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Current Wage & Hour Challenges


Current Wage & Hour Challenges Karen Thompson P draig Flanagan Keith McDonald Pat Collins Keya Denner The material provided herein is for informational purposes only ... – PowerPoint PPT presentation

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Title: Current Wage & Hour Challenges

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.
  • 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

Why Be Concerned About Wage Hour Issues
  • Presented By Karen Thompson

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

Why Be Concerned About Wage And Hour Issues
  • 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

Why Be Concerned About Wage And Hour Issues
  • 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

Significant Wage and Hour Litigation
  • 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)

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
  • 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)

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

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

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

Fair Labor Standards ActNavigating the
Overtime Exemptions
  • Keith McDonald

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 900 AM.

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.

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

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
  • Salary basis must be maintained to preserve
    overtime exemption

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
  • 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

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
  • Unpaid leave taken pursuant to FMLA

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
  • 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

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

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

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
  • Implementing global schedule changes
  • Furloughs for exempt employees so long as they
    are for full week periods

The Exemptions
  • Executive
  • Administrative
  • Professional
  • Outside sales employees
  • Computer employees
  • Highly compensated employees
  • (except outside sales employees)

Executive Exemption
  • Primary duty is management of the enterprise or
    of a customarily recognized department or
  • 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.

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

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.)

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

Does not include
  • Working on manufacturing production line
  • Selling product in a retail or service
  • 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

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

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

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
  • Human Resources must formulate, interpret or
    implement policies (not mere screening of
  • Administrative assistants must be delegated
    authority regarding matters of major significance
    for high level executive/owner (not common

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

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

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

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

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
  • Design or development of computer systems or
  • 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.

Highly Compensated Employees
  • Total annual compensation of at least 100K
  • Includes commissions and non-discretionary
  • 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
  • Strong presumption of exempt status
  • Not incorporated in all state laws (e.g., PA)

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
  • Consult your lawyer

Identifying Compensable Time
  • Presented by Pat Collins
  • Assisted by Chris Elko

  • 02/01/2010
  • Staples Settles Assistant Manager OT Suits For
  • 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
  • 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 ATT With OT Action
  • A former ATT 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
  • 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.

  • 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
  • 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
  • 02/09/2010
  • Best Buy Settles OT Suit Over Workers Security
  • 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

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

FLSA lawsuits Hot Topic and Big Money
  • A Little Time Big Money
  • Wells Fargo settled a FLSA-related case for 13
  • IBM settled a FLSA class action lawsuit for 65
  • 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
  • Federal DOL per Violation Fines
  • 1000 per violation for Employers repeatedly or
    willfully violating the FLSA

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

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

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

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,

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 500 PM) not

  • Six Factors determine whether training time is
  • 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

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
  • What control does the employer have over the
  • 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

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
  • Frequency of calls
  • An employee required to remain on-call on the
    Employers premises is generally considered

The Blackberry Dilemma
  • Is an employee who checks his blackberry at home
    entitled to overtime compensation?
  • If an employee engages in work-related email at
    home, on his own volition, must he be paid for
  • 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?

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
  • Plaintiffs 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-Mobiles computer based timecard
  • 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.

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

Preliminary and Postliminary
  • Additional examples of Preparatory and Concluding
  • 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.

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)).

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
  • 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

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

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

Seminar Break
Strategies For Avoiding Off-The-Clock FLSA
  • Presented By Keya Denner

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.

Doctrine as Applied by Supreme Court in Title VII
  • 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.

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
  • 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

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 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. 2006 WL 2188706 (6th Cir. 2006).

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

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.

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
  • Require immediate reporting of off-the-clock
  • 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.

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

Element 3 Certification of Time Records
  • Require non-exempt employees to review time
  • 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.

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.

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

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
  • conduct the audit by business unit ? fine tuning
  • Investigation, remediation, discipline.

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

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.

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

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
  • Does an employees use of cell phone or
    blackberry after-hours constitute hours worked
    under the FLSA?

Off-The-Clock Trends in 2009 and Beyond PDAs
  • 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
  • Court upheld magistrates denial of class

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

Independent Contractor Misclassification
  • Presented By Pádraig Flanagan

  • 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
  • Recommendations for Proper Classification

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

Why Use Independent Contractors
  • 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

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
  • 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

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

Factors Used By Courts in FLSA Misclassification
  • Degree of alleged employers right to control the
    manner in which work is performed
  • Workers opportunity for profit and loss
    depending on managerial skill
  • Workers investment in equipment or materials
    required for task or employment of assistants
  • Whether services rendered require a specific
  • Degree of permanence of working relationship and
  • 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.

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
  • (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

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

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

Independent Contractor Proper Classification Act
of 2007
  • Highlights
  • - Establishes right of workers to challenge
    their classification without fear of employer
  • - 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

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

NJ Construction Industry Independent Contractor
  • 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
  • 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

NJ Construction Industry Independent Contractor
  • Prohibits contractor from requiring individual to
    enter into agreement that results in
  • 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

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

Recommendations For Proper Classification
  • Comprehensive review of current employee
    classification system and independent contractor
  • 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
  • Consult counsel

Question Answer Session
  • Thank you for coming!