Wage & Hour Issues Underthe Fair Labor Standards Act

Christopher L. NickelsPhone: (414) 277-5519

Email: christopher.nickels@quarles.com

Presented to the American Payroll AssociationThursday, October 11, 2012

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Wage and Hour Issues

• What’s the big deal about wage and hour issues?

• Wage and hour claims are on the rise and are costly to organizations:

– In 2008, the value of the top 10 private settlements was $252.7 million.

– In 2009, the value of the top 10 private settlements was $363.6 million.

– In 2010, the value of the top 10 private settlements was $336.5 million.

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Types of Claims

• Unpaid work– Auto-deduction for meal periods– Rounding– Remote Work– Off the clock work– Regular rate

• Exempt/Non-exempt Misclassification

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Fair Labor Standards Act (FLSA)

• The FLSA is the primary federal law regulating minimum wage and overtime payments.

• Enacted in 1938.

• Now being applied to jobs that didn’t exist in the 20th century.

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Why an increase in litigation?

• The “perfect storm” of events:– Increased activity by plaintiff’s bar.– Greater focus on wage and hour

violations by the Department of Labor.– Some employers lax in auditing wage

and hour compliance.

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Auto Deductions for Meal Periods

• Claim that time for meal breaks was automatically deducted from employee’s pay even when an employee worked through all or part of the meal break period.

• Automatic deductions are not per se unlawful.

• Ripe for class-certification because of a uniform policy.

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Auto Deductions for Meal Periods

• What is a “bona fide” meal period?– At least 30 minutes.

– Employees must be completely relieved from duty during that time.

– Any duties performed, whether active or inactive, disqualifies the whole time period from being unpaid.

– Issues carrying pagers or radios.

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Wisconsin Law on Meal Breaks

• More strict than federal law.– Employees must be compensated for all

“on duty” meal periods.– A break is not required for employees over

the age of 18, however, in order to deduct, must allow for 30 consecutive minutes free from work– Employee must be free to

leave the employer’s premises.

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Time Rounding

• Like automatic deductions, the practice is lawful.

• DOL accepts rounding if employees are “fully compensated.”

• Ripe for class-certification because of a uniform policy.

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Remote Work

• Employee able to perform work outside of visual observation from a supervisor.– E.g., logging onto computer system,

checking Blackberry, taking phone calls at home.

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Off the Clock Work

• Occurs when employee performs work on premises, but not clocked in, whether before or after shifts or during meal periods.

• Employees must be compensated for closely related duties and tasks that are indispensable to the performance of the employee’s activities.

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Policies RegardingOff the Clock Work• Accurately record all work time.• Prohibit off-the-clock work. • Mandatory process for reviewing exceptions to time

entries.• Mandatory reporting of all suspected off-the-clock

work. • Internal mechanism for hourly employees to complain

about uncompensated work

• Prohibiting arriving at work station before set start time.

• Automatic discipline of employees who violate the timekeeping policy.

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Properly Calculating“Regular Rate”• Overtime is calculated at a 50%

premium rate from the regular rate of pay for hours worked over 40.

• Cannot be less than the minimum wage.

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Regular Rate Does Include:

• Non-discretionary bonuses • Incentive pay • Commissions • Shift differentials • Retroactive pay increases• Board or Lodging (if customarily

furnished by employer to employee)

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Regular Rate Does Not Include:

• Gifts

• Paid Time Off (e.g., vacation pay, holiday pay, sick leave)

• Expense Reimbursements

• Discretionary Bonuses

• Retirement Plan Contributions or Insurance Payments

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Difficulties Calculating“Regular Rate”• Non-discretionary bonuses and

commissions can be problematic because they generally must be apportioned back over the period in which they were earned.

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Misclassification

• Employees are generally presumed “non-exempt,” and entitled to 1½ times their regular rate of pay for all time worked in excess of 40 hours per week.

• Certain employees are exempt from overtime pay requirements.

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Exemptions

• White collar exemptions:– Executive

– Administrative

– Professional

• Other typical exemptions:– Outside sales

– Computer Analyst, Computer Programmer, Software Engineer

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General Requirements for Exemption

• Salary basis

• Duties Test

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What Does “Primary Duty” Mean?

• Primary duty means the position’s “principal, main, major or most important duty that the employee performs.”

• Factors to consider include:

– The relative importance of the exempt duties as compared with other types of duties;

– The amount of time spent performing exempt work;

– The employee’s relative freedom from direct supervision;

– The relationship between the employee’s salary and the wages paid to other employees for the kind of non-exempt work performed by the employee.

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Executive Exemption

• Primary duties must include:– Management of the enterprise or of a

recognized department or subdivision thereof

– Direct the work of two or more other employees or their full-time equivalents

– Authority to hire or fire or offer valued suggestions as to hiring, firing, advancement, promotion or any other change of status

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Administrative Exemption

• Primary duties must include: – Performance of office or non-manual work

directly related to the management or general business operations of the employer or the employer’s customers; and

– Exercise of discretion and independent judgment with respect to matters of significance.

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Examples of Exempt“Administrative” Employees

• Employee who leads a team of other employees assigned to complete major projects (e.g., selling part of business, negotiating real estate transaction, designing and implementing productivity improvements) for the employer even if the employee does not have direct supervisory responsibility over the other employees on the team.

• Sales engineer that assists sales by custom-designing telecom systems to meet each prospective customer’s unique needs in which employee was required to compare and evaluate discrete product options.

• Account manager responsible for learning customer’s business and translating their needs into technical specifications to be developed by in-house software engineers in order to adapt software to customer’s needs.

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“Primary Duty” and Wisconsin Law

• Employees who spend approximately 50% of their time performing exempt work will generally satisfy the primary duty requirement under federal law

• Wisconsin law sets a higher burden to establish exempt status as it requires that exempt employees devote no more than 20% of their hours in a workweek to non-exempt activities.

No more than

20%

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Computer Employee Exemption

• Includes persons employed as– Computer systems analysts

– Computer programmers

– Software engineers and other similarly skilled workers in the computer field.

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Computer Employees are Not:

• Employees engaged in the manufacture or repair of computer hardware and related equipment;

• Employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs;

• Individuals who work in a “help desk” capacity who perform installation or troubleshoot computer or network issues.

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Creative Professional Exemption

• Primary duties must consist of:– Performance of work requiring invention,

imagination, originality or talent in a recognized field of artistic or creative endeavor.

• Recognized field of artistic or creative endeavor includes, for example, music, writing, acting and the graphic arts.

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Penalties for Overtime Violations

• Plaintiff may recover unpaid wages/overtime (i.e., backpay)

• In addition to backpay, a successful plaintiff is entitled to an equal amount (i.e., doubling) as liquidated damages for claims under the FLSA. (Wisconsin law permits for liquidated damages in amount of 150% of backpay award);

• Successful plaintiff is entitled to reasonable attorneys’ fees

• Individual managers/supervisors can be held personally liable.

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Practices to Minimize Unpaid Work Risks• Training

• Clear timekeeping policies

• Accurate timekeeping software

• Reporting and audit protocol to monitor hours worked reports

• Internal reporting system

• Employees to certify time records and paychecks accurately reflect time worked and pay due.

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Conclusion

• Wage and hour compliance program– (1) employee complaint; – (2) manager report; or – (3) audit result.

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Questions?