Wage-and-hour related provisions should include pay details, safe harbor and state law

Employees often sue employers for various FLSA violations, and the U.S. Department of Labor actively investigates employers for noncompliance. Therefore, employers should consider including the following provisions in their handbook, at a minimum.

• Pay and hours. Pay and hour provisions indicating work hours, rest and meal periods, overtime, paychecks and deductions (including garnishments) are recommended. Employers should delineate differences between exempt and nonexempt employees.
• FLSA safe harbor. To protect against having the accidental improper docking of pay of exempt salaried employees jeopardize their FLSA-exempt status, or be the basis of a back wages claim, an employer should include an anti-docking provision that complies with DOL’s safe harbor provisions in 29 C.F.R. §541.603(d). The provision should: (1) state the employer’s policy against the improper docking of pay; (2) require employees to promptly report any improper docking; and (3) provide for the prompt reimbursement of improperly docked employees.
• Overtime notices. The criteria for earning overtime should be specifically stated (for example, 1.5 times the employee’s regular rate after 40 hours in a work week). In addition, employees should be warned that they must obtain supervisor approval for overtime, or otherwise face possible disciplinary action. (Note: Employees must be paid for all overtime work, even if it was unauthorized.)
• Federal and state law. Employers should remember that they have wage and hour obligations under both the FLSA and state law (which may be stricter than the FLSA).

Employee handbooks are frequently reviewed in litigation — be sure your language is proper

Employee handbooks frequently play a role in litigation, and should cover as many areas of the employment relationship as possible. Employers should consider adding provisions related to other federal laws, such as the Americans with Disabilities Act, the National Labor Relations Act and the Family Medical Leave Act.

• Use clear and concise language. Handbook provisions should clearly and accurately describe the employer’s practices and policies and avoid interpretations the employer does not intend. For example, any provisions that do not apply to a certain class of employees otherwise covered by the handbook should clearly indicate which employees are covered, or make other differentiations. For example, many employers do not grant vacation time or other benefits to part-time employees. In such a case, the handbook should state that clearly.
• Include provisions related to major federal laws. In selecting handbook provisions, employers must evaluate whether the provision is needed and desirable given the work environment. For example, all employers should include an anti-harassment policy because it is required by law and supports an employer in defending against discrimination claims. Unionized employers may need provisions addressing which issues are negotiable. Some other provisions to consider:
• An equal employment opportunity policy, stating that you don’t discriminate on the basis of race, class, sex, age, national origin, and other protected categories and that retaliation against employees exercising rights under this provision will not be tolerated. In addition, a growing number of companies are including gay, bisexual and transgender employees in their nondiscrimination policies, even though it is not required by federal law or in most jurisdictions.
• No harassment policy, covering sexual harassment and other discriminatory harassment. The policy should define harassment and unacceptable conduct, and establish procedures for reporting, investigating and addressing claims.
• Family and Medical Leave Act policy, if the employer is covered under the FMLA.

For more information, see the Guide to Employment Law Compliance 8th Edition.

The Southern District of New York case, Ryan v. JPMorgan Chase & Co., No. 12-cv-4844-vb (S.D.N.Y. Feb. 21, 2013), involved a former assistant branch manager of JP Morgan Chase Bank who sued for overtime pay under the FLSA and tried to pursue the action collectively.

However, upon Ryan’s employment she signed a binding arbitration affirmation that required her to submit all claims, including FLSA claims, to arbitration. She also agreed that arbitration would be on an individual basis only.

As a result, JPMorgan Chase moved to dismiss Ryan’s FLSA overtime claim, or, in the alternative, to compel arbitration of her claim on an individual basis based on the binding arbitration affirmation.

The court granted JPMorgan Chase’s motion, finding that: (1) the Federal Arbitration Act applies to the case and requires a favorable view of arbitration; (2) collective action waivers are not automatically unenforceable; and (3) the NLRB’s decision in D.R. Horton is unpersuasive and has questionable validity because of Noel Canning.

D.R. Horton Is Unpersuasive and Could Be Unconstitutional

One of Ryan’s arguments was that enforcing the arbitration agreement would violate the NLRA’s right to concerted activity, an argument endorsed by the NLRB in D.R. Horton. However, the court rejected D.R. Horton, agreeing with many other courts that the NLRA does not determine whether a plaintiff has a right to bring an FLSA collective action. The court also noted that the Court of Appeals for the District of Columbia Circuit recently vacated D.R. Horton because it was decided by a panel that had been appointed using unconstitutional methods (during Congress’ recess).

For more, click here.

Employers need to pay attention to what DOL and the courts focus on when considering the employment relationship. If a worker has been misclassified as exempt from the Fair Labor Standards Act (when he/she really is nonexempt), overtime, back wages and other penalties can amount to thousands or even millions of dollars.

The FLSA sets minimum wage and hour provisions and requires nonexempt workers to make at least the federal minimum wage ($7.25), and time and a half their regular pay rate for any time worked over 40 during the workweek. However, the FLSA also has special provisions for certain types of employees, and allows qualified workers to be exempt from its overtime requirements. The most common violations are those involving classification and overtime pay, and a frequent reason employers are subject to penalty for violations by subcontractors is because a joint employment relationship has been found.

Therefore, the challenge for many employers, particularly those using subcontractor services, is properly classifying workers as exempt or nonexempt. Often, employers will classify subcontractors as “independent contractors,” thus placing those workers in the category of exempt workers who do not require overtime pay. These situations are particularly tricky because, although the employer hiring a contractor/subcontractor can pay attention to work quality and standards, it is not as easy (or likely) for the hiring employer to pay attention to the contractor’s internal business practices, like proper payment of workers. While the facts in these situations almost always differ, two common problems include misclassification of subcontractors and the possibility of joint employer liability.

For the full article and additional tips on how to properly use subcontractors, click here.

The initial collective and class action complaint was filed in 2011 by Stacy Rogers on behalf of police officers in the Richmond Police Department for alleged violations of both Virginia state labor laws and the FLSA for failing to pay proper overtime wages (Rogers v. Richmond, No.3:11-cv-00620, E.D. Va. (2012)).

Richmond officers are scheduled to work 80 hours within a 14-day work period. The city’s policy was to pay officers their regular pay rate for all hours worked up to 86 per pay cycle, when the federal threshold was reached and FLSA overtime provisions kicked in.

Virginia has had a more stringent labor law on the books since 2005 that requires overtime pay for hours worked in excess of regularly scheduled hours — in this case hours worked over 80 in a 14-day period. The officers’ lawsuit alleged that they should have been paid overtime for all hours worked over 80 during a scheduled work period, in compliance with the Virginia law. Their lawsuit was filed to remedy this “gap” in their overtime pay.

The City of Richmond contended that the 80-hour overtime threshold the officers would have under Virginia law was preempted by the federal 86-hour threshold in the FLSA.

The officers responded to the city’s claim by arguing that the federal and state laws were complementary, meaning the city could not disregard the state requirement.

For more analysis of this case and additional information about the interplay between state laws and the FLSA see Thompson’s FLSA library, including the Fair Labor Standards Handbook for States, Local Governments and Schools.

Therefore, to avoid blowing past their budget limits this summer, smart states, local governments and public agencies should plan ahead and make sure they are up to speed on the Fair Labor Standards Act rules that could apply to affected workers.

The National Oceanic and Atmospheric Administration predicts that 2012 will have a “near-normal hurricane season” over the next six months. But even in a “normal” hurricane season a 70-percent chance exists that there will be nine to 15 named storms, the agency said. Named storms are characterized by top winds of 39 miles per hour or more. Of those named storms, NOAA said one to three of those will become major hurricanes with top wind speeds of 111 mph or more.

The potential damage and safety issues that can occur in a storm’s wake can tax local safety and emergency workers, as their hours on the job increase and demands on their time and expertise spike.

And it’s not only police officers and firemen who could face wage and hour challenges during storm season. Recently, the U.S. Department of Labor put private-sector employers in the construction industry on notice  to make sure they are in compliance with federal wage and hour laws when they hire workers to rebuild in the wake of tornados.

The agency launched an initiative in the Dallas/Fort Worth area focused on outreach and compliance assistance for industries such as roofing and residential construction where large numbers of low wage workers are employed. City officials in the area gave DOL’s Wage and Hour Division a list of contractors and employers that had permits to assist in rebuilding efforts, the agency said.

More information about avoiding wage and hour challenges related to unforeseen overtime this summer is available from Thompson Publishing Group’s wage and hour library.

According to the agency, 4,500 vision center managers (VCMs) and asset protection coordinators (APCs) at Wal-Mart Supercenters, Wal-Mart Discount Stores, Neighborhood Markets and Sam’s Club Warehouses were not paid proper overtime wages. The workers had been misclassified as exempt from the Fair Labor Standards Act’s overtime provisions.

“Misclassification of employees as exempt from FLSA coverage is a costly problem with adverse consequences for employees and operations,” said Labor Secretary Hilda Solis. “Let this be a signal to other companies that when violations are found, the Labor Department will take appropriate action to ensure that workers receive the wages they have earned.”

Employees who are employed in “bona fide executive, administrative, professional and outside sales positions, as well as certain computer employees” are exempt under the FLSA, DOL noted. However, certain tests regarding the duties of a specific worker and their salary must also meet a specific set of criteria. Job titles alone are not enough to ensure that a position will truly be considered exempt by DOL.

Following a DOL investigation that found that APCs and VCMs were improperly qualified as exempt from the FLSA, Wal-Mart agreed to pay $4.83 million in back wages and damages and an additional $463,815 in civil penalties. Generally under the FLSA employers are liable to employees for back wages and for an equal amount in liquidated damages.

According to a company spokesman, DOL initially raised the misclassification issue six years ago, at which time Wal-Mart adjusted its pay practices for the two types of positions in question.

“We decided years ago to pay overtime back wages for associates training for the roles of asset protection coordinator and vision center managers,” the spokesman said. “We have agreed on a fair settlement for our associates.

APC employees handle store security and VCMs oversee the vision centers located in the front of Wal-Mart stores to sell contact lenses, prescription eyewear and sunglasses, the spokesman said. Approximately 2,000 VCMs and 1,700 APCs are eligible for some level of back wage payment. Generally, eligible APCs will receive approximately $290 in back wages and eligible VCMs will get about $2,300, according to Wal-Mart.

“Our department has been working with Wal-Mart for a long time to reach this agreement,” said Nancy Leppink, deputy administrator of DOL’s Wage and Hour Division. “I am very pleased that staff in our Southwest region persevered, ensured these employees will be paid the back wages they are owed and brought this case to conclusion. Thanks to this resolution, thousands of employees will see money put back into their pockets that should have been there all along. The damages and penalties assessed in this case should put other employers on notice that they cannot avoid their obligations to their employees by inappropriately classifying their workers as exempt.”

Enforcing misclassification of workers has been a top priority for DOL in recent months. The agency has announced a number of specific actions and has signed formal agreements with more than a dozen states to establish enforcement initiatives.

For more information about wage and hour issues, see Thompson’s full FLSA library.

Yes, but with restrictions. Employers seeking information about an employee’s use of social media in the workplace must write their subpoenas narrowly, said the U.S. District Court for the Southern District of Florida. The court restricted MySpace, Facebook, AT&T and Bank of America subpoenas, finding that the employer’s subpoenas were overly broad and did not protect the employee’s privacy interests.

The case, Mancuso v. Florida Metropolitan University, 2011 WL 310726 (S.D. Fla. Jan. 28, 2011), resulted after Mancuso (the employee) filed FLSA charges for back overtime wages. ) To contest the amount of back wages actually owed (if any), the university subpoenaed MySpace, Facebook, AT&T and Bank of America to find out how much time Mancuso spent at each of those sites during the workday.

Normally, a party does not have standing to challenge a subpoena served on a non-party. However, when the challenger has a personal right or privilege regarding the subject matter of the subpoenaed material, then he or she can be permitted to challenge the subpoena.

In Mancuso, because the subpoena was so broadly written (it requested access to all of his accounts and would have displayed highly sensitive information ranging from bank account numbers and contents to the contact information of his friends), Mancuso had a personal privacy right to the sensitive information. The court rewrote the subpoenas in a way that protected Mancuso’s privacy interests but also gave the university the information it sought.

It is not unlawful for an employer to request information from third parties about an employee’s use of their service — such subpoenas are issued all the time. The problem with these particular types of subpoenas is what to do with sensitive information like the substance of text messages, emails or finances. Employers should remember that they generally are not entitled to view employees’ personal emails or messages. In Mancuso, the University erred by requesting such broad subpoenas. Instead, it should have drafted its subpoenas narrowly, in order to get just the information it wanted (the times at which the sites were accessed and how long Mancuso spent at each site while at work). Had the university properly drafted its subpoenas to account for the sensitive nature of the information, it might have saved itself the time and money needed to argue over these subpoenas.

For more information on unique issues in FLSA overtime cases, please see Thompson’s Employer’s Guide to the Fair Labor Standards Act.

The decision, announced March 27 by the U.S. Department of Labor, concluded a lawsuit filed in the U.S. District Court for the Southern District of New York in 2010 by DOL (Solis v. Cindy’s Total Care, Inc., No. 10-CV-7242 (S.D.N.Y. 2010)).

DOL charged that Cindy’s Total Care and its owner failed to pay workers the appropriate minimum wage and overtime due under the FLSA. According to the agency, salon employees were required to work more than 40 hours a week without earning overtime, were paid a day rate instead of an hourly wage and worked 10 hour-days for six days a week.

“These employees worked long hours and were unjustly denied their rightful wages,” said Maria Rosado, director of the Wage and Hour Division’s New York Office. “Vulnerable, low-wage workers in this industry often are afraid to step forward and complain when subjected to wage violations like the ones committed by this employer.”

Earlier in the court proceedings a federal court in New York issued an opinion confirming that immigration status is not a defense against accusations of FLSA violations after the defendants’ surprising initial defense argued that employee immigration status was a factor in the case.

Initially Cindy’s Total Care argued that because its workers were illegal immigrants they were not covered by FLSA provisions. The defendants eventually consented to withdraw their affirmative defense, but the court still issued an opinion on that defense in October. In line with a substantial body of previous decisions, District Judge Paul Engelmayer stated unequivocally that the salon employees were protected by the FLSA.

“In this case, an employee’s immigration status, or national origin, is clearly irrelevant [sic] to a claim for back pay for overtime wages under the FLSA. By its terms, the FLSA applies to ‘any individual’ employed by an employer, as the term ‘employer’ is defined by the Act [sic].”

Engelmayer’s opinion went on to stress that there are no FLSA exceptions for non-U.S. citizens or people in the United States illegally. One of the FLSA’s stated purposes , the opinion noted, is to prevent payment of substandard wages from being used as an unfair competitive advantage by businesses.

Ultimately the salon and its owner were ordered to pay a combined $117,960 in back wages, plus an equal amount in liquidated damages. Additionally, the court ordered that the salon be enjoined from future FLSA violations, and that it pay almost $9,000 in trial costs.

DOL has cited other nail salons in recent months, most notably conducting a targeted initiative focused on salons in Seattle that were allegedly misclassifying workers as independent contractors.

FLSA’s Definition of ‘Sale’

The bulk of the oral arguments revolved around the meaning of a “sale” under the FLSA and reflected how difficult this question is, as the Court struggled with this definition.

Under section 3(k) of the FLSA, a “sale” includes “any sale, exchange, contract to sell, consignment for sale, shipment for sale or other disposition.” Regulations from the U.S. Department of Labor add that sales “include the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property.”

Does Marketing a Product Qualify as a Sale?

Thomas Goldstein, representing former SmithKline PSRs, argued that PSRs cannot be “outside salesmen” because they don’t actually make a sale. Rather, they market the drug or product to doctors, who then prescribe and sell the drug.

Paul Clement, representing SmithKline, said the PSRs were “outside salesmen” under the FLSA because they are hired as salespeople and are given sales training. During the oral argument, he stressed that requiring overtime pay for PSRs could impose billions of dollars of potential liability on the pharmaceutical industry. To counter Goldstein, Clement argued that for PSRs, making a sale is the most important part of their job. The PSRs are seeking a commitment from a doctor to prescribe. And, he added, their salary is based on the number of prescriptions written.

Justice Scalia called PSR work a “peculiar line of commerce,” because the representatives are selling a product (drugs) that they themselves are legally prohibited from selling. In other words, it is only doctors who can sell the drugs, since only doctors can write prescriptions for them. While acknowledging that the restriction places PSRs in an odd place when “selling,” Goldstein pointed out that the FLSA draws these strange lines frequently. For example, he said, movie theater employees are exempt but playhouse employees are not.

Justice Kagan found DOL’s regulation (that a “sale” includes the transfer of title to property) confusing and possibly inconsistent with FLSA section 3(k). As she noted, in consignments (which section 3(k) includes in the definition of “sale”), there isn’t an actual transfer of title. Justice Scalia quickly agreed, pointing out that consignment sales don’t even have an agreement to transfer title. Rather, he said, consignments are like “a future contingent.”

Keep an Eye Out for Final Decision

The difficulty of the questions presented clouded most of the Justices’ stances on the topic (though Justice Scalia, predictably, did say that in his eyes, PSRs looked like salesmen). In any regard, employers that frequently interact with government agencies and/or rely on agency interpretations should keep an eye on this case. The Court’s decision is expected in late June 2012.

California Labor Commissioner Julie A. Su filed two lawsuits in Los Angeles against three car wash businesses in early March. The suits allege violations of state minimum wage, overtime and recordkeeping laws, as well as meal and rest period requirements. The complaint seeks more than $2 million in damages.

New York’s Attorney General Eric Schneidermann is investigating car wash giant John Lage for possible wage and hour violations. Lage, who is connected to at least 21 car washes across New York City, was sued by the U.S. Department of Labor for the working conditions of six car washes in 2005. The current investigation is looking into: (1) allegations of wage, tip and overtime violations; (2) whether workers are required to pay for damage to customers’ cars; (3) whether workers are sent home without pay when it rains; and (4) whether injured workers are sent home without compensation.

Employees of the New York car washes allege conditions that, if true, warrant serious FLSA penalties. According to the employee reports, many work for $5.50 an hour (the state’s minimum wage is $7.25) and are not paid overtime, despite working more than eight hours per day. Often, the work requires employees to polish cars with harsh chemicals that cause nose bleeds and blurry vision, and no face masks are provided.

The investigations highlight a larger problem: what to do about undocumented immigrants? Although many FLSA violations are common in low-paying jobs like car washes, many employees are undocumented immigrants who are unwilling to speak out for fear of retaliatory firing or getting on the radar of immigration authorities.

Although undocumented immigrants do not pay taxes because of their status as “undocumented,” many federal courts (including some in New York and California) have ruled that they are nevertheless entitled to FLSA protections. Protecting the workers in such a way ensures that there is no incentive for employers to hire undocumented workers. In addition to New York and California, New Jersey, Illinois, Maryland and Florida courts have found that undocumented workers are entitled to FLSA protections. Of particular importance is DOL guidance stating that these workers are entitled to minimum wage and overtime — in fact, several federal courts used that DOL guidance when making their decision. Of course, such decisions still do not protect undocumented workers from investigations by immigration authorities.

The investigations in New York and California have occurred, in part, because of the employees’ undocumented status, which means they are more likely to earn low wages in underground industries. Other investigative concentrations have been in agriculture, garment manufacturing, janitorial services, restaurants and construction.

However, even employers that are not in one of these focused industries should ensure that they take the following steps:

• have proper licenses;
• carry workers’ compensation insurance;
• pay proper wages;
• make proper deductions;
• give employees a safe work environment; and
• maintain all employment records.