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Current Wage & Hour Challenges

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Presentation on theme: "Current Wage & Hour Challenges"— Presentation transcript:

1 Current Wage & Hour Challenges
Karen Thompson Pádraig Flanagan Keith McDonald Pat Collins Keya Denner _____________________________________________________________________ The material provided herein is for informational purposes only and is not intended as legal advice or counsel.

2 Please help yourself to food and drinks
Please let us know if the room temperature is too hot or cold Bathrooms are located past the reception desk on the right Please turn OFF your cell phones Please complete and return surveys at the end of the seminar

3 Why Be Concerned About Wage & Hour Issues
_____________________________________________________________________ Presented By: Karen Thompson

4 Why Be Concerned About Wage & Hour Issues:
FLSA rules and regulations are confusing even to seasoned HR professionals Wage and hour lawsuits outpaced all other types of workplace class actions in 2009 and more suits are expected in 2010 FLSA collective actions in federal court outnumbered all other types of private class actions 

5 Why Be Concerned About Wage And Hour Issues (cont’d):
Governmental investigations and enforcement suits are increasing Obama administration’s emphasis on regulation resulted in more enforcement actions over workplace issues 2011 federal budget includes appropriations to combat misclassification of employees as independent contractors Additional $25 million allocated to hire 100 new DOL enforcement personnel Revised regulations regarding FLSA recordkeeping requirements on the way

6 Why Be Concerned About Wage And Hour Issues (cont’d):
Class actions adversely affect corporation’s reputation & market share FLSA suits can carry individual liability DOL policy to pursue individual liability in cases of FLSA violations Individuals may be subjected to significant monetary penalties Courts take a liberal approach in defining individuals as employers Settlements have become more costly  Top 10 private wage and hour settlements in 2008 totaled $ million Top 10 private wage and hour settlements in 2009 totaled $ million

7 Significant Wage and Hour Litigation
WAL-MART STORES, INC.: December 2008 – Wal-Mart agrees to settle 63 wage and hour suits pending in state and federal courts for a maximum payout of $640 million  December 2009 – Massachusetts Court approves $40 million settlement for 67,000 hourly workers forced to work off the clock and forfeit breaks (Polion v. Wal-Mart) November 2009 – District of New Jersey approves settlement of FLSA suit of up to $28 million for hourly workers (Iliadis v. Wal-Mart) September 2008 – Pennsylvania judge approves jury verdict of $185 million in state wage and hour lawsuit by workers forced to work off the clock and forfeit breaks (Braun v. Wal-Mart)

8 Other Significant Settlements/Verdicts
February 2010 – Merrill Lynch settled 11 collective and class actions filed by its financial advisors for $43.5 million including $10.9 million in legal fees January 2010 – Staples, Inc. agreed to pay $42 million to settle a number of suits by assistant retail store managers who claimed they were misclassified May 2009 – Prudential Securities, Inc. paid $11 million to settle FLSA suits alleging overtime violations and improper deductions for certain branch managers 2007 – $65 million settlement by IBM in FLSA suit by IT Specialists and Technical Services Professionals misclassified as exempt employees (Rosenberg v. IBM)

9 Recent Filings February 2010 – FLSA collective action against American Express Travel Services by call center employees required to work off the clock and through lunch without pay  February 2010 – FLSA collective action against Starbucks by assistant managers who claim they were misclassified as exempt employees November 2009 – Collective and class action under New York law against Smith & Wollensky Restaurant Group by servers who claim failure to pay overtime and employer’s improper retention of tips (Shahriar v. Smith & Wollensky)  February 2009 – Twelve consolidated actions against Tyson Foods certified as FLSA collective action for failure to pay hourly employees for cleaning equipment, start up time and donning and doffing uniforms Suits against Big Pharma – FLSA actions by pharmaceutical sales reps challenging outside sales and administrative exemptions against Novartis, Sanofi Aventis US, Hoffman La-Roche, Eli Lilly, Schering Plough, Johnson & Johnson, Bristol-Myers Squibb and others

10 Top Ten Reasons for FLSA Lawsuits
Number 10: Employers’ failure to compensate employees for training time Number 9: Employers’ failure to compensate employees who “volunteer” their time Number 8: Employers’ failure to include extra compensation in overtime pay Number 7: Employers’ failure to pay employees for short breaks Number 6: Employers’ failure to pay employees who work through lunch

11 Top Ten Reasons for FLSA Lawsuits (cont’d)
Number 5: Employers’ docking time for employees working on the clock Number 4: Employers’ failure to pay employees working off the clock Number 3: Employers’ misclassification of employees as independent contractors Number 2: Employers’ misclassification of employees as exempt employees Number 1: FLSA favors employees through lower proof thresholds, statutory damages and attorneys’ fees

12 Fair Labor Standards Act: Navigating the Overtime Exemptions
Keith McDonald

13 Common Misconceptions
Tom earns a “salary”, he is not eligible for overtime. Only “hourly” employees are eligible for overtime. Janice is a Manager. Managers are not eligible for overtime. Pat makes a lot of money, he shouldn’t be paid overtime if he has to spend a little extra time getting the job done. Okay, Karen should have been paid a few hours of overtime. We will just make it up to her with comp time. Keya was late to work again. That’s it, I’m docking his pay for every minute that he arrives after 9:00 AM.

14 FLSA – General Framework
Overtime Time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek Overtime Exemptions Employer bears the burden of proof Recent litigation – Retail (Starbucks, Dollar Store, Abercrombie), Finance/Insurance (Citigroup, Countrywide, GEICO), IT (Sprint), Transportation (Peter Pan Bus Lines), Pharma (Novartis, AstraZeneca, Bristol-Myers, Schering and others) and general corporate/legal. The Cases cited are from 2009 The distinction between willful and non-willful violations is an important one. Willful violations – 3 years SOL Off the clock cases tend to suggests willful violations Non-willful – 2 years SOL

15 “White Collar Exemptions”
The FLSA provides an exemption from overtime pay for following employees: Executive Administrative Professional Outside sales employees Computer employees Highly Compensated Employees Paid on a salary basis at not less than $455 per week (except outside sales employees) Does not include manual laborers or other “blue-collar” workers

16 Salary Basis Regularly receives a predetermined amount of pay each pay period (not less than $455/wk) Pay period can be weekly, monthly, etc. Pay cannot be reduced because of variations in quality or quantity of the work performed Must be paid full salary for any week in which the employee performs any work Need not be paid for any workweek when no work is performed Salary basis must be maintained to preserve overtime exemption

17 Salary Basis – Deductions
No salary basis if deductions from salary are made for absences occasioned by the employer or by operating requirements of business If employee is ready, willing and able to work, deductions may not be made if work is not available Improper deductions: Partial-day absence to attend teacher conference Employer closed due to inclement weather Employee absent for jury duty Employee arrives late to work or leaves early

18 Salary Basis – Permitted Deductions
Absent for one or more days for personal reasons, other than sickness or disability Absent for one or more days due to sickness or disability if deductions made under a bona fide plan, policy or practice of providing wage replacement pay for those types of absences To offset any amounts received as payment for jury fees, witness fees, or military pay Penalties imposed in good faith for violating safety rules of “major significance” Disciplinary suspension of one or more days imposed in good faith for violations of workplace conduct rules Pro-rata pay during first and last weeks of employment Unpaid leave taken pursuant to FMLA

19 Effect of Improper Deductions
Actual practice of making improper deductions from salary will result in loss of the exemption: During the time period in which deductions were made For employees in the same job classification Working for the same managers responsible for the actual improper deductions Defenses – isolated or inadvertent deductions will not result in the loss of exempt status if the employer reimburses the employee

20 Actual Practice of Improper Deductions
The number of improper deductions Time period during which the employer made improper deductions The number and geographic location of both the employees whose salaries were improperly reduced and the managers responsible Whether the employer has clearly communicated a policy prohibiting improper deductions

21 Safe Harbor The exemption will not be lost if the employer:
Has a clearly communicated policy prohibiting improper deductions, including a complaint mechanism Reimburses employees for any improper deductions; and Makes a good faith commitment to comply in the future Unless the employer willfully violates the policy by continuing to make improper deductions

22 Acceptable Payroll Practices That Preserve the Salary Basis
Taking deductions from exempt employees’ accrued leave accounts for full day absences Requiring exempt employees to punch in/out Requiring exempt employees to work a specified schedule Implementing global schedule changes Furloughs for exempt employees – so long as they are for full week periods

23 (except outside sales employees)
The Exemptions Executive Administrative Professional Outside sales employees Computer employees Highly compensated employees MUST MEET SALARY BASIS (except outside sales employees)

24 Executive Exemption Primary duty is management of the enterprise or of a customarily recognized department or subdivision; Customarily and regularly directs the work of two or more other employees; and Authority to hire or fire other employees or whose suggestions and recommendations as to hiring, firing, advancement, promotion or other change of status of other employees are given particular weight.

25 Executive Exemption “Primary duty” – principal duty that employee performs (50% or more performing exempt work) “Management” Interviewing, selecting and training employees Setting and adjusting pay and work hours Maintaining production or sales records Evaluating employee performance Handling employee complaints Disciplining employees Budget controls Monitoring legal compliance

26 Executive Exemption “Department or Subdivision”
HR – Benefits, Recruitment, Labor Relations, etc. Sales – Regions, Products, etc. Customarily and regularly directs the work of two or more other employees Must be on regular basis Must be full-time employees (cannot be shared) Concurrent duties Exempt employees decide when to perform non-exempt duties (Retail cases – Starbucks, etc.)

27 Administrative Exemption
Primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance Regarded by most as most difficult exemption to distinguish

28 Does not include… Working on manufacturing production line
Selling product in a retail or service establishment Basic administrative assistant duties Recording or tabulating data Performance of mechanical, repetitive, recurrent or routine work Applying well-established techniques, procedures or specific standards as set forth in manuals or other sources

29 Management or General Business Operations
Tax Finance Accounting Auditing Insurance Quality Control Purchasing Procurement Advertising Marketing Research Safety and Health Human Resources Employee Benefits Labor Relations Government Relations Legal Compliance IT Network, Internet and Data Administration

30 Discretion and Independent Judgment
Evaluating possible courses of conduct regarding matters of significance Final decision-maker Implement policies or operating practices Assignments relate to major business operations Commit employer to matters of significant financial impact Ability to waive or deviate from procedures Ability to negotiate on behalf of employer Involved in planning or establishing business objectives

31 Specific Examples Insurance claim adjusters – ability to negotiate settlements or determine value of claim (not mere fact gathering and processing) Financial services – providing actual advice to customers and determining best products for customer’s needs (not mere selling of financial products) Human Resources – must formulate, interpret or implement policies (not mere screening of applicants) Administrative assistants – must be delegated authority regarding matters of major significance for high level executive/owner (not common exemption)

32 Professional Exemption
Primary duty must be the performance of work requiring advanced knowledge Intellectual in character – not involving routine mental, manual, mechanical or physical work In a field of science or learning Law, Accounting/Actuarial, Teaching, Engineering, Biological/Chemical Sciences and Medicine Customarily acquired by a prolonged course of specialized intellectual instruction Beyond a high school level – must have specialized academic training

33 Professional Exemption
Does not apply to occupations that may be performed with: General knowledge acquired by academic degree Knowledge acquired through apprenticeship Training in performance of routine, mechanical or physical processes Occupations where skills are learned by experience

34 Specific Cases Nurses Registered Nurses generally meet professional exemption (must also be paid on salary basis) Licensed practical nurses generally not exempt Medical Technicians, Dental hygienists, Physician Assistants – generally exempt with pre-professional studies from accredited school Chefs – exempt if professional training Creative Professionals generally exempt – artists, musicians, designers Nonexempt “professionals” – paralegals, bookkeepers, accounting clerks, cooks, engineering technicians

35 Outside Sales Employees
Primary duty must be making sales, or obtaining orders or contracts for which consideration will be paid by the client or customer Employee must be customarily and regularly engaged away from employer’s place of business Promotional Work – main subject of litigation Pharmaceutical cases

36 Computer Employees Employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker (salary basis or at least $27.63 an hour) Primary duty must consist of Application of systems analysis techniques and procedures Design or development of computer systems or programs Does not include Employees engaged in manufacture or repair of computer systems Employees whose work is highly dependent upon, or facilitated by, the use of computers or software programs (drafters, designers) Sprint – no exemption for customer service rep who served customer’s tech problems. Court determined that a substantially higher degree of skill was required for the exemption.

37 Highly Compensated Employees
Total annual compensation of at least $100K Includes commissions and non-discretionary bonuses Make-up payment permitted at year end Perform office or non-manual work Customarily and regularly perform any one or more of the exempt duties identified in the standard tests for executive, administrative or professional exemptions (don’t have to meet full exemption). Strong presumption of exempt status Not incorporated in all state laws (e.g., PA) Consider discussing the Portal-to-Portal Act – 1947 Amendment to the 1938 FLSA – designed to clarify the law with respect to travel and other activities before and after the work day.

38 Employer Protections Review compensation model – salary or hourly
Audit current employee roster “Blue collar” workers not exempt Clerical workers not exempt Identify potential misclassified positions – lower level managers, employees performing routine tasks, etc. Review policies re: payroll deductions Review practices re: payroll deductions Consult the FLSA regulations and resources (http://www.dol.gov/dol/topic/wages/overtimepay.htm) Consult your lawyer

39 Identifying “Compensable Time”
Presented by: Pat Collins Assisted by: Chris Elko

40 Staples Settles Assistant Manager OT Suits For $42M
02/01/2010 Staples Settles Assistant Manager OT Suits For $42M Staples Inc. agreed Friday to pay $42 million as part of a global settlement resolving several wage-and-hour collective actions claiming the office supply vendor misclassified its assistant store managers as exempt from federal overtime pay requirements. 02/02/2010 Obama Allots $25M For DOL To Fight Misclassification The $3.8 trillion federal budget for the 2011 fiscal year proposed by President Barack Obama includes $117 billion for the U.S. Department of Labor, with $25 million set aside to help the department combat employee misclassification. 02/03/2010 Tech Support Worker Slams AT&T With OT Action A former AT&T Inc. technical support worker has filed a proposed class action accusing the telecommunications giant of improperly classifying technical workers as exempt and shorting them on pay. 02/04/2010 Pizza Hunt Drivers Sue Franchisees For More Dough Two companies that run Pizza Hut franchises have been hit with a nationwide putative class action accusing them of improperly requiring delivery drivers to pay their own travel expenses, paying drivers less than the minimum wage and depriving them of delivery charges. The Cases cited are from 2009 The distinction between willful and non-willful violations is an important one. Willful violations – 3 years SOL Off the clock cases tend to suggests willful violations Non-willful – 2 years SOL

41 AA Skycaps Win Certification Of National Class
02/05/2010 AA Skycaps Win Certification Of National Class A federal judge on Thursday certified a nationwide class of American Airlines Inc. skycaps who claim they lost out on tips when the airline imposed a curbside check-in fee for bags at airports, reversing an earlier ruling in a different case that a similar class would have been unmanageable. 02/08/2010 Satellite Techs Hit MasTec With FLSA, Contract Suit Four Florida satellite technicians have filed a putative breach of contract and Fair Labor Standards Act class action claiming contractor MasTec Inc. failed to pay them overtime wages and commissions. 02/09/2010 Best Buy Settles OT Suit Over Workers Security Checks Best Buy Co. Inc. has asked a federal judge to approve a $902,410 settlement that resolves claims that the consumer electronics giant did not pay retail workers in New York for time they spent going through a security check at the end of the workday. Employment Law360: Litigation, Policy & People News The Cases cited are from 2009 The distinction between willful and non-willful violations is an important one. Willful violations – 3 years SOL Off the clock cases tend to suggests willful violations Non-willful – 2 years SOL

42 U.S. Congressman George Miller
“The Wage and Hour Division has simply dropped the ball in pursuing employers that cheat its workers out of their hard earned wages.” This is the new hottest topic that the DOL is focusing on U.S. Congressman George Miller

43 FLSA lawsuits = Hot Topic and Big Money
A Little Time = Big Money Wells Fargo settled a FLSA-related case for $13 million IBM settled a FLSA class action lawsuit for $65 million Wal-Mart paid out over $250,000,000 over the span of less than a year for FLSA overtime violations Last year alone, the DOL recovered more than $171,500,000 in back wages for more than 246,000 employees. Federal DOL per Violation Fines $1000 per violation for Employers repeatedly or willfully violating the FLSA The Cases cited are from 2009 The distinction between willful and non-willful violations is an important one. Willful violations – 3 years SOL Off the clock cases tend to suggests willful violations Non-willful – 2 years SOL

44 FLSA lawsuits = Hot Topic
FLSA violations have now replaced discrimination claims as the Department of Labor's top enforcement target.

45 Identifying “Work Time”
FLSA does not define “work” Defines “employ” as "suffer or permit to work" Includes anytime an employer requires OR allows an employee to work No such thing as a volunteer Employer Knowledge Employer may not “sit back and enjoy the benefits” of an employee that works without entering time Consider discussing the Portal-to-Portal Act – 1947 Amendment to the 1938 FLSA – designed to clarify the law with respect to travel and other activities before and after the work day.

46 Time Tracking Challenges Determining when your employees are “On the Clock”
Rest/Meal Breaks Travel Time Training Time Waiting Time On-Call Time Preliminary/Postliminary Activities Rounding Time

47 Rest/Meal Breaks No requirement for Rest Breaks under the FLSA
Short breaks (5-20 minutes) must be counted as compensable time Bona Fide meal periods are NOT compensable time Must last 30 minutes Time spent during break must not be “predominantly for the benefit of the employer” Oakes v. Pennsylvania Officers were permitted to: sleep, read, play games, watch TV, go to restaurants Officers were required to: remain in uniform, carry weapons, monitor radios, respond to emergency calls, remain in jurisdiction and refrain from drinking alcohol Third Circuit found the time was predominantly for the benefit of the employer and, therefore, compensable Often times, the meal cases involve Police Officers (2nd and 3rd Circuit both follow the Predominant Benefit test based on cases involving Police Officers. NOTE – The 30 Minute marker for meal breaks is not a bright line rule, but it is the regular line of demarcation used by the courts

48 Travel Time Home to Work: Regular – Not Compensable
Home to Work: Special Location – Compensable Distance travelled minus normal travel time Travel During Work Hours – Compensable Travel Away From Home – Compensable Pay for work-day hours on work days and non-work-days (Saturday/Sunday) Non-work hours (i.e. - after 5:00 PM) not Compensable

49 Training Six Factors determine whether training time is compensable
Training is similar to that which would be given in a vocational school Training is for the benefit of the trainees Trainees do not displace regular employees, but work under their supervision Employer gains no immediate advantage from the activities of the trainees Trainees are not necessarily entitled to a job at the completion of the training period Employer and trainees understand that the trainees are not entitled to wages for the time spent training These are the factors set by the Supreme Court in Portland Terminal. Yard Brakemen trainees spent one week learning the requirements of the position through observation and closely-supervised work. Applicants did not displace workers and in some cases may have impeded efficiency.

50 Waiting Time “Engaged to Wait” vs. “Waiting to be Engaged”
Rule: Time spent waiting for work is compensable if it is spend “predominantly for the employer’s benefit” What control does the employer have over the employee Can the employee effectively use that time for his or her own purposes Chao v. Akron Drinking coffee and socializing before the day was considered compensable time because the employer required the employee to be present at facility before leaving for job sites

51 On-Call Time Several factors determine whether an employee’s “on-call” time is compensable Required response time Ability to trade on-call shifts Excessive geographical movements Employee’s ability to engage in personal activities Frequency of calls An employee required to remain “on-call” on the Employer’s premises is generally considered compensable

52 The Blackberry Dilemma
Is an employee who checks his blackberry at home entitled to overtime compensation? If an employee engages in work-related at home, on his own volition, must he be paid for it? Should an employee be compensated for the time he spends updating his professional bio on “Facebook,” “LinkedIn,” or “Twitter”? Does an employee’s use of a cell phone or blackberry after-hours constitute ‘hours worked’ under the FLSA? Oprah Anecdote? These are still open issues in the law

53 The Blackberry Dilemma
Agui v. T-Mobile, Inc. (E.D.N.Y.) Former and current employees sued “claiming they were required to use company-issued smart phones to respond to work messages after hours without pay.” Plaintiffs were “required to review and respond to T-Mobile related s and text messages at all hours of the day, whether or not they were punched into T-Mobile’s computer based timecard system.” When they complained, the suit alleges, managers told them this was one of T-Mobile’s standard business practices. Rulli v. CB Richard Ellis Inc. (E.D. Wis.) Employees were “given personal data assistants, such as Blackberries, smart phones, cell phones, pagers or other communication devices.” All employees were required to use such devices “outside their normal working hours without receiving any compensation.” Company allegedly required employees to respond to incoming messages within “fifteen minutes” of receiving them. These cases are both waiting to be certified as class actions and will ultimately provide insight into how the federal law will treat this issue.

54 Preliminary and Postliminary
Is the action an “integral and indispensible part of the principal activity.” Basically the same factors as whether an activity qualifies as “work” Benefit to the Employer Is it required by the employer Is it necessary to perform the task Does the activity primarily benefit the employer Donning and Doffing – The origin of FLSA time-keeping litigation Poultry Cases (Tyson Foods) ATT Call Centers

55 Preliminary and Postliminary
Additional examples of Preparatory and Concluding Activities: Workers putting on (donning) and taking off (doffing) protective or work required gear; Employees booting up a computer and logging into work programs; Bus drivers inspecting their bus before the start of the shift Electricians loading their trucks before leaving to perform their routes; Filling out time sheets, checking job locations, cleaning and loading trucks, fueling trucks, and picking up plans for the day's work; and Employees waiting for work after punching in, even though employees could wait in a break room, in their cars, or even depart the premises if work was not available. Activities that are integral and indispensible parts of the principal activities are themselves principal activities. Courts have found that de Minimis pre/post work doesn’t count.

56 Rounding Time and the De Minimis Doctrine
Federal Rule Rounding Time Disregarding early or late clock punching permitted so long as the employees did not engage in any work. De Minimis Time Insubstantial or insignificant periods of time beyond the scheduled working hours, which cannot as a practical administrative matter be precisely recorded for payroll purposes, may be disregarded. (Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946)).

57 Rounding Time and the De Minimis Doctrine
New Jersey Previously NJDOL accepted rounding practices that complied with Federal Regulations (since 1965) A recent letter from the NJDOL states “We now have an enforcement policy that requires employers who round off time worked in any increment to round it off in favor of the employee.” NJDOL takes the position that advancements in technology make it possible to track and pay for actual time worked to the minute. De Minimis Time Effectively eliminated

58 Preventing “Off-The-Clock” Claims
Be familiar with State and Federal Law Audit and analyze classifications Pay for hours worked Pay the proper rate Audit and update your policies

59 Preventing “Off-The-Clock” Claims
Investigate all complaints Enforce rules against unauthorized overtime Audit and update recordkeeping practices Train your managers Talk to your lawyer

60 Seminar Break

61 Strategies For Avoiding Off-The-Clock FLSA Claims
Good morning, my name is Keya Denner. By this point in the presentation, you are now all aware of the explosion of federal Fair Labor Standards Act class and collective action filings in the last few years. Now that you have a better understanding of some of the key provisions and issues faced by employers under the FLSA, my focus this morning is to leave you with some strategies to defeat these claims, or, hopefully, to avoid them altogether. My talk will center around the legal defense which is known as the “Doctrine of Avoidable Consequences,” and will touch on ways that employers can best utilize this defense in the context of the FLSA, while at the same time tightening up their existing company policies. I will start with an overview of the defense and then take an in-depth view of the elements of the defense. And we will end by discussing some of the emerging risks posed by new technology and what to look out for on the FLSA front in the next year or so. If you have any questions, we will have a Q&A session following the presentations. Presented By: Keya Denner 61

62 Doctrine of Avoidable Consequences
The doctrine bars a party from recovering damages where the injured party could have avoided harm through reasonable efforts. The U.S. Supreme Court has applied the doctrine in Title VII cases. See Ford Motor Co. V. EEOC, 458 U.S. 219 (1982); Faragher v. City of Boca Raton, 524 U.S. 775 (1998); Kolstad v. American Dental Ass’n., 527 U.S. 526 (1999). Now referred to as the Faragher/Ellerth Defense. The Doctrine of Avoidable Consequences is also referred to as the duty to mitigate. It is an ancient legal doctrine that has been in existence since Roman times, so it predates the FLSA. The doctrine bars a party from recovering damages where the injured party could have avoided harm through reasonable efforts. Some of you may be familiar with the duty to mitigate, as it is routinely applied as a defense in contract and tort cases. In the context of our discussion today, the U.S. Supreme Court has also applied the defense in Title VII cases. Now referred to as the Faragher/Ellerth Defense.

63 Doctrine as Applied by Supreme Court in Title VII Context
Title VII seeks to make employees whole for unlawful discrimination, however, its “primary objective” is “not to provide redress but to avoid harm.” As envisioned by the Supreme Court, the defense encourages employers to adopt policies and procedures to ensure compliance and provide employees with an avenue by which they can report improper conduct to their employer. Title VII seeks to make employees whole for unlawful discrimination, however, its “primary objective” is “not to provide redress but to avoid harm.” The Supreme Court has stated that the preferred means of achieving the statutory goals of Title VII is through cooperation and voluntary compliance. As envisioned by the Supreme Court, the defense encourages employers to adopt policies and procedures to ensure compliance and provide employees with an avenue by which they can report improper conduct to their employer. So, the focus is to avoid harm, which is best accomplished by proper employer policies and procedures, and continued compliance with those procedures. 63

64 Doctrine as Applied to FLSA and State Law Wage and Hour Cases
Primary objective of FLSA is to ensure compliance and that employees are paid minimum wage and overtime. Doctrine endorsed by USDOL in the FLSA context when it created a safe harbor for salary deductions in the 2004 white collar regulations. “Clearly communicated policy...and a mechanism for employee complaints...” Example: policy against sexual harassment Like Title VII, primary objective of FLSA is to ensure compliance and that employees are paid minimum wage and overtime. The USDOL has already endorsed the doctrine of avoidable consequences in the FLSA context when it created a safe harbor for salary deductions in the 2004 white collar regulations. In Preamble of the regulations, the DOL stated: “We believe it furthers the purposes of the FLSA to permit the employer who has a clearly communicated policy prohibiting pay deductions and a mechanism for employee complaints...This is generally consistent with trends in employment law. An employer, for example, that has promulgated a policy against sexual harassment and takes corrective action upon receipt of a complaint may avoid liability.” 69 Fed. Reg (April 23, 2004)

65 Application to FLSA Cases
Limited to off-the-clock work cases. Employee’s role in proper timekeeping. Number of courts have held that employees are not free to disregard employer timekeeping policies. “...the employee bears some responsibility for the proper implementation of the FLSA’s overtime provisions...[a]n employee cannot undermine his employer's efforts to comply with the FLSA by consciously omitting overtime hours for which he knew he could be paid.” Wood v. Mid-America Management Corp WL (6th Cir. 2006). Limited to off-the-clock work cases: - cases where employee fails to punch in or out - cases where employee claims to have worked through lunch break - cases where employee claims he or she punched out and was required to perform off the clock work While employer bears the ultimate burden of proper timekeeping, courts have increasingly recognized that an employee plays an important role in proper timekeeping. Wood v. Mid-America Management Corp WL (6th Cir. 2006): “At the end of the day, an employee must show that the employer knew or should have known that he was working overtime or, better yet, he should report the overtime hours himself. Either way, the employee bears some responsibility for the proper implementation of the FLSA’s overtime provisions. An employer cannot satisfy an obligation that it has reason to think exists. And an employee cannot undermine his employer's efforts to comply with the FLSA by consciously omitting overtime hours for which he knew he could be paid.”

66 Elements of the Faragher/Ellerth Defense
Timekeeping policies and procedures Training Employee certification Complaint mechanism Self audit Consistent discipline Periodic reminders Adopt and publicize clear timekeeping policies and procedures Train managers and employees on key FLSA concepts, timekeeping policies, and complaint mechanism Require employees to review, and, if correct, certify the accuracy of time records Implement a robust complaint mechanism specifically targeted to wage and hour complaints Audit time records to ensure employees and managers are complying with polices and procedures Reinforce timekeeping policies through periodic reminders

67 Element 1: Adopt and Publicize Clear Timekeeping Policies and Procedures
“Saturation” of Policy: handbooks, memorandums, orientation guides, CBAs, etc. Require signed receipt to demonstrate knowledge of policies and procedures. Saturation means: publicizing the policy in a conspicuous, overt, and maybe even redundant manner.

68 Recommended Policy Language
Policy should: Contain key definitions (i.e. “working time”); Prohibit off-the-clock work while ensuring that, in the event work is performed, employees will be paid; Require immediate reporting of off-the-clock work; Provide a mechanism for employees to report off-the-clock work; Require advance authorization for overtime except in the event of emergency; Advise employees that no one is authorized to require off-the-clock work; Require employees to report violations of the timekeeping policy within a specific time period. Key definitions: -working time means: Any time spent for the Company’s benefit. Examples: Usual shift; shift changes; all work-related work done at home (i.e. preparation for a meeting; answering work s, etc.). Time spent doing work not requested by the employer, but still allowed, is generally hours worked. -exempt v. non-exempt Prohibition of off-the-clock work: “Failure to receive your manager's approval prior to working overtime may result in disciplinary action. All overtime worked must be recorded pursuant to Company policy.” Reporting: within 72 hours is common, but this is specific to each employers and the realities and size of your business. Of course, your policy should contain language to the effect that “FAILURE TO FOLLOW THE PROCEDURES OUTLINED HEREIN WILL RESULT IN DISCIPLINARY ACTION, UP TO AND INCLUDING TERMINATION.”

69 Element 2: Training Train both managers and hourly employees.
Training should involve interactive learning model with examples of common violations (i.e. missed meal periods). Require refresher training at periodic intervals. Require training for all new managers and employees. Train both managers and hourly employees regarding FLSA and state wage and hour requirements and Company timekeeping policies and procedures. On-line training, if available to you, provides the ideal mechanism for training employees because it ensures uniformity and consistent documents of training. - suggestion: provide a training script if on-line training is not available Training should involve interactive learning model with examples targeted toward common violations (i.e. missed meal periods, improper supervisory instructions, etc.) Require refresher training at periodic intervals. Require training for all new managers and employees.

70 Element 3: Certification of Time Records
Require non-exempt employees to review time records. Daily review is ideal. Require employee certification of time records as to accuracy. If inaccurate, require employee to identify inaccuracies to permit immediate correction. Require employees to review accuracy of paycheck and certify. Certification should cover off-the-clock work and meal periods. Require non-exempt employees to review time records daily if possible. If daily review of the time records is not possible, a less less frequent can be used provided the employees have the opportunity to review actual records. Provided records are correct, require employee to identify any inaccuracies to permit immediate correction. If records are not correct, require employee to identify any inaccuracies to permit immediate correction. Require employees to review accuracy of paycheck and, if systems, permit, certify secondary review. On-line tools make this level of review more available.

71 Element 4: Adopt a Robust Complaint Mechanism
Revise existing complaint mechanism to ensure it specifically addresses wage and hour issues. Publicize complaint mechanism. “Saturation” of complaint mechanism. Train managers and payroll personnel to be alert to payroll concerns. Promptly investigate payroll concerns and take prompt remedial steps if appropriate. Most employers already have some type of complaint mechanism in place. Existing complaint mechanisms often do no specifically reference wage and hour issues, so employers should revise their existing complaint mechanism to do so. Publicize complaint mechanism in handbooks, memorandums, open door policies, collective bargaining agreements, ethics handbooks, etc. Train managers and payroll personnel to be alert to payroll concerns and treat any complaints with same level of attention as other employee relations complaints (i.e. sexual harassment). Promptly investigate payroll concerns using same techniques and controls as other types of internal complaints. Effective remediation may require payment of back wages.

72 Element 5: Audit Time Records for Compliance
Adopt an audit protocol to ensure employees and managers are following policies and procedures. Audit protocol should be designed to be discoverable in the event of future litigation as part of company’s good faith defense. Possible defense to liquidated damages 2 year s/o/l rather than 3 year Adopt an audit protocol to ensure employees and managers are following policies and procedures. This step should not be ignored. If you do not have a good idea of your company’s level of compliance, you may not know you have a problem before it is too late. The audit will help you to identify and correct any potential wage and hour violations before litigation, and possibly to establish a good faith defense. Audit protocol should be designed to be discoverable in the event of future litigation as part of company’s good faith defense. - Note of Good Faith Defense contained in Portal Act Section 260: Under the FLSA, double damages may be assessed against an employer that violates the overtime or minimum wage provisions, and willful violations of the FLSA result in a three (rather than two) year statute of limitations. - Courts also may award liquidated damages in an amount less than 100 percent of back wages where the good faith defense is proven. Importantly, if an employer fails to establish that the act or omission giving rise to the violation was in good faith, the court is given no discretion, and must award double damages. - The employer that operates blindly cannot claim good faith.

73 Audits (con’t) Make sure you understand the cost, time, and potential disruption of an audit. Remember: allocate resources effectively determine which jobs and practices must truly be audited conduct the audit by business unit  fine tuning Investigation, remediation, discipline. Make sure you understand cost, time, and potential disruption of audit. Conducting an audit requires you to: - allocate resources effectively - determine which jobs and practices must truly be audited. In some cases, an audit of one job will be determinative of the status of other jobs in the same hierarchy. - decide if the company will maintain one company-wide standard to comply with all federal, state and local wage laws, or whether variations will be made for individual state’s overtime requirements - conduct the audit by business unit  fine tuning of process - be mindful of variations from business unit to business unit - decide how to deal with violations: back pay or remedy potential problems on a prospective basis? - take steps to ensure future compliance  maintaining compliance requires the audit process be an ongoing part of an employer’s labor relations program

74 Element 6: Levy Commensurate Discipline for Policy Violations by Employees and Managers
In some reported cases, employers have been criticized for quickly disciplining employees for timekeeping violations but not doing so for manager violations. Manager misconduct is increasingly being characterized as wage theft. Manager misconduct should be promptly addressed and, where confirmed, considered serious violation of the company’s most important policies. Read slide.

75 Element 7: Periodic Reminders
Timekeeping policies and procedures should be reinforced through available communication means. “Saturation” of policy! Annual letter to all employees. Newsletters. Postings. Refresher training.

76 Off-The-Clock Trends in 2009 and Beyond – Auto Deduct Cases
Camesi v. University of Pittsburgh Medical Center (W.D. Pa., 2009) Automatic lunch deduction case Employer’s written policy shifted burden to employee too far? Tip: Written policy should keep onus on managers Camesi v. University of Pittsburgh Medical Center, No. Civ. A J, 2009 WL (W.D. Pa. May 14, 2009): Conditional certification granted to hourly employees who claimed that pay was subject to automatic meal deduction through KRONOS computer system even when employees performed compensable work. Employer’s written policy was that each employee was responsible for cancelling the deduction if they did not actually take the 30 minute break. The Court noted that Defendants’ attempt to shift statutory responsibilities to their workers constituted an employer policy susceptible to challenge at conditional certification stage. Tip: Policy should keep onus on managers

77 Off-The-Clock Trends in 2009 and Beyond – PDA’s
New “wave” of cases predicted – PDA’s Is an employee who checks his blackberry at home entitled to overtime compensation? Should she be compensated for the time she spends updating her professional bio on “Facebook” or “LinkedIn”? Does an employee’s use of cell phone or blackberry after-hours constitute “hours worked” under the FLSA?

78 Off-The-Clock Trends in 2009 and Beyond – PDA’s (con’t)
Agui v. T-Mobile Inc. (E.D.N.Y 2009) Plaintiffs each provided with a “company blackberry or other smart device” Rulli v. CB Richard Ellis (E.D. Wis. 2009) Alleges employees were required to use PDAs outside normal working hours without compensation BUT: West v. Verizon (M.D. Fla. 2009) Verizon provided employees with Blackberry and cell Court upheld magistrate’s denial of class certification! Agui v. T-Mobile Inc., No cv (E.D.N.Y. July 10, 2009) - Plaintiffs each provided with a “company blackberry or other smart device” and allege they were required to review and respond to company s and text messages “all hours of the day, whether or not they were punched in...” - Potential collective action – and T-Mobile employs 36,000 nationwide Rulli v. CB Richard Ellis - Alleges employees given PDAs, and that employees were required to use such devices outside normal working hours without compensation - Collective action – potential plaintiffs could number in thousands West v. Verizon (M.D. Fla. 2009) - Verizon provided employees with Blackberry and cell - Court upheld magistrate’s denial of class certification! - Magistrate did not dispute that employees could opt to work from home, however, this allowed employees “periods of time during the day to engage in other, often significant, non-employee-related activities such as working around the home and shopping” - Because they “had such opportunities to engage in non-work related activities during ‘on-call’ time,” they were not “similarly situtated” CAUTION – West’s holding not dispositive  whether time spent is compensable is a question of fact decided in the context of each case  No two overtime cases are alike under the FLSA

79 New Prong to Faragher/Ellerth Defense: Provide PDA’s Sparingly!
Agui and Rulli: employers provided PDA’s, therefore knowledge of work could be imputed Tip: Company Policy should restrict company owned PDA’s to exempt employees whenever possible! Those non-exempt employees who are given PDA’s must be advised that they should use the instruments only with prior authorization, at risk of discipline up to and including termination. As a practical matter, overtime is mandated when the “employer knows or has reason to believe that the employees are continuing to work and the employer is benefiting from the work being done.” READ SLIDE

80 Independent Contractor Misclassification
Presented By: Pádraig Flanagan

81 Agenda Why businesses use independent contractors rather than employees Reasons for misclassification Factors used by Courts in misclassification cases Independent Contractor Proper Classification Act NJ Construction Industry Independent Contractor Act Recommendations for Proper Classification

82 Why Use Independent Contractors
Do not have to withhold income taxes Do not have to withhold and pay social security Do not have to withhold and pay medicare taxes No workers’ compensation No unemployment taxes

83 Why Use Independent Contractors
Immune from FLSA’s minimum wage, overtime, record keeping, and anti-retaliation provisions Immune from claims of civil rights violations Independent contractors are not protected under Title VII, ADEA, and ADA

84 Reasons For Misclassification
Motivating factor to avoid overtime pay requirements, payroll related taxes, employment benefits, and other employer obligations Confusion over conflicting rules and Court decisions NLRA/ERISA – principles of agency law IRS – multifactor test Title VII/ADEA – hybrid of “right to control” and “economic realities test” - FLSA/FMLA – “economic realities test”

85 Fair Labor Standards Act
Employee – “any individual employed by an employer” Employer – “any person acting directly or indirectly in the interest of an employer in relation to an employee”

86 Factors Used By Courts in FLSA Misclassification Cases
Degree of alleged employer’s right to control the manner in which work is performed; Worker’s opportunity for profit and loss depending on managerial skill; Worker’s investment in equipment or materials required for task or employment of assistants; Whether services rendered require a specific skill; Degree of permanence of working relationship; and Whether service provided is an integral part of the alleged employer’s business Also, whether, as a matter of economic reality, individual is dependent upon the business to which he renders service.

87 “ABC Test” Used in New Jersey Wage and Hour Cases
(A) Individual has been and will continue to be free from control or direction over the performance for such service, both under the contract of service and in fact; and (B) Service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business or the enterprise for which such service is performed; and (C) Individual is customarily engaged in an independently established trade, occupation, profession, or business Failure to satisfy any one of these three criteria results in an “employment” classification

88 Independent Contractor Proper Classification Act of 2007
Sponsored by then Senator Obama, and Senators Durbin, Kennedy, and Murray Senator Obama stated that misclassification accounts for $6 to $8 billion in uncollected federal taxes and represents major loss of revenue for federal and state governments facing deficits

89 Independent Contractor Proper Classification Act of 2007
Goals Increase tax revenues Improve and strengthen coordination between IRS and DOL to enforce law, enact stringent oversight, audits, and reviews Enforce federal tax laws and impose penalties for improper classification Status – read twice and referred to the Senate Committee on Finance

90 Independent Contractor Proper Classification Act of 2007
Highlights - Establishes right of workers to challenge their classification without fear of employer retaliation - Businesses must notify independent contractors of their federal tax obligations and right to seek classification determination review by IRS - Eliminates Safe Harbor provision in the tax law that excuses misclassification by permitting long standing practice of a significant segment of the industry to be used as basis for employer’s own classification decision

91 NJ Construction Industry Independent Contractor Act
Legislative Findings Employers in the construction industry that misclassify employees as independent contractors Deprive workers of social security and other benefits Reduce the employer’s state and federal tax withholdings and tax obligations Place businesses that bear higher cost for compliance at a competitive disadvantage

92 NJ Construction Industry Independent Contractor Act
For purposes of the: New Jersey Prevailing Wage Act Unemployment Compensation Law Temporary Disability Benefits Law New Jersey Gross Income Tax Act New Jersey State Wage and Hour Law Services performed in making improvements to real property by an individual for remuneration paid by another shall be deemed to be employment

93 NJ Construction Industry Independent Contractor Act
Services provided will be deemed to be employment unless Dept. of Labor and Workforce Development is satisfied that: 1. Individual has been and will continue to be free from control or direction over the performance of that service, both under his contract and in fact; and Service is either outside the usual course of business for which the service is performed, or the service is performed outside of all the places of business of the employer for which the service is performed; and Individual is customarily engaged in an independently established trade, occupation, profession, or business

94 NJ Construction Industry Independent Contractor Act
Prohibits contractor from requiring individual to enter into agreement that results in misclassification Permits workers to bring civil action for damages if the contractor had knowledge of misclassification, and permits award of attorneys’ fees and costs Unlawful to discriminate or retaliate against individual for exercising their rights under the act

95 NJ Construction Industry Independent Contractor Act
Commissioner of Labor and Workplace Development may order the immediate suspension of the contractor’s registration if Commissioner determines it is in the public interest Determination of knowing violation by Commissioner or final conviction for violation permits the Commissioner to place employer on list of contractors prohibited from contracting in public works projects Commissioner may issue stop-work orders for subsequent violations Commissioner may assess civil penalty of $5,000 per day for violations of stop-work orders Commissioner may assess civil penalty of $5,000 for each employee misclassified

96 NJ Construction Industry Independent Contractor Act
Commissioner may refer the matter to the Attorney General Criminal Penalties Disorderly persons offense - Each week and each employee is a separate offense Crime of the second, third, and fourth degrees (based on the contract amount) where misclassification is done knowingly

97 Recommendations For Proper Classification
Comprehensive review of current employee classification system and independent contractor relationships Follow and understand how new state and federal legislation will impact the company’s classification system Review industry and position classification standards and best practice guidelines Implement internal reviews in preparation for audits and employee litigation Review language used in written independent contractor agreements Maintain records of hours worked, even for IC’s, to aid in potentially defending against large lawsuits Consult counsel

98 Question & Answer Session
_____________________________________________________________________ Thank you for coming!


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