iStock_000015878345XSmall.jpgOn May 24, 2011, a federal district court in Chicago ruled that security guards who were licensed, insured, trained, and paid by the hour by a private security company were not independent contractors, but employees entitled to overtime pay under the Fair Labor Standards Act. Solis v. International Detective & Protective Service, Ltd. 

Granting summary judgment for the Department of Labor, U.S. District Judge Virginia Kendall found that the security guards were owed a total of $101,577.60 in unpaid overtime, plus the same amount in liquidated damages. 

While the case does not break much new legal ground, it does offer some useful reminders about what not to do if you want your workers to be treated as independent contractors. To borrow a form from a certain well-known comedian:

Your security guards might be employees (not independent contractors) if:

  1. You provide them with a list of “Policies and Procedures,” a memo instructing them on who to notify in the event of emergency, the order of patrols, what to include in written reports, and how to properly check their equipment, and similar directions on how to perform their jobs.
  2. You organize your guards in a “chain of command” with titles similar to those of a police organization (officer, sergeant, lieutenant, etc.) 
  3. You provide key equipment like badges, mobile phones, cameras, vehicles with your company logo, and reimburse them for gas and expenses. 
  4. Instead of requiring them to obtain their own security guard licenses and firearm authorization cards, you arrange for them to be licensed as employees of your firm. 
  5. You pay them an hourly wage and reimburse their expenses, with no opportunity for them to share in the profit or loss of the business. 
  6.  You employ the guards on an ongoing, at-will basis. 
  7. You operate a security firm – meaning that security guards are obviously an integral part of your business.

The bottom line is that if you treat your “independent contractors” as employees for all but payroll purposes, the last laugh will belong to the plaintiffs’ lawyers who gleefully sue you for unpaid overtime. 

TipJar14346183.jpgRecently, the Eighth Circuit Court of Appeals ruled that tipped employees who spend more than 20 percent of their time on non-tip-producing “related duties” must be paid at least the minimum wage for that time.  Fast v. Applebee’s.  This decision marks the first time an appellate court has expressly adopted the Department of Labor’s 20 percent rule – that employer’s may not pay subminimum wage for time spent on non-tipped related duties that exceeds 20 percent of an employee’s working time. 

In Fast, the plaintiffs’ claimed that Applebee’s improperly paid servers and bartenders the tip-credit rate for all hours worked, which included time spent performing non-tip producing work, such as taking inventory, stocking serving areas, or rolling silverware.  While the FLSA regulations governing “dual jobs” refer to certain terms and concepts, they do not explicitly define when an employee is engaged in a tipped job or related duties.   

Due to the lack of specificity in the regulations, the court gave controlling deference to the DOL’s Field Operations Handbook, which states that the 20 percent limit applies to general preparation work or maintenance.   While the Eighth Circuit adopted the DOL’s interpretation, the court declined to address what duties would be properly included in the 20 percent to allow use of the tip credit. As a result, the question still remains as to what non-tipped duties fall under this category of “general preparation work or maintenance.”

While other courts have rejected the 20 percent rule, the issue is clearly ripe for further litigation.  If an employer loses the ability to take a tip credit for work performed by tipped employees, this would result in a substantial increase in wage costs.  In order to minimize their risk, employers should consider taking the following steps:

  • Ensure that tipped employees spend no more than 20 percent of their time on non-tip-producing duties.
  • Spread the non-tip-producing duties among all tipped employees; do not assign these duties to just a few tipped employees exclusively.
  • To the extent possible, assign non-tip-producing duties to non-tipped employees.
  • Keep accurate records of hours worked and time that tipped employees spend on non-tip-producing duties.

On May 9, 2011, the U.S. Department of Labor proudly announced its new time-tracking app for the iPhone, which Secretary of Labor Hilda Solis touted as an “invaluable” tool for the Wage & Hour Division in cases where employers failed to keep accurate records. The announcement certainly got the attention of blogging labor and employment law bloggers – see below for a few of the many posts on this. 

Ironically, the app that’s designed to allow hourly employees to keep track of their hours and pay doesn’t accurately calculate either in accordance with the Department of Labor’s regulations. 

Continue Reading DOL’s iPhone App Needs An Update