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Presented by: Thomas M. Lucas (Norfolk) firstname.lastname@example.org 757.648-1424 Kristina H. Vaquera (Norfolk) email@example.com 757.648-1448 July 8, 2014 Understanding the Wage and Hour Laws
What is causing Wage and Hour Anxiety? DOL enforcement activities and increased audits Ever-increasing numbers of Wage and Hour lawsuits, including class/collective actions Available damages to Wage and Hour litigants, including liquidated damages and attorneys’ fees
Facts and Trends In Wage and Hour Enforcement The DOL estimates 70% of employers are not in compliance with the Fair Labor Standards Act (“FLSA”). September 2011: DOL announced launch of a multi-agency Misclassification Initiative,targeted at improper classification of employees as “independent contractors”. March 2014: President Obama directs the Secretary of Labor to address concerns that “basic overtime protections have eroded,” calling for changes in regulations governing white-collar exemptions.
Facts and Trends In Wage and Hour Enforcement • DOL’s Wage and Hour Division (“WHD”) has a budget of $224M in 2014 – with proposed $265M in 2015 • WHD enforcement has been aggressive:
Facts and Trends In Wage and Hour Litigation • Wage/Hour lawsuits continue to rise: • Wage/Hour collective suits exceed total suits under all federal employment laws combined.
Damages in Class/Collective Cases Can Be Substantial Examples: • $187 millionfor 187,000 employees - off-the-clock work and meal/rest period violations. • $44 millionfor 22,000 financial advisors challenging exempt status. • $42 million for 3,000 loan underwriters challenging exempt status. • $35 million for 1,700 quality assurance engineers, customer support engineers, and project managers challenging exempt status.
Damages in Class/Collective Wage and Hour Cases Can Be Substantial $34 million - 12,000 retail assistant store managers. $32 million - 17,000 poultry processors for time spent “donning and doffing”. $27 million - 30,000 audit employees alleging uncompensated donning and doffing, waiting time, and travel time. $20 million - 4,570 home mortgage consultants challenging exempt status. $18 million - 8,000 field techs - off-the-clock work. $17 million - 667 senior analysts and database administrators challenging exempt status.
Common FLSA Pitfalls Misclassifying non-exempt employees as exempt Making improper deductions from exempt employees’ salaries Failing to pay non-exempt employees for all hours worked (e.g. allowing employees to work “off the clock”) Failing to pay or miscalculating overtime for non-exempt employees Misclassifying employees as independent contractors
Misclassifying Employees As “Exempt” • Employees are presumed to be non-exempt • Employer’s burden to prove exemption • Salaried does not mean ‘exempt’ • Job title does not control – job duties control!
“White Collar” Exemption Requirements FLSA - two-part test: • Salary basis test - does not apply to outside sales and certain computer professionals. AND • Duties test - primary duties which satisfy the requirements for executive, administrative, professional, computer or outside sales
DOL’s examples of “management” activities Interviewing, selecting, and/or training employees Setting and adjusting rates of pay and hours of work Directing/planning employees’ work; Apportioning work among employees; Maintaining production or sales records for use in supervision or control; Appraising employees’ productivity or efficiency for purposes of recommending changes in employment status (e.g., promotions);
Hypothetical Plaintiff is a retail store manager who works 50-60 hours/week for a salary of $28,000/year. Plaintiff hires, trains, supervises, disciplines and directs the work of 6-8 employees, with little to no supervision from a District Manager. This comprises 50-60% of her work. The balance of Plaintiff’s time is spent running the cash register, sweeping, mopping, shoveling snow, stocking shelves and other “non-exempt” work.
Is The Manager An Exempt Executive? • The executive exemption applies. • The Court focused on: • Relative importance of exempt duties – the Court observed that Plaintiff’s employment evaluations measured her success based on the exempt, managerial functions. • Amount of time spent on exempt work – even accepting Plaintiff’s estimates of time, she spent close to 40% of her workweek on exempt functions. • Relative freedom from direct supervision – the District Manager was rarely present on-site and always adopted Plaintiff’s recommendations regarding employee discipline/hiring. • Relationship between Plaintiff’s salary and other employees’ wages - Plaintiff’s hourly equivalent was $10.56/hour; the non-exempt assistant store manager earned $7.25/hour.
Tax Research Finance Safety and Health Accounting Personnel Management Auditing Human Resources Employee Benefits Quality Control Purchasing Labor Relations Procurement Public Relations Advertising Government Relations Marketing Insurance Areas of work directly related to management policies or general business operations
Discretion And Independent Judgment In general, the exercise of discretion and independent judgment involves: The comparison and the evaluation of possible courses of conduct and Acting or making a decision after the various possibilities have been considered.
“Discretion and Independent Judgment with Respect to Matters of Significance” Exempt employees should not be given or otherwise required to follow detailed manuals or guidelines. Exempt employees should not be evaluated according to the amount they produce. Exempt employees should play a role in determining business strategy, direction, efficiency, policies, etc. “Context matters” – employees are more likely to be found exempt where their services are not the main focus of the actual business itself.
Administrative Employees - Meet At Least 2 or 3 Factors: Has authority to formulate, affect, interpret, or implement policies/practices. Carries out major assignments in conducting the operations of the business. Performs work that affects business operations to a substantial degree, even if employee’s assignments are related to a particular segment of the business. Has authority to commit Company in matters that have significant financial impact. Has authority to waive or deviate from established policies/procedures without prior approval.
Administrative – 2 or 3 Has authority to negotiate and bind Company on significant matters. Provides consultation or expert advice to management. Involvement in planning long- or short-term business objectives. Investigates and resolves matters of significance on behalf of management. Represents Company in handling complaints, arbitrating disputes, or resolving grievances.
Examples Of Exempt Administrative Jobs Insurance Adjusters Project Managers Human Resource Managers Financial Services Executive assistant or administrative assistant to a business owner or senior executive of a large business who has been delegated authority regarding matters of significance. Management consultants who study the operations of a business and propose changes in organization.
Hypothetical Plaintiff is an Underwriter for a bank (i.e. evaluates whether to issue loans to applicants). Refers to bank’s guidelines in making such evaluations. Plaintiff also has the ability and discretion to issue loans outside of the scope of the guidelines. Exempt or Non-exempt?
Underwriter - Exempt Administrative? • No - Court’s conclusion was based in its interpretation of the “administrative v. production” dichotomy. • The Court held that: • “Production” can refer to intangible services rather than materials goods. • There is no “level of responsibility, importance, or skill” that per se meets the exemption. • Production work can be quantified in a way that administrative work generally cannot. • Production is primarily functional rather than conceptual. • Underwriters are engaged in the production of loans, not general business operations of the bank.
Hypothetical Plaintiff is a Regional Director of sales for a free travel magazine. She is responsible for generating advertising sales for the magazine from the travel and finance sectors throughout the U.S. and Canada.
Regional Director -Exempt? • Exemption does not apply. • Court focused on the administrative v. production dichotomy in the sales context, which it referred to as the administrative v. sales dichotomy. • Court - salespersons responsible for selling specific ad space or making specific sales to individual customers are non-exempt. • Those responsible for “promoting” sales, or who encourage a general increase in sales (i.e., who decide pricing, etc.) are exempt. • Magazine was free, ad space Plaintiff sold was its “product,” and she was responsible for selling that product, not for the general operations of the company.
Professional Professional work requiring advanced knowledge acquired via prolonged course of study Invention, imagination, originality, talent Medicine, teaching, accounting, engineering , law Music, writing, graphic arts, acting
Misclassifying Employees As Independent Contractors Employment status is defined by law, not by the parties’ agreement. Most significant factor is whether the potential employer has control or the right to control the worker, both as to the work done and the manner in which it is performed. Case-by-case analysis. “Factors” to determine status issued by DOL, IRS, EEOC and other federal and state agencies. Potential liabilities are overtime payments, insurance benefits and statutory benefits. States are in need of revenue – significant focus on audits.
Steps to Reduce Risk of Misclassification Draft and execute written agreements with all independent contractors. Do not impose employment practices or work rules on independent contractors. Do not attempt to prohibit independent contractors from working for or with others. Require all independent contractors to provide their own transportation, equipment, tools, etc. Require all independent contractors to be separately incorporated business entities.
Lessons: Exempt employees should not be given or otherwise required to follow detailed manuals or guidelines. Exempt employees should not be evaluated according to the amount they produce. Exempt employees should play a role in determining business strategy, direction, efficiency, policies, etc. “Context matters” – more likely to be exempt if their services are not the main focus of the actual business itself.
Job Descriptions Should Be Accurate and Support Exempt Status • Audit job descriptions to ensure that they accurately reflect what the employee is actually doing. • Exempt employees’ evaluations - should focus on their exempt work tasks • Exempt employees’ job descriptions should not identify ministerial tasks. • Job titles and descriptions that bear no relation to employees’ actual job duties will not secure the exempt status!
What Is The “Regular Rate”? • The regular rate of pay is determined on an hourly basis by (in general) calculating all compensation paid to an employee in a work week then dividing that amount by the actual number of hours worked in that work week. • Not be less than the applicable minimum wage (currently $7.25/hour ).
Pay Which May Be Excluded From The Regular Rate Gifts, such as Christmas or birthday money Payments for time not worked, such as holidayor vacation pay Discretionary bonuses Profit sharing plans Talent fees Premium payments
Regular Rate Pitfalls Misclassifying bonuses as "discretionary." Commissions - when "earned" or "accrued." Failing to allocate bonuses or commissions to past work weeks.
Overtime Covered, non-exempt employees must receive one and one-half times the regular rate of pay for all hours worked over forty in a workweek. No limit to # of hours over 16 years of age
Calculating Overtime Pay • Each workweek stands alone. • Averaging of hours between work weeks prohibited for non-exempt employees. • Compensatory time off in lieu of overtime pay is generally unlawful.
Overtime Pay Using Fluctuating Work Week The regular rate of an employee whose hours of work fluctuate from week to week and who is paid a stipulated salary with the clear understanding that the salary covers straight time pay for all hours worked (whether few or many) will vary from week to week.
Permissible Deductions Full week disciplinary suspensions Full day suspensions for violation of written rules Full/partial day suspensions for major safety violations Full day absences due to sickness/disability if made under a bona fide plan/policy/practice providing comp for salary lost
Permissible Deductions First or last week of employment Exempt employee takes leave under the Family and Medical Leave Act Offset jury fees, witness fees, military pay
Paid Time Off Banks • Deductions may be made to an employee’s accrued PTO bank for partial day or full day absences (for any reason) without affecting the salary basis of payment so long as the employee receives his/her guaranteed salary. • The exempt status of an employee is not affected if an employer requires its exempt employees to record/track their hours.
Safe Harbor Rule Otherwise valid white collar exemption will not be lost for improper deductions if the employer: Implements andenforces a written policy prohibiting improper deductions Does not repeatedly or willfully violate its policy or continue to make improper deductions after complaint S.A.F.E. Harbor
Unauthorized “Overtime” Charlie works as a bookkeeper. His shift is 9 – 5. He always clocks in at 9 am and usually clocks in/out for his scheduled meal break, but that 30 min is automatically deducted anyway. Charlie never signs off his computer before 5:25 pm, although his manager knows Charlie stops working at 5:00. He just sits at his desk, writing emails to his family, surfs the Web and perhaps waits for some reports from departments that come in late. Is Charlie entitled to OT? If so, how much?
Unauthorized Overtime • Can the manager edit Charlie’s time entries? • What can/should Charlie’s supervisor do? • Charlie could be disciplined for failing to clock out when he ‘finishes’ his shift and/or for working overtime without prior authorization • Discipline should be acknowledged in writing by Charlie.
Editing Time Records • When is ‘editing’ of time records permitted? • If employee forgot to clock in/clock out • Error/glitch with time-keeping system • Managers must obtain signed affirmation that employee approves the edit and the edit reflects all hours worked • Signed affirmation must be kept in employee’s file.
Editing Time Records Jordan, Confidential Executive Assistant to the CEO, never clocks out for meal periods, although in charge of time-keeping for the front office staff. She sometimes works straight through 8 am – 5 pm because she’s so busy, but the 1-hour meal period is automatically deducted from her salary. Can the Office Manager edit Jordan’s time records to show that she took the meal period? Should Jordan be paid for the meal periods? Any problem in not paying her?
Compensable Time Issues Unauthorized Working Time (29 C.F.R. § 785.11) • Employers must compensate employees for unauthorized work when an employer "suffers or permits" employee to work; • An employer suffers or permits an employee to work where the employer knew or had reason to believe the employee was performing work; • Employers are free to discipline employees for unauthorized work.
Compensating Employees For ALL Hours Worked "Off The Clock" Work • Starting work before clocking in. • Clocking out, but continuing to work. • Working during meal periods. • Unauthorized overtime "off the clock." • Working at home – checking email – taking calls?
Off-the-clock Work • Preparatory and Concluding Activities • What about time spent changing clothes, washing up, starting up computers, printing off material from prior workday and other ‘prep’ and ‘concluding’ activities? • Rule: If the activity is an integral and indispensable part of the employee’s principal activities, or required by law or the employers policies or rules, its compensable. • If activities are for the employee’s convenience, not compensable: • Sharpening knives in kitchen? Compensable • Donning and doffing protective gear? Probably compensable. • Print/starting computers?