The Dangers of Using Two Different Time Clocks

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

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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, 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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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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DOL Investigation Shows Need to Classify Employees Properly

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

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

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

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

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

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Supreme Court finds Pharmaceutical Sales Representatives Exempt for Overtime

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

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DOL Restaurant Clean Up Continues

As part of an ongoing restaurant industry enforcement initiative, the Department of Labor recently levied a total of $1,307,808.00 in fines to Massachusetts area restaurants for various Fair Labor Standards Act violations. 

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Congress Considers New Overtime Laws for Computer Professionals

In response to concerns about the demand for high-tech computer workers shifting overseas, a newly proposed overtime law  would make fewer computer employees eligible to receive overtime pay.

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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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IRS Provides Tax Break to Voluntarily Correct Improperly Classified Independent Contractors

Often, thinking it will save them money, businesses classify individuals providing services for them as independent contractors instead of employees. Independent contractors do not need to be on the company’s health insurance or pension plans, and the business does not need to pay matching FICA taxes. However, often the distinction between a contractor and employee is made for business convenience and economy—ignoring the fact that the law provides standards for distinguishing between the two.

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Every employee has a core job comprised of the main duties the employee is hired to perform.  And just about every job has non-core elements that take up time and (often) seem unproductive—organizing or maintaining tools, putting on protective clothing, cleaning or picking up after work, or attending meetings. Do employees need to be compensated when they are not really working?

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Making Employees Work Extended Overtime Hours May Be Imprudent and Costly, But Could Be Legal

Everyone knows that exempt employees—those who aren’t eligible for overtime pay such as executives and management—can be made to work 24/7/365.

What about nonexempt employees—those who do earn overtime wages? Can you make them work 9, 10, 12, or more hours in a day?

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Exempt Managers Spending Major Time on Nonmanagerial Duties May Not Affect Exempt Status

The 4th Circuit U.S. Court of Appeals (MD, VA, W. VA, NC, SC) provided a significant win for employers in today’s multiple-hat-wearing, everybody-rolls-up-their-sleeves-and-pitches-in style of management, by finding that a store manager who spent most of her time on non-managerial duties is nonetheless exempt from the overtime pay requirements.

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There's An App for That: DOL of iPhone/iPod/iPad App Helps Many Employees Track and Calculate What They're Owed

Everyone’s an app developer these days, it seems—your poker buddy, your niece in college, the poorly socialized guy in IT, and the would-be software tycoon down the street, for example. Uncle Sam’s gotten into the act, too: the Department of Labor just released a smartphone timesheet app.

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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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What do you call it when an employer forces workers to give their overtime wages back to the company?

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If the employee hasn’t started “working” yet, he or she need not be paid for that time, right?

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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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Should pharmaceutical sales representatives be paid overtime? It depends on where they're located (for now).

Seven months ago,we reported on a Second Circuit (Connecticut, New York, and Vermont) ruling  that held that pharmaceutical sales representatives are not exempt employees and should be paid overtime for working more than 40 hours in a week.

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MBA Sues DOL Over Whether Mortgage Brokers Are Exempt from Overtime

On January 12th, 2011, the Mortgage Banker’s Association (MBA)—sued the Department of Labor (DOL) over the DOL’s March 24th, 2010 interpretation that mortgage loan officers are not exempt administrative staff.  This interpretation reversed a prior 2006 DOL opinion which had been relied on by the industry, that confirmed that loan officers were exempt administrative employees, ineligible for overtime pay. Under the March 2010 interpretation, loan officers would earn overtime wages—which means that mortgage lenders are potentially on the hook for millions of dollars of unpaid and future overtime wages.

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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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Reporters are Not "Creative" Professionals

What do you call a reporter who’s “creative” with the news?

A liar—or at least, that’s the traditional, “old school” view of journalism. Reporters are supposed to gather, verify, and relay facts. Right? So, how can they fit under the “creative professional” exemption to the Fair Labor Standards Act (“FLSA”)? 

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Do You Have to Pay People Who Work the Computer Help Desk Overtime Pay?

Since there is an overtime exemption for computer employees, computer help desk staff (a/k/a technical support or IT support) must be exempt from the overtime pay requirements, right?

Wrong. Tech support employees are not the right kind of computer employees that fit under that exemption. Remember: under the Fair Labor Standards Act, all employees earn overtime pay unless they qualify for a specific exemption. Overtime wages, even for technology workers, is the default.

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Portrait of an Exempt Computer Employee

How can an employer tell which computer employees are exempt from the overtime pay requirements? What does an exempt computer employee look like? They are a rare bird—but occasionally, computer employees may fit into one of the regulation’s exemptions.

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Overtime Compliance Must Be Taken Seriously - Damages Are Severe And Potentially Crippling For A Business

Some employers think that overtime compliance is optional and even a luxury, especially in a difficult economy. But think again. Failing to comply with the overtime laws could invite an audit by the state or federal department of labor, which in itself is an expensive and invasive process.  

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Hospital Overtime Case Settled for $8.5 Million

If non-exempt employees work, they are supposed to be paid for their time, as a Boston hospital learned that just settled a class-action overtime lawsuit for $8.5 million. As we discussed last year (Perils of Having Employees Work Through Lunch)

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Practice Over Policy - Overtime Wages Are Due For All Hours Worked Even If Workers Disregard Company Policies Or Instructions From Supervisors

Just because an employer or its supervisors tell employees not to work overtime or there is a written policy forbidding employees from working overtime, does not mean that overtime wages do not need to be paid to employees who work overtime hours. Workers who are not otherwise exempt under the overtime laws and who actually work more than 40 hours in a week must be paid overtime – even if they are instructed not to work overtime. 

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Union Bargaining Agreements Likely Cannot Waive Overtime Pay Rights

When casino banquet servers asserted claims that they were due overtime pay under Nevada’s state wage and hour law, the casino pointed to the union Collective Bargaining Agreement (“CBA”) which provided for a different compensation method and claimed that no overtime pay was owed. The Ninth Circuit Court of Appeals disagreed.

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Employees Paid on a Piece Rate Basis are Entitled to Overtime

Employers tend to assume that by paying employees on a “piece rate” basis, they are not obligated to pay overtime when the employees work over 40 hours in a workweek.  However, a recently filed class action overtime suit illustrates the dangers of making that assumption.  The suit alleges that Wave Comm, an Arizona-based cable company, failed to pay overtime to its cable installation technicians.   

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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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Proper Arbitration Agreements May Prevent FLSA Class Action Suits

Arbitration is favored by many businesses because it can be faster and less expensive than litigation. The monetary saving is particularly attractive when a losing defendant could end up paying a winning plaintiff’s legal fees. For example, under the Fair Labor Standards Act, an employee who brings an overtime claim can recover attorney’s fees. That’s costly enough in an individual case, but could be ruinously expensive in a class action suit, which gives employers a compelling interest in having these claims heard in a less expensive form -- arbitration.

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Misclassifying Employees As "Managers": The Wrong Way To Save A Dollar

Dollar General, like other discount retailers operating in multiple states, operates on thin margins. While saving a buck is vital for Dollar, misclassifying employees as exempt managerial staff when they have little say in the management of the business and perform mostly manual labor, in order to avoid paying them overtime wages, is the wrong way to do it.

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Don't Be Blindsided with an Overtime Audit Due to Misclassifying Independent Contractors

The IRS has stepped up enforcement of rules regarding independent contractors. Early this year, the IRS started deploying auditors to conduct intensive audits of an estimated 6,000 employers in different industries and including both large and small companies. The federal government believes that misclassification is on the rise given that independent contractors receive fewer incentives to trim costs during these difficult economic times. The IRS is engaging in vigorous enforcement for various reasons, including to collect more money for the federal tax coffers and as a result of the Obama administration’s friendly approach to labor.

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AT&T Blindsided by Overtime Litigation

AT&T is the latest major corporation to get hit with overtime class action litigation.  In this case, the communications giant got hit from two sides.

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You Can't Avoid Paying Overtime Wages By Splitting Up An Employee's Tasks

Unless an employee fits into an exemption under the FLSA, employees who are entitled to overtime need to be paid overtime pay for all hours over 40 worked in a single work week. One Maryland school bus company thought otherwise.

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Don't Forget: States Have Penalties for Overtime Violations Too

Under the federal Fair Labor Standards Act (FLSA), if an employer violates the overtime provisions, employees may either bring their own lawsuit or file a complaint with the Department of Labor. In either case, the potential penalties against the employer are substantial and rectifying the original problem by paying back overtime wages owed to employees may not be the employer’s only concern.  Calculations of amounts due include the following:

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Is your business too small to have to pay overtime?

The Fair Labor Standards Act, like other federal economic regulation, applies to businesses engaged in interstate commerce. It covers enterprises—businesses—which gross at least $500,000 a year.

The $500,000 threshold would seem to exclude at least the smallest businesses from FLSA requirements. Take your neighborhood specialty toy store or bookseller—they may very well gross less than $500,000 a year, which would seem to exempt those enterprises from federal wage and hour regulation, right?  

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Court Affirms Commissioned Salespeople Entitled to Overtime

One common mistake that employers make is to consider all commissioned salespeople to be exempt employees.  Most companies employ inside salespeople, including those who make telesales or e-mail sales from remote locations.  These inside sales people are generally not exempt.  Only outside salespeople and retail salespeople are exempt.  All other commissioned employees must be paid overtime if they work over 40 hours in a workweek, unless another exemption applies to them.

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Don't Round Time Worked and Deny Employees Overtime Pay

Non-exempt workers need to be paid for ALL time worked. Failing to do so can lead to substantial liability, especially for unpaid overtime pay. may be in the process of learning that lesson painfully.

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Do Not Judge Employees by Their Titles: Make Sure Employees Actually Are Managers Before Paying Them Like Managers

Most employers know that executives do not get overtime.  Some people are unaware, however, that it takes more than a title to make a manager.  AT&T and its subsidiaries are in the process of finding that out the hard way, as they confront a $1 billion lawsuit brought by “managers” who were not paid overtime.  The suit is being brought by seven named plaintiffs, and also seeks class-action status to bring in another 5,000 employees.

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Just Because an Employee is Exempt Doesn't Mean They Can't Be Paid Extra

Sometimes employees who are exempt from the overtime pay regulation need to work more hours, especially during busy seasons. Or perhaps you need more staff, but less than justifies hiring another person. Or perhaps you want to motivate exempt staff by offering them the opportunity to earn a commission or production bonus.

Can you pay an exempt employee more compensation for taking on extra responsibilities, working extra hours or shifts, or producing above-and-beyond the call?

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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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Perils of Having Employees Work Through Lunch

It’s tempting to have employees work through lunch—there’s always more to be done, business doesn’t necessarily come to a stop at lunchtime, and anyway, management often works through lunch without additional compensation. So, why not other staff?

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Learned Professionals-Employers Take Care

The Second Circuit Court of Appeals (which covers New York, Vermont, Connecticut and Puerto Rico) recently issued a decision regarding the “professional exemption” that provides both guidance and concern to employers. Young v. Cooper Cameron Corporation considered whether an engineer with no formal education beyond high school could satisfy the “learned professional exemption.”

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Employees Are Exempt or Non-Exempt - Not Both

Since “exempt” employees are not covered by the overtime pay regulations, they do not have the possibility of collecting overtime wages to earn additional money. Many, however, would be happy to take on an extra job for their employer in exchange for more pay. With businesses reluctant to expand payrolls or fill vacant positions during this time of economic uncertainty, it would seem like a win-win situation: the company gets a job done by a proven employee who already knows the organization; the employee gets extra pay.

It is win-win…if it is handled correctly.

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Big Costs For Misclassifying Technical Support Workers

$27.5 million settlement with Siebel Systems. $65 million settlement with IBM. $24 million settlement with Computer Sciences Corporation. Allegations in a recently certified class action against Wells Fargo with up to 3,000 possible class members. These are significant numbers. They come out of settlements and claims against major companies for misclassification of technical support workers.

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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.

New York Increasing Transparency of Overtime Pay

A change to Section 195 of New York State’s labor law goes into effect on October 26th, 2009.  Section 195 contains notice and record-keeping requirements related to the payment of wages.   It always required that new employees be notified upon hiring of their rate of pay.  However, new language added to Section 195 states that an employer shall:

  1. notify his or her employees, in writing at the time of hiring of the rate of pay . . . and obtain a written acknowledgement from each employee of receipt of this notice . . .[and for] all employees who are eligible for overtime compensation . . . the notice must state the regular hourly rate and overtime rate of pay

The requirement is straightforward enough—written notice, written acknowledgement.  It will require changes to offer letters and hiring documentation, and incrementally increase the record-keeping burden on businesses.  That said, on its face, it is a rather innocuous change, not substantively altering employee rights or benefits, or employer obligations.

The question then is, “Why? What is the reason for this new language?” According to the Purpose section of the bill that became this new law:   “The bill would allow workers to determine whether their paychecks properly reflect the hourly wage rates their employers agreed to at the time of hiring, including the proper overtime rate.”  As elaborated by the bill’s Statement in Support, there’s concern that workers may have difficulty calculating their overtime rate from their paychecks. (Of course, if an employee knows the hourly rate—which employers were already required to divulge—it is not too difficult to determine the overtime rate.)

However, the most significant legislative language—and the best clue to what this new requirement is really about—can also be found in the Statement in Support:  “This new requirement will allow both the employee and the commissioner of Labor to compute the overtime rate to which the employee is entitled.” [Emphasis added]

If the documentation is for the Commissioner’s benefit as well, employers should expect that the Commissioner will in fact make use of it.  We expect that use to be holding employers’ metaphorical feet to the fire to make sure that they are properly paying overtime wages—and properly classifying those who are entitled to overtime pay.  If you look at the constellation of changes together—

  • provide written notice, including explicit notice of the fact that an employee is eligible for overtime pay and what the overtime rate is;
  • obtain written acknowledgement of receipt from the employee, which will help make sure that the employee reads and processes the information;  and
  • create a single, easily reviewed document of what employees should be paid,

—the net effect will likely be to increase the number of claims for not paying overtime properly and to facilitate enforcement of the wage rules by the NYS Department of Labor.  Since employees will be more cognizant of when they potentially should receive overtime, they are apt to bring more complaints and when they do, there will be unequivocal documentation of the overtime rate they are supposed to receive (or of the fact that the employer improperly failed to designate the employee as entitled to overtime pay).

This new rule seems motivated by a perception or fear that employers are not honoring their wage and hour obligations. (Given the state of the economy, it is probably not unreasonable to think that some cash-strapped companies might improperly seek to avoid paying overtime wages.)

The bottom line for employers is that they need to be more careful than ever to properly classify their employees with regard to their eligibility for overtime pay and to properly pay overtime wages. Employers should expect that there will be more enforcement actions taken in response to overtime pay violations or complaints, and that employees themselves will be more conscious of their right to overtime pay and more proactive in demanding it.  It is likely that an employer’s failure to specify an overtime rate on a hiring document will be used (in conjunction with a failure to pay overtime wages) as an employer’s knowing intention to violate the wage laws, leading to increased fines and penalties. 

New York seems to be in the forefront of increasing overtime enforcement through such documentation. Many other states, such as nearby Delaware, have wage notice requirements like NY’s previous one limited to notifying employees of their base rate of pay.  The new requirements for explicitly listing the overtime rate and obtaining written acknowledgement of receipt from employees do not seem to have yet percolated generally through the states.


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. 

Determining Administrative Exemption: Management v. Production

The administrative exemption to the overtime pay requirements can be tricky to apply and employers would be wise to review such classifications carefully. Companies often, to their detriment, misclassify non-supervisory administrative employees under this exemption without realizing that the performance of administrative-type duties, even if important or indispensible to the company, is not enough to exempt those employees from being paid overtime wages. A Charles Town, West Virginia horse racing facility found this out the hard way. 

Three former Racing Officials sued the race track, claiming that they routinely worked over forty hours in a workweek without proper overtime pay compensation. The track claimed that the employees were administratively exempt because they ensured that the race track complied with various regulations, ensured proper race outcome determinations, and had other indispensible duties. The track asserted that the Officials’ duties included “quality control, safety and health, public relations, and legal and regulatory compliance,” which the overtime pay regulations identified as administratively exempt duties that were “directly related to the management or general business operations of the employer.” 

The Fourth Circuit Court of Appeals disagreed with the race track. Their opinion provides guidance to other employers who fail to pay overtime wages to employees whose non-supervisory jobs are “indispensible” to the company and fall within potential exempt duties as noted in the list, above. The Court made clear that the job’s “importance” is irrelevant. Rather, to determine whether the employees were, indeed, related to the company’s “management or general business operations,” the test is not just whether the listed functions are performed, but whether the employees were actually part of the company’s management, or were part of the production staff that helped the company deliver the product or service it offered to the public. Since the Court found that the Racing Officials had production-side roles and were akin to production workers who made sure that the races the track “produced” occurred, the Racing Officials did not satisfy the requirements of the administrative exemption. 

The overall federal exemption has three parts: 

  • That the employee is paid a weekly salary of at least $455.00/week (note that state law  may require a higher salary threshold);
  • The employee performs office or non-manual work, which is directly related to management or general business operations of the employer or the employer's customers; and
  • The employee’s primary duty involves the exercise of independent judgment and discretion about matters of significance. 

An employee must meet all three to be exempt from the overtime pay requirements. Having a job with independent judgment and discretion is not enough, as this race track learned, if those important functions are not related to the business’s general operations. Given the Department of Labor’s new enforcement environment and its beefing up enforcement of the various regulations under its jurisdiction, employers would be wise to reevaluate their employees who are currently classified as administratively exempt to ensure they satisfy all requirements so as to avoid potential fines and penalties due to misclassification.

New Overtime Suit Involving Outside Sales Exemption

UPS is the latest large employer to be named in a potentially massive class action overtime lawsuit.  The Company’s account managers claim that they were misclassified as exempt outside salespersons or administrative employees, even though they purportedly do not have the authority to enter into sales contracts, nor do they have managerial responsibilities.  The employee who filed the suit claims to have regularly worked sixty-hour workweeks and received only a straight salary.  The suit could eventually include hundreds, if not thousands of account managers who, according to the lawsuit, were mainly responsible for going to local businesses and delivering a pre-scripted promotional message for UPS.

Regardless of the UPS suit’s ultimate disposition, it illustrates the importance of correctly applying the outside sales exemption, particularly as the exemption pertains to employees who engage in promotional work.  Not all “salespersons” are exempt under the Fair Labor Standards Act.  Rather, only “outside salespersons” are exempt.  To qualify for the outside sales exemption, the employee’s primary duty must be making sales (as defined by the statute) and the employee must “customarily and regularly” be engaged away from the employer’s place of business. 

Ordinarily, an outside sales employee will be making sales at a customer’s place of business or at the customer’s home.  Online or telephone sales do not constitute outside sales unless they are incidental to in-person sales calls made by the salesperson to the customer.  There is no requirement that an outside salesperson constantly be away from the office.  For example, if the salesperson returns to the office to prepare sales-related paperwork, that activity by itself usually does not compromise the outside salesperson’s exempt status. 

According to the UPS suit, the Company’s account managers were mainly performing promotional work as opposed to sales.  Promotional work can constitute exempt sales work if the promotional activity is incidental to, or done in conjunction with, the employee’s outside sales work.  However, promotional work done in advance of sales made by someone else is not considered exempt outside sales work.  As with many suits that center around the outside sales exemption, the UPS suit’s success will likely depend on whether account managers made sales or just laid the groundwork for other people’s sales.        

Work for Related Employers Can Cause Joint Employer Liability

Boston-based Partners HealthCare Systems and its 14 affiliated hospitals and health care companies recently signed a consent decree in federal district court agreeing to pay $2.7 million in back wages to 700 employees to resolve an overtime lawsuit filed by the U.S. Department of Labor (“DOL”).

The interesting twist in this lawsuit was that Partners HealthCare contacted the DOL itself after realizing that perhaps affiliated entities sharing employees had run afoul of statutory overtime requirements under the Fair Labor Standards Act. Indeed, they had. The DOL’s investigation confirmed that defendants failed to combine hours worked on separate payrolls for employees who provided services for two or more defendants during a single workweek.  

Evidently, there existed a joint employment relationship between these entities. The analysis was based on some of the following factors:

  • Whether an arrangement existed between employers to share the employee;
  • Whether the companies acted in the interest of one another in relation to the employee;
  • Whether the companies shared control of the employee’s employment;
  • Whether there was common ownership of the employers; and
  • Whether there was common management of the employers.

No single factor is controlling in joint employment cases. Courts, as well as the DOL, look at the “economic realities” of the work relationship to determine if a joint employer relationship truly exists. 

Partners HealthCare may actually have been lucky – or wise – in this situation. By bringing the matter to the attention of the DOL itself, Partners HealthCare may have saved itself liquidated damages and attorneys’ fees that would likely have resulted had the lawsuit been brought by an attorney on behalf of its employees.

Laws Differ on Motor Carrier Exemption

The Fair Labor Standards Act (“FLSA”) requires employers to pay most employees the statutory overtime rate of 1 ½ times regular wages for hours worked in excess of 40 in a single workweek. However, the under the federal Motor Carrier Act and similar state laws, many companies can take advantage of an exemption from overtime pay for certain truck drivers and employees in other positions related to commercial conveyances.  

An Appellate Court recently upheld a New Jersey Department of Labor and Workforce Development ruling that the state’s version of this exemption applies only to businesses primarily engaged in trucking or moving and storage, and not to companies that “transport goods incident to a different business purpose.” This was not good news for the giant furniture retailer Raymour and Flanigan, which was on the wrong end of the decision [In re Raymour & Flanigan Furniture, 405 N.J. Super. 367 (App. Div., March 2, 2009)]. The company argued that its trucking operation was completely separate from its retail furniture business, and that New Jersey’s narrowly-written trucking industry exemption therefore applied with respect to its transportation and distribution employees.  The Court disagreed, mandating that approximately 500 current and former delivery workers share more than $2 million in back overtime wages, much to the chagrin of the retailer.  

The impact of this case cannot be understated.  Under the FLSA, when federal and state wage laws are in conflict, employees must be given the benefit of the law that is the most favorable to them. In this case, while the truckers in question might have been covered by the federal exemption from overtime pay, the narrower New Jersey exemption did not cover them.  Not only New Jersey companies, but also other businesses across the nation must be careful to consider the state laws as well as federal laws when attempting to determine whether employees are entitled to overtime pay.  

Beware the BlackBerry® in Non-Exempt Hands

It is generally common knowledge that employees who do not fall into one of the statutory exemptions to the overtime pay regulations (i.e. “non-exempt” employees) need to be paid for all of the time they work. What about those after-hour minutes checking e-mails and text messages on BlackBerrys® and other PDA devices? Actually, it is possible that employees should be paid for this work-related activity, even if it is occurring outside what would be considered to be normal working hours.

T-Mobile recently found this out the hard way when it was the recipient of a class-action lawsuit asserting claims for overtime wagesAmong other assertions, the employees claim that they were required to review and respond to numerous “e-mails and text messages at all hours of the day and night.”

T-Mobile is not the first.  AT&T Mobility was subject to a similar suit at the end of 2008 which is still on-going, and a Milwaukee office of property management firm CB Richard Ellis  was sued by a maintenance worker earlier this year alleging that he was forced to work after hours without compensation for time spent on his BlackBerry®. 

This topic is not new. In fact, a Yahoo! TECH blog post warned about such potential lawsuits over a year ago.

In an environment where so many non-exempt employees now use a myriad of hand-held devices to send and receive work-related e-mails, and where companies are expecting fewer employees to do the work of the former many, companies need to be mindful of the overtime pay requirements so that they do not become targets of such lawsuits as well. In short, if non-exempt employees are performing work, they need to be compensated for it. Companies are advised to review the time-keeping policies and after-hours communications policies they impose on non-exempt employees. In the long run, it will likely be less expensive to devise a time-keeping system and pay the employees for after-hours work, rather than defend against a class-action lawsuit.

Bank of America Suit: The Pitfalls of Substituting Comp Time for Overtime

In yet another case illustrating the pitfalls of giving employees compensatory (or “comp”) time in lieu of paying overtime, a wage and hour lawsuit was recently filed against the Bank of America. The suit, filed as a collective action, alleges that bank tellers and personal bankers in Bank of America branches throughout the United States were systematically denied overtime pay. 

In addition to allegations that the bank gave them comp time instead of paying overtime, the complaint alleges that Bank of America instructed these tellers and personal bankers not to record any hours they worked over 40 in a workweek.  The Plaintiffs also allege that Bank of America simply eliminated overtime hours from the tellers’ and personal bankers’ time records.  If true, the practices concerning the hiding or eliminating of overtime hours would represent particularly egregious practices on Bank of America’s part.  
The practice of providing employees with time off in lieu of paying them overtime compensation may not seem so nefarious, but it is still generally illegal for private employers.  Unfortunately, private sector employers often believe in good faith that giving comp time is a legitimate and permissible alternative to paying overtime. 

Except in certain tightly controlled public employment situations, the Fair Labor Standards Act does not allow employers to substitute compensatory time off for overtime pay.  Overtime must be paid at one and one-half times an employee's regular rate of pay for all hours actually worked in excess of 40 in any one workweek.  Employers can certainly provide their employees with comp time as an added benefit for working overtime hours, but overtime hours worked must be appropriately compensated regardless.    

Think Twice Before Relying on the Highly Compensated Exemption

When the Fair Labor Standards Act (“FLSA”) regulations were amended in 2004, one of the “victories” for employers was the newly created highly compensated worker exemption. Under this exemption, an employee whose duties are not sufficient to make him/her ineligible for overtime pay under one of the traditional white collar exemptions (executive, administrative or professional) can still be exempt if he/she is a “highly compensated” worker.

The requirements for the “highly compensated” exemption are:

                 “1.        The employee earns total annual compensation of $100,000 or more, which includes at least $455.00 per week on a salary basis;

2.              The employee’s primary duty includes performing office or non-manual work; and

3.              The employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.”  

In short, even if an employee’s primary duties do not qualify him or her for one of the white collars exemptions from the FLSA’s overtime requirements, the employee can still be exempt (and ineligible for overtime pay), as long as he or she earns  over $100,000.00 per year and regularly performs any job function which is an exempt duty performed by an executive, professional or administrative employee.

The problem is that many states have failed to fully adopt this exemption. For example, Hawaii does not recognize the highly compensated employee exemption. Rather it has its own version, which excludes employees that receive a guaranteed weekly minimum salary of $2,000.00. The effect of this is that, while an employee who receives a significant amount of his or her compensation in the form of commissions or bonuses may be exempt under the FLSA, the same employee may be entitled to overtime under Hawaii’s law if he or she does not have a weekly salary of at least $2,000.00.

Other states, such as Pennsylvania, refuse to recognize the highly paid exemption altogether. This poses continuing problems for employers that innocently rely on this exemption and do not check to see if it is valid under state law. The overtime claim of even one employee who is making six figures a year can be staggering. Make sure to check your local laws before assuming that your highly compensated employees are not entitled to overtime.

Beware Employee Misclassification, Tread Carefully

The root of many lawsuits seeking unpaid overtime wages is company misclassification of workers as independent contractors. One such suit recently filed against Northwestern Mutual Life Insurance Co. seeks $200 million dollars for a proposed class.

Many companies have historically misclassified employees as independent contractors, often due to genuine confusion over conflicting government rules and court decisions in this area. However, the motivating factor is sometimes an effort to avoid overtime pay requirements, payroll-related taxes, employment benefits and other obligations.  

The federal and many state governments are recognizing that misclassifying workers as independent contractors denies the workers protections under the wage and hour laws, precludes such benefits as workers’ compensation and unemployment insurance payments, and denies protection under some non-discrimination laws. In response, these government entities are enacting new legislation and stepping up enforcement of existing regulations to ensure that workers are properly classified.

  • In early June 2009, Colorado enacted a new law that will impose harsh penalties—up to $5,000.00 per employee for a first offense and up to $25,000.00 per employee for subsequent violations—on employers that misclassify employees as independent contractors. 
  • Maryland has instituted the similar Workplace Fraud Act which will go into effect in October 2009. 
  • States such as New York and Massachusetts have created multi-agency task forces to effectively route out worker misclassification.  

At the federal level, the IRS is in the midst of a misclassification crackdown. Also, it is expected that new federal legislation will be taken up by Congress that will punish employers for employee misclassification since President Barak Obama sponsored proposed legislation, such as the Independent Contractor Proper Classification Act, when he was a member of the U.S. Senate.

Here are some factors to consider. While different agencies evaluating employee misclassification apply different tests, the issue is generally one of control. In a true independent contractor relationship, the client company (the one receiving the services provided) has a right to judge only the results produced by the independent contractor – not to direct or control any aspect of the mechanics that produce the result. Likewise, a true independent contractor has complete financial control of his or her operation, makes required investments, covers operating expenses and experiences a profit or loss distinct from that of any client. Additionally, the agency addressing the issue will consider factors such as whether the contractor is a separate business entity that holds itself out to the general public by advertising its services, is separately incorporated, has its own bank account and possibly its own general liability insurance.

More and more workers who had been classified as independent contractors are claiming that a former client company should have classified them as employees, and thus owes them back overtime pay. Because they considered these workers independent contractors, such companies often have no records of hours worked by these individuals, which greatly limits their ability to defend themselves in the multi-million dollar lawsuits many are now facing.

Thus, given the increased attention to this area, all businesses would be wise to be more careful than ever when using workers classified as “independent contractors.”


U.S. Postal Service Faces Overtime Claims

Appropriate remedies for inefficient work are performance management and redistribution of workloads, not modification of time records regarding overtime. Employers should be realistic in terms of setting expectations for use of overtime and the workload assigned.  Even if workers take longer than the time designated for a task, employers still must pay overtime.  In short, to control overtime employers should manage their workers and discipline them if necessary, not modify time records. 

However, these rules can be hard for employers frustrated with employee performance to follow.  Even the federal government – this time, the U.S. Postal Service – has been accused of violating the federal overtime rules.  In a lawsuit filed on June 10, 2009 in the Eastern District of Texas, mail carriers in Texarkana and surrounding areas allege that the USPS violated the Fair Labor Standards Act by requiring them to deliver all assigned mail within eight (8) hours, even though their supervisors were informed or should have known that it would take longer.  The lawsuit also alleges that the supervisors would routinely modify time records to ensure that no overtime was recorded.  The lawsuit seeks $10,000 or more for each plaintiff and estimates that approximately 20,000 mail carriers might be part of the class – i.e., there is a possible total of $200 million in compensatory damages alone.   So, while it may be true that “neither rain, nor sleet, nor gloom of night stays these couriers from the swift completion of their appointed rounds,” when doing so takes more than 40 hours a week, mail carriers are entitled to overtime pay.

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.

Employees Need to Be Compensated for "Off-the-Clock" Work

In an all too familiar scenario, another large wireless operator has been forced to pay back wages for overtime work. This time, Sprint (which has paid out millions in collective action wage suits in recent years) paid a $120,000 fine after a federal labor investigation revealed that non-exempt employees at a call center in a Bristol, Virginia were not paid for “off-the-clock” work. 

Courts have held in similar situations at telecommunications companies (including Sprint) that “off-the-clock” work call center employees must do before they can take their first call of the day – booting up their computers, logging onto the company's network, opening computer programs and reviewing company e-mails –  constitutes preliminary work that is necessary to the principal activity performed by these individuals. Since this preliminary work is done for the benefit of the employer, it is compensable under the Portal-to-Portal Act. While the Sprint fine was based on an average of only 9 minutes per employee per day of unpaid time, a class action lawsuit just filed by former employees of a call center operated by APAC Customer Services, Inc. in La Crosse, Wisconsin alleges that employees (who engaged in the same type of activities before clocking in as the Sprint workers) were underpaid for 45 minutes per day for three years – and APAC has around 9,000 workers who could join this suit.  

Lawsuits in such situations have been more frequent and successful in recent years. This may be the result of the 2005 U.S. Supreme Court decision, Alvarez v. IBP [546 U.S. 21 (no. 03-1238)],which affirmed that when non-exempt employees perform “integral and indispensable” activities for their employer's benefit, their workday begins, and it continues until they complete their last task of the day.

The takeaway is simple. Companies must be aware of what non-exempt employees are doing before they officially “begin” the workday. Companies should develop a policy that ensures that non-exempt employees are not permitted to begin work prior to their regular starting time (or continue working after their ending time). However, employees who break the rules, even if they are disciplined, may be entitled to be paid for unauthorized overtime work in certain situations. Thus, workplace policies alone are not enough – companies must monitor and enforce these policies to avoid liability.

"Joint Employers" May Be Liable in Wage & Hour Cases

From a legal standpoint, when does a company become a “joint employer” of its subcontractor’s workers? When can a company be held liable for the wage and hour law violations of its subcontractors: When it uses subcontracted workers alongside its own? When it employs a subcontractor’s entire workforce? How about when it merely subcontracts cleaning, landscaping, or other services peripheral to the company’s business?

On April 28, 2009 the New York State Department of Labor’s Apparel Industry Task Force raided the premises of Suburban Textiles, Inc. and confiscated the property of Suburban and one of its prime subcontractors, Technical Garment USA Co. The NYS DOL charged Suburban with breaking a number of labor laws, and Technical Garment with major wage and hour violations. It remains to be seen whether the NYS DOL will file wage and hour claims against Suburban as a “joint employer” of Technical Garment’s workforce. Joint employment liability is currently a major concern for employers who make significant use of subcontractors either to complete certain steps in a production process or to undertake work that lies outside of the company’s core competencies.

The fact pattern that gave rise to the Suburban bust bears a certain resemblance to circumstances that led to the 2nd Circuit’s seminal 2003 decision in Zheng v. Liberty Apparel, 556 F.Supp.2d 284, in which the Court set a new precedent by expanding the definition of “joint employer” under the FLSA. In Zheng, the Court found that to determine whether a joint employment relationship exists, it is necessary to consider “the circumstances of the whole activity” in light of “economic reality.” The Court identified six factors that should be evaluated in making the joint employer analysis:

  •  Workplace and equipment belong to the client company – This suggests that the client company may be a joint employer because a legitimately “independent” subcontractor usually works off premises and uses its own equipment.
  • Subcontractor can and does shift its entire staff from one client to another – This suggests that the client company may not be a joint employer, because a legitimately “independent” subcontractor can have its crew do a job for one client, followed by a job for another client, etc.
  • Work performed is integral to the client company’s product – The more integral the subcontractor’s work is to the client company’s finished product, the more likely that the client company will be held to be a joint employer.
  •  Employment contract permits work to be shifted from one subcontractor to another – If the same employees keep working for the same client company even though the name of subcontractor changes, the client company may be the “true” employer, and the subcontractor with revolving names may be a “sham.”

  •  Client company supervises work – The more control the client company has over workers, the more likely that it is a joint employer. This is the most important factor to many courts and government agencies.
  • Subcontractor works almost exclusively for client company – This suggests that the client company may be a joint employer, because a legitimately “independent” subcontractor has multiple clients.

In recent years, the U.S. Department of Labor has been cracking down on joint employers in FLSA cases. In subsequent action in Zheng, the U.S. District Court S.D.N.Y. permitted plaintiffs to introduce expert testimony by a US DOL investigator alleging that the principal reason garment manufacturers use subcontractors in the manufacturing process is to avoid liability for wage and hour violations. The government is looking to expose sham subcontracting arrangements that exist just to shield the client company from wage and hour, immigration and other employment laws.

Companies that rely heavily on subcontractors should never turn a blind eye to employment practices that could subject them to liability. They should also keep subcontractors at arms length, and refrain from giving explicit direction to subcontractors’ workers. The joint employment analysis is very similar to the consideration of which workers are “independent contractors” and which are “employees” – truly independent subcontractor management and operations are key.

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.

Outside Sales Exemption: Duties Matter

Recently, a Connecticut federal court denied a summary judgment motion to a pharmaceutical company after holding that former sales representatives were not exempt under the Fair Labor Standards Act’s (“FLSA”) “outside sales” exemption. This exemption provides employers a pass from the FLSA requirement to pay overtime wages to those employees employed “in the capacity of outside salesman.”  To be classified as an outside salesperson, an employee must work away from the employer’s premises, and his or her primary duty must be either making sales or obtaining contracts or orders.

In Kuzinski et al, v. Schering Corp., No. 3:07cv233 (U.S. Dist., D. Conn. March 30, 2009), the plaintiffs, a group of former sales representatives from throughout the country, alleged that Schering Corp had misclassified them as “exempt” employees under the FLSA exemption for outside salespeople and, as a result, the company failed to pay them overtime wages to which they were entitled. 

In denying defendant’s motion for summary judgment, this court held that under the FLSA, the sales representatives for the Company did not “sell” or make a “sale,” but instead offered promotional activities in marketing Schering Corp’s prescription pharmaceutical products. Thus, these employees were not truly outside sales representatives and hence were not exempt from the requirements of the FLSA for an employer to pay proper overtime wages for hours worked in excess of 40 hours per workweek.

The court also held as unpersuasive several other recent cases in federal courts such as In re Novartis Wage & Hour Litig., 593 F. Supp. 2d 637 (S.D.N.Y. 2009) and Delgado v. Ortho-McNeil, Inc., No. SACV07-0263 (C.D. Cal. Feb. 6, 2009), that ruled in favor of pharmaceutical companies on this very same issue. 

Obviously, this is not the last word on this topic. It is, however, a cautionary tale for all employers that employ “outside salespeople.”  The lesson: title alone will not suffice in the determination of whether an employee will fall under the “outside sales” exemption of the FLSA. Instead, the employee’s actual duties must meet the requirements as set forth in the regulations.   

The FLSA regulations regarding outside salespeople can be found at 29 C.F.R. § 541.500 et. seq.

Even the Government Doesn't Get the Overtime Laws: EEOC Held Liable for Misusing "Comp Time"

In a recent decision, a Federal Mediation and Conciliation Service arbitrator found that the Equal Employment Opportunity Commission had consistently failed to pay many employees proper overtime wages for hours worked in excess of 40 hours per workweek.   Instead, the EEOC engaged in the often misused practice of providing compensatory time off (“comp time”) to these employees. While an exception to the FLSA permits most government agencies to offer certain non-exempt employees a choice between overtime pay and comp time, the EEOC apparently erred by failing to give employees a real choice. When it comes to interpreting the overtime rules, even the government agencies can’t seem to get it right.

In the limited situations in which employers can offer comp time to an employee in lieu of overtime pay, the employer generally must give the employee 1.5 hours of comp time for every hour of overtime worked. This practice is not legal for the vast majority of private employers, and local and state governments can offer only their non-exempt employees comp time instead of overtime pay in certain situations. Thus, both government entities and private employers who grant employees comp time often still end up having to pay employees overtime pay for the hours they work in excess of 40 in a workweek.

The confusion on this issue has resulted in numerous overtime claims [e.g., Beck v. City of Cleveland, 390 F.3d 912 (6th Cir. 2005), Heaton v. Moore, 43 F. 3d 1176 (8th Cir. 1994), Maldonado v. Administracion de Correccion, 1992 WL 301403 (D. Puerto Rico)]. Giving comp has been a common (but illegal) practice in many industries and has resulted in employees being denied substantial amounts of overtime pay. In light of current economic conditions, even more companies may be tempted to try to avoid overtime costs and giving time off may seem like an attractive alternative. Using comp time, however, is clearly not the solution.

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.

Illegal Deductions from Salary Sink Gristedes Exemption Claims

You can’t have it both ways – that was the opinion of a federal district court judge who recently awarded summary judgment to the more than 400 former and current department heads and co-managers who filed suit against New York supermarket chain Gristedes for unpaid overtime (Torres et al. v. Gristedes Operating Corp, 2008 WL 4054417). As noted by the New York Times,  most partial day deductions from pay invalidate an argument that employees are paid on a salary basis. This was Gristedes downfall. 

Under the FLSA (as well as New York State law), only salaried white collar positions may be “exempt,” and thus ineligible for overtime pay under most of the specific exemptions defined by these laws. The FLSA requires that salaried exempt employees be paid “the full salary for any week in which the employee performs any work without regard to the number of days and hours worked” [29 C.F.R. § 541.602(a)], with limited exceptions. While Gristedes considered its department heads and co-managers “exempt” and failed to compensate them at time and one-half for hours worked in excess of 40 in a workweek, it also made improper deductions from their “salaries” in at least 7.5% of pay periods over 10 years, according to the testimony of Gristedes own expert witness. When the court granted summary judgment to plaintiffs on this count, all of Gristedes other justifications for classifying these employees as exempt became irrelevant.

To maintain “salary basis” for exempt employees, employers must:

  • Remember that salary cannot be reduced for variations in the quality or quantity of work
  • Make deductions from pay only for the following reasons: 
    • absence from work for one or more full days due to sickness or disability in accordance with a Company plan or policy
    • absence from work for one or more full days for personal reasons other than sickness or disability, beyond any such absences that are permitted under the Company policy
    •  to off-set amounts employees receive as jury or witness fees or military differential pay
    • for unpaid disciplinary suspensions of one (1) or more full days, imposed in good faith for workplace conduct rule infractions
    •  for a penalty imposed in good faith for infractions of safety rules of major significance
    • for days not worked in the first and last weeks of employment 
  •  Publish and distribute a policy (perhaps within an employee handbook) explaining the bases on which deductions from salary will be made, and providing employees with a complaint mechanism for resolving payroll error.

Gristedes argued in this case that its approach to paying the plaintiffs was consistent with “industry practice.” If so, we can expect to see a lot more overtime claims against grocers in the near future.