Wage & Hour - Development & Highlights

Pharmaceutical Sales Representatives Get $99 Million In Overtime From Novartis

Keith Reinfeld — Fri, 27 Jan 2012 09:00:00 -0500

On January 24, 2012, the Southern District of New York preliminarily approved a settlement in In Re: Novartis Wage and Hour Litigation, which will pay pharmaceutical sales representatives (“Sales Reps”) $99 million. The case was originally filed in 2006 and affects over 7,000 current and former Sales Reps.

As I discussed in an earlier entry, in July 2010, the Second Circuit determined that the “outside sales exemption” was not applicable to Novartis’ Sales Reps because they did not “sell” or make any “sales.” Rather, the Sales Reps were responsible for promoting drugs to physicians, providing information, and arranging events, such as lunches and speaking engagements. The Second Circuit’s decision created shock waves throughout the pharmaceutical industry as drug companies have historically treated Sales Reps as exempt employees. Novartis appealed the Second Circuit’s decision, and in February 2011, the United States Supreme Court denied Novartis’ petition for review.

All is not lost, however, for pharmaceutical companies. On February 14, 2011, the Ninth Circuit affirmed the District of Arizona’s ruling in Christopher, et al. v. SmithKline Beecham Corp., that held a proposed class of pharmaceutical sales representatives to be exempt from overtime pay pursuant to the “outside sales exemption.” In November 2011, the Supreme Court agreed to review the case, and hopefully, will conclusively answer the question of whether pharmaceutical sales representatives are exempt employees.

In the meantime, drug companies should be wary about classifying sales representatives as exempt if they do not “sell” or make any “sales,” and should measure their actual duties against the requirements of the exemption.

Lessons To Be Learned From Another Successful Defense Of An Assistant Manager Class Action

Mark Tabakman — Wed, 25 Jan 2012 17:05:19 -0500

I have written several times about Assistant Manager class actions being quite difficult to defend because these employees often perform a great deal of “subordinate” type work, making the issue of “primary duty” a tricky one. In a recent class action involving these employees, a federal judge has denied a motion for conditional certification (which does not often happen) on the basis that the lead plaintiff Assistant Manager was not similarly situated to the people he tried to represent. The case is entitled Guillen v. Marshalls of MA Inc and was filed in the Southern District of New York.

The plaintiff had claimed that the violations were willful, thereby entitling him (and the other opt-ins) to a third year of recovery. Then, going after the primary duty requirement, the plaintiff alleged that he devoted the bulk of his time to non-exempt tasks such as janitorial work and unloading trucks.

The deficiency in the plaintiff’s motion, however, was that he failed to show that Assistant Managers throughout the country were performing their jobs in precisely the same manner. Put differently, there was not a strong showing that Assistant Managers elsewhere were discharging non-exempt duties. The court stated that “Guillen’s latest motion adds virtually no evidence suggesting that Guillen is similarly situated to ASMs in Marshalls stores nationwide with respect to the main contention in this case: that he was required to perform tasks that rendered him nonexempt from the FLSA’s overtime requirements.”

The court noted that there was nothing in the job description for this classification that required the performance of non-exempt work that the plaintiff alleged was done. There was no evidence of any nationwide requirement(s) in this area as well. The plaintiffs could not find a companywide policy that would apply to all of these employees. As I have often noted, that is the anathema for an employer defending such a case. In this case, there could have been thousands of employees employed in these jobs across the country and without a showing of commonality (i.e. a policy), there would be a need for individual scrutiny of what each employee actually did.

What this case again reinforces for me is that the knee jerk reaction of any company defending a FLSA collective action should be to look for and solidify all evidence of the dissimilarity of the lead plaintiff and the “others.” Company compensation policies should also be examined and, if need be, appropriately revised.

Nike Agrees to "Just Do It" and Pay Indonesian Workers $1 Million In Unpaid Overtime

Keith Reinfeld — Tue, 17 Jan 2012 09:44:15 -0500

On January 11, 2012, a Nike, Inc. factory in Indonesia agreed to pay its workers more than $1 million in unpaid overtime. The factory workers claimed that Nike required them to work an hour of overtime each day for which they were not paid. The matter was settled prior to a lawsuit being filed following almost a year of negotiations. The settlement will affect nearly 4,500 factory workers.

Under Indonesian law, a company must pay workers overtime for any hours worked beyond the standard 8 hour work day. According to the trade union representing the factory workers, Nike had failed to pay the factory workers overtime for the past 18 years. However, Indonesian law only permits employees to recover unpaid overtime for the previous two years.

In addition to the monetary settlement, Nike has agreed to training programs for local managers that includes “cultural sensitivity, respectful supervisory skills, team leadership and human resource management” training. Moreover, Nike has agreed to hire a third party advocacy group to monitor workplace conditions.

While Indonesian factory workers are not subject to the overtime requirements of the Fair Labor Standards Act, U.S. companies should be careful to rectify any wage and hour violations that may be occurring overseas. Indeed, Karishma Vawani, a BBC correspondent in Indonesia, states that “The fact that Nike’s Indonesia factory has opted to hand over this million dollars and an apparent admission of some wrong doing at their Indonesia plant, may serve as a warning to other companies here to be more mindful of what happens at their Indonesia subsidiary.” Not surprisingly, trade unions are threatening to target Adidas and Puma, who both have large factories in Indonesia, for similar overtime violations.

The bottom line is that, as surprising as it may sound, other countries have wage hour laws and believe in the concept of “overtime.” Nike learned this the hard way, but other companies can benefit from this lesson.
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Employer Defenses Against Class Action Rest (Again) On Individualization, As Well As Exemption

Mark Tabakman — Fri, 13 Jan 2012 12:10:39 -0500

In a recent case, a federal judge in New York has allowed a class action to proceed for thousands of employees who allege that they were misclassified as exempt by an accounting firm. The case is entitled Pippins et al. v. KPMG LLP and was filed in the Southern District of New York. The judge also ordered that the Company turn over a computer-readable list of the names and contact information for possible opt-in plaintiffs.

The judge found there to be commonality because the accounting field is governed in large part by a number of regulations and standards that would render the plaintiffs as “similarly situated.” The court noted, however, that “the uniformity does not mean audit associates are entitled to overtime.” The Company has claimed that these employees are exempt under the administrative and/or professional exemptions. The Company also defended by asserting that, because each employee’s duties may have differed, there would be required an individualized scrutiny as to what each employee did, thus destroying the necessary element of commonality.

What is important is that the “individualized” defense may ultimately prove to be successful, although at the conditional certification step, a court is not focusing on these individual differences but rather looking at what elements of commonality may be present, such as similar educational backgrounds and similar training regimens.

The plaintiffs (naturally) contend that they performed clerical-type work, which was routine and repetitive. They claimed that “all” they do is do basic reviews of documents and financial records. I imagine the Company will defend not only on the individual scrutiny basis but will also try to knock out as many plaintiffs as it can but pointing to the higher levels of education they possess, the degrees and certificates, which will evidence that they do more than just “clerical” work and are using their advanced education (college or above) to conduct financial analyses, (which is the essence of an administrative or professional defense) and not just crunching numbers.

Retaliation Fact Sheet Issued by USDOL: Employers Beware

Mark Tabakman — Fri, 30 Dec 2011 12:05:31 -0500

On March 22, 2011, we posted an article about the US Supreme Court holding in Kasten v. Saint-Gobain Performance Plastics Corp., in which the Court held that a retaliation cause of action could lie even if the complaint was not in writing, but was made verbally. We cautioned about the danger of that holding for employers. Now, the US Department of Labor has issued Fact Sheet 77A codifying this holding in DOL guidelines. The Fact Sheet makes clear that oral complaints are protected and internal complaints to the employer, as opposed to (or, in addition to, complaints to the DOL) are also protected.

The Fact Sheet also makes clear that the retaliation protection applies to all employees of an employer even in those instances in which the employee's work and the employer are not covered by the FLSA.

The Fact Sheet also makes clear that the retaliation protection applies where there is no current employment relationship between the parties, such as an instance where there is alleged retaliation against an employee by a former employer.

Now that this holding has been formalized in DOL guidance and will "enjoy" widespread dissemination, my recommendation is that employers implement a mechanism (similar to the complaint mechanism in anti-harassment policies) where employees may complain about pay errors, or classification issues, or working time issues. These complaints would then be investigated and if found to have merit, an appropriate remedy issued to the employee. The important point is that even if the complaint is made orally, the employer (e.g. HR Department) should reduce the complaint to writing so there exists a record of what was complained of, the action taken and the resolution.

Seventh Circuit Affirms That "Suffering or Permitting" Employees To Work Means The Employer Must Know Of The Work

Mark Tabakman — Wed, 21 Dec 2011 13:19:08 -0500

I am always counseling clients to have very good and strict time reporting systems so that employees cannot claim they performed work and want to be compensated for it. I also caution clients that if they “see” employees working or “hear” about it, they have an obligation to make them stop or to pay them.

A recent Seventh Circuit case proves this premise admirably. The Court (in upholding a trial court's ruling) held that an employer did not have to pay overtime to an employee who had been “working” prior to the normal start of her shift but who had neglected to inform her employer that she was doing this work The case is entitled Kellar v. Summit Seating Incorporated.

The appellate Court affirmed the ruling that no compensation was due to the factory manager, who claimed that she, virtually on a daily basis, arrived for work prior to the start time but was never paid for the extra work. The Court held, however, that as the plaintiff never informed her supervisor that she was working this extra time. The Court found no obligation to pay because the Fair Labor Standards Act “stops short of requiring the employer to pay for work it did not know about and had no reason to know about.”

The Court held that the Company “had little reason to know, or even suspect, Kellar was acting in direct contradiction of a company policy and practice that she herself was partially responsible for enforcing.” Therefore, no jury could reasonably conclude that the Company knew or had a reasonable basis to know that the employee was performing work prior to her shift commencing. The employee had asserted that she often arrived before 5AM to prepare for her day’s work. She claimed that the pre-shift job duties, i.e. turning on the lights, unlocking doors, taking deliveries, setting up work stations for rank-and-file employees, etc took between 15-45 minutes.

The lower court held that the work was “preliminary” in that it was not integral to the performance of the plaintiff’s duties, but it was for her own convenience. This, however, is a different basis for denying the claim for compensation. The trial court also relied on the de minimis doctrine as an alternative basis for dismissing her claim. Significantly, the Seventh Circuit held, in contrast to the lower court, that the activities engaged in were not preliminary. Thus, if the employer had known of the work and allowed it to still be performed, it would have been compensable.

The lesson for employers is to have explicitly drawn policies that disallow any preliminary or postliminary work to be performed without express permission of the employer. The best crafted policy, however, is to no avail because if a supervisor (whether first level or higher up) has knowledge that work is being done, that work will likely be compensable. To then argue that it is for the convenience of the employee, not the employer, will be quite difficult and if unsuccessful, quite costly to the employer.

The Danger In Docking The Pay of Exempt Employees

Keith Reinfeld — Fri, 16 Dec 2011 09:21:56 -0500

Last week, the Southern District of Texas denied a motion by Power Line Services Inc. (“Power Line”) to dismiss a class action alleging that the company improperly docked employee paychecks. The claim arises out of a company policy permitting Power Line to make payroll deductions for any charges made on a corporate credit card for which an employee fails to provide an itemized receipt. The lawsuit is entitled Thurmon, et al. v. Power Line Services Inc., et al., and was brought under the Fair Labor Standards Act.

The complaint alleges that Power Line regularly made improper deductions from the paychecks of exempt employees for failing to comply with its receipt policy. These deductions range from $3.44 for a lost receipt from a convenience store to $2,500 for repairs to a company issued truck. The named plaintiff in the lawsuit, Jerry Thurman, claims that these payroll deductions evidence that he, as well as other individuals, were improperly classified as exempt employees. As a result, Thurman is seeking to recover unpaid overtime.

This lawsuit highlights the danger of docking an exempt employee’s pay. In 2006, United States Department of Labor (“DOL”) issued an opinion letter stating that “any employer policy that requires deductions from the salaries of its exempt employees to pay for the costs of lost or damaged tools or equipment” constitutes an “improper deduction,” thereby invalidating the exempt status of any affected employee. While the opinion letter only addressed deductions based on lost or damaged equipment, employers can expect the DOL to take a similar stance with respect to any deductions resulting from infractions of company policy. Put simply, the DOL will likely prohibit any payroll deduction that can be viewed as a penalty.

As discussed in my earlier posting on this subject, employers are best served by maintaining a policy of disciplining, rather than docking, employees who are responsible for lost equipment or a violation of company policy. Employers should consider that the potential liability for the loss of an employee’s exempt status will likely far outweigh the cost of any lost or damaged property.

The Offensive Use Of DOL Opinion Letters In Overtime (And Other) Wage-Hour Class Actions

Mark Tabakman — Tue, 13 Dec 2011 17:10:07 -0500

I have been representing an employer in a class action in which Registered Nurses, paid hourly, sought overtime. We won on summary judgment at the trial court, on the strength of two New Jersey Department of Labor Opinion Letters (one going back to 1975), that held that it was the DOL’s interpretation that as long as the Nurses (or other professionals) performed “professional” work, they were exempt from overtime provided they made the minimum amount required (i.e. $400 per week). The claimed liability reached into the hundreds of thousands of dollars. In sum, on the basis of two pieces of paper, we succeeded in securing the dismissal of the case. The case is entitled Anderson v. Phoenix Health Care, Inc., A-2607-10T2 (N.J. App. Div. Nov. 16, 2011).

On November 16, 2011, the New Jersey Appellate Division affirmed this lower court holding. The Court noted that courts should defer to an agency’s interpretation of its own laws and regulations if that interpretation was not “plainly unreasonable.” Against that framework, the Court held that this interpretation was not, in fact, “plainly unreasonable,” even though hourly payment was not ostensibly “allowed” by the applicable regulations. The Court reasoned that the “critical question is whether the employee is a professional, not whether that professional’s compensation is determined by reference to an hourly rate instead of a salaried rate.”

The Court also concluded that, even if this longstanding, i.e. almost forty years, interpretation was not reasonable, my client could avail itself of the safe harbor, good faith exception found in New Jersey law (and the FLSA and, more likely than not, the wage hour laws of many States). That good faith exception provides “immunity” for a defendant when that entity has conducted itself in reliance upon or in conformity with interpretations or enforcement practices of a the relevant agency. That is what my client had done in this case.

So, in essence, we used the Opinion Letters for both of these purposes, in an offensive manner, as a sword, rather than a shield. First, we argued that the interpretation was not unreasonable, but even if we lost on the ground, we claimed the refuge of the safe harbor. The lesson for employers is that if they wish guidance on a certain point of law, securing an Opinion Letter provides not only guidance, but also protection, even if the logic or reasoning of the Letter is ultimately struck down by a Court, the particular employer that conducted itself in accord with the Letter will not be held liable.

The irony in this is that as New Jersey has now adopted the FLSA regulations (as of a few months ago), this defense would likely not be available to an overtime claim filed by an hourly paid Registered Nurse.

The United States Department of Labor Targets Wage and Hour Abuses In The Residential Care Industry

Keith Reinfeld — Mon, 05 Dec 2011 16:43:59 -0500

On December 1, 2011, the United States Department of Labor (“DOL”) announced that it will be conducting an “enforcement initiative” focused on the residential care industry in North Carolina. The residential care industry consists of group homes, long term care facilities, and other businesses that provide care for individuals who are incapable of caring for themselves.

As part of the initiative, the DOL plans on visiting residential care facilities to interview employees and review their pay practices and records. The DOL stated that that since 2006, it has investigated 120 residential care facilities and recovered more than $980,6000 in back pay for 1,077 employees.

According to the DOL, businesses in the residential care industry have, among other violations of the Fair Labor Standards Act, failed to pay workers for attending required staff meetings and training. This practice contradicts the general rule that time spent attending employer sponsored meetings and training is compensable. Additionally, the DOL claims that residential care employers have consistently deducted 8 hour sleeping periods for employees who work fewer than 24 hours. The federal regulations are clear that an employee who is on duty for less than a 24 hour period must be paid for all of his or her time, including sleeping time.

Another area of concern not specifically addressed in the press release is whether such facilities, as is often standard practice, automatically deduct a set period of time for lunch periods (e.g. 30 minutes or an hour). In such instances, employees have successfully filed complaints that they worked through these automatically deducted lunch periods and are entitled to compensation.

Employers in the residential care industry should review their pay practices in anticipation of heightened scrutiny by the DOL. In particular, businesses within this industry need to carefully examine whether they are paying employees for all time worked in a given day.

Concepcion Gaining Vitality From Supreme Court In Kicking FLSA Collective Actions

Mark Tabakman — Tue, 29 Nov 2011 14:59:14 -0500

The U.S. Supreme Court’s recent holding in AT&T Mobility LLC v. Concepcion has been increasingly used by employers in defending against and, in seeking dismissal of, FLSA collective actions. This tenet received new emphasis in a recent decision by the US Supreme Court in which the Court vacated a California court decision holding that an employee could proceed before the California Department of Labor Standards Enforcement (DLSE) with wage claims against his employer, notwithstanding that he had executed an arbitration agreement. The case is entitled Sonic-Calabasas A. Inc. v. Moreno in the U.S. Supreme Court.

The Court sent the case back to California state courts for further processing in light of the April 2011 decision in Concepcion. The essence of that earlier holding was that “states cannot require a procedure that is inconsistent with the [Federal Arbitration Act], even if it is desirable for unrelated reasons.” Counsel for the plaintiffs stated that he could not understand how the Concepcion holding applied to the facts of the case. The case involved a claim by an employee against a car dealership for allegedly unpaid vacation days.

Although he had signed an arbitration agreement, the employee submitted an administrative wage claim with the DLSE, under the state Labor Code. The Company petitioned state courts for an order compelling arbitration. The Company argued that the worker had waived his right to proceed judicially and had to utilize arbitration for a resolution of his claim..

Although the Concepcion holding applied to a consumer transaction, where arbitration provisions are commonplace in consumer contracts, a number of federal courts have extended its reach to collective and class action overtime cases. In this case, the rationale was applied to a wage payment action where no wages are sought but rather only accrued vacation time.

I am still cautious, however, about urging clients to incorporate arbitration provisions and class action waivers in every employee handbook as I worry about the specter of a dozen (or hundred) individual employee arbitrations where the claims and defenses are the same, which is why the “class action” manner of proceeding was “invented.”

FLSA Computer Exemption To Get Revised: A Good Thing For Employers

Mark Tabakman — Thu, 17 Nov 2011 16:31:36 -0500

Doug Weiner and Meg Thering, in the Wage Hour Defense Blog, recently commented on the introduction of the Computer Professionals Update Act in the US Senate on October 20, 2011. They posit that this is a good development for employers, as employers would be more easily able to classify employees as exempt under the computer exemption.

The new legislation would expand the coverage of the exemption to individuals who work in a "computer or information technology occupation, including, but not limited to, work related to computers, information systems, components, networks, software, hardware, databases, security, internet, intranet or websites, as an analyst, programmer, engineer, designer, developer, administrator or other similarly skilled worker." Also, employees who direct the work of individuals performing these duties would be exempt.

I welcome this development. I have had numerous cases and matters for clients where the focus has been whether certain computer employees were exempt or not. There are many fine lines in undertaking this analysis, almost as many as there are titles in this field. The employer is forever placed in the difficult position of having to make a judgment call ion the exemption question and if it is proven wrong. almost astronomical liability is the result, as these workers are often earning very good compensation (whether at an hourly rate or a salary). To take the more conservative approach and simply treat the workers as non-exempt is not the answer either because although it spares the employer the specter of a possible lawsuit (usually class action) it escalates the overtime outlays that the employer is subject to.

Now, if the legislation passes, employers will not be forced to make what are now very difficult decisions. I believe employers are, for the overwhelming most part, intent on doing the right thing and complying with the law. When the law is not easily amenable to reasonable interpretation and forecasting, that desire to comply is hampered. With this new law, employers may be able to correctly classify computer workers and not have to be stressed out over whether they will be hit with a FLSA class action.

To be continued...

The U.S. Chamber of Commerce Joins The Fight Against Preserving Hard Drives For All Potential Class Action Members

Keith Reinfeld — Mon, 14 Nov 2011 12:05:17 -0500

On November 7, 2011, the U.S. Chamber of Commerce (the “Chamber”) filed an amicus brief in support of the motion by KPMG LLP (“KPMG”) to set aside the Southern District of New York’s denial of its application for a protective order. The protective order sought to limit the number of employee hard drives that KPMG is required to preserve while awaiting a decision on the plaintiffs’ motion for collective action certification. Specifically, KPMG requested to preserve a random sampling of 100 hard drives rather than thousands of hard drives. The Court denied KPMG’s motion even though the cost of preserving the hard drives is extremely high (e.g. KPMG has spent more than $1.5 million on maintaining these hard drives since January 2011).

The lawsuit, entitled Pippins, et al. v. KPMG LLP, is brought by a group of former auditors who allege that KPMG intentionally misclassified entry level auditors as exempt to avoid paying them overtime. The hard drives in question contain data relating to the employees’ job duties and activities. By all accounts, such information is necessary to determine whether the employees fall within one of the exemptions to the overtime requirements under federal and state law.

The Chamber argues that the Court erred in denying KPMG’s for a protective order. The Chamber asserts that the Court ignored the “test of proportionality,” which requires courts to restrict discovery when the cost outweighs the potential benefits. Additionally, the Chamber claims that the Court incorrectly labeled each of the potentially thousands of class members as “key players.” The Chamber explains that the identification of “key players” should be used to “focus discovery” and achieve “savings in time and expense.” However, this did not happen in Pippins.

Employers should be crossing their fingers that the decision by the Court is set aside and the protective order entered. Should the decision stand, employers may be required to preserve the hard drives for every potential class member in a lawsuit. This could result in a company being ordered to maintain hard drives for tens of thousands of employees going back three years, or possibly longer. The cost of such an exercise would be astronomical.

Assistant Manager Exemption Case Goes For The Employer: A New Day Dawns!

Mark Tabakman — Wed, 26 Oct 2011 14:45:09 -0500

After a three-week jury trial, Southern New England Telephone Company has won a verdict finding that employees who were titled as field managers and classified as exempt, were in fact exempt under the Fair Labor Standards Act and state law. This case is significant because, as a rule, first-level managers are often in reality “working foreman” type of workers and are usually found to be non-exempt. The case is entitled Perkins et al., v. Southern New England Telephone Company and was filed in federal court in the District of Connecticut.

Under the FLSA, employees classified as executive exempt must supervise at least two workers on a full time and direct basis, must have input into or authority over different personnel decisions, such as hiring, firing, compensation, promotion, etc and must have management as their primary duty. With first-level managers, the problem (for defense counsel) often arises because these managers do the same kind of work as their subordinates so the primary duty factor often is an issue.

The plaintiffs had claimed that they were merely given the title of manager and were, under that umbrella, compelled to work 50-70 hours per week, without overtime payment. The plaintiffs contended, as indicated above, that they had and exercised no managerial authority over their so-called subordinates.

The plaintiffs’ lawyers had valued the case at a startling figure exceeding $50 million. This verdict is even more significant given the fact that the judge had ruled (prior to trial) that the Company had destroyed a very large chunk of evidence that the plaintiffs’ lawyers asserted hampered their prosecution of the case and benefited the defendants.

The judge evidently agreed with the plaintiffs, as he had rejected defendant’s motion to dismiss the case, finding that the field managers were themselves closely supervised and actually earned less than the people they supervised. The defendant will not, I daresay, argue with the result, but, on balance, this is against the odds.

The U.S. Department of Labor Has A "Beef" With Arby's Calculation of Overtime Pay

Keith Reinfeld — Fri, 21 Oct 2011 08:53:25 -0500

Last week, the U.S. Department of Labor (“DOL”) announced that United States Beef Corp., doing business as Arby’s, has agreed to pay back wages in the amount of $55,838 based on their failure to properly calculate overtime. This agreement came following an investigation by the DOL, which found that 255 Arby’s restaurants had failed to include bonuses paid to managers when computing the “regular rate” of pay for overtime compensation. The settlement affects 759 current and former hourly paid managers in Arkansas, Illinois, Kansas, Missouri, and Oklahoma.

Pursuant to the Fair Labor Standards Act (“FLSA”), overtime for hourly workers “must be compensated at a rate not less than one and one half times the regular rate at which the employee is actually employed.” The “regular rate” is computed by dividing the total compensation paid to an employee (including all commissions, bonuses and incentive pay) by the hours worked in a given week. Contrary to an hourly rate, the “regular rate” of pay will vary from week to week depending on the number of hours worked and the monetary amount of any bonus or commission paid to the employee.

The DOL found that Arby’s had computed overtime for the hourly managers using their hourly rate of pay rather than their “regular rate.” The DOL stated in a press release that “Fast food restaurants are frequently found by the Wage and Hour Division to be in violation of the FLSA’s minimum wage and overtime wage provisions. Because historical data indicate that the majority of violations are committed by franchisees rather than by corporate-owned establishments, the division is focusing its enforcement efforts accordingly.”

All employers, not just fast food franchisees, need to make sure that they are calculating overtime correctly. This is especially true for businesses that pay employees lump sum amounts, such as bonuses, pursuant to company policy or practice. As seen above, even a relatively small deviation from the required computation can lead to significant liability.

Concepcion Strikes Again! New Jersey Court Dismisses FLSA Class Action

Mark Tabakman — Tue, 18 Oct 2011 12:58:04 -0500

A few months ago, the US Supreme Court issued the landmark decision in ATT Mobility LLC v. Concepcion in which the Court held that the Federal Arbitration Act preempted state law that forces class arbitration on parties that have not consented to it. The Court ruled that a California rule that found class action waivers on consumer arbitration agreements unconscionable was preempted by the FAA. Now, a New Jersey federal judge has applied Concepcion to dismiss a FLSA class action and has sent the case to be arbitrated instead. The case is entitled Opalinski et al. v. Robert Half International Incorporated and was filed in federal court in the District of New Jersey.

District Judge Faith S. Hochberg granted the motion to compel arbitration and dismiss the case, relying on Concepcion and held that its tenets were applicable to FLSA actions. Judge Hochberg did not accept the plaintiffs’ contention that the defendant had waived its right to go to arbitration, because the Company had waited more than fourteen months before moving to compel arbitration.

Judge Hochberg wrote that “after determining that the arbitration clauses in both Opalinski’s and McCabe’s employment agreements require them to arbitrate their FLSA claim and that [Robert Half] has not waived its right to compel arbitration, this court sees no reason to permit plaintiffs to continue to litigate this action in this forum.”

The Company contended that its ostensible delay in moving to compel arbitration was allowable because the Concepcion case had “dramatically changed the legal landscape” in class actions where arbitration clauses existed and were potentially applicable to a given case. The Judge held that the motion to compel arbitration satisfied all of the requirements established by the Third Circuit for granting , including finding that the Company had a reasonable basis for the delay, i.e. the issuance of the Concepcion decision, which had changed the law.

I predict this is but the first of many cases that will follow the same pattern. Also, more employers will be inserting class action waiver language into their arbitration agreements with employees (which are often included in Employee Handbooks) and this tactic may well significantly hamper the ability of plaintiff attorneys to file FLSA class/collective actions. On the other hand, employers may be unhappy by getting what they “wished for,” because one possible outcome is that the employer may have to arbitrate dozens, if not hundreds, of arbitrations where the facts and law are the same.

To be (surely) continued…

Webinair on FLSA Exemptions and Conducting Internal Audits

Mark Tabakman — Mon, 10 Oct 2011 11:19:23 -0500

I am pleased to announce that I will be speaking in an upcoming Strafford live phone/web seminar entitled "DOL’s Latest Wage and Hour Enforcement Priorities" scheduled for Wednesday, October 19, 1:00pm-2:30pm EDT. You are eligible to attend this seminar at 50% off. As long as you use the links in this email, the 50% off price will be reflected automatically in your transaction.

Wage and hour compliance is a top priority for employers as a result of the Department of Labor’s (DOL) increased enforcement efforts. The DOL reports that 78% of businesses are out of compliance with wage and hour laws, exposing employers to liability for unpaid wages, penalties and fees.

The DOL’s Wage and Hour Division has introduced several new policy initiatives designed to combat wage hour violations and issued several employee-friendly interpretive guidance documents and amicus briefs.

Employment counsel must understand the DOL’s current regulatory and enforcement landscape and advise employers of steps to take to minimize liability risks. Comprehensive self-audits and effective corrective measures are essential to avoid compliance errors.

My fellow panelists and I will explain current trends in DOL enforcement and best practices for employment counsel to ensure wage and hour compliance. We will review the areas currently targeted by the DOL, new DOL policy initiatives, and strategies for employers to conduct self-audits and correct errors.

We will offer our perspectives and guidance on these and other critical questions:

What areas are currently being targeted by the DOL's Wage and Hour Division for enforcement?
When should employers take the initiative to notify the Department of Labor of compliance errors discovered during self audits?

After our presentations, we will take questions. I hope you can join us. Here is the link:

http://www.straffordpub.com/products/tlveza?trk=ZDFCT

Mandatory Arbitration Agreement Rejected In "Girls Gone Wild" Overtime Case

Keith Reinfeld — Thu, 06 Oct 2011 11:29:31 -0500

In June, I wrote about a lawsuit filed by a former film editor for “Girls Gone Wild,” who alleged that he was entitled to overtime pay because Manta Films Inc. and GGW Direct LLC improperly classified him as an independent contractor. In response to the allegations, Joe Francis, the founder of “Girls Gone Wild,” stated that the lawsuit was “nonsense” because the plaintiff signed an arbitration agreement and release stating that the companies had paid him for all wages owed. The lawsuit is entitled Anagnos v. Magna Production Inc, et al. and was brought on behalf of a proposed class of 400 current and former workers.

As expected, Francis’ reliance on the arbitration agreement was misplaced. Not only was he unable to dismiss the lawsuit based on the signed agreement, but on October 3, 2011, a California judge refused to enforce the arbitration agreement in its entirety. Specifically, the court denied the request to have an arbitrator, rather than a judge or a jury, decide the class action. This decision should not come as a surprise to anyone, except maybe Francis, since the California courts have consistently refused to uphold mandatory arbitration clauses for class actions under the Fair Labor Standards Act.

The Court’s recent ruling in Anagnos v. Magna Production Inc. et al. highlights the fact that employers cannot hide behind such agreements in defending wage and hour lawsuits. As seen in connection with independent contractor agreements, the courts will disregard any agreement that it deems to be contrary to the state and/or federal wage laws.

New IRS Voluntary Settlement Program: Good or Bad For Employers? We'll See

Mark Tabakman — Tue, 27 Sep 2011 09:51:21 -0500

There are a number of new agency initiatives hitting the ground on the issue of independent contractor status. I have blogged on these and now find that the IRS has come out with something that may be very good or very bad for employers. The IRS, in a program entitled the Voluntary Classification Settlement Program (VCSP) is going to allow taxpayers (i.e. employers) to voluntarily re-classify workers as employees for federal tax purposes.

This is, to put it mildly, an interesting development and it remains to be seen whether this will help or very much hurt the business community, because I fear that, with all the new agency sharing of information initiatives (some I have blogged about), such a voluntary re-classification may have a snowball effect for employers and they will be providing the best evidence of their alleged wrongdoing for the other agencies (e.g. State unemployment bureau).

The VSCP is optional and allows for employers to re-classify employees with limited federal employment tax liability for the prior “transgressions” of not treating these individuals as employees. To participate, the employer must meet certain conditions, must apply to the program and must enter into a written agreement with the IRS. The IRS has concluded that it is beneficial to provide employers with this mechanism to covert workers, as opposed to the traditional, administrative and (often) adversarial process that takes a great deal of time and a great deal of money (e.g. legal fees) to ultimately resolve.

In order to “take advantage” of the VCSP, the employer must have treated the workers as independent contractors and must have filed the 1099 forms for these workers for the prior three years. The employer cannot currently be under an IRS audit (or a state agency) relating to the workers it wishes to change. Lastly, an employer who has been previously audited by the IRS or the Department of Labor regarding the workers can only enter the program if the employer has complied with the audit’s results.

The employer who enters the program must agree to treat the people as employees in the future. In exchange, the IRS will permit the employer to pay only 10% of the taxes that otherwise would have been due. The tax will also be computed on a reduced rate basis under IRC Section 3509. There will also not be any imposition of interest or penalties on the assessed taxes. Lastly, and this may be the most significant aspect, there will not be any audit of these workers for prior years. In sum, it sounds like a pretty decent (no pun intended) “get out of jail free” card.

Sounds good, but the IRS is only one agency. Once the employer enters the program and re-classifies for IRS purposes, does it have to do that for all purposes. What if the state unemployment agency audits? What defense will be left after the IRS, employer-initiated re-classification. The answer to that is, I believe, none. So, employers should be wary of entering this seemingly enticing program because such entrance may have far reaching, and unintended, consequences.

Agencies Target Independent Contractor Status: The Death Knell of Such Relationships?

Keith Reinfeld — Mon, 26 Sep 2011 08:21:55 -0500

On September 19, 2011, the leaders of the U.S. Department of Labor (“DOL”), Internal Revenue Service, and eleven state agencies entered into a “memo of understanding” to work together to “end the practice of misclassifying employees” as independent contractors. The participating agencies claim that some employers classify their workers as independent contractors, rather than as employees, to avoid paying payroll taxes and required compensation to employees. The “memo of understanding” will enable the federal and state agencies to share information and coordinate the enforcement of both tax and wage and hour laws.

According to Labor Secretary, Hilda Solis, “Misclassifying employees can result in workers being denied the minimum wage, overtime pay, unemployment insurance, and workers’ compensation benefits.” Secretary Solis further stated, “This makes it harder for low-wage workers to put food on the table and provide for their families. It means a greater chance of working in unsafe conditioned and not being compensated when hurt on the job.” The IRS Commissioner Doug Shulman commented that by entering into this agreement, “we will work together more efficiently to address worker misclassification issues, and better serve the needs of small businesses and employees.”

While the press release issued by the DOL discusses the intention of the agencies to work together, it does not provide any detail as to how this objective will be achieved. Similarly, there is no indication that there are any procedures in place for a coordinated “attack” on misclassification.

Accordingly, it will be interesting to see whether this agreement by the federal and state agencies will have any impact on the prosecution of perceived misclassification. At the very least, employers should expect the government to scrutinize, and likely dispute, the classification of any worker as an independent contractor.

Smart Phones and The DOL: Employers Better Wise Up

Mark Tabakman — Fri, 23 Sep 2011 14:59:09 -0500

Some months ago, I had posted about the DOL commencing a program by which it was going to make referrals of DOL complaints to private plaintiff attorneys. I lamented that development, but it appears that is only the beginning. The DOL has now launched its first smartphone application, a time sheet to help employees independently track the hours they work and determine the wages they are owed.

Available in English and Spanish, users conveniently can track regular work hours, break time, and any overtime hours for one or more employers. Glossary, contact information, and materials regarding wage-hour laws are easily accessible through links to the Web pages of the Wage and Hour Division.

Additionally, through the application, users will be able to add comments on any information related to their work hours; view a summary of work hours in a daily, weekly, and monthly format; and email the summary of work hours and gross pay as an attachment. Importantly, there is also a “Contact Us” button through which the user (i.e. the employee) can contact the DOL and (perhaps) file a complaint.

The free application is currently compatible with the iPhone and iPod Touch, but the DOL is exploring updates that could enable similar versions for other smartphone platforms, such as Android and BlackBerry, and other pay features not currently provided for, such as tips, commissions, bonuses, deductions, holiday pay, pay for weekends, shift differentials, and pay for regular days of rest.

Employers will need to be increasingly vigilant with their record keeping and wage and hour compliance as now employees are greater empowered to record hours and have immediate access to DOL Wage and Hour laws and provisions. I am deeply concerned about this development as it indicates that the DOL is actively (some might say, aggressively) facilitating employee complaints to the DOL at the same time giving employees a “simple” means of keeping their own records and using them offensively. If the employer’s records are not in the best shape, then these employee records, informal and unofficial as they may, will become the “best” evidence of alleged underpayments

I hate technology!