Navigating The Overtime Forest - Outdoor Industry Association · and tips for avoiding them ... • Civil penalties and fines ... – A notation in payroll records that employee is

Navigating The Overtime Forest

Navigating the Overtime Forest:

presented by

Emily Hobbs‐Wright

Part I.

Recognizing and Avoiding

Common Overtime Traps.

Presentation Overview

• FLSA – Just the Basics

• The increase in FLSA collective actions

• The increase in DOL enforcement

• Common overtime mistakes impacting your outdoor business

and tips for avoiding them

• PDA’s, I‐phones and the future of FLSA

• Recommendations & strategies to avoid off‐the‐clock claims

The Fair Labor Standards Act

• First approved in 1938, codified as 29 U.S.C. §

201.

• Impacts an estimated 130 million workers.

• Approximately 86% of the American workforce is covered by

the FLSA overtime provisions.

• Enforced by the U.S. Department of Labor.

The Fair Labor Standards Act

All non‐exempt employees MUST be paid overtime at time and one‐half the regular rate of pay for all hours worked over 40

hours in a week.

Who is subject to the FLSAs

Overtime Provisions?

• Only non‐exempt employees are “covered”

under the FLSA

overtime provisions.

• Exemptions are based on the employee’s duties and, in most

cases, include a salary threshold.

Overtime Exemptions

• Executive employees

• Administrative employees

• Professional employees

• Computer employee exemption

• Outside sales employees

• Certain covered retail and

service employees

The Cost of FLSA Violations

• Since 2000, the DOL Wage and Hour Division has collected

over $1.4 billion in back wages

• In 2008, the DOL:– Collected $185 million in back wages for over 228,000 employees

– Imposed $9.9 million in civil penalties

• Civil penalties and fines

• Potential criminal prosecution

• Attorneys’

fees

• Back pay and liquidated damages

• Negative publicity

• Copycat lawsuits

AND MULTI‐MILLION DOLLAR SETTLEMENTS

Potential Consequences of a Violation

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It Can Happen to Anyone

• Conduct can be intentional or well‐intentioned (but unlawful

nevertheless)

• Wal‐Mart

– Repeated allegations of violations including forcing employees to work

off‐the‐clock due to corporate culture.

– Approximately three dozen lawsuits pending nationwide in 2009.

– Large verdicts including $172 million award in case alleging company

denied lunch breaks.

It Can Happen to Anyone

• ABC Stove Company

– Paid employees end‐of‐year bonus.

– Employees argued bonus was an incentive bonus –

employer said it

was a discretionary bonus.

– Company failed to include bonus in the employees’

regular rate.

– Employees sued.

– Company paid back wages and attorneys’

fees.

Increased Enforcement by DOL

U.S. Government Accountability Office recently released a wide‐

ranging investigative report that criticized the Department for

inadequate enforcement of the FLSA overtime provisions.

“The Wage and Hour Division has simply dropped the ball in pursuing employers that cheat workers out of their hard earned wages.”

- U.S. Congressman George Miller

Increased Enforcement by DOL

• DOL Secretary Solis has declared that 150 new investigators

will be added to the Department’s field offices.

• American Recovery and Reinvestment Act of 2009 authorizes

the increase of 100 investigators as well.

• Both staffing increases, coupled with increased scrutiny from

Congress suggest that DOL will vigorously enforce the FLSA


The Rise of Collective Actions

• Under 29 U.S.C. §

216(b), FLSA permits the aggregation of

hundreds or thousands of claims requiring only that

employees be similarly situated.

• Collective Action claims are different from class actions.

– Less stringent than a Rule 23 class action.

– Courts employ a two‐tier review when deciding whether to let a

collective action go forward.


1.

Evidence that other employees want to opt‐in

– Courts typically order notice based only on the allegations of the

complaint and affidavits furnished by class members.

• Reed v. Starbucks Coffee Co.

– Florida court held that 5 notices of

consent to opt‐in and evidence of previous collective action

enough.

• Roebuck v. Hudson Valley Farms, Inc. ‐

New York court held that

three affidavits submitted by employees were sufficient to

establish a preliminary showing of a potential FLSA violation.

– Court recognized that plaintiffs only need to make a “modest

factual showing”

to proceed with notice to other potential

class of litigants.


2.

Some showing that class members are similarly situated.

– Jobs don’t need to be identical –

evidence of company‐wide practice

enough.

• The notice stage of a collective action typically results in

conditional certification.

• Common to award double damages and attorneys fees.

Common Overtime Mistakes – Misclassification

• Misclassifying employees as exempt, especially store

managers and assistant managers.

• Common in retail and service industries.


Executive exemption

• Paid a salary of at least $455 per week.

• Customarily and regularly directs the work of at least two or

more full‐time employees.

• Some level of authority concerning personnel decisions,

including authority to hire and fire or to make

recommendations.

• Primary duty of “managing the enterprise or managing a

customarily recognized department”

of the enterprise.


• Payment of a salary does not mean an employee is exempt if

his or her duties do not meet the definition of an executive

employee.

• A managerial‐sounding or inflated title also does not

guarantee that an employee is exempt.

• The burden is on the employer to prove that an employee is

exempt.


Beware of pay deductions

• Exempt status will be denied when the employer:

– Has a practice of making salary deductions; or

– Has an employment policy that creates a likelihood of improper

deductions.


Legitimate deductions

• Salary may be reduced for first and last week of employment,

where less than full week worked.

• Salary may be reduced for absence of a day or more for

personal reasons.

• Salary may be reduced for absence of a day or more for

sickness or accident, if the employer has a bona fide sick leave

or disability plan that compensates for the absence.

• Salary may be reduced for intermittent FMLA leave taken –

even if leave is just for a few hours.


Impermissible deductions

• Deducting a non‐exempt employee’s pay for partial day

absences, unless it is for qualified FMLA leave.

• Deductions for shortages or property loss.

• Deductions for work slowdown.

• Deductions for absences caused by jury duty, witness

duty or brief military service.


• Salary may be reduced as penalty for major safety

infractions.

– Those relating to prevention of serious danger to plant or other

employee.

• New: Daily Suspensions

– Only allowed for workplace violations, and attendance or

performance issues.

– Only intended to apply to suspensions, not monetary penalties.

– Written policy does not have to list all possible grounds for

discipline.

– DOL intends it to be a narrow exception to salary basis text.


Issue: The duties testIs a store manager who monitors the sales floor and directs the

work of employees while simultaneously waiting on customers

exempt?

•

FLSA recognizes concurrent duties in the retail and service

industries.

– An employee may be exempt even if she performs exempt and non‐

exempt work at the same time as long as the other parts of the

exemption are met.

– 50% of time on managerial/supervisory responsibilities is a useful

guide, but not a “rule of thumb.”

– Caution: An employee with a primary duty of production work is not

exempt even if she has some supervisory responsibilities.


Practice tip:

• Job descriptions should include responsibilities that

satisfy the duties test (i.e., directs the performance of

at least 2 employees, makes personnel decisions, etc.)

• Managers should be trained to avoid performing an

excessive amount of non‐exempt type work (i.e.,

waiting on customers, making sales, etc.)

• Periodically audit managers’

actual practices to

ensure that primary duty is management.


Outside sales employees

• No minimum salary requirement

• Has primary duty of:

– Making sales.

– Obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the

client or customer.


Outside sales employees (cont’d)

• Is customarily and regularly engaged away from the

employer’s place or places of business.

– Work performed from a corporate office is not exempt

sales work.

– Work must be performed at the customer’s place of

business.

– Sales made over the phone or internet do not count unless

adjunct to face‐to‐face contact

– Work incidental to sales counts as exempt work (i.e.,

deliveries and collections, planning itineraries, attending

conferences).



• An outside sales employee has a

primary duty of making sales if they

have a primary duty of obtaining a

commitment to buy from the

customer and are credited with the

sale.



• Examples of employees misclassified as outside sales:

‐

Employees who were responsible for attracting visitors to a particular

locale.

‐

U.S. Army recruiters who did not obtain commitments to enlist.

• Examples of employees properly classified as outside sales:

– Sales representatives of beverage company who visited stores,

determined inventory, set up advertising materials and obtained

orders on future shipments.

– Employees who sold cable service door‐to‐door and who collected

payments and debts.


Retail and service establishment exemption

• Exempt from overtime if:– Retail or service establishment;

– Regular rate is more than one and one‐half the minimum wage; and

– Earn at least 50% of income in commissions.

• A hybrid salary/commission scheme does not qualify if the

commissions are less than 50% of income.

Example: Viciedo v. New Horizons Computer Learning Center – Ohio court held that compensation plan that draw that operated like a flat compensation rate (with commissions earned only after the employee met a certain income threshold) could not be counted towards the 50% commission requirement.

Common Overtime Mistakes – Miscalculating the Regular Rate

Retail and Service Establishment Exemption

• Record Keeping Requirements

– A notation in payroll records that employee is paid pursuant to

exemption.

– A copy of agreement or memorandum explaining compensation, the

representative period for determining amount of commissions (not

less than one month or more than one year).

– Total compensation paid to employee each pay period including

commissions and straight time pay.


Miscalculating the regular rate

• The regular rate includes all

remuneration for employment

paid to, or on behalf of the

employee.

• The regular rate is determined

by dividing all remuneration in

a work week by the total

number of hours actually

worked in the work week.


Earnings that must be calculated in the regular rate

• Bonuses– Production bonus– Bonuses for performing work in less than the standard time

– Bonuses for the sale of particular types of merchandise

– Cost‐of‐living bonuses– Attendance bonuses– Bonuses to attract employees to undesirable jobsite


Discretionary bonuses can be excluded from the regular rate

• Amount and fact of payment are within sole discretion of the

employer.

• The payment is not made pursuant to a promise, agreement

or contract.


Commissions

• Commissions earned in addition to base pay must be included

in the regular rate.

• They voluntarily work extra hours for no extra pay.

• They sign a waiver that they agree not to be paid for

overtime.

• They are not authorized to work overtime.

• You specifically prohibit them from working overtime.

When nonexempt employees work overtime, you have to pay them for it even if:

Common Overtime Mistakes

–

Failing to Compensate an Employee for Time Worked


–


On‐call time

• Two fundamental questions:

1)

Does the wait predominately benefit the employer?

2)

Are employees able to use the time for their own purposes?


–


On‐call time (cont’d)

Dinges v. Sacred Heart St. Mary’s Hosps., Inc., 164 F.3d 1056 (7th Cir. 1999).

“Where the conditions placed on the employee’s activities are so restrictive that the employee cannot use the time effectively for personal pursuits, such time spent on-call is compensable.”


–


On‐call time

• Unless employee is required to remain on premises, most

on‐call time where no actual work is performed does not

count as work time.

• Less personal flexibility is OK, but if restrictions are severe,

on‐call time may be work time.


–


• Factors:

– Is employee able to use time for his own purposes?

– Geographical limitations

– Other limitations

– Required response time

– Frequency of calls

• Some courts say critical factor for compensability is

frequency of calls.

• Having a reasonable agreement with employees may help.


–


• Employers that use on‐call time should have a written policy

that:

– States clearly that employees are not paid for on‐call time.

– Focuses on the specific circumstances and needs of the business.

– Allows employees the freedom to pursue personal activities while

on

call.

– Gives employees reasonable time to respond to calls, keeping in

mind the size of the community and the distance to the work site.


–


• On‐call time policies should also:

– Allow employees to trade on‐call assignments to accommodate their

personal scheduling needs.

– Encourage employees to pursue personal activities while on‐call.

– Describe the consequences of failing to respond.

– No require uniforms (if possible).


–


• Employees should never be on‐call 24 hours a day, seven

days a week.

• Monitor how often an on‐call employee is actually called in

to make sure calls don’t become excessive.

• Employees should only be disciplined for outright and

repeated refusals to respond to on‐call duty.


–


• Commuting time between home and work not compensable.

• But other drive time during the day generally IS

compensable.

• Careful of employees working from home – in that case,

drive time to and from office may be compensable.

• Travel to and from work is non‐compensable, even if it’s over

an abnormally long distance.


–


Travel time

• For employees with a fixed worksite, ALL same‐day travel

(other than commute time) is compensable.

• For overnight travel:

– As passenger: must be paid for

• Travel time spent during regular work hours or weekend

equivalent.

• Time spent actually working during travel.

– As a driver, must be paid for all travel time.


–


Training time is compensable unless ALL of these factors apply:

• Attendance is outside regular work hours;

• Employee performs no productive work; and

• Program does not directly relate to the employee’s job.– If purpose is to enhance employee’s qualifications for promotion, this

factor is met.

– But if purpose is to help employee perform current job better, this

factor is not met.

• The above assumes the individual is an employee, not a

trainee.

Emerging IssueThe Fluctuating Work Week (i.e., a salary for fluctuating hours)

• Allows employers to pay a fixed amount for weeks of

different lengths, provided certain conditions are met:– The arrangement is permanent and the lengths of the work weeks

and the rates of pay are agreed upon in advance.

– Non‐overtime hours are compensated in full at the regular rate in the

weeks the hours are worked.

– Overtime pay is paid for all hours in excess of the employee’s

applicable maximum hours.

– Employee must be provided a bona fide sick plan.

– No deductions are permitted for part days.

– Can only deduct whole day or greater absences if no accrued sick

pay

or personal leave.


• Because hours fluctuate, regular rate must be calculated

each week by dividing the number of hours actually worked

into the base pay for the particular week.

• Because the method assumes that the employee is being

paid for all hours worked at the base rate, overtime is

calculated at ½ the regular rate multiplied by the number of

overtime hours.

• Best practice when implementing this pay scheme is to have

employee sign an agreement acknowledging how pay will be

calculated and how overtime will be paid.


• Special Rules for Intermittent FMLA Leave.

– During an intermittent leave, employer entitled to

convert pay to hourly and deduct for FMLA‐related

absences.

– Failure to convert the employee’s pay precludes an

employer from deducting pay for any FMLA‐related

absences.

Navigating the Overtime Forest:

Presented by Emily Hobbs‐Wright

Part II.

Avoiding Off-the-Clock Claims Resulting From the Use of Portable Electronic Devices Outside

of Working Hours

“Modern technology has made it easy and convenient for workers to telecommute, fielding

work‐related phone calls and e‐mails when away from their offices. But that convenience has a

catch: When is time “off”

really off?”

‐

Commentator Carmel Sileo

Framing the Issue

Blackberry’s, iPhones, and much more…

Did you know?

• "More than 740 billion

text messages

carried on carriers' networks during the

first half of 2009. That's an average of

4.1

Billion text messages sent/received

each day."

• "According to a new study by a U.K.‐

based employment law firm Peninsula,

roughly 130 British pounds (or about

$264 million U.S.) is lost per day by

British corporations due to office

workers dillydallying on Facebook."

Emerging Risks Posed by New Technology

• Is an employee who checks his blackberry

at home entitled to overtime

compensation?

• Should he be compensated for the time

he spends updating his professional bio

on “Facebook”

or “LinkedIn”?

• Or for the written updates he provides

concerning his company’s services on his

personal “Twitter”

page?

Does an employee’s use of a cell phone or blackberry

after‐hours constitute ‘hours worked’

under the FLSA?

Does an employee’s use of a cell phone or blackberry

after‐hours constitute ‘hours worked’

under the FLSA?

“Two recent lawsuits highlight the problems of this blurred boundary.”

Agui

v. T‐Mobile Inc. Rulli

v. CB Richard Ellis

Emerging Risks Posed by New Technology

Agui

v. T‐Mobile Inc.

• Three plaintiffs each employed as non‐exempt sales representatives

at T‐Mobile

• Each provided with a “company blackberry or other smart device.”

• Plaintiffs alleged they were “required to review and respond to T‐Mobile related emails and text messages at all hours of the day,

whether or not they were punched into T‐Mobile’s computer based

timecard system.”

• As non‐exempt employees, plaintiffs argued they were entitled to

overtime wages for the ten to fifteen hours they spent every week

“reviewing and responding to emails, texts, phone calls”

and more.

• Allegedly, “when they complained, the

suit alleges, managers told them this was

one of T‐Mobile’s standard business

practices.”

• Plaintiffs demanded back wages,

liquidated damages, additional liquidated

damages for unreasonably delayed

payment of wages and attorneys’

fees.

• It was a Potential Collective Action….and

T‐Mobile employs 36,000 nationwide!

• Case has since settled, but details of

settlement are confidential

Agui

v. T‐Mobile Inc.

Rulli

v. CB Richard Ellis

• John Rulli

filed a collective action claim (per 29 U.S.C. 216(b)) against

CB Richard Ellis for unpaid overtime compensation.

• Rulli

alleged he and other employees were “given personal data

assistants, such as Blackberries, smart phones, cell phones, pagers

or other communication devices.”

• Claimed that all employees were required to use such devices

“outside their normal working hours without receiving any

compensation.”

• Rulli

argued that CB Richard Ellis required him and others to

respond to incoming messages on these devices within “fifteen

minutes”

of receiving them.

“These workers were getting text messages from their supervisors while they were at home having

dinner or out watching a movie. And they had to respond, even though they were off the clock and not being paid for it. It was really intrusive.”

‐

Nola Hitchcock, Rulli’s

Attorney

Rulli

v. CB Richard Ellis

• Damages sought are similar to those requested by the T‐Mobile

employees in Agui: unpaid back wages and liquidated damages

under 29 U.S.C. 216(b).

• “Potential clients could number in the thousands.”

• “Rulli

is the first case that focuses on this technology.”

Rulli

v. CB Richard Ellis

West v. Verizon Communications Inc.

• In West, Verizon Personal Account Managers (“PAM’s”)

alleged they were not “compensated at time and one‐half for

overtime hours in violation of the FLSA.”

• Magistrate did not dispute that Verizon provided PAM’s

with

“a Blackberry with a cell phone”

and that “because PAM’s

can

take their Blackberry outside the home and work from a

remote location, PAM’s

have the ability to do their jobs

anywhere.”

As a result, “many PAM’s

opt to work from

home.”

However…this also allowed “PAM’s

periods of time during the

day to engage in other, often significant, non‐PAM‐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

situated”

under 29 U.S.C. 216(b).


• U.S. District Court for Middle District of Florida agrees! Upholds

magistrate’s denial of class certification.

• Court finds no error with magistrate’s rejection of the “two‐tiered

analysis,”

observing that “the two‐tiered analysis is not

mandatory.”


• Court goes even further, declares that while “class certification issues should be determined separately from the merits of the

case,”

the issues surrounding certification “cannot be decided in

a vacuum.”

• Court rejects Plaintiff’s contention that magistrate

inappropriately considered the merits of the case at the

certification stage.


Agui

& Rulli:

What’s at Stake?

Although the court’s denial of class certification in West

is

informative, it is not dispositive, as “whether time spent on call

is compensable is a question of fact decided in the context of

each case.”

Simply put…

No two overtime cases are alike under the FLSA.

Neither Agui

nor Rulli

involve “on‐call”

time per se.

Agui

& Rulli:

What’s at Stake?

“CBRE's

actions are different from the practice of

designating certain employees “on call,”

in which

employees are paid if they're called into a work site.”

‐

Nola Hitchcock, Rulli’s

Attorney

Agui

& Rulli:

What’s at Stake?

Central issue in Agui

and Rulli

is

not

the parameters of “on‐call”

time, but whether non‐exempt

employees are entitled to

overtime pay when performing

work on electronic devices

outside of the office.

Agui

& Rulli:

What’s at Stake?

• Under the statutory text of the FLSA, employees may be entitled to

overtime pay for work done on mobile devices.

• DOL considers “hours worked”

outside of work‐week as overtime

when the employee is made to “suffer”

or “permitted”

to work.

• 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.”

• In Agui

and Rulli, the provision of PDA’s to employees could suggest

that each employer knew these individuals might engage in work‐

related activities beyond the office.

Agui

& Rulli:

What’s at Stake?

As noted by The Wall Street

Journal, “court decisions

have interpreted the law to

require some hourly

employees to be paid for

putting on and taking off

work uniforms.”

Other courts have ordered

that employees be

compensated “for the time

spent while booting up

computers.”

Whether these decisions will prove persuasive to the courts in Agui

and Rulli, however, remains to be seen…

Where Do We Go From Here?

“Management‐side attorneys fear a

new wave

of wage and hour

litigation is just around the corner,

in which employees will claim

overtime for all the hours they’ve

spent clicking away on their

Blackberries or other digital

communication devices.”

‐The National Law Journal

There are a number of strategies that can help employers avoid

potential liability under the FLSA….

Draft and Enforce Comprehensive Human Resource Policies

• Exempt employees are not entitled to overtime compensation.

• If an employee is misclassified as exempt, however, an employer

could owe thousands of dollars in unpaid overtime compensation.

• Employers must carefully draft their policies concerning exempt and

non‐exempt employees, to ensure that their workforces are properly

classified under federal statute.

Discourage Overtime Work for Non‐Exempt Employees

• Non‐exempt employees are entitled to overtime compensation for

hours worked regardless of whether such work was authorized by

their employer.

• Employers should advise against overtime that has not been

authorized by an employee’s proper supervisor.

• Policies that encourage (and indeed require) prompt notification

from employees of hours worked will ensure an expedited

resolution to potential FLSA violations.

• Supervisors should closely monitor employees’

hours and enforce

overtime policy.

• Have a disciplinary procedure to address unauthorized overtime and

apply it consistently.

• Have a clear, consistently enforced policy prohibiting

unauthorized overtime.

• Consider prohibiting:

– Working before hours, after hours and during lunch.

– Eating and drinking at workstations (might even require employees to leave

premises during meal breaks or eat in a break room).

– Working at home without permission.

HAVE A CLEAR POLICY PROHIBITING OVERTIME

By providing an employee with a PDA or other communication device,

employer may be implicitly acknowledging that the employee will

perform work outside of normal business hours!

Provide PDA’s Sparingly to Non‐Exempt Employees

• While an employer might not expressly authorize the employee to

respond to emails late in the evening, the employee’s possession

of the device raises several legal issues.

• Employers should restrict company owned PDA’s to exempt

employees whenever possible. Further, those non‐exempt

employees who must be provided PDA’s should be advised that

they should use the instruments only with prior authorization.

Provide PDA’s Sparingly to Non‐Exempt Employees

Conduct Regular Audits

• Performing regular audits of employee classifications and hours

worked by all employees is a prudent step employers can take to

protect their businesses from prospective liability under the FLSA.

• Audits can produce better “risk management mechanisms”

and

internal payroll and timekeeping controls for non‐exempt

employees, which can further reduce the risk of violating the FLSA’s


• An audit can also be useful in developing “proper decision‐making

protocols for dealing with particular employment‐related risks.”

• All in all, an audit of your human resource policies and procedures

can prove immensely helpful, as it will assist your organization

in

complying with the FLSA and a host of other federal and state

employment statutes.

Conduct Regular Audits

Conclusion

• Some believe that it is “only a matter of time”

before a “wave”

of

litigation in this area ensues.

• Though this wave may impact all employers, those who take the

right steps may be able to dodge the biggest ones.

• By performing an audit of your internal human resource policies,

your organization can engage in useful risk assessment and revise

the areas that require clarification.

• While there is no perfect solution, taking these steps will go a long

way in preparing your organization for potential FLSA claims that

involve Blackberry’s, iPhones, and future technologies that will

surely emerge in the future.

Conclusion

Questions?

Please Contact:

Emily Hobbs-Wright, Esq.

Holland & Hart LLP

303-295-8584

[email protected]

mailto:[email protected]

Documents

Navigating The Overtime Forest - Outdoor Industry Association · and tips for avoiding them ... • Civil penalties and fines ... – A notation in payroll records that employee is