Wage & Hour - Development & Highlights : New Jersey Labor and Employment Lawyer & Attorney : Fox Rothschild LLP Law Firm : Serving Essex County, Sussex County, Roseland, New Jersey

Nokia has agreed to settle a Fair Labor Standards Act suit action in which the workers charged they were misclassified as independent contractors and not paid proper overtime. In this suit, filed in federal court in Texas, the plaintiffs had tried to recover unpaid back wages, attorneys’ fees and costs, based on a theory that they consistently worked in excess of forty hours per week.

The plaintiffs had worked for a staffing company and they were assigned by the staffing agency to work as engineers at a field support center. They were charged with the responsibility of providing telephone support to field technicians and installers who installed Nokia equipment at cellular locations all across the nation.

The plaintiffs alleged that they were, in fact, “employees,” because they claimed they worked solely for Nokia, on Nokia premises and used Nokia equipment. The plaintiffs, who were paid by the staffing company, also alleged that the staffing entity misclassified them. Nokia defended by asserting that it had negotiated contracts with these staffing companies and those contracts set forth the rates that Nokia would pay for certain services.

The plaintiffs tried to make this a nationwide class action, trying to draw in support centers in Texas, California and New Jersey as sites of allegedly aggrieved workers. In September 2007, a judge denied the motion to conditionally certify a class, concluding that the named plaintiffs did not prove that they were similarly situated due to the fact that Nokia, as a corporate policy, had not mandated a common pay procedure or arrangement or practice that adversely impacted the plaintiffs.

This was a potentially very explosive case and Nokia, in my view, wisely chose to settle. If workers are found to be employees, rather than independent contractors, a virtual Pandora’s Box opens for the employer. These “new” employees can not only seek overtime compensation, but they also may lay claims to certain company benefits (e.g. stock option plans) that are only allowed to be enjoyed by employees.

Independent contractor audits are tough to succeed upon and are more and more the focus of state administrative agencies, because such audits produce (often) significant revenue for a State in terms of back due unemployment contributions. The putative independent contractor must be in a recognized business and free from control. The above shows certain evidences of control, which might have undermined the defense at a trial..
 

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I have encountered a number of cases where employees do not, whether unintentionally or otherwise, work through their lunch hours (or half-hours) and then later claim they are owed wages or overtime for that work.  It is crucial to understand that it is not enough to simply, merely have a policy that requires employees to take lunch.  The employer must be vigilant that employees are in fact taking lunch and must ensure, to the maximum extent operationally possible, that employees sign out and sign back in when they return from lunch.

A recent US Department of Labor Opinion Letter makes this clear.  The Opinion Letter repeats the age-old adage that time not requested to be worked but yet suffered or permitted to be worked is work time.  Under this rubric, missed meal periods will be counted by the DOL as working time.  If the employee is regularly scheduled to work 35 hours, and with missed lunch periods, claims he worked 37.5 hours (at a half-hour per day), no additional compensation will be owed if the employee is nevertheless paid the minimum wage for all hours worked.  This means that salaried (non-exempt) employees who miss lunches but whose salaries still yield minimum wage payment for all hours are due no additional compensation.

As the Second Circuit Court of Appeals,  in Chao v Gotham Registry, Inc. has recently stated in a similar case, "it is the duty of the management to exercise its control and see that work is not performed if it does not want it to be performed.  It cannot sit back and accept the benefits without compensating for them.  The mere promulgation of a rule against such work is not enough."

The employer must exercise supervisory oversight in this area.  Ensure that employees punch out for lunch and they punch back in.  It will be extraordinarily difficult to prove, at a trial that may ensue several years later, whether or not someone took lunch on August 15, 2008 (or the day after, or the day after that and so on).  Unless the time in question is a minute or two, or such occurrences are isolated, the employer must constantly guard against claims of time allegedlty worked, when, all things being equal, it probably was not.

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The federal regulations are always being updated, even if some of the revisions move at seemingly glacial speed.  Recently, the United States Department of Labor has proposed to revise regulations addressing the so-called tip credit, the use of the fluctuating work-week method of paying overtime and compensatory time off. 

The current tip credit allows an employer in the restaurant industry to pay only a cash wage of $2.13 per hour, with the assumption being that the employee will recoup the balance of the required minimum wage in tips.  If the employee is, however, a bad or discourteous waiter, and does not make up the difference in collected tips, the employer must then pay more of the minimum wage in pay.  The proposal would update the tip credit provision to reflect the increases in the federal minimum wage, which now is $6.55 per hour and in July 2009 will be $7.25 per hour.

Another proposal would affect the calculation of overtime when employees are on a fluctuating work week method of receiving any overtime.  The current regulation allows employers to pay overtime based upon the regular rate for the particular week for salaried non-exempt employees, after that rate is computed based upon the number of hours worked in that discrete week (and assuming an up-front agreement between employer and employee to do so)..  The new proposal sets forth that bonus or other premium payments will not invalidate a fluctuating work-week agreement, but must be included in ascertaining the regular rate for that week.

Another proposal addresses compensatory time usage.  Public employees are allowed to be granted and use compensatory time off in lieu of being paid overtime.  The proposal seeks to track judicial decisions that have addressed this issue by clarifying that the FLSA does not require a public agency to allow compensatory time to be used on a day specifically requested but only requires that the public agency allow the use of the time within a reasonable period unless such use would unduly impact the agency's operations.

Comments are being accepted on the proposals until approximately mid-September.  These proposals might not draw as much attention or criticism, as the proposals to amend the white collar exemptions in 2003, but who knows.   

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