Delaware Employment Law Blog

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.

Despite the holiday week, Wal-Mart probably is not feeling much like fireworks. A $6.5 million judgment is nothing to celebrate.  Earlier in the week, a class of more than 56,000 Wal-Mart employees was awarded $6.5m in back pay for wage and hour violations.  And it gets worse.  The penalties phase, scheduled for October, could bring another $2 billion in damages.

The alleged violations included unpaid training time and failure to comply with state law for meal and rest breaks.

Wal-Mart's own internal audits were used as damning evidence against the retail giant.  The company had performed a series of audits that supported the employees' claim about missing meal and rest breaks. 

So is this strong support for never conducting an internal audit?  Well no, not really.  If your wage and hour practices are not in compliance with the law, that won't change by whether or not you perform an audit.  Nor will an audit change the likelihood that an employee with some knowledge of the wage and hour laws will file a claim with the Department of Labor.  Whether you chose to ignore it or chose to address it, a violation is a violation.

Ok, so why did Wal-Mart's audits end so badly?  The audits did not end badly.  The unlawful practices did.  Audits don't serve much purpose unless the employer acts to correct any problems that the audit reveals.  If you don't actually act on the information, the audit is nothing more than evidence--against yourself. 

Another question, though, that is raised by this case is why the audits came into evidence in the first place.  Performing an internal audit must be done with great care to ensure that the information cannot be later used against the company.  Some believe that involving legal counsel in an internal audit is the best way to achieve this. If the audits are generated for counsel, attorney-client privilege may attach and serve to protect the results.  Undoubtedly, though, how the audit is conducted is just as important as what is done with the results . 

Delaware's neighbor to the south has amended its state wage law, clarifying that accrued but unused leave is payable upon termination only if provided by written policy, which was communicated to the employee at the time of hire. 

This had been the long-standing position of the Maryland Division of Labor & Industry.  But then came Catapult Technology, Ltd. v. Wolfe, a 2007 decision by the Maryland appellate court, which held that accrued but unpaid leave is a "wage" under the state's wage and hour law.  As a result of unreported decision, the Division of Labor changed its position and announced that employees could file a claim for unpaid vacation or sick time upon discharge or resignation.  The new state law provides an important statutory defense to employers--but only employers that have written vacation-payout policy. 

Delaware employers do not a similar statutory defense but it is well established that vacation payouts are not required unless the employer and employee had an arrangement to the contrary. 

To avoid any potential dispute regarding what was or was not agreed to at the time of hire, employers should take the following steps:

1. Determine exactly what your vacation policy will be.  Will employees be able to roll time over from year to year?  If so, is there any limit on the amount of time that can be accrued?  And, finally, what happens to any accrued but unused time when the employee leaves the company?  Payout can also depend on whether the employee was voluntarily or involuntarily discharged. 
2. Next, put your policy in writing and communicate it to all employees.
3. Finally, do not make exceptions to the policy unless there truly are extenuating circumstances and, even then, document the reasons for breaking from the norm.

Employees' Blackberry usage may prompt lawsuits. Claims for unpaid overtime wages have swept the country and put the nation's biggest employers on high alert as the class-action craze shows no signs of slowing.

The rapid growth of the PDA and Blackberry usage among employees may hit employers in the pocket book more than they think. These devices used to be just for lawyers, doctors, and executives. But, in today's techno climate, even rank-and-file employees are using PDAs.

A great deal of this usage occurs after hours and on weekends. Is the time spent by an employee when checking and responding to e-mails and messages is compensable under the Fair Labor Standards Act (FLSA) and state wage laws.

The general rule is that non-exempt employees must be paid for all hours worked. The standard used to determine whether time is actually "hours worked" is whether the employee is "suffered or permitted to work." An non-exempt employee who receives a company-provided PDA and uses it to respond or send work-related e-mails my have an argument that he or she should be paid for that time.

While some employers may balk at the notion of paying an employee for time responding to a few e-mails after hours, all of the time spent texting away may add up. Generally, an employee can claim up to two, and in many cases three, years of back overtime or wages. In addition, the FLSA provides a fairly easy mechanism to bring a class action lawsuit for overtime on behalf of similarly situated employees.

So far, there have been no wage-and-hour suits involving PDAs, but employers would be wise to review their policies regarding use of PDAs by non-exempt personnel. In particular, non-exempt employees should be instructed to report any work time spent using PDAs. And employers may even want to place limitations on when PDAs can be used after hours.

The Wall Street Journal Law Blog has a great post on this topic, "Are Blackberrys the Next Battleground in Wage-and-Hour Litigation"

Wage and Hour laws, such as the Fair Labor Standards Act (FLSA), present some of the most challenging hurdles for employers. The FLSA and its state and federal counterparts carry extraordinary penalties and, if an employee successfully brings suit to collect unpaid wages, employers are left holding the tab for the wage amount, multiplied twice, and the plaintiff's attorney's fees. This makes a claim for unpaid overtime a huge risk for employers and an even bigger attraction for plaintiffs' lawyers.

So why don't employers "just" abide by the laws and avoid these risks? Well, I suppose for a lot of reasons. One that we hear quite often is that, "everyone" in their industry pays this way!! And they're likely telling the truth. Often industries develop certain wage payment practices especially suited for the unique way in which their employees work. Some companies, for example, are highly seasonal and tend to employ a great deal of teens during summer months. To avoid the paperwork nightmare for employee benefits, they pay the young people on a "per diem" rate.

Or, what about the salon industry? Stylists' earnings are based partially on service-based commissions, partially on product-based commissions, as well as a flat hourly rate. But then, just to make it more complicated, many salons historically have required stylists to reimburse the business for the products that they use. Sort of like the typical office worker reimbursing their employers for each pencil they use to perform their jobs. As you can probably imagine, these unique pay arrangements can create major wage payment nightmares if the Department of Labor becomes involved.

And still, when an employer calls us to seek counsel on an employment matter and learns of the great perils of their payroll system, they just do not want to believe us. It is not uncommon for them to resist a payroll restructuring. In part because change can be difficult, time- and resource-consuming, and, well, just because the idea of change puts most of us on high alert, even if just temporarily.

But another, very common, reason for the push-back we get from otherwise loyal and trusting clients? "Because everybody pays like this!!" It can be difficult to change your payroll habits, certainly. But think of yourself as a trendsetter. Or, better yet, think of yourself laughing all the way to the bank as competitors get stuck with serious fines, penalties, and civil suits. Then call your employment counsel and have them conduct an audit of your compensation structure.

EXTRA: For those of you just dying to know more about overtime calculations, take a look at the Department of Labor's handy Overtime Calculator. You answer a series of uncomplicated but unexpectedly detailed questions and, voila! The Calculator pops out the amount of overtime owed, if any, to the employee. It is a great tool (and free), thanks to Uncle Sam, so take advantage of it next time you're pondering the world of wage payment.