The Attack of the Unpaid Interns

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

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

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

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Are You Paying Your Workers Enough?

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

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

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

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Lawsuits by Restaurant Employees Keep on Coming

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

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

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

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DOL Clean Up Sweeping the Nation

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

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Ongoing DOL NY Restaurant Investigation Finding Repeated Violations

In a further example of industry-specific targeting for wage and hour violations, the Department of Labor issued a press release regarding a multi-year investigation of the full-service restaurant industry on Long Island, NY, finding multiple violations in numerous establishments.

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New Jersey Gas Stations Target of DOL Investigation

The federal Department of Labor recently recovered $1,014,895.00 in back wages for 295 gas station employees in New Jersey, according to a recent DOL News Release. 

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Spreading the Pain: New York Hospitality Wage Order Makes All Restaurant and Year-Round Hotel Workers Eligible for Spread-of-Hours Pay

To state the obvious-- legal terms can be confusing. When mixed in with already confusing state wage and hour laws, employers can be left throwing up their hands in surrender. Take “spread of hours,” for example, which could mean practically anything-- though in practice, it mostly means headaches for well-intentioned employers.

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CATERING HALL FORCED TO PUT MINIMUM WAGE AND OVERTIME ON THE MENU

What some wit once said about gravity—it’s not just a good idea, it’s the law—also applies to the Fair Labor Standards Act (FLSA). The FLSA is not, as some employers seem to think, a set of suggested guidelines or best-practice recommendations. It’s the law. Violating it incurs liability—especially if a company violates the FLSA and a prior court order directing it to obey this very law. That’s exactly what a Long Island, New York restaurant and catering hall did, which is why the Westbury Manor now has to pay F$610,000.00 in back wages, interest, and penalties.

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800,000 Reasons to Not Do What This Restaurant Did

The U.S. Department of Labor recently offered employers a legal cautionary tale of how not to pay employees when it hit a Long Island, New York restaurant with $800,000.00 in back wages and overtime pay liability, liquidated damages, and civil fines because

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If You Don't Pay Now, You May Pay A Lot More Later in New York

New York state is about to enact—assuming Governor Patterson signs the bill into law—the Wage Theft Protection Act.  As the name implies—Wage Theft—the pending law essentially treats underpayment of employees as a criminal act. While it doesn’t provide for jail time for managers or business owners who fail to pay minimum wage or overtime, it does establish severe monetary penalties. Under the Act, an employee who is underpaid wages can recover double what he or she is owed—so the unpaid wages plus the same amount again. In addition, if an employee sues and wins and the employer does not pay the money owed (wages plus the additional “liquidated damages” doubling the award) within 90 days, the employee can receive an extra 15% of the total judgment—so an extra 30% of the unpaid wages—plus attorneys fees and costs.

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Springtime Brings Summer Hiring - Keep in Mind the Rules for Interns

Summer time is approaching and so is the time for hiring summer interns. As discussed recently in the NY Times, employers should be aware of the need to comply with employment and overtime laws in hiring and paying unpaid interns.

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DOL Enforcement Effects on the Rise

The Department of Labor ("DOL") earlier this year announced that it would be hiring 250 additional investigators in an effort to pursue violators of minimum wage, overtime and meal break laws throughout the country. The news that the DOL is increasing their audits of employers that are not paying employees proper amounts of compensation is nothing new to both labor and employment lawyers as well as employers themselves.  It seems that new audits and fines are being reported on a daily basis.   

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The Pitfalls of Utilizing Volunteers

In this economy we are seeing employers looking for ways to cut costs (including payrolls) and job seekers looking for ways to get noticed, such as offering to work for free to “show what they’ve got.” While these might seem like good ideas—offering an opportunity to learn in exchange for the person’s labor; offering labor in exchange for a potential job—these situations could run afoul of the Fair Labor Standards Act (“FLSA”), the federal law that governs wage and hour regulations, as well as parallel state laws.

Under the FLSA, employment is defined broadly as “to suffer or permit to work.” If you “employ” someone (i.e., you let them work for you), you need to pay that person according to the often complex and confusing rubric of state and federal wage and hour laws.

Can anyone volunteer? Yes. . . but only in the public or not-for-profit sectors, for example for a religious or charitable organization.  People can volunteer for the local library, the homeless shelter, “meals-on-wheels,” or the local hospital. People can volunteer to help with disabled children or can volunteer for their local ambulance corps or fire house. The only caveat is that public and not-for-profit sector employees can only volunteer for their own organization or agency if there is no undue pressure to volunteer and the volunteered services are not the same type of services which the individual is employed to perform for such public agency.'' A paid firefighter cannot volunteer for his or her own fire company, but can volunteer as a firefighter in another county. An office worker for a hospital may volunteer to sit with a sick patient as an act of charity, but cannot volunteer to perform additional administrative duties. (DOL Field Operations Handbook § 10b03(d), p.5.)  Private companies, however, as a matter of law, simply cannot have “volunteers,” no matter how enticing it is.

Is that really an Intern?

Many industries make unpaid internships the gateway to an entry-level position. Unfortunately, as with many things in the employment law arena, what seems like a good idea may just be something that gets your company in trouble with the local Department of Labor. Internships are one of these problematic arrangements under the Fair Labor Standards Act (“FLSA”).

In order for people participating in an internship or trainee program to qualify as something other than the company’s employees who need to be paid, the program must satisfy ALL of the following criteria:

  1. The training, even though it includes actual operation of the employer’s facilities, is similar to that which would be given in a vocational school;
  2. The training is for the benefit of the trainees or students, not the company;
  3. The trainees or students do not displace regular employees, but work under close supervision;
  4. The employer that provides the training receives no immediate advantage from the activities of the trainees or students and, on occasion, his or her operations may even be impeded;
  5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
  6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

A relatively safe way to set up an internship program is to partner with a local college or high school. If the student is getting school credit for the program, if the employer has to submit progress reports to the educational institution, and if there are sufficient educational components in the program (e.g., seminars and field trips, mentoring sessions with people in different departments, etc.), it is more likely that the program will pass muster . . . as long as all the above components are satisfied. 

Remember that an employer only needs to pay employees at minimum wage (currently $7.25/hour under the FLSA, which comes out to about $13,000.00/year), and to pay overtime wages if the employee works over 40 hours in one workweek (which the company can control). At that rate, it might be worth the investment to have paid “interns” and the associated ability to give them real work assignments that assist the company and its productivity, while providing peace of mind should the DOL come to call. Companies can still hire a paid intern for the summer, or a semester, and do not need to guarantee a job at the end of the internship period.  Doing this may well be preferable to putting the company at risk of incurring DOL penalties and fines—plus, the employer gets to see how the intern functions under real working conditions. 

Compensating Employees for Work-Related Travel To Remote Locations

Confusion often reigns when employers attempt to determine what their responsibilities are in terms of paying non-exempt employees for travel time.  When employees are on the road on behalf of the company, it can be very difficult to say what, exactly, constitutes “time worked.”  The Portal-to-Portal Act was enacted by Congress in 1947 specifically to carve out certain work-related activities for which employers would not be responsible for paying an employee. 

In general, employers are not required to pay employees for normal commuting time to and from work.  However, employers are often required to pay employees when they engage in work-related travel during the workday (i.e., travel that occurs after they begin work for their employer but before the workday ends).

A recent federal case, Kuebel v. Black & Decker [2009 WL 1401694 (W.D.N.Y.) squarely addressed the issue of compensable time for employees who travel to and from remote locations.  A retail specialist for Black & Decker whose work demanded that he travel to inspect Black & Decker displays at various Home Depot locations disputed Black & Decker’s policy of deducting one hour each way of “commuting time” from the travel time for which it compensated such workers (based on an Opinion the DOL had given Black & Decker on retail specialist travel time in 1999).

The specialist argued that his workday began not when he arrived at his first Home Depot of the day, but before he got on the road, when he began reviewing and responding to company e-mails, reviewing company sales reports and engaging in other company activities.  He further argued that his workday ended after he got home, when he finished checking the computer again for company business.

The court disagreed, noting that the homework Mr. Kuebel did for the company (for which he was compensated) could have been done at any hour of the day or night.  The fact that he chose to do the homework immediately before and after his road trips did not make his commuting time compensable.

This case falls squarely within the general rule that commuting time is not compensable. Even if employees start or end their workday at a remote location away from the employer’s main place of business, employers are generally not required to pay for the time the employee spent traveling from home to a remote location at the beginning of the workday or from a remote location back home at the end of the workday.  However, this general rule is not always so clear cut, as there are potential exceptions in which employers might be required to pay for at least some of this traveling time. 

Wage and Hour Compliance Improving in Kosher Food Industry

Last year’s revelations regarding certain common  immigration and wage and hour violations within the kosher meat processing industry has led social justice groups within the Jewish community to take responsive action. Motivated mainly by Jewish legal and ethical imperatives, these groups are seeking to acquaint kosher processors with the law and prevent violations, like those notably discovered at the Agriprocessors plant located in Iowa last year. 

Among the steps they have taken is to devise a new “ethical seal” of approval for display by kosher restaurants and eating establishments. One such seal is known as “Tav HaYosher,” and is intended to indicate the establishment’s adherence to wage and hour law, particularly in the areas such as minimum wage, overtime pay, work breaks and tip distribution for those employees who mainly rely on tips. 

Reflecting its ethical component, the seal also conveys that the workers are treated humanely. The seal would be provided to establishments that meet detailed guidelines, and may include detailed inspections similar to those that are conducted in Israel by trained compliance monitors. A companion effort geared to kosher food manufacturers would place a “Hekhsher Tzedek” seal on food that is manufactured in accordance with the kosher laws as well as underlying Jewish ethical standards. 

Much has been made of the need to comply with federal and state wage and hour laws in order to avoid employee lawsuits, agency audits, and diminished employee morale. Although these practical considerations should be reason enough to motivate employers to comply with the law, needless to say, that is not always the case. The soul-searching engendered in certain portions of the Jewish community after the alleged processing plant abuses came to light suggest that ethical and moral considerations might provide certain employers with a separate (and perhaps more powerful) motivation to follow civil laws related to paying workers properly and treating them with dignity.

Assessing the Impact of Massachusetts' Mandatory Treble Damages in Wage Cases

On July 13, 2008, Massachusetts’  Act to Clarify the Law Protecting Employee Compensation  went into effect, making the Commonwealth the first state to mandate treble damages in wage cases. The Act also mandates that costs and attorneys fees be awarded in addition to treble (triple) damages in all successful civil lawsuits filed under Massachusetts' wage payment, prevailing wage, minimum wage, overtime, weekly wage and other miscellaneous wage-related laws. Previously, Massachusetts judges had the discretion to award treble damages, but considered such issues as whether employers had acted in good faith and whether violations had been willful. Prior to the new Act, judges followed the precedent set by the Massachusetts Supreme Court in Wiedmann v. The Bradford Group, Inc. [444 Mass. 698 (2005)], which established the option to award treble damages for willful violations only.

The Act has now been in effect for close to a year. Some predicted would drive business out of the Commonwealth and/or make it the venue of choice for class action wage and hour cases. Our informal survey of Massachusetts attorneys suggests that the most significant impact of the Act has actually been to move employers to the settlement table more quickly. 

Also, in January of this year a bill was introduced in the Massachusetts House of Representatives at the behest of the Associated Industries of Massachusetts (AIM) that would amend the Act to add one crucial word – “willful.” The bill, which currently languishes in the Joint Committee on Labor and Workforce Development, would amend the bill to mandate treble damages only in the case of willful violations. With the same governor who permitted the Act to become law still in place, it remains to be seen whether this bill will have legs. 

The Massachusetts Treble Damages Act is part of a wave of increased legislation and enforcement of wage and hour laws at the state level that is presently sweeping across the country. Employers, particularly in Massachusetts, need to take compliance very seriously in the current climate.

Are all American Idol Workers "Creative Professionals?"

Contestants might do just about anything to get a spot on the hit show American Idol, but the show’s workers do not think they should have to give up their rights to overtime and breaks just for the privilege of working on the show. Last month, former employees filed a class-action lawsuit against FremantleMedia North America, the producer of American Idol. The lawsuit alleges that the producer failed to pay overtime, falsified time cards, and did not allow the workers to take meals and rest periods as required by law. Among other things, Idol workers allege that they were paid a flat weekly rate which, after calculations taking into account their long hours, did not equal minimum wage.

The Idol workers are being backed by the Writers Guild of America and the International Brotherhood of Teamsters, which have organized a “Truth Tour” with rallies and other events to bring attention to the claims against the successful show.

Whether or not the Idol workers’ claims have merit, it is good to keep in mind that not all workers on entertainment shows or other creative endeavors will be considered exempt from the wage and hour laws. “Creative Professionals” may be exempt from federal wage and hour laws, but only if they meet certain requirements. Specifically, an employee must be compensated on a salary or fee basis of at least $455 per week, and the primary duty of the employee must be performance of work requiring “invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.” In addition, local laws also may dictate employer obligations to people working in the creative field.

The sticking point for many employers in entertainment or other creative fields is determining whether the work performed is truly creative in nature. In the Idol case, for instance, some of the plaintiffs worked in production positions. Any position that requires intelligence, diligence and accuracy – which is often involved in production work – but does not require creativity, may not be exempt from wage and hour laws. For instance, journalists that only collect and organize information and who do not contribute a unique interpretation to the information collected would not be considered to be creative professionals who are exempt. According to the U.S. Department of Labor actors, musicians, composers, soloists, certain painters, writers, certain cartoonists, essayists, novelists and high level advertising professionals generally are considered to be creative professionals who are exempt. On the other hand, an “animator” of motion picture cartoons or a retoucher of photographs would not be considered to be performing creative work and would not be exempt. As with most issues involving application of overtime laws, each situation must be assessed on a case-by-case basis to confirm that an exemption is likely to apply.

Restaurants are Prime Targets for Overtime Claims

Recently there has been a spate of multi-million-dollar wage and hour lawsuits and an increasing number of audits by the NYS Department of Labor targeting New York City restaurants.  Among the restaurants hit are Club 21 (filed March 17, 2009), the Saigon Grill  (judgment in October 2009 for $4.6 million), and, most recently, Iron Chef Bobby Flay’s  Bar Americain and Mesa Grill (filed January 9, 2009).  On March 18, 2009 NY Labor Commissioner M. Patricia Smith announced a $2.3 million settlement with Ollie’s Noodle Shop and eight other restaurants owned by Tsu Yue Wang. This comes on the heels of the DOL’s January 2009 announcement that it would partner with community groups in its continuing effort to crackdown on wage violations.

Such announcements are symptomatic of a nationwide crackdown on an industry with significant exposure to overtime claims, due to some of the industry’s most common practices.   In the food service sector, where many workers accept long hours in order to increase their earnings (which are based primarily on tips), poor recordkeeping, cash payments, failure to handle tips correctly, improper distribution of tips, tip pooling, deductions from pay for costs such as the laundering of uniforms, and various other wage and hour issues place employers at heightened risk.  The laws governing eateries are often complex, and most restaurant owners are unaware of their legal obligations to pay their workers properly.  Unfortunately, many restaurant owners are following follow long-established (but illegal) industry practices, which is resulting in the type of actions cited above. Today, workers are being educated as to their rights by attorneys and workers’ rights groups, and are much less hesitant than in the past to participate in claims against their employers. Until a fundamental change is made by restaurants in general, there is no reason that this wave of lawsuits and audits will subside anytime soon. 

Overtime That Is Worked Must Be Paid: 2nd Circuit Reaffirms Overtime Rate for Unauthorized Work

In the current economy, it is essential for employers to avoid paying out unnecessary overtime compensation. While getting a handle on overtime is certainly a worthy goal, it can only be achieved through skilled management – not by unilaterally denying overtime pay for overtime that was legitimately worked. In Chao v. Gotham Registry, 514 F.3d 280 (January 2008)  the U.S. Court of Appeals for the Second Circuit resoundingly reaffirmed the U.S. Department of Labor’s long-held position that any work that is “suffered or permitted”  by an employer must be compensated.  It also created a standard for evaluating time worked by off-site employees, whose decisions about when to start and stop work cannot always be monitored by employers.

Gotham Registry is a placement agency that provides nurses to fill temporary vacancies at hospitals. As a consequence of a consent judgment issued in a 1994 DOL enforcement action against the company, Gotham’s nurses are considered employees. Since the nurses work away from Gotham’s site, Gotham does not have the ability to directly supervise their activities. The hospitals that are Gotham’s clients sometimes ask Gotham’s nurses to stay beyond their agreed-to shifts. Despite a policy requiring nurses to call in before accepting work that will put them over the 40-hour mark for a single work week, the nurses are not always able to get timely approval from Gotham due to the 24-hour nature of hospital work. Gotham cannot always recover its costs from hospitals for overtime when rates are not negotiated in advance. Gotham was generally paying nurses who worked overtime without getting approval straight time for hours worked in excess of 40.  Despite the fact that Gotham may neither control nor always benefit from this overtime work, the Chao court reasoned that Gotham had “imputed knowledge” of the work (albeit after the fact when it got the nurses’ time sheets), and that “work is work” and must be compensated.

The Chao decision puts Gotham between a rock and a hard place, since a nurse in Gotham’s employ could literally have to choose between saving a life and notifying Gotham of a hospital’s request that s/he stay on the job on an overtime basis, generating costs that may not be recompensed by Gotham’s client. In most other industries, however, there is no reason why an employee cannot be expected to seek authorization before working overtime. An employee who fails to do so has to be compensated for the work, but can be disciplined in other ways.

Eleventh Circuit Defines Notice Requirement When Employer Takes Tip Credit

The U.S. Court of Appeals for the Eleventh Circuit recently upheld a decision by the federal District Court for Southern Florida narrowly interpreting the FLSA requirement that employers notify tipped employees when they intend to take advantage of the “tip credit allowance.” The “tip credit” provision of the FLSA and many state wage laws allows employers to pay tipped employees as little as $2.13 per hour when their base pay, combined with tips, will bring their hourly rate of pay to at least minimum wage.

In Pellon, et. al. v. Business Representation International, Inc. et al. [528 F.Supp.2d 1306 (U.S. Dist. S.D. Fla. 2007)], plaintiffs, a group of 53 “skycaps” at Miami International Airport, attempted to argue that defendants (their employers), had failed to notify them that they intended to take the tip credit, in violation of 29 U.S.C. § 203(m)(2), which explains the tip credit allowance and requires employers who intend to use it to so inform employees. Had plaintiffs prevailed on this point, their employers would potentially have been liable for substantial minimum wage violations.

In granting defendants summary judgment on this count [upheld on appeal, 291 Fed.Appx. 310 (C.A. 11 Fla.)], the Court noted that defendants had notified new hires that they would be paid $2.13 per hour, plus tips, and had also conspicuously posted an explanation of employee rights under the FLSA, including an explanation of the tip credit allowance, as required by the U.S. Department of Labor.  Plaintiffs maintained that defendants owed employees a clearer explanation of the tip credit, but the Court cited precedents such as Chan v. Triple 8 Palace, Inc. [2006 WL 851749 (S.D.N.Y. 2006)] : “Employers do not have to ‘explain’ the tip credit to employees, however; it is enough to ‘inform’ them of it.”

Pellon is a welcome development for employers, since it restricts notice requirements for businesses in the hospitality and service industries with tipped employees. However, it is important to note that opinion on this point is not unanimous on the federal bench, and employers who take advantage of the tip credit should be certain that they have adequately notified employees of their procedures. Collecting signed statements from tipped employees confirming that they have received such notice is always a wise practice.

The FLSA rights poster employers are required to display can be downloaded at http://www.dol.gov/esa/whd/regs/compliance/posters/flsa.htm. A state-by-state guide to pay requirements for employers who take advantage of the tip credit allowance is available at http://www.dol.gov/esa/whd/state/tipped.htm.