Wage & Hour Defense Blog

Miami-Dade County Passes New Wage Theft Ordinance

Richard Tuschman — Thu, 04 Mar 2010 13:13:46 -0500

The Miami-Dade Board of County Commissioners recently approved a Wage Theft Ordinance designed to make it easier for employees to take legal action against employers that fail to pay (or underpay) them. Under the new ordinance, the county will rely on a streamlined hearing examiner process to address complaints by employees.

The unanimous vote made Miami-Dade the first county in the nation to adopt a countywide wage theft law.[1] For nearly a year, members of the South Florida Wage Theft Task Force - a coalition of union, immigrant, faith, women’s and legal services organizations - worked with County Commissioner Natacha Seijas, the principal sponsor of the ordinance, to craft and introduce the ordinance.

The ordinance bars wage theft, and allows the county to use its police powers to intervene and help recover workers’ back pay. The ordinance specifically applies to private sector employees and employers in cases involving at least $60 (the “threshold amount”). Under the ordinance, wages include pay for daily, hourly, or piece work at a rate no less than the highest applicable rate established under federal, state, or local law.

Wage-Theft Violations:

An employer that fails to pay a portion of wages due to an employee, according to the wage rate applicable to that employee, within a “reasonable time” from the date on which the work was performed by the employee, shall be wage theft. The ordinance establishes a presumption that a “reasonable time” is no later than 14 calendar days from the date on which the work is performed. Employers may lengthen the period of time between the date work is performed and the date the employee is paid wages, for a period not to exceed 30 days, upon express written agreement signed by the employee.

Procedures for Wage-Theft Complaints:

An aggrieved employee may file a complaint with the county alleging a violation of the ordinance. The complaint must set forth the facts upon which it is based with sufficient specificity to identify the employer and for the county to determine both that an allegation of wage theft has been made, and that the threshold amount has been met. Upon determining that the complaint alleges wage theft, the county will then serve the complaint on the employer, which will have 20 days to file an answer.

Hearing Before Hearing Examiner:

Upon request by either party, a hearing will be held before a Hearing Examiner appointed by the county. In conducting any hearing to determine whether a violation of the ordinance has occurred, the Hearing Examiner will have the authority to administer oaths, issue subpoenas, compel the production of and receive evidence. The burden of proof by a preponderance of the evidence rests upon the complainant/employee.

Upon the conclusion of the hearing, an adjudicative final order will be issued and served upon the parties setting forth written findings of fact and conclusions of law.

Enforcement of Violations:

At the conclusion of the hearing and upon a finding of a wage violation, the employer will be ordered to pay wage restitution to the affected employee in an amount equal to three times the amount of back wages that the employer is found to have unlawfully failed to pay the employee. The county will further order the employer to pay the Board of County Commissioners an assessment of costs not to exceed actual administrative processing costs and costs of hearing. The new ordinance provides for additional penalties for failing to comply with the Hearing Examiner’s order.

As demonstrated above, the penalties for violation of the ordinance can be costly. Employers in Miami-Dade County need to be sure that they comply with the new ordinance by timely paying wages due to their employees. As stated, the new ordinance establishes a presumption that a reasonable time is no later than 14 calendar days from the date on which the work is performed, however, employers are free to modify that (for a period not to exceed 30 days) by an express written agreement signed by the employee.

[1] San Francisco has an ordinance similar to Miami-Dade’s, but it only covers the city. Los Angeles and New Orleans also are considering wage theft legislation.

Tip Pools and Mandatory Service Charges - Wage and Hour Class Actions Continue to Target Hospitality Employers

Richard Tuschman — Wed, 03 Mar 2010 14:39:54 -0500

By Kara Maciel

Another luxury New York hotel is the latest target in a constant stream of wage and hour class actions against the hotel and restaurant industry challenging the industry’s practices relating to tip pools and service charges. At issue in the lawsuit filed in February 2010 is the common practice in the hotel and restaurant industry of charging private dining/banquet customers a mandatory service charge in lieu of the customer leaving a voluntary tip or gratuity on the day of the event. According to the plaintiffs’ complaint, a 21.5 percent service charge is added to the customer’s bill for the event, but only 15 percent of that amount is distributed to the waitstaff. The complaint asserts that customers are led to believe that the entire service charge is a gratuity to be paid to the employees who worked the event. The plaintiffs also complain about the hotel’s practice concerning “special banquet gratuities” that are received from customers and distributed to non-banquet employees, instead of to the waitstaff who worked the particular event. The plaintiffs claim to represent a class of more than 100 employees and seek more than $5 million in damages.

Mandatory service charges and their distribution among waitstaff have plagued the hospitality industry for years. Federal courts interpret the federal law differently and states have enacted their own statutes that place employers in constant uncertainty, depending on where they are located. Under the Federal Fair Labor Standards Act (FLSA), a mandatory service charge is not a “tip” because customers are not given the discretion to determine whether to pay it or how much to provide to the server. Accordingly, under federal law, a hotel may retain any or all of the service charge, and the hotel must decide whether to distribute some – or any – of the service charge to an employee, so long as the employee earns at least the minimum wage.

Some state laws, however, vary and require employers to distribute 100 percent of the mandatory service charge to the servers or other members of the waitstaff. In Massachusetts and New York, for example, no portion of the mandatory service charge may be distributed outside of the non-supervisory waitstaff if the customer reasonably believed that the charge constituted a gratuity. In the case mentioned above that was filed recently in New York, the plaintiffs are relying on a 2008 New York State Court of Appeals case, Samiento v. World Yacht, Inc., which concluded that when a mandatory service charge has been represented to the customer as compensation for the waitstaff in lieu of a tip or gratuity, that service charge must be distributed to the waitstaff. In New York, the statute of limitations extends six years, rather than the three years under the FLSA. The Massachusetts Tip Statute, which was amended in 2004 to clarify who is defined as “waitstaff,” similarly restricts any non-waitstaff personnel from sharing in the distribution of the mandatory service charge. In 2008, Massachusetts amended its statute to provide for mandatory treble damages for a violation of the wage and hour law.

Employers have received some good news from courts recently. In early February, employers in Massachusetts received a favorable opinion in Hernandez v. Hyatt Corp., when the Chief Judge of the Business Law Section determined that the 2008 amendment calling for mandatory treble damages only applies prospectively. On February 23, 2010, the U.S. Court of Appeals for the Ninth Circuit concluded that, under the FLSA, a restaurant is permitted to require its waitstaff to participate in a tip pool that redistributes some of the tips to the kitchen staff, so long as the employer does not use the tip credit to satisfy an employee’s minimum wage.

To avoid the customer confusion and exposure seen in these cases, banquet documentation given to customers should clearly delineate how much is billed for a mandatory service charge intended as compensation for employees and how much is billed as an “administrative fee” that the hotel retains to cover overhead and other costs. Moreover, hotels and restaurants should communicate to their employees how much the employees will receive of the mandatory service charge and who will share in that service charge. Hospitality employers in Massachusetts and New York should closely monitor judicial developments of their respective state’s laws to ensure compliance, as violations can lead to costly settlements and verdicts.

With the flood of class actions, hotel and restaurant employers must make compliance with federal and state wage and hour laws a top priority throughout the remainder of 2010. Conducting regular self-audits, in consultation with legal counsel, should be a best practice for all employers. Every investigation and lawsuit is unique and cannot be defended with a one-size-fits-all defense. Having, as part of your team, counsel who knows the hospitality industry and the unique challenges facing your hotel or restaurant will help keep companies out of court and exposure to a minimum.

Tip Pool May Include Employees Not Customarily Tipped If No Tip Credit is Taken

Richard Tuschman — Mon, 01 Mar 2010 15:39:47 -0500

By Kathryn T. McGuigan and Douglas Weiner

In a landmark decision upholding the validity of the employer’s mandatory tip pool, on February 23, 2010, the U.S. Court of Appeals for the Ninth Circuit issued its opinion in Misty Cumbie v. Woody Woo, Inc. No. 08-35718. The court held that where the employer paid a direct wage of at least minimum wage to restaurant wait staff, requiring them to participate in a tip-pooling arrangement with other restaurant employees does not violate the Fair Labor Standards Act. (“FLSA”)..

The Oregon restaurant took no tip credit, rather paid its wait staff a direct hourly wage in excess of the applicable minimum wage requirement. In addition to their hourly wage, the servers received a portion of the daily tips, distributed to employees through a tip pool. The restaurant required the wait staff to participate in its tip pool that included all restaurant employees, except managers. The largest portion of the pool went to the kitchen staff, employees not customarily tipped in the restaurant industry.

A server filed a class action lawsuit against the restaurant alleging that the tip-pooling arrangement violated the minimum wage, and tip provisions of the FLSA. In granting the restaurant’s motion to dismiss the case, the District Court found that there is nothing in the text of the FLSA that restricts employee tip pooling arrangements when no tip credit is taken, thus the restaurant’s tip pooling arrangement was valid. In a well reasoned opinion specially refuting the Secretary of Labor’s arguments submitted in an amicus brief, the Ninth Circuit affirmed citing the Supreme Court’s adage that an agreement is per se valid, “unless subject to statutory interference”.

The Cumbie Court held when an employer does not take a tip credit, it may lawfully require servers to participate in a tip pool with employees who are not customarily tipped.

Although the court’s ruling appears reasonable and persuasive, it is not clear what the Department of Labor’s enforcement policy will be, or whether this court’s ruling will be adopted in other circuits. As this issue develops we will update this blog.

A New Bill May Mean Relief is in Sight for California Employers Facing Wage-Hour Class Actions

David Barron — Mon, 01 Mar 2010 11:28:54 -0500

by Michael Kun

The California wage-hour epidemic has entered its second decade.

While there is little on the horizon to suggest that these cases are about to come to an end, there are a few glimmers of hope now.

The first glimmer of hope comes from a case that has been pending before the California Supreme Court since 2008. California employers continue to await a ruling on meal and rest breaks from the California Supreme Court in Brinker. A ruling that breaks need only be "made available," not "ensured," may not put an end to meal and rest break class actions, but it should slow them down considerably and make it exceedingly difficult to certify a class in most cases.

The second glimmer of hope comes from this week's Hertz decision from the United States Supreme Court, which suggests that more class actions in California will now be removable to federal court under the Class Action Fairness Act. Foreign companies previously had difficulty removing cases in California because they often did the most business in California or had the most employees there simply because of its size. As the court explained in Arellano v. Home Depot U.S.A., Inc., 245 F.Supp.2d 1102, 1107 (S.D. Cal. 2003), “it is unlikely that Congress intended that every corporation that does more business in California than any other state should be considered a citizen of California.” It looks like the Supreme Court agrees, and now a "nerve center" test will be used. Employers with headquarters outside California now should be able to remove many class actions filed in California as a result.

Now, there is a third glimmer of hope in the form of new bill that could change the game further.

The key word is "could."

In an interview I did with EmploymentLaw360 last year, I mentioned the need to reform California's class action procedures to provide more guidance to the trial courts. Too much discretion for the trial courts, and not enough guidance, has created an untenable situation in which one judge could certify a class where the judge in the very next courtroom might have denied certification, leaving employers lost and often with no recourse other than to settle in the face of uncertainty. I also mentioned the need to address a form of litigation that rewarded plaintiff's attorneys, often for doing little work and often at the expense of their own clients. http://www.law360.com/articles/123717

I wish I could say that my comments were profound, or that someone read my comments and decided to act. It's enough to know that someone shared my thoughts and decided to do something about it.

California Assembly Member Audrey Strickland has introduced a bill to reform California's class action procedures based on the "lack of clear standards for certifiction and management of class actions": http://info.sen.ca.gov/pub/09-10/bill/asm/ab_0001-0050/abx8_38_bill_20100210_introduced.html

The bill proposes standards modeled after Rule 23 of the Federal Rules of Civil Procedure, removing "any presumption or policy in favor of class certification," and only allowing class actions to proceed where all criteria are met.

That change alone would be a welcome one for class action defendants in California.

But the bill goes further. It also proposes a system by which a defendant can propose a settlement to the court that has not been approved by plaintiff's counsel, essentially removing one of the largest obstacles to settlement -- plaintiff's counsel who hold up settlements out of self-interest.

Sounds logical to you and me. And sounds like something the plaintiff's bar will fight to the death. (Feel free to insert your own joke here about class action plaintiff's lawyers taking 40% of multi-million dollar settlements, often for doing little more than showing up for a mediation, where they meet their clients for the first time. Think that doesn't happen? I'm handling a class action now where plaintiff's counsel met their client for the first time 2 years after the lawsuit had been filed. And, no, you didn't misread that last sentence.)

Will this bill get passed?

Will it gain any traction at all?

If it were anywhere other than California, you would have to think there was a chance, perhaps even a significant one, that the bill would become law, even with some revision.

But it's California.

The plaintiff's bar, and legislators counting their votes for the next election, may not let Ms. Strickland's bill get far. And they will make Ms. Strickland's next election hellish. In fact, they're probably already preparing fliers explaining to voters how Ms. Strickland is trying to make it more difficult for them to get money in lawsuits.

Now you can insert your own joke about why California is teetering on the edge of bankruptcy. Again.

Florida Led Nation in FLSA Lawsuits in 2009

Richard Tuschman — Mon, 01 Mar 2010 10:13:16 -0500

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

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

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

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

Is the Department of Labor Considering a Revision to the Domestic Service Exemption for Home Health Care Aides?

Richard Tuschman — Tue, 23 Feb 2010 06:49:25 -0500

By Doug Weiner and Brian Molinari

We live in a time of change. Last summer fifteen United States senators wrote an open letter to Secretary of Labor Hilda Solis to urge the U.S. Department of Labor ("DOL") to repeal the Domestic Service exemption from the minimum wage and overtime requirements of the ("FLSA") for home health care workers. Secretary Solis has expressed support for the effort to review this exemption, with a view toward closing this "loophole." Citing a $9 an hour industry-wide average wage, the senators argued in favor of extending federal overtime requirements to "thousands of low-wage workers, primarily women, who are doing difficult, dangerous, yet extremely important work." Furthering public debate on the subject, the New York Times on January 28 ran an editorial in support of eliminating the Domestic Service exemption for home care aides.

The Domestic Service Exemption

Under current federal regulations, home health care aides who assist the elderly and infirm are exempt from the minimum wage and overtime requirements of the FLSA pursuant to 29 U.S.C. Section 213(a)(15) (exempting "any employee employed on a casual basis in domestic service employment to provide babysitting services or any employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves (as such terms are defined and delimited by regulations of the Secretary)"). In 2007 the United States Supreme Court upheld the current Department of Labor regulation allowing this exemption against a strong legal challenge from organized labor. Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158 (2007).

The exemption applies to all workers in domestic service who provide companionship services for individuals unable to care for themselves due to either physical or mental infirmity. Domestic service is work performed within the residence of the family using the services. Companionship services are those that provide fellowship, care and protection to the elderly and infirm. 29 C.F.R. § 552.109(a). Home health care workers, whether employed directly by the family or by an employer or agency other than the household using their services, are currently exempt from the FLSA

Some state laws have already narrowed the federal exemption. Pennsylvania, for example, exempts only home health care aides employed directly by a family for work performed within their home, excluding from the exemption workers employed by a placement agency. New York requires the payment of time-and-one-half the minimum wage for overtime hours worked. Wherever a state law provides greater protection to employees than the FLSA, the state law prevails over federal law.

Potential Effects

Eliminating or modifying this federal exemption may increase the burden to working families who want to care for their loved ones at home. A change in the Domestic Service exemption may also have significant consequences for employers who provide home health care workers to families. Employers of home health aides often conduct background checks and provide training to workers before they arrive in the home to offer care for a family’s loved ones. There is an ever present danger that if costs of home care become prohibitive, economics will operate to push the elderly and infirm out of the home into nursing homes, or other institutionalized setting.

We will continue to monitor and post developments on this significant issue.

President Obama Backs Department of Labor Misclassification Fight

David Barron — Thu, 11 Feb 2010 14:06:48 -0500

by Evan Spelfogel

On February 1, 2010, President Barack Obama released his federal budget for the coming fiscal year, including $117 billion for the United States Department of Labor, of which $25 million was set aside expressly to help the DOL combat employee misclassification. This includes, specifically, identifying and litigating against employers that categorize workers as independent contractors when, in fact, they are employees, and that classify as exempt from overtime those employees who do not meet the requirements of the White Collar Exemptions under Part 541 of the Wage and Hour Regulations.

The DOL will use a large portion of these funds to hire hundreds of investigators and other enforcement staff. The new Department of Labor Solicitor, Patricia Smith, will pursue a “Misclassification Initiative” to obtain, for misclassified employees, the wages, overtime pay, unemployment insurance benefits, social security contributions and health, welfare and pension benefits available to employees, but not to independent contractors.

Smith, it should be noted, was most recently Commissioner of Labor in New York State. In that capacity, she publicly identified misclassification as one of the most serious workplace problems today, and created a dedicated taskforce to attack the problem, encompassing representatives from a number of state government agencies, including labor, tax, unemployment insurance, workers compensation and labor relations.

Now, more than ever, employers must have programs in place to insure the validity of their classification of workers as independent contractors or as exempt from overtime, and must have a clear strategy for handling government audits and enforcement actions.

Employers should engage in proactive self-audits, in order to seek out and eliminate vulnerability. Companies should take the appropriate first steps to limit liability and protect their businesses, without raising “red flags.” Employers should check their IRS Form 1099s to identify those they have been paying as independent contractors. They should then audit their outside contractor and employee job descriptions, actual job duties and functions, and the degree of day-to-day control exerted by management, to determine who, in fact, is an independent contractor and who is an employee, and whether the employees are exempt or non-exempt under applicable wage and hour tests.

Employers should pay particular attention to matching duties and functions with the requirements for exemption under the managerial/supervisory, administrative and professional white-collar exemptions. Getting the company’s house in order before the government’s “knock on the door” may save time, attorneys fees and the actual and intangible cost of administrative and civil litigation.

The consequences of worker misclassification, both as to independent contractors and overtime exempt employees, may be severe. Individual, class and collective actions concerning workers’ status are proliferating. Companies are facing larger judgments, ramifications and costs, as one case sparks another. The expense to employers can be staggering, including back-pay with interest, liquidated damages, stock options awarded at years-ago, lower prices and legal fees. Misclassification cases are lucrative for plaintiffs’ lawyers, particularly when they can assert class and collective claims and work on a contingent-fee basis. The announcement of additional funds made available to the DOL under the president’s budget and the confirmation of Patricia Smith as Solicitor of the Department of Labor should provide a wake-up call to employers.

For additional information, please see Mr. Spelfogel’s published article titled: “Misclassification: The Profusion, The Cost, and the Remedy” (NYSBA L&E Newsletter, Vol. 34, No. 1 at page 7, Spring 2009).

Child Labor Penalties Increased for Violations that Cause Death or Serious Injury

Richard Tuschman — Wed, 03 Feb 2010 10:59:56 -0500

By Doug Weiner

Hazardous occupations are no place for employees under the age of 18. Employers must be certain to prohibit minors from operating power driven wood working machines, metal working machines, bakery machines, fork lifts, balers and compactors, meat slicers, and nail guns. The full list of hazardous occupations are set forth in the Code of Federal Regulations, 29 C.F.R. 570, et. seq. Protecting America’s children in the workplace has long been a stated objective of the U.S. Department of Labor, and the civil money penalties for serious violations have recently been strengthened.

On January 20 the Labor Department’s Wage and Hour Division issued guidelines to enforcement personnel for determining appropriate civil money penalties against employers who violate the child labor provisions of the Fair Labor Standards Act. As stated in Field Assistance Bulletin 2010-1, the guidelines “draw heavily on the child labor civil money penalty process the WHD [Wage Hour Division] has developed over the past 25 years.” In addition, there is new advice resulting from the FLSA amendments that became effective May 21, 2008 with the enactment of the Genetic Information Nondiscrimination Act (GINA).

The DOL has created a Child Labor Enhanced Penalty Program (CLEEP) to incorporate GINA’s stiffer penalties. A “CLEEP serious injury” is defined as one caused by a child labor violation resulting in a permanent loss or substantial impairment of one of the senses, or of the function or movement of specified body parts. The bulletin identifies categories of injuries, and provides higher penalties for more serious injuries.

GINA included an amendment to the FLSA, 29 U.S.C. 216(e), providing a penalty of $50,000 for a violation causing death or serious injury to an employee under the age of 18. The penalty may be doubled to $100,000 if the violation is willful or repeated. Prior to GINA’s amendment, the maximum child labor civil money penalty was $11,000.

For GINA’s enhanced penalties to be applicable there must be evidence to prove the violation of a specific Child Labor Hazardous Order directly caused the death or serious injury of an employee under 18. The January 20 Field Assistance Bulletin sets forth detailed examples of violations that cause injuries as opposed to injuries that occur while employed in violation of a child labor hazardous order.

Of course no one wants an accident to occur to anyone at any time. However, in light of the DOL’s increased enforcement authority in the area of child labor, employers are well advised to verify the ages of their employees. If an employee is under the age 18, it is mandatory to ensure the employee is not permitted to engage in any prohibited activities.

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

Richard Tuschman — Tue, 26 Jan 2010 11:10:54 -0500

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.”

Is the job so easy a caveman could do it?

David Barron — Fri, 15 Jan 2010 10:39:52 -0500

by Doug Weiner

In a decision dated January 5, 2010 the D.C. Circuit raised that question in a case involving the administrative exemption in a Fair Labor Standards Act class action.

Stating the District Court had no occasion to decide whether the job of a GEICO auto damage adjuster is so easy a caveman could do it, (referring to GEICO’s well known ad campaign in a light hearted footnote) the appellate court held that GEICO satisfied its burden of proof that its employees performed exempt administrative duties. The appellate court reversed the district court’s summary judgment for plaintiffs, and in a lengthy and well reasoned decision, upheld the exempt classification. Reversing the lower court, the appellate court directed judgment be entered for the employer.

Exemptions to the FLSA are generally narrowly construed. The administrative exemption applies only to employees paid on a salary basis of at least $455 a week whose “primary duty consists of …the performance of office or non-manual work directly related to management policies or general business operations of his employer…which includes work requiring the exercise of discretion and independent judgment with respect to matters of significance.” 29 C.F.R. 541.200 et. seq. The court noted the question of whether an employee comes within an FLSA exemption is a question of law, and the appellate court reviewed de novo the district court’s grant of summary judgment to the plaintiffs.

Plaintiffs did not dispute that they were paid the requisite salary, and performed non-manual work directly related to GEICO’s business operation. However the plaintiffs argued, and the district court found, that the amount of discretion they exercised was “insufficient” for exemption because the vast majority of their work consisted of using their training and skills to assess the value of the damage to customers’ vehicles in accordance with the employer’s directions, “limited in scope by both the information and standards contained in the computer software and the guidelines and limits on negotiating authority laid out by GEICO”.

The appellate court found that although the parties disputed how much discretion the plaintiffs exercised, there was no dispute that plaintiffs work “includes some discretion” to perform their duties. The court then held that because it was undisputed that the plaintiffs’ job “includes” work requiring the exercise of discretion and independent judgment, the employer had met its burden of proof, and directed the district court to enter judgment for the employer.

The court, citing decisions from “sister” circuits finding auto damage adjusters exempt from overtime requirements by virtue of the administrative exemption, held that the defining regulation merely required the employees’ primary duty to “include” discretion and independent judgment, but does not specify how frequently the discretion must be exercised. The court held that because it was undisputed that the plaintiff exercised “some discretion and independent judgment during the course of his job” the employer had satisfied the final test to support the exempt classification.

How broadly will the D. C. Circuit’s analysis of the auto damage adjusters’ duties be applied to other employment circumstances? Because each worker’s classification of exemption depends upon a detailed factual analysis, and employers are required to bear the burden to prove an exemption is applicable, employers should proceed cautiously before reaching a determination that their employees satisfy all the criteria necessary for exemption. The court noted that in this case GEICO had re-classified their auto damage adjusters as non-exempt during the course of the litigation to limit further exposure in the event the exempt classification was not upheld.

As many employers have learned to their sorrow, the question of properly applying FLSA exemptions is not so easy even a cave man could do it.

The court decided the appeals of Jerome Robinson-Smith v. Geico, case number 08-7146, and Christine Lindsay et. al. v. Geico, case number 08-7147, in the U.S. Court of Appeals for the District of Columbia Circuit.

The Department of Labor Considers Changing Employers' Recordkeeping Requirements

David Barron — Fri, 15 Jan 2010 09:59:07 -0500

by Doug Weiner

The U.S. Department of Labor (“DOL”) has announced an intention to initiate a rule making process concerning the records employers are required to make and keep pursuant to the Fair Labor Standards Act (“FLSA”). Section 11 of the FLSA requires employers to keep specified records of the hours employees work, and the wages they are paid. The DOL proposes to update the recordkeeping regulations under the FLSA in order to enhance the transparency and disclosure to workers of how their pay is computed, and to modernize other recordkeeping requirements for employees under “telework” and “flexiplace” arrangements.

The DOL states there is a need to modernize the recordkeeping regulations to foster more openness and transparency in demonstrating employers’ compliance with applicable requirements to their workers, to better ensure compliance with the increasing emphasis on flexi-place and telecommuting, to allow for automated or electronic recordkeeping systems instead of the mandatory manual preparation of “homeworker” handbooks currently required for all work that an employee may perform at home.

The DOL intends to develop alternatives to consider revisions to the current recordkeeping requirements. The public will be invited to provide comments on the proposed revisions, and possible alternatives.

Developments in this proposed recordkeeping rulemaking will be posted on this blog as they become available.

What's On The Wage-Hour Horizon For California Employers In 2010

David Barron — Tue, 29 Dec 2009 10:19:38 -0500

by Michael Kun

As 2009 winds to a close, we can look backward, we can look forward, or we can do both.

For now, let's just look forward with an eye toward what California employers can expect in 2010 as it relates to wage-hour law.

A warning, though: nothing on the horizon should hearten California employers.

1) Clarification of Meal and Rest Break Obligations

Sometime in 2010 -- likely within the first quarter -- California employers should finally receive an answer from the California Supreme Court to a lingering question about meal and rest breaks: does the requirement to "provide" breaks require that they be "ensured," or must they merely be "made available"?

The federal courts have reviewed this issue. They've broken open their dictionaries and, like the dictionary that sits on my desk, have found that "provide" is defined to mean "to make available."

The California Supreme Court is reviewing this issue in Brinker Restaurant Corp. v. Superior Court (Hohnbaum).

Will the California Supreme Court agree with the federal courts and issue an employer-friendly decision?

Perhaps.

And perhaps not.

You could lose a lot of money betting on what the California Supreme Court will do in employment cases. (See, e.g., the Murphy v. Kenneth Cole decision, which few predicted.)

And even if the Court concludes that employers need only make those breaks available, any celebration by employers might be short-lived. Rest assured that a number of politicians already have proposed legislation sitting on their desks to reverse that decision and require that employers "ensure" that the breaks are taken.

Please feel free to insert your own joke here about the justice system and politicians.

2) Continuation of the Wage-Hour Class Action Epidemic

So, you think the wave of wage-hour class actions is about to come to an end?

Why would you think that?

Have plaintiffs' lawyers grown weary of negotiating multi-million dollar settlements, and pocketing 40% of those settlements?

Of course not.

And until they do, there is no reason to believe that the wage-hour class actions are going to cease.

(And before someone responds by saying that this epidemic will end once employers cease violating the laws, stop. It used to be the case that if someone saw a mistake in his paycheck, he'd walk over to human resources, have it corrected, and that would be that. In fact, wouldn't a good lawyer looking out for his client's best interests advise him to do just that, rather than talk him into filing a class action lawsuit where it could be years before he receives that same amount? Of course. The real reason for the abundance of class actions is a system that rewards lawyers, often at the expense of the people they supposedly are representing.)

3) Claims Based On PDAs and Laptops

So, you'd like to know what the next wave of wage-hour claims will be?

Simple.

It's the PDAs that everyone carries with them. It's the laptop computers that everyone has at home.

It used to be the case that employees left their work at the office (or the plant, or the store) when they went home. That was especially true of non-exempt employees.

Now, because they are so affordable, virtually everyone has a PDA they carry with them or a laptop at home.

Employees who respond to emails after hours, or who access the network from home to finish up a project, may be your most valuable, dedicated employees.

But at some point someone is going to question why they aren't being paid for that time.

And if that time is more than de minimus, or if there is a claim that it is more than de minimus, it's not difficult to imagine a lawsuit.

And, in particular, a class action.

New York Judge Dismisses Tipping Lawsuit Against Starbucks Corp.

David Barron — Tue, 22 Dec 2009 16:36:02 -0500

by Amy J. Traub

On December 16, 2009, Judge Laura Taylor Swain of the United States District Court for the Southern District of New York granted summary judgment to Starbucks Corp. (“Starbucks”) in a wage/hour lawsuit filed by former and current baristas of Starbucks’s coffee shops located in New York.

In their lawsuit, filed in April 2008, the New York baristas argued that Starbucks had violated state wage and hour laws by splitting tips intended for baristas with shift supervisors, handing out tips on a weekly basis instead of on a per-shift basis, and failing to distribute tips to baristas-in-training. The baristas further moved for class certification on behalf of all baristas who have worked at Starbucks coffee shops in New York in the past six years, estimating that the proposed class in New York could likely exceed 2,000 people and that the amount in controversy was more than $5 million.

In its motion for summary judgment, Starbucks argued that shift supervisors are part-time hourly-paid workers who provide the same customer service as baristas and do not act as supervisors or agents of the company in that they have no authority to interview, hire, transfer, evaluate, promote, discipline, fire, or determine pay for any other employee and do not otherwise perform the types of duties performed by a “supervisor” or “agent,” as those terms are defined by the New York State Labor Law. Therefore, argued Starbucks, shift supervisors should be entitled to inclusion in the tip pool. Judge Swain agreed, granting Starbucks’s motion and dismissing the baristas’ tip-splitting claims, reasoning that any additional duties performed by shift supervisors, such as opening and closing the store, depositing money in the safe, and overseeing the store when a manager is out, do not constitute the exercise of authority over the creation, terms, or conditions of the employment relationship with Starbucks.

Having granted summary judgment to Starbucks, the court then denied the plaintiffs’ motion for class certification.

The plaintiffs have appealed.

Year End Bonuses Can Create Hidden Liability

David Barron — Fri, 18 Dec 2009 12:33:42 -0500

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

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

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

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

California Labor Commissioner Allows Deductions From Exempt Employee Vacation For Partial-Day Absences

David Barron — Tue, 15 Dec 2009 13:47:56 -0500

by Betsy Johnson

On November 23, 2009, the Chief Counsel of the California Division of Labor Standards Enforcement ("DLSE") issued an Opinion Letter on behalf of the Labor Commissioner, Angela Bradstreet, in which the DLSE modified its enforcement stance on the issue of making deductions from exempt employee accrued vacation to cover partial-day absences. In the Opinion Letter, the DLSE opined that there is nothing in California law that would prevent an employer from implementing a policy that provides for hour-for-hour deductions from accrued vacation leave for partial-day absences taken by exempt employees.

This change in the DLSE enforcement policy brings California law more in line with the federal Fair Labor Standards Act ("FLSA") regarding the "salary basis test" and deductions from exempt employee paid time-off accounts for partial-day absences.

Question Presented to the DLSE

The employer presented the DLSE with a series of factual scenarios in which it proposed different reductions in vacation and/or sick leave balances for full- or partial-day absences of exempt employees and asked whether the proposed reductions were permissible under California law.

The employer who sought the DLSE's guidance maintains a policy pursuant to which employees accrue vacation time to be used for absences for vacation and personal reasons, as well as for absences due to illness (when sick leave has been exhausted). The employer's policy also provides for the accrual of sick leave. The employer's vacation policy requires that employees use accrued vacation hours for illness when the employees do not have any sick leave left. In addition, employees must use all accrued vacation and sick leave before any unpaid time off is approved.

One of the questions presented to the DLSE was whether the employer's policy of deducting from exempt employee accrued vacation time to cover partial-day absences is consistent with the "salary basis test" for exempt employees under California law.

DLSE's Analysis

In order to qualify for an exemption from the overtime and minimum wage requirements of California law, an employee must meet both the "duties test" and the "salary basis test." For the purposes of the Opinion Letter, the DLSE assumed that the employees in question met the duties test for the "white collar" (executive, administrative and professional) exemptions described in the California Wage Orders.

At issue was whether the apportionment of accrued vacation to the partial-day absences outlined in the employer's factual scenarios violated California's salary basis test. One of the hallmarks of exempt status is the payment of a fixed, predetermined salary to employees for any day in which the employees perform any work. Improper reductions in exempt employees' salaries results in the loss of exempt status.

In one case, a California court held that the state salary basis test prohibits employers from making deductions from exempt employees' salary for a partial-day absences. See, Conley v. P.G.& E., 131 Cal.App.4th 260 (2005). However, the Conley court did allow the employer to deduct vacation time in four-hour increments to cover partial-day absences of exempt employees. In its Opinion Letter, the DLSE rejected the four-hour limitation placed on the employer's ability to deduct time from exempt employees' accrued vacation to cover partial-day absences, concluding that the holding in Conley is inconsistent with California and federal law.

The DLSE concluded that there is no state or federal regulation or law that provides for a "four or more hours" limitation for deductions from accrued vacation. The DLSE found that the applicable federal regulations and interpretations by the federal Department of Labor ("DOL") support the conclusion that an employer may reduce exempt employee vacation banks on an hour-for-hour basis to cover partial-day absences.

Specifically, the DLSE looked at 29 CFR § 541.602, which sets forth the general rule that exempt employees must be paid their pre-determined salary for any week in which they perform work and DOL opinion letters interpreting this regulation. The federal regulations also make clear that employers may not "dock" (reduce the dollar amount of exempt employees' salaries) exempt employees for taking partial days off. On the other hand, if exempt employees take partial days off, the DOL has opined that employers may apportion exempt employees' compensation for those days between regular salary, vacation pay and sick pay, so that the employees receive full pay for those days. The DLSE found that these federal guidelines are consistent with state law.

Therefore, the DLSE concluded, while it is impermissible for an employer to deduct from exempt employees' salaries for partial-day absences, employers may deduct from accrued vacation balances in connection with absences due to vacation or sickness of less than a full day under an express policy providing for such deductions without the employees losing their exempt status. The DLSE's conclusion is premised on the fact that the employer's policies provide for such deductions so that the employees are aware of how partial-day absences will be handled.

What This Means To Employers

While the DLSE Opinion Letter is not legally binding precedent in civil litigation, it should be given significant weight by the California courts. However, the Opinion Letter is binding precedent in any DLSE proceeding and signifies a favorable shift in the DLSE's enforcement policy in favor of giving employers more flexibility by allowing employers to implement vacation and sick leave policies that apportion paid time to partial-day absences of exempt employees.

NYSDOL Changes Its Tune On 195(1) Notice Requirement

Richard Tuschman — Mon, 14 Dec 2009 11:04:53 -0500

By Bill Milani, Jeff Landes, Susan Gross Sholinsky and Anna Cohen

We previously advised that the New York State Department of Labor ("DOL") had taken the stance that in order to comply with Section 195(1) of the New York State Labor Law (i.e., to provide proper notice to employees of their wages, overtime rates (if applicable) and paydays), employers would be required to utilize the DOL's official forms, which could be accessed at the DOL's Web site.

The DOL has now decided that, while employers may still elect to utilize the DOL's forms, employers need not utilize the DOL's forms in order to comply with Section 195(1). Rather, employers may utilize their own forms. Specifically, the DOL's Web site now states:

No particular form is required. Employers may create their own forms, or use and/or adapt a sample form available [on the DOL's Web site].

If employers elect to utilize the DOL's sample forms, they should understand that the only forms currently available are for hourly non-exempt employees and staffing agencies. The DOL's Web site, however, notes that "[i]n the near future, sample forms for a variety of pay agreements (salaried, prevailing rate, exempt, and others) will be provided." We will advise you when such additional sample forms are published by the DOL.

Based on the DOL's statement, employers will be deemed to be in compliance with Section 195(1), so long as: (i) the employer's form includes employees' pay rate, overtime rate (if applicable) and paydays in the applicable document, (ii) the form is given to employees before they perform any work, (iii) the form is signed by the employee, (iv) the original form is maintained by the employer for a minimum of six years, and (v) a copy of the signed form is provided to the employee. While the DOL has informed us that its preference would be for employers to utilize a stand-alone form in order to comply with Section 195(1), it also has confirmed that if an employer includes all of the applicable information required by the statute in an offer letter, and that offer letter is signed by the employee, kept by the employer, and a copy is provided to the employee, the employer would be in compliance with the statute.

Are Outside Counsel Wage and Hour Audits Discoverable?

David Barron — Thu, 03 Dec 2009 17:37:05 -0500

Often, employers ask their outside labor counsel to review job descriptions or other material to provide an opinion on whether a job, or group of jobs, should be classified as exempt from overtime requirements. Such efforts would seemingly be a classic example of a privileged attorney client communication made for the purpose of providing legal advice.

In a recent case out of California state court, however, this answer was not so clear at the trial and appellate level, who both required the employer to hand over a redacted version of such a letter in a class action overtime suit. The employer took the case to the California Supreme Court, who rightfully weighed in and made clear that such opinion letters are privileged and should not be subject to discovery.

This opinion is good law for a number of reasons, not the least of which is that it encourages employers to do the right thing - police themselves. Employers should not be punished by seeking out legal advice on whether their actions are correct. Moreover, determining the applicability of overtime exemptions can sometimes be as much art as science. If employers are afraid to discuss these nuances with their own lawyers, how can they ever hope to achieve compliance? Hopefully, this decision will set an example and avoid meritless discovery fights that often erupt in these ever growing wage and hour class actions.

Update Regarding NY Wage Rate Acknowledgment Law

David Barron — Tue, 03 Nov 2009 14:09:48 -0500

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

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

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

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

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

Are Job Interviews Compensable Time?

David Barron — Thu, 22 Oct 2009 14:35:40 -0500

According to a federal judge in California, the answer is "Yes." Judge Wilken of the U.S. District Court for the Northern District of California issued a summary judgment ruling on October 16, 2009 holding that temporary employees of Kelly Services were owed overtime for time spent in interviews for job placement. The rationale for the decision included findings that Kelly arranged the interviews, helped the applicants prepare for the interviews, and debriefed them afterwards. The judge rejected Kelly's arguments that the interviews were purely voluntary, and for the benefit of the applicants (since they presumably wanted a job), and found that the interviews were "controlled" by Kelly. The Judge did throw a bone to the temp agency by declaring that time spent traveling to interviews was not compensable.

This case will no doubt be relied upon as a basis for class actions against temporary staffing companies around the country. Any employer in this industry should be aware of this ruling and take a hard look at its policies to alleviate arguments of "control" over job interviews. In the meantime, one can only hope that the appellate court will apply a bit more common sense.

When is a Win Not Enough?

David Barron — Wed, 07 Oct 2009 18:27:44 -0500

A conflict is brewing in the federal courts over whether a defendant's offer to settle a collective action FLSA case for full relief can moot the case and effectively deprive the court of jurisdiction. Plaintiff's lawyers view this tactic as a trick aimed at "picking off" class members to avoid a larger suit, while defendants argue that the courts should not be used to stir up litigation once a party's claim has been fully satisfied. Put simply, why continue a lawsuit once the plaintiff has won everything he or she could collect?

In a recent decision out of North Carolina, a federal judge has waded into this mix by dismissing an overtime case filed against United Mortgage. The defense counsel sent the attached letter to the plaintiffs' counsel offering to not only fully compensate the named plaintiffs, but to pay any claims submitted with an accompanying affidavit explaining the details of any alleged unpaid work. The plaintiffs declined the offer and the judge dismissed the case.

The plaintiffs have appealed to the Fourth Circuit, which will no doubt lead to an important appellate decision affecting all FLSA collective actions. The last time a circuit court weighed in on this issue, the Fifth Circuit held that offers of judgment did not deprive a court of jurisdiction except in very limited circumstances, and greatly limited the use of the technique in obtaining dismissal. Hopefully, common sense will carry the day and those who would reject a win in favor of running up attorneys fees won't be rewarded.