I am getting deluged with inquiries from clients, some very agitated, about what they should do, or can do, vis-à-vis their non-exempt work forces and how these folks can be properly paid, but at the same time remain compliant with the Fair Labor Standards Act. As a basic premise, employees must receive at least the applicable minimum wage (in whatever State the employee works) for all hours worked and then must receive overtime for all hours exceeding forty (40) in a work week. However, employees are not guaranteed that forty hour work week. This is the new normal for businesses throughout this nation.

Employers may cut non-exempt employee scheduled hours due to closings of their businesses or the (severely) reduced demand that this pandemic has caused. However, if an employer directs employees to report to work and then sends them home quickly, the employer will, depending on the State, be on the hook for some hours of reporting pay or show-up pay. Both New Jersey and New York have such statutes.

Many clients have employees working from home, i.e. telecommuting. For exempt workers, this is an “easier” situation, but when non-exempt employees work from home, there are several issues that arise and must be dealt with. Employers must accurately monitor and record the working hours of such employees, as these situations present the great potential for abuse, e.g. padding hours worked at home.

Employers might want to have employees call in when they begin work, take lunch and end their shift or record their time electronically. They might want to have them record their time by hand and then submit that time on a daily basis. Whatever method is chosen, the employer must remind employees of the need to accurately record all working time and ensure that they record when they take lunch and breaks so the working hours are not needlessly inflated.

It is also vital that supervisors not contact non-exempt employees after regular hours or encourage any work to be performed outside the normal shifts of the workers. That will be deemed compensable working time and if that extra work takes them above forty hours in that week, it is then overtime. Even reading/responding to an email (or emails) will be working time and, if more than a minute or two (e.g. de minimis), these minutes will add to the weekly total. ”

The Takeaway

The first step is to adopt or reinforce a policy forbidding working overtime without direction or authorization. The employee-working-at home scenario is dangerous from the perspective that it lends itself to abuse of overtime, without appropriate safeguards. I suggest paying an employee, the first time, for engaging in unauthorized overtime, so as to avoid a complaint to a Department of Labor, but at the same time warning that employee that this is not authorized and future instances of unauthorized overtime may lead to discipline for any violations.

Employers must be proactive…

The Corona Virus scare is causing employers to lay people off and reduce their hours. For non-exempt, hourly people this is fairly easy, from a legal perspective, because if non-exempt people do not work, they do not get paid. The case is tougher for exempt workers. The FLSA requires employers to pay exempt employees at least $684.00 per week in salary, and that salary cannot be reduced (in most instances) by deductions. However, under the FLSA, an employer can prospectively reduce the pay of exempt employees, providing it is the result of an economic slowdown and not to evade the salary basis requirement under the Fair Labor Standards Act (FLSA).

Some years ago, the U.S. Department of Labor (DOL) addressed this issue in a series of FAQs. Specifically, the DOL opined that an employer could reduce exempt employee salaries, provided that the reduction is the result of an economic slowdown and not to evade the salary basis requirement. The DOL stated that the employee would, however, lose his exempt status if reductions from predetermined pay were occasioned by a day-to-day or week-to-week determination of the operating requirements of the business. The DOL reasoned that permissible prospective reductions reflect the long-term needs of the business, while impermissible short-term, day-to-day or week-to-week reductions reflect an absence from scheduled work occasioned by an employer or its business operations.

The agency has published Opinion Letters that affirm this principle. In Opinion Letter No. 2026, (March 4, 1997), an employer had to reduce costs because it received less money from the state to operate its programs. The employer had the option of reducing the workweek for exempt employees or laying off exempt employees. The employer proposed reducing the workweek from 40 to 32 hours, with a commensurate reduction in pay. None of the employees would receive less than the salary basis requirement. The DOL noted that the employer’s salary reduction plan resulting from a reduction in the workweek did not defeat the exemption.

In Opinion Letter No. 2162 (June 3, 1999), the agency re-affirmed this principle. The Letter asserted that a fixed future reduction in wages when operating less than a full workweek due to economic conditions was permissible. It should be noted that the reduction must be proportionate to the full salary. In other words, if the salary is $1000 per week and the usual work week is five days, a reduction of $200 would represent that needed proportionality.

The Takeaway

Thus, employers may prospectively reduce exempt employees’ workweek from, for example, 40 hours to 32 hours over a several week period, with a commensurate reduction in pay. The employer should issue an announcement would advise the exempt employees of this necessity, how long it may last (if known) and how their salary would be reduced. This method of implementation is along the lines of those approved by the DOL and appears to be the safest method of implementation.

What gets a lot of employers into trouble is the failure to keep accurate records. Or worse, the actual falsification of records or knowingly keeping and maintaining inaccurate records. Nothing will cause the DOL to come down harder on an employer and for the courts to back up the agency. A recent example of this is a case where the employer tried to put all of the blame on an allegedly low level employee and avoid liability for this fairly egregious lapse. The case is entitled Scalia v. ESSG LLC et al. and issued from the Ninth Circuit Court of Appeals.

The appellate panel affirmed the district court’s decision that the Company was perfectly aware that its employees, grocery workers, were working more than forty hours per week and not getting paid proper overtime. As the Court aptly put it, “ESSG chose Haluptzok as its agent for payroll processing, so it cannot disavow her actions merely because she lacked a specific job title or a certain level of seniority in the company.”

The Company had contended it should not be liable for the actions of this agent or, in the alternative that it should be allowed to go after that entity for indemnification or contribution. The appellate court did not agree with the argument about indemnification. The Court found that this was not contemplated by the FLSA. The Court noted that it saw “no indication that Congress intended to create a right to contribution or indemnification for employers under the FLSA.” The Court refused to “make new federal common law that recognizes those rights.”

The dispute began when ESSG contracted with Sync Staffing. That company placed the workers at their work location, an Albertsons grocery store in Arizona. The defendant often took care of administrative matters at these sites and brought in Haluptzok to do the payroll. However, at the end of the very first pay period, a Sync Staffing employee directed Haluptzok to treat and record the overtime hours as straight time. After that, all payroll and time records were processed and prepared in the same way. It aggregated to more than 1000 FLSA violations! That totaled almost $80,000 in wages, which was then doubled for liquidated damages.

The Takeaway

This was clearly more than a record keeping “problem.” This was a deliberate effort by the employer to pay straight time instead of overtime and the vehicle by which that attempt was carried out was through the vehicle of directing the payroll company to cook the books. Now, that effort becomes a rather difficult and expensive pill to swallow.

Hearty appetite…

I have often blogged about the need for defense lawyers to look for a labor law preemption defense when a wage hour action, single or FLSA collective action is lodged.  If the preemption argument succeeds, it is a magic bullet that makes the case totally go away.  There has to be, however, some direct connection between the wage claim made and the labor contract.  That is often easier said than done, as a recent California case shows where the Judge rejected such a defense.  The case is entitled McGhee v. Tesoro Refining & Marketing Co. LLC et al. and was filed in federal court in the Northern District of California.

The Court noted that although some of the named plaintiff’s claims did require the Court to look at various collective bargaining agreements, the claims did not require the interpretation of contractual provisions or a close look at those clauses.  As the Judge observed, “although the court may ‘look’ at the relevant CBAs as evidence of those [allegedly illegal] procedures, the focus remains on [Tesoro’s] actions, not the CBAs’ authorizations.”

The plaintiff’s theory was that the Company required workers to be on-call before and after work, but did not pay the workers for that time.  The incoming workers had to confer with or “huddle” with outgoing workers prior to their shifts beginning as well as rounding down their time cards to the quarter-hour.  The Company also allegedly made workers stay late to make up for meals they ate off premises.

In order to determine if preemption is appropriate, the Ninth Circuit has fashioned a two-part test.  First, the Court looks at whether the issue is based upon a state statute or a labor contract.  If the claim is deemed to be based on state law, then the Court must scrutinize whether a resolution of the claim is dependent on interpretation of the labor contract.  If it requires such interpretation, then the court does not have jurisdiction over the controversy.

The Court herein held that the workers’ claims do not meet this standard as they only have a “hypothetical connection” to the labor contract.  The Judge observed that the issue relating to the on-call policy “require determining defendants actual policies” without hinging on the CBAs, as do claims the companies miscalculated pay for meal breaks”

The Takeaway

The preemption defense should always be examined to see if it is viable.  It is not enough, however, just to contend that a labor contract is “in the picture.”  The defense lawyer must craft/find an argument that interpretation of certain labor contract articles is necessary to resolve the matter and it is not a matter of state or FLSA.

Keep looking for that magic bullet…

The significance of the issue of independent contractor cannot be underestimated these days and this battle is being waged on any number of fronts, including when an entity may or may not enter a litigation as an intervener.  In a recent case, a New Jersey real estate trade association has been denied to enter an independent contractor class action lawsuit because it cannot supposedly show the ultimate decision in the case will impact the entire real estate industry.  The case is entitled Kennedy v. Weichert Co. d/b/a Weichert Realtors, and issued from the New Jersey Appellate Division.

The plaintiffs accuse their employer of unlawful deductions from their paychecks, because they were deemed independent contractors.  These would be deductions that an employer would normally and traditionally pay for statutory employees.  The association, NJ Realtors, had contended that a loss for Weichert would disrupt the longstanding relationship between real estate brokers and their agents.  The appellate court ruled that the trial court’s decision in the matter would fail to exert any precedential effect on another court.

The Court also would not allow NJ Realtors to intervene because the entity being sued, Weichert, was only protecting and seeking to vindicate its own interests.  The Court found that
“NJR has not demonstrated that its ultimate objective differs from Weichert’s, or that its interests differ with respect to the law governing the relationship between salespersons and brokers.”

The Court, however, did allow the organization to appear as an amici, friend-of-the-court party.  This means the organization can submit a brief and take part in oral argument.  The ex-Weichert sales agent alleged that his employer misclassified these agents as independent contractors.  It then deducted marketing fees and costs related to the commissions, as well as compelling them to pay their own trade association dues.  The named plaintiff alleged that the amount of control exercised by Weichert rendered him and the others employees, thereby making these expenses the employer’s expenses, illegally deducted from the compensation.

The Company contended that the state Unemployment Compensation Law specifically excludes real estate agents from being “employees.”  Moreover, a favorable ruling for the worker would undo decades of past practice in the industry.

The Takeaway

I think the party who sought to intervene had more than a fair, and an actual, stake in this matter.  The bigger point is the highlighting of the intense focus that the independent contractor battle is receiving, regardless of the forum chosen.

I hope they file a great amicus brief…

 

Employers often do not like to pay overtime, although they must, and they sometimes come up with creative arrangements not to do so.  That is fine, until an employee, often one who has been fired, files a lawsuit. Then, the company must resolve the lawsuit and fix the “problem” going forward.  A recent example of this model just occurred involving a portable toilet company, involving almost 1,300 toilet technicians. The case is entitled Vargas v. Howard and was filed in federal court in the Southern District of New York.

The parties have agreed on a settlement of the action and have requested that the Court give approval to their deal. The settlement will apply to 96 opt-in plaintiffs and a certified class of more than 1,275 portable-toilet service technicians. Under the settlement, the company will put $7.14 million into a settlement fund for payments to the workers, their attorney fees, service awards and administrative costs. The lawyers will ask for one-third of the settlement fund for their fees.

The employees were pump truck drivers, flatbed truck drivers and water truck drivers. They contended that they were only paid their regular rate for the first 10 hours they worked from Monday to Thursday, although they claimed they worked longer hours on many occasions. They also claimed that they only received overtime pay for the first 10 hours if they worked a fifth day.  They also claimed that they worked through lunch hours, although that time was deducted from their pay.  They also claimed that they had to work after their shifts ended without being paid.

The Company had faced this issue before but only with individual employees. The Company settled these cases and probably treated these incidents as a cost of doing business. Now, that a class action has ensued and been settled, and everyone knows about it, the Company must change the way it comports itself and pay overtime in accord with the law.

The Takeaway

Creative arrangements with employees on overtime compensation are one thing and sometimes such arrangements may continue for years without any problems or issues. However, it only takes a single fired or disgruntled employee, or ex-employee, to start a lawsuit or file a complaint with a DOL and then, perhaps, the ball of wax unravels.  The Company had settled with individual plaintiffs and treated those settlements, most likely, as a cost of doing business.

Well, the cost of business, and price of poker, just went up…

It seems that plaintiffs (and their lawyers) think that all they have to do to get conditional certification is throw up a flimsy Affidavit from the named plaintiff and the Court will hand them conditional certification, like it is giving out candy.  Fortunately, in the District of New Jersey that is not the case, as evidenced by a very recent case.  The case is entitled Ding v. Baumgart Restaurant Inc. and was filed in the District of New Jersey.  Herein, the plaintiff alleged that the employer did not pay him and other non-exempt workers their proper overtime.

The plaintiff was a deliveryman and claimed he worked between 60-65 hours per week.  He claimed other workers were similarly situated and he, in support of the class certification motion, submitted an Affidavit regarding the hours and pay rates of other employees.  Nothing else was submitted and so the Court relied only on the plaintiff’s affidavit.

Plaintiff asserted in the affidavit that he “know[s] that it is Defendants’ policy not to pay any employee at time and a half rate for all of their overtime hours.”  He claimed he knew this “because [he has] talked with other employees, who has [sic] the same or similar working schedule as [he does], and was told that they were also not paid for the total amount of time they have worked, nor compensated for all of their overtime hours worked.”  Plaintiff had also “heard” other workers mention how much they had been paid.

Plaintiff also claimed knowledge of the hours and rates of other employees because he worked alongside them and allegedly knew their schedules and that they all worked more than 40 hours per week.  However, the plaintiff did not explain how he learned of the fact that the non-deliverymen employees were underpaid.  The Court ruled a sufficient showing to warrant conditional certification had not been made.  There was no showing that Ding’s experience was typical of other class members.  Nor did he show how he knew that other putative class members were not properly paid or were paid less than they were legally owed.

The Takeaway

It takes more than a flimsy Affidavit to get certification in this District.  It should be that way all over the country.  Defense practitioners need to always attack the paucity of such pleadings and, at the minimum, make it tougher for their adversaries to even think of securing conditional, much less final, certification.

Now, this is sanity…

As you know, I am a big believer in and proponent of using USDOL Opinion Letters, both in advising clients, understanding the agency’s view, and, more importantly, urging them on courts as good authority for the premise I may be arguing.  Well, the fact that a federal court has just refused to accept the agency’s view on a particular topic (i.e. whether sleeping time in their sleeper berths is working time) indicates that, perhaps, these Opinion Letters might not be as persuasive as I had thought (and hoped).

The decision shows a skeptical approach to the agency position.  It shows a weakening of the strength of these agency considered opinions; in this regard, the Obama administration had stopped issuing such letters but this Administration has gone back to that practice and I have applauded it as I believe these letters are very instructive and helpful for management-side practitioners like myself in advising clients how to be complaint with the FLSA.

The agency issues the letters in response to questions from employers, employees, unions or any entity or individual who wants guidance on a specific issue, often one that is vague or gray, as the Fair Labor Standards Act often is.  These letters can provide a good faith or safe harbor defense for employers in a lawsuit (and I have done this several times, successfully) but the employer must be able to show it was guided by the letter when it implemented the policy or practice.  But, a court is not bound, legally, to follow the dictates of the letter and will do so (only) if it is persuasive.

As one commentator has noted, “the DOL opinion letters are pretty fact-specific, and the farther an employer or another party gets from the applicable facts, the less reliable it can be.”  In other words, a given Opinion Letter is not a gilt-edged “get out of jail free” card; the employer must stay within the four corners of the letter or else it will be less persuasive to a court on the particular issue.

Naturally, the plaintiff lawyer in a given case will argue that the letter is a “deviation” from precedent and policy and thus is unworthy of deference.  That may give employers pause when they decide to blindly follow the pronouncement in a letter, especially if the letter is reversing a longstanding position held by the agency.

The Takeaway

Given this, I nevertheless remain a “true believer” in the guidance that USDOL Opinion Letters (or the letters or field guidance from state DOLs) offers to employers.  If there is established judicial precedent on an issue and a letter takes a different approach, then employers should be wary and tread with caution.

But don’t be trapped into paralysis by (over) analysis…

I love it when the employer wins an exemption case because the deck is so often stacked against the employer on these kinds of cases. This is especially so when the action is a collective one under the FLSA. In this instance, a RN who was employed as a health insurance claims consultant was found to be exempt as a professional employee because she utilized her specialized knowledge when she performed her duties, even though they were not hands-on patient care. The case is entitled Isett et al. v. Aetna Life Insurance Company and issued from the US Court of Appeals for the Second Circuit.

The appellate panel affirmed the decision below, where the employer had won summary judgment. This employee did not work with patients or perform clinical duties. Her function was to analyze claims submitted to determine if the procedures performed were medically necessary. If they were, she approved the coverage, but if she thought they should be denied, she denied them. The Second Circuit acknowledged that this analysis was different because the worker was not functioning in the typical nursing environment.

The Court stated the issue: “We address the applicability of the FLSA’s professional exemption to an employee who acts in a manner consistent with the central characteristics of the profession at issue but does so outside of that profession’s traditional employment setting.” The Court then concluded that the professional exemption applied.

The employee conducted what were known as “utilization reviews,” where she scrutinized patient appeals of their insurance claims which had already been denied within the Company. She worked without hardly any supervision. There were more than twenty (20) other Nurse Consultants who had opted into the suit and their claims were dismissed as well.

The appellate Court concluded that the professional exemption, which requires “specialized intellectual instruction” in a field of “science or learning” applied because the named plaintiff used that specialized knowledge as a RN in conducting these reviews. The Court noted her limited supervision as well. The Court stated that her primary duty “as a nurse consultant requires the discretion and judgment characteristic of registered nursing — the ability to act independently, or under limited supervision, on the basis of collected clinical data. Accordingly, we conclude that Isett’s job required the use of advanced knowledge, thereby satisfying the first prong of the primary duty test.” The panel also concluded that the employee’s advanced knowledge that allowed her to make these determinations was at “the core of the specialized training that registered nurses receive before entering their profession.”

The Takeaway

This is the best kind of victory for an employer because the exemption is a magic bullet that eliminates every potential plaintiff in one fell swoop. There is, in this regard, no need for the employer to start mounting the “too much individual scrutiny needed” defense. It is also an object lesson for employers to be aware of a potential exemption defense.

And, know this, they may not always be readily apparent…

The USDOL has finalized its new rule concerning when two entities can be deemed a joint employer and therefore liable for each other’s wage violations.  Under the Obama administration, the DOL sought to expand the reach of this doctrine and issued a “white paper” asserting that indicated that businesses had to be completely “disassociated” to not perhaps be joint employers.

The Trump DOL rescinded this position in 2017 and engaged in rulemaking.  Now, there will be a new test, reliant on examination of four prongs: whether the alleged joint employer can hire or fire employees, control their schedules or their job conditions, set their pay and payment methods, and if it maintains their employment records.

Joint employer relationships arise in two scenarios:

  • Where an employer suffers, permits or otherwise employs an employee to work but another individual or entity simultaneously benefits from that work

    OR

  • Where two or more employers employ a worker for separate sets of hours in the same workweek

The new rule (effective March 16, 2020) changes only the “complete disassociation” analysis under the first scenario.  The new rule introduces a balancing test that focuses on the actual exercise of control over an employee by considering whether a potential joint employer:

  • Hires or fires the employee
  • Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree
  • Determines the employee’s rate and method of payment
  • Maintains the employee’s employment records

Importantly, the rule makes clear that maintenance of employment records, without more, will not suffice to find a joint employer relationship.  There will be other indicia to scrutinize, but these other areas must be indicators of the exercise of significant control over the terms and conditions of the employee’s work by the putative joint employer.

The rule also specifies factors that are not relevant to determining joint employer status.  These include:

  • An employee’s “economic dependence” on a potential joint employer, including factors traditionally used to establish whether a worker is an independent contractor
  • Whether a potential joint employer operates as a franchisor or operates using a similar business model
  • The potential joint employer’s contractual agreements requiring the employer to comply with its legal obligations or to meet certain health and safety standards
  • The potential joint employer’s contractual agreements requiring quality control standards to ensure the consistent quality of work product, brand, or business reputation
  • The potential joint employer’s practice of providing the employer with a sample employee handbook or other forms, allowing the employer to operate a business on its premises (including “store within a store” arrangements), offering an association health or retirement plan to the employer or participating in such a plan with the employer, jointly participating in an apprenticeship program with the employer, or any other similar business practices

The Takeaway

The DOL’s new rule will provide clarity for employers attempting to determine whether they are joint employers.  Courts do not have to defer to this new regulation, but it has been my experience that courts often do give such deference.  I hope they do because the old rule was far too vague to allow employers to really know how to structure their relationships with other entities.

Clarity is a good thing…