overtime, exempt and non-exempt: 2016 wage … · overtime, exempt and non-exempt: 2016 wage and...
TRANSCRIPT
OVERTIME, EXEMPT AND NON-EXEMPT: 2016 WAGE AND HOUR UPDATE,
PART 1 & PART 2
First Run Broadcast: March 2 & 3, 2016
1:00 p.m. E.T./12:00 p.m. C.T./11:00 a.m. M.T./10:00a.m. P.T. (60 minutes each day)
Every employer must properly classify all employees as “exempt” or “non-exempt” for overtime
purposes. If an employer gets it wrong, it exposes itself to litigation, Department of Labor
complaints, and substantial financial liability for unpaid overtime. Classification is no easy
matter of separating employees into “manager” and “non-manager” categories. Moreover, the
changing nature of the workplace, including how technology allows us to work, has significantly
altered when a work day begins and ends, and thus the overtime payments to which non-exempt
employees are entitled. This program will provide you with a real-world guide to the rules and
principles governing worker classification, trends in DOL audits and private independent
contractor litigation, and best practices for avoiding liability.
Day 1 – March 2, 2016:
Review of new wage and hour regulations, including changes to salary threshold for
overtime purposes
Trends in hybrid federal/state litigation
“Fissured” industries and non-traditional employer-employee arrangements
Independent contractors, subcontractors, and franchised employees
Review of DOL enforcement priorities and trends in settlements and penalties
Day 2 – March 3, 2016:
Determining when an employee has managerial or administrative functions
Treatment of “inside” and “outside” sales people
Smartphones, technology and the “constant communications” rule
Working remotely – when does the workday begin and end?
How to handle meals and rest time
Donning and doffing of uniforms
Off-the-clock time
Speaker:
Raymond W. Bertrand is a partner in the San Diego office of Paul, Hastings LLP, where he
represents employers in a wide range of employment matters. His litigation practice includes
wage and hour, discrimination, harassment, retaliation, leaves of absence, contract disputes,
wrongful discharge, whistleblower, trade secrets and other types of employment-related matters.
In the wage and hour context, he also represents clients before the U.S. Department of Labor and
state regulators. He also authors the wage and hour section of Matthew Bender’s “California
Labor & Employment Bulletin” and has authored various articles on wage and hour matters. Mr.
Bertrand received his B.A. from State University of New York Binghamton and his J.D. from
Albany Law School.
VT Bar Association Continuing Legal Education Registration Form
Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT 05601-0100. Fax: (802) 223-1573 PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name ________________________ Middle Initial____Last Name___________________________
Firm/Organization _____________________________________________________________________
Address ______________________________________________________________________________
City _________________________________ State ____________ ZIP Code ______________________
Phone # ____________________________Fax # ______________________
E-Mail Address ________________________________________________________________________
Overtime, Exempt & Non-Exempt: 2016 Wage & Hour Update, Part 1
Teleseminar March 2, 2016 1:00PM – 2:00PM
1.0 MCLE GENERAL CREDITS
PAYMENT METHOD:
Check enclosed (made payable to Vermont Bar Association) Amount: _________ Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # _______________________________________ Exp. Date _______________ Cardholder: __________________________________________________________________
VBA Members $75 Non-VBA Members $115
NO REFUNDS AFTER February 24, 2016
VT Bar Association Continuing Legal Education Registration Form
Please complete all of the requested information, print this application, and fax with credit info or mail it with payment to: Vermont Bar Association, PO Box 100, Montpelier, VT 05601-0100. Fax: (802) 223-1573 PLEASE USE ONE REGISTRATION FORM PER PERSON. First Name ________________________ Middle Initial____Last Name___________________________
Firm/Organization _____________________________________________________________________
Address ______________________________________________________________________________
City _________________________________ State ____________ ZIP Code ______________________
Phone # ____________________________Fax # ______________________
E-Mail Address ________________________________________________________________________
Overtime, Exempt & Non-Exempt: 2016 Wage & Hour Update, Part 2
Teleseminar March 3, 2016 1:00PM – 2:00PM
1.0 MCLE GENERAL CREDITS
PAYMENT METHOD:
Check enclosed (made payable to Vermont Bar Association) Amount: _________ Credit Card (American Express, Discover, Visa or Mastercard) Credit Card # _______________________________________ Exp. Date _______________ Cardholder: __________________________________________________________________
VBA Members $75 Non-VBA Members $115
NO REFUNDS AFTER February 25, 2016
Vermont Bar Association
CERTIFICATE OF ATTENDANCE
Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: March 2, 2016 Seminar Title: Overtime, Exempt & Non-Exempt: 2016 Wage & Hour Update, Part 1 Location: Teleseminar - LIVE Credits: 1.0 MCLE General Credit Program Minutes: 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.
Vermont Bar Association
CERTIFICATE OF ATTENDANCE
Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: March 3, 2016 Seminar Title: Overtime, Exempt & Non-Exempt: 2016 Wage & Hour Update, Part 2 Location: Teleseminar - LIVE Credits: 1.0 MCLE General Credit Program Minutes: 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.
2016 WAGE-HOUR UPDATE, PART 1 & PART 2
Raymond Bertrand, San Diego(o) (858) 458-3013
Blake Bertagna, Orange County(o) (714) 668-6208
Taylor Wemmer, San Diego(o) (858) 458-3065
2
OVERVIEW
Current Developments (Day 1)
DOL’s proposed revisions to the overtime regulations
DOL’s guidance on the joint employment test
DOL’s interpretation on the misclassification of independentcontractors
Case law update
Recent settlements
Mitigating Wage-Hour Risks (Day 2)
Off the clock claims (donning and doffing & training time)
Smartphones, technology and the “constant communications”rule
Meal and rest breaks
Telecommuting
Regular rate of pay
Preserving independent contractor status
DEPARTMENT OF LABOR’S PROPOSEDREVISIONS TO OVERTIME REGULATIONS
4
Enacted in 1938, the FLSA establishes
minimum wage, overtime pay,
recordkeeping, and youth employment
standards.
The most common FLSA minimum wage
and overtime exemptions – often called
the “white collar” exemptions – applies to
certain
Executives
Administrative employees
Professionals
FAIR LABOR STANDARDS ACT
5
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Federal Judicial Caseload Statistics 1995-2014
FLSA Cases (1995-2014)
6
THREE TESTS FOR EXEMPTION
Salary level
Salary basis
Job duties
7
PRESIDENT’S DIRECTIVE TO THE DEPARTMENT OF LABOR
President Obama, declaring that
the FLSA’s overtime regulations
“have not kept up with our
modern economy,” instructed the
Secretary of Labor in March
2014 to “consider how the
regulations could be revised to
update existing protections
consistent with the intent of the
Act; address the changing nature
of the workplace; and simplify the
regulations to make them easier
for both workers and businesses
to understand and apply.”
8
SALARY LEVEL – HISTORICAL VIEW
Year Salary Level
1938 • $ 30 for all exemptions
1940 • $30 for executive / $50 for administrative and professional
1949 • $55 for executive / $75 for administrative and professional
• $100 with a new “short test”
1958 • $80 for executive / $95 for administrative and professional
• $125 for the “short test”
1963 • $100 for executive and administrative / $115 for professionals
• $150 for the short test
1970 • $100 for executive and administrative / $115 for professionals
• $150 for the short test
1975 • $125 for executive and administrative / $140 for professionals
• $200 for the short test
2004 • $455 for all exemptions
• $100,000 annually for highly compensated employees
9
SALARY LEVEL – PROPOSED RULE
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
EAP HCE
Current
Proposed
Proposed rule would increase the
minimum salary required to qualify
as an exempt white collar employee
from $455/week ($23,660/year) to
approximately $970/week
($50,440/year).
Increase the total annual
compensation requirement needed
to exempt highly compensated
employees from $100,000/year to
approximately $122,148/year.
Establish a mechanism for
automatically updating the salary
and compensation levels going
forward.
10THE JOB DUTIES REQUIREMENTS FOR EXEMPTIONWOULD REMAIN UNCHANGED – MAYBE
Employees must meet certainrequirements as to their job duties toqualify for exempt status.
Employers must be able to establishthat the employee’s “primary duty” isthe performance of exempt work inorder for an exemption to apply.
“Primary duty” means the principal,main, major or most important dutythat the employee performs.
The DOL did not propose specificregulatory changes to the dutiestests, but did request comments onthe current requirements in responseto certain concerns the agency haswith the existing regulations.
11UNDER FURTHER REVIEW:THE “PRIMARY DUTIES” STANDARD
In the proposed regulations, the DOL states that it is
“concerned that employees in lower-level managementpositions may be classified as exempt and thus ineligible forovertime pay even though they are spending a significantamount of their work time performing nonexempt work.”
The DOL notes “that the removal of the more protective longduties test in 2004 has exacerbated these concerns and led to[] inappropriate classification[s].”
12UNDER FURTHER REVIEW:THE “CONCURRENT DUTIES DOCTRINE”
The DOL also questions the appropriateness of maintaining
the “concurrent duties doctrine,” which recognizes that exempt
executives often perform exempt duties concurrently with
nonexempt duties.
The DOL views this doctrine as “difficult to apply” and believes
it leads to inconsistent results.
The DOL specifically notes that “California has addressed thisissue by requiring that exempt [executive, administrative andprofessional] employees spend at least 50 percent of theirtime performing their primary duty, and not counting timeduring which nonexempt work is performed concurrently.”
13
DUTIES TEST: DOL SOUGHT COMMENTS
What, if any, changes should be made to the duties tests?
Should employees be required to spend a minimum amount of
time performing work that is their primary duty in order to qualify
for exemption? If so, what should that minimum amount be?
Should the DOL look to California’s law (requiring that 50 percent
of an employee’s time be spent exclusively on work that is the
employee’s primary duty) as a model?
Does the single standard duties test for each exemption category
appropriately distinguish between exempt and nonexempt
employees?
Is the concurrent duties regulation for executive employees
(allowing the performance of both exempt and nonexempt duties
concurrently) working appropriately or does it need to be
modified to avoid sweeping nonexempt employees into the
exemption?
14
ADMINISTRATIVE PROCESS
Notice of Proposed Rulemaking
60-Day Comment Period
Ended on September 4, 2015
DOL received roughly 270,000 comments
Final Rule
Solicitor of Labor M. Patricia Smith stated in November 2015 that
the finalized changes to the overtime eligibility rules likely will not
be released until late 2016.
Significant rules and major rules are required to have a 60 day
delayed effective date.
Query what effect the upcoming presidential election will have on
the rulemaking process.
15
STEPS EMPLOYERS SHOULD TAKE
Identify the salary levels ofexempt employees todetermine whether theymeet the DOL’s proposed$50,440 annual minimumthreshold.
Determine whether to adjustthe salaries of or reclassifyas non-exempt employeeswho fall below the proposedminimum salary threshold.
If employees are reclassifiedfrom exempt to non-exempt,determine an appropriatehourly rate.
16
EVOLUTION OF THE JOINT EMPLOYER TEST
17
BROWNING-FERRIS INDUSTRIES
Expanded the definition of a joint employer under the NationalLabor Relations Act.
Issue: Whether Browning-Ferris was the joint employer ofworkers provided by a staffing agency under a temporarylabor services agreement.
The Board abandoned the longstanding “direct and immediatecontrol” requirement for a finding of joint employment.
The Board will now consider “indirect” control exercisedthrough an intermediary employer such as a staffing agency.
Browning-Ferris has appealed to the D.C. Circuit.
18
ADMINISTRATOR’S INTERPRETATION NO. 2016-1
The WHD will focus on the relationship between the employersand the economic dependence of the worker on the putative jointemployer (as measured by the “economic realities” of the workenvironment) to determine whether joint employment exists.
“Horizontal” joint employment focuses on separate but relatedcompanies and exists when the employee has an employmentrelationship with two or more employers, and those employers aresufficiently related (e.g., separate restaurants with economic ties orcommon managers).
“Vertical” joint employment centers on the economic realities of therelationship between the employee and the potential joint employerand exists when the employee has an employment relationship withone employer (such a staffing agency or subcontractor), buteconomic realities show that he or she is economically dependentupon another entity.
19
HORIZONTAL JOINT EMPLOYMENT
Nine facts may be relevant when analyzing the degree ofassociation between, and sharing of control by, potentialhorizontal joint employers:
(1) who owns the potential joint employers;
(2) do the potential joint employers have any overlappingofficers, directors, executives, or managers;
(3) do the potential joint employers share control over operations;
(4) are the potential joint employers’ operations inter-mingled;
(5) does one potential joint employer supervise the work of theother;
(6) do the potential joint employers share supervisory authorityfor the employee;
(7) do the potential joint employers treat the employees as a poolof employees available to both of them;
(8) do the potential joint employers share clients or customers;and
(9) are there any agreements between the potential jointemployers?
20
VERTICAL JOINT EMPLOYMENT
The AI lists seven factors from the MSPA regulations to determinevertical joint employment exists:
(1) Whether the potential joint employer directs, controls orsupervises the work performed;
(2) Whether the potential joint employer has the power to hire or firethe employee, modify employment conditions, or determine the rateor method of pay;
(3) Whether the potential joint employer had an indefinite, permanent,full-time, or long-term relationship with the subject employee(s);
(4) Whether the joint employee’s work for the potential joint employeris repetitive and rote, is relatively unskilled, and/or requires little or notraining;
(5) Whether the employee’s work is an integral part of the potentialjoint employer’s business;
(6) Where the work is performed on premises owned or controlled bythe potential joint employer indicates that the employee iseconomically dependent on the potential joint employer; and
(7) Whether common HR or labor relations functions exist.
U.S. LABOR DEPARTMENT'S INTERPRETATION ONMISCLASSIFICATION OF INDEPENDENT
CONTRACTORS UNDER THE FLSA
22
INTRODUCTION
In order for the FLSA to apply, there must be
an employment relationship between the
“employer” and the “employee.”
The FLSA defines employee as "any individual
employed by an employer" and employ is
defined as including "to suffer or permit to
work."
The concept of employment in the FLSA is
tested by "economic reality," a common-law,
multi-factored analysis.
On July 15, 2015, the U.S. Department of
Labor’s Wage and Hour Division (WHD)
issued a new interpretive paper entitled
“Administrator’s Interpretation No. 2015-1: The
Application of the Fair Labor Standards Act’s
‘Suffer or Permit’ Standard in the Identification
of Employees Who Are Misclassified as
Independent Contractors.”
23A CLOSE REVIEW OF THE ADMINISTRATOR’SAPPROACH TO DECIDING FLSA “EMPLOYEE” STATUS
Administrative Interpretations are intended to assist
employers (the regulated community) to comply with the law.
Per the WHD, they “provide meaningful and comprehensive
guidance and compliance assistance to the broadest number
of employers and employees.”
Administrator’s Interpretation No. 2015-1 devotes the majority
of its content to educating the reader on the WHD’s views as
to how to apply economic realities test’s factors.
The Administrator’s Interpretation represents that its depiction
of the test and its factors comes straight from established
Supreme Court and federal appellate court jurisprudence.
24
THE “ECONOMIC REALITIES” TEST
The “economic realities” factors typically include:
the extent to which the work performed isan integral part of the employer’s business;
the worker’s opportunity for profit or lossdepending on his or her managerial skill;
the extent of the relative investments of theemployer and the worker;
whether the work performed requiresspecial skills and initiative;
the permanency of the relationship; and
the degree of control exercised or retainedby the employer.
EE IC
25THE FACTORS PURPORTEDLY ARE NOT A FIXED SET - YET THE SIXDISCUSSED IN THE INTERPRETATION ARE DEPICTED AS MANDATORY
On one hand, the Interpretation states that the factors that
make up the economic realities test under federal case law
are not static.
Yet on the other hand, the Interpretation posits a rigid, fixed
set of economic reality test factors mandated for every FLSA
“employee” analysis.
As for the six factors detailed in the Interpretation, the
Administrator directs: “All of the factors must be considered in
each case.”
26NO ONE FACTOR IS DISPOSITIVE, BUT THE SPECIAL“INTEGRAL” FACTOR IS “COMPELLING”
The Interpretation is replete with warnings that no one factor
should be accorded greater importance than the others.
Yet the Interpretation singles out the “integral” factor as
“particularly” important. (The “integral” factor examines the
extent to which the work performed by the individual is “an
integral part of the employer’s business.”)
The Interpretation features the “integral” factor as the very first of
the six factors to be recited and discussed.
The Interpretation states that due to its special importance, this
factor “should always be analyzed in misclassification cases.”
The “integral” factor above all is depicted as “compelling.”
The result is conflicting guidance: No one factor should be
accorded greater importance, but the integral factor is
“compelling.”
27THE “CONTROL” FACTOR “SHOULD NOT PLAY ANOVERSIZED ROLE” IN THE ANALYSIS
The “control” factor looks to the level of control over a worker
by the alleged employer.
The Interpretation repeatedly downplays this factor:
[N]o one factor (particularly the control factor) isdeterminative of whether a worker is an employee.
The “control” factor, for example, should not be given undueweight.
[T]he “control” factor should not play an oversized role in theanalysis of whether a worker is an employee or anindependent contractor.
The control factor should not overtake the other factors of theeconomic realities test . . . .
Conclusion: . . . and no single factor, including control, shouldbe over-emphasized.
28THE “CONTROL” FACTOR “SHOULD NOT PLAY ANOVERSIZED ROLE” IN THE ANALYSIS (CONTINUED)
The “control” factor has long been given relatively greater weight by
the courts and the WHD.
The WHD’s Field Operations Handbook (Handbook) elevates the
“control” test above other factors:
The principal test relied upon by the courts for determiningwhether an employment relationship exists has been whetherthe possible employer controls or has the right to controlthe work to be done by the possible employee to the extentof prescribing how the work shall be performed.
Further, the Handbook depicts other factors as secondary to control:
If the possible employer has control over the manner in whichthe work is to be performed the absence of any or all of theforegoing factors will not indicate an absence of the employer-employee relationship. However, where the element of controlcannot be firmly established, they will help in determiningwhether the relationship is one of employer and employee[.]
Case law authorities also show special deference to the control
analysis.
29THE NATURE OF THE ADMINISTRATOR’S“INTERPRETATION” AND ITS LEGAL WEIGHT
Courts accord varying legal weight to WHDwork product. Administrator’s Interpretationsare not “controlling.”
They may be deemed persuasive, however,and earn deference by courts, depending oncertain factors identified by the Supreme Court:
[T]he thoroughness evident in itsconsideration, the validity of itsreasoning, its consistency with earlierand later pronouncements, and all thosefactors which give it power to persuade, iflacking power to control.
See Perez v. Mortgage Bankers Assoc., 135S. Ct. 1199, 1203-04 (2015).
Open question whether courts will affordAdministrator’s Interpretation No. 2015-1deference or whether it will be found to beinternally inconsistent in its approach, andirreconcilable with well-established,contradictory legal authorities.
30
CASE LAW UPDATE
31PEREZ V. MORTGAGE BANKERS ASS’N, 135 S. CT. 1199(2015)
Paralyzed Veterans held that an agency must use APA’s notice-
and-comment procedure when issuing a new interpretation of a
regulation that deviates significantly from a previous
interpretation.
In 2010, DOL withdrew a 2006 opinion letter stating that
mortgage-loan officers qualified for the FLSA administrative
exemption under the DOL’s 2004 regulations. At the same time,
the DOL issued its first AI, stating that mortgage-loan officers are
not exempt.
Mortgage Bankers Association argued the new AI was invalid.
The Supreme Court unanimously held that Paralyzed Veteranswas wrongly decided: the DOL could issue new interpretations
without being subject to notice-and-comment rulemaking
procedures.
32GLATT V. FOX SEARCHLIGHT PICTURES, INC., NO. 13-4478-CV (2D CIR. JAN. 25, 2016)
Test for determining whether an unpaid intern is actually an employee underthe FLSA: “whether the intern or the employer is the primarybeneficiary of the relationship.”
List of non-exhaustive considerations:
(1) The extent to which the intern and the employer clearly understand that thereis no expectation of compensation.
(2) The extent to which the internship provides training that would be similar tothat which would be given in an educational environment, including the clinicaland other hands‐on training provided by educational institutions.
(3) The extent to which the internship is tied to the intern’s formal educationprogram by integrated coursework or the receipt of academic credit.
(4) The extent to which the internship accommodates the intern’s academiccommitments by corresponding to the academic calendar.
(5) The extent to which the internship’s duration is limited to the period in whichthe internship provides the intern with beneficial learning.
(6) The extent to which the intern’s work complements, rather than displaces, thework of paid employees while providing significant educational benefits to theintern.
(7) The extent to which the intern and the employer understand that theinternship is conducted without entitlement to a paid job at the conclusion of theinternship.”
33SAKKAB V. LUXOTTICA RETAIL N. AM., INC., 803 F.3D425, 428 (9TH CIR. 2015)
The district court, which acknowledged a split in California
authority, ruled that the Federal Arbitration Act (“FAA”)
preempted any California rule that barred waiver of PAGA
claims in arbitration agreements.
The California Supreme Court announced its decision in
Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th
348 (2014) (“Iskanian”), which held that employees could notwaive their right to bring representative claims under PAGA.
The Ninth Circuit followed the Iskanian decision -- an
arbitration agreement that requires individual arbitration of all
claims arising out of employment is unenforceable as applied
to PAGA claims.
34CHEEKS V. FREEPORT PANCAKE HOUSE, INC., 796 F.3D 199(2D CIR. 2015)
Generally, when parties settle a federal court action, they
simply file a stipulation that dismisses the case with prejudice.
By filing such a stipulation, the parties do not have to provide
the court with a copy of their settlement agreement and the
terms of any such agreement can remain private and
confidential.
The Second Circuit held that parties cannot dismiss FLSA
cases by stipulation and instead the parties must submit their
settlement agreement to the District Court for review so that
the District Court can determine whether the settlement is fair
and equitable.
35HOME CARE ASS'N OF AM. V. WEIL, 799 F.3D 1084 (D.C.CIR. 2015)
The FLSA has long exempted certain categories of “domestic
service” workers from the FLSA’s minimum wage and/or
overtime protections, including for domestic-service workers
providing either (1) companionship services or (2) live-in care
for the elderly, ill, or disabled.
In October 2013, the DOL issued its Final Rule seeking to
eliminate the FLSA’s “companionship services” exemption for
third-party providers, and to limit the definition of
“companionship services.”
The D.C. Circuit Court concluded that the DOL had the
authority to limit the exemptions and that its construction of
the exemptions here was entirely reasonable.
36OREGON REST. & LODGING ASS'N V. PEREZ, NO. 13-35765, 2016 WL 706678 (9TH CIR. FEB. 23, 2016)
Under the FLSA, where an employer claims a tip credit towardthe federal minimum wage, the employer may only require thatemployees pool tips with other employees who customarily andregularly receive tips. The FLSA is silent about who mayparticipate in a mandatory tip pool if the employer does not claima tip credit against the minimum wage.
In Cumbie v. Woody Woo, Inc., dba Vita Cafe, 596 P.2d 577 (9thCir. 2010), the court held that the FLSA’s restriction on tip sharingamong customarily and regularly tipped employees applies onlywhen their employer claims the federal tip credit.
In May 2011, DOL rejected Woody Woo and stated that tips arethe property of the employee whether or not the employer hastaken a tip credit and that a valid tip pool may only include “thoseemployees who customarily and regularly receive tips.”
A divided three judge panel held the DOL’s interpretation of theFLSA was “reasonable” and decided that the DOL may regulatetip pooling even when the employer does not use the FLSA’s tipcredit.
37
RECENT SETTLEMENTS
Alexander v. FedEx Ground Package System, No. 3:05-cv-00038-EMC (N.D.Cal.). Class of 2300 drivers in California alleged they’d been misclassified as independent
contractors.
Settlement of $227 million approved in October 2015.
Verderame vs. RadioShack Corp., No. 2:13-cv-02539, (E.D. Pa.) Class of 569 former store managers claimed they had not received proper overtime
pay.
In February 2016, the liquidating trustee overseeing RadioShack's bankruptcyagreed to pay $5.5 million in unsecured claims.
Brandon v. 3PD Inc., No.1:13-CV-03745 (N.D. Ill.) 115 of 258 eligible delivery drivers opted into action, claiming misclassification as
independent contractors.
In January 2016, court approved $3 million settlement.
Rite Aid Wage and Hour Cases, No. JCCP4583 (Los Angeles Sup. Ct.) 2775-member class of current and former pharmacists claimed to have been denied
meal and rest breaks.
Court indicated it would approve $9.7 million settlement.
Bararsani v. Coldwell Banker, No.BC495767 (Los Angeles Sup. Ct.) Certified class of approximately 5600 California real estate agents claiming
misclassification as independent contractors.
Court approved $4.5 million settlement in January 2016.
38
RECENT SETTLEMENTS (CONT.)
Dicks Sporting Goods cases (multi-district) Class of about 2,200 assistant store managers alleged they were misclassified as
exempt.
Proposed settlement of $10 million announced in December 2015.
Encarnacion v. J.W. Lee Inc., No. 0:14-cv-61927 (S.D. Fla.) Class of 4,709 exotic dancers claimed they had been misclassified as independent
contractors by a chain of clubs in Florida and Ohio.
Proposed settlement of $6 million announced in June 2015.
Awuah v. Coverall North America Inc., No. 1:07-cv-10287 (D. Mass.) Custodial “franchisees” alleged they should have been classified as employees.
Court approved $5.5 million settlement in May 2015.
Taylor v. Shippers Transport Express Inc., No. 2:13-cv-02092 (C.D. Cal) Certified class of 540 truck drivers alleged they had been misclassified as
independent contractors.
Court approved $11 million settlement in May 2015.
Fuentes v. Macy’s West Stores Inc., No. 2:14-cv-00790 (C.D. Cal.) Plaintiffs alleged that Macy’s and the department store’s logistics management
company, Joseph Eletto Transfer Inc., had misclassified as independentcontractors more than 600 drivers and helpers.
Settlement reached in 2015 provided that Macy’s would pay $3 million and Eletto $1million.
39
MANAGING WAGE-HOUR RISKS
© 2015 Paul Hastings LLP. CONFIDENTIAL
40
OFF THE CLOCK CLAIMS
© 2015 Paul Hastings LLP. CONFIDENTIAL
Donning and Doffing Time
Training Time
41
FLSA
Time spent changing into clothes required for the performance of
the principal activity is compensable as an integral part of that
activity, but changing clothes merely for the convenience of the
employee is considered a noncompensable "preliminary'' or
"postliminary'' activity. 29 CFR § 785.24
Changing clothes as a cautionary measure after working in a
toxic environment has been deemed an integral part of a
principal activity and therefore compensable under the FLSA.
Steiner v. Mitchell (1956) 350 U.S. 247, 252, 100 L. Ed. 267, 76
S. Ct. 330
Special exception for express terms of or by custom or practice
under a bona fide collective bargaining agreement applicable to
the employee. 29 U.S.C. § 203(o)
DONNING AND DOFFING TIME
42
FLSA
Special Rule for Changing Clothes at Home: “Employees who dress to
go to work in the morning are not working while dressing even though
the uniforms they put on at home are required to be used in the plant
during working hours. Similarly, any changing which takes place at
home at the end of the day would not be an integral part of the
employee’s employment and is not working time.” DOL Field
Operations Handbook § 31b13
DONNING AND DOFFING TIME
43
FLSA
IBP, Inc. v. Alvarez, 546 U.S. 21 (2005): Time spent walking between changing and production areas is
compensable.
Because donning and doffing gear that is “integral andindispensable” to employees’ work is a “principal activity,” thecontinuous workday rule mandates that the time spent walkingto and from the production floor after donning and beforedoffing, as well as the time spent waiting to doff, arecompensable.
Under the “continuous workday rule, . . . the ‘workday’ isgenerally defined as the period between the commencementand completion on the same workday of an employee’sprincipal activity or activities. 29 C.F.R. § 790.6(b) (2005).”Id. at 521.
Time spent waiting to don the first piece of gear that marks thebeginning of the continuous work day is not compensable.
“[Section] 4(a)(2) excludes from the scope of the FLSA thetime employees spend waiting to don the first piece of gearthat marks the beginning of the continuous workday.” Id. at528.
DONNING AND DOFFING TIME
44
FLSA
“Attendance at lectures, meetings, training programs and similar
activities need not be counted as working time if the following four
criteria are met:
Attendance is outside of the employee’s regular working hours;
Attendance is in fact voluntary;
The course, lecture, or meeting is not directly related to the
employee’s job; and
The employee does not perform any productive work during such
attendance.” 29 C.F.R. § 785.27
TRAINING TIME
45
FLSA
What is voluntary?
“Attendance is not voluntary, of course, if it is required by the
employer. It is not voluntary in fact if the employee is given to
understand or led to believe that his present working conditions or
the continuance of his employment would be adversely affected by
nonattendance.” 29 C.F.R. § 785.28.
TRAINING TIME
46
FLSA
What is directly related to the employee’s job?
“The training is directly related to the employee’s job if it
is designed to make the employee handle his job more
effectively as distinguished from training him for another
job, or to a new or additional skill. . . . Where a training
course is instituted for the bona fide purpose of
preparing for advancement through upgrading the
employee to a higher skill, and is not intended to make
the employee more efficient in his present job, the
training is not considered directly related to the
employee’s job even though the course incidentally
improves his skill in doing his regular job.” 29 CFR §
785.29
TRAINING TIME
47
SMARTPHONES, TECHNOLOGY AND THE
“CONSTANT COMMUNICATIONS” RULE
48
POTENTIAL FLSA VIOLATIONS
Today’s office culture is increasingly “smart-phone” oriented
Employees may feel pressured to stay in contact with the
office after they have clocked out for the day by checking text
messages or emails
Does an employee’s use of a cell phone after hours constitute
“hours worked” under the FLSA?
49
CASES
Agui v. T-Mobile USA, Inc. (E.D.N.Y. 2009)
T-Mobile employees, who were nonexempt sales
representatives, alleged that they were required to check work
related emails and texts even when not clocked in
Rulli v. CB Richard Ellis, Inc. (E.D. Wis. 2009)
Employees filed collective action claim for unpaid overtime
compensation based upon a company requirement to use
company-issued smart phone devices after hours and respond to
messages within 15 minutes
50
FACTORS TO CONSIDER
Is this activity an “integral and indispensable” part of theemployee’s “principal activity”?
Does the activity qualify as “work”?
Does the employer “permit” the employee to perform theactivity?
Is it necessary to perform a task?
Does it primarily benefit the employer?
On call time: engaged to wait or waiting to be engaged?
Employers cannot deny compensation to an employee if theemployer knows or has reason to know that an employee isworking overtime
51
POSSIBLE SOLUTIONS
Do not issue smartphones to non-exempt employees or do
not permit them to use them without prior authorization
Implement policies prohibiting smartphone use after hours
Require that employees record their time spent after hours
checking/responding to emails and voicemails
Might be able to track time worked through apps
Companies may wish to “audit” their nonexempt employees’
use of cell phones after work hours
52
CELL PHONE POLICIES: THINGS TO CONSIDER
Recording hours worked while using the company issued cell
phone
Expectations of privacy
Confidentiality
Who owns the device/information on the device
53
MEAL AND REST BREAKS
Steps Employers Can Take to Mitigate Risk
54
MEAL PERIODS – FLSA (29 C.F.R. 785.19)
Bona fide meal periods are not worktime.
Bona fide meal periods do not include coffee breaks or time forsnacks. These are rest periods.
The employee must be completely relieved from duty for thepurposes of eating regular meals.
The employee is not relieved if [the employee] is required toperform any duties, whether active or inactive, while eating.
For example, an office employee who is required to eat at [his/her]desk or a factory worker who is require to be at [his/her] machine isworking while eating.
It is not necessary that an employee be permitted to leave thepremises if [the employee] is otherwise completely freed from dutiesduring the meal period.
Ordinarily 30 minutes or more is long enough for a bona fidemeal period. A shorter period may be long enough under specialconditions.
55
Rest periods of short duration, running from 5 minutes to about 20minutes, are common in industry.
They promote the efficiency of the employee and are customarilypaid as working time.
They must be counted as hours worked.
REST PERIODS – FLSA (29 C.F.R. 785.18)
56
STATE SPECIFIC REQUIREMENTS
General: At least 21 states have general provisions requiring
employers to provide employees meal periods, and at least 7
states also have rest period requirements
Specific: 35 jurisdictions also have separate specific
provisions requiring meal periods specifically for minors.
Various states also have requirements for certain types of
workers (e.g., seasonal farm workers)
Exemptions:
State law exemptions for executive, administrative and
professional employees, and for outside salespersons
vary
Other state law exemptions may exist for certain types of
workers if the employees are covered by a valid collective
bargaining agreement
57
MAINTENANCE OF A WRITTEN POLICY
Number: the number of meal and rest breaks allowed
Timing: when the meal and rest breaks can be taken
Recording: how the meal breaks are to be recorded
Compliance: statement that employees are expected to take
their breaks
Complaint Process: employees are required to report to a
supervisors if they feel that they were denied their entitled
meal or rest break
Definition:
Key is to authorize and permit an employee to take all entitled
breaks.
Meal/rest periods are duty-free
58
COMMUNICATE POLICY
Obtain a signed acknowledgement from employees
Explain the meal and rest policy during the orientation process
Periodically remind employees about the policy through
announcements and/or employee trainings
59
TIME AND PAY SYSTEMS
Timekeeping system should record the start and end time of
meal periods
Affirmation by employee acknowledging that the employee
was provided the breaks he/she was entitled to
If state law provides for penalties for missed meal and/or rest
breaks, establish process for payment of such penalties
© 2015 Paul Hastings LLP. CONFIDENTIAL
60
INVESTIGATE MISSED MEAL/REST PERIODS
Establish processes for:
Investigating employee claims that a meal or rest period was not
provided in accordance with company policy
Flagging when an employee has not taken a meal period, and
investigate such incidents
61
SPECIAL MEAL AND REST PERIOD ISSUES
Meal period waivers
On-duty meal periods
Special/unique positions
62
TELECOMMUTING
How To Make Telecommuting Arrangements Work ForEveryone
63
Telecommuting is a work arrangement under which employees
are allowed to work from home or another non-company
location for all or part of their workday
Not every position is suitable for telecommuting. The employer
needs to consider:
Job duties – interaction with other employees required? Or is
the majority of the work able to be performed through
electronic/telephonic means?
What level of supervision is required?
What type of technology support/equipment is needed to
perform the job?
Does this employee work with highly sensitive/confidential
company materials?
HOW DOES TELECOMMUTING WORK?
64
© 2015 Paul Hastings LLP. CONFIDENTIAL
Although the position may be suitable for telecommuting, the
employer must also consider each employee on an individual
basis:
How long has the employee been with the company?
Can the employee work independently and without close
supervision?
How is the employee’s performance? Any discipline?
Does the employee have strong written and oral
communication skills?
Interaction with other laws:
ADA – Americans with Disabilities Act
OSHA – Workplace Safety
Workers’ Compensation
TELECOMMUTING IS NOT FOR EVERY EMPLOYEE
65
POTENTIAL WAGE AND HOUR ISSUES
Reporting and monitoring of hours
Working “off-the-clock”
Overtime
Portal to Portal Act
66
TELECOMMUTING POLICIES
It is important to have a written, comprehensive policy that
outlines the rules and procedures for telecommuters:
Telecommuting is not an entitlement and must be authorized by
the company
Outline eligible job positions/employees
Telecommuters have the same expectations as employees
working in the office; it is not a flex-schedule program
The company has the right to monitor all data and activity on
company systems, even for work performed while telecommuting
Dedicated work space in the home, especially when employee
works with/has access to confidential company data
67
TELECOMMUTING POLICES (CONTINUED)
Recording Work Time:
Clearly outline the hours the employee is expected to be
working/available during the workday
Telecommuting employees must keep a complete and accurate
record of the hours worked each day
Company should provide time sheets or an online system for
recording hours worked
Pre-approval of overtime for nonexempt employees
68
TELECOMMUTING ACKNOWLEDGMENT
In addition to a written policy, prepare a comprehensive
acknowledgement for each employee who is permitted to
participate in the company’s telecommuting program that is to
be signed by the employee
Define the employee’s working hours
Make clear that the telecommuting relationship can be
revoked by the company at any time
Outline if/how often the employee is required to check in with
supervisors
69
THE REGULAR RATE OF PAY
70
What Is the Regular Rate of Pay?
The Rate Used to Calculate Overtime: The Regular Rate ofpay is the rate that employers must use to calculate overtime.
An Hourly Rate: The Regular Rate is an hourly rate.Therefore, even though employers have the right to pay non-exempt employees other than by the hour (e.g., by salary, bycommission, and by piece), they must reduce all non-hourlyforms of pay to an hourly rate for overtime calculations.
Unique to Each Work Week: The Regular Rate is an hourlyrate that an employer must calculate work week by work week,not pay period by pay period.
Calculation Method (Outside California): All pay for hoursworked divided by all hours worked.
Calculation Method (Inside California): All pay for hoursworked divided by all hours worked, except that the divisor forfixed sums such as salaries and fixed-rate bonuses cannotexceed 40.
REGULAR RATE OF PAY
71
What Must Employers Include in the Regular Rate of Pay?
All Pay for All Hours Worked: The regular rate includes “allremuneration for employment paid to, or on behalf of, theemployee.” 29 USC § 207(e)
An All-Inclusive Rate: Courts resolve all doubts in favor ofinclusion.
The regular rate includes premiums for non-overtimework:
Night shift differentials
Premiums paid for hazardous, arduous or dirty work
Incentives for the rapid performance of work
Lump sum premiums which are paid without regard tothe number of hours worked
The regular rate also includes overtime premiums thatdo not conform to the overtime premiums authorizedby the Act.
REGULAR RATE OF PAY – INCLUSIONS
72
What May Employers Exclude from the Regular Rate of Pay?
Gifts: For example, gifts at year-end or other specialoccasions, rewards for service – as long as an employer doesnot measure the amount the amounts of which are notmeasured by or dependent on hours worked, production, orefficiency.
Payments that Are Not Compensation for Work Performed:For example, vacation pay, holiday pay, sick leave pay, andexpense reimbursements.
Certain Bonus Payments: For example, those for which thereis no prior announcement of an amount or a program.
Contributions to Health and Welfare Trusts
REGULAR RATE OF PAY - EXCLUSIONS
73
Daily or Weekly Premiums: For example, premiums forworking more than 8 hours in a day or more than 40 hoursin a week. (This rule exists to avoid pyramiding ofstatutory overtime and contractually promised premiums.)
Saturday, Sunday, Holiday and Similar Premiums: Forexample, premiums for working on a Saturday, Sunday,Holiday, Day of Rest, Sixth Day or Seventh Day, as longas the premium is at least 1.5 times the rate establishedfor similar work during non-overtime hours.
Premiums for Work Outside Specified Hours: Forexample, if an employer promises to establish all 8-hourwork schedules between 6:00 AM and 6:00 PM andfurther promises a premium of at least 1.5 times theRegular Rate for all work outside those hours, thosepremiums are excludable.
The Value of Income Derived from Stock Options,Stock Appreciation Rights and Stock Purchase Plans
REGULAR RATE OF PAY – EXCLUSIONS
74
PRESERVING INDEPENDENT CONTRACTORSTATUS
75
IRS TEST: OVERVIEW
For federal tax purposes, the usual common law rules are
applicable to determine whether a worker is an independent
contractor or an employee.
Under the common law, you must examine the relationship
between the worker and the business. All evidence of the
degree of control and independence in this relationship should
be considered.
The facts that provide this evidence fall into three categories:
Behavioral Control
Financial Control
The Relationship of the Parties.
76
FLSA: ECONOMIC REALITIES TEST
The “economic realities” factors typically include:
the extent to which the work performed is an integral part of the
employer’s business;
the worker’s opportunity for profit or loss depending on his or her
managerial skill;
the extent of the relative investments of the employer and the
worker;
whether the work performed requires special skills and initiative;
the permanency of the relationship; and
the degree of control exercised or retained by the employer.
77PRESERVING INDEPENDENT CONTRACTOR STATUS:PRACTICES TO AVOID
Do not utilize independent contractors who perform the same
duties as company employees.
Do not convert contractors to employees doing the same job.
Do not hire former employees as independent contractors
and, if you do, establish restrictions on their engagement that
prohibit them from performing the same work as when they
were employees.
78PRESERVING INDEPENDENT CONTRACTOR STATUS:PRACTICES TO AVOID (cont’d)
Do not provide independent contractors with employee
benefits.
Not only access to benefit plans but things like vacation,
access to employee discounts, invitations to employee
events.
Do not pay independent contractors in the same manner as
employees – no Christmas Bonus.
Limit training provided to the independent contractor to “need
to know” items that are related to a specific project. Do not
provide a new independent contractor with the full panoply of
training or orientation you would provide to a new employee.
79PRESERVING INDEPENDENT CONTRACTOR STATUS:PRACTICES TO AVOID (cont’d)
Do not require independent contractors to work a particular
schedule or hours of work. It is also important to avoid
tracking independent contractor hours or whereabouts.
Independent contractors should have far greater flexibility to
come and go as needed to complete the assigned project.
80PRESERVING INDEPENDENT CONTRACTOR STATUS:PRACTICES TO AVOID (cont’d)
Place limits on direction given to independent contractors.
Although some degree of communication regarding the
execution of a project is acceptable, you should avoid
controlling the way in which the goals of the independent
contractor are accomplished. Consider financial penalties in
the independent contractor agreement for failure to achieve
goals.
81
PRACTICES TO AVOID (cont’d)
Limit the length and scope of independent contractor projects.
Do not retain the independent contractors on an open ended
basis.
Do not use one independent contractor agreement to cover a
lengthy or open ended retention. Enter into new independent
contractor agreements for each significant project. Defining
the scope of the work to be performed and the length of the
engagement in the agreement are important.
Do not prohibit the independent contractor from working for
more than one client at a time.
20 OfficesACROSS ASIA, EUROPEAND NORTH AMERICA
1 Legal TeamTO INTEGRATE WITH THE STRATEGIC
GOALS OF YOUR BUSINESS
NORTH AMERICA
Atlanta
Chicago
Houston
Los Angeles
New York
Orange County
Palo Alto
San Diego
San Francisco
Washington, D.C.
EUROPE
Brussels
Frankfurt
London
Milan
Paris
ASIA
Beijing
Hong Kong
Seoul
Shanghai
Tokyo
82
For further information, you may visit our home page at
www.paulhastings.com or email us at [email protected]
www.paulhastings.com ©2015 Paul Hastings LLP
NORTH AMERICA EUROPE ASIA
Atlanta1170 Peachtree Street, N.E.
Suite 100
Atlanta, GA 30309
t: +1.404.815.2400
f: +1.404.815.2424
Chicago71 S. Wacker Drive
Forty-Fifth Floor
Chicago, IL 60606
t: +1.312.499.6000
f: +1.312.499.6100
Houston600 Travis Street
Fifty-Eighth Floor
Houston, TX 77002
t: +1.713.860.7300
f: +1.713.353.3100
Los Angeles515 South Flower Street
Twenty-Fifth Floor
Los Angeles, CA 90071
t: +1.213.683.6000
f: +1.213.627.0705
New York75 East 55th Street
First Floor
New York, NY 10022
t: +1.212.318.6000
f: +1.212.319.4090
Orange County695 Town Center Drive
Seventeenth Floor
Costa Mesa, CA 92626
t: +1.714.668.6200
f: +1.714.979.1921
Palo Alto1117 S. California Avenue
Palo Alto, CA 94304
t: +1.650.320.1800
f: +1.650.320.1900
San Diego4747 Executive Drive
Twelfth Floor
San Diego, CA 92121
t: +1.858.458.3000
f: +1.858.458.3005
San Francisco55 Second Street
Twenty-Fourth Floor
San Francisco, CA 94105
t: +1.415.856.7000
f: +1.415.856.7100
Washington, D.C.875 15th Street, N.W.
Washington, D.C. 20005
t: +1.202.551.1700
f: +1.202.551.1705
BrusselsAvenue Louise 480-5B
1050 Brussels
Belgium
t: +32.2.641.7460
f: +32.2.641.7461
FrankfurtSiesmayerstrasse 21
D-60323 Frankfurt am Main
Germany
t: +49.69.907485.0
f: +49.69.907485.499
LondonTen Bishops Square
Eighth Floor
London E1 6EG
United Kingdom
t: +44.20.3023.5100
f: +44.20.3023.5109
MilanVia Rovello, 1
20121 Milano
Italy
t: +39.02.30414.000
f: +39.02.30414.005
Paris96, boulevard Haussmann
75008 Paris
France
t: +33.1.42.99.04.50
f: +33.1.45.63.91.49
Beijing19/F Yintai Center Office Tower
2 Jianguomenwai Avenue
Chaoyang District
Beijing 100022, PRC
t: +86.10.8567.5300
f: +86.10.8567.5400
Hong Kong21-22/F Bank of China Tower
1 Garden Road
Central Hong Kong
t: +852.2867.1288
f: +852.2526.2119
Seoul33/F West Tower
Mirae Asset Center1
26, Eulji-ro 5-gil, Jung-gu,
Seoul, 04539, Korea
t: +82.2.6321.3800
f: +82.2.6321.3900
Shanghai43/F Jing An Kerry Center Tower II
1539 Nanjing West Road
Shanghai 200040, PRC
t: +86.21.6103.2900
f: +86.21.6103.2990
TokyoArk Hills Sengokuyama Mori Tower
40th Floor, 1-9-10 Roppongi
Minato-ku, Tokyo 106-0032
Japan
t: +81.3.6229.6100
f: +81.3.6229.7100
OUR OFFICES83