Classification issues are annoying ones, to state the obvious. Especially decisions and issues as to who is and who is not an independent contractor. And, it does not matter whether the defending entity is a mom-and-pop candy store or one of our most elite educational institutions, such as Harvard University. That august institution has just recently agreed to revise its university-wide worker classification system as part of a settlement of a class action involving allegations of misclassification. The case is entitled Donahue v. Harvard University and was filed in state court in Massachusetts.

A massage therapist treating a female client on a table in an apartmentThe settlement included a class of approximately 20 acupuncturists and massage therapists who worked at the University’s Center for Wellness from January 2013 to December 2017. These workers will now be re-classified as employees and receive up to $30,000 each in back pay. When the University re-classifies other workers, the side “benefit” will be that they will be eligible to join unions.

The plaintiff’s attorney complimented the university. She stated, “from the outset of this case, I have said that Harvard should be a role model for other employers. I am very proud of this settlement and hope that it sets an example of how other employers should respond when a concern is raised that its workers have been misclassified.”

The named plaintiff, Kara Donohoe, a massage therapist, sued the University in January 2016, alleging it misclassified her and others as independent contractors. They were, consequently, denied certain employee-related benefits. She will receive $30,000 in back pay and an extra $30,000 for being the named plaintiff, a so-called “incentive award.” Other workers will receive up to $30,000 in back pay. Harvard has now tasked a group of people (e.g. HR) with revising its policies concerning classification of individuals as independent contractors. This study will be guided by federal and state law principles.

The Takeaway

A wholesale classification of any group of individuals as independent contractors is dangerous. As I have harped on many times, the starting point for any such analysis, whether under FLSA principles or state law, any state’s law, is to ascertain if the individual has other customers or clients or works solely/mostly for the putative employer.  In this case, if these Therapists worked only for Harvard, they were not engaged in an “independently established business” and that is the death knell for any employer defense in an independent contractor case.

Sorry, but, on this one, Harvard gets an “F.”

The U.S. Department of Labor has announced a new self-audit program that allows employers to avoid litigation by “turning themselves in.” This is drawing some praise but there are a number of issues that remain unaddressed, much less answered.  This new program, dubbed the Payroll Audit Independent Determination (“PAID”) program allows employers to pay back wages to workers for accidental overtime and minimum wage violations. The employer will therefore be able to avoid penalties/fines and litigation costs. The program will be re-evaluated after six months.

Auditor examining documentsSeveral issues remain. For example, the agency stated that the employees would have a choice of whether to accept the payment of back wages due. If they agree, they will sign a standard agency release that would deprive them of being able to sue over “the identified violations and time period for which the employer is paying the back wages.” However, what happens if employees have state law wage claims, which they often bring in conjunction with their FLSA claims?

One commentator has stated that it is an open question whether such a release would cover state law claims. If the program only releases FLSA claims, the employee could still theoretically sue under state law. If it required employees to release all legal claims, including state claims, then the benefit to the employer is greater as is the incentive to engage with PAID.

There remains the issue of whether employees will participate. Under this program, the employer would pay the wages, but would not pay liquidated damages, i.e. double wages, for the violations. This would perhaps “rob” employees of the chance to secure a greater payout because if the employee won in a lawsuit, he would (in all likelihood) receive the liquidated damages. Significantly, the agency itself does not go after liquidated damages in all cases.

Another uncertainty revolves around existing litigation that may be in the picture. Under the PAID program, an employer cannot participate if the Company is already being sued or is under current DOL investigation. Importantly, the employer cannot use the program to remedy the same potential violations more than once. What happens if an employer reports a violation and while the agency is working things out, the worker(s) file a lawsuit? It is far from clear whether the lawsuit could proceed because the DOL has already taken primary jurisdiction. The agency might need to address this issue when/if it clarifies the initial policy.

The Takeaway

I am not sure if this program will be popular with the business community because employers would be inviting the DOL in to examine perhaps all of their compensation practices. Employers might find themselves leery of (forever?) being on the agency’s radar. The better approach might be to fix noticed or discovered problems internally and self-correct, meaning that workers are paid any back due wages.

Why walk yourself into a problem?

I have blogged several times recently on the rash of “check bag” cases that have percolated through the courts. Another example. A class of workers employed by Converse Inc. have now asked the Ninth Circuit to revive a class action resting on the theory that the time waiting to go through mandatory security inspections was compensable. The employees allege that the trial court’s decision that the time spent was de minimis was incorrect. The case is entitled Chavez v. Converse Inc., and was filed in federal court in the Northern District of California.

White canvas sneakersThe lower court judge found that the waiting time spent in inspections was a minute or a little more. Thus, the Court ruled that the time was de minimis. The employees argued that the judge should not have applied this doctrine to the California Labor Code claims because the test utilized by the Court was ostensibly meant to apply to Fair Labor Standards Act claims under the holding in Lindow v. United States. In this regard, the Court acknowledged that the question of whether the de minimis doctrine could ever apply to the California state statute was a question pending before the California Supreme Court after the Ninth Circuit certified that question to the Supreme Court.

The employees filed suit in July 2015 and in September 2016, Judge Cousins certified a class of approximately 1500 employees, finding that the claims shared commonality sufficient for a class-based litigation. Nevertheless, the judge dismissed the suit because the time spent in waiting was too brief to warrant litigation or to make findings that compensation was owed because the time was “working time.”

There were competing experts in this case. The Company expert stated that the inspection took less than ten seconds. The workers’ expert stated that the inspections took approximately 2.5 minutes per occurrence. The Judge ruled that even if the worker expert was right and it took 144 seconds per inspection, each worker would have to go through five exit inspections daily to amass more than ten minutes of off-the-clock time, which is the standard baseline for a de minimis finding.

The Takeaway

This case is interesting because the state Supreme Court is going to rule on the meaning of de minimis, which will impact on the holding reached in this matter. With that said, the lesson for employers is to always, I mean always, stake out the de minimis defense in any waiting time case, especially a bag case.

It just may work…

I am always telling clients who are sued in FLSA actions not to take any actions against employees who may still be working for them (which, admittedly, is not the case very often) because that will make things dramatically worse.  Well, it appears that HBO may not be heeding this admonition because production assistants who joined FLSA collective and state class actions have alleged that the company is taking actions against them for joining those suits.  The case is entitled Sapia et al. v. Home Box Office Inc. and was filed in federal court in the Southern District of New York.

Photo of movie clapper on woodThe company had settled suits based on a theory that it did not pay parking production assistants properly for their hours, i.e. work hours, spent holding spaces for large productions like “Girls” and “Vinyl.”  The company allegedly retaliated against employees who opted into the cases by asking them to sign agreements that they would drop out of the litigation and, more importantly, by cutting their shifts and/or refusing to hire them back for additional work.  The Complaint alleges that the “defendant reduced plaintiffs’ shifts to strategically force plaintiffs to resign by reducing their pay to levels below those necessary to sustain themselves and their dependents.”

Although the studios made millions of dollars from the projects.  The studios, however, only paid a per diem pay to the employees, who were assigned to hold parking spaces over long shifts.  HBO settled the case for $8,000,000 in September.  However, the company allegedly was not content to leave it there.  For example, one plaintiff stated that he was called into a meeting with the Parking Coordinator and at that meeting was informed that any assistants who participated in the overtime lawsuits would be given fewer shifts.  The Coordinator also asked if the employee would sign a “working agreement.” This would require the employee to remove himself from the litigation.

The worker not only refused to sign the agreement, he tore it up in front of his supervisor.  Then, he was denied more shifts when he asked for them, he alleges. When he asked to be assigned shifts, the company denied the requests or just ignored them.  The Complaint then alleges that the “defendant constructively terminated plaintiff Sapia by refusing to assign him any shifts of work in retaliation for opting into the lawsuit and for refusing to opt-out of it.”

The Takeaway

As an employer, you need to know when to walk away from something, fix it and move forward.  This case was settled, over, but now has been given new life in a needless manner.

Didn’t have to happen…

The controversy over whether employees must arbitrate wage claims continues with full force. A federal judge has just sent to arbitration a claim by an employee that the Company violated the Fair Labor Standards Act by not paying him overtime pay. The Court found that the parties had “clearly and unmistakably” agreed that an arbitrator should decide whether the allegations are arbitrable. The case is entitled Smith v. Kellogg Co. et al., and was filed in federal court in the District of Nevada.

Copyright: kzenon / 123RF Stock Photo

The district judge granted a motion to compel arbitration. The Court found that the retail sales representative signed an employment agreement that contained a mandatory arbitration clause under the Judicial Arbitration Mediation Services rules, which leave the determination of arbitrability to the arbitrator.

The judge noted several cases involving the issue of whether the sophistication of the parties matters in deciding whether a delegation of arbitrability is clear and unmistakable. The judge, however, referred to language in another decision holding that the parties do not need to be sophisticated to conclude that the incorporation of arbitrator rules “constitutes clear and unmistakable evidence of the parties’ intent” to delegate the decision about arbitrability.” As the Court aptly noted, “… the requisite intent to delegate is present in the continued employment/incentive agreement in the incorporation of the JAMS rules, which delegate the determination of arbitrability to the arbitrator.”

The judge also noted that the Agreement contained a clause telling the employee to consult with an attorney. The document also gave at least 21 days to consider the Agreement prior to signing it and there was, very generously, a seven-day grace period to revoke the decision made previously to agree to the arbitration procedure. The judge concluded that although “ Smith has raised a slight inference of procedural unconscionability [he} has not made a showing of substantive unconscionability as to the delegation provision. Therefore, the delegation provision is enforceable and I grant the motion to compel arbitration.”

The Takeaway

An arbitration provision such as this one is an escape mechanism for the employer in an overtime or FLSA context. It must be drafted properly, with all the procedural safeguards necessary and as may need to vary from state to state but it can preclude federal litigation.

Which is always a much more expensive proposition.

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…