Delaware Employment Law Blog

Furloughs and other layoff alternatives have gotten quit a bit of press lately, largely because of the economy. Employers often want to know what the legal implications of these programs are before implementing them. The U.S. Department of Labor (DOL), Wage and Hour Division has issued a new FAQ addressing these questions.  (FAQ re: Furloughs and Other Reductions-in-Pay and Hours-Worked Issues). It’s a good reference guide, which you should review if your organization is considering a flexible-downsizing initiative. 

Here are two of the questions addressed that I see most frequently with clients:

Is it legal for an employer to reduce the wages or number of hours of an hourly employee?

In short, the answer is “yes.”  But Delaware employers should remember that employees must be notified of any change in pay in writing.  And a reduction in the predetermined salary for an exempt employee may result in the loss of exempt status, so employers should treat that idea separately.

Can a salaried exempt employee volunteer to take time off due to lack of work?

The question of paying exempt employees for time off is one of the most difficult in the wage-and-hour realm.  If the time off is (1) totally voluntary; (2) for a full day; and (3) is taken for personal reasons, other than sickness or disability, salary deductions may be made for the missed work.  Here, the key is that the choice must be truly voluntary.

Click here for other posts on the Fair Labor Standards Act

An appellate court has overturned a jury verdict awarded to a class of Starbucks baristas in a tip-pooling case  last year.  The wage-and-hour claim had alleged that the baristas were made to wrongfully share their tips with a shift supervisor.  The trial court had determined that California state law prohibited the supervisors from sharing the shift's tips, despite the fact that the supervisors performed normal Barista duties in addition to their supervisory duties. 

The Court of Appeal found this determination to be in error, explaining:

The applicable statutes do not prohibit Starbucks from permitting shift supervisors to share in the proceeds placed in collective tip boxes. . . . There is no decisional or statutory authority prohibiting an employer from allowing a service employee to keep a portion of the collective tip, in proportion to the amount of hours worked, merely because the employee also has limited supervisory duties.

This decision is limited to California wage-and-hour law but has positive implications for all employers--especially those in the hospitality industry, who are most often the target of tip-pooling lawsuits.

Read the full court decision:  Chau v. Starbucks.  Or see these blogs for additional summaries:  Overtime Advisor; California Labor & Employment Law Blog; Shaw Valenza, LLP; San Francisco Employment Law Firm Blog.

Wage-and-hour lawsuits may be the worst feared by many employers, and for good reason. If successful, an employee who brings a wage claim is entitled to double damages and an award of   his attorney’s fees and costs. A claim for $1,000 of unpaid overtime could translate to $2,000 in damages and, if an attorney was involved, several times that amount for fees and costs.

Over the past few years, there has been an explosion of wage-and-hour class actions, as well. Financial powerhouses such as Smith Barney were hit with damages in the tens of millions for collective claims brought by employees who had been improperly classified as exempt and were due unpaid overtime.

Even well-intended employers aren’t necessarily safe from suit. In many industries, standard wage practices are unlawful but, because it’s been the way of business for so long, many employers may not know of the error until it’s too late. And employers who do audit their wage-payment practices may be more confused than ever after trying to make sense of the very complicated Fair Labor Standards Act (FLSA). (Review the FLSA courses from our HR Summer School to see just how well you know the ins and outs of this complex statute.)

It doesn’t look like this grim picture will be improving any time soon. A report from the Government Accountability Office (GAO), released this week, claims that the Department of Labor (DOL), is failing miserably with its enforcement duties. The DOL’s Wage & Hour Division (WHD), is charged with enforcing minimum wage, overtime, child labor, and other similar laws. Employees who believe they’ve not been properly compensated can file a claim with the WHD, which will investigate it on the employee’s behalf. If the WHD determines that the employee’s claim is valid, it has authority to seek resolution for the employee or to refer the case for suit.

The GAO’s report states that the WHD is miserably understaffed, which has resulted in investigations that drag out for months. Other claims are simply dropped when the investigator is unable to reach the employer.

Under the Fair Labor Standards Act (FLSA), nonexempt employees must be paid for every minute worked. It is the duty of the employer to maintain records of time worked by its employees.  To accomplish this, many employers have an electronic time clock, which employees use to "punch in" and "punch out" at their starting and ending times.  Neither the FLSA nor the Delaware Wage Payment and Collection Act ("DWPCA"), require employers to use time clocks  but there is a great number of reasons to do so. 

One question that often arises from employers who use time-clock systems is how to handle "rounding time worked"?  If an employee must be paid for all time worked and he clocks in at 8:01 a.m., must the employer's payroll system generate a payment for 1 hour and 1 minute?  If not, does the employer have to pay the employee for 1 hour and 15 minutes if its payroll system is set up to pay in 15-minute increments?

The FLSA explicitly permits "rounding" of an employee's starting and stopping times.  In fact, the Department of Labor has promulgated a regulation that deals directly with this question.  According to 29 C.F.R. Sec. 785.48(b):

It has been found that in some industries, particularly where timeclocks are used, there has been the practice for many years of recording the employee's starting time and stopping time to the nearest five minutes, or to the nearest one-tenth or quarter of an hour.  Presumably, this arrangement averages out so that the employees are fully compensated for all the time they actually work.

As an example, assume that the employer pays in 15-minute increments and has an established practice of rounding working time in this amount.  This method is acceptable, provided that the rounding must not always benefit the employer--the rounding method must "average out."  To ensure that you are "averaging out" the employee's working time when using a rounding method to calculate time worked, you have three options:

1.  Always round up to favor the employee.  (This works just fine for some employers due the easy calculations and certainty of compliance).

2.  Round up to favor the employee at starting time and round down to favor the employer at ending time. (A little complicated for many payroll systems but workable for others).

3.  Round up and down based on the increment.  For example, if the employee reports to work at 8:08 a.m, he would be paid for time worked beginning at 8:15 a.m.  If he clocked in at 9:07 a.m., he would have to be paid for time worked beginning at 9 a.m.  

Over time, the presumption is, this system would even out in a way that is fair to both employer and employee. 

See our previous posts on the wage and hour requirements of the Fair Labor Standards Act. 

The Fair Labor Standards Act (FLSA), requires employers to make, keep, and preserve records regarding employees and employee compensation.  The FLSA provides a 15-item list of the types of information that the employer has the obligation to obtain.  All primary sources of this information must be preserved for a period of three years for all current and former employees.  All supplementary sources must be preserved for at least two years. 

What Information Am I Required to Keep?

First, you must be familiar with the information for which you are responsible.  The list includes:

1. Name and SSN;
2. Home address;
3. Date of birth if under age 19;
4. Sex and occupation
5. Day and time on which the workweek begins;
6. Hourly rate of pay;
7. Basis of pay;
8. Nature of any payment claimed as an exclusion from the regular rate;
9. Total hours worked for each day and each week;
10. Total straight (i.e., non-overtime or premium) pay;
11. Total overtime pay;
12. Additions and deductions made, including wage assignments;
13. Total wages paid;
14. Date of payment and pay period covered; and
15. The company's sales and purchase records for purposes of determining whether it is an enterprise with an annual business volume of $500,000.

What Are the Primary and Secondary Sources of this Information?

All records that constitute primary sources of the above-listed information must be preserved for a period of three years.  Such records include:

• payroll records;
• work certificates;
• CBAs; and
• employment contracts.

Supplementary records are the documents that serve as the source documents for other payroll records. Supplementary records may include:

• time cards;
• production cards;
• wage rate tables;
• piece-rate schedules; and
• work-time schedules.

What Else Should I Keep and Where Should I Keep It?

Although not required by the FLSA, it is a good idea to retain job descriptions, performance reviews, internal memos, job postings, handbooks, and other materials relating to wage classifications and pay practices that you could use to justify your pay practices during an audit, for a period of at least three years.

The FLSA requires that all records be kept at the place or places of employment or at one or more established central record-keeping offices, where such records are customarily maintained.  If kept outside the place of employment, they must be available within 72 hours of a request by the U.S. Department of Labor.

And, finally, don't forget about your posting requirements.  Employers must post notices in the workplace that state the requirements of the FLSA. 

The Fair Labor Standards Act (FLSA), is a very challenging statute to apply correctly.  For more information about legal compliance with the federal wage and hour laws, see the following posts:

Top 5 FLSA Topics

Executive Exemptions and the Fair Labor Standards Act (FLSA)

5 Words of Warning about Improper Deductions and the FLSA

FLSA FAQ: Overtime and Unpaid Leave

FLSA 101: Who Is Covered Under the Fair Labor Standards Act?

FLSA 102: Minimum Wage Requirements of the Fair Labor Standards Act

FLSA 103: Defining What Constitutes "Hours Worked"

FLSA 104: Overtime and the Fair Labor Standards Act

What counts towards “hours worked” under the Fair Labor Standards Act (FLSA), can become an issue when it comes to the Family and Medical Leave Act (FMLA), as well. An employee has been approved to take intermittent FMLA leave one to three days per month. When the employer asks the staff to work overtime, the employee volunteers. He claims that he should be paid at his overtime rate even though he was out on FMLA leave for some portion of the week. Is this true?

Let’s look at the numbers. Let’s say that the employee takes off on Monday and Wednesday for FMLA leave, thus working 24 of the 40 hours for which he was scheduled. And then he volunteers to work on Saturday, a day outside his normally scheduled work time. In all, he actually worked 32 hours (24 + 8), with an additional 16 hours of FMLA leave time. The 16 hours do not count as “hours worked” under the FLSA.

Because he did not work more than 40 hours in one week, the employee is not entitled to overtime pay.

The result is the same even if the employee is paid sick or vacation time during the FMLA leave time. The use of such paid time still does not count toward an employee’s total hours worked.

The Fair Labor Standards Act (FLSA), is the hottest law in employment litigation today.  And for good reason--the potential liability can multiply exponentially if more than one employee is found to have improperly paid.  A single claim quickly becomes a collective action. 

If an unauthorized deduction is made, that deduction could convert the employee's status to non-exempt for the period during which the deductions occurred.  This means that the employer would be required to pay an employee for all hours work plus time and a half for any hours over forty (40) per week.  The loss of exempt status applies when there is another employee for whom improper deductions were made in the same job classification and working for the same managers or supervisors responsible for the improper deductions.  Therefore, improper deductions have the potential to become costly.

The U.S. Department of Labor's (DOL), regulations provide employers with an affirmative defense if improper deductions are erroneously made by the employer.  An employee will not lose his exempt status if the employer has a clearly communicated policy that prohibits improper deductions and sets forth a clear complaint procedure.  This "safe-harbor" policy is considered "clearly communicated" if it is published in an Employment Handbook or located on the company intranet.  The employer must also include information that indicates how an employee should report the violation, such as to notify the human resources department, supervisor or owner in writing.

I've written here before about the dangers of improperly deducting the salary of exempt employees.  (See  The Effect of Improper Deductions on Exempt Status Under the FLSA).  The topic came up again last week during a seminar I taught with Scott Holt--Advanced Issues under the Fair Labor Standards Act.  In discussing the potential dangers of improper deductions, I mentioned the need for employers to check their handbooks and confirm that they have included a "Safe-Harbor" provision.  A lot of eyebrows were raised over that statement and so I agreed to send the attendees a sample policy for their reference.  And, because I'm a firm believer in sharing, I'm posting it here, as well:  

SAMPLE SAFE-HARBOR POLICY (IMPROPER DEDUCTIONS FROM PAY)
The Company complies with the salary basis requirements of the Fair Labor Standards Act (FLSA). The Company does not make improper deductions from the salaries of exempt employees. Exempt employees are those employed in a bona fide executive, administrative, or professional capacity and who are exempt from the FLSA’s overtime pay requirements.

What Deductions Are Permitted?
There are certain circumstances where deductions from the salaries of exempt employees are permissible. Such circumstances include:

• When an exempt employee is absent from work for one or more full days for personal reasons other than sickness or disability; 
• When an exempt employee is absent for one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness;
• To offset amounts received as witness or jury fees, or for military pay; or 
• For unpaid disciplinary suspensions of one or more full days imposed in good faith for workplace conduct rule infractions. 

Also, an employer is not required to pay the full salary in the initial or terminal week of employment; for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act or; for penalties imposed in good faith for infraction of safety rules of major significance. In these circumstances, either partial day or full day deductions may be made.

What to Do If an Improper Deduction Occurs
If you are an exempt employee and believe that an improper deduction has been made to your salary, you should immediately report this information to your direct  supervisor, or to the manager of the Human Resources Department.
Reports of improper deductions will be promptly investigated. If it is determined that an improper deduction has occurred, you will be promptly reimbursed for any improper deduction made.

Worried that you're not up to speed on all of the requirements of the FLSA?  Don't worry, you're not alone.  Catch up on the FLSA basics with some of the materials from our HR Summer School series:

Top 5 FLSA Topics

Executive Exemptions and the Fair Labor Standards Act (FLSA)

5 Words of Warning about Improper Deductions and the FLSA

FLSA FAQ: Overtime and Unpaid Leave

FLSA 101: Who Is Covered Under the Fair Labor Standards Act?

FLSA 102: Minimum Wage Requirements of the Fair Labor Standards Act

FLSA 103: Defining What Constitutes "Hours Worked"

FLSA 104: Overtime and the Fair Labor Standards Act

The Fair Labor Standards Act (FLSA), mandates that covered, non-exempt employees must be paid at a rate equal to one and one-half the regular rate of pay for all hours worked over forty in any given workweek.

Compliance with the overtime laws is determined by workweek and each workweek stands by itself.  A workweek is defined as 7 consecutive, 24-hour periods (168 hours), but which 7 consecutive days can be chosen by the employer. 

The regular rate of pay is determined by dividing total earnings in the workweek by the total number of hours worked in the workweek.  The regular rate can never be less than the applicable minimum wage.  Not everything, though, is included in the calculation of the regular rate.  Excluded from the calculation are:

• Sums paid as gifts;
• Payments for time not worked;
• Reimbursement for expenses;
• Discretionary bonuses;
• Profit-sharing plans;
• Retirement and insurance plans;
• Overtime premium payments; and
• Stock options.

To determine the regular rate (RR), take the total straight-time earnings (make sure to exclude any of the above) and divide it by the total hours worked.  The overtime rate is calculated at a rate equal to the regular rate multiplied by .5.  The overtime rate is then multiplied by the number of overtime hours worked.  This amount is the total overtime premium due.  Three examples follow, below.

Example 1:  Hourly Rate and Production Bonus

Total Hours + 48     Hourly Rate = $9      Bonus $10

46 hours x $9 =432 + 10 = $442 / 48 = $9.21 (Regular Rate)

$9.21 x .5 = $4.61 x 8 hrs = $36.88 (Overtime Due)

Example 2:  Different Hourly Rates

Lifeguard Rate $8.50   Lifeguard Hours 21 = $178.50

Cabana Attendee $9.00    Cabana Attendee Hours  26   = $234.00

Total straight-time earnings = $412.50 / 47 hours = $8.78 (Regular Rate)

$8.78 (Regular Rate) x .5 = $4.39 (Overtime Rate)

$4.39 (Overtime Rate) x 7 hours = $30.73 (Overtime Due)

Example 3:  Tipped Employees

Rate Paid by Employer $2.13

Tip Credit Claimed $3.72

Regular Rate:  $5.85

Additional Half-Time Rate  $2.93

50 Hours  $5.85  =$292.50

10 hours x $2.93 =$29.30

Total Due             =$321.75 (less tip credit)

Tip Credit 50 x $3.72 =$186.00

Total Cash Wage Due = $135.75

For more about the basics of the FLSA, see:

FLSA 101: Who Is Covered Under the Fair Labor Standards Act?

FLSA 102: Minimum Wage Requirements of the Fair Labor Standards Act

FLSA 103: Defining What Constitutes "Hours Worked"

What counts towards “hours worked” under the Fair Labor Standards Act (FLSA), can become an issue when it comes to the Family and Medical Leave Act (FMLA), as well. An employee has been approved to take intermittent FMLA leave one to three days per month. When the employer asks the staff to work overtime, the employee volunteers. He claims that he should be paid at his overtime rate even though he was out on FMLA leave for some portion of the week. Is this true?

Let’s look at the numbers. Let’s say that the employee takes off on Monday and Wednesday for FMLA leave, thus working 24 of the 40 hours for which he was scheduled. And then he volunteers to work on Saturday, a day outside his normally scheduled work time. In all, he actually worked 32 hours (24 + 8), with an additional 16 hours of FMLA leave time. The 16 hours do not count as “hours worked” under the FLSA.

Because he did not work more than 40 hours in one week, the employee is not entitled to overtime pay.

The result is the same even if the employee is paid sick or vacation time during the FMLA leave time. The use of such paid time still does not count toward an

White-collar exemptions from the minimum wage and overtime requirements are the most common exemptions under the Fair Labor Standards Act (FLSA).  The second of the three tests used to determine whether an employee is covered by the white-collar exemption is the Salary Basis Test.  If exempt employees' pay is subject to improper deduction, the exemption may be lost and the employer could be liable for unpaid overtime wages. 

Deductions from the employees' predetermined salary are improper when made for absences occasioned by the employer or by the operating requirements of the business.  If the employee is ready, willing, and able to work, deductions may not be made for time when work is not available. 

Payroll Practices that Constitute Improper Deductions

Some examples of improper deductions include:

• Deduction for a partial-day absence to attend a parent-teacher conference;
• Deduction of a day of pay because the employer was closed due to inclement weather;
• Deduction of three days of pay because the employee was absent from work for jury duty, rather than merely offsetting any amount received as payment for jury duty;
• Deduction for a two-day absence due to a minor illness when the employer does not provide wage-replacement benefits for such absences.

Payroll Practices that Do Not Constitute Improper Deductions

There are some exceptions from the no-pay-docking rule.  In these situations, the employer will not lose the exemption by deducting pay from the employee's salary:

• The employee is absent from work for one or more full days for personal reasons, other than sickness or disability;
• The employee is absent from work for one or more full days due to sickness or disability if deductions made under a bona fide plan, policy, or practice of providing wage-replacement benefits for these types of absences;
• To offset any amounts received as payment for jury fees, witness fees, or military pay.*
• Penalties imposed in good faith for violating safety rules of "major significance;
• Unpaid disciplinary suspension of one or more full days imposed in good faith for violations of written workplace conduct rules;
• Proportionate part of an employee's full salary may be paid for time actually worked in the first and last weeks of employment.

*Note that, in some states, employers are prohibited from offsetting wages for these items.

Some additional payroll practices that do not violate the salary basis test include:

• Taking deductions from exempt employees' accrued leave accounts;
• Requiring exempt employees to keep track of and record their hours worked;
• Requiring exempt employees to work a specified schedule; and
• Implementing bona fide, across-the-board schedule changes.

Effect of Improper Deductions

An actual practice of making improper deductions from salary will result in the loss of the exemption.  To determine whether an actual practice exists, some of the factors include:

• The number of improper deductions, particularly as compared to the number of employee infractions warranting discipline;
• The time period during which the employer made improper deductions;
• The number and geographic location of both the employees whose salaries were improperly reduced and the managers responsible; and
• Whether the employer has a clearly communicated policy permitting or prohibiting improper deductions.

If an actual practice is found to exist, the exemption will be lost only:

• during the time period in which improper deductions were actually made
• for employees in the same job classifications
• working for the same managers responsible for the actual improper deductions.

Using the organization chart above as an example:

• If Manager A has docked the pay of Engineer A on each of 12 days when Engineer A arrived late to work during the last 3 months,
• The exemption could be lost only for Engineer A and Engineer B and
• The exemption could be lost only during those 3 months
• But the exemption could not be lost for Chemist or for Engineers C or D.

This is because the exemption can be lost only  (1) during the time period when improper deductions were made (the 3-month period); (2) for employees in the same job classification (which is why Chemist's exemption would not be lost); and (3) who work for the same manager as was responsible for the improper deductions (which is why Engineers C and D do not lose their exemptions).

The Safe Harbor Provision

If no actual practice is found to exist, the employer may be able to take advantage of the Safe-Harbor provision.  Isolated or inadvertent improper deductions will not result in the loss of exempt status if the employer reimburses the employee in accordance with the Safe Harbor provision.  The Safe Harbor provisions provides that the exemption will not be lost if the employer:

• Has a clearly communicated policy prohibiting improper deductions and including a complaint mechanism;
• Reimburses employees for any improper deductions; and
• Makes a good faith commitment to comply in the future
• Unless the employer willfully violates the policy by continuing to make improper deductions after receiving employee complaints.

Employees must be paid wages for all time worked.  Period. That's the law.  It seems simple enough but the seeming simplicity of that statement can be deceptive.  What constitutes "time worked" has remained an elusive concept for many employers.  As a result, the issue of what should be included in a calculation of the total time worked for compensation purposes, has generated a great deal of case law on the issue--some making clearer and others making the issues even more complex.

Work "suffered" is time worked.  Work that was not requested by the employer but that was "suffered" or "permitted" is considered time worked.  Then, of course, the question becomes when has an employee "suffered work."

Waiting time is counted as time worked when the employee is unable to use the time effectively for his own purposes and the time is controlled by the employer.   Waiting time is not counted as hours worked when the employee is completely relieved from duty; and the time is long enough to enable the employee to use it effectively for his own purpose.

On-call time is time worked when the employee has to stay on the employer's premises or the employee has to stay so close to the employer's premises that he cannot use that time effectively for his own purposes. But, simply being required to wear a pager or to leave word at home or with the employer about where the employee can be reached, is not considered "on-call" time that constitutes "work suffered."

Meal periods are not hours worked when the employee is relieved of duties for the purposes of eating a meal.  But rest periods (include smoking breaks, if permitted), lasting 5 to 20 minutes are counted as time worked and must be paid accordingly. 

When traveling between work and home, employees are not considered to be working and the time spent traveling is not working time.  Travel during the normal working day between job sites is considered working time.

Time employees spend in meetings, lectures, or training, is considered hours worked and must be paid unless:

• attendance is outside regular working hours;
• attendance is voluntary;
• the course, lecture, or meeting is not job-related; and
• the employee does not perform any productive work while attending.

For more about the basics of the FLSA, see:

FLSA 101: Who Is Covered Under the Fair Labor Standards Act?

FLSA 102: Minimum Wage Requirements of the Fair Labor Standards Act

The Fair Labor Standards Act ("FLSA"), provides that covered employees must be paid no less than the current state or federal minimum wage, whichever is greater, for all hours worked. The Delaware minimum wage is $7.15 trumps the current federal minimum wage of $6.55. 

Although the concept of minimum wage is not a complicated one, there are some issues that can blur the obviousness of the hourly wage amount.  One such issue is what exactly should be included as compensation when determining whether minimum wage has been paid for all time worked.  Included in the definition of compensation are:

• Wages (salary, hourly, piece rate);
• Commissions;
• Certain bonuses;
• Tips received by eligible tipped employees (up to $4.42 per hour); and
• Reasonable cost of room, board , and other "facilities" provided by the employer for the employee's benefit.

The fifth type of compensation, "board and lodging," presents some nuances of its own.  For example, it cannot exceed the actual cost of the facilities provided and cannot include a profit for the employer.  The employer must follow good accounting practices when determining the reasonable cost.  And, if no cost is incurred, the employer may not take a credit.

Deductions from pay can present major problems when they bring an employee's hourly wage below the minimum wage.  Deductions are illegal if:

• Made for an item considered primarily for the benefit or convenience of the employer; and
• Reduce the employee's earnings below the required minimum wage.

Some of the most common examples of illegal deductions include:

• Tools used for work;
• Required uniforms;
• Damages to employer's property;
• Cash-register shortages.

Tipped employees are not as problematic as illegal deductions but can be complex.  To be considered a "tipped employee" under the FLSA, the employee must work in an occupation in which he customarily and regularly receives more than $30 per month in tips.  Tipped employees must be paid at least $2.13 per hour in cash by the employer, who may claim a "tip credit" for the rest of the minimum wage.  The employer may claim the "tip credit" only if:

• The employer informs each tipped employee about the tip-credit allowance, including the amount to be credited before the credit is utilized;
• The employer can document that the employee received at least enough tips to bring the total wage paid up to minimum wage or more;
• All tips are retained by the employee and are not shared with the employer or other employees, unless through a valid tip-pooling arrangement.

An example of the FLSA's minimum-wage requirements in action:

Employee receives $9 per hour for 40 hours plus $5 in commission and $20 in reasonable cost of room and board. 

Total earnings = $360 + $5 + $20 = $385

Total earnings / total hours = $385 / 40 = $9.63

 

See also:  FLSA 101: Who Is Covered Under the Fair Labor Standards Act?

The Fair Labor Standards Act (FLSA) protects more than 130 million workers in more than 7 million workplaces. 

There are two types of coverage under the FLSA:

• Enterprise coverage:  If an enterprise is covered, all of the enterprise's employees are entitled to FLSA protection.
• Individual coverage:  Even if the enterprise is not covered, individual employees may be covered and entitled to FLSA protections.

To qualify for enterprise coverage, the "enterprise" must have at least two employees and must generate at lease $500,000 per year in business.  For the purposes of the FLSA, enterprises include:

• Hospitals;
• Businesses providing medical or nursing care for residents;
• Schools;
• Preschools; and
• Federal, state, and local government agencies.

To qualify for individual coverage, the employee must be engaged in:

• Interstate commerce;
• Production of goods for commerce;
• Closely-related process or occupation directly essential such production; or
• Domestic service.

Don't underestimate the first possible qualification:  employees engaged in interstate commerce.  This may include even the most minimal activity across state lines, such as:

• Making telephone calls to other states;
• Typing letters to other states;
• Processing credit-card transactions;
• Traveling to other states.

As a general rule, almost every employee in the U.S. is covered by the FLSA. Some examples of employees who may not be covered include:

• Employees working for small construction companies;
• Employees working for small independently owned retail or service businesses.

The FLSA has wrecked havoc on many employers, big and small.  Failure to properly pay employees overtime can have devastating consequences.  When trying to determine whether a certain employee should be classified as exempt or non-exempt, the general trend is to play it safe rather than be sorry.  In other words, when in doubt, pay overtime.  Well, this theory has turned out to be not as safe as the Ohio Department of Transportation ("ODOT") probably hoped.

The state's attorney general says that ODOT violated federal labor laws by paying $2 million a year in overtime to managers and other workers who should have been classified as exempt, thereby not being entitled to earn overtime compensation.  State inspectors initiated an audit and concluded that there was no justification for the nearly $6 million in overtime paid out since 2005.

The Fair Labor Standards Act ("FLSA"), presents substantial exposure for employers.  Although most employers are aware of the dangers of the FLSA's overtime regulations, some of the other provisions of the FLSA are less known but equally risky.  One such area is improper deductions taken from the weekly pay of exempt employees.  Here is a quick run down of the basics you need to know.  Remember, these rules govern exempt employees who are paid on a salary basis. 

The general rule is that exempt employees must be paid for the entire week, regardless of whether they work the whole week. There are some exceptions to the rule.

1.    Disciplinary suspensions can be tricky.  A suspended employee need not be paid for the week if he did not work any time during that week. This exception does not work if the employee works even one day, or even a couple of hours, during the week. Further, the suspension must be made in good faith based on workplace conduct-rule infractions.  If no written policy was violated, it is not advisable to deduct that time missed. But, if an employee is suspended or sent home as a penalty imposed in good faith for infractions of safety rules of major significance. 

2.    The employee need not be paid if he is absent from work for one or more full days for personal reasons other than sickness or disability.  Deductions may be made for absences of one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness.  Remember, this exception applies only if the employee missed the full day of work. 

3.   Deductions may be made to offset amounts employees receive as jury or witness fees, or for military pay.

4.     The employee need not be paid for the entire week during the first and terminal weeks of employment.  So, if the employee's first day of work is on a Wednesday, he can be paid on a pro rata basis for that week instead of the entire week's salary.  Same goes for the employee's last week.  If the employee quits without notice on Wednesday, you need not pay him for Thursday and Friday.

5.    Finally, deductions may be made for weeks in which an exempt employee takes unpaid leave under the Family and Medical Leave Act.

The Fair Labor Standards Act (FLSA) requires that employees be paid at an overtime rate for all time worked in a workweek over 40 hours.  Certain categories of jobs are exempt from the overtime requirements.  The Executive Exemption, for example, provides an exemption from the overtime laws for employees who qualify as "executives."  More specifically, an executive for purposes of the FLSA is an employee who:

1. regularly supervises two or more other employees, and
2. has management as the primary duty of the position, and
3. has some genuine input into the job status of other employees (such as hiring, firing, promotions, or assignments); and
4. is paid a salary of no less than $455 per week.

"Management" means just what you'd probably guess it to mean.  Managerial activities include:

• interviewing, selecting, and training of employees;
• setting and adjusting their rates of pay and hours of work;
• directing the work of employees; maintaining production or sales records for use in supervision or control;
• appraising employees’ productivity and efficiency for the purpose of recommending promotions or other changes in status; handling employee complaints and grievances;
• disciplining employees; planning the work; determining the techniques to be used;
• apportioning the work among the employees; determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold;
• controlling the flow and distribution of materials or merchandise and supplies;
• providing for the safety and security of the employees or the property;
• planning and controlling the budget; and monitoring or implementing legal compliance measures. 

Also included, . . .

Under a special rule for business owners, an employee who owns at least a bona fide 20% equity interest of the organization, regardless of its formal legal structure (e.g., corporation, partnership, or other), and who is actively engaged in its management, also is considered a bona fide exempt executive.

Highly compensated employees performing office or non-manual work and paid total annual compensation of $100,000 or more (which must include at least $455 per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.

Not feeling so confident about your understanding of the FLSA? Our full-day FLSA seminar on November 14 might be exactly what you need to master the challenging world of wage-and-hour compliance.

The Equal Employment Opportunity Commission (EEOC) has been hard at work.  Here's a rundown of some of the latest claims and settlements involving the EEOC and its big sister, the Department of Labor (DOL).

Hotel Heartache

The former owner of a Best Western hotel in Ocean City, Maryland hotel settled a claim for discrimination and retaliation brought by the former executive housekeeper for $36,000.

The owner of the Ramada Inn Wytheville, in Wyethville, Virginia, has settled a claim for unpaid back wages brought by the U.S. Department of Labor.  The hotel owner was alleged to have paid waitstaff the federal tip-credit wage of $2.13 per hour despite the fact that the employees didn't earn enough tips to yield the minimum wage of $5.85 per hour.  The employees were subject to a half-hour meal-break deduction, regardless of whether they actually took, or were permitted to take, any meal break. Finally, the hotel's time records did not reflect the number of hours worked by employees each week.  Improperly paid employees will share in a $23,000 settlement.

Fly Me to the DOL

An aircraft-painting company in New Mexico has agreed to pay more than $227,000 in back wages and fringe benefits to resolve a claim by the U.S. Department of Labor.  Dean Baldwin Painting misclassified employees who worked on an Air Force contract.  Workers assigned to work on military aircraft are paid at a different rate than those who perform work on commercial aircraft.  The company began paying back wages, which will be distributed among 255 current and former employees, four months ago.

And the Last Laugh Goes to. . .

Les Schwab Tire Centers of Montana has agreed to pay $185,000 to settle a racial harassment suit brought by the EEOC on behalf of Earle Nevins, a former Les Schwab employee.  Nevins, a member of the Blackfeet Nation claimed that he'd been subjected to a hostile environment by coworkers who called him derogatory names and made insulting jokes about Native Americans.  The EEOC  suit alleged that, when Nevins complained of the harassment, he was told that the coworkers were merely engaging in "horseplay," and was later fired for his complaints. 

Jin Hua Inc., a restaurant supply company in New York, has agreed to pay 28 employees a total of $110,788 in overtime back wages. in order to resolve a federal lawsuit brought by the Department of Labor.  estigation that disclosed violations of the FLSA’s overtime and record-keeping provisions.

The construction industry should be aware already that the state and federal legislatures, as well as several agencies, have focused (unwanted) attention its way.  The recent wave of immigration reform has targeted construction, especially.  And, because the construction industry is generally considered to have a high rate of misclassified employees working as independent contractors, it has been singled out in a new piece of legislation that has been sweeping silently through state legislatures.  We've written here before about these proposed laws: Pennsylvania House Passes Construction Industry Independent Contractor Act, as well as Construction-Industry Employers Face Criminal Penalties and Increased Fines Under Proposed Law.

Bill Bowser and I spoke yesterday about Construction-Industry Employers Should Be Aware of Proposed Legislation at a seminar for the Delaware Contractors Association. It was clear from the discussion that the Delaware bill proposes a serious risk for employers in the construction industry and beyond.  The Department of Labor reports that the top 4 industries for misclassification are (1) landscaping; (2) nail salons; (3) dental assistants; and (4) construction.  It's likely that the law, if passed, and especially if it starts to generate the revenues advocates claim it will, that similar laws will be passed for other industries, or state-wide generally. 

With potentially criminal penalties and extraordinary fines, this piece of legislation would have a major impact on employers in the construction industry with widespread effects across the other industries, as well.

Dan Schwartz, at the Connecticut Employment Law Blog reported that his State is facing a similar proposal.  Obviously, this is a catchy idea.  Or, more likely, it has some organized supporters who have been lobbying quietly for such a bill. 

The Delaware Employment Law Blog will be posting a series of "Back-to-Basics" articles over the next couple of months.  Each class in the series will focus on the basics of the covered topic.  The posts can be printed and assembled for a handy reference.

After much thought, we've selected the topics that we'll cover.  We've decided to tackle what we think are the Top 3 Toughest Topics in Employment Law, the ADA, the FMLA, and the FLSA.  These are the statutes that give our clients the biggest headaches but we're going to try to reduce the agony with the Back-to-Basic series. 

There will be several mini-topics in each course.  Generally, we expect the "schedule" to look something like this:

ADA 101

• 101  Who Is Covered?
• 102  What Does the ADA Require?
• 103  What Is a "Reasonable Accommodation"?
• 104  What Certification Can I Require?
• 105  Special Disciplinary Problems and Abuses

FMLA 101

• 101  Who Is Covered?
• 102  What Is a "Serious Medical Condition"?
• 103  Do I Have to Act If I Think an Employee May Qualify for FMLA Leave?
• 104  How Do I Handle Intermittent Leave?
• 105  Special Disciplinary Problems and Abuses

FLSA 101

• 101  What Does the FLSA Actually Cover?
• 102  What Is the Difference Between Exempt and Nonexempt?
• 103  What Types of Exemptions Are There?
• 104  How Do I Determine If My Employees Are Exempt?
• 105  Special Disciplinary Problems and Abuses

Get those pencils sharpened and we'll see you in class!

The City of Philadelphia seems to have had more than its fair share of civil rights lawsuits in the last several weeks. The EEOC has had a number of significant successes against employers in Philadelphia and the surrounding areas.

The month of May started on a difficult note for the city. First, there was the backlash when 15 city officers were videotaped beating a suspect just days after a fellow officer was killed in the line of duty.  4 of the officers were later fired for their involvement.

Moore v. City of Philadelphia

Then came the $10m jury verdict in favor of three former Philadelphia police officers.  The officers alleged that they were subject to unlawful retaliation when they opposed racial discrimination and harassment of African-American police officers in their squad.   

Lawrence vs. City of Philadelphia

Then, on May 29, 2008, The Third Circuit reversed and remanded a class action case brought by more than 250 "fire-service paramedics."  The plaintiffs allege that the city's fire department unlawfully withheld overtime pay by misclassifying them as exempt employees under the "fire-service exemption."  A case of indebtedness at the trial court level of the Appellate Court reversed finding that the exemption did not apply.  This narrow reading of FLSA exemption could have broad implications for the City of Brotherly Love.

EEOC vs. NutriSystem Inc.

Not to be outdone by its urban neighbor, Horsham, Pa. has had its own bit of discrimination news.  On May 21, 2008, the EEOC announced that NutriSystem, Inc., had agreed to settle a lawsuit filed by the Commission on behalf of the woman it allegedly fired because she was pregnant.  The pregnancy discrimination settlement cost NutriSystem $82,500.  The employee with initially hired as the temporary recruiter in the company's human resources department and would need a fulltime employee a year later.  One month after she was placed in a leadership training program and three weeks after she announced that she was pregnant, the employee was fired.

NutriSystem, again

The Horsham company saw more problems last week when a former employee and Philadelphia resident filed suit in Federal Court in a class action suit estimated to include that least 400 current and former employees.  The lawsuit alleges that the company violated The Fair Labor Standards Act by underpaying their call center employees.  The company responded that the employees had been properly classified as exempt.

Of course, the first case in this string of settlements was in early May, when Conectiv agree to pay $1.65m to Black workers after the EEOC filed suit against the energy company and its subcontractors for race discrimination.  (See my earlier post, Delaware-based Conectiv Settles Race Discrimination Suit with Philadelphia EEOC for $1.65m.)