New Jersey Inadvertently Eliminates Long-Standing Exemption for Commissioned Sales People and Aligns Exemptions With Federal Law

In an effort to bring its definitions for white-collar employees exempt from the overtime pay regulations into line with the federal definitions, New Jersey inadvertently eliminated a long-standing exemption for commissioned sales people.

The New Jersey Department of Labor recently modified its wage and hour regulations to adopt certain provisions included in the federal overtime regulations. Specifically, New Jersey eliminated its state definitions of the executive, administrative, professional and outside sales positions and adopted the federal regulations defining these exemptions, which are found in 29 C.F.R. Part 541.

Prior to the modification, New Jersey employers had enjoyed an exemption for commissioned sales people (as distinct from “outside sales people”) which were defined as exempt as part of New Jersey’s administrative exemption. This exemption included employees whose “primary duty consists of sales activity and who receives at least 50 percent of his or her total compensation from commission and a total compensation of not less than . . . $400.00 per week.” This exemption was eliminated with the recent modifications—apparently inadvertently. Supposedly, the New Jersey Department of Labor and Workforce Development is working to reverse this unintended result. However, such a reversal could take months.

Given the broad sweep of the federal Fair Labor Standards Act, which contains only a narrow exemption for commissioned employees in certain retail sales capacities, it is unclear how many employees fell under only the New Jersey law and enjoyed the exemption in any event. New Jersey employers, however, now need not worry about stricter state overtime standards when determining how to properly classify executive, administrative, outside sales and professional (including computer) employees under the overtime regulations—although the federal regulations still provide employers with many challenges to ensure the business has sufficient arguments to support exemption classifications and other New Jersey overtime regulations (such as the stricter standard for the trucking industry) remain unchanged.

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.

The app is designed to allow employees to keep independent track of—and calculate the wages they’re owed for—hours worked, including overtime. The app also has other employee-helpful features, such as break time tracking and links to DOL web resources, such as information about wage and hour laws or how to contact the Department. Users can annotate their work-related information on the app and view summaries by day, week, or month.

Of course, as with most apps, it doesn’t do everything you might want it to. For example, it’s great so long as the employee only has regular and overtime (at time-and-half) wages to track. However, it does not handle more complex or less common wage calculations, including tips, commissions, bonuses, holiday pay, or shift differentials among others. Actually, given how many employees in the hospitality industry receive tips, and how many employees in some sales capacity receive commissions, the DOL app might not work for many employees.

Also, not surprisingly, the federal DOL focused on the federal labor laws, such as the requirements under the Fair Labor Standards Act. Their app does not help you with state variations, such as California’s requirement for double time when working more than 12 hours in a day.

The DOL’s free app is available in English and Spanish and can be downloaded at http://www.dol.gov/whd. You can view screen shots here.

Like other app developers, though, the Department is not resting on its laurels. It’s planning to expand the app’s capabilities—such as adding the capacity to handle tips, commissions, bonuses, etc.—and to also port it to other smartphone platforms, like Android and Blackberry. With employees now able to track their own hours on this app, employers would be prudent to ensure they’ve got their own “app” in place to track employee hours and properly calculate wages that’s compliant with both federal and applicable local wage and hour laws.
 

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.

Back in 2005, this restaurant became subject to a federal court order telling it to not violate the FLSA. Six years later, the Manor engaged in further violations. Specifically, it did not pay dishwashers, cooks, waiters, busboys, and bartenders minimum wage or overtime pay when employees worked more than 40 hours in a week. In addition to these violations—which resulted $482,780.00 in back wages, $50,000.00 in prejudgment interest, and $69,330.00 in penalties for overtime and minimum wage violations—the facility also:

•  Violated recordkeeping requirements of the FLSA by not keeping accurate time and payroll records (the restaurant reported the same hours for kitchen employees, for example, week after week for years, even though the actual hours worked varied) and

•  Violated child labor laws by having 14 and 15 year olds work longer than permitted (another $7,920.00 was owed for child labor penalties)

In the consent judgment which it then entered into, the restaurant agreed to pay $610,000.00 and promised (again) not to violate the FLSA in the future. In addition, three officers of the company all also had to agree, personally, to not violate the FLSA. Unlike some other laws, company officers can become personally liable to their employees if the business does not pay those employees properly under the wage and hour laws.

Here’s a hint: it’s bad enough to violate the FLSA, but if there’s already a court order against the company, be extra careful. Not only will the Department of Labor tend to scrutinize past violators more closely, but the courts understandably take a dim view of anyone who ignores them. Companies would be wise to learn about these laws and work out how to be in compliance.
 

IMPROPERLY RECOUPING WORKER'S OVERTIME PAY PUTS ANIMAL HOSPITAL IN THE DOGHOUSE

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

The U.S. Department of Labor (DOL) calls it a violation of the Fair Labor Standards Act (FLSA). That’s what a Cincinnati-area animal hospital did—and explains why the DOL is looking to recover $108,000.00 from Hamilton Avenue Animal Hospital in back wages, liquidated damages and penalties.

The usual unpaid overtime case involves failing—whether negligently or intentionally—to record or credit an employee with all hours worked, resulting in unpaid overtime hours. Here, the Animal Hospital put its own unique twist on it by paying workers the overtime due to them, then forcing the workers (many of whom did not speak English) to return the overtime pay to the hospital in cash. The hospital then allegedly falsified payroll records to show overtime wages as having been paid.

The 21 workers affected are claimed to be owed $42,628.58 in overtime wages. In addition, the DOL is assessing $23,100.00 in civil penalties, and another $42,628.58 in liquidated damages under the FLSA. (Employers who violate the Act by not paying overtime are liable for double damages plus fines, making FLSA violations one of the costlier ways to break the law.)

This is the hospital’s fourth FLSA violation investigation. And by not paying overtime this time, the hospital may also be in contempt of court for violating a 2007 injunction ordering it to not violate the FLSA. While creativity has its place, dealing with employee wages is not one of them.

The DOL is clamping down on violators, and businesses would be prudent to endeavor to comply with employee wage payment laws, rather than risk the fines, fees and penalties that come with their violation.
 

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

it determined that this restaurant repeatedly violated the Fair Labor Standards Act (“FLSA”) and wage regulations by:

• Regularly making nonexempt employees work 70 or 80 hours a week without paying them overtime pay;
• Paying less than the minimum wage rate for all hours worked;
• Not keeping records of time, payroll, or tips; and
• Paying wages partially in cash, off the books.

Given that 40 current or former employees were involved, and the FLSA entitles aggrieved employees to receive not just full back wages (and overtime pay), but also an equal amount again in liquidated damages, the restaurant was hit with $390,000.00 in back wages plus $390,000.00 in liquidated damages. An additional $20,000.00 in civil fines was assessed based on the records-related violations.

In addition to the monetary hit, the restaurant is also subject to a compliance plan requiring it to keep accurate records of hours and wages; prohibiting the restaurant from making improper deductions from its employees’ wages; obligating it to ensure that all managers and employees are fully and properly trained with regard to both their rights and their responsibilities under the FLSA; and requiring the distribution of posters and documents to employees to make absolutely sure everyone understands the wage and hour rules.

It could have been worse. Had the lawsuit been brought by private attorneys for the employees, rather than by the Labor Department, the restaurant could have found itself paying tens or hundreds of thousands of dollars in plaintiffs’ legal fees as well. Even with that small “blessing,” however, the lesson is clear. Don’t do what this restaurant did.

Restaurants and other companies need to make sure they understand how the wage and hour laws apply to their industry, properly calculate what employees are owed for the hours they work based on properly maintained records, and pay the employees the full amounts owed in the method required by law. Otherwise, the company may suffer a similar fate as this restaurant.
 

Class Action Lawsuit Follows New DOL Interpretation of Mortgage Loan Officer Status

We blogged in January 2011 about a 2010 Department of Labor (DOL) interpretation concluding that mortgage loan officers were not exempt employees under the FLSA’s overtime pay regulations. The Mortgage Broker’s Association (MBA) had warned at that time that this interpretation reversing the DOL’s 2006 position finding that mortgage loan officers were exempt employees would cause the sky to fall on lenders.

The MBA was concerned that, after years of relying in good faith on the DOL’s previous interpretation, banks would now face massive liability for unpaid overtime wages for an alleged “misclassification” of mortgage loan officers. This time, it looks like Chicken Little was right. The sky has started to fall—at least for one bank.

On February 11, 2011, a class action lawsuit was brought in Ohio against the Fifth Third Bank [INSERT 2] claiming mortgage loan officers were improperly denied overtime pay. Fifth Third had tried to do everything right: first following the prior interpretation and, then, after the new DOL interpretation, it reclassified its formerly exempt loan officers as nonexempt and paid them overtime pay.

Plaintiffs’ attorneys in the class action suit are arguing that if the proper way to classify loan officers is as non-exempt, then they should always have been non-exempt and “it still owes its current and former loan officers for the overtime hours they worked prior to the change.” The number of mortgage loan officers employed nationwide is staggering. Could the DOL have foreseen the effect this interpretation would have on banks, large and small, across the country?

Now that the MBA’s dire predictions seem as they may come true, will the DOL re-reverse itself and conclude that mortgage loan officers were actually exempt all along? Stay tuned for the next installment in this litigious drama.
 

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.

On Valentine’s Day, however, the Ninth Circuit (AZ, CA, ID, MT, NV, OR, and WA) gave the pharmaceutical industry some candy by coming to the opposite conclusion, deciding that pharmaceutical sales representatives are exempt from the overtime pay regulations and therefore do not need to be paid overtime wages.

How can two courts look at the same statute and regulations and come to diametrically opposed conclusions? The answer lies in the fact that “sales” in the pharmaceutical industry are a multi-step process. A pharmaceutical sales rep courts doctors, trying to convince them to recommend the medications made by the company they represent. However, the doctor him- or herself does not actually buy the pharmaceuticals, since the doctor is not the end user.

Under the Fair Labor Standards Act (FLSA), overtime is the default—everyone is assumed to get it unless they fall under one of the exemptions to the overtime regulations. Outside sales people who show up at a place of business to pitch their products may fall under the “outside sales representative exemption.”  This exemption requires, among other things, that the employee’s primary duty be “making sales.” That’s where the two Circuit courts disagreed.

The Second Circuit looked at the fact that the pharmaceutical sales rep does not actually close sales. The sale itself is made later, by another person (a patient or institutional buyer), and placed with someone at the company other than the sales rep who’d made the sales call. The Second Circuit concluded that the pharmaceutical sales rep doesn’t actually make sales, but rather are engaging in a form of marketing or promotion, making the outside sales exemption unavailable and not finding that any other exemption applied.

The Ninth Circuit recently approached this differently and focused on how sales are made in the pharmaceutical industry. Pharmaceutical companies can’t sell prescription medication directly to patients. Sales are made by convincing doctors to recommend or prescribe them. In addition, that court considered that pharmaceutical sales reps are paid and incentivized by commission; work in the field; and show products to those who influence a sale. In short, the Ninth Circuit felt that in reality these reps are sales representatives, selling products the only way their industry is legally allowed to sell.

Look for this matter to end up before the Supreme Court, to resolve this clash between Circuits—it can’t remain the case that whether an employee receives overtime or not under federal law depends on where the employee is situated.

In the meantime, this situation highlights that even what seems to be straightforward—whether a job category falls under a particular overtime exemption—often is not. When there is any doubt whatsoever, employers should consult with counsel to help navigate the rocky shoals of the FLSA and its implementation.
 

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.

This law may be big trouble for employers. The additional money which an employee can recover may act as an incentive to bring lawsuits. Under the terms of the Act, even innocent mistakes can result in significant liability. And during a time of continuing economic weakness, if an employer simply can’t pay a large judgment in a timely fashion, the employer can then end up owing yet more money.

Adding to this is the interplay of this act with the federal Fair Labor Standards Act, or FLSA. The FLSA already allows employees suing for unpaid wages to receive double those wages in damages.  Since employees may sue under both state and federal law, a New York employee who sues for unpaid wages, such as unpaid overtime, could potentially collect triple wages (treble damages) in compensation.

The Act also adds other employee protections, such as enhanced protection for employees raising complaints about wage violations. If an employer retaliates against an employee for making such complaints, the employee can sue for reinstatement and “front pay,” or wages they haven’t earned yet, in addition to any back pay, or wages they lost due to being terminated. This potentially provides an incentive for employees who are having difficulty at work or are in conflict with their employer to raise such complaints in order to discourage their employer from taking action against them—or to recover compensation and seek reinstatement if the employer acts in a fashion that could be characterized as “retaliating” for the complaint.
 

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.
 

The computer employee exemption covers any employee who is a computer systems analyst, programmer, software engineer, or other similarly skilled worker, whose primary duty entails such things as—

• the application of systems analysis techniques and procedures; or

• the design, development, documentation, analysis, creation, testing, or modification of computer systems or programs

The average help desk employee is not an analyst, programmer, or engineer, and her primary duty is not creating, modifying, or adapting systems and software. Instead, she’s a trouble shooter applying well established techniques, or a repair person. Since the regulations specifically make the exemption unavailable to “employees engaged in the manufacture or repair of computer hardware and related equipment,” the Department of Labor. (“DOL”) has had no difficulty ruling that tech support by any name does not qualify for the exemption.

This does not lessen the importance of tech support positions. (Anyone who doesn’t think good tech support is invaluable doesn’t have a computer!) After all, many of the most demanding and socially necessary professions, like police officers and fire fighters, are non-exempt, too. And given the hours employers typically make their tech support departments work, help desk staff are probably very happy to qualify for overtime pay.

The only ones not happy are likely employers hoping to save money by not paying IT support their overtime wages. However, given the enormous potential liability for misclassifying workers, those employers would be much less happy if they deny the help desk overtime pay and are caught at it by the DOL.

There is simply no ambiguity or gray area: help desk and other IT support staff must be paid overtime wages if they work over 40 hours in a workweek.
 

Second Circuit Deals Novartis a Costly Blow

In another decision addressing the rampant misuse of the outside sales and administrative exemptions by companies, the Court of Appeals reversed a prior favorable decision for Novartis in In re Novartis Wage and Hour Litigation. The Court found that the sales representative were neither exempt outside sales people nor exempt administrative employees.

In this decision, that Second Circuit found that sales representatives were not exempt under the FLSA because they did not actually engage in sales activities. First, the Court found that the salespeople were promoting sales of other, not making sales themselves. Thus, these employees primary duty was not making sales away from the employer’s place of business.

Similarly, the Court found that the sales representatives only performed low level marketing functions. Even though they had some authority to enter into agreements which bound Novartis and had some discretion, the Court found the employees’ duties were not sufficient to make them exempt administrative employees under the FLSA.

This mirrors a similar decision we discussed in April of 2009 against Schering Corporation. The results of these decisions are significant. Given the relatively high pay of these employees, even a few years of overtime could add up to hundreds of thousands of dollars for each employee.

Pharmaceutical companies are not alone. Many industries widely misapply the outside sales and administrative exemptions, and they face similar exposure to overtime liability.
 

DOL Testimony Regarding The Employment Misclassification Prevention Act And Misclassification Enforcement Efforts

In Joel Greenwald’s blog on April 30th, he wrote about The Employee Misclassification Prevention Act (“EMPA”).  EMPA is making its way through Congress and was the subject of a hearing by the Senate Health, Education, Labor and Pensions (HELP) Committee on June 17th.  The Committee heard testimony from Seth Harris, Deputy Secretary of the US Department of Labor, as well as the New York State Department of Labor Commissioner Colleen C. Gardner and others. 

Significantly, EMPA would:

·        codify misclassifications as a violation of the Fair Labor Standards Act 

·        establish civil monetary penalties for employer recordkeeping violations

·        create a legal presumption that, if an employer fails to keep accurate records, the individual is an employee rather than independent contractor

If EMPA passes, it will be even more important for employers to be diligent about properly classifying their workers and maintaining adequate paperwork to support their determinations. 

Even while EMPA is winding its way through Congress, however, employers need to be aware of potential issues regarding misclassification. As we have discussed before, the DOL and IRS are working together and with the states to increase enforcement of independent contractor classifications, particularly in the following industries: construction, janitorial work, hotel/motel services, food services and home health care. Indeed, in his testimony, Harris discussed how the DOL recently hosted a State Forum on Misclassification, which was attended by representatives from New York, Connecticut and other states. There also is a joint initiative between the DOL, IRS and 39 states to share information to target employer audits for unemployment insurance and misclassification purposes. 

In addition, Harris reported that the DOL is considering implementing a regulation that would require an employer, before classifying a worker as an independent contractor, to perform a written analysis that would be disclosed to the worker. The employer then would have to retain records of its written analysis and make them available in the event of an audit. Apparently, the DOL believes that it has the power to issue this regulation without waiting for EMPA to pass.

In sum, with all that is going on in Congress and at the DOL, it is clear that employers need to be attentive to the misclassification issue and err on the side of caution.

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.

Instead, the Court affirmed a long standing tenet that CBAs cannot waive employees’ rights to overtime pay under state law unless the waiver is “clear and unmistakable.”  Here, the Court found that it was not so clear that the servers had bargained away their state overtime law protections.  Thus, the case was sent back for further proceedings on the issue.

Had the servers asserted claims under the federal Fair Labor Standards Act (“FLSA”) instead of Nevada state law, the CBA likely could not have waived such rights, without regard to the clarity of the agreement’s language. Under federal law, “collective bargaining agreements cannot waive or reduce the [FLSA]'s protections.”,  except in limited circumstances described by the regulations.

In another banquet server case, however, a Nevada Clark County Judge ruled that those servers are not entitled to overtime pay under state or federal law, and noted that such had been an industry practice for years. Generally, industry practice does not trump state law either. The attorney for those servers is intending on appealing that ruling.

It is clear that this battle is far from over. In the meanwhile, employers would be wise to refrain from relying on CBA language to avoid paying overtime wages to employees who are otherwise entitled to these payments under either state or federal wage and hour laws.
 

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.   

According to class counsel, the technicians were paid a fixed amount of money for different types of installation-related tasks, but did not receive overtime compensation for the numerous weeks in which they worked overtime hours. This is not the first suit such filed by these types of technicians against the cable industry.

Although paying employees on a piece rate basis is permissible under both the FLSA and state law, employers need to be aware not only of their obligation to pay overtime, but the specific formula for doing so. In general, when an employee is paid solely on a piece rate basis and works overtime hours, the employer determines the employee’s regular rate by dividing the employee’s total weekly earnings by the amount of hours worked in that workweek. The employee is then entitled to one-half of the regular rate for each hour worked above 40, in addition to their regular piece rate compensation.

For example, if an employee paid on a piece rate basis works 45 hours and earns $360.00 in that workweek, the employee’s regular rate for that workweek would be $8.00 per hour. The employee would then be entitled to an additional $20.00 in overtime (half the regular rate, or $4.00, multiplied by five overtime hours). In that workweek, the employee would receive $380.00 in total compensation.

It is also permissible to pay piece rate employees one and a half times the piece rate for each “piece” produced during the overtime hours, provided that this is agreed to in advance and that the piece rate exceeds minimum wage and is paid for all hours worked up to 40 in the workweek. However, for administrative reasons, the former approach is usually more feasible for employers.
 

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.

If your company is hiring unpaid interns, please remember that the program has to benefit the interns, not the company, and they should not replace other employees. If your company can meet these basic criteria, then you can move to the next step and make sure that your internship program satisfies the more detailed requirements. We have blogged about this and related topics before. See Is that really an intern? and The Pitfalls of Using Volunteers.

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.

Fortunately for employers, a Federal District Court of Connecticut has ruled that arbitration agreements, even those waiving employees’ right to class action suits and requiring arbitration of FLSA claims, are enforceable.

In Pompasi v. Gamestop, Pompasi was a store manager who claimed he had been improperly denied overtime. He looked to bring a collective action for unpaid wages. However, Pompasi had signed an agreement which sent all claims against his employer—including FLSA claims—to binding arbitration.

Gamestop did everything right in its arbitration agreement:

• the agreement was announced publically at a company conference;

• the language was clear and unequivocal;

• important terms, such as the waiver of the right to a class action, were highlighted;

• the agreement stated that employees accepted it in exchange for continued employment;

• the agreement did not affect substantive rights, only the venue for dispute resolution; and

• employees signed an acknowledgment of the policy.

Given all the above and the fact that federal law creates a clear presumption in favor of enforcing arbitration clauses, the court had no trouble holding that Pomposi was barred from pursuing his clauses in court. More importantly, the court barred him from bring his case as a class action, and he could only pursue his claims individually. Of course, Gamestop could still lose in arbitration, but it has already won a major victory in avoiding a class action suit.

The lesson for other employers is that arbitration agreements may be an effective tool to help them avoid the flood of overtime class action suits being brought by Plaintiffs.
 

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.

Five former “managers” of Dollar filed suit against the chain, claiming that their duties were anything but managerial—and that they should have been paid overtime wages. The five had originally sought to bring a class action suit in 2008, but the class action claims were dismissed. These five employees are now proceeding with their individual claims.

Dollar is no stranger to overtime lawsuits. A year earlier, 10 similar lawsuits were initiated in Alabama and transferred to West Virginia. Those were just the tip of the iceberg. Hundreds of cases against the store have been brought in multiple states.

In all cases, the employees claim that Dollar misclassified non-managerial employees as exempt managers in order to avoid paying overtime. The employees say that they worked 60-90 hours per week and one employee claimed that, if she was a manager, she should have had some say in how things were done, but that, instead, she was performing manual labor and not managerial tasks.

Under the Fair Labor Standards Act, employees can be exempt from the overtime pay requirement under the “Executive exemption” if the employee’s primary duty is managing the business. While there’s no hard-and-fast rule for exactly how much time must be spent managing—it’s safe to say that it needs to be more than the 5-10 hours per week, as claimed by the Dollar employees in one of the Dollar cases.

It’s understandably tempting to misclassify staff as exempt employees when, like Dollar, a chain operates thousands of stores, each with multiple employees. That’s an enormous payroll, even without overtime wages. One plaintiff’s attorney estimated the chain has saved $80 million by not paying overtime.  However, like Dollar, doing so could be the fodder for multiple misclassification lawsuits. The take-away? Don’t call employees “managers” and classify them as “exempt” from overtime when their duties and responsibilities do not support the classification. It’s what they do on the job, not what they are called, that determines how they need to be paid.
 

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.

They thought that by recording hours for different tasks separately, they could avoid paying overtime wages. For example, if a driver drove 30 hours and trained other drivers for 20, each task was recorded and paid separately. The employee would be paid in essence for two workweeks—a 30-hour week and a 20-hour week—not a single, 50-hour week which would require the employee receive 40 hours of regular pay and 10 hours of overtime pay. This is a common practice. Often companies do this by splitting the employees work between two commonly owned companies.

Smart? Credible? A workable loophole? Hardly.

The bus company, First Student Inc., paid $1.5 million to settle the class-action lawsuit brought by employees claiming that they were improperly denied overtime pay. While a bus-company spokeswoman “declined to comment” about the settlement, $1.5 million is itself a rather loud—and clear—comment.

It’s hard to see how the company thought this would be acceptable. There does not appear to be ANY support in the law for the proposition that simply by recording different tasks or jobs separately, a company can avoid paying overtime wages. Non-exempt employees “may not be employed for more than 40 hours in a week” without receiving overtime pay. Period. Unfortunately, this bus company is likely not alone in its practices. But keep in mind that just because a practice is “usual” in an industry doesn’t make it legal.
 

Waiting Time is Often Work Time . . . and Must be Paid

A Tennessee car wash found out the hard way that “waiting time”—time employees spend between tasks—is paid working time. Employees of the Shur-Brite car wash in Nashville sued claiming that the car wash would clock the workers in and out multiple times a day—clocking them in when a car pulled in to be washed, clocking them out when there were no cars around.

An advocate for low-wage earners went undercover at Shur-Brite and was clocked out more than 10 times during a single eight-hour shift. The result—he was paid for only four of the eight hours. The case settled for $130,000.00.
 

Shur-Brite’s practice clearly violated the federal regulations requiring that employees who are forced to remain “on call” at or near the employer’s premises must be paid as working. That’s an obvious and intuitive policy for most people: after all, work does include slack or down time. But, if an employee has to be onsite and may have to spring into action at a moment’s notice, that’s “working” by both a common sense definition and the FLSA.

One of the car wash’s owners unsuccessfully argued that the situation fell under an FLSA exception made for employees legitimately free from work or the expectation of work. In that case, the employees would have to have been “completely relieved from duty” for “long enough to enable him [or her] to use the time effectively for his [or her] own purposes.” This was not the case here.

Someone who washes cars has to be there when the cars need to be washed. The employee can’t just “leave word” of “where he [or she] may be reached.” Moreover, the regulation defining off-duty time says that to be considered off duty, a worker must be “definitively told in advance that he . . . will not have to commence work until a definitely specified hour,” which is the antithesis of grabbing soap and a rag whenever a car pulls up.

The take-away is that if employees are at work, waiting for work to come to them, they are likely working and need to be paid. Just because a job may have an uneven work flow does not mean that slow stretches are not work time that must be accounted for, and paid for.
 

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:

1) Back Wages – payment of any overtime that an employee earned but was not paid

2) Liquidated Damages – assessed at double the amount of back pay

3) Shifting of Attorneys’ Fees – employer pays for employee’s attorneys’ fees

4) Civil Penalties – if the violation is found to be willful or deliberate, a civil penalty of up to $1,100 per violation may be imposed

5) Criminal Prosecution – possible in egregious circumstances in which willful or deliberate intent can be shown

Employers should not forget, however, that the federal government is not the only level of government that has overtime laws. States have their own overtime laws, and these laws can be even more generous to employees than the FLSA. For example, in Massachusetts, the fine or penalty for a violation is not $1,100 as under the FLSA, but up to $25,000!  The employee can also win not just double back wages as provided under the FLSA, but treble back wages —as well as attorneys’ fees.

Even states that do not provide for treble damages may impose steeper fines or penalties. In Connecticut, fines can scale up to $10,000 per offense, be levied directly against corporate management and also may include substantial jail time—all for as little as $2,000 in unpaid overtime.

In New York, employers engaged in willful violations can be fined an additional amount up to one quarter of the unpaid wages and be required to pay the employee’s attorneys’ fees.  Company management that engages in willful misconduct also may be subject to misdemeanor charges for a first offense or felony charges for a second offense, with possible jail time up to one year and penalties up to $20,000.

Thus, employers should consider placing as much emphasis on compliance with state overtime laws as with federal law. Employers also should be aware that it is important to do a state-by-state analysis of the applicable laws, as most states have their own criteria and penalty schemes and employers should not simply assume that employees exempt from overtime under federal law will be exempt under state law. Given the penalties available in some states, the cost is worth the benefit of making sure that any overtime program is compliant on both the federal and state levels.
 

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?  

Wrong - or least, very likely wrong in today’s Internet commerce age. Under the FLSA, even if your business is not covered by the law, individual employees may fall under the law’s protection “in any workweek when they are individually engaged in interstate commerce. . . .”

Almost every business has a website nowadays. And with those websites, businesses that were formerly as local as local could be advertise and sell nationwide—even worldwide. For example, one local specialty toy store—quite a small business; the whole shop is maybe 12’ x 30’—has online shopping available on its website and notes that it will ship anywhere in the continental U.S.

However, order entry and fulfillment don’t happen by themselves—some employee has to do them. That employee is picking up orders from the Internet and then shipping goods interstate—in other words, there’s an employee engaged in interstate commerce at the corner toy store. Even if the business as a whole is exempt from the FLSA, there’s at least one employee who may come under the Act—at least in “any workweek” when he or she is handling interstate orders.

Think that interpretation is too expansive? The Department of Labor doesn’t. The Department consistently interprets individual employee coverage under the FLSA to include any “employee such as an office or clerical worker who uses a telephone, facsimile machine, the U.S. mail, or a computer e-mail system to communicate with persons in another state” and notes that “Interstate commerce includes such activities as transacting business via interstate telephone calls, the Internet or the U.S. Mail. . . .”

In short, even for the smallest, most otherwise-local businesses, having an e-commerce website or taking out-of-state orders can bring employees under the aegis of the FLSA, requiring payment of overtime when appropriate. The employee(s) transacting interstate business may be exempt from the Act under other grounds—for example, it often may be the owner him- or herself who does this. However, if a business has an Internet sales presence of any kind, they may have employees covered by the FLSA even if the business would be otherwise exempt.

What’s the bottom line? Having an online sales presence may effectively gut the $500,000 threshold for coverage under the FLSA, at least for some employees.
 

How much influence must someone have in the firing process to qualify as exempt from overtime under the executive exemption to the Fair Labor Standards Act rules?

Under the FLSA, employees are paid overtime unless they qualify for one of the exemptions in the Act. One of the most common exemptions is the Executive Exemption.  While called an “executive” exemption, it’s not limited only to inhabitants of the C-suites and their VP-level direct reports. Instead, it may be available to a wide range of managerial or supervisory employees and should likely be called the “managerial exemption.”

To qualify for this federal exemption from overtime wages (some state law may differ), all four of the following tests must be met:

1) the employee is paid on a salary basis, at least $455 per week;

2) the employee’s primary duty is managing either the business as a whole, or a recognized department or subdivision of the business;

3) the employee must actually manage other employees—at least two full-time staff or FTEs; and

4) the employee must have hiring and firing authority, or at a minimum, “the employee’s suggestions and recommendations as to hiring, firing, advancement, promotion or any other change of status of other employees must be given particular weight.”

Requirement (4) can often be particularly problematic—how much firing authority is actually needed?

The Dept. of Labor’s Fact Sheet helps a bit and says that “particular weight” means that—

• It must be part of the manager’s job description to make recommendations regarding firing.

• The manager’s recommendations must be made frequently and generally relied or acted upon.

Thus, merely making “occasional suggestions” about termination does not meet the standard.

There’s very little guidance to clarify just how much authority is required for a mid-level manager to be exempt on this point. However, “managers” who can’t make an actionable firing recommendation probably also fail one or more of the other tests for executive status, so the cases rarely turn on this point alone. Remember, it is a package deal. The employee must satisfy ALL of the tests stated above.

To ensure that their mid-level managers are exempt under this exception, employers should make certain to that all points of the test are met. If it’s business as usual for the manager to recommend a firing and for it to be carried out—and the other requirements are satisfied—then the manager will probably qualify for the Executive exemption from the overtime pay requirements.
 

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.

The affected employees are called “first level managers” or “level one managers.” According to the lawsuit, first level managers perform primarily clerical duties, such as relaying information between “real” managers and field technicians, and do not have sufficient discretion to be deemed managers.  The suit alleges that they are misclassified as exempt employees and given managerial titles specifically to avoid overtime.

According to the Fair Labor Standards Act, the management or executive exemption to the overtime pay requirements includes four criteria, all of which must be met:

• The employee is paid on a salary basis, at least $455 per week (or $23,660/year)

• The employee’s primary duty must be management – that is, the employee either manages the company as a whole or a recognized department or subdivision

• As part of managing, the employee regularly directs the work of at least two full-time employees or their equivalent (for instance, four half-time employees would equal two full-time employees); and

• As part of managing other employees, the claimed manager has either actual hiring and firing authority, or at least substantial input into hiring, firing, retention, and promotion decisions

The Labor Department puts out a very helpful factsheet on the subject. For most purposes, common sense will suffice – a manager must actually manage.  

In other words, under the FLSA it is the substance of a job, not the nomenclature, that controls.

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?

The “why not” is that management are generally exempt from the overtime pay regulations and are receiving a salary without regard to how many hours they work a week. Other staff (the receptionist, data entry clerks, administrative assistants, secretaries, billing clerks, customer service reps., etc., etc.) are “non-exempt” and need to (a) be paid for every hour they work and (b) have all hours worked counted towards potential overtime pay. That’s what seven of Philadelphia’s largest health systems are discovering: they were recently sued by employees who were not paid for working through lunch. If history is any guide, the health systems can expect to pay for this failure—the law firm bringing the suit won a $9 million settlement in a similar case against the University of Rochester in 2006.

Even though the federal Fair Labor Standards Act requires that non-exempt employees be paid for all hours worked, it does not actually clarify what is working time and what is not. Regulations have been passed by the Department of Labor to help clarify this, such as the “meal break” and “rest break” rules. Essentially, if a meal break is 30 minutes or more and the employee is relieved from performing all duties (meaning he or she is not eating at their desk with the responsibility to answer the phone if it rings), that meal break time is unpaid. However, “rest periods of short duration, running from 5 minutes to about 20 minutes . . . are customarily paid for as working time [and] must be counted as hours worked.”

Even if the break is greater than 30 minutes, however, if a non-exempt employee is expected to do something for the company’s benefit during this “break,” including catching up on paperwork or answering the phone, the entire period counts as paid time under federal law. Employees need to be completely relieved form any duties in order for a meal period to be unpaid.

Keep in mind, however, that In addition to federal law, many states have their own break laws, as Wal-Mart found out. The company agreed to pay $3 million to settle claims alleging that the retail giant had violated the Massachusetts Break Law by forcing staff to work through lunch. Not only do some of these state laws require payment for working through lunch or other breaks, they also require that the breaks be given and often impose penalties for that omission on top of any wages (including overtime wages) owed to the employees who worked through lunch.

Companies that require nonexempt staff to work during their supposedly unpaid break time could ultimately end up paying far more than they saved by having employees do extra work for “free.”
 

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.

Often, the employee’s second job will be a non-exempt position, such as a technical, production, or lower-level administrative role which can be done part-time. When that happens, it would seem logical to pay the employee at the appropriate hourly rate for the additional work. The employee is considered “exempt” with regard to their original job, and “hourly non-exempt” for their additional position. However, that is exactly what a business should not do. Employees cannot be classified as partially exempt and partially non-exempt—they are one or the other.

A Department of Labor FLSA opinion letter provides guidance and discusses the inverse situation. In that case, a non-exempt employee assumed exempt responsibilities in addition to her regular job. The DOL said that the employee’s responsibilities should not be looked at as two different jobs—instead, the “character of the employee’s job as a whole” needed to be analyzed to see whether the entire position is exempt or non-exempt. The key is whether the employee’s “primary duty” consists of exempt work. If it does, the employee is exempt from the overtime pay requirements; if not, the employee is non-exempt and must be paid overtime wages. (And note: overtime pay would not be just on the time spent performing the additional duties, but on any hours worked over 40 in a work week.)

What should an employer do when an employee works two differently classified “jobs”? First, consider that all employees for your company have only one job—although the job may consist of diverse tasks. If an exempt employee wants to take on non-exempt functions, rather than cast it as two separate jobs, rewrite the employee’s exempt job description to encompass all of their duties. Take care to not allow the non-exempt portion to require 50% or more of their time, as this factor could render the entire position non-exempt. Then, figure out what the company should pay this employee for the totality of his or her work and increase the position’s salary accordingly. That way, the employee can be compensated for his or her additional work without compromising an exempt status, and the company avoids yet another overtime pitfall.
 

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.

Many employers used to think that all employees working with computers fell into the “Exemption for Employees in Computer-Related Occupations” under the Fair Labor Standards Act (“FLSA”).  However, employees who are using computers or providing services to support computer use are not necessarily exempt from overtime pay requirements. As to an computer professional under federal law, employees must satisfy all of the following criteria:

  • Earn a salary of at least $455 per week or  a wage of $27.63 or more per hour
  • Be a skilled worker, such as a computer systems analyst, computer programmer or software engineer
  • Be primarily responsible for systems analysis, computer design, support of computer programs related to machine operating systems, or skills related to the foregoing or a combination of these skills

Employers make a mistake when they assume that someone who is supporting computer use within their organization is exempt from overtime pay requirements (although it is still possible that the person qualifies for another exemption, such as the administrative exemption). Similarly, employees who repair computers may not be deemed exempt either.  Even if employees are highly paid or have job titles which sound exempt, they are still not exempt unless they are performing highly skilled work that satisfies the DOL criteria. For instance, technical support or helpdesk employees whose primary responsibilities are to set up computers for new employees and install software updates and patches will likely not be considered to be exempt from overtime pay requirements. 

Of course, it is important that employers have an overtime analysis done and properly classify all of their workers in order to avoid costly claims, penalties and attorneys’ fees. This is even more true with computer workers, who are often well-compensated. With significant base salaries, any claim for overtime pay can add up quickly, especially if the claim turns into a class action that encompasses multiple employees.

Employers in California need to be even more cautious. Employees subject to inconsistent federal and state overtime laws get the benefit of whichever law is most favorable. California, nor surprisingly, has very employee-friendly laws, including on the subject of exemptions for computer workers. Indeed, there are plaintiffs’ side law firms that have set up shop specifically to help California-based employees sue their employers, and they are doing so for big money.  Employers, be careful out there!

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. 

On-Call Time: To Pay or Not to Pay?

With new technology such as BlackBerries®, cellphones, etc., the practice of requiring employees to be available on call is becoming even more widespread. Now, not only are healthcare and emergency workers required to be on call, but workers in many other industries are also expected to be available 24/7. AT&T workers in California just joined together to bring a class action, filed August 12, 2009 in the Southern District of California, claiming that they should have been paid for being on call 24/7 to handle IT maintenance services for customers’ hardware, software, applications and desktop computers. 

What constitutes “on-call” time that is deemed to be work requiring compensation? The Wage and Hour Division of the Department of Labor issued a letter earlier this year (see) explaining some of the criteria:  

“Under 29 C.F.R. § 785.17, ‘[a]n employee who is required to remain on call on the employer’s premises or so close thereto that he cannot use the time effectively for his own purposes is working while “on call.” An employee who is not required to remain on the employer’s premises but is merely required to leave word at his home or with company officials where he may be reached is not working while on call.’”  

Some of the key issues to consider in determining whether to pay for on-call time are: 

  • Is the employee required to stay at home or required only to carry a cellphone or other device to receive calls?
  • How close to the work location (whether it be the company office or a customer location) is the employee required to be? In other words, what is the required response time?
  • Are employees on call 24/7, or only certain hours per week or month, and can they switch their on-call time with colleagues if necessary for their personal purposes?
  • Does the “on-call” obligation significantly limit the employee’s use of the time for personal purposes?
  • How frequent are the calls? Are the calls likely to occupy most of the on-call time and will being on call therefore significantly interfere with the employee’s use of the time for personal purposes? Or are the calls only infrequent?
  • Is the employee required to wear a uniform while on call?

Based on these criteria, if it is determined that the on-call time constitutes work, non-exempt employees must be compensated for all of the on-call time in accordance with the standard rates and laws for regular and overtime pay. Additionally, even if the on-call time is not considered to be work requiring compensation, any time in which an employee actually does perform work in responding to a call must be compensated. 

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.  

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.    

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.

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.

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.

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.