Wage and Hour Land Mines - - What Every Employer Should Know

Wage and Hour Land Mines - - What Every Employer Should Know September 21, 2012

A JOINT PRESENTATION OF THE NEW JERSEY CORPORATE COUNSEL

ASSOCIATION AND JACKSON LEWIS LLP

Mark C. Boyland, Esq. Justin B. Cutlip, Esq.

Suburban Propane, L.P. Jackson Lewis LLP

240 Route 10 West 220 Headquarters Plaza

P.O. Box 206 East Tower, 7th Floor

Whippany, NJ 07981-0206 Morristown, NJ 07960

Phone: 973-503-9057 Phone: 973-538-6890

[email protected] [email protected]

mailto:[email protected]


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Why These Issues Matter

U.S. Department of Labor estimates that

at least 70% of employers are not in

compliance with the FLSA

Since 2001, wage and hour cases have

surpassed EEO cases as the most

common workplace-law class actions

filed in the federal courts

In 2009, the ten largest reported wage

and hour settlements totaled more than

$360M 2

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Why These Issues Matter

DOL has been increasing the number of

investigators and is seeking funding for

more

DOL’s Wage and Hour Division case load

has been increasing each year

DOL now regularly pursues company-

wide compliance rather than site-

specific relief

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The Onslaught Continues

• 3,426 federal wage-hour lawsuits in

2004

• 6,081 suits in 2010

• 18% increase just from 2009 to 2010

• There are now more wage class-actions

filed than discrimination class-actions

• Don’t forget the DOL: $2.1B in back

wages collected from 2001-08

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Why The Onslaught?

• The law is ancient and often makes no

sense

• One mistake can be replicated many

times over, leading to great exposure

• Violations are often easily proven,

penalties are steep, and fee-shifting is

mandatory

COMMON MISTAKES MADE BY EMPLOYERS

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Mistakes 1 & 2

Who are your employees?

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Who Are Your Employees?

Mistake #1:

“We don’t have to pay

overtime if we call her an

independent contractor . . . .”

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The federal law looks at the economic

realities of the relationship:

Behavioral Controls

Financial Controls

Type of Relationship

New Jersey “ABC” Test:

Free of control or direction over performance of service

Service is outside usual course of business or service is

performed outside of all the places of business of enterprise for

which such service is performed; and

Individual customarily engaged in independent established trade,

occupation, profession or business

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• Up to 30% of employers misclassify workers

• An estimated 3.4 million workers are

contractors, when they should be employees

• Revenue loss to US Treasury is estimated to be

$3.4 billion, annually

• Income tax

• Social Security

• Medicare

• Unemployment Insurance Trust Fund

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Worker Misclassification Issues:

• Employment tax liability – other statutory benefits

• Minimum wage and overtime

• Violation of terms of government contracts as to

prevailing wage, etc.

• Employee benefit plan operational failures

• Tax liability

• Benefit liability

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What the DOL is Doing:

• 129 FTEs for multi-agency audit and enforcement

• Wage and Hour hires over 100 new investigators

for targeted industry investigations

• $24.7 million to fund state grants to identify

worker misclassification issues in state

unemployment insurance administration and

facilitate information sharing with DOL

• 6,000 random audits of companies from 2011-

2013

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New Posting Requirement for New Jersey Employers

called “Employer Obligation to Maintain and Report

Records”

Employers must:

(1) post this notice immediately in the workplace;

(2) provide each employee hired prior to November 7, 2011, a written

copy of the notice no later than December 7, 2011; and

(3) provide employees hired after November 7, 2011, a written copy of

the notice at the time of hire.

Employer failure to maintain/report required records

and pay required wages, benefits, taxes, etc, can lead to

harmful NJDOL action:

- audits

- suspension of business licenses;

- permanent revocation of Employer licenses

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Mistake #2:

“These employees are expensive.

We need some interns . . . .”

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DOL uses a six-factor test:

“The training . . . is similar to that which would be given

in a vocational school.”

“The training is for the benefit of the trainee.”

“The trainees do not displace regular employees, but

work under close supervision.”

The employer . . . derives no immediate advantage from

the activities of the trainees . . . .”

Trainees “not necessarily entitled to a job at the

completion of the training”

Mutual understanding that the trainee is not entitled to

wages

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Recent class actions regarding Interns:

Wang v. Hearst Corp. (S.D.N.Y, 2012)

Glatt v. Fox Searchlight Pictures, Inc. (S.D.N.Y. 2011)

Bickerton v. Charlie Rose Inc., N.Y. Sup. Ct., (2012)

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Mistakes 3-6

Who receives overtime?

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Who Receives Overtime?

White Collar Exemptions

• Most common – executive, administrative, and

professional– have two big parts:

o Salary Basis

o Duties

• Outside sales exemption does not have “salary basis”

requirement – only a duties test

• September 2011 – NJDOL adopted FLSA regulations on

white collar exemptions.

• Inside Sales Exemption – initially left out but NJDOL

corrected mistake so exemption still applicable under NJ

wage and hour law.

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Mistake #3:

“If she has a college degree,

she is a professional.”

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The learned professional exemption

requires:

Knowledge of an advanced type in a field of science or

learning customarily acquired by a “prolonged course of

specialized intellectual instruction” . . .

Exemption is restricted to professions where specialized

academic training is a “standard prerequisite for

entrance into the profession”

In which the worker’s primary duty includes the

“consistent exercise of discretion and judgment”, i.e.,

using advanced knowledge to analyze, interpret or make

deductions from varying facts or circumstances.

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Situations that may present concerns:

“Scientist” or “lab technician”?

“Accountant” or “bookkeeping clerk”?

“Financial analyst” or “gopher”?

Many employees view themselves as

“professionals” but do not satisfy the

requirements for the Professional

Exemption

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Mistake #4:

“Okay, if he’s not professional,

he must be administrative.”

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Employers substantially overuse the

administrative exemption.

The exemption requires, among other

things:

performance of office or non-manual work directly related

to the management or general business operations of

employer or the employer’s customers

“the exercise of discretion and independent judgment”

“with respect to matters of significance”

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Mistake #5:

“If he works with computers,

drinks a lot of coffee, and

devotes too much time to on-line

gaming, he’s exempt.”

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The so-called “computer employee”

exemption is much narrower than that.

The focus is on employees who design,

develop or create computer programs

or systems, or determine the

employer’s hardware & software needs.

Help desk and similar functions do not

generally qualify for exempt status.

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Mistake #6:

“I don’t have to pay her

the full salary if she doesn’t

work her full schedule.”

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Salary Basis Test for Executive, Administrative,

Professional, Computer Exemptions

Portion of employee’s compensation must be a fixed

weekly amount that is not subject to reduction based on

quantity or quality of employee’s work.

No docking the employee for being late, leaving early, or

doing poor work.

Salary must be at least $455/week ($23,660/year) or

at least $27.63 per hour for computer exemption

If they perform any work during a workweek, they are

presumptively entitled to receive their full weekly salary

unless one or more specific permissible deductions

applies.

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Examples of permissible deductions:

Full-day absences for personal reasons other than

sickness or disability

Full-day absences for sickness or disability when an

employer has a bona fide plan, policy, or practice of

providing compensation salary lost due to sickness or

disability

Full-day disciplinary suspensions imposed in good faith

for infractions of workplace conduct rules (written)

First and last week of work – pay for time actually worked

Partial-day absences covered by FMLA

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Mistakes 7-13

How do you measure

working time?

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Measuring Working Time

Mistake #7:

Encouraging or tolerating

off-the-clock work.

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Basic rule: if an employer “suffers or

permits” an employee to provide

services, the time counts as

compensable work.

If you know or should have known that

the employee was working, then you

must pay for that time.

Consent or failure to comply with

timekeeping rules is not an excuse.

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Mistake #8:

“Thanks for the hard work,

but we can’t pay you overtime

because you didn’t obtain

pre-approval.”

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It is fine to have a rule requiring a

supervisor or manager’s pre-approval

before a non-exempt worker exceeds 40

hours in a week.

But failure to obtain pre-approval does not

relieve the employer of the obligation to

pay for work actually performed.

There is always the option of discipline for

failing to follow rules, but be sensible.

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Mistake #9:

“Just let us know if your

working time varies from

your normal schedule.”

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Technically speaking, exception reporting

is not itself a violation of any law.

The problem occurs when workers do not

use the system regularly and

appropriately, leading to inaccurate time

records.

If the time entries seems unrealistic, all of

a sudden you are vulnerable to workers’

claims of substantial off-the-clock time.

“My supervisor knew . . . .”

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Mistake #10:

“That employee’s time entry

looks wrong to me. I’ll

go ahead and fix it.”

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It is not illegal for a supervisor or

manager to change someone’s time

entry in order to make it more accurate.

However, when a time record is

changed to reflect less time than

originally recorded, the burden will be

on the employer to demonstrate why

that change was made.

Plaintiffs commonly assert “shaving.”

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Mistake #11:

“You get a half-hour for lunch

that we just subtract from

your total time for the day.”

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Automatic deductions for meals are

common and do not by themselves

violate federal law or the laws of most

states.

But what happens when a worker says

that he or she did not always get the

chance to take a full 30-minute lunch,

or any lunch at all?

Courts are certifying class actions on

this issue left and right. 39

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Mistake #12:

“Your working time starts when

you are actually working, and it

stops when your work is done.”

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Most employers tell their workers to

make sure that they are properly

recording all working time.

But do the employers and the workers

have a clear understanding of what

working time really is?

Even the courts and DOL are working

that issue out to this day.

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Examples:

Computer boot-up and log-off

Donning / doffing

Mandatory early arrival

Shift exchange

Pre-shift meetings

Training

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Mistake #13:

“Nice job on the conference call

last night. And your 3:00 a.m.

e-mail was sublime.”

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Many employers fail to keep track of

time their non-exempt employees

spend working away from the

workplace.

Examples:

Cell phones

BlackBerries, PDAs, and smartphones

Remote network or e-mail access

Taking paperwork home

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Mistakes 14 & 15

How do you compensate

for overtime?

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Compensating For Overtime

Mistake #14:

Failing to include all

appropriate types of

compensation

in the regular rate.

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Basic rule: all compensation that non-

exempts receive becomes part of the

regular rate except for items falling

within eight specific statutory

exclusions.

Examples that must be included:

Most bonuses

Shift premiums

Commissions

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Mistake #15:

“We are going to bank those

overtime hours for this week

and give you some comp time

down the road.”

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Federal law allows for compensatory

time off in lieu of overtime cash wages

for public-sector employers.

Comp time is not allowed for private-

sector employers.

Each workweek stands alone

DOL enforcement position for same pay

period

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Thank You! Any Questions?

Mark C. Boyland, Esq. Justin B. Cutlip, Esq.

Suburban Propane, L.P. Jackson Lewis LLP

240 Route 10 West 220 Headquarters Plaza

P.O. Box 206 East Tower, 7th Floor

Whippany, NJ 07981-0206 Morristown, NJ 07960

Phone: 973-503-9057 Phone: 973-538-6890

[email protected] [email protected]



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Wage and Hour Land Mines - - What Every Employer Should Know