Overtime Advisor

The Dangers of Using Two Different Time Clocks

Devora L. Lindeman, Esq. — Fri, 22 Mar 2013 12:05:09 -0500

It seems it would be a no-brainer. You have one employee who works two different shifts, or even two completely different jobs. You set the employee up on two different time clocks so you can track the time the employee spends in each position. This can be helpful, especially if the employee is working at two different rates. However, what if the employee works over 40 hours in a workweek on the two positions combined. Is the employee entitled to overtime pay?

Absolutely. Failing to combine the two time clocks to determine the total number of hours worked by a single employee can be quite dangerous and costly. The time needs to be properly combined as required by the Fair Labor Standards Act (“FLSA”). Nieman Printing Inc. had to learn this the hard way, after paying $96,335.00 in overtime back wages to 101 employees as well as $26,000.00 in civil penalties, following a U.S. Department of Labor (“DOL”) investigation.

Specifically, the DOL found that Niemen Printing required employees to record hours worked on two different time clocks at the same site, but did not combine those hours to determine when overtime was due. In an interesting twist of the “two time clocks scenario,” investigators found that employees were under contract to Niemen by two separate staffing agencies at the same time, with hours worked Monday through Wednesday charged to one agency and hours worked by the same employees Thursday through Sunday charged to the other agency. The company set up separate clocks for the separate agencies.

As a result, employees did not receive overtime pay of 1.5 times their regular wage for working more than 40 hours a week. Getting the same employees through different agencies was seen as an improper mechanism to avoid overtime pay.

Employers should learn from Nieman Printing’s mistake. Two clocks can be used, but make sure you combine the employee’s time when determining the total hours worked for overtime purposes!

The Attack of the Unpaid Interns

Kevin M. Doherty, Esq. — Thu, 07 Mar 2013 10:57:15 -0500

We’ve warned before about the potential issues raised when you utilize unpaid interns. Employers used to be able to take a level of comfort from internships run through educational institutes but, no more.

The Charlie Rose show recently settled a class action law suit brought by unpaid interns for up to $250,000.00. The lead plaintiff claimed that the tasks she performed such as conducting background research on guests, compiling press packets, and cleaning the show’s green room, were “real work,” not part of the sort of training program that should comprise an internship. Given that interns are not supposed to perform productive work, or displace regular employees, this likely led the show to settle.

Employers are not supposed to derive any benefit from having interns who are not paid at least minimum wage. Rather, in theory and under the Department of Labor regulations unpaid interns are supposed to disrupt the business providing the internship and to take supervisors away from their work to train and oversee the unskilled interns. To be exempt from paying minimum wage and overtime pay to interns, a business needs to ensure that its internship program is akin to a job-training program that provides general business skill that the intern can apply anywhere—not specific training applicable only to that business (or no real training at all). Thus, according to the DOL, having an internship program is something that businesses should be doing to contribute to the greater good of corporate America and its future workforce—not to obtain free labor.

It is no wonder that plaintiffs’ lawyers have gotten on the unpaid intern band wagon. A New York law firm has filed another class action lawsuit in February 2013, this time against the Elite Model Management Corporation. The Complaint asserts that the agency misclassified employees as interns specifically to avoid paying them minimum wage.

Employers need to take care with their internship programs—even when partnering with educational institutions that provide the interns with college credit. If you determine to institute an internship program, make sure that it looks like one—have the interns shadow different employees to get an idea of what they do on the job; schedule meetings where different employees talk to the interns in a group about how they got into that business; take the interns on field trips; have the interns rotate each week into a different department where they are closely supervised by an employee who just might get upset at having the intern underfoot. Don’t merely structure your internship program as a stepping-stone into a job.

While internships may have given many people in the past an inside look into the industry of their dreams, the Department of Labor wants to ensure that if someone is actually working, they are getting paid for their labors.

Under New York Law, Are You Required to Pay Your Employees for Their Breaks or Not?

Matthew B. Wolin, Esq. — Tue, 19 Feb 2013 13:39:05 -0500

As noted in our recent blog, Under Federal Law, Are You Required to Pay Your Employees for Their Breaks or Not?, various states and localities may have their own break laws and regulations that could apply to your business. Those laws could cause even more confusion with as to if, whether to pay employees for breaks and/or meal time. New York is among the states with specific laws on breaks.

If you are an employer in New York, New York Labor Law (NYLL)generally requires you to provide your employees with at least 30 minutes of an unpaid, uninterrupted meal break during shifts of more than 6 hours. Specifically, employees are generally permitted to take at least 30 minutes for lunch between 11:00AM to 2:00PM if they work a shift of more than 6 hours, which extends over that time period. Every person employed for a shift starting before 11:00AM and continuing after 7:00PM is generally permitted an additional 20-minute unpaid meal break between 5:00PM and 7:00PM. Also, every person employed for a period or shift of more than 6 hours starting between the hours of 1:00PM and 6:00AM is generally permitted at least 45 minutes for a meal period at a time midway between the beginning and end of their shift.

There are, however, certain exceptions to the above requirements. For instance, factory employees may be entitled to longer break times. There are also some instances where only one person is on duty or is the only person performing a specific job duty. In those situations it may be acceptable for the employee to eat on the job without being relieved (in which case the employee needs to be paid for that time). The New York Department of Labor will generally accept these special situations as compliance with the break laws presuming the employees voluntarily consent to the arrangements. However, an uninterrupted meal period must be afforded to every employee who requests it from their employer. If you as the employer have an exceptional situation, it is generally prudent to get the employee’s agreement in writing.

Although the FLSA applies only to non-exempt employees when it comes to breaks, the NYLL does not distinguish between exempt/non-exempt employees. The NYLL requires employers to provide meal breaks to every "person" in any establishment or occupation covered by the NYLL.

Given that both Federal and state law addresses employee breaks, it is not surprising that there is so much confusion on this issue. State law does not necessarily mimic federal law, and the various laws create differences in the length of breaks as well an employer’s general requirements to provide breaks and employees’ entitlement to such breaks. To ensure compliance with the various wage and hour laws in New York, you should not only offer the required breaks to your employees but also you should require your employees (at least the non-exempt ones) to clock in and out for any breaks longer than 20 minutes so that you: (a) have a record of providing the required breaks, and (b) have a basis not to pay your non-exempt employees for their non-working break time. It may also be wise to talk to your employment lawyer to avoid paying for your confusion down the road!

Under Federal Law, Are You Required to Pay Your Employees for Their Breaks or Not?

Devora L. Lindeman, Esq. — Thu, 17 Jan 2013 12:15:58 -0500

An area of confusion for many employers, and thus an area in which wage and hour laws are often violated, involves breaks and meal periods. Specifically, are employers required to pay their employees for break and/or meal time, and if so, when? This area of confusion has resulted in Auto Cricket Corp., doing business as AutoCricket.com, paying 414 employees a total of $76,589 in back wages following an investigation by the U.S. Department of Labor's Wage and Hour Division.

Under the Fair Labor Standards Act (FLSA), employers are not required to give employees meal or rest breaks. Nonetheless, employers often offer such breaks in order to maintain employee productivity and morale. Accordingly, when employers do offer short breaks (usually lasting about 5 to 20 minutes), federal law considers the breaks as compensable work hours for which non-exempt employees must be compensated and which are counted towards calculating overtime hours worked. Bona fide meal periods (typically lasting at least 30 minutes), serve a different purpose than coffee, snack or short personal breaks and, thus, are not work time and are not compensable or counted towards overtime for non-exempt employees.

However, to be deemed a bona fide meal break that does not count as working time, the employee must be completely relieved from duty for the purpose of eating regular meals. The employee is not relieved if he/she is required to perform any duties, whether active or inactive, while eating.That means no greeting customers, no answering the office phone or work emails, and no running errands for work.

AutoCricket.com apparently did not follow these regulations. Instead, investigators found that the employer deducted short rest periods as non-work hours from the employee totals of hours worked. Failure to pay for that break time resulted in the workers being paid less than the required minimum wage for all their hours worked.

Since the federal regulations are unclear as to counting breaks lasting 21-29 minutes, it is best to set company policy so that breaks longer than 20 minutes are paid, and any shorter breaks are not. Keep in mind that states and localities may also have break laws and regulations that could apply to your business.

Bottom line, however, is there is no federal law requiring two 15-breaks per day. Companies can certainly provide this, but absent a provision in a collective bargaining agreement or applicable law, doing so is through the company’s own generosity.

Are You Paying Your Workers Enough?

Fanny A. Ferdman, Esq. — Fri, 28 Dec 2012 16:05:33 -0500

Minimum wage is still an issue for many employers, as two agriculture employers recently learned. And willful, repeated violations of the law can cause the U.S. Department of Labor (“DOL”) to make a federal case of the issue.

The DOL recently filed a lawsuit against agricultural employers for failing to pay their workers the minimum wage as required by the FLSA. An investigation by the DOL’s Wage and Hour Division found that the employers willfully and repeatedly violated the law by paying many employees only $6.25 or $6.50 per hour. The division estimates that a total of $191,402 is owed to 174 employees.

"We will not tolerate these actions and, as demonstrated by the filing of this lawsuit, the Labor Department will use all enforcement tools available to recover workers' wages and hold accountable employers who demonstrate a clear disregard for the law," said Jose R. Vazquez, the director of the division's district office which conducted the investigation. As a result, the DOL asked the court to order the employers to pay the full amount of back wages due plus an equal amount in liquidated damages to the affected workers.

Under the FLSA, employers must pay covered, nonexempt employees at least the federal minimum wage of $7.25 per hour. The law also requires employers to maintain accurate records of employees' wages, hours and other conditions of employment, and prohibits employers from retaliating against employees who exercise their rights under the law.

Accordingly, employers need to ensure that they are complying with minimum wage requirements. Part of that requirement is to ensure that commissions paid to their employees who are paid commission cover minimum wage per hour. After all, under the FLSA, employees who are paid on commission must be paid at least the minimum wage, just as employees who are paid by the hour or piece. So, if you want to avoid getting sued, don’t forget to track the hours of those commissioned employees and make sure that they are being paid at least minimum wage per hour, as well!

How Not To Respond To A DOL Audit: Fur Company Gets Its Hide Tanned By the DOL

Kevin M. Doherty, Esq. — Thu, 20 Dec 2012 12:14:25 -0500

Accused of doing just about everything wrong possible under the wage and hour law, a Boston processer of hides and furs is being sued by the DOL in federal court seeking $1,000,000.00 in back wages and damages. According to the DOL, the company engaged in repeated “knowing, deliberate and intentional violations.”

The DOL conducted an investigation which the company apparently attempted to thwart by, for example, ordering “employees to hide in a nearby house” when the DOL investigators arrived, thus frustrating efforts to interview the employees. After the company’s employees were reached by the DOL and interviewed—the company, Boston Hides & Furs Ltd., fired them. According to the DOL, the company “employees worked approximately 10 hours per day, six days per week processing hides and furs for shipping to tanneries. These workers were paid a daily cash wage of $50 to $70, which amounted to an hourly pay rate far below the federal minimum wage of $7.25 per hour. The employees also were not paid time and one-half the required state minimum wage of $8 applicable for those hours worked above 40 in a week. Additionally, the defendants failed to keep adequate records of the workers' employment, work hours and pay rates . . . .”

Clearly, the company just compounded their errors by failing to cooperate with the DOL during the course of the investigation. When the DOL comes knocking it is key to cooperate with the DOL investigator—while still retaining an employment lawyer who can protect your rights and help present your best defense. The cost of fighting a federal lawsuit (and then having to pay whatever resulting back wages, penalties and damages are deemed to be owed) is most usually far greater than the company would have needed to pay had it focused at the outset on resolving the investigation. Of course, the sooner a company can bring itself in compliance with the wage and hour laws the less it will be exposed to such audits and the often substantial liability that follows them.

DOL Investigation Shows Need to Classify Employees Properly

Matthew B. Wolin, Esq. — Tue, 11 Dec 2012 15:51:51 -0500

A recent settlement between the US Department of Labor and First Republic Bank aptly illustrates the perils of misclassifying large numbers of employees under the overtime laws.

Following a DOL Investigation, First Republic agreed to pay just over $1 million to nearly 400 of the Bank’s employees in 5 states (approximately 25% of the total number of employees First Republic has in those 5 states) including New York and Connecticut. The Bank treated these employees as exempt from the overtime pay regulations and did not pay them time and a half their regular hourly rate when they worked over 40 hours in a workweek. Operating under the assumption that the employees were exempt, the Bank also did not track their work hours, thereby violating the FLSA’s recordkeeping requirements. The misclassified employees were also paid bonuses which the DOL determined should have been factored into the employees’ regular hourly rates thereby increasing the amount of overtime pay the incorrectly classified employees were found to be owed.

The root problem in this situation was the bank’s failure to carefully analyze these employees’ job duties in making an informed assessment of their status under the overtime laws. According to Secretary of Labor Hilda Solis, “It is essential that employers take the time to carefully assess the FLSA classification of their workforce. As this investigation demonstrates, improper classification results in improper wages and causes workers real economic harm.” Large and medium-sizes businesses in particular would be wise to heed the Secretary of Labor’s admonition.

Lawsuits by Restaurant Employees Keep on Coming

Fanny A. Ferdman, Esq. — Tue, 04 Dec 2012 11:57:41 -0500

As discussed in our previous blogs, complaints by restaurant employees seem to be a big trend, and that trend seems to only continue to grow – and not only in New York City.

Upper Crust Pizzeria, for example, a gourmet pizza chain located in multiple states, has been accused of exploiting workers, and now owes employees more than $850,000 in back wages and damages for violating minimum-wage and overtime laws. While Upper Crust’s immigrant workers seemingly embraced their jobs allowing them to send money to their families and improve their lives back home, management allegedly began underpaying them for long work weeks, and the workers eventually made complaints to the Department of Labor (the “DOL”).

The DOL first investigated Upper Crust’s pay practices between April 2007 through April 2009, and found that the company violated minimum-wage and overtime laws by failing to pay 121 employees in 10 stores roughly $350,000. Now, the DOL’s second investigation of pay practices at Upper Crust between April 2009 and January 2011 found that the company violated minimum-wage and overtime laws and failed to pay 67 employees roughly $425,000 during that period. Upper Crust also owes an equal amount in liquidated damages, as well as $37,000 in civil penalties.

Shannon Liss-Riordan, an attorney who filed the class-action suit on behalf of former Upper Crust workers, said she is not surprised by the DOL’s finding. “This company has repeatedly shown its disregard for the laws protecting workers and their wages,” she said.

Clearly, more and more restaurants are becoming targets of their disgruntled employees armed with ambitious attorneys alleging wage and hour violations. Although oftentimes business owners do not even realize that they are violating federal and/or state wage and hour laws, we again want to emphasize the importance of ensuring compliance with those laws. Make sure your company does not become known as one with disregard for the law!

New Jersey Pay Parity Bill

Devora L. Lindeman, Esq. — Wed, 21 Nov 2012 14:27:19 -0500

New Jersey’s Governor Chris Christie recently signed the Gender Pay Parity Bill (the “Bill”) which impacts New Jersey-based companies that employ fifty or more individuals. Under the Bill, employers must post as well as physically provide a new notice to their employees to inform them of their right to be free from gender-based discrimination in the workplace.

The actual notice has not yet been drafted by the New Jersey Department of Labor (“NJDOL”). Therefore, while technically the Bill goes into effect on November 21, 2012, employers will have thirty days to comply with the notice requirements of the Bill from the date the NJDOL actually issues the required notice.

Employers have to post the notice at their work location. It is prudent to post the notice in the same location as other required posters. In addition to the notice having to be in English and Spanish, the notice must also be provided in any language that is spoken by at least 10% of an employer’s workforce (provided that the NJDOL has issued a notice in that language).

All new employees will need to receive a copy of the notice on hire. Furthermore, each year all employees must receive a copy of the notification by December 31^st. Finally, employees at any time may request a notice from their employer.

Employers may provide the notification to their employees through:

· e-mail;

· printed material, including pay check insert, flyer or as an attachment to an employee manual or policy book; or

· via an internet or intranet site if the site is for the exclusive use of all employees, can be accessed by all employees and the employer provides notice of the posting to all employees.

Within thirty days of receipt of their notice employees must provide their employer a signed acknowledgement (or electronic verification) that they received this notice.

If you have any questions with respect to the Gender Pay Parity Bill, please do not hesitate to contact our office.

The Buck Stops Here: Family Dollar Stores Settles Class Action Law Suit for 14 Million Dollars

Matthew B. Wolin, Esq. — Tue, 06 Nov 2012 11:12:11 -0500

Family Dollar Stores, a discount retailer chain in multiple states, is no stranger to lawsuits that stem from the executive exemption provision in the Fair Labor Standards Act (“FLSA”). In order to meet the executive exemption, an employee’s primary duty must be management, they must supervise at least two Full-time employees, and must usually have the authority to hire and fire. And if a court finds that an employee does not meet this exception, depending upon the size of the company and the length of wrongful classification, a company could incur significant monetary damages in back overtime pay owed.

Despite two recent decisions involving Family Dollar Stores where it was found that their employees met the executive exemption provision (and therefore the store was not liable for unpaid overtime wages), Family Dollar Stores recently announced it had reached a preliminary settlement in a class action lawsuit brought by over 1,700 New York store managers. These managers claimed that because they were improperly classified as executives, they were entitled to lost overtime wages. While Family Dollar Stores did not explain why they settled, it may be that they did not want to place a great deal of emphasis on the two prior decisions.

Our prior blog noted that the 4th Circuit held that managers that spent the majority of their time on non-managerial duties can nonetheless be found exempt from overtime pay requirements. In addition, in August 2012, a federal judge in North Carolina found in Ward v. Family Dollar Stores found that a manager was exempt under the FLSA. While these two decisions obviously pleased Family Dollar Stores, in deciding to settle, they most likely did not forget that in 2008 the Eleventh Circuit upheld a $35.6 million judgment against them.

Ultimately, like a snow flake, each case involving whether an employee qualifies under the executive exemption exception is unique. Despite these two recent decisions, Family Dollar Stores knew there was still a risk for a costly loss. While Courts will review prior awards for guidance, the facts (i.e., what duties the employees in question perform) will dictate how they rule. Accordingly, companies still should proceed cautiously by paying close attention to the job duties of employees who can bring claims under the executive exemption provision.

New Bill Permits Additional Wage Deductions for New York Employers

Kevin M. Doherty, Esq. — Tue, 06 Nov 2012 10:13:50 -0500

On September 8, 2012, New York Governor Andrew Cuomo issued a bill that amended New York Labor Law § 193 (“the Amendment”). Previously, New York employers had limited deductions they could make legally from their employee’s wages (taxes, health insurance premiums, union dues, etc.). The Amendment, which goes into effect on November 7, 2012, provides additional deductions employers may make against their employee’s wages. Since the Amendment makes the wage deduction law less restrictive, both employers and employees should benefit.

The Amendment will now permit deductions for accidental overpayments to employees which had previously been prohibited. In addition, the Amendment now permits deductions for the re-payment of salary advances. Previously, this practice was prohibited. Before making any deductions, employers must comply with the applicable provisions that relate to the timing, frequency and actual size of the deductions from wages. Employers must also obtain their employees’ written permission prior to making any of these deductions and give notice before changing the amount of any deductions from pay (including those for benefits).

Other deductions from employee wages now permitted under the Amendment include:

· day care expenses

· prepaid legal plans

· health club or gym membership

· discounted parking or mass transit expenses

· payments for certain housing provided by non-profit hospitals and affiliates

· tuition, room, board and fees for pre-school, nursery, primary, secondary, and/or post-secondary educational institutions

While overall the Amendment will make life easier for employers, a few precautionary words. First, as previously noted, the Amendment does not go into effect until November 7, 2012. Accordingly, employers cannot make any of these deductions prior to November 7^th. Second, the Amendment has a set expiration date: November 7, 2015. Therefore, employers should put a reminder in their calendars in the summer of 2015 to ascertain whether the New York legislature will renew the Amendment. Third, employers must keep a record of their employees written deduction authorizations throughout their employment and six years after that employment ends. Finally, employees have the right to revoke their authorization at any time. Accordingly, in such a circumstance, the employer must cease the deductions no later than four pay periods or eight weeks after authorization has been revoked, whichever falls earlier.

Lawsuits by Wait Staff is the Latest Big Trend in the NYC Restaurant Scene

Fanny A. Ferdman, Esq. — Thu, 13 Sep 2012 14:08:32 -0500

Running a successful restaurant is not for the faint of heart. Indeed, nationwide, most new restaurants close within their first year—industry experts put the failure rate at anywhere from 60 to 80 percent. And if you happen to be fortunate enough to own a successful New York City restaurant, you have an additional hurdle to overcome—the risk of being subject to a lawsuit by your wait staff. After all, NYC restaurants have become a frequent target of their disgruntled employees armed with ambitious attorneys alleging wage and hour violations.

While it is difficult to explain the exact reason for the rise in litigation in the restaurant industry, one possibility may be the power of the internet. Blogs, complaining about everything from rude customers to poor pay, are frequent draws on the internet. Not surprisingly, law firms have created websites for waiters with respect to their rights under New York’s wage and hour laws. One area that appears to be causing great difficulty for restaurant owners is New York’s spread of hours regulation for the hospitality industry. Read our prior blog on how that works.

In the month of August alone, class action lawsuits were filed in NYC alleging spread of hours violations against celebrity chef Daniel Boulard and Pret A Manger, a popular British chain restaurant. In addition, more than 100 current and former employees of Adrianne’s Pizza were certified as a class in their lawsuit alleging a spread of hours violation against this popular financial district hotspot. How costly can these lawsuits be? Recently, the East Japanese Restaurant agreed to settle a lawsuit that included spread of hours claim for $1.25 million dollars. This seven digit number does not include attorney fees or the amount of time and energy the owners had to spend to resolve the lawsuit.

Taking the time and energy to ensure compliance with New York’s spread of hours law (along with other wage and hour regulations applicable to the restaurant industry) is the most cost effective approach to counteract this rise in litigation.

DOL Regulation Exposes Restaurants to Liability; Restaurant Trade Association Sues to Reverse

Kevin M. Doherty, Esq. — Tue, 04 Sep 2012 09:32:38 -0500

Restaurants and other employers who have tipped employees may face significant liability if they redistribute tips among employees in violation a new regulation issued by the Department of Labor (“DOL”). Restaurants who take a tip credit (i.e. pay a lower hourly wage based on tips employees receive) against their employee minimum and overtime wage obligations, have always needed to follow very specific guidelines should they pool and redistribute tips of tipped employees (a “tip pool”). The DOL’s new regulation and guidance it provided earlier this year require that all employers that have a tip pool must follow the DOL guidelines, even if the hourly wages paid to their employees before tips exceed federally mandated minimum wages (i.e. even if the employer does not take a tip credit). In short, the DOL is taking the position that employees’ tips are the property of the employee and may only be redistributed amongst employees as the DOL has authorized. In response, the Restaurant and Trade Association (“RTA”) has filed a lawsuit suit which seeks to invalidate this regulation as it applies to employers who do not take a tip credit.

The DOL’s new regulation stems from the 9^th Circuit Court of Appeals decision in Cumbie v. Woody Woo, Inc.,. In Cumbie, the 9^th Circuit held that when an employer pays a base hourly rate greater than the minimum wage to its wait staff, it is permissible for the employer to require its wait staff to participate in a “tip pool” that redistributes a portion of the wait staff’s tips to the kitchen staff (employees not customarily tipped in the restaurant industry). The DOL’s regulations at that time prohibited employees in positions that are not traditionally tipped from participating in a tip pool, where tipped employees were paid below minimum wage due to a tip credit. Having such an invalid tip pooling arrangement resulted in an employer having to pay back its tipped staff all tips taken from them in the tip pool, plus liquidated and other damages . The 9^th Circuit determined that where an employer paid its tipped employees above the minimum rate of pay, the DOL’s restrictions on what constituted a valid tip pool did not bind the employer. Thus, under this decision an employer not taking a tip credit was arguable free to redistribute tips received by employees as the employer deemed appropriate.

In response to the decision rendered by the 9^th Circuit in 2011, the DOL amended its tip regulations to overturn Cumbie. Specifically, the new regulation (29 CFR § 531.52) prohibits any employer regardless of the rate of pay paid to its employees from using employees’ tips in any manner not specifically permitted by DOL regulations. The new regulation clarifies that tips are the property of the employee to whom they are given, whether or not the employer has taken a tip credit against its minimum wage obligations to the employee. In February 2012, the DOL issued a memorandum making it clear that the DOL’s position is that the employer’s practices in Cumbie are illegal under the FLSA.

In response, the RTA’s lawsuit asks the Court to overturn the DOL’s regulation and allow employers that adequately pay their employees (i.e. who do not take a tip credit) to have flexibility in how they structure tip distribution among their employees.

Until this lawsuit is decided, restaurants and other employers who have tipped employees should ensure their practices comply the DOL’s revised regulations.

Second Circuit Finds Blue Collar Managers to be 'Bona Fide Executives'

Devora L. Lindeman, Esq. — Tue, 28 Aug 2012 14:08:29 -0500

If somebody told you that they were classified as a ‘bona fide executive’ at work, images of the classic corner office along with a personal assistant and a generous expense account may come to mind. Clearly, this could be a person who is living the good life. But one who is considered a bona fide executive in the eyes of the law is quite different. This was made clear in the Second Circuit’s decision this past July in Ramos v. Baldor Specialty Foods, Inc.,.

Managers who worked the night shift in a warehouse sued Baldor Specialty Foods, Inc. arguing that they were entitled to unpaid overtime wages (among other damages) because they were improperly classified as bona fide executives by Baldor. While acknowledging that they met the majority of the requirements to be considered bona fide executives as set forth by the Department of Labor (“DOL”), the plaintiffs argued that they did not supervise what the DOL defines as “customarily recognized department[s] or subdivision[s].” The managers based their argument, in large part, on the fact that they were each supervising different teams of employees performing the exact same job duties at the same exact time and in close proximity with each other (working side by side in the warehouse). Therefore, the managers argued, they could not be considered to be supervising separate ‘subdivisions’ since everybody was performing the same exact work under one roof.

The Second Circuit disagreed with the managers. The Court placed more value on the actual job duties and responsibilities of the managers as oppose to the proximity of the managers teams and the similarity of work performed by each team. The Court noted that each manager clearly supervised his or her workers and a distinct team, their subordinates could not change teams without permission of the managers and the managers were responsible for evaluating their team along with the ability to fire and promote within their staff. Clearly, each manager ran his or her own respective group.

The Court reasoned that the very job duties and responsibilities which made the plaintiffs managers were not negated merely because other managers in close proximity supervised separate teams of employees performing the same tasks. Ultimately, the Court found that the fact that separate teams of employees perform the same work under one roof does not mean that “subdivisions” cannot exist for the purposes of an executive classification under the Fair Standards Labor Act.

While employers will naturally be excited about this recent decision, they should still tread cautiously. Ultimately, the Second Circuit has not provided an open ended invitation for employers to classify all warehouse supervisors or other supervisors in ‘blue-collar’ facilities as “bona fide executives.” If one is unclear whether an employee should be considered a bona fide executive for purposes of overtime pay, it is best to speak to an attorney. This will prevent the possibility of significant financial consequences due to an improper classification.

Supreme Court finds Pharmaceutical Sales Representatives Exempt for Overtime

Matthew B. Wolin, Esq. — Tue, 07 Aug 2012 09:21:17 -0500

In February 2011, we predicted that the Supreme Court would resolve differing opinions between the Second and Ninth Circuit as to whether pharmaceutical sales representatives are exempt employees for purposes of overtime. This June, the Supreme Court held in a 6-3 decision in Christopher v. Smithkline Beecham Corp., that pharmaceutical sales representatives fall within the Fair Labor Standards Act’s (“FLSA”) exemption for “outside sales” employees under the FLSA.

Notable in this decision was the Supreme Court’s sharp criticism of the Department of Labor’s (“DOL”) interpretation of its own regulations. The Supreme Court acknowledged that in most instances deference should be given to an agency’s interpretation of their statute when the statue is ambiguous. In this instance, however, the Supreme Court believed that deference was not appropriate for several reasons. First, the DOL’s new interpretation of the FSLA statute was only set forth for the first time in its amicus curiae briefs to the Supreme Court. This in turn undercut their credibility. Second, employers depend upon a respective agency’s interpretation of their own regulations so as to limit their potential liability. In this instance, employers had relied for decades on the DOL’s prior interpretation of the FSLA as it related to pharmaceutical sales representatives. Accordingly, to defer to the DOL’s new interpretation first raised in its briefing to the Court would undermine the concept that regulated parties should receive fair warning as to how to conduct their activities within the law. Here, such a lack of prior fair warning would likely impose massive liability on employers who had been classifying their representatives in good faith for some time.

In declining to defer to the DOL’s interpretation of the FLSA, the Supreme Court examined the text of the FLSA in relation to the actions of the pharmaceutical sales representatives. The Supreme Court held that because the pharmaceutical sales representatives obtain nonbinding commitments from physicians to prescribe respondent’s drugs, they fell into the category of “outside salesmen”. Furthermore, the Supreme Court noted that the employees in question earned on average more than $70,000 per year and only worked 10-20 hours outside normal business hours each week in order to maximize their sales territory. According to the Supreme Court, the FSLA regulations were not designed to protect these types of employees.

Here, the Supreme Court declined to defer to the DOL’s interpretation of the FSLA. However, employers should not view this opinion as a license to disregard the DOL’s opinion letters and other written guidelines from the DOL on exemption issues. When questions arise with respect to a particular overtime exemption, it is pivotal to consult with counsel. This reduces the risk of making a wrong decision that could later on have significant financial consequences.

Hearst Intern can proceed as an FLSA Collective Action Litigation

Fanny A. Ferdman, Esq. — Wed, 25 Jul 2012 13:44:37 -0500

As we reported earlier this year, an unpaid intern had sued the Hearst Corporation asserting that she was improperly classified as an intern and should have been considered to be an entry-level employee entitled to employee pay and benefits. Her case is proceeding in court in New York and the judge recently issued an Opinion and Order permitting her to proceed with her case as a type of class action.

Prospective litigants in a case brought under the FLSA (Fair Labor Standards Act) must take action to demonstrate a willingness to participate in that matter. Unlike the typical class action, where class members are presumed to be included unless they affirmatively “opt-out” of the litigation, prospective plaintiffs in an FLSA “collective action,” such as the interns here, must affirmatively “opt in” to be part of this law suit. At this early stage in the litigation, the plaintiff only needs to make a modest showing to the Court that there were other individuals who were similarly situated to her who were also likely victims of the employer’s allegedly improper classification, in order for the Court to allow the case to proceed as a collective action. Whether she will actually win her case in the end still remains to be seen.

In these summer months, this is a good reminder that employers should take care when hiring unpaid interns to provide services for their companies. In order for those individuals to be truly unpaid, they need to satisfy all of the requirements set forth in the Department of Labor Regulations. These requirements are also discussed in our prior blog. As the Hearst Corporation is learning, there are risks to misclassifying interns incorrectly when they should be treated as employees. Make sure that your company is doing it right.

Misapplied Overtime Exemption Can Result In Millions of Dollars in Payments For Wage Violations

Devora L. Lindeman, Esq. — Tue, 15 May 2012 09:36:52 -0500

The U.S. Department of Labor (DOL) announced on May 1, 2012, that in accordance with a settlement agreement, Wal-Mart Stores Inc. has agreed to pay $4,828,442.00 in back wages and damages to more than 4,500 employees nationwide and $463,815.00 in civil money penalties for misclassifying employees and associated violations of the overtime provisions of the Fair Labor Standards Act (FLSA), the federal wage and hour law.

According to the DOL, 4,500 vision center managers and asset protection coordinators at Wal-Mart Supercenters, Wal-Mart Discount Stores, Neighborhood Markets and Sam’s Club Warehouses were not paid proper overtime wages for hours worked beyond 40 in a work week. Apparently, the workers had been improperly classified as exempt from the FLSA’s overtime provisions.

According to Secretary of Labor Hilda L. Solis, "[m]isclassification of employees as exempt from FLSA coverage is a costly problem with adverse consequences for employees and corporations." Secretary Solis warned: "Let this be a signal to other companies that when violations are found, the Labor Department will take appropriate action to ensure that workers receive the wages they have earned."

Wal-Mart agreed to pay back wages owed in the amount determined by DOL plus an equal amount in liquidated damages, as required by law. In 2007, Wal-Mart, which operates more than 3,900 establishments in the United States, had corrected its classification practices for these workers, and negotiations over the back pay issues have been continuing since then.

As per Secretary Solis’s warning, to avoid any potential ramifications, employers should make sure to properly classify their employees to avoid violating the overtime provisions of the FLSA.

Government Agencies Declare Class(ification) War

Kevin M. Doherty, Esq. — Wed, 02 May 2012 14:14:17 -0500

The level of scrutiny placed on the ways in which employers classify those who work for them is likely to increase in the near future: “the Congressional budget includes $14 million to combat misclassification and recover unpaid taxes and $4 million for personnel at the DOL Wage and Hour Division to investigate misclassification.”

As previously discussed in this space, misclassification typically deals with one of three issues: (1) unpaid interns, (2) independent contractors, and (3) volunteers. The classic unpaid intern misclassification features an individual who, while classified as an unpaid intern, is being asked to handle the responsibilities of a full-time employee. This problem most commonly arises in the for-profit sector. Meanwhile, the classic independent contractor misclassification features workers who are termed independent contractors but get treated by employers in the same fashion an employee would. Volunteers are simply not permitted in the private sector. The problems are similar, though the details of what is necessary for compliance are distinct. Employers should take the time to review the rules for proper classification laid out in our previous blog posts.

The size of the budget allocated to combat misclassification issues should have employers reviewing their practices. It is clear that identifying alleged misclassifications will be a major focus of the DOL and your business could be in the cross-hairs. Government agencies feeling the economic pinch and determining that they have been denied taxes or other payroll benefits inapplicable to independent contractors, volunteers and unpaid interns, have every incentive to inspect worker classifications for compliance. In addition to whatever tactics such government agencies may have utilized in the past, employers should also be aware that there will be a greater deal of government interdepartmental communication on this issue. Strategy and tactics focused on becoming compliant now could be cost effective for employers in the long run.

DOL Clean Up Sweeping the Nation

Matthew B. Wolin, Esq. — Mon, 23 Apr 2012 11:18:37 -0500

Following up on our blog post on the Department of Labor’s (“DOL”) restaurant clean up initiative, recent DOL press releases demonstrate that efforts to penalize restaurant industry employers who are not FLSA compliant are only increasing.

Approximately $132,000.00 of back wages were collected from a Texas restaurant chain , a restaurant in Florida has agreed to pay $177,395.00 in back wages, and a Los Angeles restaurant has been sued by the DOL for $104,807.00 in back wages. The DOL has also put restaurant owners in the San Francisco and Portland areas on notice that they are next in line.

The violations consistently cited by the DOL in raising these charges are minimum wage and record keeping issues. These are compliance issues that are not complex. Because the DOL has made it increasingly clear that this is a hot button issue, employers would be prudent to ensure compliance. In addition, while the DOL’s efforts have thus far focused on restaurants, it is important that employers across all industries pay attention to this developing issue. The DOL states that its efforts are an attempt to be vigilant for workers “who are particularly vulnerable to exploitation.” Surely the DOL would believe that such workers exist outside of the restaurant industry and thus there is no telling which industry the DOL might focus on next.

Scantland Case A Knight in Shining Armor for Cable Companies?

Fanny A. Ferdman, Esq. — Tue, 17 Apr 2012 11:07:57 -0500

In a recent Florida case, Scantland v. Jeffry Knight, Inc., the court handed employers a victory when it applied the economic realities test to find that service technicians for a cable company were properly classified as independent contractors. The court made this finding despite the technicians’ relationship with the employer having several features that could support an employer-employee relationship.

The economic realities test used to determine independent contractor status resolves the issue of whether an employment relationship exists based upon whether the individual is economically dependent upon the employer. Economic dependency is determined by evaluating factors such as determined by evaluating factors such as the following:

· The extent to which the services rendered are an integral part of the employer’s business;

· The permanency of the relationship;

· The amount of the employer’s investment in facilities and equipment;

· The nature and degree of control by the employer; and

· The individual’s opportunities for profit and loss.

No one factor is meant to be determinative, so the courts typically have freedom in assigning weights to the various factors.

The Scantland court found that the services rendered by the technicians were an integral part of the employer’s installation services business. In addition, while there was no clear indication that the relationship between the employer and the technicians was a permanent one, many of the technicians had worked for the employer for a period of years on a full-time basis. There was also a seemingly implicit understanding that the technicians would not, or could not, perform work for competitors. Despite these two findings, the court’s evaluations of the remaining economic dependency factors lead it to conclude that the individuals were independent contractors and not employees.

First, the service technicians heavily invested in their own equipment. This includes spending up to thousands of dollars to acquire vehicles, tools, insurance, and uniforms. Second, the service technicians also controlled the manner and means of the performance of their work. The employer’s close monitoring of the technicians’ scheduling and timing was not found to be controlling because it was a necessary aspect of guaranteeing effective service in the industry in addition to being outside the scope of the type of control the court was concerned with--assigning potential liability from the work. This was directly tied to the technicians’ choices such as whether safety standards were followed and work was performed free from defect. Finally, because the service technicians were paid by the assignment and controlled how many assignments they could do based upon the speed and skill with which they handled their assignments, technicians had the opportunity to control their profits. The technicians were also in control of their losses as they were accountable for taking care of their equipment and making sure not to perform work in a deficient manner that would require future repairs. These factors pointed towards independent contractor status.

While the Scantland court concluded that the workers in question were independent contractors and not employees, employers should be wary to make too much of the decision. As we have previously highlighted, the lack of a bright line rule distinguishing employees and independent contractors means employers should err on the side of caution. Just because the court in this case decided that 3 factors in favor of independent contractor status outweighed 2 factors in favor of employee status does not mean the same conclusion will always be reached. As a result, employers should remain vigilant of the DOL guidelines on proper classification and not take designations for granted.