During the Covid-19 pandemic, companies should focus in the first instance on health and safety issues for workers, customers, and the public at large during a pandemic, but they cannot lose sight of the wage and hour risks that are lurking in these challenging times.
For a staggering number of U.S. businesses over the past several weeks, the early and middle part of 2020 will look something like this:
Reduced customer demand or government-ordered site closures lead to furloughs or layoffs of a significant part of the workforce. Where feasible, employees work from home. As local conditions permit, operations gradually start to return to normal, though without the organization’s full complement of workers. The enterprise has weathered the storm.
Then the wage and hour class, collective, or representative litigation begins. Why? What went wrong?
Risks fall into three main phases that track business deceleration, maintenance, and resumption.
The Slow-Down / Shut-Down Phase
As employers have tried to reduce payroll, many have changed schedules from full-time to part-time, converted salaried employees to hourly, or reduced pay or salaries. Some jurisdictions require a certain amount of advanced warning of such changes, often in writing.
Businesses facing a sudden and unanticipated interruption in their cash flow have found themselves struggling to meet payroll. Failure to pay all earned wages, of course, or to pay them timely, can lead very quickly to litigation or agency enforcement action.
As companies let workers go via furlough or layoff, they must remain mindful of statutory or contractual obligations to pay out accrued paid time off and final earned wages, and to do so timely in accordance with any state jurisdictional requirements. In addition, furloughs for exempt employees that do not coincide with a full workweek can lead to claims under the Fair Labor Standard’s Act’s salary basis regulations.
When workers report for their scheduled shift but there is no work available for them, there may be an obligation to provide reporting time or show-up pay.
And employers should consider whether they have bonus or incentive plans or programs that may in some jurisdictions present a risk of claims for at least a pro rata payout from employees who were on track for a bonus and find themselves without a job.
Austerity and Survival Mode
Businesses trying to remain in operation in an era of social distancing and stay-at-home orders have seen many employees working from home as a solution, at least in the short run.
Work-from-home arrangements for businesses that had not previously developed and rolled out well thought-out policies and practices create a number of different concerns that could lead to wage and hour claims.
For example, timekeeping systems may be ill-equipped to capture all working time in remote work situations, inviting claims for off-the-clock work. Likewise, showing compliance with meal and rest period requirements may be challenging. And in some jurisdictions, claims may arise for certain expenses such as computer and telephone equipment, internet and telephone service, electricity, insurance, and even conceivably a portion of rent or mortgage obligations.
Where businesses have furloughed salaried exempt employees, it is important to resist the temptation to contact those workers from time to time with work-related questions, as at some point such contacts may be beyond de minimis and trigger an entitlement to a full workweek’s salary.
And where organizations reduce their active headcount or modifying job responsibilities, they should give consideration to whether the affected exempt employees will still meet the criteria for exempt status.
For example, under the altered working structure, do supervisors still oversee two or more full-time-equivalent direct reports? Do exempt employees still have an exempt primary duty? Or, in California, do they still spend more than half of their time engaged in exempt tasks?
Return to Normalcy
As businesses plan for restoring operations, many are contemplating temperature checks, additional pre-shift sanitizing, or other additions to the daily check-in procedure. These procedures may lead to claims that this activity is compensable work.
When employers start to increase wage rates and schedules to pre-pandemic levels, the same notice requirements mentioned above for compensation reductions may apply. And in some industries and localities, predictive scheduling laws may apply.
Some businesses may find it tempting to look to temporary staffing agencies, independent contractors, or other non-employee models for flexibility to hedge against uncertain demand and a potential second wave of the virus. Doing so, however, may lead to joint employment or worker classification claims.
What It All Means
Covid-19 presents one of the most serious challenges that the economy has faced in the past several decades. While a pandemic may allow businesses to invoke force majeure clauses to be relieved of certain contractual obligations, a pandemic does not allow employers to avoid obligations for wage and hour compliance, which are non-waivable.
Employers need to remain aware of the many ways that seemingly sensible business responses to economic crisis can lead to costly wage and hour litigation. For companies already under stress from the business disruption caused by the coronavirus pandemic, a major wage and hour case would be exactly the opposite of what the doctor has ordered.