Federal Wage & Hour Laws and Policy

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Working time claims/lawsuits take many forms and often arise out of seemingly unlikely circumstances.  In a recent case, the Third Circuit ruled that temporary workers brought in to take over the jobs of locked out workers cannot receive pay under the FLSA for their time spent travelling to and crossing the picket line.  The case is entitled Smith et al. v. Allegheny Technologies Inc. et al. and issued from the Third Circuit Court of Appeals.

On Strike

The panel held that riding across the picket line in vans provided by an industrial strike staffing company was not their principal activity nor was it integral to their principal activity.  Those are the factors that determine if a particular tangential (or preliminary) activity is compensable.  The Court held that the travel time was not a principal activity just because the employer mandated particular travel procedures.  The workers were driven to the facility, across the picket line, from their hotel, which was almost an hour away.

The Court noted that “for example, a temporary workforce’s commute would be a principal activity if members of that workforce were simply hired to cross the picket line in the morning, enter its factory, and then re-cross the picket line at night.  Similarly, a complaint could allege facts that demonstrated the employee’s crossing the picket line was as important as the work the employee subsequently performed. But no such facts were alleged here.”

The Court also stated that this picket line crossing was not “integral or indispensable” to the job of making steel.  The Court stated that “taking a Strom van to work was at least two steps removed from their steel production duties.”

The Takeaway

This is the correct decision.  This was, in essence, home-to-work commuting which is never compensable under the FLSA.  Yes, there was an interesting variation on the theme but the Court found that the principle remained inviolate.  Still, employers must always be wary of the pre-work activities their employees engage in as a collective action could be lurking around the corner.

Or just down the road…

Many employers these days have timekeeping systems that deduct time (e.g. thirty minutes) for lunch on a daily basis.  There is an inherent danger in doing this, as employees may claim that they worked through lunch and therefore should be paid.  This is evidenced in yet another settlement in such an action, a settlement that totals $1.5 million.  The case is entitled Magpayo v. Advocate Health and Hospitals Corp. and was filed in federal court in the Northern District of Illinois.

Lunch BreakThe collective action involved hundreds of emergency room nurses.  This class submitted papers to a federal Judge asking approval of the settlement, which will include 262 ER Nurses.  The motion noted that the employer would have continued to litigate and there were risks, for the plaintiffs, in maintaining the suit.

The motion stated that “the traditional means for handling wage claims like those at issue here — individual litigation — would unduly tax the court system, require a massive expenditure of public and private resources and, given the relatively small value of the claims of the individual class members, would be impracticable.  The proposed settlement, therefore, is the best vehicle for class members to receive the relief to which they are entitled in a prompt and efficient manner.”

As stated above, the theory of the case was worked lunch breaks were going unpaid because of the automatic deductions.  The lead plaintiff also claimed the Hospital did not pay for overtime when more than forty hours were worked and that she had to work after she clocked out.  The class had been certified under Rule 23 of the Federal Rules of Civil Procedure and as a collective action under the Fair Labor Standards Act.

The plaintiffs wanted to settle because there was a risk the class could be decertified and greater expense would be incurred.  The motion noted that by asserting that “additional litigation would only serve to increase the expenses incurred without reducing the risks facing class members.”  The layers will receive $600,000 in fees.

The Takeaway

Automatic lunch deduction systems are legal but there must be a reporting mechanism, a fail-safe mechanism, for when employees do work through lunch (or claim they do).  The employee is trained to fill out a form, submit it to the supervisor for approval, and payment.  Then, the employer is protected and the employee properly paid for a true missed lunch break.

Sounds simple, yet these suits keep happening?

The world of prevailing wage law is a complex and nuanced one. It is, in truth, a niche within a niche of the wage-hour world. I have handled almost one hundred prevailing wage audits and lawsuits and still am learning things about how these laws are interpreted. In an interesting twist, the New York State Court of Appeals has examined the issue of when apprentice wages can (and cannot) be paid on prevailing wage projects. The case is entitled International Union of Painters & Allied Trades, Dist. Council No. 4 v. New York State Dept. of Labor and issued from the Court of Appeals of the State of New York.

The Court held (in agreement with the NYS DOL) that apprentices who are not discharging the job functions of their trade must be paid the higher, journeyman wages.  The vote was 6-1.   The Court stated “we uphold the statute-based policy of the New York State Department of Labor that the payment of apprentice wages on public work projects to apprentices who are performing tasks that are within the respective trade classifications of the approved apprenticeship programs in which they are enrolled.”

The Union sponsored a DOL-approved glazier apprenticeship program, but during their work as apprentice glaziers, these workers may have to discharge some Ironworker job duties.  The plaintiffs sued, asking for a judgment that as long as the tasks were performed under the aegis of the apprentice program, it did not matter that they were doing other tasks covered by other trade jurisdictions.  The DOL took the view that this work demanded payment at that craft’s rate (a much higher rate).

The lower court dismissed the suit but an appellate tribunal revived it, holding that “glazing contractors may compensate apprentices registered and enrolled in the DC 4 Glazier Apprenticeship Program in accordance with the applicable apprentice rates posted by defendant New York State Department of Labor on taxpayer financed projects.”  That panel also was concerned that apprentices could be improperly used as “cheap labor.”   The highest NYS court agreed, finding “there is a substantial risk that employers would seek to use cheaper labor whenever consistent with the construction market.”

The Takeaway

Construction contractors need to be very careful when they do prevailing wage projects, as there are many minefields for the unwary employer.   This case highlights but a single one of these.

There are many more…

There is an old saying, “I’m from the government and I’m here to help you.” Everybody thinks that is funny as, often, the opposite is true, especially for the employer community. Well, the USDOL is putting a new spin on this maxim by creating an office to (supposedly) help employers in complying with the Fair Labor Standards Act.

The new organ, denominated the Office of Compliance Initiatives, will coordinate with other enforcement agencies in an effort to improve compliance with the FLSA. There will also be an enforcement perspective. The sub-agency will also work with employers (so they say) to facilitate greater employer compliance.

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
There are two new websites, www.worker.gov and www.employer.gov. These websites will give data pertaining to the compensation and benefits that are required to be paid under various laws. The agency will also give contact information for the Wage and Hour Division and for State labor departments. This contact information is vital, assuming it is not the general 800 number.

This could be a sign that the DOL will look more towards enhancing compliance, than punishing transgressors or seeking to ferret out alleged wrongdoers. This approach would actually yield more for employees, as many employers are well-intentioned and have good faith but are confused by the laws.

The Takeaway

I think, actually, that this is a good idea. I have found that most employers want to comply with the law and have trouble doing that as it is often very nuanced and gray. If an employer can get information from this office and helpful hints, then double check that information with direction from counsel on how to apply and implement that information, everybody would win.

A zero sum game. Of sorts…

The Fair Labor Standards Act is eighty years old this month and commentators strongly suggest that the law needs updating in many areas.

cupcake with sparkler against a blue background, illustrating birthday conceptMy colleague Tammy McCutchen stated that a complaint-driven mechanism defense should be engrafted into the FLSA. She stated that “I think employers should get the opportunity to avoid [some liability] by having in place a system of compliance and taking appropriate action based on investigations, just like they have under Title VII and the ADA and the ADEA.”

In this manner, an employee complaint or issue about wages (e.g. overtime) would/could get resolved quickly and cheaply. Ms. McCutchen (a former DOL official) opines that if such a system is in place, that should work to limit employer liability if the employee ultimately sues. Under her theory, with which I concur, the “penalty” for such an employee who did not avail himself of the internal reporting system would be that he/she would not receive liquidated damages.

Another item on the management side wish list is a heartfelt desire to make securing class certification a little more difficult. In a typical FLSA collective action, the Plaintiff(s) first seek so-called conditional certification, fairly easy to secure, and then, later on, the employer can move to de-certify the class.

It should be harder to get over that first hurdle. Nowadays, plaintiffs use a few certifications, sometimes which are identical, and courts seem satisfied with such a meager showing. When a class is conditionally certified, the stakes and legal fees/costs for an employer rise dramatically. This contingency forces many employers into settlements which they might not otherwise have undertaken.

It should be harder, as perhaps with some multi-part test or standard, rather than a few similar sounding certifications.

Another area of concern and one badly in need of updating is the exemption “question.” For example, the outside sales exemptions emanates from a time when most salesmen were door-to-door or were, literally, outside all/most of the time. Nowadays, many sales are made and sales work done from a computer and a telephone, inside the employer’s place of business. Yet, the regulations still require that the salesman be “customarily and regularly” performing outside sales work. That is but one example. In that regard, reasonable people can differ on how exemption law should be applied, but there certainly is a need for more clarity, no matter which side you are on.

The Takeaway

These all sound pretty reasonable and common sensical to me.

Or is it my perspective?

I have blogged about some USDOL initiatives of late and see they are picking up some momentum with further developments coming down the line. The agency is going to revise the manner in which overtime is calculated (maybe to the employer’s benefit) and speak more on the issue (thorny as it is) of inclusion of bonuses in the regular rate.

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
There are other forms of “compensation” for employees, such as employee discounts and referral fees. The issue of whether these items are includible in the regular rate may also be opined about.  As I blogged about, the regulatory Agenda specifically stated that it would “clarify, update, and define regular rate requirements.” No other details have been forthcoming.

There is consensus that the new regulations would establish new groups of payment that may be excludible from the regular rate for overtime which businesses would welcome. There are any number of non-economic incentives and “payments” that are not directly amenable to computation and should (or should not) be includible.

Mr. Alexander Passantino, a former Wage-Hour Division Chief has observed that “it would be nice to have more guidance on what you’re talking about there so that we could give clients more advice on that with more certainty. Clients come up with good ideas on how they want to reward employees. It’s just helpful to say, ‘Yeah, that’s going to impact overtime rate,’ or, ‘no, it’s not.’”

The Takeaway

I agree with that sentiment. Employers want to comply with the law and often times have difficulty in properly interpreting what the FLSA does/does not command.  We will see what happens to the definition of the “regular rate” and what items it will/will not include.

I can’t wait…  .

We have experienced a watershed change in the law this week and its ripples will move outward in ever widening circles for years to come. This is, naturally, the decision in Epic Systems Corp. v. Lewis (one of a trio of cases, the others being National Labor Relations Board v. Murphy Oil USA and Ernst & Young LLP v Morris) that dealt with the issue of class action waivers in arbitration agreements. Well, the Supreme Court agreed with the employer and asserted that such waivers are now legal.  As a recent blog in the Epstein Becker Wage & Hour Defense Blog points out, this decision may well have a major effect on pending wage-hour class and collective lawsuits, many of which have been held in abeyance until the Court decided the case. I imagine many employers will now implement these waivers and practitioners will likely be advising clients to do so. I wonder, however, if the case will be the panacea that many commentators are hailing it as.

U.S. Supreme Court Building, Washington, D.C.The vote was 5-4, with new Justice Neil Gorsuch writing the decision. The bottom line is that class action waivers are permissible under the Federal Arbitration Act and are not illegal under the National Labor Relations Act. This resolves a conflict in the federal appellate courts as many of these tribunals had held that such waivers were illegal.

As the Epstein Becker post points out, the decision “is an unqualified victory for employers, particularly those who already have such arbitration agreements in place.” As wage hour class actions abound and defending them is so very expensive (e.g. due to the fee shifting potential), a “reasonable” employer might be well-advised to implement such agreements and force their employees, individually, into arbitrations over their wage-hour claims.

But let’s not, those on the management side, start toasting each other with expensive champagne just yet. In many states, the employer has to pay all costs associated with the arbitration, including the arbitrator’s fees. So, as the post mentions, clever plaintiff lawyers can start filing dozens, if not hundreds of individual arbitration cases, which will cause employer costs to skyrocket and maybe then force employers to settle cases that they pushed into arbitration for the very reason of trying to cut costs of litigation.

The Takeaway

I hail this decision too, but the practical implications will take some time to play themselves out. The thought of defending dozens and dozens of individual arbitrations, each likely based on the same theory will likely yield gargantuan legal fees and expenses (e.g. arbitrator fees) for the employer. At that point, wouldn’t an employer want to aggregate these individual claims for efficiency and to save money?

Isn’t that a class action?

The Trump Administration has issued its regulatory agenda, which is a semi-annual statement of the short- and long-term policy plans of government agencies. The DOL is at the forefront of these changes to come. The agency stated that it will revise the definition of “regular rate,” the number that forms the basis for overtime computations this coming September.

A former lobbyist for the Chamber of Commerce applauded the DOL proposed initiative on the regular rate and called it “huge.” The Fair Labor Standards Act mandates that employers calculate the regular rate for overtime purposes and there are many scenarios in which bonuses and other incentives are required to be included when determining what the regular rate is for a particular week. If these bonuses and other incentives did not need to be included, that would be a watershed development in how overtime is calculated and would reduce employer overtime liability significantly.

U.S. Department of Labor headquarters
By AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons
I have handled FLSA class actions where a client, through inadvertence, did not include small bonus amounts for employees and the end result was a major class action that we eventually settled but it was a real problem. The point is that many employers, good faith, well-intentioned employers, are simply unaware of these rules though they are certainly not trying to “stiff” their employees.

Another proposal in the agenda, rather controversial, is to expand apprenticeship and job opportunities minors under eighteen by softening the rules that forbid minors from working in so-called “hazardous” occupations or working around machinery that is prohibited. One advocate for workers agreed with the goal of increasing work chances for young people but urged the agency “to proceed with caution.” The advocate stated that “the DOL has a responsibility to safeguard the health and well-being of all workers, especially children.”

The Takeaway

The regular rate revision or change excites me from an “intellectual” side and, more germanely, from a practitioner’s perspective. That entire issue is very misunderstood by the employer community and can often lead to major liability. On a weekly basis, the tiny amounts generated from an employer’s failure to include bonus monies is negligible. However, when those tiny amounts of money are combined for a class of employees over two (or three) years, then the liability may become astronomical.

Maybe this new proposal is the right fix…

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 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…