sick teddy_edit.jpgEarlier this month, we told you about California’s new statewide sick leave law, which Governor Brown subsequently signed. While minimum wage increases seem to be getting the lion’s share of the press right now, proposed paid sick leave laws are on the rise nationwide, too. Connecticut is the only other state that grants paid sick leave (since 2012) and just passed more tweaks to it to guarantee at least some annual paid sick leave for most full and part-time employees. Overall, California’s law is the tenth in the nation when you count those at the state or local level that requires employers to provide paid sick leave, but that just scratches the surface of what is happening.

As I have been tracking on Twitter, the pace of sick leave laws proposed or passed has been nearly as torrid as minimum wage laws. California aside, nearly 20 states have considered paid sick leave legislation of some type in 2014: Alaska, Arizona, Hawaii, Illinois, Iowa, Maryland, Massachusetts, Michigan, Nebraska, New Jersey, New York State, North Carolina, Oregon, South Carolina, Vermont and Washington. Some of these proposed laws provide a substantial benefit. For instance, Iowa’s legislature is considering the Healthy and Safe Families and Workplaces Act, which would have workers earn over five hours (exactly “five and fifty-four hundredths hours”) of sick time for every 40 hours of work, up to an 18-day (144-hour) cap. Massachusetts voters will consider a paid sick leave ballot initiative in November.

Cities and towns have gotten in on the act, too. Five cities in New Jersey have paid sick leave ordinances. New York City has a paid sick leave law, as does Seattle and Washington, D.C. San Diego’s city council coupled a minimum wage increase with an ordinance that gave full-time employees in the city at least five paid sick days each year. On the same day, Eugene, Oregon’s city council joined Portland and passed a paid sick leave law that will go into effect in July 2015, barring a successful legal challenge. The city of Eugene’s employers would have to give workers an hour of paid time off for every 30 they work, with a maximum of 40 hours a year. New York City’s Earned Sick Time Act (ESTA) already took effect on April 1, 2014. ESTA requires employers with five or more New York City employees to provide a minimum of one hour of paid sick time for every 30 hours worked, up to a maximum of 40 hours per calendar year.

The trend toward action hasn’t always been toward granting sick leave, though. Ten states (Georgia, Wisconsin, Louisiana, North Carolina, Tennessee, Mississippi, Kansas, Arizona, Indiana, and Florida) have enacted laws that prohibit cities, counties, and other municipalities from passing mandatory paid sick leave laws. For example, the Florida preemption law passed in 2013, contained in Fla. State. 218.077, prohibits political subdivisions of the state from requiring any employer to provide “employment benefits not otherwise required by state or federal law.” The statute applies to any employment benefits, from group health to vacation to paid holidays, and also applies to the minimum wage. So while it is not directed solely against paid sick leave and does not prevent the state from enacting paid sick leave laws, it has the effect of preventing any Florida municipality from following in New York, Portland, or San Diego’s footsteps. Business groups argue that laws like these avoid a patchwork of city and local laws that may have different standards and requirements.

At the federal level, the Democrat-sponsored Healthy Families Act is unlikely to be passed soon, meaning that employers can expect that sick leave will remain a patchwork of various laws and ordinances with potentially conflicting terms regarding coverage, accrual, and usage.

Insights for Employers

One way or the other, a majority of states have now waded into the debate over paid sick leave. Unlike legislation over the minimum wage, which has a long history, measures related to paid sick leave are relatively new. Employers should continue to track this new area of regulation carefully, as laws shift quickly. For instance, Milwaukee voters established mandatory paid sick leave in 2008, only to have the state legislature retroactively eliminate it in 2011.

Mandatory paid sick leave laws may impose new direct costs for those employers who have to comply with laws in multiple jurisdictions or who do not have pre-existing paid sick leave policies. They also typically require employers with pre-existing paid sick leave policies to review and/or revise their existing policies and how they are administered. Many of the laws under consideration also add restrictions on when employers can request documentation for sick leave as well, and add penalties for retaliation for the use of sick leave.

Even if the proposed federal law passes, it will not likely preempt state and local laws, but provide a baseline that state and local governments can extend, as states have done with minimum wage and other wage and hour laws.

Cash.gifThe saying goes that “Cash is King.” However, entrepreneurs often quickly learn (sometimes in painful ways) that it is Cash Flow that is really King. Run a quick Google search for “accounts receivable” financing or factoring to get a sense of how important that market is for businesses. Working for a telecommunications manufacturer, I can remember struggling with how to finance purchases and employee wages to deliver that next big order. The lesson you learn is that it doesn’t matter how much money is coming in the future if you don’t have enough money now to get there. From a wage and hour perspective, this issue often comes up when businesses need to hire employees but do not (yet) have the cash flow to pay them. So, sometimes we are asked: to conserve cash, can we pay employees in equity? In other words, allow the employees to work their way into a minority ownership stake—rather than paying them the full minimum wage and overtime pay? In most situations, the answer will be “no.” 

FLSA Requirements for “Business Owners” 

The Fair Labor Standards Act outlines an exemption from the law’s minimum wage and overtime requirements for executives who are also “[b]usiness owner[s].” 29 C.F.R. § 541.100 outlines what an “employee employed in a bona fide executive capacity” must do (the “duties” test) to meet the executive exemption. According to Section 541.101, an executive employee who is a “business owner” must own at least a bona fide 20% equity interest in the business. That’s the first requirement. Want to pay your employees in equity? It does not matter how much cash value a share of the business has or could have, federal regulations require that the equity stake be at least 20%.

Second, the regulation requires the employee to be “actively engaged” in the business’s “management” (though the regulation does not require this to be his or her “primary duty” as with non-equity holding executives). The term “management” is defined in § 541.102. As you will notice, the duties all involve general management functions, such as interviewing, selecting, and training employees; setting and adjusting their rates of pay and hours of work; directing their work; preparing budgets; handling purchasing; addressing employee complaints and grievances; and disciplining employees. Unlike some state laws, federal law does not include any minimum percentage of time that the employee must perform these duties, just the requirement that the employee must “actively” perform at least some of them. So remember, an employee with a 20% stake in your business is not automatically exempted from the FLSA’s minimum wage and overtime requirements. They have to perform “management” duties, too. 

State Laws Make It Harder 

The “business owner” definition in the FLSA is new. The Bush administration introduced it as part of its 2004 amendments to the FLSA’s regulations. As we have mentioned in the past, not all states elected to adopt the FLSA’s 2004 amendments. Illinois, for instance, adopted regulations that specifically define “Executive Employee” to mean “an employee as defined by 29 CFR 541 (March 30, 2003),” i.e., the definition that pre-dates the 2004 amendments. New York has excluded minority owners from its definition of “executive” as well, as has California. 

Paying your employees in equity rather than in wages seems like a creative way to solve a common problem. However, it is a decision fraught with potential wage and hour liability if not done carefully and correctly.

Apologies to John Steinbeck, but in some ways, both 2013 and 2014 have been the winters of FLSA plaintiffs’ discontent on the East Coast. Last summer, the Second Circuit (which covers New York, Connecticut, and Vermont) issued a number of decisions tightening pleading standards under the Supreme Court’s decisions in Iqbal and Twombly. In one of those cases, Lundy v. Catholic Health System of Long Island, the court held that “in order to state a plausible FLSA overtime claim, a plaintiff must sufficiently allege [forty] hours of work in a given workweek as well as some uncompensated time in excess of the [forty] hours.” In Lundy and other cases, the Second Circuit affirmed dismissals because the plaintiffs had failed to provide any facts or estimates to support the number of hours they worked and had simply “rephrased” the FLSA’s requirements as factual contentions.

Last month, in Spataro v. GEICO, a judge in the Eastern District of New York dismissed a plaintiff’s FLSA and New York Labor Law collective and class action complaint because he had pled “no facts that suggest that GEICO failed to pay Plaintiff the proper amount of overtime pay.” The plaintiff had provided no facts to support his off-the-clock work claim such as “an estimate of hours Plaintiff failed to report or who allegedly discouraged adjusters from reporting overtime.” The plaintiff compounded his problems by claiming that GEICO failed to compensate him for time he worked between 38.75 and 40 hours per week, which the court observed “does not state a claim that GEICO failed to pay proper overtime.”

 

The Third Circuit (Pennsylvania, New Jersey, and Delaware) has also begun to clamp down on “barebones” complaints, most recently in Davis v. Abington Memorial Hospital, decided late last month. In Davis, the Third Circuit “agree[d] with the middle-ground approach taken by” the Second Circuit that requires plaintiffs in FLSA cases to provide more than just generalized allegations regarding the hours they worked to satisfy the Supreme Court’s Iqbal/Twombly standard.

As in Lundy, the plaintiffs in Davis had alleged in very general terms that the hospital “did not compensate them for hours worked in excess of forty per week during meal breaks, at training programs, and outside of their scheduled shifts.” The Third Circuit rejected this pleading, citing the Second Circuit’s standard in Lundy. Each named plaintiff had alleged vaguely that he or she “typically” worked shifts totaling between 32 and 40 hours per week and “frequently” worked extra time. However, none of the named plaintiffs alleged even a single workweek in which he or she worked at least forty hours and also worked uncompensated time in excess of forty hours, despite the “typical” and “frequent” language in the complaint.

The cases continuing to come out of both the Second and now Third Circuits show that employers who do end up in litigation in those jurisdictions have room to push plaintiffs to provide some detailed factual allegations in their pleadings or face motions to dismiss. Particularly with ever increasing numbers of FLSA and minimum wage lawsuits in federal courts, courts in the Second and Third Circuits appear poised to dismiss poorly drafted complaints with only vague recitations like the ones in the cases above. For employers outside of the Second and Third Circuits, remember, too, that the ability to dismiss a barebones complaint will depend on the standards in those courts. Not all of them have interpreted the Twombly/Iqbal standards quite as strictly in FLSA cases. Eventually, perhaps we will even see more courts adopt the approach used by courts like the Middle District of Florida, which imposes orders requiring plaintiffs to make pre-suit demands and to document the main points of their claims early in litigation. Until then, we’ll keep you up to date as appellate standards continue to evolve.

Bobby Bare - Winner.JPGOne of the many songs written by Shel Silverstin became a hit for Bobby Bare back in 1976, and the title of Bare’s album that appears in the headline of this post. “The Winner” tells the story about a man who “won” every fight he had ever fought—with the broken bones, glass eye, arthritis, dislocated knees and more to show for it. Just as in the world of Shel Silverstein’s lyrics, being “The Winner” in a wage and hour lawsuit isn’t always that great.

Before the Labor Day holiday, I read on Twitter (by the way—are you following @WageHourInsight yet?) about the supposed “success” a restaurant had in defending its wage and hour practices at trial. I did a double-take. After reading the Southern District of New York’s opinion in Mendez v. International Food House, I would bet that, like the “Tiger Man McCool” in Shel’s hit song, the restaurant isn’t feeling much like “The Winner” now. Litigating a wage and hour case through trial is rarely going to be a victory by any definition after you consider the costs and time expended (even assuming you prevail).

Continue Reading The “Winner” and Other Losers: What “Winning” That Wage & Hour Suit Might Get You

iStock_000020184380XSmall.jpgBack in July, I discussed ways to handle holiday pay for employees with alternative work schedules. Just before the Labor Day holiday weekend, a client and reader of the blog asked me an even more fundamental question: do we have to provide employees with time off for holidays, whether with or without pay, or pay employees overtime or other premiums if they work on a holiday? The answer, as it often is in wage and hour law, is “it depends.”

Employers are not just being tight fisted by asking these questions. This particular employer operates a utility that has no “holidays” because its clients expect service (and support) 24 hours a day, 365 days a year. As is often the case in this industry, service level agreements mean rebating customers for downtime. For businesses in this industry, Christmas Day downtime at 2 a.m. is no different than downtime on a random September weekday at 2 p.m. Holidays have also become significant business days for retailers, particularly in recent years, and some employers in the hospitality industry have  voluntarily adopted “floating” holidays (time off on other dates in the year) because their busiest times tend to be the holidays that many of us have off—though these floating holidays can often be more trouble than they are worth

As a matter of federal law, the answer to the two questions above is a relatively straightforward “No.” No federal law currently requires private employers to provide holidays to their employees on federally recognized holidays or on any other days. No federal law requires employers to pay non-exempt employees (whether hourly or salaried) for holidays on which they are not required to work. As we have explained in the past, this issue is a bit more complicated for exempt employees.

When an employee is required to work on a holiday, nothing in federal or state law requires employers to pay an extra premium for working on that holiday. Yes, even in California. As the Department of Industrial Relations’ Division of Labor Standards Enforcement explains, “hours worked on holidays, Saturdays, and Sundays are treated like hours worked on any other day of the week.” The only requirement in federal or state law is that employers must pay non-exempt employees the overtime premium required for work in excess of 40 hours in a workweek, and some state or local laws require a premium for work in excess of eight hours in a workday. Employers have the absolute right and discretion to pay workers (or not) for holidays and not to count holiday pay as “hours worked” for purposes of overtime calculations.

So why was the answer to my client, “it depends?” You have to check state and local laws! Let me give you one example. In New Hampshire, a state statute prevents any employee from working “in any mill or factory on any legal holiday” except to the extent it “is both absolutely necessary and can lawfully be performed on the Lord’s Day” (RSA 275:28). Even outside of mills and factories, state law might intrude on your holiday policies. New Hampshire enacted a statute in 2009 (RSA 115-A:29) that requires private employers to permit honorably discharged veterans of the United States armed forces to take the day off on Veterans Day, November 11, regardless of whether the employer recognizes the holiday. Unless otherwise required by law (such as with exempt employees), the day off can be without pay.

While most employers have the right and discretion to set holiday policies, remember that states and local governments increasingly adopt their own, often more stringent employment laws and regulations. Remember to check with employment counsel and against all of these sources of law before making a decision about holiday pay, or implementing any other employee policy.

iStock_SICK IN BED.XSmall.jpgOver the holiday weekend, California became only the second state (after Connecticut, which began granting paid sick leave in 2012 and just passed more tweaks to it) to guarantee at least some annual paid sick leave for most full and part-time employees. Assuming Governor Brown signs the bill, California’s law would be the tenth in the nation at the state or local level that requires employers to provide paid sick leave. The bill, entitled the “Healthy Workplaces, Healthy Families Act,” passed with hefty majorities in the Assembly and Senate, and Governor Brown has indicated that he plans to sign it. That total would match the ten states that have passed preemption laws that ban any locality from passing paid sick leave legislation.

Beginning in July 1, 2015, the bill requires public and private employers to provide eligible employees – those who work 30 or more days within a year after their hire date – with sick leave “at the rate of not less than one hour per every 30 hours worked.”  Salaried, exempt employees are deemed to work a 40 hour workweek. The only significant exemptions are for employees with certain collective bargaining agreements, some construction industry workers, home healthcare workers, and certain airline employees covered by the federal Railway Labor Act. 

The bill also requires employers to carry over unused sick leave from year to year, though they may limit employees’ total use of paid sick leave to 24 hours or three days per year and generally have no obligation to allow any accruals to exceed 48 hours or 6 days. The bill also mandates that employers provide written notice of available sick leave on the itemized wage statement California law already requires or in a separate notice in each pay period. 

The bill also clarifies that an employer is not required to provide paid sick leave in addition to existing paid leave policies, as long as those policies provide at least the same benefits. However, it also leaves several open questions. For instance, the bill does not define “30 or more days” or otherwise explain what would constitute a “day” of work. Would it be any time worked, however long? Eight hours? Something else?  

The bill also leaves its carryover rule vague. For instance, assume that a California employer voluntarily offers 12 paid time off (PTO) days at the start of every calendar year to an employee and that employee uses all 12 PTO days. Must the employer inquire into whether the employee used that PTO because of one of the covered “sick leave” reasons in Section 246.5 of the bill? Is the employer still required to offer three carryover days (in addition to the 12 it offers in our example) to its employees when its employee takes PTO for vacation and not specifically because he or she is sick? I would expect some novel and unforeseen issues for California employers that additional guidance will need to work out. As California laws often serve as a model for other states that adopt similar policies, here’s hoping state agencies can help clarify the paid sick leave law a little bit further. While the bill appears simpler in some respects than Connecticut’s law, let’s hope California employers aren’t still waiting for legislative clarifications three years later, too.

Pay DayFrom time to time, we hear from employers that ask us about the consequence of delaying payroll because of cash flow. The situation is one that I faced over the years in startup businesses, and even a few established ones: the company temporarily runs short of cash because of an unexpected expense or because of a delay in receiving funds from a customer, a bank, or a government agency. When I was much younger, I worked for a restaurant where the employees got together on Fridays and discussed who needed their paychecks most, since we knew that some of them would bounce and have to be replaced with cash or a new check the next week. We always got paid (and even had overdraft fees and interest covered, if need be), but instead of on Friday, we sometimes had to wait a few days or even a week, when cash flow picked up. What would have happened if one of my coworkers had claimed that the late paychecks violated the FLSA or state law and demanded their money?

Late Wage Payments Violate the FLSA, Too

If you have never confronted this situation in your business, or even if you have, you might be surprised to learn that under the FLSA, a late payment is no different than no payment at all! My coworkers would have had a solid claim for damages. At the end of July, no less than the federal government learned this lesson.

A group of nonexempt federal employee plaintiffs (along with a few exempt employees, whose claims were dismissed) who were required to work without pay during the government shutdown of October 2013 claimed violations of the FLSA’s minimum wage and overtime provisions. Although these “excepted employees” performed their normal duties during the shutdown, their agencies did not pay them on their regularly scheduled paydays for the entire pay period. Instead, due to the shutdown, their paychecks were short approximately one weeks’ pay. Congress made good on the check, paying all of the employees for work they performed during the shutdown. However, Congress didn’t allocate those funds until after the shutdown, meaning those checks came two weeks late. A decision by the U.S. Court of Federal Claims found that the nonexempt federal employees had plausibly alleged violations of the FLSA.

No Harm, No Foul is Not a Defense

Obviously, you must pay employees for all hours they work. However, the court’s decision in the government shutdown case demonstrates that the “no harm, no foul” rule does not apply to the FLSA. Under the FLSA, if an employer’s failure to pay wages is “willful” (voluntary and intentional, not just negligent), then an employee can seek “liquidated” damages in an amount equal to the wages that were not paid. Yes, that means the FLSA would require you to cut a second payroll check to the employee to cover the statutory damages. An employee’s burden in showing willfulness is not difficult here. Courts essentially presume that a violation was willful unless an employer can demonstrate otherwise. In my example above, and in the examples we hear about periodically from clients, delaying payroll is a deliberate business decision. That makes it relatively easy to conclude the decision was intentional, not an error or a good faith attempt to comply with the FLSA. Even if you can argue that the cash flow problems stemmed from a mistake, this does not change the deliberateness of the decision to delay payroll.

In the Martin case linked above, the federal government tried this defense, arguing that the court should adopt a “totality of circumstances” approach and excuse the late payment. The government argued that Congress had imposed legal constraints on paying these wages in the Anti-Deficiency Act, which prohibits the government from paying employees when appropriated funds are not available. The agencies also pointed to the brevity of the delay (less than two weeks), the fact that the government paid employees immediately after Congress appropriated the money, and that employees knew that they would receive wages as soon as the government reopened. The agencies even argued that their decision not to pay wages was involuntary, not willful. Astute readers of statutory language might even point out that, unlike many state laws, neither the FLSA nor its enabling regulations specify a timeline for paying wages.

The federal court rejected these arguments, citing a clear statement from the Supreme Court’s 1943 Brooklyn Savings Bank v. O’Neil decision. Observing that the FLSA’s minimum wage provision requires “on-time” payment, the Supreme Court held that the FLSA’s liquidated damages provision “constitutes a Congressional recognition that [the] failure to pay the statutory minimum on time may be so detrimental to maintenance of the minimum standard of living ‘necessary for health, efficiency, and general well-being of workers’ and to the free flow of commerce, that double payment must be made in the event of delay in order to insure restoration of the worker to that minimum standard of wellbeing.” Applying this mandate, courts since that decision have almost universally held that a FLSA violation occurs on the date that an employer fails to pay workers on their regularly scheduled paydays.

The O’Neil court also explained that the FLSA’s liquidated damages are “compensation for the retention of a workman’s pay which might result in damages too obscure and difficult of proof for estimate.” In other words, in a late payment situation, an employee is not required to show that the delay actually caused some harm. We haven’t even touched on the potential state law issues that you might encounter, particularly if you already pay employees in arrears, but I will leave that for a future post.

Suffice to say, some of you might think this is a harsh result. But, go back to my anecdote. Unlike the restaurant owner, my coworkers and I were left to decide who could get by for a few days without any money. The FLSA is designed to protect against exactly these kinds of abuses. For me at the time, the few days’ delay was nothing more than a minor inconvenience, but for others, it meant not putting food on the table, being late on rent, or other serious and immediate adverse consequences.

Goodthingsshot-edit.jpgRemember those Guinness commercials from the early 2000s with the tagline “Good things come to those who wait” (or maybe, if you predate the no-mess squeeze bottles, you remember the Heinz ketchup commercials with the same tagline from the 1980s)? In wage and hour law, good things come to those who document good wage and hour practices.

We have written in the past about the myth of unauthorized overtime. A recent California appellate case, Jong v. Kaiser Foundation Health Plan, shows how you can make unauthorized overtime’s impact on your business a myth, too. Under the FLSA, employees are entitled to pay for any time that they are “suffered or permitted” to work. The Jong case focuses on the exceedingly common fact pattern where a non-exempt employee (here an “Outpatient Pharmacy Manager” or “OPM”) claims that an employer’s “lofty expectations” forced him to work additional hours off the clock. Jong claimed that Kaiser held OPMs accountable for meeting certain budgets, and that he had been disciplined in part because overtime he reported caused him to exceed his targets. Sounds pretty typical so far, right?

The California court refused to hold Kaiser liable for the alleged overtime because Jong could not show that Kaiser had any knowledge (actual or constructive) that Jong actually worked overtime. How is that possible? According to Jong’s own testimony, Kaiser had a clear policy to pay employees for all hours worked, including overtime, and was not contingent on obtaining prior approval. Kaiser’s policies also required OPMs to use its tracking system to account for all hours worked. Worse for Jong, he had to admit that Kaiser had told him he was eligible to work overtime hours, that it had never denied his request to work overtime, that he had always been paid for all of the hours worked he reported, and that no one from Kaiser had ever told him to work off the clock. Indeed, evidence in the record showed that, in response to concerns that pharmacy employees were working off the clock, Kaiser had e-mailed its area pharmacy directors instructing them to tell staff “that working off the clock is unacceptable” and directing them to require OPMs to sign an attestation that “working off the clock is a violation of policy and may subject them to discipline.”

The appellate court concluded that Jong had failed to provide evidence that Kaiser was aware he had allegedly worked off the clock, and his claims were dismissed. Kaiser didn’t get off scot-free, though. The court refused to dismiss claims by two other OPMs who had demonstrated evidence that their area pharmacy directors were aware of their alleged off the clock work.

Kaiser’s success—and its failures—demonstrate why documenting policies and actually following them consistently are critical. So how can you survive “unauthorized overtime” claims? First, have a clear policy stating that you will pay employees for all hours worked and that working unauthorized overtime could subject them to discipline. It is perfectly legal to require employees to obtain authorization before working overtime hours, and to counsel or discipline employees who fail to follow this policy. Then, follow through by reminding employees of your policies. If overtime requires advance approval, make sure the employees understand this and are put on notice of the disciplinary consequences of working unauthorized overtime without such approval may result in discipline (and, yes, it is okay to be diplomatic and understanding on first offenses—not everything that happens to your employees is an opportunity to discipline them). Most importantly, make sure that employees record all of their time and that you properly pay them for all of it, whether authorized or not.

Kaiser’s partial victory shows how a commitment to establishing, communicating, and consistently enforcing off the clock and overtime policies can pay off for employers. The unauthorized overtime claims you DON’T get as a result will save you enough to enjoy a few extra pints of Guinness and some extra ketchup with your burger.

george-clooney-o-brother1.jpgIt probably falls into the category of cult classic, but one of my favorite movies is 2000’s “O Brother, Where Art Thou?” starring George Clooney. To me, it is the Coen brothers at their finest. Loosely based on Homer’s “Odyssey,” the movie follows Everett McGill (Clooney) and his companions Delmar and Pete in 1930s Mississippi. At one point later in the movie, Everett finds his ex-wife and their kids. His daughter explains that her mom’s new beau is “bona fide:”

Penny Wharvey McGill: “Vernon here’s got a job. Vernon’s got prospects. He’s bona fide. What are you?”

Everett: “I’ll tell you what I am. I’m the paterfamilias.”

What does this have to do with wage and hour law, you ask? It’s that part about “bona fide,” particularly when it comes to the final paycheck for H-1B workers (I haven’t found a way to apply “paterfamilias” to wage and hour law yet, but I’m working on it).

Last week, we discussed whether you might be running a construction business. As I explained then, you have to look beyond the FLSA to comply with your wage and hour obligations, and that’s doubly true for employers who rely on immigrants with H-1B visas, too. Both the U.S. Citizenship and Immigration Services (USCIS) and the Department of Labor (DOL) enforce certain termination requirements for H-1B workers, including that employers may need to pay terminated employees’ return transportation to their last country of residence. However, what happens if you know (or at least suspect) that an H-1B worker that you terminate is not leaving the United States? Do you still have this additional obligation? The DOL yes…if you want your termination to be “bona fide.” The wage and hour costs of non-compliance could be high.

Under USCIS regulations, if an employer terminates an H-1B employee before the end of that employee’s period of authorized stay, the employer is liable for the “reasonable costs” of return transportation for the employee to his or her last country of residence (helpfully, the regulations suggest that employers do not have an obligation to return anyone or anything but the H-1B employee, such as family members or property). Some employers maintain policies suggesting that employees must “prove” or “certify” that they are leaving the U.S. at termination before they receive any final payment for that return transportation. These well-intentioned policies probably spring from the USCIS regulation that gives employers a reprieve from the return transportation requirement for an employee who elects not to depart the United States post-termination. However, not paying H-1B workers these costs at termination is risky because the DOL has its own regulations defining a “bona fide termination” of an H-1B worker.

Unlike the USCIS regulations, DOL regulations require employers to pay an H-1B employee his or her full wages—even when they are “benched” and not working—until there is a “bona fide termination.” A “bona fide” termination means more than simply terminating the H-1B worker’s employment, though. The DOL also requires that you have notified the USCIS that the H-1B petition should be cancelled and that you have provided the worker with payment for transportation home as required by USCIS regulations. The DOL’s Administrative Review Board has held repeatedly in recent years that an employer’s obligation to pay the H-1B worker’s salary continues until these conditions for a “bona fide” termination are met. Failing to pay return transportation costs at termination could result in in the DOL awarding back pay for the entire time after the employee’s termination up to the expiration date of the employee’s H-1B petition. Often, terminations of H-1B workers come early in their tenures, meaning you could be on the hook for nearly 3 years of pay.

How can you make sure that your H-1B employee termination is “bona fide?”  First, you should always immediately notify USCIS of the termination and request that the H-1B petition is revoked. Then, along with any final wages, you should pay (or at the very least offer in writing) the employee a sum approximating the reasonable costs of return transportation, in the event that the DOL questions whether the termination was “bona fide.”  If you are concerned about an employee gaming the system to get a windfall from you while staying in the U.S., there are a few other solutions that we can discuss depending on your exact factual situation. Even if you don’t take advantage of H-1B programs, though, the DOL’s benching regulations are another reminder to think beyond the FLSA if you terminate an employee.

A few weeks ago, a reader e-mailed me a question about her son:

I’m trying to find out if my son can demand payment by check or direct deposit. He is 16 years old and working at Burger King.

Right now they load his payment onto a VISA card. Needless to say he can use an ATM, but that won’t allow him to withdraw the entire amount. He is able to transfer to a bank account, HOWEVER, the website states this could take 3-5 business days! That’s ridiculous!

The use of “pay cards” like the one our reader described has skyrocketed in recent years, mostly as employers try to reduce the costs of payroll-related expenses. This trend has not escaped the attention of the media or lawmakers. A New York Times article reported last year that ATM fees, inactivity charges, and other costs associated with these cards mean that employees can “end up making less than the minimum wage once the charges are taken into account.” Pay card programs triggered a broad investigation by the New York Attorney General’s office last year, as well as a federal lawsuit in Pennsylvania against a McDonalds franchisee and an investigation by the Department of Labor in its aftermath.

Last week, Illinois Governor Pat Quinn signed House Bill 5622, which amended the Illinois Wage Payment and Collection Act (IWPCA) to explicitly provide employers with the option of paying employees through a payroll card, but only with substantial restrictions. The situation described above would very likely violate the new Illinois law. As of January 1, 2015, when the law takes effect, employers can no longer require employees to receive wages on pay cards as a condition of employment. They must provide an alternative form of payment to their employees.

Employers who use payroll cards will be required to provide employees with a “clear and conspicuous written disclosure explaining the terms and conditions of the payroll card account option” including information on account and transaction fees.

Payroll card programs must also provide:

  • A means for employees to withdraw their full net wages every two weeks at no cost, at a location readily available to the employee;
  • On request, a monthly transaction history at no cost to the employee, showing all deposits, withdrawals, deductions, and charges to the payroll card account;
  • At least one of the following options to obtain the account balance at any time without a fee: online, by telephone, by text message, or at an ATM location;
  • Cards free from fees for declined transactions, point of sale transactions, loading wages by the employer, or program participation;
  • Limits on fees for account inactivity;
  • Cards that are not linked to any form of credit such as overdraft fees or overdraft service fees, loans against future pay, or cash advances on future pay or work not yet performed.

Nebraska passed a similar, albeit less detailed law in June, and more than half of the states have at least some laws or restrictions on the use of pay cards. Both Nebraska and Illinois set their laws to go into effect on January 1, 2015. The federal Consumer Financial Protection Bureau issued a bulletin last fall warning that it will not hesitate to aggressively apply federal law to employer pay card programs, even in the absence of state law protections.

Employer Insights

If you offer a program that does impose a list of fees or prevents employees from accessing their entire paycheck, it is time to think about phasing the program out or finding a new vendor. Even in the absence of state laws, which Nebraska and Illinois show are changing quickly, restrictive pay card programs are likely to attract unwanted attention from the media, state and federal regulatory agencies, and plaintiffs’ lawyers.

If you use pay cards, regardless of the state, it appears that a few bad apples might be spoiling the bunch (or as Ben Franklin had it, “the rotten apple spoils his companion”). Check your state laws regularly and prepare to meet ever-more stringent requirements if you implement pay card programs in the future.