and co-workers, even if none of those co-workers are aware of the filing. While the decision does not mention whether the waiter was represented by a union, it seems pretty clear that there was no union in this case.  

Thus, the Judge concluded, when the restaurant terminated the waiter, it did so because, whether he knew it or not, he was engaging in concerted, protected activity with the restaurant’s other employees. The Judge also noted that when the owners read the complaint and saw that it had been filed on behalf of a class of similarly situated employees as well, the employer likely believed that the waiter was acting with others for their mutual benefit.

The case involved the issue of whether such an employee, whose employer terminated his employment the day it received a copy of the employee’s lawsuit in the mail from the employee’s counsel terminated the employee for engaging in protected, concerted activity as that term is defined under the National Labor Relations Act (the Act or the NLRA) or whether the employee was fired for something he alone did for himself. If he was not acting in concert with co-workers the Judge opined that the employee’s termination would not have violated the Act (although it may have violated other laws).

ALJ Raymond Green distilled the case down to this fundamental question: when an employee files a lawsuit “relating to wages,” is that employee “engaged in concerted activity within the meaning of Section 7 (of the National Labor Relations Act),” or is such an employee “acting solely in pursuit of his own interests?” The Judge concluded although it was clear that the charging party acted alone, the very language of the complaint, which stated that it had been filed on behalf of the named plaintiff and “on behalf of a class of similarly situated employees who work or have worked at the (restaurant) over a three year period of time,” it "could be argued that (the waiter) sought ‘to initiate or to induce or to prepare for group action.’”

The Judge recommended that the NRLB issue an order directing the waiter’s reinstatement with full back pay and seniority. He also recommended that the employer post a notice to employees that advised employees that, among their rights under the Act, is the right to “file lawsuits on behalf of themselves and others relating to their wages or other terms and conditions of employment.”

The decision is a reminder that with the current NLRB, with its mindset of expanding its reach into non-union workplaces, a broad range of actions that an employee may take on his or her own behalf are likely to implicate the rights of co-workers and thus be found to be protected under the NLRA as concerted activity. Surely this would be the case in virtually every class action lawsuit under state or federal wage and hour laws.  

by Michael D. Thompson

In Thompson v. Real Estate Mortgage Network, the Third Circuit addressed a variety of ways in which a plaintiff could pursue claims against entities that claimed they were not her employer.

The plaintiff was hired as a mortgage underwriter by defendant Security Atlantic Mortgage Company (“SAMC”).  Allegedly in response to an investigation being conducted into SAMC ‘s mortgage practices, the plaintiff and others were directed to complete job applications for Real Estate Mortgage Network ("REMN"), a “sister company” of SAMC.  The plaintiff completed the application, and subsequently her paychecks were issued by REMN instead of SAMC, and SAMC became "defunct.”

The Plaintiff’s Claims

After leaving REMN, the plaintiff filed a complaint U.S. District Court for New Jersey, alleging that she was misclassified as an exempt employee and unlawfully deprived of overtime. 

The plaintiff sued REMN and SAMC, and also sued two individuals who were co-owners and executives for SAMC (and later became officers of REMN).  The plaintiff contended those individuals were joint employers by virtue of their positions with the defendant companies, and therefore were "personally, jointly and severally liable for the violations” of the FLSA and the New Jersey Wage and Hour Law.

The District Court dismissed the plaintiff’s complaint without prejudice pursuant to Rule12(b)(6), and she appealed to the Third Circuit.

Joint Employment

The Third Circuit found that the plaintiff’s allegations were sufficient to state a claim that SAMC and REMN were joint employers under the FLSA based on the “Enterprise test” set forth in In re Enterprise Rent-A-Car Wage & Hour Emp’t Prac. Litig., 683 F.3d 462, 467-68 (3d Cir. 2012), which looks to the following non-exhaustive list of factors:

(1)    the alleged employer’s authority to hire and fire;

(2)    the alleged employer’s authority to promulgate work rules and assignments and to set the employees’ conditions of employment (compensation, benefits, and work schedules, including the rate and method of payment);

(3)    the alleged employer’s involvement in day-to-day employee supervision, including employee discipline; and

(4)    the alleged employer’s actual control of employee records, such as payroll, insurance, or taxes.

The Third Circuit held that the plaintiff had stated a claim for joint employment status by alleging that (i) an employee of REMN trained SAMC employees, (ii) REMN and SAMC were referred to as "sister companies," and (iii) Plaintiff and some other SAMC employees were “abruptly and seamlessly” integrated into REMN’s business, and some employees continued to be paid by SAMC even after that integration.

The Third Circuit did not address joint employer status under the New Jersey Wage Hour Law.

Successor Liability

The Third Circuit then concluded that REMN could be liable not only for its own violations, but also for the violations of SAMC as a successor corporation. 

The Third Circuit applied a federal common law standard, which considers (1) continuity in operations and work force of the successor and predecessor employers; (2) notice to the successor-employer of its predecessor’s legal obligation; and (3) ability of the predecessor to provide adequate relief directly.

The Third Circuit concluded that the plaintiff had alleged facts sufficient to support such liability, because it contended that all facets of the business at issue, including work in progress, operations, staffing, office space, email addresses and employment conditions remained the same whether plaintiff was an employee of SAMC or REMN. 

The Circuit Court stated that, for the same reasons, the plaintiff could pursue atheory of successor liability under the New Jersey Wage and Hour Law.

Individual Liability

In regard to the individual defendants, the Third Circuit cited to case law under the FLSA and FMLA providing that an individual may be subject to liability when he or she exercises "supervisory authority over the complaining employee and was responsible in whole or part for the alleged violation" while acting in the employer’s interest.  An individual supervisor has adequate authority over the complaining employee when the supervisor "independently exercises control over the work situation."

For purposes of Rule 12(b)(6), the plaintiff satisfied these requirements by alleging that the individual defendants made decisions concerning “day-to-day operations, hiring, firing, promotions, personnel matters, work schedules, pay policies, and compensation," and were consulted when personnel issues arose at SAMC.   The Third Circuit did not address individual liability under the New Jersey Wage Hour Law.

In light of the foregoing, the Third Circuit reversed and remanded the case to the District Court.

by Michael Kun

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

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

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

For better or worse, those days are long gone.

First, there was the answering machine at home. 

Then, the cellphone.

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

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

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

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

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

Well, that day apparently has come.

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

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

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

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

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

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

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

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

By Alka N. Ramchandani & Michael D. Thompson

In recent years, Cal-OSHA has taken an aggressive stance against exposing employees to potential heat illness, often citing employers and proposing significant penalties for failing to provide to employees who work in high heat conditions with adequate drinking water, shade, training, and/or cool-down periods. Furthermore, as noted by the California Supreme Court in Brinker v. Superior Court, monetary remedies for the denial of meal and rest breaks “engendered a wave of wage and hour class action litigation” when added to the California Labor Code more than a decade ago.   

The California Legislature has brought these two trends together by  amending California Labor Code Section 226.7 to include penalties for employers’ failing to provide “Cool Down Recovery Periods” (“CDRPs”) to prevent heat exhaustion or stroke. The requirement to provide CDRPs kicks in January 1, 2014, after which California employers will be required to pay a wage premium for failing to provide CDRPs to employees.  This premium pay is akin to the premium pay already required for violations of California’s meal period and rest break laws. The amendment is sure to trigger substantial litigation in California, and cross over into Cal/OSHA enforcement as well.

California’s Heat Illness Prevention Statute  

 

 California employers have long been aware of California’s Heat Illness Prevention statute, Title 8 Section 3395(d), which obligates employers to provide training and access to adequate drinking water for employees who work outdoors when the temperature exceeds 85 degrees F. Pursuant to the Heat Illness statute, employers have also been required to maintain one or more shaded areas, with either open-air ventilation, forced ventilation, or forced cooling, and employers are required to allow employee access and encourage employees to access these shaded or cooled areas for cool down periods of no less than five minutes or as employees feel the need to do so.

 

Although heat illness has been an enforcement focus across the country, Cal-OSHA is the only OSHA scheme that has its own Heat Illness specific standard. While federal OSHA has increased its use of the General Duty Clause to cite heat illness issues, Cal-OSHA has led the way in this enforcement space.

California Labor Code Section 226.7

Pursuant to California Labor Code section 226.7, employers are already required to pay a penalty of one hour of pay for any failure to provide a non-exempt employee with a meal period and an additional hour of pay for any failure to provide a non-exempt employee with a rest break. This law has produced numerous class action lawsuits throughout California. Under the recent CDRP amendment, any failure to provide a cool down recovery period will obligate the employer to pay the employee one additional hour of pay at the employee’s regular rate of compensation for each workday that a recovery period is not provided. Employers now face more than just serious citations under Section 3395(d), but also cited or sued by employees (or classes of employees) for failure to provide CDRPs pursuant to California Labor Code Section 226.7.

Pursuant to this statute, California employers have suffered through a barrage of wage and hour single plaintiff and class action lawsuits related to California’s meal and rest break requirements under Section 226.7. This recent history has shown that compliance with these work-free periods is difficult, and demonstrating compliance is even more so. More importantly, the potential penalties and civil judgments are extremely high. 

The Amended Statute

Section 226.7 provides in pertinent part:

If an employer fails to provide an employee a meal or rest or recovery period in accordance with a state law, including, but not limited to, an applicable statute or applicable regulation, standard, or order of the Industrial Welfare Commission, the Occupational Safety and Health Standards Board, or the Division of Occupational Safety and Health, the employer shall pay the employee one additional hour of pay at the employee’s regular rate of compensation for each workday that the meal or rest or recovery period is not provided.

Section 226.7 also states that “‘recovery period’ means a cooldown period afforded an employee to prevent heat illness.”   

In addition to the added penalties, the Legislature has required work-free CDRPs, stating:

An employer shall not require an employee to work during a meal or rest or recovery period mandated pursuant to an applicable statute, or applicable regulation, standard, or order of the Industrial Welfare Commission, the Occupational Safety and Health Standards Board, or the Division of Occupational Safety and Health.

The statute therefore converts what had simply been a period in which employees can cool down (whether working or not) to work-free periods pursuant to Section 226.7. The Legislature reasoned that a 2007 survey identified that more than 70% of workers “voluntarily” worked through rest periods to avoid losing money and that this bill extends existing rest period protections to any applicable statute, regulation, or order by the Appeal or Standards Boards. 

One interesting distinction between Section 3395(d) (Cal-OSHA’s Heat Illness Standard) and Section 226.7 (the new CDRP legislation), is that the Heat Illness rule applies only to employees who are working in high heat conditions. The new CDRP legislation does not identify specific working conditions that would trigger the requirement to provide a CDRP. Employees working in air conditioned offices, therefore, may also be entitled to CDRPs if their employment puts them at risk for heat illness.

Conclusion

So what can employers do to protect themselves? It is important for California employers to review their Heat Illness Prevention Plans, notify employees of the company’s policy requiring work-free recovery periodsand conduct diligent and comprehensive training to ensure employees understand their obligations. Employers also need to develop CDRPs Plans, and carefully instruct employees to take CDRPs, as needed. Your plan should also specifically state that the employee is relieved of all work during the five-minute CDRP. Supervisors should be trained to allow employees to take work-free CDRPs as needed, and to enforce the Plan effectively. Finally, employers should develop procedures for documentation of CDRPs.

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.

By Michael Kun

A California plaintiff who prevails in a wage-hour lawsuit generally may recover his or her attorney’s fees.  The same is so for employers — but only for the next few months.

A new statute will take effect in January 2014 that will change whether and how an employer who prevails in such a case may recover its fees.  In a state already overrun with wage-hour lawsuits with questionable merit, that new statute seems to ensure that even more meritless wage-hour lawsuits will be filed by plaintiffs’ counsel who count on the in terrorem effect of those lawsuits to force employers to settle such claims – and who pocket 40% of what they recover.

Governor Jerry Brown has signed into law a bill that raises the standard for a prevailing employer to recover fees when they prevail in wage-hour actions.  Effective January 2014, an employer must meet a higher standard than an employee to recover fees.   It must not only prevail in the lawsuit, but it must establish that the lawsuit was brought in “bad faith.”  

While the authors of the bill contended that it was needed to correct an injustice that discouraged workers from pursuing such claims, one has to wonder whether those legislators could identify a single California employee who did not pursue a valid wage-hour claim because of the fear of paying attorney’s fees.  The California courts have been overrun with wage-hour lawsuits.  There is little, if anything, to suggest that employees have been deterred from filing these lawsuits.  If anything, they have been greatly encouraged to do so, and plaintiffs’ counsel sometimes file these suits with little effort to determine if they have any merit beforehand.  Indeed, it is not unusual for an employee not to even meet his or her attorney before the attorney files a wage-hour suit, or for that attorney to file a wage-hour class action with minimal, if any, investigation.

In this way, the new statute seems to be aimed to benefit the plaintiffs’ bar, not employees.  Until now, the only thing that prevented plaintiffs’ counsel from filing a meritless wage-hour action was the possibility that the employer would be able to recover its attorney’s fees.  Now, knowing that an employer is only going to be able to recover fees in meritless cases if it can establish that it was brought in “bad faith,” there is every reason to expect the filing of even more meritless wage-hour actions.