New Jersey Silhouette in Rubber Stamp StyleThe issue of who is and who is not an independent contractor has exploded on the legal scene in recent years. Many agencies are honing in on this topic and I have, over the last five years, probably defended more than fifty audits, inspections and lawsuits involving this issue. Well, the landscape just got murkier, or more difficult for employers as the US Department of Labor and the NJ Department of Labor have just signed a cooperation agreement to target the misclassification of individuals as independent contractors in New Jersey.

This memorandum of cooperation will enhance enforcement efforts by facilitating the coordination of investigations by the agencies as well as sharing resources. The agencies want to send a “strong message” to the business world that misclassification laws “are being strictly enforced.”

Commissioner Robert Asaro-Angelo stressed that his agency’s strong goal is to ensure that workers are shielded from “unscrupulous business practices.” He stated that “this partnership with U.S. DOL will help ensure that our business partners and the state’s workers all get the protections they deserve.” The sectors most amenable to misclassification problems are the construction, transportation and information technology. The new so-called gig economy is also a focus of these issues.

Mark Watson, of the USDOL stated that the agreement “will amplify the effectiveness of both agencies.” He added that “the U.S. Department of Labor looks forward to improving coordination and increasing joint outreach and compliance assistance efforts with all of our state partners.”

This agreement follows an earlier New Jersey initiative where the Governor announced he wanted to take a harder line on this misclassification issue. That initiative was the establishment of a cross-agency task force to focus on the problem of misclassification. Finding more people to be true “employees” would generate more money for the State

The Takeaway

I know a lot of employers classify people as independent contractors when, perhaps, they should not be. I also know that a lot of these individuals want those relationships to exist as one of independent contractor status. In New Jersey, under the strict ABC test, it was very difficult to win on the third prong, the “independently established business” prong, until the advent of the Garden State Fireworks case. We will see where that goes.

But, employers now need be aware if they are found to have violated the New Jersey unemployment statute on independent contractor, they may find the USDOL alleging that under that statute, the workers are really employees.

It is vital for employers to remember that when non-exempt employees earn commissions, those commissions must be included in the computation of their regular rate when they work overtime. The inclusion of the commissions bumps up the regular rate a little but if this is not done, then these small amounts of money can quickly add up if an employee or, worse yet, a class of employees files a lawsuit. That is exactly what has happened in a recent case involving sales representatives in a class action. The case is entitled Johnson v. Cincinnati Bell Inc. et al., and was filed in federal court in the Southern District of Ohio.

Salesperson holding the receiver of a corded desk phone while dialing in the office.The named plaintiff, Michael Johnson, was a sales representative for less than one year. His theory was that the failure to include the commissions in the regular rate violated the Fair Labor Standards Act. He moved for conditional certification in May and then the parties filed a joint stipulation in which they agreed to the definition of the class as certified and they also agreed on a method for advising potential members.

The court found that the class was appropriate, as there was a low standard of proof that needed for the establishment of a class. The judge stated that she was “satisfied that both the agreement of the parties and evidentiary submissions by plaintiff demonstrate the modest showing necessary to support conditional certification of the proposed class.”

There were affidavits, as well as payroll records which undergirded the theory that these employees, the outbound sales representatives, who worked in the telesales department “had certain standard duties, [were] paid in the same manner and regularly worked more than forty hours per week, and defendants did not include commission payments in the regular rate of compensation for purposes of overtime.”

The Takeaway

This case highlights the complexity of the Fair Labor Standards Act and all of its nuanced regulations. It is very easy for a well-intentioned, good faith employer to make a mistake. If it affects but one employee, that is all it is, a simple mistake, maybe costing a few dollars. If it affects a class, it is a much bigger issue.

Much bigger. And costlier…

The car wash industry is one that is subject to many alleged wage-hour issues (some might say abuses). A recent case illustrates this maxim. A car wash has just settled a lawsuit with the USDOL for $4.2 million on wage hour claims. The theory was that the employer avoided paying proper minimum wage and overtime by compelling workers to clock out but yet remain on the premises until more cars came in for washes. The case is entitled Acosta v. Southwest Fuel Management Inc. et al. and was filed in federal court in the Central District of California.

Close-up of hand with green brush washing red carThe judge approved the settlement which yields 1.9 million in back pay and an equal amount in liquidated damages. The employer also has to pay $400,000 in civil money penalties. Several hundred employees are involved.

An interesting twist. Evidently, the employer strenuously resisted efforts by the agency to gain discovery. The DOL asserted that the company was stonewalling its legitimate efforts to garner relevant documents. The government alleged the company also did not preserve video footage, a spoliation-type allegation. Accordingly, the special master concluded that the client and his lawyers, Littler Mendelson, PC have to pay the DOL approximately $20,000 in attorneys’ fees.

Naturally, the company must come into compliance. The Acting Administrator of the DOL San Francisco office said that “the judgment is a major win for hundreds of employees systematically abused by one of Southern California’s largest car wash operators.” The DOL Regional Solicitor observed that federal laws protect workers and neither any employer nor his attorneys can interfere with these principles or the rights of the workers. She said “the integrity of our justice system depends on employers and their attorneys ensuring that a true and accurate record free of any undue influence is presented to the court,”

The Takeaway

I have handled many car wash cases in the last few years. All I can say is that when I have a client that I know has not complied with the law, my aim and goal, my only goal, is to get them out as quickly and cheaply as possible. Protracted discovery disputes and/or intransigence during that process, to me, is counterproductive.

Maybe better to cultivate the agency’s good will and try to make the best deal possible.

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 often written about the scourge of Assistant Manager class actions. The employee category is particularly subject to this kind of lawsuit as these workers often perform some non-exempt work and it is unclear many times if they possess and exercise sufficient and proper supervisory authority. A recent case in New Jersey provides yet another example. A federal judge has just conditionally certified a class of Assistant Store Managers who work for Panera Bread. They allege that they were misclassified as exempt. Interestingly, the Court would not certify such classes in Massachusetts and New York.  The case is entitled Friscia v. Doherty Enterprises Inc. and was filed in federal court in the District of New Jersey.

Waitress carrying three platesThe judge concluded that the lead plaintiff Jacqueline Friscia made a “modest factual showing” concerning the alleged misclassification but refused to certify classes in other states. The court stated that “put simply, Friscia has not produced sufficient evidence to show that she is similarly situated to assistant managers in New York or Massachusetts.”

As is typical in these cases, the named plaintiff claims she worked 55-80 hours per week. She also claims that she performed many non-exempt tasks and that these tasks comprised the majority of her work time per week These tasks included preparing food, taking food orders, cleaning the store, working at the cash register and dish washing. Other than her weekly salary of $800, she asserted that she never received overtime for her long hours.

The company took the position that since the named plaintiff worked in only one store, she could not know conditions at other stores or whether the other Assistant Managers were “similarly situated.” The company also contended that there was an arbitration agreement in place and thus the workers could not be included all together in the same class actions. The judge was not impressed by these arguments, finding that the plaintiffs had met the “lenient burden” to receive conditional certification.

The Takeaway

The company can still defeat this class action by making a motion to de-certify the class later on. This would entail taking more discovery, perhaps many more depositions, in an effort to show that there is too much individual difference between the workers across the system to allow for class treatment. This will be expensive and may not be successful.

Or, the company can bite the bullet and settle…

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…  .

White papers flying on blue sky background.A group that monitors government activities sued the U.S. Department of Labor last year seeking records related to the agency’s position and work on the new overtime rules and the fiduciary rules asserted to a federal judge that the agency was being less than forthcoming with the documents. In response, the Judge stated that he was “concerned” about the agency’s lack of responsiveness. The case is entitled American Oversight v. U.S. Department of Labor and was filed in federal court in the District of Columbia.

In the parties’ joint status report, the group, dubbed American Oversight, stated that it “continues to have concerns about the consistency and sufficiency of the information DOL is providing.’ The group maintains that the DOL has been either dilatory or has given conflicting reports regarding the records search. American Oversight sued the DOL in October. The group requested records related to the rules; they want calendar entries concerning agency meetings on the rules, names of attendees in the meetings and copies of correspondence sent to or received from the DOL relating to the rules.

The DOL has stated in its part of the Report that it will respond to the requests over the next few months. It also asserted that everything related to the new overtime rules has been produced. The group asking for the records states that it is “confused” by some statements in the DOL update. The group stated that “plaintiff believes that the July production deadline is more reasonable…but DOL’s inability to accurately and consistently report out the status of its anticipated productions continues to be of significant concern.”  .

The Executive Director of American Oversight, Austin Evers, charged the agency with “delaying the release of records showing what outside interests influenced decisions to roll back the rules.” He stated that “we filed this lawsuit last October to find out who had a seat at the table, and now more than seven months later, the agency is long on excuses and short on answers. What is the Labor Department so desperate to hide?”

The Takeaway

It should be interesting to see what is in those records and who was at those meetings. That might throw light on the position that the DOL is going to take on the overtime rules. The agency’s delay in producing the information may be related simply to bureaucratic slowness.it something else?

The fluctuating work week (“FWW”) method of computing overtime is very misunderstood and, often, misused by employers. On that note, I read an interesting post in the Epstein Becker Wage and Hour Defense Blog on a recent Southern District of New York case that explained some of the more common issues related to this concept. The case is entitled Thomas v. Bed, Bath & Beyond and addressed several issues that I have long been interested in.

Clock
Copyright: / 123RF Stock Photo

As the Epstein post notes, one issue was whether isolated deductions from wages undermine the fixed salary requirement. Another was whether the employee’s hours must fluctuate above/below forty hours for the plan to be valid. Another was whether employees had to understand the nature of the FWW calculations in order for there to be a “mutual understanding” that the lump-sum salary was designed to cover all hours worked for that week at the particular straight time rate.

Under the FWW method, the weekly salary (of non-exempt employees) covers all hours worked at straight time. If more than forty hours are worked, the employee receives additional half-time, based on the number of hours worked in that given week, after engaging in multiplication and division process. The regular rate will fluctuate every week, depending on the number of hours worked in that week. In other words, as the post points out, as the number of hours worked in a week increases, the regular rate goes down.

The plaintiffs alleged that they did not receive a “fixed weekly salary” because there were instances when their salaries were docked due to their absences. Although the Court acknowledged that an employer cannot effect deductions if it places employees on the FWW method of compensation, the Court adopted a utilitarian view and would not scuttle the agreements due to these isolated occurrences. Also, the Company reimbursed the workers for these deductions.

The plaintiffs also contended that their hours never dipped below forty per week, so the FWW compensation method was invalid. The Court turned this argument aside as well. The Court looked at the regulation on point (29 CFR 778.114) and held that the FWW payment method only mandated that the hours varied on a weekly basis and that the hours need not drop below the overtime threshold. This is quite important, doctrinally.

Lastly, and oddly, the plaintiffs claimed that they did not have a clear mutual understanding that they were on a FWW plan. This was odd because the workers had signed a form that set forth the terms of the FWW arrangement. That document also provided sample overtime calculations; they were also given annual notices about their FWW payment arrangement. Significantly, the Court held that the plaintiffs’ subjective lack of understanding of their pay plan was irrelevant, but the proper test was an objective one.

The Takeaway

This case is fascinating and I believe very instructive. I think it provides employers with a roadmap as to how they can and should structure a FWW compensation system for salaried non-exempt workers. As a general rule, most non-exempt employees are paid hourly, but they do not have to be, provided they receive overtime after forty hours. Some non-exempt workers like being “salaried” as that status gives them a white-collar “feel.”

So, good for the employer and, more importantly, employee relations…

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…

I blog a lot about working time cases because these are the issues can sneak up on an employer, even the most well intentioned and good faith employer. Travel time is one of these murky, arcane kind of activities that go unnoticed by companies until, often, a lawsuit is filed. Another example emerges. A group of workers who constructed and maintained cellphone towers in several States gave been granted conditional certification in a FLSA collective action based on an alleged failure to pay for travel time. The case is entitled Lichy et al. v. Centerline Communications LLC, and was filed in federal court in the District of Massachusetts.

Silhouette of a cell phone tower shot against the setting sun.The judge certified a class of tower technicians and foremen. These workers can now opt into the lawsuit, which is based on the theory that the company should have compensated them for hours they spent driving company vehicles to work, over supposedly vast distances. The inclusion of foremen in the class, e.g. supervisory personnel, is quite interesting, but the Court found their duties were very similar to the rank-and-file workers and the foremen were working under the identical travel time policy.

The plaintiffs’ lawyer, naturally, applauded the decision, stating “first, the court recognized that slight differences among members of the class do not preclude conditional certification where all class members are subject to the same policy regarding payment of wages  Second, the court explicitly recognized that plaintiffs need not submit affidavits in support of their motion for conditional certification in order to prevail.”

Five tower technicians/lineworkers filed the suit. Their job duties included climbing cell towers, many times in distant locations and installing antennae, radios and cables. The Company mandated that the workers drive together to these job sites. The men were paid their regular hourly rates for the travel time between a meeting point and the job site. However, the Company failed to pay for the travel time returning to the central meeting place unless there were traffic delays or the job location was more than 130 miles from the regional workshop, according to the allegations in the case. The workers seek payment for the time driving back in Company vehicles to the central location. The Company contends that the FLSA does not mandate payment for travel time.

The Takeaway

I wonder why the company would not pay for the travel time back to the meeting place or regional office when the Company did pay for the travel time from the meeting place to the job site. That initial agreement to pay seems to undermine the defense that travel time is non-compensable. Home to work travel time is non-compensable, but when workers must first report to a central location, leave from there to the first job site and travel back to that central location, the travel time then does become compensable.

I bet this case settles…