Accurate records are extremely important for employers. The employer must record the employees’ start time, when they took lunch, and when they leave at the end of the day.  That is so employees can be properly paid (for overtime as well) and, significantly, it is for the employer’s protection so workers cannot inflate claims of working hours. The one thing employers must never do is to alter, edit or change those records, especially for any ulterior reason.

Female hotel housekeeping worker with linens and cartAn Orlando hotel found this out the hard way. The hotel has been ordered to pay in excess of $400,000 in back wages and penalties after the U.S. Department of Labor concluded that the Company had, on numerous occasions, altered payroll records to avoid paying overtime. The agency found that the Sheraton Vistana Resort did not accurately record all work hours performed by the employees. The Company assessed $372,183 in back wages for 275 employees and more than $40,000 in penalties for repeat violations of the Fair Labor Standards Act.

The USDOL District Director stated that this resolution “puts these wages into the hands of those who earned them, and demonstrates how the Department of Labor’s enforcement protects workers and levels the playing field for law-abiding employers.” The investigation showed that supervisors directed employees to sign documents authorizing the Company to edit the times employees punched in and out. The supervisors then altered time records to indicate that employees did not work through their lunch breaks, notwithstanding that they did so.

The Company maintained that it has taken steps to ensure future compliance. A spokesperson stated that, “Sheraton Vistana Resort has agreed to pay some housekeeping associates for overtime that may not have been fully paid for a period of two years.  Current procedures prevent any similar underpayments to associates.”

The Takeaway

Keeping accurate records is essential, as it shows the hours employees worked and protects the employer in the sense that employees cannot inflate the hours they worked because the records show otherwise.  This is especially so if the employer directs employees to self-certify that the hours worked are accurate.  This lovely reasoning goes out the window if the employer is actively directing employees not to report hours, to work off-the-clock, or, as here, to “authorize” their supervisors to change their working hours.

A big no-no….

Ill man with flu coughing and drinking hot tea from cup at homeAn issue often facing employers, in every state, is: when does sick time or vacation time become wages and under what conditions should these days be paid out, especially when an employee separates employment. The Supreme Court of Massachusetts has weighed in on this and held that accrued, unused sick time is not wages under state law.  The case is entitled Mui v. Massachusetts Port Authority, and issued from the Massachusetts Supreme Judicial Court.

The Court vacated a lower court’s decision for the employee, who had claimed that the Massachusetts Wage Act mandated that a separated employee be paid in full on the next regular pay day.  Thus, argued the employee, by failing to pay him “on time” for this accrued, unused sick time, the Port Authority violated the law.  The Court observed that the statute “does not mention sick pay,” and that a court does not “add language to a statute where the Legislature has not done so itself.”  In this regard, the Legislature had refused to expand the meaning of wages under the statute other than those forms of compensation specifically mentioned.

The Court observed that “although an employee may use accrued sick time under appropriate conditions, such time may be considered ‘lost’ if not used.  Such ‘use it or lose it’ sick time policies are common. Because accrued, unused sick time is not compensable under a ‘use it or lose it’ sick time policy, such time clearly is not a wage under the act.”

The Court noted that the Authority’s policy was to pay separated employees a percentage of their accrued, unused sick time so long as they have worked there for at least two years and were not terminated for cause.  Nevertheless, the Court stated that the only contingent compensation recognized as wages in the Massachusetts Wage Act was commissions and the word “wages” did not include any other type of contingent compensation.

The Takeaway

Employers implementing sick leave, vacation or other policies, e.g. PTO, must always insert in the policy what happens to accrued, but unused, or unearned, time upon separation.  And the employer can distinguish between those fired for cause and those who voluntarily resign.

As an employer should…

What is working time? There are many variations on this theme, some far grayer than others. When does waiting time become working time? Is the employee engaged to be waiting or waiting to be engaged? If the former, then it is working time. A class action involving more than 1,100 workers is now testing these hypotheses. These workers have been granted certification in a class action alleging they were not paid for time spent undergoing security checks before they left the store. The case is entitled Heredia et al. v. Eddie Bauer LLC and was filed in federal court in the Northern District of California.

Isometric Illustration of a Line at Security Checkpoint - Body Scan Machine U.S. District Judge Beth Labson Freeman certified several causes of action, including a class for off-the-clock “exit inspections.” The Judge stated that there were two existing questions common to all class members–did the company mandate that security checks be performed off the clock and, if it did so, was the time spent by employees off the clock, waiting to go through security checks. compensable hours worked.

The theory of the suit (filed by a sales associate at a retail store) was that employees were not properly paid for time spent engaged in screening and time they waited for the screening to be conducted. The employee alleged that she was compelled to undergo bag checks and security inspections whenever she left the facility and these inspections were conducted pursuant to Company policy. Indeed, the worker alleged that supervisors directed her to clock out and wait at the front of the store before a manager would conduct a bag check.

The Company defended by asserting that the employees were only subject to screening if they were carrying a bag that might be utilized to steal store merchandise. The Company further stated that these bag checks were to be conducted on the clock, pursuant to Company policy. It also argued that the named plaintiff could not demonstrate that all class members incurred a common injury because there was no liability for some employees, such as those who did not carry a bag. The Judge observed that Eddie Bauer’s written policies did not mention whether employees had to clock out before undergoing a screening, or whether managers had to advise employees that these screenings were to be conducted on the clock.

Significantly, the judge rejected the contention that plaintiffs could not establish commonality because the Company policy allowed inspections to be performed on the clock. The Court observed that “this argument itself is an answer to the common question: whether Eddie Bauer’s policy and practice was to mandate that security checks be performed off-the-clock. Of course, the parties disagree on the answer to this question, but that does not preclude a finding of commonality under Rule 23(a)(2).”

The Takeaway

This is a troubling case. The element of compulsion, i.e. allegedly making employees punch out and wait for the inspection, makes this case very dangerous for the employer. It is made more interesting because the Supreme Court ruled a few years ago that similar waiting time was not compensable because that waiting time was not directly related to the job.

Maybe that is the next argument the Company should make…

U.S. Secretary of Labor Alex Acosta
U.S. Secretary of Labor Alexander Acosta (By US Department of Labor (L-17-05-01-C-AlexanderAcosta-023-E) [Public domain], via Wikimedia Commons)
I have often blogged about the usefulness of USDOL (or any DOL) Opinion Letters and I have lamented that this procedure was stopped under President Obama.  I hailed that the new Secretary of Labor was going back to it.  Well, we have hit the bonanza and the year has just started!  Opinion Letters provide a mechanism for businesses (or individuals) to ask that the DOL provide formal guidance on specific factual and/or compliance issues under the FLSA.

The agency has now re-issued more than a dozen advisory opinion letters that had been published towards the end of the Bush administration but were later rescinded.  The reinstated letters address inclusion of bonus issues, employee exemption issues, especially the administrative exemption and whether “on-call” hours constitute hours worked in certain situations.

For example, in one letter the DOL ruled that project supervisors working in a residential home building industry qualified for an administrative exemption.  The Opinion Letter noted that the majority of the project supervisors’ job duties were administrative in nature and required the use of independent judgment.  Those duties included acting as the homebuilding company’s representative at the worksite in dealings with subcontractors, suppliers, customers and government inspectors and modifying the construction process as needed.

The DOL also emphasized the independent judgment factor when it found (in another letter) that client service managers at an insurance company qualified for the administrative exemption.  These employees’ primary duty was to serve as insurance advisers and consultants to the insurer’s clients.  As such, they utilized independent judgment when giving advice and did not need to receive prior approval for their advice.

There were also letters that addressed under what conditions bonuses should be included in the regular hourly rate of employees, which increases the amount of overtime the employees would be due.  These letters are vital because these issues come up with regularity.

The Takeaway

These letters might address technical issues but they also touch on substantive ones as well. I respect and value these letters because they still provide answers to important questions and serve as definitive guidance in assisting employers in complying with the FLSA.

A thorny enough task by itself…

I have blogged many times about the rash of intern cases that have popped up over the last few years. Now maybe there will be a consistent, uniform test for determining whether interns are really statutory “employees.” The US Department of Labor has endorsed such a test. The agency is approving the so-called “primary beneficiary” standard.

Students/interns sitting at a table with laptops talking
Copyright: bialasiewicz / 123RF Stock Photo

The agency has endorsed a seven-part test for determining intern status. This was set forth in the Second Circuit decision in the 2015 ruling in Glatt v. Fox Searchlight Pictures Inc. That test analyzes the “economic reality” of interns’ relationship with the putative employer to ascertain who is the primary beneficiary of the relationship. This test has been applied in a number of cases and industries of industries, where courts have found that, as the primary beneficiaries of these internships, the individuals are not employees under the FLSA and therefore cannot file claims for misclassification and wage violations.

The agency noted that four federal appellate courts have rejected the six-part DOL test set forth almost a decade ago. The agency issued a statement asserting that the “Department of Labor today clarified that going forward, the department will conform to these appellate court rulings by using the same ‘primary beneficiary’ test that these courts use to determine whether interns are employees under the FLSA. The Wage and Hour Division will update its enforcement policies to align with recent case law, eliminate unnecessary confusion among the regulated community, and provide the division’s investigators with increased flexibility to holistically analyze internships on a case-by-case basis.”

Under the “old” test, an intern is an employee unless all of the six factors were satisfied. These included whether the intern displaced a regular employee and whether the employer derived any “immediate advantage” from the intern’s work. The updated test now restates the seven non-exhaustive factors that constituted the Glatt test. Those include: 1) whether there’ exists a clear understanding that no expectation of compensation exists; 2) whether interns receive training similar to what they would receive in an educational environment; and, 3) to what extent the internship is tied to a formal education program. The agency specifically noted that the primary beneficiary standard is “flexible,” and that determinations on intern-employee status hinge upon the unique circumstances of each case.

The Takeaway

I believe this is a better, fairer, more realistic test. Is it, as I postulated, “definitive guidance?”We will see…

I have blogged about and have long been concerned about working time issues and what constitutes compensable work hours. One of the thorniest of these issues is on-call time and when, if at all, on-call hours become working time. A recent case throws light on this issue, as a Court has held that an Admissions Director for a medical rehabilitation center may be eligible for overtime when she had to work more than forty hours in a week. The case is entitled Butler v. Ciena Health Care Mgt., Inc. and was filed in federal court in the Eastern District of Michigan.

Female doctor in white uniform writing on clipboard Although her title was “Director,” the employee may not have been an exempt employee, thereby making hours worked above forty to be overtime/compensable hours. The Court found that the employee might not have exercised independent judgment in the performance of her job. She “merely” followed admission guidelines and collected information that her boss then utilized to determine whether to admit a particular patient. In exemption issues, it is the duties performed, not the job title or the position description, that determines exempt status and whether someone is eligible for overtime.

The Court denied the defendant’s summary judgment motion and ordered a trial to determine if the employee was exempt. The Court, however, ruled that the worker was not entitled to compensation for the round-the-clock periods when she was required to be on call. The employee was on call twenty-four hours per day Monday-Friday and every other weekend. Workers will get paid for these on-call hours if they are impeded in the pursuit of their personal activities and personal pursuits.

This employee was home when she was on call and could not demonstrate that simply being in an on-call status had any “onerous impact” on her personal activities. The Court noted that the fact that a fraction of patient referrals came during non-work hours showed the Court that these interruptions were not burdensome.

The Takeaway

The great danger in a case like this is that if the employee is deemed non-exempt, so that overtime hours “matter,” the employer might face significant liability. The cure is to conduct an internal audit of all salaried positions, i.e. those normally classified as exempt and make pure up-and-down calls about exempt status.

Especially with the administrative exemption (as herein)…

There have been a great many intern cases recently, cases testing whether interns crossed the line into being statutory employees and therefore covered by the FLSA. I have blogged about these kinds of cases and have specifically blogged about beauty school cases. The Ninth Circuit has just affirmed a lower federal court’s dismissal of a lawsuit from three beauty school students, who allege they were employees while they studied for their degrees. The case is entitled Benjamin, et al v. B & H Education and issued from the Court of Appeals for the Ninth Circuit.

Hairdresser cutting young woman's hairApplying the test enunciated in Glatt v. Fox Searchlight Pictures, Inc., the Court agreed with the lower court’s conclusion that the students had not shown that the educational benefit they had received from attending B&H Education Inc.’s Marinello Schools of Beauty was not superseded by the amount of unpaid “work” that they performed. The Court stated that the “application of the Glatt factors establishes that students were the primary beneficiaries of their labors. Their participation in Marinello’s clinic provided them with the hands-on training they needed to sit for the state licensing exams.”

The Court also found that even if another, more restrictive test, i.e. the DOL factors, was applied, the students would still not be employees. The Court stated that even if it applied these DOL factors, “we view the training provided to plaintiffs to be in an educational environment, because state law requires students to clock hundreds of hours of instruction and practical training in order to qualify for taking the licensing exams.”

The issue was that as part of their educational training, the students at the school were expected to practice providing cosmetology services and, on occasion, some customers received these services. That gave the foundation for the students to allege that they were really “employees.” The Court was not convinced, finding that “as the district court noted in this case, schools typically exercise significant control over their students, but that does not make them employers.”

The Takeaway

There is a tension between the “moment” actual work may get performed and whether that alleged work is too integrally connected to the education to be called “work.”

The trick is knowing where that line gets crossed…

There has been a great deal of litigation about class action waivers in Employee Handbooks and use of arbitration mechanisms in Employee Handbooks to preclude judicial litigation. A recent New Jersey federal case sheds more light on this thorny issue, and the decision favors employers. The case is entitled Essex v. The Children’s Place and was filed in federal court in the District of New Jersey.

Pen on paperIn October 2014, the Company developed an arbitration program that applied to all Associates working at retail stores in the United States. The Company used an intranet portal to communicate with Associates. To gain access, Associates used an employee identification number and personal password. Since October 2014, the Portal included The Mutual Agreement to Arbitrate Claims.

When the Company introduced the arbitration program, it sent Associates already working for the Company received a message through the Portal, directing them to review the Arbitration Agreement. That message explained “it is important that you review the Arbitration Agreement carefully” and that “[w]e expect all Associates to review and sign the Arbitration Agreement. However, because it is not a mandatory condition of your employment, you may elect to opt out and not be subject to the Arbitration Agreement.” Associates hired after October 2014 reviewed the Arbitration Agreement following orientation. The Arbitration Agreement included a class, collective, and representation waiver.

An Associate who declined to accept the terms of the Arbitration Agreement filled out an Opt Out Form, which was also located on the Portal. Of the 377 Store Managers who filed consent to join the lawsuit, 209 of them signed and submitted the Arbitration Agreements. These employees were not required to participate in the arbitration program as a condition of employment and the Arbitration Agreement expressly provided that signing the Arbitration Agreement was not a mandatory condition of employment.

The Court ruled that the Arbitration Agreement had a clear “opt out” provision. The Court noted that numerous Plaintiffs who opted into the case first opted out of the Arbitration Agreement. Thus, it was clear that the arbitration agreement had an opt-out clause and that “[s]uch a provision can hardly be construed to interfere with, restrain, or coerce an employee into forfeiting the rights afforded by § 7 of the NLRA”).  The Defendant conceded that the forty-nine Plaintiffs who did opt out of the Arbitration Agreement were not subject to this motion to compel. Thus, the Court dismissed the case as concerned those Plaintiffs who did not opt out of the arbitration provision.

The Takeaway

This is a very instructive case for employers. The defense works! In how many of my postings am I talking about magic bullets or an easy, quick, cheap way out of a FLSA collective action (at least for many of the opt-in workers).

Well, here is a real good one…

I read an interesting post by Daniel Schwartz in the Connecticut Employment Law Blog. It concerned a recent Second Circuit decision that bodes well for employers in the never-ending fight against wage-hour class actions. The case is entitled Rodriguez-Depena v. Parts Authority, Inc. et al. and issued from the Court of Appeals for the Second Circuit.

Auto parts store shelvesThe Court therein ruled that the arbitration clause set forth in the employment agreement precluded the federal action.  Dan noted that the “clear logic” of the decision will be hard to overlook and I believe he is quite right. The Court relied upon an earlier decision that held that age discrimination claims could not be brought in court if a valid arbitration policy was in place.

The Court also examined the issue of whether the required judicial oversight of FLSA settlements would be a bar to arbitration of these claims. The Court held that it did not, as the guarantee of the fairness of a settlement of a claim filed in court did not mean that this right provided an ironclad right to file suit in court.

Dan notes that this “federal endorsement of arbitration provisions” will allow employers to adopt these provisions and provide themselves with another defense. It also provides yet another stratagem to be utilized in the early stages of a FLSA class action case.

The Takeaway

Maybe employers should consider utilizing such mandatory arbitration provisions. Arbitration is a much cheaper and faster litigation mechanism. I am a big advocate of taking the easiest way out of a class action federal court FLSA case and these kinds of provisions may be another weapon in that early dismissal arsenal.

Well done, Dan…

A class of equipment operators and trainees has asked a federal court to approve a $1.35 million settlement of their FLSA class action lawsuit alleging the Company did not fairly pay them their wages and used a gimmick to avoid doing so.  The case is entitled Elliott v. Schlumberger Technology Corp. et al., and was filed in federal court in the District of North Dakota.

The plaintiffs alleged that the Company violated the law by paying them under the “fluctuating workweek” method.   Interestingly (or maybe not so much), the settlement talks took place after U.S. District Judge Ralph R. Erickson granted the Company’s motion to decertify the class.   The Judge ruled that there was insufficient evidence to show that the workers were similarly situated. There are 138 people in the class.

The plaintiffs alleged that the Company paid equipment operators and trainees by the fluctuating-workweek (FWW) method.  That method allows employers to pay workers overtime at a half-time, as opposed to time and one-half, but certain conditions must be met.  The workers claimed that in order to validly use this method, the employees must be paid on a fixed salary, which they were not.

The Court had conditionally certified a collective class of equipment operators, trainees and other similar employees who were employed at the Company plant in Williston, North Dakota, and to whom the Company applied the fluctuating workweek method for at least one week during the three years preceding the lawsuit.

The Takeaway

This case presents a valuable lesson.  Attempted use of the FWW method of payment must have the employees receiving a fixed salary and an agreement, in advance of the work, that the employees understand what the payment arrangements and overtime protocols are going to be.  This allows the employer to pay half time for overtime instead of time and one-half.  Without these two requirements being met, any attempt to use the FWW method is doomed to failure.  Put differently, the FWW method can be the employer’s best friend, if done right.

If not, it is the employer’s worst enemy…