Dismantling Your Wage and Hour Time Bombs: Strategies for Ducking the Explosion in Wage-Hour Litigation July 23, 2009| D

1. Dismantling Your Wage and Hour Time Bombs: Strategies for Ducking the Explosion in Wage-Hour Litigation July 23, 2009| DeKalb, IL Presented by: Neil H. Dishman, Esq. Jackson Lewis LLP | Chicago 312.787.4949 | jacksonlewis.com | http://myupdates.jacksonlewis.com These materials do not contain legal advice, nor do they create an attorney-client relationship between Jackson Lewis LLP and the viewer or recipient. Nothing in these materials is to be used as a substitute for consulting with legal counsel about your specific situation.

2. THE EXPLOSION • Overtime lawsuits have increased by 41% in the last 3 years • There are now more wage class-actions filed than discrimination class-actions • Often, employers are caught with no defense, and penalties are steep • “Did you know that your boss might be driving around in a Lexus purchased with overtime pay that should have been given to you?”

3. RECENT VICTIMS • Wal-Mart: $62 million verdict (off-the- clock work, meal breaks) • UPS: $87 million settlement (improper deductions, meal breaks) • IBM: $65 million settlement (misclassification of IT employees) • Staples: $38 million settlement (misclassification of “managers”) • Kaiser Foundation Health Plan: $9 million settlement (shift differentials not included in regular rate)

4. ADDITIONAL DANGERS • One mistake can be replicated many times over, leading to great exposure • The law contains many traps that do not comport with “common sense” • Employees do not have to prove ill intent; only non-compliance • “But all our employees are happy with their pay!”

5. THE BASICS • Fair Labor Standards Act (FLSA)(federal) • Minimum wage • Overtime • Illinois Minimum Wage Law • Minimum wage • Overtime • Illinois Wage Payment and Collection Act • Timing and method of pay • Payroll deductions • And more . . .

6. MISCLASSIFYING EMPLOYEES AS EXEMPT • The Story of the “Head Cook” • We start from the presumption that every employee must be paid time-and-a-half if they work >40 hours • The burden is on you to prove an employee is “exempt” from overtime • Titles do not matter; duties do • Federal and Illinois law differ • “White collar” exemptions • Executive, Administrative, and Professional: salary ($455/wk) and “primary duty” requirements • Outside sales • The price of getting this wrong?

7. Executive Employees’ Duties Test Source: United States Department of Labor

8. Administrative Employees’ Duties Test

9. Professional Employees’ Duties Test

10. OUTSIDE SALES EXEMPTION

11. IMPROPER DEDUCTIONS FROM AN EXEMPT EMPLOYEE’S SALARY Deductions from salary can be made for: Full day absences for personal reasons, other than sickness or disability Full day absences due to sickness or disability if deductions made under a bona fide plan, policy or practice of providing wage replacement benefits for these types of absences

12. 2. IMPROPER DEDUCTIONS FROM AN EXEMPT EMPLOYEE’S SALARY, CONT. Deductions from salary can be made for: First or last week of employment, so long as the employee is paid a proportionate share of salary for time actually worked Penalties imposed in good faith for violating safety rules of “major significance” FMLA qualifying leave for partial and full day absences Offset of salary for monies received for jury fees, witness fees or military pay Good faith full day disciplinary suspensions for violating written workplace conduct rules

13. 3. CALCULATION OF “HOURS WORKED” UNDER THE FLSA Compensable Working Time Includes . . . • Time spent in primary job activities or in activities integral to performance of primary job; • Idle or stand-by time controlled or requested by employer; • Time spent by an employee outside normal hours “required, suffered or permitted to work”.

14. 3. CALCULATION OF “HOURS WORKED” UNDER THE FLSA, CONT. Unauthorized Working Time • The Story of “Melissa” • Employers must compensate employees for unauthorized work when an employer "suffers or permits" employee to work; • In other words: knew or should have known the employee was performing work; • Employers are free to discipline employees for unauthorized work.

15. 3. CALCULATION OF “HOURS WORKED” UNDER THE FLSA, CONT. Modern Problems • Must you pay . . . • A secretary who spends a few minutes per evening checking email on a PDA? • A repairman who checks his home computer first thing in the morning to learn which customer he must visit first that day? • A home-based customer service rep for the time spent booting up his computer and logging in each morning? • We don’t know. We’ll soon learn. At what cost?

16. 3. CALCULATION OF “HOURS WORKED” UNDER THE FLSA, CONT. Modern Problems – Familiar Principles • Did we know about it, or should we have known about it? (Do you receive emails from non-exempt employees after hours?) • Is it de minimus? • What about exempt employees?

17. 3. CALCULATION OF “HOURS WORKED” UNDER THE FLSA, CONT. Modern Problems – Modern Strategies • What to do: • Update policies on overtime and unauthorized work • Train managers on what is and isn’t “working time” • Limit communication to non-exempts during off-hours • Don’t give PDAs, laptops, etc. to non-exempts

18. 4. EMPLOYERS MAY “ROUND” EMPLOYEE WORK TIME • Time clocks are not mandatory – accuracy is. • If clock used, employer may “round” by recording start and stop times to nearest: • Five minutes; • One-tenth of an hour; • Quarter of an hour. • Employer must round up and down uniformly. Employer cannot always "round down.“ • Beware “creative” time clock programming.

19. 5. CALCULATING THE “REGULAR RATE” OF PAY • Overtime pay is computed on the basis of an employee’s “regular rate” of pay • The regular rate is the hourly rate derived by dividing total pay by total weekly hours • Rate may/will change if employees are paid multiple rates or multiple incentives, bonuses, commissions or paid via piece-rates

20. 5. “REGULAR RATE” OF PAY, CONT. • If an employee receives other types of compensation in addition to his hourly rate, some of these payments must be included in the regular hourly rate. Payments which must be included: • Awards or prizes won for quality, quantity or efficiency; • Bonuses and incentives based upon quality, quantity or efficiency; • Bonuses based on hours worked; • Commission payments; • Reasonable cost of employer-provided lodgings, meals and other facilities furnished to employees; • Shift differentials and "dirty" work premiums; and, • Lump sum on-call payments.

21. 5. “REGULAR RATE” OF PAY, CONT. • What does not have to be included in calculating the regular hourly rate: • Suggestion plan awards; • Discretionary bonuses; • Employee referral bonus; • Employee benefit plan contributions; • Paid leave from work; • Expense reimbursements; • Premium payments • For work outside normal daily/weekly hours • For work on Saturdays, Sundays, holidays or nights if the premium is paid at a rate one-and-a-half times the regular rate paid for work during other hours; and, • Gifts.

22. 6. DEDUCTIONS FROM WAGES • Which can you deduct? • Employee’s register comes up short (again) • Employee leaves register unlocked (again) and it gets robbed • Employees are horsing around and end up damaging a piece of equipment • Terminated employee refuses to return a $2,500 laptop • Answer: none of the above!

23. 6. DEDUCTIONS FROM WAGES In Illinois, employers may not withhold, deduct, or divert any part of an employee’s pay except for the following: • Requirements of state or federal law. The law requires that FICA and other taxes be deducted. • Deductions made for the employee’s benefit – payroll savings, insurance, union dues, etc. • Court-required deductions such as garnishments, child support payments, or debtor’s judgments. • Other deductions made with the employee’s express written consent, freely given, at the time the deduction is made.

24. 6. DEDUCTIONS FROM WAGES –CONT. Employers may not generally withhold the following from employees’ wages: • Bad checks from customers. • Improper use of credit cards by customers. • Customer walk outs. • Cash or inventory shortages. • Damage or breakage costs. • Penalties for violating company policy.

25. 7. INCORRECT TREATMENT OF BREAKS AND MEAL PERIODS • When must an employee be given a break? • Not required by FLSA • Many state laws do have such requirements and where state law more stringent, must follow state • IL: In a shift of 7.5 hours or more, must allow 20-minute break starting no later than 5 hours into shift

26. 7. INCORRECT TREATMENT OF BREAKS AND MEAL PERIODS, CONT. • Rest periods/coffee breaks from 5-20 minutes are compensable • Meal periods are considered non-working time if: • 30 minutes in duration; and, • employee is completely relieved of duties • Meal periods are compensable if the employee is frequently interrupted. • If period regularly interrupted (50%+ of time) may create compensable time for all days, even if free 1 or 2 a week When must break be paid?

27. 8. MISCLASSIFYING EMPLOYEES AS INDEPENDENT CONTRACTORS • The “1099 defense” • Employment status is defined by law, not by the parties’ agreement • Most significant factor is whether the putative employer has control or the right to control the worker, both as to the work done and the manner in which it is performed • “Factors” to determine status vary: IRS, EEOC, DOL, IDES . . . • Also: beware “volunteers”

28. Wage and Hour Compliance Audits

29. Wage and Hour Compliance Audits • The U.S. Department of Labor (“DOL”) estimates 70% of employers are not in compliance with FLSA • Collective actions brought under the FLSA now surpass class claims under all other employment laws.

30. Most potential FLSA violations can be identified through a review of payroll records and procedures.

31. Why Do An Audit • Overtime claims are attractive to plaintiffs’ counsel because FLSA is fee-shifting statute. Audit can be used to police policies and practices and prevent costly litigation. • FLSA claims difficult to defend. Particularly on a class basis. Most employers settle these claims before trial. • Willful claims may extend liability from 2 to 3 years, along with liquidated damages, fees, costs. • Cost of the audit is a fraction of the potential liability.

32. Why Employers Should Use Outside Counsel to Conduct an Audit • Audit will ordinarily be protected by the attorney client privilege. • Audit can be utilized as an element of company’s good faith defense in subsequent litigation. • Counsel should have extensive experience in identifying wage and hour issues and developing creative solutions.

33. Dismantling Your Wage and Hour Time Bombs: Strategies for Ducking the Explosion in Wage-Hour Litigation July 23, 2009 | DeKalb, IL Presented by: Neil H. Dishman, Esq. Jackson Lewis LLP | Chicago 312.787.4949 | jacksonlewis.com | http://myupdates.jacksonlewis.com