wage & hour - how much can it cost you?

2006 International 2006 International ConferenceConference

Wage & Hour - How Much Can it Wage & Hour - How Much Can it Cost You?Cost You?

November 9, 2006

Moderator: Carrie Brodzinski (Beazley)

Panelists: Beth Schroeder (Silver & Freedman)

Joe English (Taylor, Busch, Slipakoff & Duma, LLP)

Jack McCalmon (The McCalmon Group, Inc.)

How Do These Cases Arise?How Do These Cases Arise?

• Class Actions• Solo or Multi-Plaintiff Cases• Audits by the Department of Labor (“DOL”)

or State Labor Commissioners• Private Attorney General Statute in

California

What Laws Govern Wage & What Laws Govern Wage & Hour ClaimsHour Claims

• Federal Law, Fair Labor Standards Act (“FLSA”) Enforced by Department of Labor (“DOL”)

• State Law, State Labor Codes Enforced by State Labor Commissioners

• Local Ordinances

Wage & Hour 101: A PrimerWage & Hour 101: A Primer

• FLSA generally requires that employers: Pay employees minimum wage for all

hours worked; Pay employees 1.5 times their regular

hourly rate for all time worked > 40 hours in a workweek (unless exempt); and

Keep accurate records of daily and weekly hours worked by non-exempt employees.

How Difficult Is That?How Difficult Is That?

• The FLSA is one of the most complex of all federal laws, and one of the most difficult for employers to fully comply with Written in the 1930s Voluminous and technical DOL

regulations Inconsistent opinion letters

Broad CoverageBroad Coverage

• FLSA applies to any “enterprise” which has:

1. Employees who touch goods/materials that have been moved in or produced for interstate commerce; and

2. Annual business dollar volume of $500,000.

Covered “Employees”Covered “Employees”

FLSA construed broadly in favor of coverage!

• Common Exclusions: Independent Contractors (in fact, not in

title) Volunteers Trainees / interns / students learning

skill or trade for their benefit

Hours WorkedHours Worked

• Includes all time an employee is required to be on employer’s premises, on duty, or at a prescribed workplace

“The devil is in the details”

Hours Worked: HOT TOPICSHours Worked: HOT TOPICS

• Rest breaks• Meal breaks• Waiting time• On-call time• Commuting/travel time

Minimum WageMinimum Wage

• No matter how pay is determined, it must generate an hourly rate of at least the minimum wage when divided by the number of hours worked in a workweek Federal is $5.15/hour Many states have higher minimum

wage laws

Special rules for “tipped” employees

Overtime PayOvertime Pay

• UNLESS EXEMPT, employees are entitled to overtime pay of 1.5 times the employee’s “regular rate” for all time worked in excess of 40 hours in a workweek

• Certain States, such as California, may impose more stringent rules

• “Regular rate” can be complex and confusing Salaried non-exempt (What hours does

salary cover?)

Regular Rate – Regular Rate – Federal and State LawFederal and State Law

• Overtime is calculated on the basis of an employee’s “regular rate”

• Must include “announced and expected” bonuses, commissions, and other extra compensation

• Piece rate employees are calculated by taking total compensation for week divided by hours worked, and may receive a new rate every week

Main Issue…Main Issue…Exempt vs. Non-ExemptExempt vs. Non-Exempt

• Must meet “salary” test• Must meet “duties” test

Federal vs. California…there are many differences

Salary TestSalary Test

• Under FLSA, must receive $455 a week

• Under California law, must receive salary equal to two times minimum wage, based on 40 hour work week – currently $28,080/year

• Minimum wage in California due to increase January 1, 2007 to $7.50 an hour, and again in 2008 to $8.00

• Computer professionals different - In California, must be nearly $98,000 annually, adjusted every year

Salary TestSalary Test

• Must pay based on work product not hours worked or performance

• No weekly deductions for plant closures or jury duty

• No daily deductions, unless taken from a bona fide vacation, sick or PTO plan

Duties TestDuties TestExempt EmployeesExempt Employees

• Professional, Administrative or Executive• Certain computer related employees• Outside/inside sales employees

Professional EmployeesProfessional EmployeesIn California…In California…

• Licensed attorney, doctor, engineer, etc., or • Engaged in occupation commonly recognized as a learned or

artistic profession (FLSA definition) Work requiring knowledge of an advanced type in a field

customarily acquired by prolonged course of specialized intellectual instruction and study or work that is original and creative in character in a field of artistic endeavor, and

Work predominantly intellectual and varied in character and is of such character that the output produced cannot be standardized in relation to time, and

Work customarily and regularly requiring the exercise of discretion and independent judgment

Professional EmployeesProfessional EmployeesIn California…In California…

• Under Federal law, college degree is probably sufficient; however, under California law, “prolonged course of study” is greater than a four-year college degree

• Registered nurses, dental hygienist, pharmacists, and paralegals are not professionals under California law

• Staff accountants and auditors who do not hold a CPA license are usually not exempt as professionals in California

Executive EmployeesExecutive Employees

• Duties and responsibilities involve the management of the employer’s business or a customarily recognized department or division of the business, and

• Customarily and regularly directs the work of two or more other employees, and

• Has the authority to hire or fire other employees, or effectively recommend such action, and

• Customarily and regularly exercises discretion and independent judgment

Working ManagersWorking Managers

• Federal law vs. California – issue regarding “primary duty”

• Key – In California, cannot spend more than HALF of his/her time on non-exempt functions Seating guests, pouring coffee, expediting food,

stocking shelves, conducting inventory, providing customer service, bookkeeping, cooking and assisting on a cash register ARE NOT exempt duties!

Based on actual work duties, not job description!• “Assistant” managers are always suspect,

especially in California

Administrative EmployeesAdministrative Employees

• Duties involve either: Performance of office or non-manual

work directly related to management policies or general business operations of the employer or the employer’s customers, or

Performance of functions in the administration of a school system or educational establishment


• Customarily and regularly exercises discretion and independent judgment, and either: Regularly and directly assists a business

owner, or an employee working in a bona fide executive or administrative capacity, or

Performs under only general supervision work along specialized or technical lines requiring special training, experience or knowledge, or

Executes under only general supervision special assignments and tasks


• Again, cannot perform non-exempt functions more than half the time

• Non exempt functions include: Bookkeeping Clerical functions Technical services Customer service or support Payroll services Phone support/receptionist duties

Suspect ClassesSuspect Classes

• Accounting personnel below CFO or Controller level

• Customer service, account executives or account managers

• IT or IS personnel below manager level

• Secretaries, payroll clerks, general admin personnel

• Underwriters or adjusters

• Loan officers bank tellers• Stock brokers• Technical service writers• Quality control or

assurance• Marketing, public

relations, graphic artists• Screenwriters,

development, animators, associate producers, technical personnel

• Primarily engaged in work that is intellectual or creative and requires the exercise of discretion and independent judgment, and

• Primarily engaged in one or more of the following: Application of systems analysis

techniques and procedures, or

Computer PersonnelComputer Personnel

Design, development, documentation, analysis, creation, testing or modification of computer systems or programs based on and related to user or system design specifications, or

Documentation, testing, creation or modification of computer programs related to the design of software or hardware for computer operating systems, and

• In California, earns an hourly rate of at least $47.81 to be adjusted annually

Computer PersonnelComputer Personnel

Sales PersonnelSales Personnel

• Outside Sales More than 50% of time outside of office/home office More than half time dedicated to sales

• Inside Sales Earns at least 50% of income on “commission” basis Earns at least 1 ½ times minimum wage (currently

$405.00 a week in California ) Only applicable to Wage Orders 4 and 7 in California

AND “retail sales” under FLSA Only exempt from OT, not other rules (such as meal

and rest breaks) BIG issue under federal as well as state law

(e.g., stock brokers)


And then there is California…And then there is California…

Why the Surge in Wage & Why the Surge in Wage & Hour Cases?Hour Cases?

• FLSA dates back to 1930’s, so…? Sav-On decision (2005)

• Allowed classes to be certified more easily Cortez decision (2000)

• Allowed plaintiffs to use Business & Professions Code § 17200 as a tool to recover unpaid wages and extended statute of limitations to four years

Increased internet advertising by attorneys

California’s Private Attorney California’s Private Attorney General Act – Section 2699General Act – Section 2699

• Civil action by employee to recover penalties for certain violations of Labor Code where normally no private right of action

• Employee gets 25% of recovery; State gets the rest

• Employer pays employee attorneys’ fees• Effective August 11, 2004, SB 1809

amended Section 2699 to require a 30 day notice to DLSE before civil lawsuit can be filed

Rest and Meal PeriodsRest and Meal PeriodsCalifornia’s Hottest Issue – California’s Hottest Issue –

Meal PeriodMeal Period• Minimum ½ hour, unpaid meal period for employee working at least

five hours If employee works no more than six hours, meal period may be

waived • We recommend the waiver be in writing, but it’s not

required by law Otherwise, under current law, employee MUST actually take

the meal period DLSE has interpreted this to mean that an employee cannot

work more than five consecutive hours without a meal break• Employees must be fully relieved of all duties during the meal

period unless nature of work does not permit On duty, paid meal period Very limited interpretation Must be authorized in writing with employee right to revoke

Rest and Meal PeriodsRest and Meal PeriodsRest BreaksRest Breaks

• Ten minute paid break for every four hours worked

• Need only be made available, i.e., need not force employees to take them (unlike meal period!!)

Rest and Meal PeriodsRest and Meal PeriodsWhat is the Cost?What is the Cost?

• If employee does not receive meal or rest break, employer must pay one hour of employee’s pay for each day in which employee does not get all breaks and meal periods

• Employers may automatically pay the extra hour if the employee works through the meal

Uncertainty in Meal and Rest Uncertainty in Meal and Rest Break RulesBreak Rules

• Is one hour of additional compensation a “penalty” or a “wage”? If penalty, only one year statute of limitations; if wage,

up to four year statute (Under Business & Professions Code Section 17200).

If penalty, employee cannot recover other penalties in addition to the one hour; if wage, employee would be entitled to additional penalties for failing to pay wages owed.

If penalty, employee cannot recover attorneys’ fees; if wage, employee can recover attorneys’ fees.

Hot Issues

Other Hot TopicsOther Hot Topics

• Recent Popular Class Action Issues

Exempt/non-exempt Overtime/regular rate/hours worked Meal & rest break violations Working “off the clock” Forfeiture of wages (commissions often at risk) Unlawful tip pooling (including managers and

bartenders) Unlawful bonus programs

Hot Issues

Other Hot TopicsOther Hot Topics

• Recent Popular Class Action Issues

Time edits/“shaving” Reporting/call in pay Reimbursement of expenses – Labor Code

§2802 Uniforms and other payroll deductions Split-shifts Server banking Final paychecks Unused vacations

How Much Can a Mistake How Much Can a Mistake Cost?Cost?

• Unpaid overtime or other wages and/or penalties per employee One year for penalties per California Law For wages, three years under Labor Code For four years under Business & Professions

Code section 17200Double damages under FLSA

• Attorneys’ fees for actions brought in court• Cost of defense of the claim

May be less than you think!

How Much Can a Mistake How Much Can a Mistake Cost?...Plus PenaltiesCost?...Plus Penalties

• Failure to pay any owed wages upon termination Labor Code section 203 – 30 days

waiting penalties at employee’s daily rate• Refusal to pay owed wages

Labor Code section 225.5 - $100 per employee, per violation, plus 25% of amount unpaid

How Much Can a Mistake How Much Can a Mistake Cost?...More PenaltiesCost?...More Penalties

• Underpaid employee Labor Code section 558 - $50 for first violation,

$100 thereafter, per violation, per employee Labor Code section 1197.1 - $100 for first

violation, $250 thereafter per violation, per employee

• Failure to pay minimum wage Labor Code section 1194.2 – liquidated

damages in amount equal to unpaid wages Fair Labor Standards Act – double damages

Who Has to Pay?Who Has to Pay?

• The Company

• Per new California Supreme Court ruling in Reynolds, individuals are NOT liable for most wage and hour violations May be liable for penalties only under certain

Labor Code Sections which expressly refer to “responsible persons”

• NOT insurance – Wage and hour claims are excluded from most insurance policies, including EPLI

Loss Prevention StrategiesLoss Prevention Strategies

• Class action risks Employers whose workforce is primarily comprised of non-

exempt employees Employers whose work is performed primarily by

“independent contractors” Multi-state employers Multi-city employers

• Certain cities impose wage and hour requirements Living wage

Employers with centralized human resource departments

• No on-site management


• Litigation Economics Wage and hour - the perfect class action

• Claimants Past employees Present employees

• Class easy to recruit• Easier to certify

Violations easy to prove• Facts rarely disputed

Time cards ultimate proof• No science needed

Accountants only• Damages easier to prove

Interest and penalties act as multiplier• Recovery small for individual claimants, but huge for attorneys


• Procedures Each locality must have its own payroll procedures An attorney should review the wage and hour

procedures for each locality

• Job Descriptions Every job must be classified either as exempt or non-

exempt• A legal opinion should be obtained for any

questionable exempt classification Employees should acknowledge their job description /

classification


• Employee Handbook Should define the different

classifications Should direct employees where they can

discover their classification Should provide and outlet for questions

and disputes Should incorporate retaliation prevention

measures


• On-Site Controls Employers should have management

personnel trained on wage and hour matters at every location

Employers should audit each location’s payroll records every two years

Every claim made to the Department of Labor or a state labor department should be investigated quickly and professionally


• Training Certain management personnel in each locality

should be trained on the federal, state and local labor laws

• Human resources personnel an obvious choice

All managers should be made aware of what they can and cannot do as to non-exempt employees’ time

• Special attention to breaks, clocking in, and working overtime


• Payroll services Closely review their contractual obligations

• What they guarantee and do not guarantee

• Educate your insured/clients Review wage and hour opinions Monitor decisions Work closely with wage and hour specialists Many carriers offer wage and hour education as part

of their loss prevention platforms Hot lines to attorneys with wage and hour questions


Wage & Hour - How Much Can it Cost You?Wage & Hour - How Much Can it Cost You?

Thank you for attending!

wage & hour - how much can it cost you?

Documents

employees minimum wage

weekly hours

nonexempt employees

regular rate federal

number of hours

times minimum wage

regular hourly rate

employees regular ratemust