BLOGS: Fair Labor Standards Act Law

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Friday, July 25, 2008, 4:18 PM

Can You Read Me?

Are users of cellular phones, PDAs and other communications devices entitled to compensation for time spend keeping in touch with their offices, colleagues and clients? The answer, as is the case with most legal questions, is "it depends." Even though one recent decision concluded that carrying heavy files in one's car didn't make the time compensable, employers who insist that you be accessible at all hours may be asking for trouble. It's time to get back to basics:

The Fair Labor Standards Act requires that nonexempt salaried employees be paid for hours worked. That's right - nonexempt employees. One recent response to an American Bar Association article on this subject took the position that "if you're salaried, this sort of thing just comes with the territory," but that attitude was quickly corrected by another reader: The first to post, a law firm associate, naturally assumed that salaried associates are privileged to work as many hours as possible with no premium pay, but for all the rest of the workforce (including paralegals, IT staff, firm administration, and lots of others whose attention is desired 24/7) may or may not be exempt from the law's overtime requirements. Moreover, if the employee isn't exempt, all those working hours are subject to pay requirements, and if the tally goes over 40 hours in the workweek, time-and-a-half is mandated.

Time "on the job" includes time the employer requires to be spent as well as that which it "suffers or permits" to be incurred. "On-call" time has been a topic of Labor Department scrutiny for as long as the FLSA has been around: The first Supreme Court decision on the subject, Armour & Co. v. Wantock, 323 U.S. 126, was handed down in 1944. While generally the amount of time spent in sporadic communications may not be sufficient to limit the employee's freedom to engage in non-work activities, when does the line get crossed? Telecommuting raises its own set of issues, and all of those activities in between working at home and working at the office create vexing definitional issues. Some employers have gone so far as to attempt to prohibit employees from using work-related electronic communications outside "normal business hours," including leave and vacation time. An overreaction? Perhaps. Unenforceable? Probably. But this is yet another example of the ways in which the digital revolution has transformed the business world, and all change provokes litigation and, equally inevitably, legislative attempts to catch up with the times.

A simple three-word inquiry in a popular search engine - "overtime pay BlackBerry" - yields 27.800 hits, and the first hundred or so you read present a wide range of opinions and advice with few common themes other than "this can be a real problem." (Please, folks; my choice of the name of one electronic device wasn't meant to represent any preference or endorsement.) As the litigation cranks up, we'll revisit this subject from time to time to give you the latest developments in e-gear overtime law. Until then, just keep checking your e-mails and voice mails, and remember the system is keeping track of your time!

Click to read our earlier blog post on this topic.

See ABA Law Journal article (and comments) on this topic.

There Are No Happy Meals, Allege Disgruntled McDonald's Employees

Yet another service industry FLSA suit has been filed this month, with a former assistant manager of a McDonald's fast food restaurant alleging that McDonald's misclassified assistant managers as exempt and failed to pay overtime wages. Ms. Alissa Justison filed her suit on behalf of former and current assistant managers of McDonald's in the United States District Court for the District of Delaware this past week. Ms. Justison alleged the problems began during a three-month long training program off-site, which required more than 40 hours per week. She alleged that she was forced to drive a hour and a half without compensation for this training. The plaintiff further alleged that she (and others) was often required to work through her meals without compensation.

In the complaint, the plaintiff alleges that McDonald's designation of assistant managers as exempt, particularly during the training period, was erroneous because trainees have no authority or supervisory power. The complaint catalogs the various ways in which trainee assistant managers should not have been classified as exempt under the FLSA. To read the Justison complaint filed against McDonald's, click here.

As with internship and externship programs recently discussed, employers should review their treatment of trainees to ensure FLSA compliance. FLSA regulations state that the exemptions (executive, administrative, professional, outside sales or computer employee) do not apply to employees training for employment in an executive, administrative, professional, outside sales or computer employee capacity "who are not actually performing the duties of an executive, administrative, professional, outside sales or computer employee." Click here for the regulatory text found at 29 CFR 541.705. A proper review must focus on the duties that the trainees actually perform is critical for determining whether the exemption is applicable or whether overtime compensation may be required.

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Thursday, July 24, 2008, 3:10 PM

Seventh Circuit Gives Former Family Dollar Manager Another Chance

The Seventh Circuit reversed the District Court's summary judgment ruling in favor of Family Dollar. In Brown v. Family Dollar Stores of Indiana, Vivian Brown claimed that she had worked off-the-clock as an assistant store manager and store manager for Family Dollar. The District Court held that Brown had the burden of proving she worked overtime for which she was not properly compensated and that she had failed to prove with "definite and certain evidence" that she had in fact performed such work.

On appeal, the Seventh Circuit held that the District Court erred in analyzing and applying the United States Supreme Court's holding in Anderson v. Mt. Clemens Pottery Co. The Court stated that the "definite and certain evidence" requirement applied to establishing damages in determining for how many hours the employee was not compensated, but was not the proper standard for determining whether the employee had in fact worked off-the-clock. If the employer's records are kept in compliance with the FLSA, determining damages is not difficult. However, in most cases, when off-the-clock work is alleged, there are no time records for the work. In the latter case, when the employer has failed to keep the proper and accurate records required by the FLSA, the employer rather than the employee should bear the consequences of that failure.

In Brown's case, she submitted evidence that her time sheets were altered after she submitted them and, therefore, her time sheets and paychecks did not reflect the actual hours worked. Brown also submitted evidence that other employees experienced the same time sheet alterations. Furthermore, she submitted evidence that the store was open later and at times not reflected on her time sheets. Based upon the District Court's application of the wrong standard of proof required of Brown and the evidence submitted by Brown, the Court reversed and remanded the case back to the District Court.

Family Dollar also faces several other class actions filed in Florida and Colorado.

To read more of the Court's opinion in Brown, click here.

Tuesday, July 22, 2008, 9:21 AM

Are All Unpaid Internships Cost-Free to an Employer? Not If They Aren't Structured Properly!

With the summer season upon us, employers should review the DOL's policies on unpaid internships to avoid potential FLSA violations. FLSA liability develops when an intern crosses the line and becomes (or is considered) an employee. The FLSA only applies when there is an employee-employer relationship. Click here to read the DOL's Field Operations Handbook, which is a useful albeit slightly dated with a 1993 publication date, containing the analysis of FLSA applicability to various situations, from volunteers to research assistants. The Handbook discusses FLSA applicability to pharmaceutical externs and interns (at 10b37), finding no employment relationship with "externship" courses combining lectures and work training at a pharmacy as part of the curriculum, but finding an employment relationship with State required postgraduation and prelicensing "internships".

To be considered an intern and not an employee, the following six statements must be true and supported by sufficient evidence provided by the person offering the internship [found at 10b11 of the Handbook and more recently, in a May 17, 2004 Non-Administrator Wage and Hour Opinion]:

  1. The training, even though it includes actual operation of the operation of the facilities of the employer, is similar to that which would be given in a vocational school;
  2. The training is for the benefit of the trainees or students;
  3. The trainees or students do not displace regular employees, but work under their close observation;
  4. The employer that provides the training derives no immediate advantages from the activities of the trainees or students, and on occasion operations may actually be impeded;
  5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and,
  6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.
This fact and circumstances test applies to interns, externs, apprentices, and graduate students, those individuals for whom training without compensation may not create liability for a potential employer. The May 17, 2004 Opinion examines more closely factors 3 & 4 and provides employers with a concise summary of the analysis to be taken by the Wage & Hour Division.

Review your internships now; making sure your summer programs comply with the FLSA can spare you the heat of a government investigation.

Tuesday, July 8, 2008, 1:47 PM

Insurance Coverage at Issue

Can you make your insurance carrier defend your FLSA collective action? That was the tantalizing possibility presented by Dickstein Shapiro insurance coverage attorney Kenneth Remson at a meeting of the National Employment Lawyers Association - an organization of plaintiffs' attorneys, not to be confused with the "bipartisan" National Employment Law Institute - in a June 27 speech, "Using Defendants' Insurance Against Them." Click here to read more.

According to Mr. Remson, despite the exclusion in most Employment Practices Liability Insurance policies for Fair Labor Standards Act claims, some practices which may become issues in wage-hour litigation, such as misrepresentations (misclassifying employees, refusals to pay for time spent donning and doffing, assertions that the employer's practices are legal, for example), as well as providing inaccurate wage statements or failing to develop and apply policies and procedures, may put the insurer on the hook so long as the employer provides prompt notice and doesn't take "no" for an answer.

These arguments may be more persuasive where state law analogs of the FLSA are in question. This subject is discussed in a 2007 Dickstein Shapiro publication, "Insurance Coverage for Wage-Hour and Labor Code Class Action Lawsuits" (free subscription only - click here and go to "White Papers"). The white paper deals principally with the California Labor Code's dramatic differences from the FLSA itself.

At any rate, Mr. Remson advises plaintiffs' counsel to push the employer into insurance coverage consideration as early in the case as possible - preferably even before suit has been filed. Although this may trigger yet another round of litigation, it's certainly something that employers should evaluate as a potential weapon which can be used defensively as well as offensively.

Monday, July 7, 2008, 8:57 AM

Remember the Federal Minimum Wage Increases to $6.55 Per Hour on July 24, 2008

This month, the second minimum wage increase added by Congress in May 2007 goes into effect. This increase will raise the federal minimum wage from $5.85 to $6.55 per hour. One more increase (the final mandated wage increase from the bill passed in 2007) will be effective on July 24, 2009, raising the federal minimum wage to $7.25 per hour. A state can always set a minimum wage that is higher than the federal minimum and employers should seek legal counsel if they are not certain which rate applies to them where state law sets a different minimum wage. The DOL provides resources on the minimum wage on its website, which can be found by clicking here.

So what does this mean? Employers must pay their employees at or above the federal minimum wage and update their minimum wage posters to reflect the increased minimum wage. Click here for the various compliance resources, including fact sheets and posters on the minimum wage, on the DOL's website.

Wednesday, July 2, 2008, 10:07 AM

Deja Vu: Another Day, Another FLSA Lawsuit in the Service Industry

No industry appears to be immune from FLSA and similar state law wage and hour claims these days! Just this past week, exotic dancers filed suit under a fictitious name against the owners of the nightclubs in which they worked asserting FLSA and Michigan Minimum Wage Law violations. The dancers seek back wages, liquidated damages, penalties and injunctive relief from Deja Vu Consulting Inc. and Cin-Lan Inc. (collectively, "Deja Vu") for three years of alleged misclassification. Click here for the complaint filed in Jane Doe v. Cin-Lan Inc. and Deja Vu Consulting, Inc.

According to its dancers, Deja Vu missed the mark on several areas regulated by the FLSA. First of all, the dancers were classified as independent contractors; the dancers say they were really employees and therefore deprived of the minimum wage. Second, Deja Vu allegedly required dancers to split the tips they received from customers with Deja Vu. The dancers allege these practices allowed Deja Vu to reap large profits at the expense of the dancers.

Like the FLSA, Michigan's Minimum Wage Law requires employers pay minimum wages to even tipped employees (size doesn't matter when it comes to tips to employees as some minimum wage is still required to be paid). Click here for the DOL's FLSA fact sheet on Tipped Employees.

A review of the past months demonstrates how all employers across all industries need to conduct FLSA compliance reviews and ensure that they are indeed following FLSA requirements. Regardless of your company's industry, its not worth dancing around FLSA issues if you are an employer.

Tuesday, July 1, 2008, 9:09 PM

Some lawsuits are more than just lawsuits

America's favorite coffee shop is reminding us that some lawsuits are more than just lawsuits, particularly when the suit enters the court of public opinion. Starbucks has been subject to a series of grinding class action lawsuits in recent years alleging violations of the Fair Labor Standards Act. Most recently, a Superior Court Judge in California ordered Starbucks to serve up $100 million in backtips to its baristas, who claimed that supervisors were sharing tips in violation of state law.

Put yourself in a reporter's shoes for a minute: The enormity of Starbucks' market share, its rapidly growing and increasingly unionized workforce, and the ubiquitous role the company plays in American life makes such a story too good to pass up. When the press catches interest, the company's reputation is at stake with the public at large.

Lawsuits like this reinforce our belief that crisis planning is as valuable as crisis response. Forward-thinking companies identify vulnerabilities, anticipate challenges to their reputation, and plan accordingly. Enter McDonald's, the fast food giant that is taking an innovative approach to communicating with employees. McDonald's intends to hire a company blogger for its internal website - called "StationM" - to more effectively communicate with an increasingly web-based workforce. StationM also allows employees to network with one another, share photos and videos, discuss best practices, and - hopefully - build a sense of family pride in the McDonald's brand. The blog and internal website also provide McDonald's an avenue for preventing the types of challenges Starbucks faced by educating mid-level supervisors about acceptable and unacceptable pracitices at the workplace.

Hiring a blogger will not alone prevent FLSA lawsuits, particularly for companies like McDonald's and Starbucks that have combined workforces of nearly 900,000. However, innovative approaches to employees relations can help mitigate the challenges many companies face in such a litigious society.

Learn more about crisis planning at Womble Carlyle's Wag the Dog Strategic Communications Blog.
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