The National Labor Relations Board (“NLRB” or the “Board”) has once again weighed in on employer use of confidentiality and non-disparagement language, this time in the settlement arena. Recently, the NLRB withheld its approval of a global settlement of Fair Labor Standards Act (“FLSA”) claims and Board charges, stating its objection to the negotiated non-disparagement and confidentiality provisions in the parties’ settlement agreement.

The employer, Liberato Restaurant, agreed to a $1 million settlement of an FLSA class action lawsuit brought by current and former employees who alleged non-payment of tips and overtime wages.  As part of the settlement, plaintiffs agreed to dismiss charges filed with the NLRB. The settlement agreement included promises by both parties to not disparage the other and not to disclose the terms of the agreement to the public. Such provisions are routinely included in settlement agreements, and have been accepted in settlements involving wage and hour claims.

Continue Reading The NLRB’s New Target: FLSA Settlement Agreements

iStock_000002171617XSmall.jpgWaiting is the hardest part. 

Ever since the Department of Labor issued its proposal to substantially increase the minimum salary level needed to classify an employee as an exempt executive, administrative or professional employee, employers have been asking when the new rules will take effect. This is not an academic question: many organizations have long and involved budget and compensation processes, and need significant lead time to address major changes. Previously, the Department made it clear that it intends to issue final rules sometime in 2016. The volume of comments taken in by the Department after final rules were issued (over 264,000) caused many to speculate that final rules would be delayed. Well, it looks like that speculation was well-founded. 

According to the Wall Street Journal, Solicitor of Labor Patricia Smith stated during a panel discussion at the the American Bar Association’s recent Labor & Employment Law Conference in Philadelphia that the Department is unlikely to issue final rules until “late 2016.” 

So what does this mean for employers trying to figure out how to deal with the new rules? Here are some thoughts:

 

1. Employers may not have much time to comply once the final rules are issued.

When the Department of Labor last made significant changes to the white collar exemption regulations in 2004, the final rules were published on April 23 and took effect four months later, on August 23, 2004. This time around, employers should be prepared to act with as little as 60 or even 30 days’ lead time. With presidential elections in November 2016, it is a fair bet that the Department will want any final regulations to take effect before a new president takes office, particularly if the winning candidate is a Republican. That being the case, if the final rules are issued in “late 2016,” employers may have only a month or two to comply. 

2. Employers should assume that the minimum salary level will be going up to approximately $970 per week for 2016, with annual increases thereafter. 

The DOL’s proposed rules increase the minimum weekly salary for exempt employees from $455 per week to a weekly salary at the 40th percentile of weekly earnings for full-time salaried workers, based on Bureau of Labor Statistics data. For 2016, the DOL has projected that this number will be $970 per week, which works out to about $50,440 per year. For political reasons, it seems somewhat unlikely at this point that the final rule will increase the minimum salary level above the 40th percentile, although that is not impossible. Conversely, it is possible that political pressure from businesses and other employers may case the DOL to fall back to a somewhat lower number. Until the DOL tips its hand, the best recommendation we can give to employers is to assume that $970 will be the applicable minimum salary, but to plan in advance what they will do if the totals come in higher or lower than the minimum. 

3. Be prepared for the unexpected.

While the DOL’s proposed rules don’t change much in the current regulations other than the minimum salary level, the final rules may contain more surprises. For example, the final rules might contain changes to the job duties tests for executive, administrative and professional employees. The DOL asked for comments on some aspects of the current duties tests. It presumably would not have done so if it wasn’t at least contemplating some changes. The final rules could also contain other surprises – at this point we simply don’t know. 

4. Start your compliance planning now.

The combination items 1, 2 and 3 above means that employers need to start thinking now about how they will deal with the final rules once they are published.

In many cases, this may mean re-classifying employees as non-exempt. While it may offer the promise of additional overtime pay for some, this change may not be popular with all employees. Many exempt employees like being treated as exempt, both because of the status they feel it conveys and because it offers a level of flexibility in their hours that non-exempt employees may not enjoy. Determining how your workforce is likely to react to these changes and figuring out how best to temper or deal with those reactions may be a significant undertaking.

In other cases, employers may elect to increase salary levels to meet the newly-established minimum, whatever that turns out to be. While straightforward in individual cases, we’ve talked to many clients who are struggling with how to accomplish this accross an organization without either blowing away the compensation budget or creating severe salary compression at the lower levels. We’ve found that this is a particular concern for at least certain colleges and universities and other nonprofits, many of which have exempt administrators with relatively low salaries. While reclassifying some of these employees as non-exempt may be an option, others keep irregular hours or work significant overtime during at least certain portions of the year (e.g., around sports and recruiting seasons) that make reclassification a difficult proposition. While smaller employers may be able to make these adjustments relatively quickly, larger and less flexible organizations may need significant lead time to decide how to deal with these issues. 

Finally, the new exemption rules may prompt some employers to look at other actions such as reductions in force, reorganization and consolidation of positions, or outsourcing certain functions to vendors. Again, any of these changes may require significant lead time to implement. 

Whatever an employer’s response to the new rules, advance planning will be key.

5. Use the new rules as an opportunity to clean up potential problems. 

Part of planning to comply with the new rules should be ensuring that you are in compliance with the current regulations. Even if the final rules don’t change anything other than the minimum salary for exempt employees, it is a fair bet that they will prompt a spike in litigation if only because they draw attention to wage and hour issues. Smart employers will stay ahead of that curve by making sure that their existing policies and practices are in compliance. The upcoming changes may also give employers something of a window in which to make changes to reduce compliance risk without obviously signaling that there is a current problem. 

 

 

We recently received a question regarding whether an employer could classify certain IT employees as exempt under the Computer Employee exemption. With the long-awaited final DOL overtime rules for the white collar exemptions yet to make their appearance, we thought this would be a good opportunity to switch gears and remind you of the general requirements for meeting the Computer Employee exemption.

Fortunately, the Computer Employee exemption doesn’t bear the brunt of the proposed changes to the overtime rules for white collar exemptions. Although those Computer Employees who are paid on a salary basis must be paid the anticipated $970 per week to qualify for the exemption, unlike Executive, Administrative, or other Professional employees, they are not absolutely required to be paid on a salary basis. Instead, these employees may be paid hourly if they are paid at least $27.63/hour. Assuming a 40 hour workweek, this comes out to $1,105.20/week, well over the anticipated $970/week requirement. This rate was not changed by the proposed rule, and will therefore likely remain in tact.

We recently received a question regarding whether an employer could classify certain IT employees as exempt under the Computer Employee exemption. With the long-awaited final DOL overtime rules for the white collar exemptions yet to make their appearance, we thought this would be a good opportunity to switch gears and remind you of the general requirements for meeting the Computer Employee exemption.

Fortunately, the Computer Employee exemption doesn’t bear the brunt of the proposed changes to the overtime rules for white collar exemptions. Although those Computer Employees who are paid on a salary basis must be paid the anticipated $970 per week to qualify for the exemption, unlike Executive, Administrative, or other Professional employees, they are not absolutely required to be paid on a salary basis. Instead, these employees may be paid hourly if they are paid at least $27.63/hour. Assuming a 40 hour workweek, this comes out to $1,105.20/week, well over the anticipated $970/week requirement. This rate was not changed by the proposed rule, and will therefore likely remain in tact.

Aside from compensation, employees who want to qualify for the Computer Employee exemption must meet two additional elements:

First, the employee must be employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field.

Second, the employee must have as his or her primary duty or job function one or more of the following:

  • The application of systems analysis techniques and procedures, including consulting with users to determine hardware, software, or system functional specifications;
  • The design, development, documentation, analysis, creation, testing or modification of computer systems or programs based on  and related to user or system design specifications;
  • The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
  • A combination of the duties mentioned above if the same skill level is required for the performance of such duties.

A common mistake employers make is to classify their entire IT department as exempt. Such an across-the-board classification is not the best course of action for a number of reasons, including:

  • Classification of a job is an individual analysis and employers should steer clear of classifying entire groups or departments without an individual analysis of these employees’ actual duties.
  • The Computer Employee exemption was intended to only cover programmers, engineers, and similar positions of the same skill level. Consequently, a number of your everyday IT employees likely will not meet this exemption.

If you have any questions regarding the Computer Employee exemption, or would like assistance in reviewing your exempt positions, please feel free to contact us. 

As you have read in our blog over the years, the misclassification of employees as exempt is one of the primary claims in wage and hour litigation.  Misclassification claims can arise in many forms, including the classification of a certain job in a particular industry.  Mortgage loan officers anyone?  Today’s post is focused on the world of car dealerships – specifically the job of service advisors.

The FLSA explicitly exempts “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.”  The primary duty for service advisors is to sell vehicle servicing work to customers.  As a result, many dealerships have long treated these employees as “salesman,” exempt from the FLSA overtime provisions.  The Department of Labor (DOL) and the courts had previously conflicted on this issue.   The Fourth and Fifth Circuits previously held that service advisors were exempt from the overtime provisions of the FLSA.  Then, in 2011, the DOL changed its (previously) long-standing enforcement position and would no longer consider service advisers exempt from overtime under the “salesman’ exemption, concluding that the exemption was limited “to salesmen who sell vehicles and partsmen and mechanics who service vehicles.”

Not a lot has happened since until March of this year.  In March, in the Ninth Circuit’s decision, in Navarro et al. v. Encino Motorcars, LLC, the Court held that the dealership’s service advisors were non-exempt employees under the Fair Labor Standards Act .  The Court, deferring to the DOL’s guidance, held that because the service advisors neither sold nor serviced vehicles, they were not exempt from the overtime provisions of the FLSA.  This decision is in direct conflict with the prior decisions out of the Fourth and Fifth Circuits. Encino Motorcars has appealed the case to the Supreme Court to address this Circuit split and make a final determination as to whether service advisors are exempt from the FLSA overtime requirements.

In its petition to the Supreme Court, the dealership argues that the service advisors are “salesmen primarily engaged in servicing automobiles.” Additionally, the dealership argues, among other things, that the DOL’s interpretation is unreasonable, and undeserving of deference, because it “injects a glaring textual anomaly over the status of ‘partsmen,’ who the statute treats as exempt even though they are not personally involved in either selling or servicing automobiles.”

The employees’ response to the dealership’s petition is due December 4, 2015. We will continue to follow this case and keep you up-to-date on the Supreme Court’s decision.

Thumbnail image for PunchClock9472033.jpgQ. We keep track of work hours for non-exempt employees using an electronic timekeeping system. For our exempt employees, we really have no records of how many hours they are working each day or week. Are we required to? Even if it’s not required, should we?

A. Like many legal questions, the answer is “it depends.” The first question is somewhat easier. The FLSA requires employers to maintain accurate records of the hours worked by non-exempt employees, but not for exempt executive, administrative, or professional employees. If your employees work in a jurisdiction that does not have its own additional recordkeeping requirements, then no, you are generally not required to keep records of your exempt executive, administrative or professional employees’ work hours. 

However, some states do have their own recordkeeping requirements. 

Continue Reading Do we have to keep track of exempt employee time? [Wage & Hour FAQ]

The Department of Labor (DOL) promulgated a rule that brings home care workers, employed by third parties, within the protection of the Fair Labor Standards Act (FLSA). As a result, those home care workers employed by an entity other than the individual, or the family of the individual for whom they are caring, will be entitled to be paid minimum wage and overtime under the new rule.

An association for providers of private duty home care filed a lawsuit challenging the rule. The district court vacated the final rule’s revised third party regulation and revised definition of companionship services, respectively. The DOL filed an appeal of the district court’s orders to the U.S. Court of Appeals for the District of Columbia Circuit. The case is Home Care Association of America v. Weil, No. 15-5018 (D.C. Cir.).

Noting in Home Care Association of America v. Weil that the duties of home care workers has changed since the 1970s when the companionship exemption was articulated, and finding that the DOL’s regulation was not arbitrary or capricious but was molded to fill in gaps in the DOL’s current regulations, the DC Circuit Court of Appeals then upheld the DOL’s regulation and remanded the case to the district court to grant summary judgment to the DOL. In September 18, 2015, the DC Circuit court denied the Home Care Association’s motion to stay the implementation of the DOL’s rule. Six days later, on September 24, 2015, the Home Care Association applied to the Supreme Court to stay the DC Court of Appeals’ decision. 

On Tuesday, without an accompanying opinion, Chief Justice Roberts of the U.S. Supreme Court, denied the Home Care Association’s application to stay the DC Court of Appeals’ decision to uphold the DOL’s final rule. Because the stay was denied, the DOL’s rule will go into effect next week, on October 13, 2015. However, the DOL has made it clear, that it will not enforce the rule for thirty (30) days after its implementation. Following this 30-day period, from November 12 through December 31, the DOL “will exercise prosecutorial discretion in determining whether to bring enforcement action.” In exercising such discretion, the DOL will focus on the extent to which States and other affected entities have made “good faith efforts to bring their home care programs into compliance with the FLSA since the promulgation of the [Final Home Care Rule].” 

The Court’s denial of the stay does not forgo the possibility that the Supreme Court will ultimately review the underlying case. The denial simply allows the DOL to move forward with implementing the rule later this month. Thus, as of October 13, employers in the home care industry need to ensure that their employees are paid at least the federal minimum wage and overtime for hours worked in excess of 40 in a particular workweek.

lunch9568375.jpgQ. We offer free lunches to our food service employees. Can we count the cost of these lunches as part of our employees’ compensation?

A. The short answer is yes, but as we all know, there’s no such thing as a free lunch, particularly in the world of wage and hour law. To explore the right way to do this, it’s helpful to take a look at some common mistakes that employers make. 

Suppose Jerry works at Bob’s Steak ‘N Beans as a line cook. Bob’s is located in Illinois, so the minimum wage for non-tipped employees is $8.25 per hour. Suppose Jerry works 45 hours over 5 work days in a week. For that week, he would be entitled to straight-time wages of $371.25. However, rather than paying that full amount in cash, Bob provides Jerry with a free Steak ‘N Beans Bonanza platter each day for lunch. The menu cost of the platter is $15, so Bob deducts $15 per day from Jerry’s pay, leaving him with $296.25 in straight-time pay. On Thursday, Jerry brought a salad from home, but Bob still charged him for the platter since it was available to Jerry even if he didn’t eat it. (Bob ended up serving it to a customer.) Bob didn’t just fall of the turnip truck, so he knows that he also has to pay Jerry overtime for 5 hours. So Bob takes Jerry’s total straight-time wages ($296.25), divides by 45, and divides by two to get an overtime premium rate of $3.29 per hour. Multiplied by five hours, he gets $16.46. Adding that amount to Jerry’s straight-time pay, Bob comes up with a total of $312.71. 

Can anyone spot the problems here?

Continue Reading What is the Cost of a Free Lunch? [Wage & Hour FAQ]

In an interesting turn of events and what I’m sure will be gratifying for some employers, the Department of Labor has agreed to pay Gate Guard Services $1.5 million to settle claims involving the DOL’s overly aggressive and bad faith tactics in investigating whether Gate Guard’s gate attendants were improperly classified as independent contractors under the Fair Labor Standards Act.

 

Initially, the district court awarded attorneys’ fees to Gate Guard under the Equal Access to Justice Act (EAJA) in the amount of $565,000. The EAJA provides for attorneys’ fees under both its substantially justified and bad faith provisions. The district court awarded fees solely under the substantially-justified provision finding that the DOL’s conduct was not sufficiently egregious to warrant an award under the bad faith provision.

However, the Fifth Circuit Court of Appeals determined that the DOL’s conduct was egregious, frivolous, and legally unsupportable. In its opinion, the Fifth Circuit reasoned that

[a]t nearly every turn, this Department of Labor (DOL) investigation and prosecution violated the department’s internal procedures and ethical litigation practices.”

A number of the unethical practices centered on the lead investigator who the court determined was not trained to conduct the investigation. Indeed, the investigator concluded that Gate Guard violated the FLSA after only three interviews,

destroyed evidence, ambushed a low-level employee for an interview without counsel, and demanded a grossly inflated multi-million dollar penalty.”

Additional egregious conduct by the DOL included: opposing routine motions and filing “specious” motions of its own; objecting 102 times in a deposition of the DOL’s lead investigator, while also instructing the investigator not to answer a question 18 times; refusing to provide witness statements to Gate Guard by falsely claiming privilege; and continuing litigation after discovering precedent that would support the classification of Gate Guard’s garage attendants as independent contractors. Based on the DOL’s conduct, the Fifth Circuit remanded the case to the district court to determine an award under the bad faith provision of the EAJA.

Certainly such a damning opinion did not bode well for the DOL. Shortly after the Fifth Circuit issued its opinion, the DOL entered into the $1.5 million settlement mentioned above. While some may consider this opinion an outlier, it certainly got the attention of the DOL. If nothing else, employers can use this decision to oppose and defend against overly aggressive an unethical conduct by the DOL or other government agencies.

Agencies and other third-party employers of live-in household employees and home companionship providers, take note: the long-delayed regulations reclassifying many of these workers as non-exempt employees entitled to minimum wage and overtime under the FLSA are now in effect. 

Since 1974, the FLSA has included an exemption for certain categories of domestic service workers, including workers who provide “companionship services for individuals who (because of age or infirmity) are unable to care for themselves.” The Act also exempts employees “employed in domestic service in a household and who resides in such household.” In 1975, the U.S. Department of Labor issued regulations holding that these exemptions for companionship workers and live-in household employees apply to employees “employed by an employer other than the family or household using their services.” 

In 2013, the U.S. Department of Labor published new rules in which the scope of the companionship and live-in household employee exemptions was limited to individuals employed directly by the family or household, rather than by an outside agency. The new rule was set to take effect January 1, 2015. However, a group of trade-associations representing agencies that employ workers who fell under the revised exemptions filed suit to block the regulation. While they enjoyed some temporary success at the trial court level, in August 2015 the U.S. Court of Appeals for the District of Columbia Circuit ruled that the regulations were a valid exercise of the Department of Labor’s authority to issue regulations under the FLSA. Home Care Association of America v. Weil. The industry groups immediately sought an order staying implementation of the regulations until they could appeal to the U.S. Supreme Court. However, on September 18, 2015, their request for a stay was denied. As a result, the new rules are now in effect. 

The Department of Labor stated in a court filing that it will refrain from bringing enforcement actions under the new rule until 30 days after the Court of Appeals issues its mandate. However, because the regulation is currently in effect, third-party employers of domestic service and companionship workers should take immediate steps to comply with the FLSA, notwithstanding the potential appeal to the Supreme Court.

The final rules now in effect are availabe from the Department of Labor’s website here.

The DOL website also offers a fact sheet summarizing the final rule.

nurse anesthetists47217500.jpgIf you are a regular reader of this blog, you are probably familiar with the six-factor test that the U.S. Department of Labor uses to determine whether an intern should be considered an employee for purposes of the Fair Labor Standards Act. (If not, DOL Fact Sheet # 71 provides a summary, and we explained the test in greater detail in an earlier post.) Recently, the Eleventh Circuit Court of Appeals issued an opinion in which it held that the DOL’s test is outdated and fails to reflect the economic realities of the modern clinical internship programs required for many professions. In its place, the Eleventh Circuit joined the Second Circuit in adopting an updated and more flexible test to determine when an internship is primarily for the benefit of the student or an employer. Schumann v. Collier Anesthesia, P.A. (11th Cir., Sept. 11, 2015) (.pdf)

Facts

The plaintiffs in Schumann included twenty-five former student registered nurse anesthetists (“SRNAs”) who attended a master’s degree program at Wolford College, LLC with the goal of becoming certified registered nurse anesthetists (“CRNAs”). To become CRNAs, students had to complete a master’s degree including a 4-semester clinical component during which students had to participate in a minimum of 550 cases. Wolford offered a 28-month master of science program that fulfilled these requirements. 

A Private, for-profit college, Wolford was wholly owned by several anesthesiologists who also had an interest in an anesthesia practice, Collier Anesthesia P.A. The plaintiff students obtained “some, if not all” of their required clinical education at facilities where Collier Anesthesia practiced. Under Medicare rules, Collier was able to bill for services performed by SRNAs during their clinical training. In their lawsuit against Collier and Wolford, the students maintained that they should have been treated as employees for purposes of the FLSA, and that Collier and Wolford therefore should have paid them at least minimum wage and overtime for all hours worked during their clinical internships. Among other things, they argued that they were required to work long hours – often more than 40 hours per week – and that Collier profited from their work by substituting unpaid SRNAs for CRNAs. 

Applying the six-factor U.S. Department of Labor test, the trial court granted summary judgment for the defendants, finding that the student plaintiffs were bond fide interns.  The students appealed.  

The Court’s Ruling

The court began its analysis by explaining that the DOL’s six-factor test originated nearly seventy years ago with the Supreme Court’s ruling in Waling v. Portland Terminal Co., 330 U.S. 148 (1947). That decision considered a seven- to eight-day training program that a railroad offered to prospective brakemen in order to ensure that it had a pool of qualified applicants available for hire. Applying the test used in that situation to a multi-year clinical training program offered as part of an academic degree and a requirement of professional licensure was, according to the court, “like trying to use a fork to eat soup.”

Instead, the court endorsed a “tweaked” version of the six-factor test, previously adopted in the Second Circuit. Under this test, a court considering whether interns should be considered employees should consider the following factors: 

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.

2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.

3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.

4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.

5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.

6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.

7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The court emphasized that this list of factors is non-exclusive, and that no single factor is dispositive. Further, the court noted that the analysis is not an “all or nothing” proposition. For example, if an intern is required to perform duties completely unrelated to their educational program – like washing an instructor’s car – the intern could be regarded as an employee for purposes of the time spent on those unrelated duties, but not otherwise. Similarly, if an intern is required to put in hours that greatly exceed the time needed for them to obtain the educational benefits of the program, this may be taken as evidence that at least the excess hours should be considered compensable under the FLSA.  

Impact on Employers

While a setback for the defendants in this case, the Eleventh Circuit’s ruling is largely a positive development for employers and educational institutions offering clinical internship programs. It updates some of the more outdated aspects of the Department of Labor’s six-factor test, making it clear for example that interns are not necessarily employees merely because the school or internship site receives some remuneration for the services they provide.

However, the flip-side of this flexibility is ambiguity that may open the door to new kinds of claims by interns and clinical students. Students may for example use this ruling to challenge particular aspects of an internship or clinical program that extend beyond the bare requirements of the academic degree or certification they are seeking. 

Educational institutions and employers who offer internship programs should continue to follow case law in this area, as it will undoubtedly continue to develop. Further, they should be cognizant of the fact that this test has been adopted so far in only two federal circuits, and that the U.S. Department of Labor continues to follow its older, more stringent test for determining whether interns should be considered employees.