A Pennsylvania federal judge on Monday approved a $6 million deal to settle a class action against a Bank alleging that the bank failed to pay its employees for duties they had performed prior to the start of their shifts in violation of the FLSA.
Issues surrounding working time, when “work” actually begins, clocking in and out situations and the like, are always prevelant in FLSA class actions and can really hurt employers when they are faced with paying a lump sum settlement like this one. We always advise our clients to take close look at their Hours Worked policies to ensure that they are protected against situations like this in the future.
In restaurants and diners, an employer may take a tip credit against the minimum wage. That means that the employer pays a wage of $2.13 per hour to the employee and hopes/anticipates that the employee will derive a sufficient number of tips, per hour, to equal or exceed the minimum wage. Often times, waiters and other service employees will meet and exceed the minimum, but if they do not, the employer must make it up for the hour or hours that may be insufficiently compensated.
This landscape may change. Under a proposed law, tipped/service employees in New Jersey would receive an increase in this mandated wage component of their compensation. This initiative is of great concern to the restaurant industry. The legislation (clearing the Assembly Labor Committee by a 5-3 vote) would limit the amount of tips that the employer could take and apply against the hourly minimum wage requirement. (The minimum wage rose to $8.25 per hour on NJ on January 1, 2014).
The details of the bill (A857) are that, after December 31, 2014, employers would be allowed to claim a tip credit of 60% against the minimum wage rate and this would drop to 31% after December 31, 2015. This would mean that workers would have to receive a wage rate (from the employer) of at least $5.69 per hour. The Assembly sponsor of the bill stated that “this is a matter of fairness and equitable pay.” He observed that “tipped employees in New York and Connecticut are earning more than twice what tipped workers are earning here in New Jersey. Let’s give these employees a better foundation to build from and increase their minimum wage.”
The New Jersey Restaurant Association takes strong issue with the contention and misapprehension that tipped workers do not earn the requisite minimum wage. The President, Marilou Halvorsen, made the point that if workers do not realize $8.25 per hour in tips they are yet guaranteed to receive the NJ minimum wage, i.e. $8.25 per hour. The fact is that many of these workers, the significant majority certainly, earns much more than the state minimum wage. In one restaurant chain, for example, PJ Whelihan’s, the waiters and waitresses are earning between $16-21 per hour.
The bill would likely hit restaurants hard. These additional costs would either be passed on to the customers or restaurants would (be compelled to) cut back on staff. So there might be a short-term “gain,” but employees, as a group would be the ultimate losers Employers would also have to deal with stricter, more detailed record-keeping/notice requirements.
This bill would, simply put, increase the hardships on restaurant employers to do business. In an atmosphere where the State government is ostensibly seeking to make New Jersey more business-friendly, this bill is the wrong approach.
New York City Mayor Bill de Blasio signed an amendment to the New York City Earned Sick Time Act that will become effective April 1, 2014 and will require covered employers to provide 40 hours of paid (or unpaid sick if less than 5 employees) leave per year to NYC employees.
Sick time must accrue at least at a rate of one hour for every 30 hours worked, up to 40 hours (5 days) per calendar year. The rules for accrual do in fact differ for exempt and non-exempt employees. Employers are to assume that exempt employees work 40 hours per week for accrual purposes, unless the worker typically works less than 40 hours. For non-exempt employees, they accrue time based on the hours they work.
In addition for using the Sick Time for their own health, employees can also use paid sick time: to care for the employee’s “family member” who is ill or who needs preventative care.
The Act requires employers to give employees notice of their rights under the act, including the right to file a complaint with the department.
Employers should review their policies and practices to ensure that they are compliant in terms of not only offering the paid days, but also checking that their accrual rate is compliant. Employers can be subject to liability if they retaliate against an employee who exercises their right under the act. Employers may also be subject to penalties for every time they fail to pay an employee sick time, deny requested sick time, or otherwise violate the Act.
I read with interest a recent post by Michael Kun in the Epstein Becker wage hour blog concerning (non-exempt) employees seeking payment for and/or suing for compensation for time spent checking and responding to emails and utilizing other PDAs on (ostensibly) Company business after business hours and on weekends. I spoke on this topic at a Wage-Hour conference in Miami three years ago and the issue has only become more incendiary for the business community.
I agree with him that employers often utilize or seek to utilize a de minimis defense but the DOL itself and a number of court cases hold that even five minutes per day, which becomes 25-30 minutes per week, is not de minimis. Simply putting all of one’s eggs in that basket is not the prudent, proactive step to take. With things like this, the employer has the opportunity (perhaps borne out of necessity) to proactively implement a policy to address these issues and limit, insofar as possible/feasible, any claims, whether individual or collective, for off-the-clock work involving PDAs and emails.
The policy would stake out, initially, whether any email or PDA usage is allowed after the shift is over. A blanket policy against any such use is allowable, but may not prove operationally doable. Naturally, if such a policy is implemented, there must exist a reporting or channeling mechanism so that employees can report emergency times and seek reimbursement, as opposed to perhaps thinking that they just have to “eat” the time. That is how lawsuits, especially collective/class action suits, are created.
If the policy is going to allow for or provide for after-hours PDA usage, there must exist a detailed and reportable time keeping system. Building into the reporting system some concept of de minimis (e.g. less than five minutes) might be acceptable, but might also prove risky as it is the aggregation of these little bits and pieces of “productive” time that overcomes a de minimis argument/defense.
Still, getting out in front of this issue, with a carefully drafted policy, is the best way of providing a defense and, more importantly, assuring fairness and transparency to employees on what does and does not count as working time.
At the end of the movie “Nashville,” a country singer wails a ballad called “It Don’t Worry Me.” I submit the same could be said for the possible changes to white collar exemption regulations.
In recent days, the wage hour blogs have been buzzing about the proposed changes to the FLSA white collar exemption tests. Any time the regulations are revised (i.e. 2004) the burden becomes heavier for employers to prove the exemption, but there may be a hidden benefit for the business community. By making the lines of demarcation clearer, the regulations may well make it easier for employers to make appropriate, i.e. defensible, classification decisions.
The Obama Administration is going to direct the Department of Labor to toughen up the exceptions to federal overtime requirements through regulation. This could be by raising the salary threshold, currently $455 per week and/or augmenting the existing or establishing new elements of exempt status.
On the issue of salary, I have always thought the $455 per week was too low, especially if the employee(s) performed subordinate duties, which injected the issue of the primary duty test into the equation. In that context, to me, the low salary, coupled with the significant amount of non-exempt work, almost suggested a non-exempt finding by an agency or court. Higher salary thresholds already exist, e.g. New York ($640) and California (600), which I believe should be the “basement” for exempt employee salaries, to show that there is a bright line between manager and subordinate.
If the proposed regulations seek to set a fixed percentage of an employee’s work that has to be devoted to managerial tasks, like California, (more than 50% of an exempt employee’s time has to be devoted to exempt work), after some short-lived spikes in labor costs, employers would respond. They would lower salaries (of those who earned more than $455 per week) and either build in the overtime to the salary or place the employees on a fluctuating work week arrangement. Or, the employer could simply put those lower-level supervisory or administrative employees on hourly rates and pay overtime or, perhaps more easily, limit work time to no more than forty hours per week to avoid triggering overtime requirements.
I think the new guidance, if and when it comes, may initially bode well for plaintiff lawyers, but will give employers a clearer view of how employees should be classified.
To be coninued…
It’s not uncommon for employers to employ workers on various non-immigrant visas. Recently, a high profile case finally settled but it cost the former McDonald’s franchisee a hefty sum as well as a lot of bad publicity. After years, the DOL’s Wage and Hour Division reached a settlement with the former McDonald’s franchisee for back pay, damages as well as a civil penalty for violating the FLSA’s minimum wage and overtime provisions when it underpaid foreign student workers. The settlement is nearly $211,000.
The student workers were working in the US under the J-1 visa program. The Exchange Visitor (J) non-immigrant visa category is for individuals approved to participate in work-and study-based exchange visitor programs. Visas under the J-1 program are available to post-secondary students enrolled full time and pursuing studies at post-secondary accredited academic institutions who come to the U.S. to work and travel during their summer vacation. Many employers employ individuals on a J-1 visa for a variety of reasons including being able to transform their business with international talent or to train individuals to start branches overseas.
The DOL found that the employer violated two main parts of the FLSA: (1) it made improper deductions from employee paychecks, which brought the rate of pay for some employees below the federal minimum wage of $7.25 per hour, and (2) some employees did not receive the required overtime premium.
Employers should be mindful of the FLSA’s requirements when they are employing individuals on any type of visa.
I have been following the series of lawsuits filed by attorneys who claim they were not performing “attorney” work and are therefore entitled to overtime in collective and class actions filed under the Fair Labor Standards Act. Now, the major law firm of Skadden Arps, in defending one such suit, has filed a motion to dismiss the suit, strongly contending that a recent decision by a judge who refused to dismiss a similar case disregarded relevant caselaw and promulgated an “unworkable standard.” The case is entitled Lola v. Skadden Arps Meagher Slate & Flom LLP and was filed in federal court in the Southern District of New York.
In a brief submitted to the Court, Skadden urged that the policy undergirding the FLSA never anticipated that individuals like these would be eligible for overtime pay. “The federal overtime laws were not designed for advanced-degree professionals to accept premium wages and then make ‘gotcha’ arguments that they were misclassified for every period they performed a task a nonprofessional could allegedly also complete.”
The law firm contended that the plaintiff’s reliance on U.S. District Judge Ronnie Abrams’ December decision not to dismiss a similar suit was misplaced. The firm, contrary to Judge Abrams, who concluded that what constitutes the practice of law was one of first impression for federal courts, asserted that federal courts have already ruled on this and found that the work at issue was, in fact, exempt.
The law firm also strongly disagreed with Judge Abrams setting forth (or, perhaps, inventing) a three part test to determine if an individual was practicing law. The firm argued this was beyond the FLSA to determine if someone is engaged in the practice of law. The plaintiff in this case has urged that this “test” be adopted. The “test” is whether the worker gives legal advice to particular clients, whether the individual holds himself out as an attorney and whether the person’s duties compel him to rely on his legal knowledge and judgment. The law firm points out, however, that the FLSA professional exemption does not mandate specific inquiry into the discrete tasks performed by the lawyer.
I believe this “test” is indeed an unworkable standard and not what is intended under the FLSA professional regulations related to the practice of law. I believe that these document reviewers are utilizing their legal judgment and analytical ability, even though the work, on the surface, may be tedious and repetitive.
To be continued….
Sales employees are generally compensated with commission compensation structures. Sometimes a commission is paid in addition to a salary, other times its paid instead of salary. The tech industry employs so many sales reps, that they generally pay with the former compensation structure above (combo base and salary). For both the employer and the employee there are so many questions surrounding how commission structures work. Federal law addresses it, states have their rules own too. Here are some basic facts about commissions in New York:
- The Labor Law requires that a commission salesperson agreement must be in writing and signed by both the employer and the salesperson. It must contain:
- A description of how wages, salary, drawing accounts, commissions, and all other monies earned and payable will be calculated;
- How often the employee will be paid;
- The frequency of reconciliation (if the agreement provides for a revocable draw);
- Any other details pertinent to the payment of wages, salary, drawing accounts, commissions, and all other monies earned and payable when the employment relationship ends.
- The employer must provide the commission salesperson, upon written request, with a statement of earnings paid or due and unpaid.
- When is a commission considered “earned?” Commissions are earned at the time specified in the written employment agreement. If the agreement is silent, a commission is considered to be earned in accordance with the past dealings between the employer and commission salesperson. If none exist, then a commission is considered earned when the commission salesperson produces a person ready, willing, and able to enter into a contract upon the employer’s terms.
- Once a commission is “earned,” it is legally considered “wages” under the Labor Law and subject to all other provisions of
the Labor Law regarding the payment of wages.
- Even if the employment relationship with the employer has ended, the commission is considered wages and still has to be paid to the employee. If the commissions have not yet been earned, the terms of the written employment agreement, which must include language addressing this situation, will control.
Commissions can be complicated. Employers should be extra cautious when using them, and should be educated on not only the federal requirements, but the state’s too. As you can see, New York’s Labor Law directly addresses many of the issues surrrounding Commissions.
Happy Valentine’s Day.
When a class becomes conditionally certified in a FLSA collective action, the only weapon (absent settlement) that the defendant-employer then is left with is a motion to de-certify the class and reduce the litigation to a single plaintiff. Putting all of one’s eggs in that basket is risky, because if that overture fails, the plaintiffs are really in control of the entire litigation and the damages/stakes escalate sharply.
So has learned Avis Budget Car Rental LLC, when the federal district court in New Jersey rejected the defense’s motion to de-certify a class of shift managers bringing overtime claims based upon misclassification. The motion was founded on the standard defendant’s contention that the job duties of the people were too dissimilar to allege that a common pattern or practice prevailed. It is this need for individualization that dooms, or not, a collective action. The case is entitled Ruffin Jr. et al. v. Avis Budget Car Rental LLC et al. in the District of New Jersey.
U.S. District Judge Susan D. Wigenton concluded that there were not sufficient differences in the job duties of the plaintiffs. “Deposition testimony of plaintiffs and defendants’ witnesses demonstrates that plaintiffs performed primarily the same duties, were nearly all given the job title and job description of shift manager, underwent the same training program, and were subject to the same policies — including not being paid overtime wages,” the Court stated.
Although Judge Wigenton acknowledged that there were some differences in job duties performed, they were not “material and ‘any such differences are outweighed by the similarities between those plaintiffs.’ The shift manager’s theory was that they performed menial tasks the majority of their work time and that this amount of time undermined the premise that their “primary duty” was management or supervision.
This outcome highlights the way that one of these cases can spiral out of control, as it were. The plaintiff-side legal fees are probably significant, the damages, which will be doubled, will be significant and there is the extra year added on to the statute of limitations. Although, these days, I believe that a very viable, cost effective strategy is to settle for (only) the named plaintiff and fix what is broken, when an entire class of people is implicated, the stakes become big enough for the employer to roll the dice on a de-cert motion, although the outcome here was not good.
Certain types of employees, who are classified as exempt employees, are not entitled to overtime pay as guaranteed by the FLSA. It follows that non-exempt employee are entitled overtime if they work more than 40 hours per week. A recent settlement highlights some of the issues that can arise when employees are misclassified as exempt, and how employers should take extra caution when classifying their employees.
In a class action suit brought against a national teen tour company, the suit alleged that the trip leaders were less than $2,000 for trips lasting from two weeks to 90 days. The leaders claimed they were not paid overtime or given duty-free meal and rest breaks during their 16 to 18 hour days. More than 85 percent of class members opted into the settlement and will receive payments from the $500,000 settlement.
An interesting note about this case, is that it highlights a misapplication of the “Camp Exception.”
Section 13(a)(3) provides a complete exemption from the minimum wage and overtime requirements of the FLSA “for any employee employed by an establishment which is an amusement or recreational establishment, organized camp, or religious or non-profit education conference center, if (A) it is not open for more than seven months in any calendar year, or (B) during the preceding calendar year, its average receipts for any six months of such year were not more than 33 1/3 per centum of its average receipts for the other six months of such year.”
The case above clarifies that the “camp” exemption for overtime is limited to those organizations centered around an actual site or facilities that provide something like the traditional summer camp experience, and not for any organization principally offering excursions.
Unfortunately the error was massive to the employers in this case, but a reminder to employers operating businesses to carefully asses the classification of their employees, as well as their overall payroll practices.