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Wage and Hour Land Mines - - What Every Employer Should Know September 21, 2012
A JOINT PRESENTATION OF THE NEW JERSEY CORPORATE COUNSEL
ASSOCIATION AND JACKSON LEWIS LLP
Mark C. Boyland, Esq. Justin B. Cutlip, Esq.
Suburban Propane, L.P. Jackson Lewis LLP
240 Route 10 West 220 Headquarters Plaza
P.O. Box 206 East Tower, 7th Floor
Whippany, NJ 07981-0206 Morristown, NJ 07960
Phone: 973-503-9057 Phone: 973-538-6890
2
Why These Issues Matter
U.S. Department of Labor estimates that
at least 70% of employers are not in
compliance with the FLSA
Since 2001, wage and hour cases have
surpassed EEO cases as the most
common workplace-law class actions
filed in the federal courts
In 2009, the ten largest reported wage
and hour settlements totaled more than
$360M 2
3
Why These Issues Matter
DOL has been increasing the number of
investigators and is seeking funding for
more
DOL’s Wage and Hour Division case load
has been increasing each year
DOL now regularly pursues company-
wide compliance rather than site-
specific relief
3
4
The Onslaught Continues
• 3,426 federal wage-hour lawsuits in
2004
• 6,081 suits in 2010
• 18% increase just from 2009 to 2010
• There are now more wage class-actions
filed than discrimination class-actions
• Don’t forget the DOL: $2.1B in back
wages collected from 2001-08
5
Why The Onslaught?
• The law is ancient and often makes no
sense
• One mistake can be replicated many
times over, leading to great exposure
• Violations are often easily proven,
penalties are steep, and fee-shifting is
mandatory
COMMON MISTAKES MADE BY EMPLOYERS
7
Mistakes 1 & 2
Who are your employees?
7
8
Who Are Your Employees?
Mistake #1:
“We don’t have to pay
overtime if we call her an
independent contractor . . . .”
8
9
Who Are Your Employees?
The federal law looks at the economic
realities of the relationship:
Behavioral Controls
Financial Controls
Type of Relationship
New Jersey “ABC” Test:
Free of control or direction over performance of service
Service is outside usual course of business or service is
performed outside of all the places of business of enterprise for
which such service is performed; and
Individual customarily engaged in independent established trade,
occupation, profession or business
9
10
Who Are Your Employees?
• Up to 30% of employers misclassify workers
• An estimated 3.4 million workers are
contractors, when they should be employees
• Revenue loss to US Treasury is estimated to be
$3.4 billion, annually
• Income tax
• Social Security
• Medicare
• Unemployment Insurance Trust Fund
11
Who Are Your Employees?
Worker Misclassification Issues:
• Employment tax liability – other statutory benefits
• Minimum wage and overtime
• Violation of terms of government contracts as to
prevailing wage, etc.
• Employee benefit plan operational failures
• Tax liability
• Benefit liability
12
Who Are Your Employees?
What the DOL is Doing:
• 129 FTEs for multi-agency audit and enforcement
• Wage and Hour hires over 100 new investigators
for targeted industry investigations
• $24.7 million to fund state grants to identify
worker misclassification issues in state
unemployment insurance administration and
facilitate information sharing with DOL
• 6,000 random audits of companies from 2011-
2013
13
Who Are Your Employees?
New Posting Requirement for New Jersey Employers
called “Employer Obligation to Maintain and Report
Records”
Employers must:
(1) post this notice immediately in the workplace;
(2) provide each employee hired prior to November 7, 2011, a written
copy of the notice no later than December 7, 2011; and
(3) provide employees hired after November 7, 2011, a written copy of
the notice at the time of hire.
Employer failure to maintain/report required records
and pay required wages, benefits, taxes, etc, can lead to
harmful NJDOL action:
- audits
- suspension of business licenses;
- permanent revocation of Employer licenses
14
Who Are Your Employees?
Mistake #2:
“These employees are expensive.
We need some interns . . . .”
14
15
Who Are Your Employees?
DOL uses a six-factor test:
“The training . . . is similar to that which would be given
in a vocational school.”
“The training is for the benefit of the trainee.”
“The trainees do not displace regular employees, but
work under close supervision.”
The employer . . . derives no immediate advantage from
the activities of the trainees . . . .”
Trainees “not necessarily entitled to a job at the
completion of the training”
Mutual understanding that the trainee is not entitled to
wages
15
16
Who Are Your Employees?
Recent class actions regarding Interns:
Wang v. Hearst Corp. (S.D.N.Y, 2012)
Glatt v. Fox Searchlight Pictures, Inc. (S.D.N.Y. 2011)
Bickerton v. Charlie Rose Inc., N.Y. Sup. Ct., (2012)
16
17
Mistakes 3-6
Who receives overtime?
17
18
Who Receives Overtime?
White Collar Exemptions
• Most common – executive, administrative, and
professional– have two big parts:
o Salary Basis
o Duties
• Outside sales exemption does not have “salary basis”
requirement – only a duties test
• September 2011 – NJDOL adopted FLSA regulations on
white collar exemptions.
• Inside Sales Exemption – initially left out but NJDOL
corrected mistake so exemption still applicable under NJ
wage and hour law.
19
Who Receives Overtime?
Mistake #3:
“If she has a college degree,
she is a professional.”
19
20
Who Receives Overtime?
The learned professional exemption
requires:
Knowledge of an advanced type in a field of science or
learning customarily acquired by a “prolonged course of
specialized intellectual instruction” . . .
Exemption is restricted to professions where specialized
academic training is a “standard prerequisite for
entrance into the profession”
In which the worker’s primary duty includes the
“consistent exercise of discretion and judgment”, i.e.,
using advanced knowledge to analyze, interpret or make
deductions from varying facts or circumstances.
20
21
Who Receives Overtime?
Situations that may present concerns:
“Scientist” or “lab technician”?
“Accountant” or “bookkeeping clerk”?
“Financial analyst” or “gopher”?
Many employees view themselves as
“professionals” but do not satisfy the
requirements for the Professional
Exemption
21
22
Who Receives Overtime?
Mistake #4:
“Okay, if he’s not professional,
he must be administrative.”
22
23
Who Receives Overtime?
Employers substantially overuse the
administrative exemption.
The exemption requires, among other
things:
performance of office or non-manual work directly related
to the management or general business operations of
employer or the employer’s customers
“the exercise of discretion and independent judgment”
“with respect to matters of significance”
23
24
Who Receives Overtime?
Mistake #5:
“If he works with computers,
drinks a lot of coffee, and
devotes too much time to on-line
gaming, he’s exempt.”
24
25
Who Receives Overtime?
The so-called “computer employee”
exemption is much narrower than that.
The focus is on employees who design,
develop or create computer programs
or systems, or determine the
employer’s hardware & software needs.
Help desk and similar functions do not
generally qualify for exempt status.
25
26
Who Receives Overtime?
Mistake #6:
“I don’t have to pay her
the full salary if she doesn’t
work her full schedule.”
26
27
Who Receives Overtime?
Salary Basis Test for Executive, Administrative,
Professional, Computer Exemptions
Portion of employee’s compensation must be a fixed
weekly amount that is not subject to reduction based on
quantity or quality of employee’s work.
No docking the employee for being late, leaving early, or
doing poor work.
Salary must be at least $455/week ($23,660/year) or
at least $27.63 per hour for computer exemption
If they perform any work during a workweek, they are
presumptively entitled to receive their full weekly salary
unless one or more specific permissible deductions
applies.
28
Who Receives Overtime?
Examples of permissible deductions:
Full-day absences for personal reasons other than
sickness or disability
Full-day absences for sickness or disability when an
employer has a bona fide plan, policy, or practice of
providing compensation salary lost due to sickness or
disability
Full-day disciplinary suspensions imposed in good faith
for infractions of workplace conduct rules (written)
First and last week of work – pay for time actually worked
Partial-day absences covered by FMLA
28
29
Mistakes 7-13
How do you measure
working time?
29
30
Measuring Working Time
Mistake #7:
Encouraging or tolerating
off-the-clock work.
30
31
Measuring Working Time
Basic rule: if an employer “suffers or
permits” an employee to provide
services, the time counts as
compensable work.
If you know or should have known that
the employee was working, then you
must pay for that time.
Consent or failure to comply with
timekeeping rules is not an excuse.
31
32
Measuring Working Time
Mistake #8:
“Thanks for the hard work,
but we can’t pay you overtime
because you didn’t obtain
pre-approval.”
32
33
Measuring Working Time
It is fine to have a rule requiring a
supervisor or manager’s pre-approval
before a non-exempt worker exceeds 40
hours in a week.
But failure to obtain pre-approval does not
relieve the employer of the obligation to
pay for work actually performed.
There is always the option of discipline for
failing to follow rules, but be sensible.
33
34
Measuring Working Time
Mistake #9:
“Just let us know if your
working time varies from
your normal schedule.”
34
35
Measuring Working Time
Technically speaking, exception reporting
is not itself a violation of any law.
The problem occurs when workers do not
use the system regularly and
appropriately, leading to inaccurate time
records.
If the time entries seems unrealistic, all of
a sudden you are vulnerable to workers’
claims of substantial off-the-clock time.
“My supervisor knew . . . .”
35
36
Measuring Working Time
Mistake #10:
“That employee’s time entry
looks wrong to me. I’ll
go ahead and fix it.”
36
37
Measuring Working Time
It is not illegal for a supervisor or
manager to change someone’s time
entry in order to make it more accurate.
However, when a time record is
changed to reflect less time than
originally recorded, the burden will be
on the employer to demonstrate why
that change was made.
Plaintiffs commonly assert “shaving.”
37
38
Measuring Working Time
Mistake #11:
“You get a half-hour for lunch
that we just subtract from
your total time for the day.”
38
39
Measuring Working Time
Automatic deductions for meals are
common and do not by themselves
violate federal law or the laws of most
states.
But what happens when a worker says
that he or she did not always get the
chance to take a full 30-minute lunch,
or any lunch at all?
Courts are certifying class actions on
this issue left and right. 39
40
Measuring Working Time
Mistake #12:
“Your working time starts when
you are actually working, and it
stops when your work is done.”
40
41
Measuring Working Time
Most employers tell their workers to
make sure that they are properly
recording all working time.
But do the employers and the workers
have a clear understanding of what
working time really is?
Even the courts and DOL are working
that issue out to this day.
41
42
Measuring Working Time
Examples:
Computer boot-up and log-off
Donning / doffing
Mandatory early arrival
Shift exchange
Pre-shift meetings
Training
42
43
Measuring Working Time
Mistake #13:
“Nice job on the conference call
last night. And your 3:00 a.m.
e-mail was sublime.”
43
44
Measuring Working Time
Many employers fail to keep track of
time their non-exempt employees
spend working away from the
workplace.
Examples:
Cell phones
BlackBerries, PDAs, and smartphones
Remote network or e-mail access
Taking paperwork home
44
45
Mistakes 14 & 15
How do you compensate
for overtime?
45
46
Compensating For Overtime
Mistake #14:
Failing to include all
appropriate types of
compensation
in the regular rate.
46
47
Compensating For Overtime
Basic rule: all compensation that non-
exempts receive becomes part of the
regular rate except for items falling
within eight specific statutory
exclusions.
Examples that must be included:
Most bonuses
Shift premiums
Commissions
47
48
Compensating For Overtime
Mistake #15:
“We are going to bank those
overtime hours for this week
and give you some comp time
down the road.”
48
49
Compensating For Overtime
Federal law allows for compensatory
time off in lieu of overtime cash wages
for public-sector employers.
Comp time is not allowed for private-
sector employers.
Each workweek stands alone
DOL enforcement position for same pay
period
49
Thank You! Any Questions?
Mark C. Boyland, Esq. Justin B. Cutlip, Esq.
Suburban Propane, L.P. Jackson Lewis LLP
240 Route 10 West 220 Headquarters Plaza
P.O. Box 206 East Tower, 7th Floor
Whippany, NJ 07981-0206 Morristown, NJ 07960
Phone: 973-503-9057 Phone: 973-538-6890