Employer Law Report : Employment and Labor Relations Lawyer & Attorney : Porter Wright's Employer Law Report : Employment Litigation, Non-Compete, Trade Secrets

On Monday, February 1, 2010, the U.S. Department of Labor (DOL) released its budget for the 2011 fiscal year. In a 95-page summary of the new budget, the DOL elaborated upon its plans for the approximately $14 billion it seeks in discretionary budget authority. According to the summary, the DOL will focus its efforts in 2011 on supporting reform of the Workforce Investment Act, rebuilding Worker Protection Programs, initiating a multi-agency legislative proposal to establish automatic workplace pensions, and boosting funds for unemployment insurance integrity efforts. From our perspective, however, the two most notable aspects of the 2011 budget are its provisions concerning employer misclassification of workers and paid family leave. 

The DOL proposes to devote $25 million to a joint Labor-Treasury Misclassification Initiative that will enable the agency to better detect, investigate, and prosecute employers who misclassify their workers, and to offer competitive grants to boost states’ incentives to address the problem. In addition, the DOL proposes to further limit the possibility of employer misclassification by:

1. requiring employers to demonstrate that their employees are classified correctly,
2. closing the safe harbor created by Section 530 of the Revenue Act of 1978, and
3. making misclassification of employees an explicit violation of the FLSA.  

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Recent reports have indicated that the number of FLSA collective actions rose sharply in 2009. Many believe this trend will continue in 2010 as employees gain increased awareness of their rights under wage and hour laws and the plaintiffs' bar recognizes the potential value of FLSA collective actions.

Indeed, there has been a recent flurry of activity across the country in the area of wage and hour class actions. Assistant managers at Foot Locker Retail Inc. filed a nationwide collective action in the Southern District of California, alleging that the company misclassified them as exempt and failed to pay them overtime wages. Similarly, Vermont state employees have brought a putative class action under the FLSA, claiming that the state has failed to pay overtime to employees in higher pay grades. 

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Wage and Hour Audits 101: 
Preparing for Audits and Preventing Them in the First Place

Presented on Thursday, December 3, 2009
Our December wage and hour webinar focused on how you should prepare for a wage and hour audit and, perhaps more importantly, how to prevent an audit in the first place.  

If you missed this session, you can listen to the recorded webinar here. 

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Cutting Costs Without Violating Wage and Hour Law

As employers try to do more work with fewer employees, implement furloughs or reduced schedules, and contemplate combining job functions, we would like to remind our clients and friends of some important guidance to ensure that your company does not run afoul of wage-and-hour regulations.

Learn the answers to frequently asked questions as we share important insight into these issues — without leaving your desk!

Click here to view this recorded program.

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The federal Department of Labor (DOL) recently issued a new fact sheet entitled “Frequently Asked Questions Regarding Furloughs and Other Reductions in Pay and Hours Worked Issues.”  While the fact sheet contains no new law or interpretation, in these economic times, it is extremely helpful for employers to have the DOL’s prior guidance on these issues consolidated in one sheet. 

The fact sheet is set out in a question-and-answer format that is easy to follow. It addresses the following questions:

1. If an employer is having trouble meeting payroll, do they need to pay non-exempt employees on the regular payday? Answer: Yes.
    
2. Is it legal for an employer to reduce the wages or number of hours of an hourly employee? Answer: Yes, so long as the minimum wage and overtime provisions are met.
    
3. Does an employer need to pay an hourly employee for a full day of work if he or she was scheduled for a full day but only worked a partial day due to lack of work? Answer: No.
    
4. In general, can an employer reduce an otherwise exempt employee’s salary due to a slowdown in business? Answer: It seems to depend on what you mean. The fact sheet interprets this as a deduction for lack of hours worked. That is prohibited by the FLSA. Keep in mind, however, that employers are typically free to prospectively reduce an exempt employee’s overall compensation so long as the salary basis test and threshold is met.
    
5. Can an employer reduce the leave of a salaried exempt employee? Answer: Yes. Be careful when making any deductions from pay. Also keep in mind that, under Ohio law, accrued leave is the same as earned wages – it is not advisable under state law to “take away” leave that has already accrued.
    
6. Can a salaried exempt employee volunteer to take time off due to lack of work? Answer: Yes, which would allow the employer to deduct for a full day’s absence.  Proving that the employee truly “volunteered,” however, may be next to impossible.  This option should be resorted to only with great caution.
    
7. Can an employer make prospective reductions in pay for a salaried exempt employee due to the economic downturn? Answer: Yes. See Question 4.
    
8. Can an employee still be on-call or performing work at home during a furlough day? Answer: Employees who perform part or all of their normal job duties during a furlough day are working and are entitled to appropriate compensation.

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In wage and hour news, the TLC show “Jon & Kate Plus 8” may be in some hot water for violations of state child labor laws. Troy Thompson, Spokesman for the Pennsylvania Department of Labor and Industry, has been widely quoted as confirming that the agency received a complaint and is conducting an investigation.  

Many people don’t realize that the child actors on their favorite television show are protected by state child labor laws. While state requirements vary, many have restrictions on the number of hours a child actor can work in a day or week, require special permits, or even require a teacher to be present on the set. At this point, it’s unclear what alleged violations may (or may not) have occurred on the set of Jon & Kate Plus 8. Regardless, this seems to be yet another hurdle in the controversial show’s path this season.

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Back in February, Ohio Attorney General Richard Cordray announced a collaboration between his office and the Ohio Department of Job and Family Services, Ohio Department of Taxation, and Ohio Bureau of Workers’ Compensation to release and exchange confidential information to reduce the number of employers that are misclassifying workers as independent contractors. A report issued at the same time by the Attorney General's office estimated that the extent of annual costs to the state from worker misclassification totals $100 million in payments for unemployment compensation, more than $510 million in BWC premiums and almost $180 million in forgone state income tax revenues.

With the Ohio Attorney General's enforcement eye now focused on the costs of misclassification, it is important for Ohio employers to understand the potential consequences if they are found to have misclassified workers as independent contractors. First and foremost, they risk potential federal, state, and local taxes, fines, and penalties and workers compensation premiums and penalties. In addition, several multi-million dollar lawsuits have been brought against employers for failing to pay proper wages, including overtime, under the FLSA. Finally, employers with ERISA retirement and welfare benefit plans that do not contain "fail safe" provisions run the risk that misclassified workers will be found to be employees who are retroactively entitled to benefits under those plans. Alternatively, as to plans that do contain fail safe provisions, employers may need to redo the non-discrimination testing to make sure that each plan's tax-qualified status is not jeopardized by the omission of those employees. 

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We just ran across a wage and hour case out of Texas with a unique twist on the usual overtime claim. Bustamente, an undocumented immigrant, alleged that the El Palenque Mexican Restaurant and Cantina forced him to work under another identity to avoid overtime.  

According to Bustamente, the kitchen manager realized he lacked the documentation to work legally in the country but told him it wouldn’t be a problem if he had some documents. Bustamente began working under his brother’s identity. (He actually brought the case as Jesus Bustamente, the brother– he only confessed that his real name is Cristoforo one week prior to trial). Soon after, Bustamente alleged that the restaurant had him fill out an application using his nephew’s identity in order to avoid overtime pay. He worked the early shift as his brother, the evening shift as his nephew. Bustamente testified that he received two separate paychecks. 

The restaurant’s defense was straightforward – Bustamente and his nephew were both employees. The company used a fingerprint timekeeping system, making it difficult to impersonate someone. Witnesses remembered the nephew as taller than Bustamente. The company did pay overtime to other employees.  Most important, the company produced payroll records showing that Bustamente and his nephew actually worked the same shift on one occasion. In light of the conflicting testimony and confusing payroll records, the court found that Bustamente could not prove his claims. 

While the facts of this case are amusing and hopefully not likely to repeat themselves often, it serves as a good reminder that clear, accurate payroll records can be an employer’s best friend in a wage and hour case.   Cristoforo Bustamente, a/k/a Jesus Bustamente, a/k/a Angel Bustamente, v. El Palenque Mexican Restaurant and Cantina, Inc., Case No. No. H-07-2506, (S.D. Tex, February 3, 2009).

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On March 6, 2009, the United States Department of Labor (DOL) released two noteworthy wage and hour opinion letters.

The first, Opinion Letter FLSA2009-16, may cause an unnecessary stir in the employer and legal communities. The opinion letter approves an employer’s “compressed work schedule.” Employees work nine hours per day Monday through Thursday and work eight hours on one of the two Fridays during the two-week pay period. The company operates under two alternative workweeks. Under the first option, the workweek begins at 11:31 a.m. on Friday and ends at 11:30 a.m. the following Friday, with the scheduled workday beginning at 7:30 a.m. Under the second option, the workweek begins at 12:31 a.m. on Friday and ends at 12:30 a.m. the following Friday, with the scheduled workday beginning at 8:30 a.m. Assuming the employees work no more than the stated hours, they do not receive overtime under this schedule.

On first glance, this opinion letter appears to allow employers to “average” the workweek – employees work 44 hours one week, 36 hours the next. While this reading would be extremely employer-friendly, it would also contradict the Fair Labor Standards Act, which sets a single workweek as the standard length of time used to determine if an employee is due overtime. The law does not allow for the averaging of hours over two or more weeks. See 29 U.S.C. § 207(a)(1); 29 C.F.R. § 778.104. 

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A good illustration of why managers should regularly review their employees’ timesheets comes courtesy of The Day.com.

Lisa Bloomer worked for the Connecticut Department of Developmental Services. A few years ago, Ms. Bloomer’s former boss invited her to a casino. That first trip was all that it took: Ms. Bloomer became addicted to gambling. 

Fortunately for Ms. Bloomer, she made $210,000 over the course of the next three years working for the state – an income that easily fueled her addiction. The only problem was that she reported many working hours that were actually hours spent at the casino, rather than at her job. In short, the State of Connecticut was paying Ms. Bloomer almost $70,000  per year to play the slots. 

Upon discovery, Ms. Bloomer resigned her position and her supervisor was fired for failing to catch the problem. Although this is an extreme example, it is a perfect illustration of why it’s crucial for employers – especially in difficult economic times – to review timesheets and other records with a critical eye. 

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Numerous news reports suggest that President-Elect Obama will name California Congresswoman Hilda Solis (D. Cal.), who was a co-sponsor of the Employee Free Choice Act, as his administration’s Secretary of Labor. Both the SEIU and the AFL-CIO have issued press releases enthusiastically responding to this news. Those of you who are curious or wary about this selection may wish to visit her website at http://solis.house.gov

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On November 18, 2008, the Federal Motor Carrier Safety Administration (FMCSA ) issued a news release stating its adoption as final the provisions of the Agency’s December 17, 2007, interim final rule concerning hours of service (HOS) for commercial motor vehicle (CMV) drivers. This final rule allows CMV drivers to continue to drive up to 11 hours within a 14-hour, non-extendable window from the start of the workday, following at  least 10 consecutive hours off duty (11-hour rule). Drivers also cannot operate a truck if they have worked more than 60 hours in a given week.   The rule allows motor carriers and drivers to continue to restart calculations of the weekly on-duty limits after the driver  has at least 34 consecutive hours off duty (34-hour restart). This rule is effective January 19, 2009.

In the news release, FMCSA Administrator, John Hill, also noted that in 2006, the Agency proposed a rule that would require drivers and trucking companies with serious or repeat hours-of-service violations to track their hours-of-service using electronic on-board recorders (EOBRs). The final rule for EOBRs is pending.

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 The Ohio Department of Commerce recently released new prevailing wage guidelines.  These guidelines, which became effective on October 15, 2008 and are available at http://com.ohio.gov/laws/,  focus on construction projects supported by both public and private funds.  Essentially, whenever a public entity contributes funding or other direct support (such as public land) to a project, even an otherwise privately-financed project, prevailing wage must be paid to the workers on that project.  The guidelines also state that, for the most part, projects may not be subdivided into a publicly-supported project and a privately-financed project in order to avoid prevailing wage on certain “phases” of a project. 

 While the guidelines are intended to clarify the existing law, rather than create new standards, some of the examples listed in the guidelines have resulted in much controversy, particularly in the areas of asbestos removal/brownfield remediation.  Nevertheless, the guidelines are considered to be currently in effect and Ohio employers should approach prevailing wage issues conservatively.  Please contact your attorney if you have any questions on prevailing wage or whether a construction project is covered by the state law. 

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Effective January 1, 2009, Ohio’s minimum wage will increase to $7.30/hour generally and $3.65/hour for tipped employees (plus tips). 

The state minimum wage will briefly change to $6.55/hour for employers grossing $267,000 or less per year and employees who are 14 or 15 years of age. On July 24, 2009, pursuant to an increase in the federal minimum wage, the Ohio minimum wage increases to $7.25 per hour those employees whose employers gross $267,000 or less and 14 & 15 year olds.

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Opinion Letter FLSA2008-1 addressed whether purchasing agents in a private sector company were properly categorized as exempt administrative employees. Based on the specific context, DOL determined that the employees were exempt from overtime requirements. As a reminder, to meet the criteria for an administrative exemption, the position must: (1) meet the salary basis test; (2) have a “primary duty” of performing office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and (3) include the exercise of discretion and independent judgment with respect to matters of significance in performing the primary duties. 29 C.F.R. § 541.200(a).  

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Failing to pay overtime to an employee because he or she was incorrectly classified as exempt under the Fair Labor Standards Act can be an expensive mistake. Not surprisingly, failing to pay overtime to employees holding a group of jobs improperly classified as exempt can have serious financial consequences for an employer.

Last week, in Wiegele v. Fedex Ground Package System Inc., 3:06-cv-01330-JLS-POR (S.D. California 2008) et al., a federal judge certified a class of former managers who claim to have been improperly denied overtime pay. The managers argued that they spent most of their time performing manual labor instead of managerial tasks and, accordingly, that they should have been classified as non-exempt workers, eligible for overtime. Considering the bid for class certification, the court found that the common issue of whether the employees were exempt predominated over individualized issues and that it would be more efficient to certify the class than allow the claims to proceed as individual actions.

It remains to be seen whether the plaintiffs’ claims have merit – i.e., whether they were, in fact, misclassified as exempt employees. Nonetheless, the cost of defending claims on a class basis coupled with the possibility of up to three years of backpay for classes containing more than 550 members illustrate the magnitude of the potential risk for employers that incorrectly classify entire job groups as exempt. To help avoid such risks, employers should periodically review their exempt job classifications to ensure that incremental changes to jobs that occur over time do not destroy the exempt status of employees in those positions.

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A recent wage-and-hour case illustrates the effect payroll deductions can have on minimum wage compliance. In Rivera v. Brickman Group, Ltd., No. 05-1518 (E.D. Pa. Jan. 7, 2008), a company brought Guatemalan and Mexican workers to the United States for seasonal employment under H-2B visas. Although the workers were paid amounts that appeared to be above the minimum wage, the company failed to take into account certain travel expenses and other employment-related costs incurred by the workers – expenses that reduced the workers’ earnings below minimum wage levels.

In particular, the court found that transportation expenses, costs involved in obtaining visas, and fees charged by the company’s recruiters were incurred by the workers primarily for the company’s benefit. Therefore, the company violated the Fair Labor Standards Act because the deductions brought the employees’ earnings below the minimum wage. In reaching its decision, the court rejected the company’s argument that the Immigration and Nationality Act and the Portal-to-Portal Act supersede the FLSA with regard to H-2B workers’ wages and do not require employers to bear the travel expenses of such employees. The company has not yet announced whether it will appeal the decision.

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Are you making improper deductions from employees’ pay without even realizing it?  Have you ever had a manager who is consistently late and you want to impose a fine equal to 15 minutes of pay for each occurrence?  Or an hourly employee who loses or destroys company tools or equipment and you want them to pay you back for what they broke?  What about an employee who resigns while he or she has a negative leave balance? In all these situations, making a deduction from pay makes logical sense.  But these deductions may be contrary to wage and hour law.

First, many states have laws requiring employers to obtain employee authorization prior to making deductions from pay.  The Ohio wage and hour statutes refer to “employee authorized deductions” generally and specifically require employers to have express authorization before making deductions for damage to tools or equipment.  See Ohio Rev. Code §§ 4113.15; 4113.19.  Pay careful attention to state law before you make any deductions from pay!  You should also consider including a general deductions policy in your handbook, and realize that you may need to obtain specific waivers for certain deductions from pay.

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Adding clarity to an often-litigated area of wage and hour law, the Sixth Circuit recently held that a small store manager was exempt from the FLSA's overtime requirements despite her performance of non-managerial tasks and close supervision by her district manager. The case – Thomas v. Speedway SuperAmerica, LLC, No. 04-00147 (6th Cir. 2007) – involved a Speedway  gas station and convenience store manager who Speedway claimed was an exempt “executive employee” under the Fair Labor Standards Act. Even though the store manager was the most senior employee at the store, she was supervised by a district manager who visited the store twice a week. She was expected to work at least 50 hours per week, and often worked much more than that. She received a $500 weekly base salary as well as managerial bonuses equaling a percentage of the gross profit from certain products sold in the store. As for her day-to-day work duties, the manager spent about 60 percent of her time performing non-managerial tasks such as stocking merchandise, sweeping bathrooms, operating the cash register, and performing routine clerical duties.  The remaining 40 percent of her time was spent performing several management functions, including supervising current employees, hiring new employees, preparing weekly work schedules, handling employee complaints, evaluating employees, and terminating employees.

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Ohio employers should be aware that the minimum wage is about to increase yet again. The Ohio Department of Commerce has announced that the state’s minimum wage will increase to $7.00 per hour on January 1, 2008 – a 15 cent increase over the 2007 minimum wage. The minimum wage for tipped employees will rise from $3.43 to $3.50 per hour, so long as employees earn a total of $7.00 per hour once wages and tips are combined. 

These new minimum wages apply to employees over 16 years of age whose employers gross more than $255,000 annually. For employees younger than 16 and those whose employers gross less than $255,000 annually, the federal minimum wage of $5.85 applies – but not for long. The federal minimum wage will increase to $6.55 on July 24, 2008.

A copy of the Department of Commerce’s 2008 Minimum Wage poster can be found here.

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