construction image.jpgI promise that this post isn’t a bad setup to a joke about The Sopranos, the mafia, or being in “waste management.” Late last month, I spoke at a regional meeting of the Wireless Internet Service Providers Association, and many of the WISPs in attendance were surprised to learn that not only were they in the Internet service business, but many of them were in the construction business, too…at least if they operated in Illinois, Nebraska, Pennsylvania, or the handful of other states that have enacted construction industry-specific employee classification statutes that attempt to address perceived abuses in that industry. However, as drafted, these statutes are often the proverbial sledgehammer used to kill a fly.

We’re in the [fill-in-the-blank] Industry. We Don’t Do Construction…Right?

This post’s headline has you worried? Maybe it should. Employee classification laws are bet-the-company traps for the unwary. Take the Illinois Employee Classification Act, for example. That statute, which went into effect January 1, 2008, explains simply that an individual performing any “construction” services for a “contractor” (any entity engaging in “construction”) is deemed to be an employee of the contractor-employer. So, I’ll ask again: Are you in the construction business? Think the answer is no?

Although ostensibly targeted at the construction industry, legislatures like Illinois’ have defined “performing services” so broadly as to encompass most types of hands-on work on any real or personal property:

“Construction” means any constructing, altering, reconstructing, repairing, rehabilitating, refinishing, refurbishing, remodeling, remediating, renovating, custom fabricating, maintenance, landscaping, improving, wrecking, painting, decorating, demolishing, and adding to or subtracting from any building, structure, highway, roadway, street, bridge, alley, sewer, ditch, sewage disposal plant, water works, parking facility, railroad, excavation or other structure, project, development, real property or improvement, or to do any part thereof, whether or not the performance of the work herein described involves the addition to, or fabrication into, any structure, project, development, real property or improvement herein described of any material or article of merchandise. Construction shall also include moving construction related materials on the job site to or from the job site.

Does your business have janitors? Maintenance workers? Tower climbers? Installers? Service technicians? Engineers? Anyone doing manual labor of any type? If so, and if you pay any of these workers as independent contractors, give them a Form 1099, or just pay them cash by the day or the job, your “construction” business might have a wage and hour problem.

Okay, So We Might Be In The Construction Business, Now What?

Acts like the one in Illinois create a presumption that all workers covered by their unusually expansive statutory definitions are employees rather than independent contractors. So, even if the Internet, your neighbor, or your accountant tells you that you can give these workers a Form 1099, employee classification laws can put you in the “construction” business, making these contractors your employees under state law. Most of these state laws provide civil and criminal penalties and give misclassified workers the right to sue to recover lost wages and benefits, liquidated damages, compensatory damages and attorneys’ fees. Of course, that’s aside from the potential FLSA or other state law violations you might incur if your sources were wrong about these “independent contractors” from the beginning.

Employee classification statutes are a great reminder of why you can’t simply rely on the FLSA (or the Internet, your neighbor, or your CPA) when classifying your workers. If you use any workers on a cash, per-job, per-diem, 1099, or other “independent contractor” basis, make sure you’re not in the “construction business.” Because depending on the specific facts, these workers might be deemed your employees in the eyes of the law.

Think you might fit this scenario? All is not lost. You can overcome the presumption that these workers are employees by satisfying specific statutory criteria showing that the workers providing services truly operate independently of you, the “construction contractor.” The analysis is very fact-dependent, so don’t go it alone, even if you like the idea of telling people you’re a “waste management consultant.”

Last year, the DOL announced an eye-popping $2 million Fair Labor Standards Act (FLSA) settlement with Hutco, Inc, a labor services firm, for Hutco’s miscalculation of “per diem” payments to temporary workers and contractors. The DOL found that Hutco “mischaracterized certain wages as ‘per diem’ payments and impermissibly excluded these wages when calculating overtime premiums, thus denying employees earned overtime compensation.” This month, the same New Orleans District Office of the DOL’s Wage and Hour Division announced a $1.6 million settlement with another employment agency, B&D Contracting, for “per diem” violations for employees under the FLSA. The continued virtual “perp walks” highlight the heightened scrutiny that DOL is giving per diem payments.

Both settlements were the result of Wage and Hour Division determinations that the employers had failed to include certain “per diem” amounts in workers’ wages when calculating the amounts of overtime pay due. It is not just the WHD getting into the act. The First Circuit affirmed summary judgment for a group of plaintiffs in a per diem lawsuit back in April.

Why Are Per Diems an Issue under the FLSA?

The FLSA requires that employers must pay their non-exempt employees who work more than 40 hours in a workweek overtime wages of one and one-half times their “regular rate” of pay (29 U.S.C. § 207(a)(1)). Where employers run into trouble is with the definition of “regular rate.” Logically, employers might consider the “regular rate” to be the stated hourly, straight time rate that they pay to employees for work. However, the FLSA defines “regular rate” much more broadly. Instead of the basic hourly rate alone, Section 207(e) requires employers to include “all remuneration for employment” that they actually pay to employees. In other words, the regular rate must reflect all payments, not just the basic hourly rate, that an employer and employee agree will be paid regularly during the workweek (excluding overtime payments themselves and other specifically identified payments, such as gifts, capital gains on stock options, or bona fide profit sharing payments…).

However, per diem payments—defined by the regulations as “reasonable payments” made to reimburse employees for certain work-related expenses—may be excluded from an employee’s “regular rate.” Simple enough, right? Per diems are out. As Lee Corso might say: Not so fast, my friend! If it was that easy, why did the DOL extract more than $3.5 million from just two employers on this topic? Here’s why: you can only exclude these reimbursements if they “reasonably approximate” the employee’s work-related expenses (29 C.F.R. § 778.216(a), (b)(3), (c)). For example, if you reimburse an employee for airfare and lodging expenses that he or she incurs when traveling to perform work out of town, then this reimbursement is probably excludable from the FLSA regular rate. 

However, not all employers pay reimbursements this way. Some employers base a reimbursement or subsistence payment on the number of hours the employee works. The DOL views these kinds of hours-based per diem payments as part of the regular rate. Even more commonly, you might pay your employee a “per diem” for expenses on a flat rate (per day) regardless of whether the employee actually incurs those expenses. Or, that “per diem” payment might be a disproportionately large amount compared to employees’ actual expenses (for example, $100 or $200 per day for meals and incidentals). As the press releases linked above explain, these situations “do not constitute bona fide reimbursements and must be included in the employee’s regular rate of pay for purposes of computing an overtime premium.” 

How Per Diems Affect the FLSA’s “Regular Rate” Calculation

As with many wage and hour situations, failing to account for per diem payments in the regular rate can add up quickly. To use an example from a recent case, take an employee making $15 per hour who receives a $50 daily per diem while working out of town ($250/week) and regularly works 50 hours per week (10 hours of overtime):

(50 hrs. × $15/hour) = $750 in straight time pay

($15 ÷ 2) × 10 overtime hours = $75 for the overtime premium

Without counting the per diem, you would pay the employee $825 per week.

However, if your employee never actually incurs any expenses or costs, or incurs far less than $250 per week, the DOL could treat the per diem as wages. The employee’s $15 per hour straight-time rate then becomes $20 per hour:

(50 hrs. × $15/hour) + ($250 per diem) = $1,000

($1,000 ÷ 50 hrs.) = $20 per hour

This means you owe the employee $100 each week in overtime premiums, not $75 (($20 ÷ 2) × 10 overtime hours = $100). Technically, since you didn’t pay the $250 per diem as wages, either, the DOL could lump that in as well, calculating that you should have paid your employee $1,100 each week, not $825. A $275 per week shortage adds up quickly: $14,300 per employee, per year…plus another $14,300 for liquidated damages…plus your employees’ attorney’s fees…plus civil fines from the DOL—all for our very simple example. That’s how the DOL can get to $3.5 million plus with just two employers.

Insights for Employers

The DOL’s continued focus on per diem miscalculations is only one part of the story. As in the two press releases linked above, the DOL also refers these matters to state agencies for separate investigations. Obviously, payroll shortages to employees also mean payroll tax shortages to the IRS and state tax agencies. The DOL has inked cooperation agreements with the IRS and many states and, as the cases above demonstrate, will not hesitate to share their investigative findings. Of course, employees can file their own private lawsuits, too, driving the costs for you even higher. If you are paying “per diems” to your employees, these settlements are a good reminder to check your practices in consultation with wage and hour counsel to ensure that you aren’t running afoul of this (or any other) FLSA provision.

intern.jpgIn the past, we’ve explained the DOL’s test for whether employers must pay their interns. Put simply, public employers and qualifying not-for-profit entities do not have to pay their interns. On the other hand, private employers must meet each point in a six-factor test for an internship to qualify as unpaid under the Fair Labor Standards Act. The Second Circuit is currently reviewing the case that started the most recent intern frenzy, where former interns sued Fox Searchlight pictures for unpaid wages on the set of the movie, Black Swan in Glatt et al., v. Fox Searchlight Pictures Inc., No. 11-6784 (S.D. N.Y. June 11, 2013). As you may recall when we reported on this case back in June 2013, relying on the DOL’s six-factor test and considering the totality of the circumstances, the district court determined that some of the plaintiffs were improperly classified as unpaid interns and were “employees” covered by the FLSA and a similar state statute.

At the Second Circuit’s invitation, the DOL submitted an amicus brief in support of the district court’s decision, providing employers with some additional guidance on how the DOL interprets the six-factor test (summarized in our earlier post linked above).

In general, the DOL advised the court that an intern is “less likely” to be an “employee” for FLSA purposes if the internship was “set up for the specific purpose of providing targeted educational training to the intern rather than being a general introduction to the workplace or a particular industry; benefits the intern because of the educational nature of the internship rather than providing the employer with free entry-level labor; provides close supervision and therefore does not displace regular employees; and does not include compensation or promise of a job…” At first glance, this seems to be the guidance we’ve known about for years. Looking more closely, though, what is noteworthy about the brief is the DOL’s explanation of these points.

Most importantly, the DOL explains that it is “critical” for bona fide internships to incorporate an educational component that “imparts substantial education content that is transferable beyond the confines of the particular workplace…” Explaining what it means by a “general introduction to the workplace,” the DOL explains that a bona fide internship must give the intern “more than the general skills and exposure that any new employee would receive in [the] first few months on the job.”

The DOL also expects that the education component will continue throughout the entire internship, not just for part of it. College credit is one factor the DOL will consider, but it will look at the flipside, too: are interns working in roles that a new hire or existing employee would have covered if the intern was not there? The DOL explains that businesses who are dependent on the intern’s work are essentially accepting “free entry-level labor,” not providing content for the intern’s benefit as the six-factor test requires. The DOL expects interns to receive “close supervision,” and that the agency will view an intern who receives the same level of supervision as a regular employee as an employee, too.

Of course, an internship must be unpaid and “should not be used as a trial period for permanent employment.” Similarly, the DOL’s brief indicates that the length of internships should be “fixed, rather than an open-ended, period of time.” The DOL also warns employers that the productive work an intern does cannot be offset by the “primary” or “relative” benefit the intern receives. In particular, the DOL rejects claims that a worker can qualify as an intern simply by receiving “intangible” benefits.

Insights for Employers

The Second Circuit may not ultimately adopt either the district court’s or the DOL’s position on whether Fox Searchlight should have classified its interns as employees. Even if it rejects them completely, though, employers should read the DOL’s guidance in the brief carefully. It is unlikely that anything short of a Supreme Court decision would cause the DOL to abandon its principles on unpaid internships.

Given the continued focus by the DOL on unpaid internships, underscored by its filing in the Second Circuit, you should carefully review your unpaid internship programs as the summer ends and in preparation for the next crop of interns. If you have come to rely on substantive contributions and benefits of work from interns each summer or during school semesters, the DOL’s demanding test means you will likely have a hard time justifying your internship program as unpaid, even if you have done things the same way for decades, even if your “interns” get school credit, and even if you think every other employer in the industry does the same thing as you do.

Please excuse the break from our regular content today (I’ll have another post tomorrow as usual—not to worry!) so I can humbly ask for one small favor. Every week, we try to provide the best insights on wage and hour issues that you can find anywhere in blawg-dom. I hope that what we have shared has helped you, and now, I ask you for a bit of help: support Wage & Hour Insights in the American Bar Association’s search for the best legal blogs of 2014.

If you find that what we do on Wage & Hour Insights is valuable, you would have our unending gratitude if you could take a moment to nominate our blog for this year’s American Bar Association Blawg 100. The ABA makes it simple: just click this link and complete the (very brief) questions asked. You will be asked to provide your contact information and a quick statement about why you read Wage & Hour Insights, and why you think others should know about us. The ABA Journal may include some of the pithiest comments in its Blawg 100 coverage! 

Please don’t delay – the August 8 deadline for nominations is fast approaching! 

The form does ask you to provide your favorite blog entry of 2014. Do you remember some of these, which are among our most popular entries this year? Captain Obvious telling us that when an FLSA regulation has a plain meaning, that its meaning is plain. Or, while we are on the commercial kick, maybe you recall our twist on the Dos Equis guy in I Don’t Always Round Time Entries, But When I Do…I Follow the FLSA Regs. Or, perhaps you used some of our practical advice on defining “full time” to mean something less than 40 hours or planned for the future with our predictions about what the new FLSA regulations will bring.

One of these or any other post will work for this nomination! If you have any feedback on our Wage & Hour Insights blog and how we can continue to earn your nomination this year and in the future, please do not hesitate to contact me: dah@franczek.com.

Thank you for your support, your e-mails, and all of the great ideas for topics!

Captain Obvious HotelsCom.jpgIf you have been anywhere near a TV or radio over the past few months, you have probably seen or heard the ads for Hotels.com featuring Captain Obvious. If you’re from the Midwest, and Indiana in particular, it has probably crossed your mind whether the Bob and Tom Show’s Mr. Obvious and Captain Obvious are somehow related. Well, maybe that’s just me.

In any event, sometimes I wonder if Captain Obvious would make a good judge. The Fifth Circuit certainly could have used him in an opinion issued last week that you could summarize Captain Obvious-style as: “If the FLSA regulations say the workweek ‘may begin on any day and at any hour of the day’, your employer not only can set any day for the start of your workweek, it can set it to start at any hour, too.” Really. That’s what the Fifth Circuit had to expend eight pages and hours of judicial resources to say last week in what takes my unofficial award for the Most Obvious FLSA Decision of 2014 (So Far…).

The appellants—non-exempt employees paid on an hourly basis—each worked twelve-hour shifts for seven consecutive days beginning every other Thursday. One began working at 6:00 a.m., and the other at 6:00 p.m. The employer paid its employees bi-weekly and used a Monday through Sunday workweek to calculate overtime under the FLSA. Accordingly, their work schedules during a two-week pay period looked like this:

Week

M

Tu

W

Th

F

Sa

Su

Total

1

 

 

 

6

12

12

12

42

2

12

12

12

6

 

 

 

42

 

and this:

Week

M

Tu

W

Th

F

Sa

Su

Total

1

 

 

 

12

12

12

12

48

2

12

12

12

 

 

 

 

36

So, based on these hours, the employer compensated the first employee for 4 hours of overtime each pay period and the second employee for eight. Incredibly, the two employees asserted in their complaint that their workweek under the FLSA should have begun on Thursday and ended on Wednesday, thereby entitling each to forty-four hours of overtime compensation per paycheck. You don’t have to be a wage and hour attorney to guess correctly that the district court granted summary judgment for the employer.

The FLSA Does Not Require You to Maximize Your Payroll Expenses

The FLSA itself does not define what constitutes a “workweek.”  Helpfully, though, the Department of Labor’s FLSA’s regulations do! 29 C.F.R. § 778.105 states that a workweek “may begin on any day and at any hour of day” and “need not coincide with the calendar week,” so long as it is a “fixed and regularly recurring period of 168 hours—seven consecutive 24-hour periods.”

The employer’s Monday through Sunday workweek complied with that regulatory requirement, and nothing in the plain text of the FLSA required the company to use the proposed Thursday through Wednesday workweek so that employees would receive the maximum amount of overtime for their work schedules. “The mere fact that an established workweek does not maximize an employee’s overtime compensation does not, standing alone, violate the FLSA,” the court wrote, citing a 2009 opinion letter from the Department of Labor and precedent from the Eighth Circuit.

The Fifth Circuit panel’s introduction puts it simply:

Appellants contend that their workweek under the FLSA should reflect their actual, seven consecutive day, Thursday through Wednesday work schedule. Yet, Appellants do not direct the Court to any authority requiring employers to establish a workweek in this manner, nor have we found any such authority.

The bottom line here is that sometimes it doesn’t take a law degree to do this stuff. Under the FLSA, an employer has the unequivocal right to establish a workweek. You don’t have to choose one that maximizes your payroll expenses, like the employees in this case argued. You may set any seven-consecutive-day, 168-hour workweek for employees. Under the regulations, you can even establish different workweeks for different employees or groups of employees. As long as your workweeks are consistent and regular, Captain Obvious is your friend.

Late last month, the Senate referred the Fiscal Year 2015 Defense Appropriations Act to the Senate Committee on Appropriations for consideration. The House of Representatives passed its version (H.R. 4870) on June 20 with substantial bipartisan support, 340-73, after considering 80 different amendments. Since this is a wage and hour blog, you can safely assume that I am not telling you about this just so I can link to the cool beta version of the bill tracker at Congress.gov. Of course, you also read the headline, so you know the House version of the bill currently contains a scary provision for many federal contractors.

The day before the House passed the Act, it narrowly approved (by just 212-204) the inclusion of an amendment (H.Amdt. 926) by Minnesota Democrat Keith Ellison that would prohibit the Department of Defense from using contractors with Fair Labor Standards Act (FLSA) “violations” within the past five years. Under the amendment, the term “violations” means more than just findings of fault and liability in civil, criminal, or administrative proceedings, but also entering into wage and hour conciliation agreements or consent decrees that include a “finding of fault.”

The brief amendment reads:

Sec. __. None of the funds made available in this Act may be used to enter into a contract with any person whose disclosures of a proceeding with a disposition listed in section 2313(c)(1) of title 41, United States Code, in the Federal Awardee Performance and Integrity Information System [FAPIIS] include the term “Fair Labor Standards Act.”

For those unfamiliar with FAPIIS, it is a database that has been established to track contractor misconduct and performance in connection with federal contracts, such as criminal, civil, and administrative proceedings in connection with federal awards; suspensions and debarments; contracts terminated for fault; and performance evaluations.

The “dispositions” referred to in the amendment and listed in section 2313(c)(1)(A)-(D) include:

(A) In a criminal proceeding, a conviction.

(B) In a civil proceeding, a finding of fault and liability that results in the payment of a monetary fine, penalty, reimbursement, restitution, or damages of $5,000 or more.

(C) In an administrative proceeding, a finding of fault and liability that results in—

(i) the payment of a monetary fine or penalty of $5,000 or more; or

(ii) the payment of a reimbursement, restitution, or damages in excess of $100,000.

(D) To the maximum extent practicable and consistent with applicable laws and regulations, in a criminal, civil, or administrative proceeding, a disposition of the matter by consent or compromise with an acknowledgment of fault by the person if the proceeding could have led to any of the outcomes specified in subparagraph (A), (B), or (C).

In his remarks introducing the amendment, Rep. Ellison explained that the purpose of the amendment is to guarantee: “if there is a Federal contractor who has been found to engage in wage theft, that they may not benefit from this appropriation.” In his comments, Rep. Ellison relied on a report issued by Democrats on the Senate Committee on Health, Education, Labor, and Pensions finding that “32 percent…of the largest Department of Labor penalties for wage theft were levied against Federal contractors.” Rep. Ellison did not explain his definition of “wage theft” and the categories in the FAPIIS certainly encompass more than just “wage theft” (I put the term in quotes because it is both misleading and loaded). Interestingly, a similar “wage theft” measure failed in the House when proposed as an amendment to the funding bill for commerce, justice and science.

Whether this provision will survive in the final bill is not clear. The Senate Appropriations Committee has not marked up its own version of the bill. The Chamber of Commerce’s last minute lobbying efforts failed in the House, but its lobbyist explained that the Chamber “opposes efforts to add any provision similar to and including an amendment by Rep. Ellison that would prevent contractors found to have violated the Fair Labor Standards Act (FLSA) from continuing to receive federal contracts.” The Associated Builders and Contractors claimed in its own letter that the Ellison amendment was a “job killer” and would create a “blacklist” for federal contractors. The Society of Human Resource Management, the HR Policy Association and the Associated General Contractors of America have also signaled their opposition.

Federal contractors should monitor the progress of the appropriations bill and take careful notice of the consequences if the Ellison amendment becomes law. Not only will FLSA compliance take on even greater importance, but the amendment’s text may well give federal contractors additional impetus to avoid litigating FLSA matters at all, even in close or arguably “winnable” cases, for fear of losing their federal contracts.

dudley.jpgMy apologies to Dave Dudley. The song “Six Days on the Road” just doesn’t stand up to the changes we would have to make after the Ninth Circuit’s decision that the state meal and rest break laws are not preempted by federal hours of service laws (though I’m pretty sure that, eyes open wide or not, the “taking little white pills” part wasn’t even legal in 1963). Last week, in a case we have been watching carefully since this spring, Dilts v. Penske Logistics, the Ninth Circuit issued a decision affecting two related cases from the trucking industry that questioned whether California’s detailed meal and rest break requirements conflicted with a federal statute barring states from regulating the prices, routes and services of motor carriers and airlines. The case might seem to be a boring, narrow constitutional law issue, but the Ninth Circuit’s ruling that federal law does not trump California’s meal and break laws could have a substantial impact on transportation industry employers, whether in California, in the western states covered by the Ninth Circuit where this ruling applies immediately, or elsewhere in the country.

The Meal and Break Law Preemption Battle’s History

In 2008, motor carriers petitioned the Federal Motor Carrier Safety Administration (FMCSA) seeking a finding that state meal and break laws (like the ones in California) are preempted by the federal hours of service laws pursuant to the Federal Aviation Administration Authorization Act of 1994 (FAAAA) when applied to motor carriers.  The FMCSA denied that petition, reasoning that the break law was just one part of California’s employment regulations that applied generally to employers in a variety of other industries. The FMCSA reasoned that Congress only preempted state laws and regulations related to commercial motor vehicle safety, not all laws generally that in any way overlap with the FMCSA’s hours of service regulations.

In 2012, two district courts considered claims under California law by classes of delivery drivers (one making residential appliance deliveries, the other involving “city/local” drivers transporting a variety of cargo). The plaintiffs claimed that their fixed routes and the timing of deliveries prevented them from taking the meal breaks prescribed by state law. Unlike the FMCSA, the district courts found that the claims were preempted under the FAAAA’s expansive language, and determined that requiring motor carriers to follow California requirements for meal and rest periods would interfere with competitive market forces within the industry because they are directly related to the frequency and scheduling of transportation.

The Ninth Circuit invited the Department of Transportation (DOT) to participate as an amicus in the case this spring. First, the DOT argued against preemption because laws like the one in California were not specifically targeted toward the motor carrier industry. Second, the DOT argued that its position on the preemptive reach of the FAAAA should be given deference by the courts based largely on its expertise in regulation and interpretation of motor carrier safety under the Federal Motor Carrier Safety Act (the “Act”), even though the Act and the FAAAA are entirely separate and the DOT doesn’t regulate the latter.

The Ninth Circuit’s Decision

The Ninth Circuit ultimately agreed with the DOT’s interpretation. While the court recognized that the FAAAA uses expansive language, it found only a tenuous link between California’s meal and break laws and motor carriers’ prices, routes, or services. It held that where a state law does not refer directly to rates, routes, or services, “the proper inquiry is whether the provision, directly or indirectly, binds the carrier to a particular price, route or service and thereby interferes with the competitive market forces within the industry.”

Under that analysis, the court held that California meal and break laws do not directly or indirectly set prices, mandate or prohibit certain routes, or force motor carriers to provide or not provide certain services. The court found that merely accounting for meal and rest break requirements when scheduling routes, even if that meant potentially reallocating resources, did not bind motor carriers to specific prices, routes, or services in any significant way.

However, while the court declined to preempt these state laws in every case, it did leave room for individual employers to demonstrate preemption on an “as applied” basis. In these two cases, the court was not convinced that the carriers had made sufficient showings of the difficulties in scheduling breaks, the impact on their staffing levels, and the resulting influence on rates and routes to justify exempting them from compliance with California’s meal and break laws. One of the judges on the panel concurred specifically to emphasize that the defendant, Penske Logistics, failed to carry its burden of proof on its preemption defense.

Insights for Motor Carriers and Employers

The Ninth Circuit’s decision seems to overlook the complex logistical and scheduling issues involved in staffing around meal and break laws, particularly where pricing and performance are based on delivery speeds and timing. Of course, carriers often cannot control traffic delays, delivery backups and other related issues. The underlying arguments in the district court cases are pretty compelling that the meal and rest break laws are “related to” a motor carrier’s prices, routes, or services and are therefore preempted by the FAAAA. Arguably, with a better-developed factual record about the impact on carriers, other courts could come to the opposite conclusion than the Ninth Circuit.

However, until another appellate court weighs in, motor carriers should assume that they will have to comply with state meal and break laws. Motor carriers and other businesses employing drivers in California, Illinois, or other states that have enacted general meal and break laws should start looking now at whether they comply with these laws, rather than assuming that they are preempted by federal hours of service regulations.

CalendarWith the German victory in the 2014 World Cup now in the books and baseball finishing up its All Star break (Go Tigers—Cabrera with a 2-run HR, Scherzer with a W!), I wanted to turn my attention this week to the latest push by the White House to encourage change in the private sector workplace, specifically alternative or flexible work schedules.

For the pay period that included July 4th, we discussed how to address holiday pay for employees with alternative work schedules. This post was particularly timely given that the week before, in the run-up to the July 4th holiday, President Obama issued a new Presidential Memorandum on Enhancing Workplace Flexibilities and Work-Life Programs, which was published in the Federal Register.  Further support for this agenda occurred last Thursday, when Department of Labor Secretary Thomas Perez reiterated in a conference call with reporters that pushing for greater flexibility in workplaces ranks as a top priority of the administration. The new Memorandum and Secretary Perez’s comments come amid the ongoing push by the Obama administration and the Department of Labor to rally support for a number of employee- and family-friendly laws: expansion of the minimum wage for roughly 200,000 federal workers and contractors, the permanent extension of unemployment insurance benefits, an increase in the federal minimum wage, the Paycheck Fairness Act, and the Pregnant Workers Fairness Act, just to name a few.

President Obama’s memorandum reads like a statutory framework and may be viewed as a blueprint for states and private sector entities to follow. In it, the President announces that “it is the policy of the Federal Government to promote a culture in which managers and employees understand the workplace flexibilities and work-life programs available to them and how these measures can improve agency productivity and employee engagement. The Federal Government must also identify and eliminate any arbitrary or unnecessary barriers or limitations to the use of these flexibilities and develop new strategies consistent with statute and agency mission to foster a more balanced workplace.”

Pursuant to the mandates in the memorandum, executive branch agencies “must better utilize existing and develop new workplace flexibilities and work-life programs” in five key areas:

  • Giving workers the “Right to Request Work Schedule Flexibilities” without fear of retaliation or adverse employment actions
  • “Expanding Access to Workplace Flexibilities” by adding telework and other flexible work options, leave transfer programs, and additional categories of available leave
  • “Expanding Availability and Encouraging Use of Work-Life Programs” such as expanded dependent care programs, health and wellness programs, and support for nursing mothers
  • “Helping Agencies Encourage the Use of Workplace Flexibilities and Work-Life Programs” through additional outreach by the federal Office of Personnel Management (OPM)
  • “Agency Review of Workplace Flexibilities and Work-Life Policies and Programs” by requiring agencies to report back to OPM about their efforts within 4 months

Insight for Employers

In general, the goal of the memorandum is to require federal agencies to ensure that workplace flexibilities are available to the “maximum extent practicable.”  Of course, many states have already enacted some of the provisions in their own laws—such as blood and organ donor leave or specific supports for nursing mothers. Even though this memorandum does not have the force of law or even apply to the private sector generally, employers should understand that it could serve as a blueprint for state legislators and, perhaps more importantly, the EEOC and state human rights agencies in crafting new laws and regulations and in evaluating claims of discrimination by employees.

Those of you who attended our annual Employment Law Conference this past February know that failing to complete Form I-9 for all new hires can lead not only to civil fines and penalties, but to criminal penalties (If you missed the conference, all of the materials and audio are available here). That’s true for wage and hour violations, too. And I don’t just mean for the company; I mean for every manager involved. In the highest profile recent example, federal prosecutors indicted a sitting Congressman, Republican Michael Grimm from Staten Island, in April 2014 for violations of wage and hour-related tax laws, and the Immigration Reform and Control Act of 1986 (the “IRCA”), among other charges related to a fast food restaurant he once owned. He allegedly filed false state and federal tax returns to underreport more than $1 million in sales and wages by concealing gross receipts and off-the-books cash wage payments.

Recently, we got another reminder that it isn’t just immigration and tax law violations that can lead to criminal charges for employers. Violations of the FLSA can lead to criminal charges, too.

Last fall, the U.S. Labor Department’s Dallas office issued a press release about criminal charges it had levied against a Texas-based rope manufacturer. Not only did the company face criminal charges, but ultimately the “owner, plant manager and office manager were also convicted on separate felony counts” as well.

Wait, the FLSA Permits Criminal Prosecutions? Yes!

While the majority of FLSA cases involve back-wage payments and various civil penalties, the statute gives the DOL power to levy criminal sanctions, too. Section 16(a) of the FLSA authorizes criminal sanctions against any person who is shown to have violated the FLSA intentionally, deliberately, and voluntarily, or with reckless indifference to or disregard for the law’s requirements. As I explained at our Employment Law Conference, criminal provisions of laws like the IRCA and the FLSA apply not only to business entities but also, as highlighted in the DOL’s press release, directly to business owners, company officers, shareholders, HR managers, supervisors, and even others. Other than a criminal record, which is punishment enough, the potential penalties include a fine of up to $10,000, imprisonment for up to six months, or both.

Don’t Forget State “Wage Theft” and Wage and Hour Statutes

Even where the DOL doesn’t seek criminal sanctions, or can’t, that does not mean employers and their employees are necessarily off the hook. Recently, the Department of Labor reported in its weekly newsletter that the Wage and Hour Division had completed a second investigation of a car wash business in Los Angeles. The employer “was on probation for wage theft after being ordered to pay almost $1 million in restitution as a result of a criminal wage theft case that began nearly five years ago.” Although the DOL’s newsletter does not explain further, the “wage theft case” was actually a California state wage claim according to 2010 news reports about the case. In its recent investigation, the DOL found $24,627 in back wages due to 96 employees and “referred the case to the Los Angeles City Attorney for criminal prosecution.”

Granted, this particular business had some history that may have impacted the DOL’s decision to refer the case for state prosecution, but California is one of many states that criminalize so-called “wage theft” in ways that are much more easily invoked and prosecuted than under the FLSA.

Criminal prosecutions under the FLSA are thankfully still rare, though state prosecutions are on the rise, particularly with the passage of more and more “wage theft” statutes like the one in New York. Given the archaic nature of the federal statute and ease with which employers can violate its provisions, I hope the DOL is not opening a new front to attack employers.

Regardless, these examples should be a wake-up call to make sure your wage and hour house is in order. When was the last time you had a third party audit your job classifications, your payroll practices and your compliance with federal and state wage and hour laws? The DOL and its companion state agencies are clearly not afraid to use criminal sanctions in the right circumstances. You already need an employment lawyer. Don’t leave yourself in danger of needing a criminal lawyer, too.

FAQs17489126.jpgWith paydays that include the recent July 4th holiday coming up, it is a good time to address a fairly common question for employers whose employees work “alternative” workweek schedules: How should employers handle holidays? For instance, on an HR mailing listserv I participate on, an HR manager recently asked:

Q:        One of our departments works four days a week, 10 hours a day. When they submit vacation or sick time, the request is for 10 hours. But how should holidays be handled? Should they get paid 10 hour holidays or 8 hours like the rest of the employees?

Before we get to the answer, let’s make sure we have the same things in mind about “alternative” schedules. Typically, employers implement two types of alternative work schedules, which I’ll generally refer to as “compressed” and “flexible.” A compressed schedule involves working longer but fewer days each week, so that employees complete a full 40-hour week (or 80-hour biweekly periods) in fewer than 5 or 10 work days. Forbes Magazine published an article last year just before Labor Day extolling the virtues of the 4-day workweek, but there are several ways you can create a compressed schedule. The key feature is that a compressed schedule is fixed; there’s no flexibility about when employees report to and depart work each day. The two most common compressed schedules in my experience are:

  • The “5/4/9” schedule in which employees work 8 9-hour days and 1 8-hour day in the pay period and get an extra day off every other week.
  • The “4-10” schedule in which employees work 4 10-hour days each week of the pay period and have an extra day off each week.

Regardless, employees with a compressed schedule work a total of 80 hours during each biweekly pay period.

As the name implies, flexible schedules are, well, flexible! We’re not talking complete flexibility here; employees typically can’t can come and go at any time. Most flexible schedules have two things in common: a set of core hours when all employees are expected to be at work and flexible time bands that allow employees to vary the hours when they arrive and depart. To give you an example, attorneys at the Social Security Administration’s Office of the General Counsel, my former employer, had to work at least 40 hours each week, but we had flexibility on when we arrived and departed. Attorneys had to report no later than 9:00 a.m. and could leave no earlier than 2:30 p.m. (our “core hours”) but could otherwise work 8 hours anytime between 6 a.m. and 6 p.m. (our “flexible bands”). Want to take a three hour lunch? No problem. Need to leave early for an appointment or come in later so you could get the kids to school? No worries.

So, with these general definitions in mind, how do we handle holidays for workers with a 4-10 schedule?

Continue Reading Holiday Pay for Employees with Alternative Work Schedules [Wage & Hour FAQ]