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By a tight five-to-four decision, the United States Supreme Court's Genesis Health Care Corp. v. Symczyk decision provides employers a method to "pick off" the lead plaintiff in an FLSA collective action using a Federal Rule of Civil Procedure 68 offer of judgment and by doing so, take out the remaining collective action. For reasons we will explain in a bit, however, the Court merely "assumed" -- without deciding -- that an unaccepted Rule 68 offer of judgment that offers complete relief moots the named plaintiff's individual claim and, in the absence of any other claimant having opted into the action, the individual plaintiff lacks any personal interest in representing others in the case. Because the Court was unwilling to resolve the predicate issue as it was anticipated it would, however, there remains a split among the circuit courts of appeal as to the effect of the Rule 68 offer of judgment under this scenario. As a result, the four dissenting justices argued, the decision “aids no one, now or ever” and should simply be forgotten.

Because the circuits are split on the mootness issue, employers should take Genesis for what it is: A potential weapon to stop frivolous wage/hour cases before they become expensive collective actions and further indication of the Supreme Court's efforts to limit the ability to bring class and collective actions – at least in those Circuits -- the Third, Fourth, Seventh (and perhaps the Fifth, which appears to be leaning this way) – that already have held that an unaccepted offer of judgment moots an individual plaintiff's claims. Unfortunately for those employers in Ohio, the Sixth Circuit, along with the Second, has gone the other way, rendering this strategy useless here – until the Supreme Court ultimately decides to actually resolve the split.

The Back Story: This case originated when respondent Laura Symczyk ("Symczyk") filed this case on behalf of herself and "all other persons similarly situated" as a collective action under the Fair Labor Standards Act ("FLSA") against her former employer, the petitioners, alleging the company's automatic meal break deduction policy violated the FLSA because it failed to pay employees for compensable work. While Ms. Symczyk purported to bring the case as a collective action, rather than a single-plaintiff lawsuit, she remained the sole plaintiff.

When the petitioners answered the complaint, and before Symczyk could move for conditional certification, they served Symczyk a Federal Rule of Civil Procedure Rule 68 offer of judgment and offered her $7,500 for her alleged unpaid wages, "reasonable attorneys' fees, costs, and expenses" as the Court would determine. The petitioners gave Symczyk ten days to respond, and when she did not, petitioners filed a motion to dismiss for lack of subject matter jurisdiction arguing they had offered Symczyk complete relief on her individual damages claim and she no longer had a personal stake in the outcome of the case. Symczyk argued in response that the petitioners were trying to "pick off" the named plaintiff before the collective action could play out.

The District Court found that because no other individuals had joined the suit and the Rule 68 offer of judgment fully satisfied Symczyk's individual claim, Symczyk's claim was moot and it dismissed her suit for lack of subject matter jurisdiction.

On appeal, the Third Circuit reversed. In holding that the case was not moot, the Third Circuit explained that the defendants' attempts to "pick off" the named plaintiff with a Rule 68 offer could short circuit the collective action process and frustrate the goals of collective actions. The Third Circuit remanded the case to allow Symczyk to seek conditional certification.

The Supreme Court's Decision: The Supreme Court overturned the Third Circuit. While most waiting for this decision expected the Supreme Court to resolve the issue of whether an unaccepted offer of judgment under Rule 68 that fully satisfied a plaintiff's claim renders a claim moot, it did not. While recognizing this is an issue on which the circuit courts remain split, the Court refused to decide this significant issue. Rather, the Court chose to "assume" Symczyk's individual claims were moot because she had conceded the point at the district court level and had not filed a cross-petition challenging it. The majority then determined that Symczyk had no "personal interest" left in the case to represent the other employees who had failed to join the suit, and therefore had no other "continuing interest to preserve her suit".

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The Northern District of Ohio is the latest in a long line of courts to send the following message to nationwide collective class plaintiffs: Stop seeking nationwide class certification where the plaintiffs are spread across facilities and have too many factual differences to be "similarly situated" and to have experienced a common injury under the Fair Labor Standards Act ("FLSA").

In Creely v. HCR ManorCare, Inc. (N.D. Ohio Jan. 31, 2013), a group of 318 nurses, licensed practical nurses, certified nursing assistants, and admissions coordinators opted into a collective action lawsuit alleging that their employer, HCR ManorCare, Inc. ("HCR"), a nationwide provider of short- and long-term medical and rehabilitation care, violated the FLSA by not paying them for all time worked because of HCR's improperly-administered automatic meal break deduction rule. After the notice stage, the parties sent notices to 3,239 current and former HCR employees from 29 facilities located in 28 states. Of those 3,239, 318 opted into the suit.

Sound familiar? It should. The case is similar to two recent Sixth Circuit cases that also concerned auto-deduct meal policies in the health care industry, Frye v. Memorial Baptist Hospital, which we blogged on here, and White v. Memorial Baptist Hospital, which we blogged on here.

The Creely plaintiffs tried to set their case apart from Frye by not arguing that the auto-deduct policy itself was per se illegal — a contention pointedly rejected in Frye. Rather, plaintiffs argued that, because they were subject to HCR's uniform auto-deduct policy, they either missed or worked though meal breaks, were not paid and that HCR illegally shifted the burden of monitoring "compensable work time" to them by requiring them to cancel the automatically deducted 30 minutes when they did not receive an uninterrupted meal break using its "missed punch" card system. The plaintiffs also argued that HCR failed to monitor them to determine if they actually received their meal breaks; that HCR failed to train or inform them what to do if they missed a meal break; and that they did not report missed or interrupted meal breaks because HCR did not train them or discourage them from doing so.

Plaintiffs' arguments highlight the problems for employers defending FLSA suits —the FLSA places the burden upon employers, not employees, to accurately record time worked and to ensure that employees are paid for all compensable time worked.

For its defense, HCR focused on the fact that plaintiffs' ability to take uninterrupted breaks depended on their particular facility, unit, shift, patient population served, job duties, and individual habits. Given the variables, HCR argued that the nationwide class could not be "similarly situated" because plaintiffs' ability to take breaks, and HCR's knowledge of plaintiffs' missed breaks, if any, depended on individual circumstances that could not be represented in a single class. This argument eventually won the day.

The Creely plaintiffs also took issue with HCR's "missed punch" form, which employees were to submit if they did not receive their meal breaks. Plaintiffs argued they were discouraged from submitting the forms, but from the testimony it was unclear whether this was actually the case.
What the evidence did demonstrate was that HCR – at the corporate level at least – had numerous, consistent policies on the "missed punch" policy, which were available to the employees. For example, HCR's Employee Handbook provided: "Occasionally, you will be unable to take a meal break or will be interrupted for an emergency. When this happens you must inform your supervisor that you were unable to take the scheduled break". My favorite, and what I thought was really smart on the part of the employer, was its "Letter of Understanding" it had some employees sign that provided: "I understand a 30-minute meal break will be deducted for every shift I work over five hours. I will notify my supervisor and complete the proper paperwork for any occasion where I do not receive my full meal break." Even though the evidence was scattered as to how many of the 318 plaintiffs signed the Letter of Understanding, or signed acknowledgments indicating they received any of HCR's numerous policy on the issue, the court found that the documents reflected a corporate-wide position to implement and enforce a "lawful" auto-deduct policy.

While the court recognized that the fact that individual proofs exist in a case will not defeat final certification because they always play a role in collective actions, the court noted that where the application of an auto-deduct policy is so varied based on several factors, including job duties and individuals managers at the various HCR facilities, plaintiffs are just not similarly situated to form a proper class.

The court looked to Frye and White to demonstrate what kind of factual distinctions weigh against "similarly situated" and, thus, against final certification. The court noted that in Frye, the court decertified an auto-deduct class where the employer implemented its auto-deduct policy on a facility-by-facility basis where each facility "maintained its own finance and human resources functions." The court cited to White for its finding that differences in job duties determined whether and why an employee would miss or have an interrupted meal break. The court went through numerous other cases to support its decision to decertify a class where company-wide policies were implemented in a decentralized manner.

Although Judge Zouhary had ordered the parties to brief the impact, if any, of the Brinker v. International Inc. v. Superior Court decision where the California Supreme Court clarified the meal break standard under California law, the Judge did not cite Brinker in his opinion.

Key Takeaways

Here, the fact that the employer had clear company-wide policies directing employees how to adjust for missed or interrupted meal breaks was key to the court's decision decertifying the class. I've said it before and I'll say it again: Have proper policies in place. If you are an employer that has an auto-deduct policy with a method for employees to signal that they did not get a meal break or had an interrupted meal break, put it in writing and make sure your employees get a copy of it. If you can, have your employees sign something similar to HCR's Letter of Understanding where your employees can acknowledge that they understand a 30-minute meal break will be deducted for every shift they work over five hours and that they will notify their supervisor and complete the proper paperwork for any occasion where they do not receive my full meal break.

The Future

This case begs the question, will these cases go away or did the plaintiffs simply aim too high. The court distinguished Creely from Berger v. Cleveland Clinic, another case out of the Northern District of Ohio, where the same court granted certification, because the plaintiffs in Berger all worked at the same facility, "in the same department within the same building, had the same supervisor, and their job duties overlapped significantly." With this, two big questions come to mind: (1) had plaintiffs sought to certify a small class based on the goings on of just one facility, would the proposed class have been decertified?; and (2) does this mean that instead of plaintiffs aiming to certify a large nationwide collective action, the trend will be for plaintiffs to bring numerous collective actions in each of the districts where an employer has its individual facilities?

The two more immediate questions are: (1) will plaintiffs appeal to the Sixth Circuit in light of Frye and White; and (2) will HCR seek their fees and costs like the defendant in Frye did to the tune of over $55,000, which we blogged on here?
 

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We have kept you up to speed on Martin v. Spring Break ’83 Productions, L.L.C., here and then here, a Fifth Circuit case in which the Fifth Circuit approved a private settlement of employees' claims for unpaid overtime under the Fair Labor Standards Act ("FLSA"). More specifically, the court held that parties could privately settle and release wage claims, under the right circumstances, and that doing so would not compromise employee rights guaranteed by the FLSA. The plaintiffs asked the Supreme Court to review the case arguing that the decision creates a split among the circuits, which it does. Martin is in direct conflict with Lynn's Food Stores, Inc. v. United States, an Eleventh Circuit case dating back to 1982 that held that FLSA claims could only be settled with the approval of the Department of Labor or the courts.

Despite the inherent conflict between the two jurisdictions, the United States Supreme Court has declined to take up the issue and settle the split. With the Supreme Court's move comes with good news and bad news. The bad news first, there will not be a resolution to this issue, at least not in the near future. Now the good, employers in the Fifth Circuit, which includes Texas, Louisiana, and Mississippi, can privately settle disputed claims under the FLSA in circumstances that are similar to those in Martin. So, for any such private settlement to be arguably valid under Martin, the following facts must be present in the case: (1) a genuine dispute regarding the compensation owed to the employee; (2) the employee must be aware of his or her rights under the FLSA; and (3) there the employee might be disadvantaged by unequal bargaining power. In addition, employers in other jurisdictions outside the Eleventh (the Eleventh Circuit governs Florida, Georgia and Alabama) have case law authority to argue that a private settlement of employee FLSA claims is enforceable. Of course, the question will be whether or not Martin or Lynn's Foods should control, but that will be for the courts in jurisdictions where Martin is argued to decide. And who knows, the more courts that side with Martin, the more likely it will get up to the Supreme Court who may decide to hear the issue.,

Fin.

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It's no secret that employers face an uphill battle when defending claims of unpaid hours worked by employees. These claims usually involve a similar pattern: the employee fails to report or record time worked, then the employee later raises that unpaid time worked in the form of a Fair Labor Standards Act claim for unpaid overtime against his employer. Many courts side with employees because the Fair Labor Standards Act places the burden upon employers, not employees, to accurately record time worked. But two recent federal appellate court decisions show that things may not be so grim when employers have adequate procedures in place for employees to record time worked and the employee fails to follow those procedures.

The Sixth Circuit Court of Appeals (which includes Ohio in its jurisdiction), recently upheld the dismissal of a similar claim by an employee under the FLSA, basing its decision upon the plaintiff's failure to follow the employer's reasonable procedures for reporting extra time worked. In White v. Baptist Memorial Health Care Corp., the employer automatically deducted its employees meal breaks, but allowed employees to report meals worked through an "exception log" submitted to the employer. The employer also had procedures for employees to report and correct payroll errors to a supervisor. The employee, White, claimed that she had worked through several lunch periods but was not paid for that time. She used the exception log in the past to report lunch time worked. But she did not use any of the employer's procedures to report the alleged unpaid meal periods at issue in her lawsuit.

The Court held that the employer did not know or have any reason to know of the time White worked during her meal breaks. It stated "[w]hen the employee fails to follow reasonable time reporting procedures she prevents the employer from knowing its obligation to compensate the employee and thwarts the employer's ability to comply with the FLSA." Because the hospital had reasonable procedures for White to report her time worked during meals and White failed to avail herself of those procedures, her FLSA claims lacked merit. The court added that there was no evidence that the hospital prevented or discouraged White from using its procedures to report her time.

The Tenth Circuit Court of Appeals (which covers Colorado, Kansas, Oklahoma, New Mexico, Utah, and Wyoming) followed similar reasoning to kick another plaintiff's FLSA lawsuit. In Brown v. ScriptPro LLC, the plaintiff, Brown, worked over 80 hours from home shortly after his second child was born. He failed to record any of this time in the employer's timekeeping system, which the plaintiff could access from home. After Brown was terminated, he alleged his employer violated the FLSA by its failure to paid him for the 80 hours he worked, among other claims.

Predictably, Brown argued that the FLSA obligates employers to keep accurate records of employees' time worked, and his employer's failure to do so in his case was an FLSA violation. The Tenth Circuit disagreed, stating that it was the employee's failure to comply with the employer's timekeeping system that was the problem. It said that "Mr. Brown chose not to enter any of the hours he allegedly worked from home in ScriptPro's timekeeping system," but noted that "Mr. Brown easily could have entered his hours [from home]; in fact he was required to do so." As a result of Brown's failure to appropriately enter his time, the Court found no FLSA violation occurred.

Key Takeaways

These cases show that clear policies and procedures requiring employees to record time worked outside of normally scheduled hours (including meal periods) can help employers defend themselves against FLSA claims for unpaid wages and overtime. But having these policies is just a start—the employer's procedures must be reasonable and easily understood, regularly communicated to employees and supervisors, and implemented in a manner that does not discourage employees from reporting additional time worked. With all of these elements in place, an employer can be well-positioned to defend itself against wage and hour claims when an employee fails to follow its procedures.

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We hope you enjoyed our five-part series last week addressing the Top 5 Holiday Headaches for Employers. Due to popular demand, we have compiled this series into an eBook for you and have added a special bonus:

Three FMLA Stocking Stuffers: How to Avoid a
Big Lump of Coal

We couldn't do a holiday-blog series and NOT include something about every employer's favorite holiday topic. Like fruitcake, it is a gift that nobody really wants or knows what do with... the FMLA.

Here we tackle three prickly FMLA-holiday questions. First, do holidays count against an employee's FLMA leave entitlement? Second, how does FMLA work in the case of a week-long plant, office or school shutdown? Lastly, does an employer have to pay an employee on FMLA leave holiday pay?

#1 - Does a Holiday Count Against an Employee's FMLA Leave Entitlement?

Let's say you have an employee who is out on FMLA leave from Monday, December 3, 2012 through Thursday, January 31, 2012. Let's also say that your office is closed Tuesday, January 1, 2013 to celebrate New Year's Day. Does the January 1, 2013 holiday count against the employee's FMLA leave entitlement?

The FMLA itself does not directly answer this question, so we look to the general rule for counting FMLA leave during a holiday week. The key here is whether or not the employee is absent for the entire week in which the holiday is observed. In our example, the answer is "yes." Under the FMLA, leave is calculated in workweek increments. While there are some exceptions when employers have to deal with intermittent or reduced schedule leaves when shorter periods of leave of observed, the week is the standard unit. If an employee is out on FMLA for the entire workweek, like in our example, the holiday would count against the employee's FMLA leave entitlement.

If, however, the employee works part of the week, e.g., if the FMLA leave is certified from Friday, December 21, 2012 through Wednesday, January 2, 2012, then only the days the employee would have been expected to report to work would count against the employee's FMLA leave entitlement. In this case, the holiday days will not count against the employee's FMLA leave entitlement unless the employee was otherwise scheduled to work as the FMLA provides:

For purposes of determining the amount of leave used by an employee, the fact that a holiday may occur within the week taken as FMLA leave has no effect; the week is counted as a week of FMLA leave. However, if for some reason the employer's business activity has temporarily ceased and employees generally are not expected to report for work for one or more weeks (e.g., a school closing two weeks for the Christmas/New Year holiday or the summer vacation or an employer closing the plant for retooling or repairs), the days the employer's activities have ceased do not count against the employee's FMLA leave entitlement.
29 C.F.R. § 825.200(h) (emphasis supplied).

Here's what it looks like in application. In our example, the employee has FMLA leave certified from Monday, December 3, 2012 to Thursday, January 31, 2012. So, the whole week, which includes the holiday, counts against the employee's FMLA leave entitlement.

-- Count Whole Week as FMLA Leave --

In the second example, where the employee has FMLA leave certified from Friday, December 21, 2012 through Wednesday, January 2, 2012, only Monday and Wednesday count against the employee's FMLA leave entitlement.

-- Count Monday and Wednesday
as FMLA Leave --

FMLA leave the employee used for the week. For this, divide the hours the employee missed for FMLA leave over the hours the employee would have worked but for the FMLA leave and get the fraction of FMLA leave to charge the employment's leave allotment. Using our second example, and an 8-hour workday, here is what that looks like:

Hours missed for FMLA                            16  = 1

Hours would have worked but for FMLA      32     2 

Instead of

Hours missed for FMLA                            16  = 2

Hours would have worked but for FMLA      40     5 

In our example, the employee missed 16 hours for FMLA leave divided by the 32 hours the employee would have worked that week but for the FMLA leave. Divide the hours missed for FMLA, which is 16, over the hours the employee worked have worked, 32, and you get 1/2 a workweek FMLA used, instead of 2/5 the employee would be charged in a five-day workweek.

If an employer cannot determine how many hours the employee typically works in a workweek, i.e., the employee's schedule varies from week to week, the employer should take the average number of hours the employee works (including hours worked, leave time used and overtime) taken over the past twelve months. The 12-week period is a look-back period from the date of the leave, not the date of the request for leave. When it comes to overtime, the regulations provide a bright-line rule that if an employee is typically required to work overtime, but is unable to do so because of an FMLA qualifying reason that precludes that employee from working overtime, the overtime hours should be counted against that employee's FMLA entitlement. This is essentially intermittent leave, and the hours counted against the employee are counted at straight time, not time and a half. Voluntary overtime, however, is not to be counted against the employee's FMLA leave allotment.

#2 – How Does This Work In Case of a Weeklong Plant, Office or School Shutdown?

If there is a weeklong shutdown, like a plant closing or school shutdown, where employees are not expected to work, the regulations are clear that the shutdown period cannot count against the employee's FMLA allotment. This is referred to in 29 C.F.R. § 825.200(h), cited above.

#3 - Do Employees on FMLA leave Get Holiday Pay?

Last issue: Do employees on FMLA leave get holiday pay if they are on FMLA leave during the holiday? This issue has presented quite a conundrum, and if you Google this issue, you will be find a number of varying responses.

There are two regulations on point. 29 C.F.R. § 825.09, which provides how an employer must maintain an employee's benefits while on FMLA leave, provides "[a]n employee's entitlement to benefits other than group health benefits during a period of FMLA leave (e.g., holiday pay) is to be determined by the employer's established policy for providing such benefits when the employee is on other forms of leave (paid or unpaid, as appropriate)."

In addition, 29 C.F.R. § 825.215(c)(2), which provides how an employer must maintain equivalent pay, provides:

Equivalent pay includes any bonus or payment, whether it is discretionary or non-discretionary, made to employees consistent with the provisions of paragraph (c)(1) of this section. However, if a bonus or other payment is based on the achievement of a specified goal such as hours worked, products sold or perfect attendance, and the employee has not met the goal due to FMLA leave, then the payment may be denied, unless otherwise paid to employees on an equivalent leave status for a reason that does not qualify as FMLA leave. For example, if an employee who used paid vacation leave for a non-FMLA purpose would receive the payment, then the employee who used paid vacation leave for an FMLA-protected purpose also must receive the payment.

Here's what these regulations mean: Under FMLA, you treat FMLA leave like you would treat comparable non-FMLA leave. Suppose you have an employee who is taking vacation time during the holiday week and your policy provides that if an employee is on vacation the day before the holiday the employee will get paid for the holiday, but will not get paid for the holiday if the employee is on an unexcused absence the day before the holiday. Now suppose an employee is absent for an FMLA-qualifying reason the day before the holiday. The way you treat that holiday pay may depend on whether the FMLA leave is going to be running concurrent with the employee's paid vacation leave, or whether it is simply an unpaid leave under the FMLA. If the employee is using vacation, and the employer policy would allow the employee to take holiday pay if they are using vacation the day before the holiday, the employer would have to allow that for the employee on FMLA leave. On the other hand, if an employer does not ordinarily pay an employee for the holiday if the employee is absent on some other kind of unpaid leave the day before the holiday, the employer would not have to pay the employee on FMLA leave. Employers just have to be sure they are treating employee consistently with similar forms of non-FMLA leave under your policies.

This year, the United States Court of Appeals for Eighth Circuit held in Keeler v. Aramark, that an employee out on FMLA leave was not entitled to holiday pay when his employer had a policy of not providing such pay to employees who did not work the day before the holiday regardless of the reason. In Keeler, the employer requested various leaves in the fall of 2007. His FMLA time went through Labor Day, a day the employer typically paid its employees, even though they were not required to work.

The employer's policy provided that it did not provide holiday pay for any employee on unpaid leave during the holiday, or for any employee who did not work the last regularly scheduled workday before the holiday, unless that absence was previously approved. Pursuant to this policy, the employer did not pay the employee for Labor Day because the employee was absent on the last workday before Labor Day.

The employee sued claiming he was entitled to holiday pay for Labor Day even though he was out on FMLA leave. The employee argued that because the FMLA prohibits an employer from using an employee’s use of FMLA leave as a negative factor in employment actions, he was entitled to the same paid leave he would have received as had he not been out on FMLA leave. The court disagreed and relied on 29 U.S.C. § 825.215(c)(2), set forth above, in particular: “if a bonus or other payment is based on the achievement of a specified goal such as hours worked … or perfect attendance, and the employee has not met the goal due to FMLA leave, then the payment may be denied." Relying on this regulation, the court found that so long as the employer treats other employees who were absent for non-FMLA reasons in the same manner. This regulation, with the employer's policy of not providing holiday pay for any employee on unpaid leave during the holiday, meant the employee had no claim.

The takeaway here for employers is simple: check your leave policies and check them twice, and make sure you are applying FMLA leave entitlements in conformity with the FMLA and your own policies.

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Many employees believe they are entitled to holiday pay, even if they do not work on the holiday. This is not the case. In fact, neither the Fair Labor Standards Act ("FLSA") nor most state laws, including Ohio, require a private employer to pay hourly employees for working or not working on holidays (federal or otherwise).  (For employers in Massachusetts, however, be sure to check your Blue laws.) This type of pay, if provided, is typically considered a fringe benefit and is a matter of agreement between an employer and an employee (or the employee's union representative). Please note that this does not apply to salaried, exempt employees who get paid for holidays (even ones they don't work) because the law prohibits employers from making wage deductions if the company is closed on a holiday.

What if an employer pays its employees for holidays for which they don't actually work?

Some employers may choose to pay their employees for the holiday, e.g., eight hours for New Year's Day, so it is important that employers understand the FLSA and comparable state law overtime implications. While employers may choose to pay employees for an additional eight hours on a holiday they did not work, these additional eight hours of time that did not constitute actual work cannot be used to go into a calculation for overtime purposes. Federal and most state laws require employers to pay nonexempt employees one and one-half times their regular rate for each hour worked over 40 in a workweek. These non-worked hours don't count.

Here's what it looks like in application:

Say an employee works 42 hours in a workweek and gets an additional 8 hours of pay for New Year's Day, even though the employee did not actually work on New Year's Day. The employee earns $10 an hour. The employee is entitled to 48 hours of straight pay and 2 hours of overtime, not 40 hours of straight pay and 10 hours at time and a half.

What if an employer gives an employee a holiday bonus?

Some employees really get into the holiday spirit and include holiday bonuses, along with other compensation. The FLSA excludes eight types of payments from the regular rate, one of which is the discretionary bonus. Discretionary bonuses are when the employer has discretion both on whether the payment is actually awarded and on the amount of the payment until a time close to the end of the period for which the bonus is paid. Nondiscretionary bonuses, on the other hand, typically are those agreed to, promised or contracted. Thus, for FLSA purposes, only nondiscretionary bonuses affect the overtime calculation.

For purposes of the FLSA, nondiscretionary bonuses must be included in the calculation for regular pay when computing overtime. For example, if an employee earns $10 an hour and works 45 hours in a work week, the employee would be entitled to 40 hours at $10 an hour and 5 hours at time and a half, or $15 for a grand total of $475.

Now let's go one step further. Let's say the employer gives the employee a holiday bonus that is a matter of contract between the employee and the employer paid out the bonus in the amount of $500 in the week discussed above, when the employee worked 45 hours. To calculate the overtime due for a week covered by a nondiscretionary bonus, the employer must first calculate the average rate of pay for the week, given the impact of the bonus. Here's how that calculation works:

Failing to include the $500 non-discretionary bonus when calculating the regular rate of pay would violate the FLSA and could mean steep penalties for the employer. So, if you decide to give holiday bonuses, make sure you comply with the FLSA and comparable state laws regarding overtime pay or make sure your holiday bonuses qualify as discretionary so they can be excluded from this calculation.

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In September, we told you about the Sixth Circuit's decision in Frye v. Baptist Memorial Hospital, Inc., where the court handed down, not one, but two favorable rulings for employers in an FLSA collective action. First, the court held that automatic pay deduction policies for unpaid meal breaks do not per se violate the FLSA, and that a class representative plaintiff in a collective action must formally opt-in to their own case to "commence" suit and stop the running of the statute of limitations or be barred from suit. Here's that blog.

After considering the employer's motion for costs, the Sixth Circuit went for a trifecta and awarded the employer over $55,000 in fees and costs in defending the action. In challenging the award, Frye had four primary arguments. First, Frye argued the FLSA does not provide for an award of costs to a prevailing defendant, and that such an award would have a chilling effect on future FLSA claims. Second, he claims that the employer was not a "prevailing party" as to the opt-in plaintiffs of the decertified collective action whose claims were dismissed without prejudice. Third, that the employer's costs in defending the action should not be taxed against him because they were not necessary to resolve his substantive claims. Finally, he argued that because he only earned $75,000 a year, he would be impoverished if required to pay.

In response to Frye's argument that the employer's costs were not recoverable under the FLSA, the court found that nothing in the FLSA precludes an award of costs to a prevailing defendant. Although Section 216(b) of the FLSA specifically addresses costs to a prevailing plaintiff, the court held that the employer could use Federal Rule of Civil Procedure 54 to seek its costs. The court summarily dismissed Frye's "chilling effect" argument without discussion. As for Frye's argument that the employer was not really a "prevailing party," the court didn't buy that either and found that since the employer successfully obtained decertification of the collective action and summary judgment on Frye's claims due to his failure to opt-in, the employer was the prevailing party for purposes of the action. The court also held that the district court did not abuse its discretion in ordering Frye to pay because, given his level of income and expenses, Frye failed to demonstrate that he was unable to pay the costs awarded.

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As you might recall, in August we blogged on Martin v. Spring Break '83 Productions, LLC, a case involving the blockbuster movie "Spring Break '83" [stated with sarcasm], where the Fifth Circuit became the first federal appellate court to enforce a private FLSA settlement. In that blog, available here, we crossed our fingers and hoped the Fifth Circuit's decision would come to a jurisdiction near you. Well, that hope is one step closer to reality as the plaintiffs/appellants – now the Petitioners – filed a Petition for Writ of Certiorari (the "Petition") and asked the United States Supreme Court to review the case. One of the two questions the Court has been asked to review is:

Whether a settlement agreement executed by a union and an employer relating only to collectively bargained for rights can preclude union members from filing individual claims for minimum wage and overtime under the Fair Labor Standards Act [("FLSA")].

In arguing for certiorari, the Petitioners argued that the Fifth Circuit's decision creates a split of authority on whether claims under the FLSA can be compromised in a private settlement and whether unions can collectively bargain away individuals' rights under the FLSA.

Turning to the first argument, if the Court grants certiorari, the potential impact of this decision is quite significant, as it stands to undo the 30-year-old Lynn's Food Stores, Inc. v. United States case, in which the Eleventh Circuit noted that there are only two ways to compromise claims under the FLSA: (1) under a Department of Labor supervised settlement; and (2) for an employee to bring a lawsuit and have the settlement reviewed by the court. As the Petitioners' brief notes, the Fifth Circuit's decision rejected the Eleventh Circuit's reasoning when it held "a private compromise of claims under the FMLA is permissible where there exists a bona fide dispute as to liability."

The Petitioners also argue that the Fifth Circuit’s ruling conflicts with the Supreme Court’s Barrentine v. Arkansas-Best Freight Sys., decision, another over 30-year-old case, where it held that a union cannot waive individual FLSA rights through collective bargaining. The Fifth Circuit distinguished Barrentine, in Martin and found, "[i]n Barrentine, the plaintiffs' grievances based on rights under the FLSA were submitted by the union to a joint grievance committee that rejected them without explanation, a final and binding decision pursuant to the collective bargaining agreement. Here, appellants accepted and cashed settlement payments. Appellants' FLSA rights were adhere to and addressed through the Settlement Agreement, not waived or bargaining away." The Fifth Circuit went on, "FLSA substantive rights may not be waived in the collective bargaining process, however, here, FLSA rights were not waived, but instead, validated through settlement of a bona fide dispute, which Appellants accepted and were compensated for."

Currently, Martin's reach is limited to the three states in the Fifth Circuit: Louisiana, Mississippi, and Texas. Should the Supreme Court grant certiorari, it would resolve the split between the Fifth and Eleventh Circuits concerning private FLSA settlement and clarify whether unions may settle their members' FLSA claims. Better yet, should the Supreme Court uphold Martin, employers could engage in private, confidential FLSA settlements and unions would have the authority to settle their members' FLSA claims under certain circumstances. Even in a worst case scenario, which would occur if the Supreme Court chooses not to review the case or reverses it, employers are in no worse shape, and the reason for this is simple: Employers have been following Lynn's Food Stores, Inc. and Barrentine for over 30 years now, so most already know they must either obtain DOL supervision or get court approval to settle employee FLSA claims and that FLSA settlements are not issues for collective bargaining.

We expect a decision on whether or not the Supreme Court will take up this case by Spring Break '13.

To be continued...
 

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Election Day will soon be upon us, and with that comes some common questions from employers about what they must do regarding employees who take off work or arrive late to work to vote.

What is an Employer Prohibited from Doing? Ohio Revised Code §3599.06 prohibits employers from discharging or threatening to discharge an employee for taking a “reasonable amount of time to vote.” The law further prohibits employers from inflicting or threatening to inflict any injury, harm, or loss against an employee to induce an employee to vote or refrain from voting for or against any person, issue or question submitted to the voters.

What Is an Employer Required to Do? Ohio employers must give their employees "reasonable time" to vote. The law, however, does not define what constitutes "reasonable time". Nor does the law specify whether an employer can require an employee to apply for voting time off prior to Election Day or designate the hours the employee may miss work, though these types of provisions are not prohibited by the statute. To be on the safe side, it is advisable that employers provide employees leave to vote even when the employee are able to vote during non-working hours or establish policies defining how an employee can apply for voting time off or designate hours employees may miss work to vote.

Does An Employer Have to Pay an Employee for Time Spent Voting? The law also does not indicate whether an employer has to pay the employee for time off to vote. However, the Ohio Attorney General has weighed in and has construed the time off to vote law to require that pay for voting time is limited to salaried employees. What this means is that employers do not have to pay hourly, commissioned, or piecework employees for leave taken to vote. However, employers may not deduct a salaried employee’s pay for taking time off to vote. Such a deduction not only likely violates Ohio law but also would be a violation of the Fair Labor Standards Act.

What is the Penalty for Violating the Law? While there is no case where an employee has sued a former employer for discharging that employee for taking time off of work to vote, employers who discharge employees for taking leave to vote may be subject to a cause of action for wrongful discharge in violation of the public policy set forth in R.C. §3599.06.

In addition to a potential wrongful termination claim, the penalty for voting leave violations may include orders directing the employer to pay a fine of not less than $50 but not more than $500.
 

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As we begin the final quarter of 2012, employers are reminded that effective January 1, 2013, Ohio’s minimum wage rate will increase by $.15 cents per hour, from $7.70 to $7.85 for non-tipped employees and by $.08 cents per hour, from $3.85 per hour to $3.93 per hour, excluding tips. The increased minimum wage applies to Ohio employers with annual gross receipts exceeding $288,000 per year, which is up from last year's $283,000 threshold.

Exclusions from the Ohio Minimum Wage Law
Ohio employers with 2012 annual gross receipts less than $288,000 are excluded from Ohio’s minimum wage requirements; however, they are still required to pay the federal minimum wage – $7.25 per hour. Employees under the age of 16 also similarly are not entitled to Ohio’s minimum wage and are to be paid the federal minimum wage of $7.25 per hour. To change the federal minimum wage, an act of Congress is first required followed by the President’s signature. There has been no change to the federal minimum wage since July 2009, when the last of three increases under the Fair Minimum Wage Act of 2007 was made.

Constitutional Amendment
So why does the minimum wage keep increasing? The answer: An amendment to Ohio’s Constitution was passed in November 2006 that allows the state to increase the minimum wage on January 1 of each year by the rate of inflation. The Department of Commerce calculates the increase based on the rise of the rate of inflation measured by the Consumer Price Index ("CPI") for the 12-month period prior to September of the current year. From September 1, 2011 to August 31, 2012, the CPI index rose 1.7%. The Amendment also states that the wage rate for non tipped employees shall be rounded to the nearest five cents.

Takeaways
Ohio employers subject to the minimum wage increase should make a note to adjust their pay practices, and update their compliance posters when the time comes. Updated posters are available here.
 

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In Frye v. Baptist Memorial Hospital, Inc., the United States District Court for the Sixth Circuit handed down not one, but two favorable rulings for employers in an FLSA collective action. First, in considering an automatic pay deduction policy for unpaid meal breaks in a collective action for the first time, the Court held that such a policy does not automatically, or per se, violate the FLSA. Second, a class representative plaintiff must formally opt-in to their own case to "commence" suit and stop the running of the statute of limitations.

1.  The Sixth Circuit Holds that Automatic Pay Deduction Polices are Not Per Se Illegal

In Frye, the plaintiff brought a putative collective action against her hospital employer challenging its 30-minute automatic meal break deduction from pay policy claiming that it violated the FLSA's requirement that employees be paid for all time worked. Specifically, Frye argued that employees worked during their lunch breaks and were not properly paid. The hospital's policy on automatic deductions, however, did not ignore the possibility that employees may sometimes work during their lunch breaks and, as is common with these types of policies, the hospital had an exception procedure whereby employees were instructed to report such work so they could be paid for it. These exception procedures, however, varied significantly by department, e.g., some employees could make an exception by submitting a written notice, some could do it through verbal notice to their supervisor, etc. The point being, there was no universal policy regarding how these exceptions could be made.

The district court granted conditional certification of the class at the initial notice stage, but decertified the class after discovery. The district court determined that the plaintiff had failed to demonstrate that the employer applied a uniform policy, or that the over 400 would-be class members (made up of workers in various departments and positions) were similarly situated. While the plaintiff relied heavily on the automatic deduction policy itself to link the putative class members, the district court disagreed. More important, it noted that automatic deduction policies are lawful under the FLSA. So, to recover, the plaintiff had to show that the employer implemented its policy in such a way as to violate the FLSA.

The Sixth Circuit agreed and, in addition to holding that automatic break deduction policies are not per se unlawful under the FLSA, also found that the class was properly decertified because there was insufficient evidence of a common injury among class plaintiffs as a result of the automatic deduction policy.

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In a highly anticipated decision under the Fair Labor Standards Act, the United States Supreme Court handed down a big win on Tuesday for the pharmaceutical industry when the Court found pharmaceutical sales representatives are covered by the outside sales exemption in Christopher v. Smith Kline Beecham Corp. We covered in previous posts the differing interpretations of the Second Circuit, which held the reps to be non-exempt, and the Ninth Circuit, which said they were exempt. The Court agreed with the Ninth Circuit that the sales activity pharma sales reps engaged in were sufficient "outside sales" even though federal regulation prohibits the reps from selling pharmaceutical products directly to their customers, the prescribing physicians. The nonbinding commitments obtained from physicians by sales reps were sufficient sales activity to meet the exemption, considering, as the Court stated, "the unique regulatory environment within which pharmaceutical companies must operate." The Court also stressed their interpretation was consistent with its parsing of the language of the FLSA, the FLSA regulations, and previous Department of Labor interpretations that said a sale "in some sense" had to be made.

The majority opinion had some tough language for the current DOL, however. The DOL took the position that pharma sales reps should be non-exempt because their sales activity involved no actual transfer of title and, as the federal agency charged with interpreting the FLSA and its regulations, argued that the Court should defer to its interpretation of the exemption. Finding the DOL's transfer-of-title argument "quite unpersuasive" and "flatly inconsistent with the FLSA," the Court declined to defer to the DOL.

This decision is a major victory for the pharmaceutical industry, who otherwise would have been faced with even more years of litigation and radical changes to their business model if the Court found the employees to be non-exempt. The result, however, is likely to be limited to the unique sales arrangement in this industry. As the Court noted, "when an entire industry is contracted by law or regulation from selling its products in the ordinary manner," the DOL and courts should not rely on "technicalities" to exclude employees from the outside sales exemption. Still, the Court's recognition of the sometimes impractical and draconian results under the FLSA (which many of us see everyday) is refreshing to see reflected in its decision here, despite the decision's lack of applicability to other industries.

Some commentators have suggested this decision might result in a more pragmatic, broader view of FLSA exemptions, even beyond the outside sales exemption. That broader view may be possible, particularly for courts struggling to fit a statute designed for the 1940's workplace into the 21st Century. But, until more decisions come to bear on that point, employers outside of the pharmaceutical industry should wait and see what may transpire. 

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Many employers consider hiring interns during the summers or school year to help students gain experience or learn about a certain industry or career. However, when these interns are unpaid, there are certain rules employers need to follow to guard against liability for failure to pay minimum wage or overtime under the Fair Labor Standards Act—which carries risks of lawsuits by former interns (a few of which have been very recently filed), class actions, and DOL investigation and other enforcement activities.

In fact, in the last few years the DOL has focused some attention on unpaid internships, as we said in a previous post on this topic. The DOL guidance on this topic certainly reveals some traps for the unwary who hire unpaid interns, All of the below factors must be met in order for an intern working at a private, for-profit employer to be appropriately unpaid:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

There are a few factors above that are very easy for employers to overlook. For example, according to the DOL, employers receive "immediate advantage" from work that interns often perform, like filing, answering phones, or assisting customers. In short, if unpaid interns are asked to do work that could be, should be, or is typically performed by paid employees, the internship looks less like an educational experience and more like an employment relationship , requiring the intern's work to be paid.

So, before interns start, employers should consider what type of work they will be asking their interns to perform. If the interns' responsibilities are more like "job shadowing" or classroom-like activities and the interns aren't asked to do much (if any) productive work, then it may be appropriate to make them unpaid, as long as all of the other factors above are met. On the other hand, employers who wish to have interns perform work for their benefit don't have to avoid hiring interns altogether—as long as interns who perform productive work, however minor, are paid minimum wage (and overtime as appropriate under the FLSA), employers aren't prevented from having interns do work both for the employer's benefit and the intern's.
 

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The Department of Labor has begun enforcing the law passed in March 2010 requiring break time for nursing mothers and has cited 15 employers for violations of the law. We wrote about this law at the time the statute went into effect. While there was little guidance about the law at that time, the Department of Labor has provided a little more direction since then. However, there are still no formal implementing rules for the requirement.

The health care reform law passed in 2010 amended the Fair Labor Standards Act requiring “reasonable” break time for employees who are nursing mothers. The general requirements are as follows:

• The employee must be a non-exempt employee under the FLSA.
• The nursing mother’s child must be 1 year old or younger.
• Breaks must be provided as frequently as needed by the nursing mother.
• The duration of the breaks “may vary” as needed but no specified time period is set forth in any Department of Labor guidance.
• A place must be provided that is “shielded from view and free from intrusion from coworkers and the public” that is not a bathroom. The space need not be designated for this purpose at all times, but it must be available when the nursing mother needs it. If the employer has no nursing mothers, the employer does not need to maintain dedicated space for nursing mothers.

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Here's a tip: If you have tipped employees whose job duties involve non-tipped work, check how much of their time they spend doing those non-tipped job duties. If it's more than 20%, you may owe them minimum wage for the time they spend doing non-tipped work according to an Eighth Circuit decision that the Supreme Court of the United States recently declined to review.

The Fair Labor Standards Act allows for a "tip credit" for "tipped employees," defined as employees who work in an occupation where they customarily and regularly receive more than $30 a month in tips. The tip credit allows employers to pay less than minimum wage to tipped employees as long as (1) the tip credit is not greater than 50% of the minimum wage, and (2) the wage plus the tip credit add up to minimum wage.

In Fast v. Applebee's International (pdf), a class of Applebee's bartenders and servers who received a tip credit argued that they were owed the full minimum wage for the time they spent doing non-tip-producing work, like cleaning, taking inventory, and rolling silverware. According to a DOL handbook interpreting the DOL's dual job regulations, if tipped employees spend more than 20% of their time doing non-tipped "general preparation and maintenance" work, then the employer owes the employees minimum wage for that non-tip-producing time and cannot take the tip credit. Applebee's took a tip credit for the workers' entire shift and did not pay minimum wage for the time servers and bartenders performed non-tipped work (although with the tip credit, the employees still received at least minimum wage for all time worked).

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The United States Department of Transportation ("Department") has issued an Hours-of-Service ("HOS") Final Rule, that is meant to reduce the excessively long work hours of Commercial Motor Vehicle ("CMV") drivers. The Department wants to ensure drivers have enough time to obtain adequate rest on a daily and weekly basis, because excessive driving hours increase the risk of fatigue-related crashes and long-term health problems for drivers.

The objective of the final rule is to reduce the acute and chronic fatigue of drivers. The effective date of the final rule is February 27, 2012, and the compliance date of selected provisions is July 1, 2013.

The Federal Motor Carrier Safety Administration ("FMCSA") made several changes to the HOS rule. The three primary changes include:

1. Restarts are now limited to one per week;
2. restarts must include 2-night periods between 1:00-5:00 a.m.; and
3. drivers must take a 30-or-more minute break after 8 consecutive hours of driving.

The "34-hour restart" rule limits the number of restarts a driver is permitted to take in a one-week time period or every 7 days (168 hours). This new limitation prevents the excessive buildup of on-duty hours, and will reduce a driver's maximum allowable hours of work per week from 82 hours to 70 hours, a 15% reduction.

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We’ve noticed some cases recently filed challenging employers’ use of the fluctuating workweek method to determine the overtime compensation for employees who receive commission payments. Plaintiffs are alleging that this practice is not permitted by the Fair Labor Standards Act (FLSA) when employees earn commissions in addition to their salaries. However, this issue is unresolved, and precedent seems to favor the employer defendants.

The fluctuating workweek method is permitted by FLSA regulation 29 C.F.R. § 778.114, promulgated by the Department of Labor to implement the Supreme Court's holding in Overnight Motor Transp. Co. v. Missel, 316 U.S. 572, 580 (1942). This method permits employers to pay non-exempt employees pursuant to the fluctuating hours method if five criteria are met:

1. The employee's hours must fluctuate from week to week;
2. The employee must receive a fixed weekly salary that remains the same regardless of the number of hours worked per week;
3. The fixed salary must be sufficient to provide compensation at a regular rate not less than the legal minimum wage;
4. The employee must receive at least 50 percent of his regular hourly pay for all overtime hours worked; and
5. The employer and the employee must have a clear mutual understanding that the fixed salary is compensation (apart from overtime premiums) for the hours worked each workweek.

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Ohio employers with multi-state operations will want to know that several states and local governments have recently considered or enacted "wage theft" legislation to include the criminal and increased civil penalties and fines for employers who underpay their workers. The inclusion of notice requirements in California and New York create additional consequences for the unwary employer.

California

Additional notice, recordkeeping requirements, and increased penalties for wage and hour violations are the highlights of California's Wage Theft Protection Act, which will take effect on January 1, 2012. It makes the following changes to California wage and hour law for private employers:

• Written notice of certain pay and employer information: Notice must be provided to newly hired, non-exempt employees. This notice must include the employee's rate of pay and what the rate is based upon (e.g. hourly, by piece, etc.), overtime rates, certain employer contact information, and the contact information for the employer's workers' compensation insurance carrier. Note, however, that notice is not required for newly hired non-exempt employees who are subject to a collective bargaining agreement that provides premium rates for overtime and a regular pay rate of at least 30% more than California's minimum wage.
• Increased penalties: Some of these increased penalties include fines or prison time for employers who willfully refuse to pay wages pursuant to a court judgment or order.
• Longer statute of limitations: The California Division of Labor Standards Enforcement now has three years to pursue employer wage and hour violations, compared to the current one-year time limit.
• Additional recordkeeping requirements: Employers are required to retain wage statements and deduction records for three years, compared to current law under which employers must maintain these records for only two years. Employers may not prohibit employees from maintaining personal records of their own time or piece-rate units earned.

New York

This type of law should sound familiar for employers with operations in New York, where similar legislation took effect in April 2011. In New York, the following requirements now exist for private employers:

• Written notice of certain pay and employer information: New York requires that private employers provide written notice of certain pay information and employer contact information by February 1, 2012 for all employees (not just those who are newly hired or non-exempt). This notice must include the employee's rate of pay and what the rate is based upon (e.g. hourly, by piece, etc.), overtime rates if applicable, allowances taken as part of the minimum wage (tip, meal and lodging deductions), and certain employer contact information. In addition, New York also requires that the notice be in English and the employee's primary language, if it is not English and the New York Department of Labor (NY DOL) has a translation in that other language available.
• Broader protection against retaliation: Threats of retaliation against employee complaints made in good faith are now illegal in New York and any person can be held liable for any retaliatory act. Under previous law, only employers could be cited for violations and threats of retaliation were not illegal.
• More remedies and criminal penalties for retaliation: Reinstatement or a lump sum payment in lieu of retaliation is available to employees, in addition to the previous penalty of up to $10,000 liquidated damages. Criminal penalties are also possible for retaliatory acts.
• Public posting of violations: For certain violations of law by employers, the NY DOL can post notice of the violation in an area conspicuous to employees for up to one year. Willful violations by employers are also subject to public posting for a 90-day period by the NY DOL.

Ensuring Compliance

In New York and California, the devil is in the details regarding the specific information required in the notices, which employees are to receive them, and on what timing, requiring close attention and preparation now by employers with operations in New York or California to issue their employee notices in January 2012. For their respective notices, New York provides templates and California is expected to have a template available in mid-December; however, in both states employers are permitted to use their own forms so long as they are in compliance with the states' requirements.
 

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Employers are closer to a nation-wide rule on the appropriate classification of pharmaceutical sales representatives (PSRs). On Monday, the Supreme Court granted cert to resolve a split between the Ninth and Second Circuits on whether PSRs are covered by the outside sales exemption of the Fair Labor Standards Act (FLSA).

In February, we covered the Ninth Circuit's decision in Christopher et al. v. SmithKline Beecham Corp., where it held that GlaxoSmithKline's PSRs were properly classified as exempt. In that decision, the Ninth Circuit disagreed with the Second Circuit, which in 2010 held such employees to be non-exempt in In re Novartis, and in doing so, deferred to Department of Labor guidance that required direct sales by employees for the exemption to apply. The Supreme Court previously declined to hear the appeal of the Novartis decision.

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The Internal Revenue Service (IRS) has developed a new program called the Voluntary Classification Settlement Program (VCSP) that permits taxpayers to voluntarily reclassify workers as employees for federal employment tax purposes. Taxpayers that choose to participate in the program and voluntarily reclassify workers as employees for future tax periods will only have to pay 10 percent of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year; will not be liable for any interest and penalties on the liability; and will not be subject to an employment tax audit with respect to the worker classification of the workers for prior years. Additionally, a taxpayer participating in the VCSP must agree to extend the period of limitations on assessment of employment taxes for three years for the first, second and third calendar years beginning after the date on which the taxpayer has agreed under the VCSP closing agreement to begin treating the workers as employees.

To participate in the program, the taxpayer must have consistently treated the workers as nonemployees, and must have filed all required Forms 1099 for the workers for the previous three years. The taxpayer cannot currently be under audit by the IRS, the Department of Labor or by a state government agency. A taxpayer that previously was audited by the IRS or the Department of Labor concerning the classification of the workers will only be eligible if the taxpayer has complied with the results of that audit.

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In wage and hour cases, the number of hours employees have worked is usually a primary issue.  When employees are misclassified as exempt, employers are often in a bind because they have not tracked the employees' time and are unable to refute the claims made by the employees as to how much time they worked.  Even in cases in which employees are classified as nonexempt, employees frequently claim to have worked more than 40 hours per week without being paid overtime.  In either situation, it is often the case that employees have not kept contemporaneous time records themselves either.
 

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As we advised last month, several changes initiated by the DOL's Wage and Hour Division's new regulations are set to take effect on May 5, 2011. On that date, the maximum federal tip credit will increase from $4.42 an hour to $5.12. That means that, under federal law, an employer can pay a tipped employee $5.12 less than the minimum wage so long as the individual's overall compensation equals at least the legal minimum wage. In addition, the DOL's finding that "bonus and premium payments . . . are incompatible with the fluctuating workweek method" may impact how some employees are compensated going forward.

We encourage you to review our previous post, which discusses these regulations in detail.  In addition, a copy of the regulations can be accessed here.

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In a decision issued on April 28, 2011, the Sixth Circuit Court of Appeals offers employers some clarity on the test to determine whether using unpaid interns or other student trainees violates the Fair Labor Standards Act (FLSA). In this case, Solis, Secretary of Labor v. Laurelbrook Sanitarium and School Inc., 6th Cir. No. 09-6128, the Court threw out a U.S. Department of Labor lawsuit against a Tennessee religious school's student work experience program.

The Department of Labor brought an action against the Laurelbrook school alleging that its students were "employees" and had to be paid under the FLSA. The school operates a nursing home partially staffed by students to further the students' practical training. The Sixth Circuit affirmed the district court's finding that the school's students were not "employees." The Court noted that there is no bright-line test for determining whether a student worker is an employee for purposes of the FLSA. The Court affirmed the district court's use of the "primary benefit" test in making the determination. This test ascertains which party derives the primary benefit from the relationship. If a student receives the primary benefit of the work performed for a purported employer, and the student's presence does more harm to the purported employer's operations than good (or no good at all), the student will not be considered to be an employee under the FLSA. Factors such as whether the relationship displaces paid employees and whether there is educational value derived from the relationship are relevant considerations.

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On April 5, 2011, the Department of Labor’s Wage and Hour Division (WHD) published new regulations. Among other changes, the WHD raised the maximum federal tip credit from $4.42 an hour to $5.12. That means that, under federal law, an employer can pay a tipped employee $5.12 less than the minimum wage so long as the individual's overall compensation equals at least the legal minimum wage.

Perhaps most noteworthy, however, is what the WHD did not do in issuing the regulations. In its 2008 proposed rules, which were issued during the Bush Administration, the WHD indicated that it was considering explicitly allowing employers to pay employees bonuses while still retaining the ability to use the flexible workweek (FWW) method of paying overtime. The FWW method is a way by which employers can pay overtime at only one-half times the employees' regular rate rather than at one-and-one-half times the regular rate. It can only be used where certain conditions are met, including that the employees are paid a set salary and there is a clear agreement between the employer and the employees that their set salary is intended to cover all of the straight time hours they work in a week, regardless of whether those hours are over 40. In the final rule, however, the WHD opined that it did not adopt this proposed rule because it found that "bonus and premium payments . . . are incompatible with the fluctuating workweek method." This is certainly disappointing to employers using the FWW method.

The final rule also included several other changes, including a clarification of specific overtime exemptions for firefighters and an adoption of the youth opportunity wage provision, which allows an employer to pay employees under the age of 20 less than the minimum wage during the first 90 days of their employment.

The new regulations are set to take effect on May 5, 2011. A complete copy may be found here.
 

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Yesterday, the U.S. Supreme Court held that an employee's Fair Labor Standards Act (FLSA) retaliation claim can be based on an oral complaint made by the employee to his employer regarding wages or other issues covered by the Act.

An employee of Saint-Gobain Performance Plastics Corp. complained orally to Company officials about the Company's timeclocks, which he claimed were located in an area that prevented the employees from receiving credit for the time they spent donning and doffing work-related protective gear. After making the oral complaints, he was discharged.

The employee then sued the Company for terminating him in violation of the FLSA's anti-retaliation provision, which prohibits an employer from discharging "any employee because such employee has filed any complaint" alleging a violation of the Act. 29 U.S.C. 215(a)(3). The District Court for the Western District of Wisconsin granted the employer's motion for summary judgment, concluding that the FLSA's anti-retaliation provision did not cover oral complaints, and the Seventh Circuit affirmed that decision.

The Supreme Court, however, reversed the judgment, holding that the statutory phrase "filed any complaint" includes oral, as well as written, complaints. In reaching this conclusion, the Court relied, in part, on the FLSA's "basic objective, which is to prohibit 'labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers.'" Limiting anti-retaliation claims to cases in which a written complaint was filed, the Court reasoned, would not support this broad objective.

This case is another in a line of cases expansively interpreting retaliation provisions in employment law. (See, for example, our previous posts on the U.S. Supreme Court's Crawford and Thompson decisions regarding retaliation under Title VII.) The Court's opinion in this case should also reinforce to employers the importance of thoroughly investigating discipline and discharge decisions when the employee involved has raised, whether orally or in writing, complaints or allegations of discrimination or other legal violations.
 

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Just weeks after the Ninth Circuit created a circuit split by ruling that pharmaceutical sales representatives are exempt under the Fair Labor Standards Act's outside sales exemption (see our earlier post on that decision), the Supreme Court has declined to hear Novartis Pharmaceutical Corp.'s appeal of a Second Circuit decision reaching the opposite conclusion. As a result, the existing circuit split will continue to exist, and drug companies facing current and potential litigation should not expect clarity on the issue in the foreseeable future.
 

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In August 2008, sales representatives from GlaxoSmithKline PLC filed a class action against the company, claiming they were non-exempt and entitled to overtime pay. They had always been treated as exempt by the company under the FLSA's outside sales exemption. However, they argued, in part, that their exempt classification was improper because they do not actually "make" any sales. Rather, they argued, they simply present information to physicians regarding the company's drugs in the hope the physicians will then prescribe those drugs. The sales representatives do not actually sell the drugs to anyone.

The employees lost at the District Court level and appealed to the Ninth Circuit Court of Appeals. Recently, a three-judge panel of the Ninth Circuit upheld the lower court's ruling. Contrary to the representatives' argument, the Ninth Circuit found that the sales representatives do "make" sales because they visit certain physicians in defined geographic areas, ask those physicians to commit to prescribing certain drugs, and receive bonuses based on how well those specific drugs sell in their defined geographic regions. The Court reasoned that because patients typically do not select what drugs their physicians prescribe, the real sale occurs between the sales representative and the physician, not the pharmacy and the patient.

This case, Christopher et al. v. SmithKline Beecham Corp., 9th Cir. No. 10-15257, was one of first impression in the Ninth Circuit, but the decision creates a split with the Second Circuit, which has held similar employees to be non-exempt. The U.S. Department of Labor has also issued guidance stating that pharmaceutical sales representatives are not covered under the outside sales exemption. Unless and until the Supreme Court addresses this issue or other appellate courts chime in, companies in the pharmaceutical and medical device industry, as well as other businesses that use a similar sales model, should still proceed cautiously in classifying their sales representatives.
 

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In addition to adding 350 new wage-and-hour investigators to its staff, the U.S. Department of Labor recently announced a new collaboration between its Wage-and-Hour Division and the American Bar Association Standing Committee on Lawyer Referral and Information Service that will likely further increase the amount of FLSA and FMLA litigation.  Through this new collaboration, which the DOL has named the "Bridge to Justice," the DOL and ABA are now providing an attorney referral service to individuals who contact the DOL to allege violations of the FLSA or FMLA by their employers.

As explained on this recently released FAQ website, over 35,000 employees contact the Wage and Hour Division each year, and the Division is not able to assist all of these employees.  Now, when employees call and the DOL determines that it cannot assist them, they will be provided a toll-free number to call, which will give them the contact information of attorneys in their area who might be able to take their case. In addition, in situations in which the Wage-and-Hour Division conducts an investigation, but does not pursue further action on behalf of an employee, the Division will now supply the complainant with its determination regarding the violation(s) at issue and back wages owed, as well as the phone number for the attorney referral service.

This recent announcement has caused quite a stir among employers who have already experienced the effects of increased wage-and-hour litigation.

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The federal health care reform legislation passed in March of this year included an amendment to the Fair Labor Standards Act (FLSA), requiring employers to provide reasonable unpaid break time to nursing mothers to express breast milk for the nursing child. The requirement to provide breaks extends for one year after the child is born. The DOL has just released a fact sheet with general information about the requirements.

Briefly, the law requires that employers provide "reasonable break time... each time such employee has need to express milk." Employers must provide a private location, free from intrusion, other than a bathroom, for purposes of the break.

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On Tuesday, May 25, 2010, Representatives Phillips and Driehaus introduced in the Ohio General Assembly a bill that effectively would create a single definition of "employee" for purposes of Ohio workers' compensation, unemployment compensation, payroll taxes, minimum wage and other purposes. Presently, each statute contains its own test for determining whether an individual is an employee or an independent contractor, often resulting in conflicting results.

If passed, this legislation would create a single seven-factor test for evaluation whether an individual truly is an independent contractor.

For an individual to be an independent contractor under H.B. 523, all of the following factors would have to be met:

1. The individual has been and continues to be free from control and direction in connection with the performance of the service.
2. The individual customarily is engaged in an independently established trade, occupation, profession, or business of the same nature of the trade, occupation, profession, or business involved in the service performed.
3. The individual is a separate and distinct business entity from the entity for which the service is being performed or, if the individual is providing construction services and is a sole proprietorship or partnership, the individual is a legitimate sole proprietorship or a partner in a legitimate partnership.
4. The individual incurs the main expenses and has continuing or recurring business liabilities related to the service performed.
5. The individual is liable for breach of contract for failure to complete the service.
6. An agreement, written or oral, express or implied, exists describing the service to be performed, the payment the individual will receive for performance of the service, and the time frame for completion of the service.
7. The service performed by the individual is outside of the usual course of business of the employer.

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On May 20, 2010, the U.S. Department of Labor Wage and Hour Division published a Final Rule designed to modernize child labor regulations. The Final Rule contains new provisions prohibiting children under 18 from riding on a forklift as a passenger, operating balers, and compactors designed or used for new paper products, and work in establishments that manufacture or process meat or poultry products.

Additionally, the Final Rule contains several regulations that expands the opportunity of 14- and 15-year-olds to obtain employment in the workforce and creates a new category of safe jobs. Specifically, Regulation 3, §570.3 and §570.34 removes a 40-year restriction to limit the employment of 14- and 15-year-olds to jobs in the retail, food services, and gasoline service stations. The new regulations allow 14 and 15-year olds to perform safe tasks in other industries. Under Regulation §570.34(b), 14 and 15-year olds can hold jobs of an intellectual or artistic nature that would include computer programming, drawing, and teaching.

The Final Rule also clarifies that employers are required to use the same work week for determining compliance with child labor provisions as used to determine whether employees are due overtime. An information sheet containing the various changes to the child labor regulations has been released by the DOL. These changes will become effective on July 19, 2010.

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The Employee Misclassification Prevention Act, (S. 3254) introduced Thursday by Senator Sherrod Brown of Ohio, would amend the Fair Labor Standards Act to require companies to keep records of non-employees who work as independent contractors and to provide special penalties for misclassifying those workers.

The Act contains certain recordkeeping provisions that would require employers to keep records reflecting whether each worker is an actual employee or an independent contractor. The Act also would require employers to provide a written notice to all workers who perform labor or services informing them that they have been classified as either an employee or “non-employee,” directing them to a Department of Labor Web site for further information about the rights of employees under the law, and informing them to contact the Department of Labor if they have any questions about whether they have been misclassified. Penalties of $1,100 to $5,000 per worker may be imposed for a violation of the notice or recordkeeping requirements or for misclassifying an employee as a non-employee.

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Yesterday, the Department of Labor published its semiannual agenda of regulations that have been selected for review or development during the coming year. One of the proposed rules would significantly change the FLSA’s recordkeeping requirements. Specifically, as stated in a Wage and Hour Division Fact Sheet, the proposed rule would require “[a]ny employers that seek to exclude workers from the FLSA’s coverage . . . to perform a classification analysis, disclose that analysis to the worker, and retain that analysis to give to WHD enforcement personnel who might request it.” This would obviously be incredibly burdensome for employers.

Additionally, the DOL has indicated in a separate Fact Sheet that it intends to update its current regulations concerning health care companions. Specifically, it will “consider whether the current exemption of companions working for a party other than the family or household using the companionship services is consistent with the status of a companion in light of significant changes in the home care industry.”  In other words, it is likely that the DOL will make it more difficult for an employer to classify some of its employees as exempt companions.

The DOL will likely make more information available soon, and we will update you on these developments as information is released.

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Less than a month after the New York Times ran an article on the DOL’s position regarding unpaid internships, the U.S. Department of Labor’s Wage and Hour Division has released a Fact Sheet explaining the test used to determine whether an intern is an employee under the FLSA. Although the test – which is laid out in one of our previous posts – remains unchanged, the Fact Sheet provides information regarding the test’s factors that may be useful to employers trying to discern whether their interns are covered by the FLSA’s overtime and minimum wage provisions.

The first factor is whether the internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment. The Fact Sheet provides additional detail on how to analyze this factor, noting that this “educational environment” often exists where a college or university exercises oversight over the internship program and provides educational credit. Also, the more the internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills particular to one employer’s operation, the more likely the intern would be viewed as receiving training.

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President Obama signed the “Jobs Bill” into law on March 18, 2010. Part of the Jobs Bill is the HIRE or “Hiring Incentives to Restore Employment” Act. The HIRE Act grants employers a tax exemption for their 6.2 percent Social Security (or FICA) payroll contribution for every new qualified employee hired between February 3, 2010, and before January 1, 2011, for wages paid beginning March 19, 2010.

A qualified employee is someone who has been unemployed for 60 days prior to accepting employment. Being “unemployed” means having worked less than 40 hours during the preceding 60-day period. To be qualified, the employee must not be hired to replace another employee unless the employee quit voluntarily or was fired for cause, which includes employees who were terminated as part of downsizing. Finally, a qualified employee must not be “related” to the employer as defined in the U.S. Tax Code.

In addition to the 6.2 percent exemption, employers may earn an income tax credit that is equal to 6.2 percent of paid wages, or up to $1,000, for every new qualified employee who is retained for 52 consecutive weeks. This credit will be taken on the employer’s 2011 income tax. To ensure eligibility for the income tax credit, the employer must ensure that the wages paid to any qualified employee during the last 26 weeks are at least 80 percent of what was paid to that employee during the first 26 weeks.

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As noted in a recent New York Times article, researchers have found that the number of unpaid internships has risen, likely due to employers' limited ability to provide new paying jobs and students' willingness to gain increasingly hard-to-come-by experience. However, officials from the Department of Labor have indicated that many unpaid internship arrangements violate federal law. Nancy Leppink, Acting Director of the DOL's Wage and Hour Division, stated: "If you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law."

The Division utilizes the following six-factor test to determine whether an individual is an employee or a "trainee" under the Fair Labor Standards Act:

1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction;
2. The training is for the benefit of the trainees;
3. The trainees do not displace regular employees, but work under their close observation;
4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded;
5. The trainees are not necessarily entitled to a job at the conclusion of the training period; and
6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

See Advisory, Training and Employment Guidance Letter No. 12-09. Only if all of the above factors are met may an individual be considered a trainee, in which case he or she is not considered an employee and is not subject to the minimum wage or overtime requirements of the FLSA. Among others, it is often difficult for employers to meet the factor requiring that they derive no immediate advantage from the individual’s work.

Due to the increasing number of unpaid internships, the DOL is ramping up enforcement efforts and educating colleges and students regarding the law. Accordingly, employers offering such positions or thinking about doing so should carefully review the positions to make sure they are in compliance with the FLSA.

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Employers may not realize that the recently signed health care reform law includes a provision which amends the Fair Labor Standards Act to require reasonable unpaid breaks for nursing employees. In addition to the unpaid break time, the amendment to the FLSA (29 U.S.C. § 207(r)(1)) provides that employers must furnish a private location, other than a restroom, which may be used by the employee to express breast milk. Employers with fewer than 50 employees are not subject to these requirements if such requirements would cause an undue hardship on the employer.

This amendment creates some confusion with existing federal law on the issue of employee breaks. While the FLSA does not require that employees be given breaks, there are federal regulations which indicate that rest periods of short duration (usually lasting 5 to 20 minutes) are considered compensable work hours. The proposed amendment, however, specifically states that employers are not required to compensate nursing mothers for reasonable break times.

In addition, although many states have passed laws requiring employers to provide nursing mothers with reasonable break time, Ohio’s law addresses only the right to breastfeed in a place of public accommodation. Although Ohio’s breastfeeding law governs the relationship between a place of public accommodation and individuals who are attempting to use the accommodations, employers with places of public accommodation on their premises (i.e., store, restaurant, bank) should be mindful of this law. Also, based on the Ohio Supreme Court decision in Allen v. Totes/Isotoner, it appears that there are at least a few justices who may be prepared to extend pregnancy discrimination laws to nursing mothers.  For a further discussion of the Allen case, please see our previous blog from August 31, 2009.

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The Department of Labor's Wage and Hour Division has announced that it will no longer release guidance in the form of detailed opinion letters on specific fact situations under the Fair Labor Standards Act and other statutes.  Instead, the Wage and Hour Administrator will issue general interpretations (called "Administrator Interpretations") of wage and hour laws and regulations that will be useful to a more broad range of employers.  The Division believes that "this will be a much more efficient and productive use of resources than attempting to provide definitive opinion letters in response to fact-specific requests submitted by individuals and organizations, where a slight difference in the assumed facts may result in a different outcome."

In the first such Administrator Interpretation (No. 2010-1, issued on March 24, 2010), the Division concluded that employees performing the typical duties of a mortgage loan officer do not qualify as administrative employees exempt from the provisions of the Fair Labor Standards Act.  While this Interpretation does not represent a change in the way mortgage loan officers have previously been viewed under the FLSA, it may be of interest to those in the banking industry.  A full copy of Interpretation No. 2010-1 is available on the DOL's website at http://www.dol.gov/WHD/opinion/adminIntrprtnFLSA.htm.

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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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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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