U.S. Department of Labor (USDOL)

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…

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.

I am a big believer in advice from the U.S. Department of Labor. I have applauded the re-introduction of opinion letters and I welcome any published guidance (on any subject) so I can better advise/counsel my clients on compliance issues. The home health care industry has been aflutter recently with all kinds of litigation and DOL issuances. A thorny issue is when/if someone working in this field is an independent contractor. Well, the agency has recently published guidance on this issue.

Copyright: rmarmion / 123RF Stock Photo

The guidance addresses the home-care registry industry. The registries funnel home care workers to elderly and infirm clients. Almost universally, these workers are treated as independent contractors. Although the field bulletin addresses a small number of workers in a discrete industry, the guidance suggests the manner in which the Trump DOL will view other flash point independent contractor sectors, like Uber (where there has also been extensive litigation). .

The guidance lists a number of factors that will be considered when making the determination of employee-independent contractor status. The guidance smacks of earlier guidance and numerous cases on this subject. If the registry gets into the details of the manner of care provided, that would be evidencing too much control. In this regard, giving a modicum of training to such workers might pass muster, as the Company can argue that such generic training is for customer relations purposes or for safety reasons.

There also a number of industry-specific factors that will be considered. The bottom line is that the analysis will be the usual totality of the circumstances test.

The Takeaway

So it seems that the watchword will (continue to) be “totality of the circumstances.” The more things change, the more they stay the same. Except—it is the application of the factors and how they play out in a given case.

That’s where the rub is…

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.

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 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 have done a lot of independent contractor work in New Jersey, defended many such cases, from (numerous) unemployment audits to FLSA class actions. The New Jersey test, the A-B-C test, is well-established and one of the hardest for the putative employer to prevail upon. The test was, just a few years ago, reinforced by the NJ Supreme Court. Now, Governor. Phil Murphy has signed an Executive Order creating a task force to look into this issue of employee misclassification, as the Governor opines that millions and millions of dollars in taxes are being lost because of this practice. My question is—why do it?

New Jersey Silhouette in OrangeThe Task Force on Employee Misclassification will make recommendations on strategies the state will use to deal with the arguably widespread misclassification of employees as independent contractors. The Task Force will look at existing enforcement practices in and will seek to set out best practices to strengthen enforcement in this area, as well as making education outreach.

The Executive Order states that “with some audits suggesting that misclassification deprives New Jersey of over $500 million in tax revenue every year.” The Order is a product of a NJDOL report issued during the transition that contained a section on misclassifying workers. The report referenced a fairly new NJ Supreme Court case on misclassification and USDOL guidance which had “clarified the factors to be examined in determining a worker’s status.” The Report cited some benefits (UI insurance, family leave) that employees receive and independent contractors do not.

The NJDOL audits, in supposedly random fashion, approximately 2% of employers to gauge if these employers are correctly reporting all employees for unemployment and disability insurance purposes. I have handled perhaps fifty (50) such audits and can safely say that the tendency of the agency is to find that most individuals are, in fact, employees.

Under the IRS test, many factors are looked at, with a seeming emphasis on the control factors. Under the New Jersey A-B-C test, the most important factor is whether the individual is in an “independently established business.” This third factor is where, nine of ten times, the putative employer’s defense goes south. However, there has been a recent judicial development (the Garden State Fireworks decision) that might swing the pendulum a little back towards the middle.

The Takeaway

One commentator has said that the classification “disease” affects all industries but asserted that the problem is pervasive in the construction, trucking and landscaping spheres. That may be so but I know that the state of enforcement by the NJDOL is already fairly aggressive and I do not understand the point of the task force being created. If it is to advise that there is “a lot” of misclassification, well, we already know that. Maybe the Task Force will recommend stronger and more aggressive enforcement of the existing laws.

From my vantage point, I thought the agency was already doing that…

Working time cases come in all sizes and shapes. Many of these off-the-clock cases are so-called donning-and-duffing cases involving clothes changing for work and whether it is compensable. The U.S. Department of Labor has weighed in again on this issue. It has filed a lawsuit against a battery company for its alleged failure to pay workers for time spent putting on and then taking off protective clothing before and after their shifts. The company is East Penn Manufacturing Company.

Woman with hand raised in hazmat protective suitThe lawsuit alleges that the company owes back wages for almost 7,000 workers. A DOL official stated, “the Department of Labor is committed to ensuring that employees receive the wages they have earned for all the hours they have worked. The legal action in this case demonstrates the department’s commitment to workers and to leveling the playing field for employers that comply with the law.”

The agency claims that the workers spent time putting on protective clothing before commencing a shift and took more time removing the clothing and then showering before they clocked out. Although this was compensable activity under the law, the department said, the company failed to pay employees for that time. Rather, the allegation is that the workers were paid only for their scheduled hours, notwithstanding when they clocked in or out.

The Takeaway

The basic rule is that if the employee cannot perform their main job without first performing or engaging in the preliminary (or postliminary) activity, then the activity is compensable. Here, the workers could not manufacture the batteries if they did not wear the protective clothing. This scenario need not have happened.

At all…

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?