Understanding the Wage and Hour Laws

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Understanding the Wage and Hour Laws

Presented by:

Thomas M. Lucas (Norfolk)thomas.lucas@jacksonlewis.com

757.648-1424

Kristina H. Vaquera (Norfolk)vaquerak@jacksonlewis.com

757.648-1448

July 8, 2014

What is causing Wage and Hour Anxiety?

DOL enforcement activities and increased audits

Ever-increasing numbers of Wage and Hour lawsuits, including class/collective actions

Available damages to Wage and Hour litigants, including liquidated damages and attorneys’ fees

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Facts and Trends In Wage and Hour Enforcement

The DOL estimates 70% of employers are not in compliance

with the Fair Labor Standards Act (“FLSA”).

September 2011: DOL announced launch of a multi-agency

Misclassification Initiative, targeted at improper classification

of employees as “independent contractors”.

March 2014: President Obama directs the Secretary of Labor to

address concerns that “basic overtime protections have

eroded,” calling for changes in regulations governing white-

collar exemptions.

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Facts and Trends In Wage and Hour Enforcement

DOL’s Wage and Hour Division (“WHD”) has a budget of $224M in 2014 – with proposed $265M in 2015

WHD enforcement has been aggressive:

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Fiscal Year Compliance Actions

Back Wages Collected

Number of Workers

2010 26,500 $176 Million 210,000

2011 33,295 $224 Million 275,000

2012 34,139 $280 Million 308,000

2013 33,146 $250 Million 269,000

Facts and Trends In Wage and Hour Litigation

Wage/Hour lawsuits continue to rise:

Wage/Hour collective suits exceed total suits under all federal employment laws combined.

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Year Cases Filed

1990 1,257

2000 1,854

2010 6,081

2011 7,008

2012 7,064

2013 7,764

Damages in Class/Collective Cases Can Be Substantial

Examples:

$187 million for 187,000 employees - off-the-clock

work and meal/rest period violations.

$44 million for 22,000 financial advisors challenging

exempt status.

$42 million for 3,000 loan underwriters challenging

exempt status.

$35 million for 1,700 quality assurance engineers,

customer support engineers, and project managers

challenging exempt status.6

Damages in Class/Collective Wage and Hour Cases Can Be Substantial

$34 million - 12,000 retail assistant store managers.

$32 million - 17,000 poultry processors for time spent “donning

and doffing”.

$27 million - 30,000 audit employees alleging uncompensated

donning and doffing, waiting time, and travel time.

$20 million - 4,570 home mortgage consultants challenging exempt

status.

$18 million - 8,000 field techs - off-the-clock work.

$17 million - 667 senior analysts and database administrators

challenging exempt status.8

Common FLSA Pitfalls

Misclassifying non-exempt employees as exempt

Making improper deductions from exempt employees’ salaries

Failing to pay non-exempt employees for all hours worked (e.g. allowing employees to work “off the clock”)

Failing to pay or miscalculating overtime for non-exempt employees

Misclassifying employees as independent contractors

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Misclassifying Employees As “Exempt”

Employees are presumed to be non-exempt

Employer’s burden to prove exemption

Salaried does not mean ‘exempt’

Job title does not control – job duties control!

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“White Collar” Exemptions

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Executive

Administrative

Professional

Highly-Compensated Employee

Computer-Related Occupations

Outside Sales

“White Collar” Exemption Requirements

FLSA - two-part test:

1. Salary basis test - does not apply to outside sales and certain computer professionals.

AND

2. Duties test - primary duties which satisfy the requirements for executive, administrative, professional, computer or outside sales

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Executive Exemption

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Paid on a salary basis no less than $455 per week

Primary Duty: managing the enterprise, or managing a customarily recognized department or division

Customarily and regularly directs the work of two or more full-time employees (or equivalent)

Has the authority to hire or fire, or recommendations regarding such decisions are given particular weight

DOL’s examples of “management” activities

Interviewing, selecting, and/or training employees

Setting and adjusting rates of pay and hours of work

Directing/planning employees’ work;

Apportioning work among employees;

Maintaining production or sales records for use in supervision or control;

Appraising employees’ productivity or efficiency for purposes of recommending changes in employment status (e.g., promotions);

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Hypothetical

Plaintiff is a retail store manager who works 50-60 hours/week for a salary of $28,000/year.

Plaintiff hires, trains, supervises, disciplines and directs the work of 6-8 employees, with little to no supervision from a District Manager. This comprises 50-60% of her work.

The balance of Plaintiff’s time is spent running the cash register, sweeping, mopping, shoveling snow, stocking shelves and other “non-exempt” work. 15

Is The Manager An Exempt Executive?

The executive exemption applies.

The Court focused on:

o Relative importance of exempt duties – the Court observed that Plaintiff’s employment evaluations measured her success based on the exempt, managerial functions.

o Amount of time spent on exempt work – even accepting Plaintiff’s estimates of time, she spent close to 40% of her workweek on exempt functions.

o Relative freedom from direct supervision – the District Manager was rarely present on-site and always adopted Plaintiff’s recommendations regarding employee discipline/hiring.

o Relationship between Plaintiff’s salary and other employees’ wages - Plaintiff’s hourly equivalent was $10.56/hour; the non-exempt assistant store manager earned $7.25/hour. 16

Administrative Exemption

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Paid on a salary basis no less than $455 per week

Primary Duty: the performance of office or non-manual work directly related to management policies or general business operations of the employer or its

customers

The primary duty includes the exercise of discretion and independent judgment with respect to matters of

significance

Areas of work directly related to management policies or general business

operations

TaxTax

FinanceFinance

AccountingAccounting

AuditingAuditing

Quality ControlQuality Control

PurchasingPurchasing

ProcurementProcurement

AdvertisingAdvertising

MarketingMarketing

ResearchResearch

Safety and HealthSafety and Health

Personnel ManagementPersonnel Management

Human ResourcesHuman Resources

Employee BenefitsEmployee Benefits

Public RelationsPublic Relations

Labor RelationsLabor Relations

Government RelationsGovernment Relations

InsuranceInsurance18

Discretion And Independent Judgment

In general, the exercise of discretion and independent judgment involves:

The comparison and the evaluation

of possible courses of conduct

and

Acting or making a decision after the

various possibilities have been

considered.19

“Discretion and Independent Judgment with Respect to Matters of Significance”

Exempt employees should not be given or otherwise required to follow detailed manuals or guidelines.

Exempt employees should not be evaluated according to the amount they produce.

Exempt employees should play a role in determining business strategy, direction, efficiency, policies, etc.

“Context matters” – employees are more likely to be found exempt where their services are not the main focus of the actual business itself.

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Administrative Employees - Meet At Least 2 or 3 Factors:

Has authority to formulate, affect, interpret, or implement policies/practices.

Carries out major assignments in conducting the operations of the business.

Performs work that affects business operations to a substantial degree, even if employee’s assignments are related to a particular segment of the business.

Has authority to commit Company in matters that have significant financial impact.

Has authority to waive or deviate from established policies/procedures without prior approval.

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Administrative – 2 or 3

Has authority to negotiate and bind Company on significant matters.

Provides consultation or expert advice to management.

Involvement in planning long- or short-term business objectives.

Investigates and resolves matters of significance on behalf of management.

Represents Company in handling complaints, arbitrating disputes, or resolving grievances.

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Examples Of Exempt Administrative JobsInsurance Adjusters

Project Managers

Human Resource Managers

Financial Services

Executive assistant or administrative assistant to a business owner or senior executive of a large business who has been delegated authority regarding matters of significance.

Management consultants who study the operations of a business and propose changes in organization. 23

Hypothetical

Plaintiff is an Underwriter for a bank (i.e. evaluates whether to issue loans to applicants).

Refers to bank’s guidelines in making such evaluations.

Plaintiff also has the ability and discretion to issue loans outside of the scope of the guidelines.

Exempt or Non-exempt?

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Underwriter - Exempt Administrative?

No - Court’s conclusion was based in its interpretation of the “administrative v. production” dichotomy.

The Court held that:

o “Production” can refer to intangible services rather than materials goods.

o There is no “level of responsibility, importance, or skill” that per se meets the exemption.

o Production work can be quantified in a way that administrative work generally cannot.

o Production is primarily functional rather than conceptual.

Underwriters are engaged in the production of loans, not general business operations of the bank.

Hypothetical

Plaintiff is a Regional Director of sales for a free travel magazine.

She is responsible for generating advertising sales for the magazine from the travel and finance sectors throughout the U.S. and Canada.

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Regional Director -Exempt?

Exemption does not apply.

Court focused on the administrative v. production dichotomy in the sales context, which it referred to as the administrative v. sales dichotomy.o Court - salespersons responsible for selling specific ad space or

making specific sales to individual customers are non-exempt.

o Those responsible for “promoting” sales, or who encourage a general increase in sales (i.e., who decide pricing, etc.) are exempt.

Magazine was free, ad space Plaintiff sold was its “product,” and she was responsible for selling that product, not for the general operations of the company.

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Professional

Professional work requiring advanced knowledge acquired via prolonged course of study

Invention, imagination, originality, talent

Medicine, teaching, accounting, engineering , law

Music, writing, graphic arts, acting

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The FLSA “White Collar” Exemptions

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Executive

Administrative

Professional

Learned Professionals

Creative & Artistic Professionals

Highly Compensated Employee

Computer-Related Occupations

Outside Sales

Misclassifying Employees As Independent Contractors

Employment status is defined by law, not by the parties’ agreement.

Most significant factor is whether the potential employer has control or the right to control the worker, both as to the work done and the manner in which it is performed.

Case-by-case analysis.

“Factors” to determine status issued by DOL, IRS, EEOC and other federal and state agencies.

Potential liabilities are overtime payments, insurance benefits and statutory benefits.

States are in need of revenue – significant focus on audits.

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Steps to Reduce Risk of Misclassification

Draft and execute written agreements with all independent contractors.

Do not impose employment practices or work rules on independent contractors.

Do not attempt to prohibit independent contractors from working for or with others.

Require all independent contractors to provide their own transportation, equipment, tools, etc.

Require all independent contractors to be separately incorporated business entities.

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Lessons: Exempt employees should not be given or otherwise required to follow detailed manuals or guidelines.

Exempt employees should not be evaluated according to the amount they produce.

Exempt employees should play a role in determining business strategy, direction, efficiency, policies, etc.

“Context matters” – more likely to be exempt if their services are not the main focus of the actual business itself.

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Job Descriptions Should Be Accurate and Support Exempt Status

Audit job descriptions to ensure that they accurately reflect what the employee is actually doing.

Exempt employees’ evaluations - should focus on their exempt work tasks

Exempt employees’ job descriptions should not identify ministerial tasks.

Job titles and descriptions that bear no relation to employees’ actual job duties will not secure the exempt status!

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What Is The “Regular Rate”?

The regular rate of pay is determined on an hourly basis by (in general) calculating all compensation paid to an employee in a work week then dividing that amount by the actual number of hours worked in that work week.

oNot be less than the applicable minimum wage (currently $7.25/hour ).

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Pay Which May Be Excluded From The Regular Rate

Gifts, such as Christmas or birthday money

Payments for time not worked, such as holidayor vacation pay

Discretionary bonuses

Profit sharing plans

Talent fees

Premium payments

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Regular Rate Pitfalls

Misclassifying bonuses as "discretionary."

Commissions - when "earned" or "accrued."

Failing to allocate bonuses or commissions to past work weeks.

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Overtime

Covered, non-exempt employees must receive one and one-half times the regular rate of pay for all hours worked over forty in a workweek.No limit to # of hours over

16 years of age

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Calculating Overtime Pay

Each workweek stands alone. o Averaging of hours between work weeks prohibited for non-

exempt employees.

Compensatory time off in lieu of overtime pay is generally unlawful.

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Overtime Pay Using Fluctuating Work Week

The regular rate of an employee whose hours of work fluctuate from week to week and who is paid a stipulated salary with the clear understanding that the salary covers straight time pay for all hours worked (whether few or many) will vary from week to week.

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Permissible Deductions

Full week disciplinary suspensions

Full day suspensions for violation of written rules

Full/partial day suspensions for major safety violations

Full day absences due to sickness/disability if made under a bona fide plan/policy/practice providing comp for salary lost

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Permissible Deductions

First or last week of employment

Exempt employee takes leave under the Family and Medical Leave Act

Offset jury fees, witness fees, military pay

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Paid Time Off Banks

Deductions may be made to an employee’s accrued PTO bank for partial day or full day absences (for any reason) without affecting the salary basis of payment so long as the employee receives his/her guaranteed salary.

The exempt status of an employee is not affected if an employer requires its exempt employees to record/track their hours.

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Otherwise valid white collar exemption will not be lost for improper deductions if the employer:

Implements and enforces a written policy prohibiting improper deductions

Does not repeatedly or willfully violate its policy or continue to make improper deductions after complaint

S.A.F.E. Harbor

Safe Harbor Rule

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Unauthorized “Overtime”

Charlie works as a bookkeeper. His shift is 9 – 5. He always clocks in at 9 am and usually clocks in/out for his scheduled meal break, but that 30 min is automatically deducted anyway. Charlie never signs off his computer before 5:25 pm, although his manager knows Charlie stops working at 5:00. He just sits at his desk, writing emails to his family, surfs the Web and perhaps waits for some reports from departments that come in late.

Is Charlie entitled to OT? If so, how much?

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Unauthorized Overtime

Can the manager edit Charlie’s time entries?

What can/should Charlie’s supervisor do?o Charlie could be disciplined for failing to clock out when he

‘finishes’ his shift and/or for working overtime without prior authorization

o Discipline should be acknowledged in writing by Charlie.

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Editing Time Records

When is ‘editing’ of time records permitted?o If employee forgot to clock in/clock out

o Error/glitch with time-keeping system

o Managers must obtain signed affirmation that employee approves the edit and the edit reflects all hours worked

o Signed affirmation must be kept in employee’s file.

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Editing Time Records

Jordan, Confidential Executive Assistant to the CEO, never clocks out for meal periods, although in charge of time-keeping for the front office staff. She sometimes works straight through 8 am – 5 pm because she’s so busy, but the 1-hour meal period is automatically deducted from her salary.

Can the Office Manager edit Jordan’s time records to show that she took the meal period?

Should Jordan be paid for the meal periods?

Any problem in not paying her?47

Compensable Time Issues

Unauthorized Working Time (29 C.F.R. § 785.11)

Employers must compensate employees for unauthorized work when an employer "suffers or permits" employee to work;

An employer suffers or permits an employee to work where the employer knew or had reason to believe the employee was performing work;

Employers are free to discipline employees for unauthorized work.

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Compensating Employees For ALL Hours Worked

"Off The Clock" Work

Starting work before clocking in.

Clocking out, but continuing to work.

Working during meal periods.

Unauthorized overtime "off the clock."

Working at home – checking email – taking calls?

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Off-the-clock Work

Preparatory and Concluding Activitieso What about time spent changing clothes, washing up, starting up

computers, printing off material from prior workday and other ‘prep’ and ‘concluding’ activities?

o Rule: If the activity is an integral and indispensable part of the employee’s principal activities, or required by law or the employers policies or rules, its compensable.

o If activities are for the employee’s convenience, not compensable:

• Sharpening knives in kitchen? Compensable

• Donning and doffing protective gear? Probably compensable.

• Print/starting computers?

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Compensating Employees For ALL Hours Worked

Training and meeting time is included in "hours worked" unless:

Attendance is outside the employee's regular work hours;

Attendance is voluntary;

The training or meeting is not directly related to the employee's job; and

The employee does not perform any productive work during such attendance.

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Compensating Employees for ALL Hours Worked

When Is “On Call” Time Compensable? (29 C.F.R. § 785.17)

An employee who is required to remain on-call on the employer’s premises or so close thereto that he/she cannot use the time effectively for his/her own purposes is working while “on-call.”

An employee who is not required to remain on the premises but is merely required to leave word at his/her home or with company officials where he/she may be reached is not working while on-call.

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Compensating Employees For ALL Hours Worked

When Is Overnight Travel Time Compensable?

Travel time during employee's normal working hours is compensable.

Travel time on Saturdays, Sundays and holidays which corresponds to an employee's normal working hours is compensable.

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Making Arrangements with Employees

Employees cannot volunteer to do free work

Employees cannot waive right to overtime pay or other FLSA rights

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Wide World of Data

Data on our purchases is used to generated targeted advertising in your zip code

Obama Campaign used electoral data to identify ‘on the fence’ communities and focus issues

NSA PRISM Program – analyzes mass data from smartphones to fight terrorism

Emergence of “Big Data” in employment litigation

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Big Data in Litigation

Emerging market in extracting & analyzing data

Employers are creating huge databaseso Payroll & Timekeeping Systems

o Punch clock and time editing records

o Computer & telephone log-ins

o Key Fobs & Door Swipes

o GPS data – trucks, phones, etc.

“Deep Dive” analyses – for ‘hidden’ systemic trends

“Big Data” is the “new oil”o FORTUNE Magazine (Sept. 2013) - 4.4 million jobs by 2015

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How Might Data Impact Employers?

Federal agencies seek the info – EEOC (systemic discrimination initiatives), OFCCP (disparate impact analyses), DOL (collective actions)

DOL Strategic Enforcement Plan (2011-2016)

DOL developed a smartphone app to help employees record time

Plaintiffs’ Bar bring discovery requests for:o Payroll and timekeeping records

o Corporate-wide organization data

o Practices spanning multiple offices

o Identity of managers/supervisors who made decisions 57

Executive Order

Raises minimum wage on new federal contracts:o Post January 1, 2015 - $10.10/hr.

o Contracts negotiated from 2/1/14 – 1/1/15

o Agencies ‘strongly encouraged’ to include new minimum wage in contracts awarded now

o January 1, 2016 – minimum wage increased with CPI

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FLSA Salary Test

Pres. Obama order SOL Perez to update OT regs

White-Collar Exemptions – Modernize & Streamline

Increased Salary Test Threshold?

$455 = $24,000 (below poverty level for family of 4)

12% of Salaried Workers below threshold (65% in 1975)

New York - $600

California - $725

2004 – Pres. Bush raised from $250 to $455

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Executive Order

Non-Retaliation for Disclosure of Compensation Info

April 8, 2014 – Amends E.O. 11246 immediately

“The contractor will not discharge or in any other manner discriminate against any employee or applicant for employment because such ee or app has inquired about, discussed or disclosed the compensation of the app/ee or any other app or ee”

Does not apply where ee’s essential functions involve access to info and they disclose unless in response to complaint/charge, investigation, or consistent with contractor’s duty to furnish info. 60

DOL Wage And Hour Investigations

Why does the DOL initiate an investigation?o Often the result of a complaint filed by an employee or former

employee.

o DOL targets specific industries for audits.

What will be involved in a DOL investigation?o The DOL will visit the business and gather data on wages,

hours, and other employment conditions or practices:

• Examine job descriptions

• Review payroll records

• Interview employees

• Assess compliance and/or apply penalties61

Measuring Work Time – Non-obvious areas to self-audit

What do non-exempt employees do during lunch breaks?

Potential for off-the-clock work (non-exempt employees have company-issued smartphones? Access to computer systems?)

What is communicated to employees at orientation? Are they clearly told not to work during off-duty hours? Report any time that they do work?

Do annual EEO training include wage & hour component?

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Do You “Suffer” or “Permit”?

Clocking out and in for breaks

Supervisors editing employees’ time records

“Rounding”

Required early arrival

Off-the-clock pre-shift meetings

Off-the-clock shift exchange

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What Pay Practices are at Risk?

Overtime & regular rate calculation (fluctuating workweeks, employees working several positions, commissions & bonuses, PTO)

Auto-deductions for meals and breaks

Recording off-the-clock work

Proper handling of tips & tip credits

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Common Errors Often Identified By An Audit

Assuming that paying a salary makes an employee “exempt.”

Failing to pay for all hours an employee is “suffered or permitted” to work.

Directing staff to “get the job done” but ignoring the time it takes to complete the task.

Failure to pay for pre- or post-shift work activities.

Improperly applying an overtime exemption.

Failure to properly calculate an employee’s regular rate.

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Common Errors Often Identified By An Audit

Treating an employee as an independent contractor.

Taking partial-day deductions from salary – may cause it to appear hourly based.

Deducting 15 or 20 minute rest breaks from work hours.

Employee does work at home but the hours are not recorded nor paid.

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QUESTIONS?

Thomas M. Lucasthomas.lucas@jacksonlewis.com

Kristina H. Vaqueravaquerak@jacksonlewis.com

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