I have been writing about wage hour issues that are implicated or raised by the continuing COVID-19 situation. Well, here’s another one. I warn that as businesses start to open up (or not), employees (and, more to the point, plaintiff-side lawyers) will be seeking to sue employers on a number of grounds, some of which rely on circumstances that might have well been beyond the control of their employers. To start with, employers must be aware that they will not receive any “benefit of the doubt” from aggrieved workers nor will these workers have any sympathy or understanding for their employers and not sue them to be “nice.”

Another basic lesson. The doctrine of force majeure is not going to excuse employers from compliance with wage-hour laws, especially wage payment laws. This doctrine, which applies when traumatic, unanticipated events (earthquake, hurricane) occur, may excuse compliance with a particular contract but it does not excuse non-compliance with the FLSA and state laws. Put differently, there is no provision in federal or state laws that authorize an employer not to pay minimum wage or proper overtime. These laws have not been changed or placed into limbo by the crisis and continue to operate at full force, although perhaps under the surface.

A hidden issue is that of employee (or, put better, employer) business expenses. If employees are working from home (as I am) they may well need supplies (e.g. copy paper, computer accoutrements, etc.) and the issue is whether the employee or employer must pay for them. In many States, such as New Jersey and California, the wage payments laws are very strict and will view such items as employer expenses, because the work that will be done using these items ultimately will inure to the benefit of the employer. Thus, forcing employees to pay for these items, or making deductions from salaries/wages for such items, will violate the law. If these deductions are being taken from a group, or class, of employees, there is an incipient class action brewing.

A corollary issue to this is the complex problem of paying employees properly for teleworking. I have already blogged about this but it bears emphasizing. When non-exempt workers respond to, or write, e-mails, after their normal work hours, those minutes/hours are converted to work time. If those minutes push the weekly work hours beyond forty, then it is overtime. Again, the specter of a class action rears its ugly head in these situations. The test is whether there was employer compulsion, explicit or, more importantly, implicit and whether the activity primarily benefits the employer, rather than the employee. In this regard, simply asserting that this activity is de minimis and therefore not compensable is a very dangerous placing of all the eggs in a shaky basket. One obvious answer, perhaps draconian, is to order non-exempt workers not to answer or write any e-mails or do any work after their shift ends.

The Takeaway

The courts and the various Departments of Labor are open, although operating at a diminished capacity. Wage hour cases and complaints are still being filed and submitted. Depending how employers respond to and proactively (or not) deal with wage-hour/compensation issues during the virus and the re-opening will have a significant impact on whether there is a new wave of wage-hour (e.g. overtime) cases coming forward. I recommend employers consult counsel to conduct complete internal audits of their compensation practices to see where they stand.

Do it soon…

For information on addressing the impact of the Coronavirus pandemic on the workplace, as well as other legal matters affecting your business, visit Fox Rothschild’s Coronavirus Resource page.

The USDOL has been pretty busy lately issuing new rules and interpretations about FLSA issues, including vague, nuanced issues like the inclusion (or not) of bonuses in the regular rate and the circumstances under which employers can utilize bonuses. The agency has again issued such a clarification allowing employers to provide bonuses (and hazard pay) to workers paid on a “fluctuating workweek” method. The agency explains that these changes will give employers new freedom to pay workers in the midst of the current COVID-19 situation.

The rule specifically allows employers to provide employees with bonuses, hazard pay and commissions in addition to their fixed weekly salaries, finding that these kinds of payments are “compatible” with the fluctuating workweek (FWW) method of computing overtime. Significantly, the rule also makes clear that these added monies must be included in the calculation of the regular rate of pay when overtime is computed. Cheryl Stanton, the DOL Administrator of the Wage Hour Division, advised that this rule gives employers needed “flexibility” as they cope with the numerous problems and issues engendered by the COVID-19 situation. Such flexibility would be entailed in the (anticipated) staggered shifts that employers may have to adopt upon re-opening their businesses, keeping in mind social distancing protocols.

The FWW method of payment provides that employees are entitled to half-time overtime, instead of “traditional” time and one-half, if they are on a fixed salary for all hours worked, so the regular rate for such a FWW employee will fluctuate from week to week, depending on the number of hours worked. Under the new rule, as the agency explained it will be “easier for employers and employees to agree to unique scheduling arrangements while allowing employees to retain access to the bonuses and premiums they would otherwise earn.” The rule also negates a 2011 Obama DOL regulation which was intended to prevent employers from not fully compensating these FWW workers by moving most of the workers’ salaries into bonus payments.

Naturally, there is opposition to the regulation. Several state Attorneys General have issued comments asserting that the new rule “runs counter to the remedial purpose of the FLSA.” They are concerned that “the proposed rule will create incentives for employers to reduce fixed weekly salaries while increasing weekly work schedules and to shift a large portion of wages into bonus and premium payments to reduce costs.” They warn that “these incentives will likely lead employers to increase their use of the FWW rule and in doing so, will fail to comply with local laws that either do not allow the FWW rule or allow it only within the narrow bounds of the precedent the department now seeks to overturn.”

The agency countered by noting that “while the overtime premium per hour decreases as hours increase, the employer must still pay an overtime premium that is designed to discourage overtime work and spread employment, and the total amount of overtime premium an employer owes continues to increase as hours increase. It further observed that “the department notes that the payment of hours-based bonuses to employees compensated under the fluctuating workweek method — which this final rule clarifies is permitted — may diminish or even eliminate the inverse relationship between hours worked and the regular rate that commenters find objectionable.”

The Takeaway

The Administrator has also stated that the rule will give clarity for employers who are “looking for new ways to better compensate their workers” but have been unsure whether they could provide bonuses to FWW workers. The rule also eliminates (to a large extent) the uncertainty faced by employers who would only know if they were right or wrong about whether bonuses could be given if they were sued in court and won. Or lost.

Clarity is a good thing and, in these difficult times, most welcome…

For information on addressing the impact of the Coronavirus pandemic on the workplace, as well as other legal matters affecting your business, visit Fox Rothschild’s Coronavirus Resource page.

I have handled many cases involving the so-called commission exemption under the Fair Labor Standards Act, Section 207(i), and I can safely say that often a big stumbling block for the defendant (i.e. employer) is to show that it is in a “retail” industry. Absent that showing, the exemption will not apply, even if the worker earns at least 50% of his weekly compensation from commission and his hourly earnings are at least time and one-half of the minimum wage. The US Department of Labor has just made it easier for employers to claim that exemption by expanding the number of employers that can qualify as “retail” businesses.

The DOL has deleted from the 207(i) regulations the partial listing of industries that had been, heretofore, classified as not having any “retail concept,” which would preclude businesses in those industries from claiming the exemption for workers. The new rule simultaneously deleted a second partial listing of businesses that are recognized as “retail.” Thus, going forward Sections 29 CFR 779.317 and 29 CFR 779.320 are “history.”

The agency states that it seeks to promote “consistent treatment” in ascertaining whether the exemption applies by applying “the same analysis to all establishments.” Importantly, now, businesses that were on the excluded list can now meet the exemption if they satisfy the criteria in the regulations which sets forth the standards as to what is/is not “retail.” The agency also seeks to “reduce confusion” in determining the retail nature of a particular business. In this regard, Cheryl Stanton, the Administrator of the USDOL Wage-Hour Division, stated that the new rule “unshackles job creators in the retail space who had previously been categorically excluded from the exemption without notice and comment.”

The list of non-retail businesses issued in 1961 and then was amended in 1970 to add more than forty more types of non-retail entities, e.g. dry cleaners, travel agencies. In the last fifty years, as noted by one commentator, Paul DeCamp, employers who pay workers by commission “have struggled with figuring out whether they’re covered by the Section 7(i) exemption.” Now, that these illustrative lists have been eliminated, a business can better review its circumstances and determine if it fits within the criteria established in 29 CFR 779 to ascertain if it is (or may be) a “retail business.”

The Takeaway

There is no doubt that this is a development that favors employers, or, put differently, makes it easier for employers to be able to comply with the law. The lists were restrictive and, automatically, foreclosed an employer whose business was on the non-retail list from paying its employees by commission and not legally paying overtime. It is also a sign the USDOL is being more flexible and molding its rules to fit the contours of a modern workplace.

Out with the old, in with the new…

For information on addressing the impact of the Coronavirus pandemic on the workplace, as well as other legal matters affecting your business, visit the Cornonavirus Resource page on the Fox Rothschild website at: https://www.foxrothschild.com/coronavirus-resources/

Many wage-hour/overtime actions are brought against restaurants; this is, and has been for some time, a disturbing pattern. Coupled with this trend is the fact that it seems that this industry has certain “customs” on paying workers that give plaintiffs a seeming leg up in these actions. So, it warms my heart when these suits are dismissed for lack of credible evidence and an appellate court affirms that dismissal. The Second Circuit has just done this in cases involving suits brought by employees of Chinese restaurants who were claiming minimum wage and overtime violations. The cases are entitled Li et al. v. Chinatown Take-Out Inc. and Wang v. Happy Hot Hunan Restaurant Inc., and issued from the Second Circuit Court of Appeals.

In the first case, the Second Circuit affirmed that Chinatown Take-Out Inc. did not fail to pay the named plaintiffs their proper wages under the FLSA and New York law, as well as affirming that their hours were correct, as determined by the lower court. In the Happy Hot Hunan case, the Circuit Court affirmed the lower court’s finding that the plaintiff was exempt.

In the Chinatown Take Out case, the plaintiffs argued that the trial court was wrong when it found that they did not work on Jewish holidays and also did not work later than 8PM, while they claimed they worked until 10PM. The Second Circuit concluded that the lower court was correct in crediting the testimony of the restaurant witnesses, as opposed to the memories of the workers. As the court simply, but emphatically stated, “plaintiffs’ testimony did not sufficiently show the amount and extent of their claimed work.”

The Second Circuit affirmed the lower court’s finding that Mr. Wang was exempt and therefore not owed any overtime by the Happy Hot Hunan Restaurant. The Court stated that “the district court concluded that Wang was an exempt employee based on testimony offered during a three-day bench trial. On appeal, Wang primarily challenges the district court’s fact finding and credibility determinations. Nothing Wang points to, however, demonstrates that the district court committed clear error in its fact finding.”

The Takeaway

I am a management side advocate and defense attorney, but I do not want to see restaurant workers or lower wage workers be taken advantage of or not paid properly for all hours worked,. However, when employees seize upon alleged customs in this industry to try to manufacture outlandish claims of hours worked that in no way comport with reality and are defeated, that is as big a victory for “Justice” as when underpaid workers receive their proper wages in a suit. Plaintiff-side lawyers also, many times, seek to prosecute these cases with one eye towards (maybe) securing wages for their clients but with another (bigger) eye on their own fees.

Maybe, the pendulum is swinging back the other way…

We are seeing states start to re-open and businesses start to come back to life and bring their employees back. There are many difficult economic issues that surround these developments, not the least of which is the continuing need to comply with the Fair Labor Standards Act (and state wage and hour laws). These issues may depend on industry (and season) but there are certain issues that cut across all of these lines.

One issue concerns exempt employees, i.e. those workers not due overtime even if they exceed forty hours of work in a week. As businesses come back and may be working shorthanded, an employee who is a “manager” or “supervisor” and therefore exempt, may be converted to a non-exempt worker in a week(s) that they perform too much non-exempt work, e.g. serving customers, working the cash register. In such a scenario, these employees would be entitled to overtime for those weeks.

Another less well known problem may involve people paid on commissions. Under Section 207(i) of the FLSA, commission based employees, who earn at least 50% of their compensation from commissions and work for a “retail or service establishments are exempt from overtime even though they are not “white collar” exempt employees. If sales plummet, meaning commissions plummet, that 50% threshold may not be achievable and, therefore, the employees would be overtime eligible for those periods of time.

Similarly, “outside sales employees,” who are also exempt, are only exempt if they regularly and customarily engage in outside sales work. Naturally, in these days of wholesale shutdowns, more and more outside sales people are working from home or another fixed location. Under that set of circumstances, these people would not be working/selling outside on a regular and customary basis and, again, they would be non-exempt for those weeks.

Another issue is whether employees that are subjected to testing for COVID-19, such as temperature screenings, are compensable time. This might be analogized to the security screenings that many workers already go through, where the standard is whether waiting on line for the security checks was compensable, which the U.S. Supreme Court concluded that it was not. State laws might be tougher, especially where states have not adopted the federal Portal to Portal Act.

The Takeaway

Employers may think they have enough to be concerned with just with bringing their employees back safely, preventing them from becoming ill when they do return, and returning to normal operation and, hopefully, profitability. As discussed above, there are numerous wage hour issues that may sneak up on an unwary employer, which could ultimately lead to collective or class actions being filed. That is why employers must be proactive and compliant with federal, and state, wage and hour laws when they re-open.

Talk about adding insult to injury…

The construction industry has had a long history of wage violations, whether of prevailing wage laws or just “ordinary” wage hour laws. Another example of this trend has emerged in New Jersey where an entity (and its subcontractors) have been sued in federal court in a collective action for alleged failure to pay overtime. The case is entitled Romero et al. v. Allstate Interiors Inc. et al., and was filed in federal court in the District of New Jersey.

The plaintiffs claim that they often worked more than forty hours in a week but were not paid overtime, but rather were paid only a flat day rate. The named plaintiffs also charge they were denied compensation for transporting other workers to and from project locations in their own cars. The lawsuit names subcontractors of Allstate as well, on a single employer theory, charging there were common owners, officers and directors. These subcontractors are GYK Drywall Inc. and Ceiba Services LLC.

The Complaint alleges FLSA violations and also violations of the New Jersey Wage Payment Law. There are approximately sixty potential class members, including laborers, laborers’ assistants and drivers. The Complaint sweepingly alleges that the “defendants have engaged in their unlawful conduct pursuant to a corporate policy of minimizing labor costs and denying employees compensation.”

The Plaintiffs claim they were only paid $130-150 per day, regardless of hours worked. They claimed they (and the others) worked more than seventy (70) hours per week. The named plaintiffs also claim they provided transportation to other workers, were promised reimbursement for gasoline and tolls, but did not receive it. The Complaint alleges that the employer did not track the hours of the workers, nor did it instruct the employees to track their time. Significantly, the named plaintiffs allege they know of other workers who were not paid overtime.

The Takeaway

Paying a day rate to non-exempt employees is permissible but those employees nevertheless are entitled to overtime if they work more than forty hours. Paying this day rate, this flat rate, no matter the number of weekly hours, is a common practice in the construction industry. If all of the workers were subject to the same day-rate/no overtime policy, then this case has a decent chance of receiving conditional certification.

Time for the employer to think about an early settlement….

I have found a very interesting exemption case involving a rather unique job title that also is very instructive in the interpretation of the Highly Compensated Exemption (“HCE”) under the Part 541 FLSA exemption tests. The case involved an employee whose title was Organ Procurement Coordinator, who was seeking back due overtime, claiming he was a non-exempt employee. The case is entitled Smith v. Ochsner Health System et al. and issued from the Fifth Circuit Court of Appeals.

The Fifth Circuit panel affirmed the lower court’s decision. The employee acknowledged that his primary duties included “customarily and regularly” arranging for organ donations and then planning the manner of transport for the organs and the logistics involved in that. The employee also earned more than $100,000 per annum (actually $120,000). The Court determined that this job function related to business operations, which meant that he was performing an administrative job duty, qualifying him for the administrative exemption. As the Court aptly put it, “we need not examine other job duties, though, because just one exempt duty suffices.”

The HCE exemption provides that workers will be exempt as highly compensated employees if they are compensated, in total, in excess of $100,000 annually (as of 1/1/20, $107,000) and they must perform but a single job duty that is deemed exempt. At least $455 per week of that compensation (as of 1/1/20, $684) must be a “salary.” The worker must also perform that exempt work as his “primary duty.” The Court (quite correctly) would not credit this employee’s job title as proof of his exempt status under the HCE but concluded that the record demonstrated that his job duties related to business operations; he also interviewed potential employees and ordered supplies. Tellingly, the plaintiff did not dispute that he performed these job duties.

In his role as Organ Procurement Coordinator, the plaintiff was the primary channel of communication between the hospital and the Louisiana Organ Procurement Agency. He was tasked with responding to calls at all times of the day. He also scrutinized the medical histories of possible donors, relayed vital data about the organs to the surgeons and then ensured that the organs were properly and safely transported.

The Takeaway

The HCE exemption should be one of the first (if not the first) places a defense practitioner looks at when defending an exemption lawsuit. If the person at issue makes more than the (now required) $107,000 per year, it is a pretty good bet you can find a single exempt function that this person performs. In this case, the Fifth Circuit that arranging for organ donations and coordinating that process affected general business operations and that was enough for the administrative exemption to apply.

A magic bullet…

Well, here we are, still in the midst of this horrible COVID-19 pandemic, staying home, scared to go out, wearing masks and gloves, but yet, the first lawsuit(s) involving virus issues have already been filed. In this instance, right in my home state of New Jersey, a hair stylist has filed a class and collective action, alleging that the employer did not pay workers in violation of the Fair Labor Standards Act and the New Jersey Wage Payment Act, following the closure of its beauty shops due to the virus scare. The case is entitled Olsen v. Ratner Cos. LC d/b/a Hair Cuttery and was filed in federal court in the District of New Jersey.

The named plaintiff, Nicole Olsen, alleged that the workers received varying messages about the Company decision to cease operations. The Complaint alleges that the Company, prior to the March 21 shutdown, told the employees that they would not receive their pay for work performed in the previous week. The Company maintained that it was waiting for federal funds and employees would be paid once the funding was received or after the Company went back into business. The Complaint then asserts that “subsequently, on April 7, 2020, plaintiff and employees similarly situated were not paid the wages they were due.”

The stylists earn commissions, but must make at least the minimum wage for every hour worked and if the commissions do not yield that, then the employer must supplement the employees’ pay to reach that level. The Company was doing that but then evidently stopped. The Complaint alleges that the Company (which operates in sixteen States) did not pay the employees their commissions or their minimum wages for the period March 15-21.

The plaintiffs filed under the Fair Labor Standards Act, as a collective action and also under the New Jersey Wage Payment Law as a class action. They want compensatory damages, as well as liquidated damages, civil penalties, and, naturally, attorney fees. The plaintiffs’ counsel took the position that he was fighting for a good cause. He stated that “the idea we can climb out of this crisis on the back of working men and women is completely unfair, unjust and, as alleged by our client, illegal under federal and state law. We are proud to be fighting for working men and women during this national economic crisis.”

The Takeaway

I wonder if there was another way to resolve this. Of course, the workers are entitled to be paid and should be paid, but is the employer not paying them out of pique or spite? No. The vicissitudes of what we are all dealing with in this unprecedented situation have caused this employer to hit a wall, very quickly, because of the particular business it is in. But, a class action lawsuit? Maybe there will be a quick mediation and it will be resolved. Maybe the employer will receive the funds and, on its own, pay the workers.

This could have, and should have, been resolved without litigation!

The USDOL has been quite busy lately in issuing regulations and other guidance relating to the provisions in the Families First Coronavirus Response Act. With that said, the “regular” business of the agency continues as best as it can. One of these functions is the issuance of Opinion Letters which, as I have written about numerous times, provide important guidance for employers on how they may comply with the myriad wage hour laws. The agency has issued Letters regarding my favorite topic—what does/does not get included in employees’ regular rate when computing overtime.

One eternally thorny issue is what bonuses do/do not get included. The rule of thumb is that for a bonus to not be included in the regular rate, it must be completely discretionary bonuses. Any bonus that is promised to employees (company policy, labor contract) almost automatically does get included. One example is a longevity bonus.

In Opinion Letter FLSA 2020-3, the agency looked at whether length-of-service payments, mandated by a municipal resolution, should be included in the regular rate. .  The employer asking for the opinion advised that eligible employees shall receive longevity awards in the amount of $2/month for every year of service.   The employer had been paying these longevity bonuses every two weeks, but wished to pay the bonus in a lump sum at Christmas.

The FLSA regulations exclude Christmas bonuses from being counted towards the elevation of the regular rate. However, employers cannot use that provision as a vehicle for excluding what would otherwise have been includible. In this regard, if the “Christmas” bonus is so much or substantial, then it might “be assumed that employees consider it part of the wages for which they worked” and those that are required by law are not considered gifts for purpose of exclusion from the regular rate.”  29 CFR 778.212(b).

Given these principles, the agency held that as the municipal resolution required that the longevity payments be paid, even if there was some discretion in their form and timing, they had to be included in the regular rate of the employees who received these bonuses. In dicta, the Letter noted that if the resolution had authorized, but not required, the longevity payments around Christmas, they could be excluded from the regular rate.

The Takeaway

Thus, business continues for the DOL, although perhaps not “as usual.” The agency has issued other Opinion Letters on inclusion of certain kinds of bonuses and it is important that these efforts continue as the bonus inclusion issue is one of the grayest and vaguest in the entire FLSA. I don’t like the answer the agency has reached in this matter, but what is paramount for myself, as a management-side practitioner, s that I am more able to properly advise clients how they should comply with the law, which is the overriding goal of every employer.

As it is mine…

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…