Avoid Liability! FLSA Compliance A "How To" Webinar

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©2013 Foley & Lardner LLP • Attorney Advertising • Prior results do not guarantee a similar outcome • Models used are not clients but may be representative of clients • 321 N. Clark Street, Suite 2800, Chicago, IL 60654 • 312.832.4500

AVOID LIABILITY! FLSA AND OTHER COMPLIANCE

ISSUES

Larry S. PerlmanFoley & Lardner LLP(305) [email protected]

Mark J. NeubergerFoley & Lardner LLP(305) [email protected]

©2013 Foley & Lardner LLP

Roadmap to Today’s Program

General Theme-Compliance

Wage-Hour Independent Contractors

Use of Big Data Protected Concerted Activity

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Wage and Hour LawPlaintiffs’ Attorneys’ POV

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Wage and Hour LawEmployers’ POV

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History of the Fair Labor Standards Act

Part of FDR’s Campaign pledge to address minimum wage and child labor issues

Signed on June 25, 1938 Basic Provisions

– Minimum wage – Overtime pay after 40 worked hours – Prohibition on use of “oppressive child

labor”– Each workweek stands on its own– Amended 1947 (“Portal-to-Portal Act”)


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Wage & Hour Law - General

State and Local Laws– Most states have some laws on wages

and/or hours– FLSA does not preempt state laws or

municipal ordinances– Critical because workers are entitled to

most favorable treatment—federal, state or municipal


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Coverage Under The Act

There are two ways in which an employee can be covered by the FLSA– Employees may work for an enterprise engaged

in commerce or in the production of goods for commerce

Annual Gross sales volume of not less than $500,000 Employs at least two persons who are engaged in

commerce or in the production of goods for interstate commerce

– Individual coverage Employee’s work regularly involves him/her in

interstate commerce


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Coverage Issues

Volunteers—There is NO permissible volunteering of services to a for-profit employer in the private sector

Internships

Only Employees and not Independent Contractors are covered

Use the Economic Reality Test


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OVERTIME

One and one-half times (1½) the regular rate of pay for all hours worked over 40 in any given workweek– What is the work week? – What is the regular rate?– When did they work?– For Salaried employees, can have fixed

salary for fluctuating work week Overtime is then paid at one-half (½) regular

rate for all hours over 40


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WHITE COLLAR EXEMPTIONS

Executive Administrative Employees Professional Employees Computer Employees Outside Sales Employees Highly Compensated > $100,000 per

year


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EXECUTIVE EXEMPTION

Employee’s primary duty must consist of the management of the enterprise in which he/she is employed or a customarily recognized department or subdivision thereof

Employee must customarily and regularly direct the work of two or more employees

Employee must have the authority to hire or fire other employees or the suggestions and recommendations as to hiring, firing, advancement, or promotion must be given particular weight


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ADMINISTRATIVE EXEMPTION

Primary duty consists of Office or Non-manual Work

Directly Related to Management or General Business Operations of the Employer or Employer’s Customers

Must exercise discretion and Independent judgment with respect to matters of significance

– The exercise of discretion and independent judgment generally involves comparing and evaluating possible courses of conduct and acting or making a decision after the various possibilities have been considered


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PROFESSIONAL EXEMPTION

The Learned or Creative Professional

Learned Professional

Primary duty includes– Employee must perform work requiring

advanced knowledge;

– The advanced knowledge must be in a field of science or learning; AND

– The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual study.


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COMPUTER PROFESSIONAL EXEMPTION

Computer Professional Exemption Primary duty/work includes:

– the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; or

– The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications.

– DOES NOT apply to persons engaged in manufacture or repair of computer hardware or related equipment


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OUTSIDE SALES EXEMPTION

Outside Sales Exemption

Primary duty includes:

– Making sales or obtaining orders or contracts for services

– Employee is customarily and regularly engaged away from the employer’s place of business in performing such primary duty


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Bases for W/H Collective Actions

Compensable Time Cases

Exemption Cases

Independent Contractor Cases

Unequal Pay (Disparate Compensation)


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Compensable Time Violations

Requiring non-exempt employees to perform tasks prior to the start of their work day.

Requiring non-exempt employees to work through their lunch hour.

Requiring non-exempt employees to perform many tasks during an on-call period.


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What Counts As “Hours Worked”?

Can include time spent in:– Unassigned activities self-motivated by

employee (if known by employer)– Waiting (if primarily for benefit of employer)– On-call (if employee’s freedoms too restricted)– On breaks less than 20 minutes– Traveling– Sleeping – Training – KEY: Preparatory and concluding

activities


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Misclassification Cases

Improperly identifying a “non-exempt” employee as an “exempt” employee

– Executive, Administrative, Professional, Outside Sales, Skilled Computer Employees


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Why W/H Class Actions So Popular

Pay policies and practices often affect groups of employees in a similar way; thus, claims challenging these policies and practices are often suitable for class treatment

Large recoveries: The FLSA (and state laws) provide for penalties on back pay (100% federal)

The FLSA (and state laws) allow the prevailing plaintiffs to recover their attorneys fees from the employer who has failed to pay all wages due


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Wage/Hour Collective-Class Actions

In 2013, wage & hour litigation continued its trend of outpacing all other types of workplace class actions. Collective actions pursued in federal court under the FLSA outnumbered all other types of private class actions in employment-related cases

7,764 FLSA cases filed in 2013 10 percent increase from 2012 (7,064

cases) For 2011, FLSA (wage) cases up 1.9%, after

being up 10.5% in 2010 and up 19% in 2009 Only 397 cases filed in 2001


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MASSIVE SETTLEMENTS

Multi-million dollar settlements to avoid litigation/exposure:

- 24 Hour Fitness USA: Approval of $17.5 million (850 class members) regarding exempt status of managers and personal trainers’ claims they were required to work off the clock. (September 2013)

- Roto Rooter Services: $14 million settlement preliminary approved (December 2013). Service technicians alleged failure to properly pay minimum wage and overtime.

- Puerto Rico Dept. of Corrections: $35 million consent judgment settlement - arising from DOL investigation -involving 4500 employees who claimed failure to pay OT. (April 2013)


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Enormous Judgments

$187 Million – Hummel et al. v. Wal-Mart Stores, Inc. (Philadelphia, PA state court)– Off-the-clock and breaks

$105 Million – Chou et al. v. Starbucks, Inc. (San Diego, CA state court) – Tip pooling


Independent Contractor Cases

Different Tests (IRS, FLSA, State laws) DOL – overtime compensation issues ERISA benefit issues State – UC account collection

opportunities Set off huge State budget shortfalls Neuberger/Perlman test- if it sounds

real good, saves lots of money and taxes, it’s probably a bad idea

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Enforcement

September 2011 – Then Secretary of Labor Hilda Solis announced Memorandum of Understanding (MOU) between the DOL and IRS– “The agencies will work together and share information to

reduce the incidence of misclassification of employees, to help reduce the tax gap, and to improve compliance with federal labor laws.”

Agencies from at least 14 states have also signed MOU’s with the DOL’s Wage and Hour Division – “These MOUs will enable the Department to share

information and to coordinate enforcement efforts with participating states in order to level the playing field for law-abiding employers and to ensure that employees receive the protections to which they are entitled under federal and state law. Employers that misclassify their employees may not be paying the proper overtime compensation, FICA and Unemployment Insurances taxes, or workers' compensation premiums.” http://www.dol.gov/whd/workers/misclassification/

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What Is an Independent Contractor?

IRS APPROACH: Three categories of facts that provide evidence of the degree of control and independence:– Behavioral: Does the company control or have the right to

control what the worker does and how the worker does his or her job?

– Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)

– Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

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What Is an Independent Contractor?

IRS STATUTORY EMPLOYEES

Under certain conditions, some workers who are independent contractors under the common law rules may nevertheless be treated as employees by statute for certain employment tax purposes if they fall within one of the following four categories:

Full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company.

Driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission.

Individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done.

Full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer’s business operation. The work performed for you must be the salesperson's principal business activity.

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BIG DATA

Big Data defined:– A process to deliver decision making

insights. The process uses people and technology to quickly analyze large amounts of data of different types (traditional table structured data and unstructured data, such as pictures, video, e-mail, and Tweets) from a variety of sources to produce a stream of actionable knowledge.

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BIG DATA IN HR

The Human Resource function is especially well-positioned to benefit from the business decision making insights offered by Big Data

Provides the ability to gain insight into the future and past behavior of employees

Predictive analytics can help make better decisions as to who to hire, who to promote, who to reassign or terminate, and how to compensate

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Legal Considerations in the Use of

BIG DATA Anti-discrimination laws Two theories of discrimination have

evolved through court decisions: – disparate treatment – disparate or adverse impact; seemingly

neutral employment practices may be illegal if they have a disproportionate, or more adverse, impact on members of a protected group

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BIG DATA Increased use of tests and other

selection devices Uniform Guidelines on Employee

Selection Procedures, 29 CFR Part 1607

Requires proper validation of any employee selection procedure which has adverse impact on any protected group

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BIG DATA Wellness and medical costs are driving

the need to analyze data Employers struggle to contain the cost

of providing medical insurance to their employees and also try to maintain the health of an aging workforce

Genetic Information and Nondiscrimination Act of 2007, “GINA,” 29 U.S.C. § 2000ff et seq.

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BIG DATA GINA

– Makes it illegal for employers to discriminate against either employees or applicants because of their genetic information

– Prohibits employers from requesting, requiring or purchasing genetic information about their employees

– Genetic information is defined in very broad terms and includes genetic testing not only of the individual, but of their family members as well

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BIG DATA GINA

– The accumulation of anything which constitutes genetic information to predict whether an employee may be more susceptible to disease, or future performance issues because of their genetic makeup, will run afoul of GINA

– Includes data about the risk of diseases or disorders the employee or their family members may experience now, any increased risk of disease, disorder or condition in the future

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BIG DATA GINA

– safe harbor where health or genetic services are “offered by the employer...as part of a wellness program; the employee provides prior, knowing, voluntary, and written authorization; only the employee (or family member if the family member is receiving genetic services) and the licensed health care professional or board certified genetic counselor involved in providing such services receive individually identifiable information concerning the results of such services; and any individually identifiable genetic information provided is …not [to] be disclosed to the employer except in aggregate terms that do not disclose the identity of specific employees.”

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Non Union Employers Need to Think About the NLRA

“Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, and shall also have the right to refrain from any or all such activities.” - Sec. 7, NLRA

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This Isn’t New

Employees have the right to act together to try to improve their pay and working conditions, with or without a union– Which is why policies which prevent

employees from discussing their pay will likely be held to violate the NLRA

These rights were written into the original 1935 National Labor Relations Act and have been upheld in numerous decisions by appellate courts and by the U.S. Supreme Court.

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Unions are in Trouble

Union membership in the private sector as a percent of the workforce remains at an all time low

According to BLS figures just released:– In 2013, the union membership rate--the

percent of wage and salary workers who were members of unions--was 11.3 percent, the same as in 2012

– Public-sector workers had a union membership rate (35.3 percent) more than five times higher than that of private-sector workers (6.7 percent).

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Unions are in Trouble

They are not making any headway 143,568,000 in the US workforce who

are employed; In a recent six month period, unions organized 65,185 new workers or 0.0005841 of the workforce

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The NLRB is Desperate to Stay Relevant

The rise of the enforcement of every employee’s right, union or not, to engage in Protected Concerted Activity– Is the activity concerted?– Does it seek to benefit other employees?– Is it carried out in a way that causes it to

lose protection? See

http://www.nlrb.gov/rights-we-protect/protected-concerted-activity

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What Has the Board Done So Far

Investigating workplace policies that restrict Section 7 rights because they are “overly broad”– NLRB has rules on policies concerning the

use of social media and electronic technologies, confidentiality, privacy, protection of employer information, intellectual property, and contact with the media and government agencies

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What is the Board Trying to Do

On February 5, the NLRB proposed amendments to its rules and regulations governing representation-case procedures. In substance, the proposed amendments are identical to the representation procedure changes first proposed in June of 2011.

The prior rule was invalidated by a District Court ruling that it had been adopted without a validly constituted quorum

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What is the Board Trying to Do

Goal is to have“Quickie” elections rules

Would shorten time between petition and election from 40 days to 14-21 days

For example, by eliminating some tactical options of employers to challenge scope of the unit before the election

Shortened period is impediment to management’s efforts to respond to

a union campaign

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What is the Board Likely to Do

Perhaps overruling Bush-era Decisions such as:– use of company email to unionize,

Register Guard– Weingarten rights for unrepresented

employees Who is a supervisor? Challenging Class Waivers (D.R.

Horton)

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THANK YOU!

Larry S. PerlmanFoley & Lardner LLP(305) [email protected]

To subscribe to our Weekly Employment Law Update or any other Foley newsletter, click here: http://www.foley.com/subscribe/ To follow our blog, Labor and Employment Law Perspectives, visit www.laboremploymentperspectives.com

Mark J. NeubergerFoley & Lardner LLP(305) [email protected] me on Twitter@neubsthelawyer

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