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Current Wage & Hour Challenges Karen Thompson Pádraig Flanagan Keith McDonald Pat Collins Keya Denner The material provided herein is for informational.

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Presentation on theme: "Current Wage & Hour Challenges Karen Thompson Pádraig Flanagan Keith McDonald Pat Collins Keya Denner The material provided herein is for informational."— 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 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 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 5 Why Be Concerned About Wage And Hour Issues (contd): Governmental investigations and enforcement suits are increasing –Obama administrations 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 6 Class actions adversely affect corporations 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 $252.7 million –Top 10 private wage and hour settlements in 2009 totaled $363.6 million Why Be Concerned About Wage And Hour Issues (contd):

7 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 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 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 employers 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 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 11 Top Ten Reasons for FLSA Lawsuits (contd) 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 Keith McDonald Fair Labor Standards Act: Navigating the Overtime Exemptions

13 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 shouldnt 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. Thats it, Im docking his pay for every minute that he arrives after 9:00 AM.

14 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.

15 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 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 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 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 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 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 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 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 23 The Exemptions Executive Administrative Professional Outside sales employees Computer employees Highly compensated employees MUST MEET SALARY BASIS (except outside sales employees)

24 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 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 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 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 employers 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 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 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 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 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 customers 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 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 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 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 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 employers place of business Promotional Work – main subject of litigation –Pharmaceutical cases

36 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 customers tech problems. Court determined that a substantially higher degree of skill was required for the exemption.

37 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 (dont have to meet full exemption). Strong presumption of exempt status –Not incorporated in all state laws (e.g., PA)

38 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 40 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.

41 41 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

42 The Wage and Hour Division has simply dropped the ball in pursuing employers that cheat its workers out of their hard earned wages. U.S. Congressman George Miller

43 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

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

45 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

46 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 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

48 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 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

50 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 employers 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 51 On-Call Time Several factors determine whether an employees on-call time is compensable –Required response time –Ability to trade on-call shifts –Excessive geographical movements –Employees ability to engage in personal activities –Frequency of calls An employee required to remain on-call on the Employers premises is generally considered compensable

52 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 employees use of a cell phone or blackberry after-hours constitute hours worked under the FLSA?

53 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-Mobiles computer based timecard system. –When they complained, the suit alleges, managers told them this was one of T-Mobiles 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.

54 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 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.

56 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 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 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 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 Presented By: Keya Denner

62 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 Assn., 527 U.S. 526 (1999). Now referred to as the Faragher/Ellerth Defense.

63 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.

64 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

65 65 Application to FLSA Cases Limited to off-the-clock work cases. Employees 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 FLSAs 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 (6 th Cir. 2006).

66 66 Elements of the Faragher/Ellerth Defense Timekeeping policies and procedures Training Employee certification Complaint mechanism Self audit Consistent discipline Periodic reminders

67 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.

68 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.

69 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.

70 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.

71 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.

72 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 companys good faith defense. –Possible defense to liquidated damages –2 year s/o/l rather than 3 year

73 73 Audits (cont) 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.

74 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 companys most important policies.

75 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 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 –Employers written policy shifted burden to employee too far? –Tip: Written policy should keep onus on managers

77 77 Off-The-Clock Trends in 2009 and Beyond – PDAs New wave of cases predicted – PDAs –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 employees use of cell phone or blackberry after-hours constitute hours worked under the FLSA?

78 78 Off-The-Clock Trends in 2009 and Beyond – PDAs (cont) 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 magistrates denial of class certification!

79 79 New Prong to Faragher/Ellerth Defense: Provide PDAs Sparingly! Agui and Rulli: employers provided PDAs, therefore knowledge of work could be imputed Tip: –Company Policy should restrict company owned PDAs to exempt employees whenever possible! –Those non-exempt employees who are given PDAs must be advised that they should use the instruments only with prior authorization, at risk of discipline up to and including termination.

80 Independent Contractor Misclassification Presented By: Pádraig Flanagan

81 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 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 83 Immune from FLSAs 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 Why Use Independent Contractors

84 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 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 86 Factors Used By Courts in FLSA Misclassification Cases 1.Degree of alleged employers right to control the manner in which work is performed; 2.Workers opportunity for profit and loss depending on managerial skill; 3.Workers investment in equipment or materials required for task or employment of assistants; 4.Whether services rendered require a specific skill; 5.Degree of permanence of working relationship; and 6.Whether service provided is an integral part of the alleged employers business Also, whether, as a matter of economic reality, individual is dependent upon the business to which he renders service.

87 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 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 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 90 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 employers own classification decision Independent Contractor Proper Classification Act of 2007

91 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 employers state and federal tax withholdings and tax obligations –Place businesses that bear higher cost for compliance at a competitive disadvantage

92 92 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 NJ Construction Industry Independent Contractor Act

93 93 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 2.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 3.Individual is customarily engaged in an independently established trade, occupation, profession, or business NJ Construction Industry Independent Contractor Act

94 94 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 NJ Construction Industry Independent Contractor Act

95 95 Commissioner of Labor and Workplace Development may order the immediate suspension of the contractors 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 NJ Construction Industry Independent Contractor Act

96 96 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 NJ Construction Industry Independent Contractor Act

97 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 companys 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 ICs, to aid in potentially defending against large lawsuits Consult counsel

98 Question & Answer Session Thank you for coming!


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