Federal Court Finds Pre-Shift Time De Minimis And Non-Compensable
The Second Circuit recently affirmed a district court’s decision dismissing security guards’ claims for minimal amounts of allegedly uncompensated work time. In doing so, the Court reiteratedthe general principle applied by federal courts that “"[w]hen the matter in issue concerns only a few seconds or minutes of work beyond the scheduled working hours, such trifles may be disregarded. . . . It is only when an employee is required to give up a substantial measure of his time and effort that compensable working time is involved." Albrecht v. Wackenhut Corp., 2010 U.S. App. LEXIS 10973 at * 3 (2d Cir. N.Y. May 28, 2010) quoting Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 692 (1946).
In Albrecht, the security guards alleged that time spent obtaining and returning their firearms and radios pre and post-shift constituted a “principal activity” under the FLSA, and thus was compensable. The court held that the Plaintiffs failed to controvert evidence in the record that such “arming up” and “arming down” involved only 30-90 seconds, and thus was de minimis. Id. at * 5.
The Court acknowledged Plaintiffs’ argument that a requirement that non-exempt employees be present and available “15 minutes before the start of a scheduled shift” could give rise to a viable claim under the FLSA, but held that this claim was not properly alleged in the original complaint, which was limited to the time related to arming up and down. Id. at * 5-6.
Despite this favorable result, employers should be conservative in deeming mandatory time spent on premises to be non-compensable as a preliminary and/or de minimis activity. In fact, the USDOL generally does not recognize the de minimus defense.
An Example of the USDOL's New Proactive, Company-Wide Approach To Settlements
As we previously reported here, the USDOL is focused on corporate-wide compliance strategies to ensure that employers take active responsibility for their compliance efforts. In a speech at New York University, Solicitor of Labor M. Patricia Smith touted a recent settlement with Tyson Foods as an example of the DOL’s new approach. Ms. Smith explained that even though the DOL’s enforcement action was limited to the employer’s Blountsville, Alabama facility, the settlement includes a nationwide injunction which broadly covers other company facilities and workers. Smith explained “[t]hat’s the type of settlement you will see us entering into more and more in the future….if we find a violation at one facility, it should be corrected at all the company’s facilities.” See Solis v. Tyson Foods Inc., N.D. Ala., No. 02-CV-1174, Docket Entry 521-1 (proposed consent judgment), June 3, 2010. During the same speech, Ms. Smith reiterated that “the Labor Department is open once again.”
The business community must recognize the expanded efforts of an increasingly active and ambitious DOL, and review compliance practices to minimize the likelihood that a DOL site investigation will evolve into a nationwide audit and/or litigation.
Jackson Lewis Attends Wage and Hour Division Public Forum Articulating DOL Enforcement Agenda
On Friday, May 21, 2010, the Department of Labor, Wage and Hour Division held a public Stakeholder Forum, during which key members of the Wage and Hour Division (WHD) discussed WHD's goals and regulatory agenda. Jackson Lewis attended the Forum.
After welcoming the crowd, Nancy Leppink, the WHD Deputy Administrator pointed out some of WHD's accomplishments over the past year, including hiring 250 new investigators (with plans to hire 100 more in 2010) and starting the “We Can Help” campaign, aimed to reach vulnerable workers who wouldn’t otherwise report violations and non-compliance.
Next, Michael Hancock, WHD's Acting Director of Interpretation and Regulatory Analysis, explained that WHD's performance goals are to: (1) ensure that the most vulnerable workers are employed in compliance with wage and hour laws; (2) make certain that employers, including the most persistent violators, are brought into and maintain compliance with the laws enforced by the WHD; (3) foster a customer-oriented, quality-driven culture with WHD; (4) issue prevailing wage determinations that are current and accurate; and (5) pursue regulatory initiatives that broadly support and advance the Department of Labor’s vision. Mr. Hancock indicated that to achieve these goals, WHD will: (1) target industries in which violations are most likely to occur; (2) employ resources-leveraging strategies and technologies to affect compliance; (3) pursue corporate-wide compliance strategies to ensure that employers take on responsibility for their compliance behavior; (4) target public awareness and outreach efforts to workers populations and industries in which workers are reluctant to report violations; (5) use penalties, sanctions, the FLSA hot goods provision, and similar strategies – as appropriate – to ensure future compliance among violators and to deter violations among other employers; and (6) implement revised Davis-Bacon wage survey processes to improve the quality and timeliness of wage determinations.
Mr. Hancock then turned to WHD’s regulatory agenda and discussed the newly issued regulations for child labor in non-agriculture, previously discussed here. He also advised that WHD is planning to develop regulations covering the following issues with the goal of better advising both employers of legal obligations and employees of their rights to prevent violations in the first place:
- Non-displacement of qualified workers under service contracts. Consistent with President Obama's Executive Order, the regulations would require a covered employer to offer employment to a predecessor's employees;
- The statutory changes to the FMLA imposed by the expanded rights to leave for active military veterans;
- Recordkeeping obligations under the FLSA. Such regulations would potentially require employers to advise all individuals performing services of whether they are classified as employees or contractors and provide an explanation for such determination. (The pending Employee Misclassification Act seeks to impose similar obligations). WHD would also like the regulation to codify burden shifting analysis for recordkeeping violations originally stated in Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946), and clarify record keeping obligations for live-in domestics;
- Application of the FLSA to domestic services companions; and
- Child labor in agriculture.
Employers must recognize that the newly aggressive WHD is focusing on compliance and consider internal or external audits to review wage and hour compliance. Employers in traditional low wage industries must take special notice of the WHD's initiatives.
DOL Issues New Child Labor Regulations
On May 20, 2010, the US Department of Labor issued new regulations concerning child labor under the FLSA. The regulations, which are effective July 19, 2010 and available here, are focused on the limitations as to both duties and work hours applicable to 14-15 and 16-17 year-olds in “non-agricultural” occupations. The regulations address in detail the types of machinery that minors are permitted to and barred from operating as part of their employment.
Secretary of Labor Hilda Solis has indicated that the Department now plans to update its regulations concerning child labor within the agricultural arena.
USDOL Officials Discuss Misclassification and Other Initiatives To Encourage Employer Compliance with FLSA
During the week of April 26, senior Labor Department officials discussed upcoming rules and initiatives. In a web chat, Nancy Leppink, deputy administrator of the Wage and Hour Division, stated that the agency will issue proposed rules covering numerous areas including companionship services, child labor and recordkeeping within the next 18 months. The proposed recordkeeping rules are the most imminent and are expected in August. Not surprisingly, these proposed rules will focus on the use/misuse of the independent contractor classification by employers. Ms. Leppink indicated that the rules should "enhance awareness among workers of their status as employees or independent contractors" and may even require employers to explain to any contractor the basis for a contractor, non-employee classification. In fact, a 2010 Regulatory Agenda Fact Sheet addressing the proposed recordkeeping regulations includes the following statement - "DOL is considering a proposed rule requiring covered employers to notify workers of their rights under the FLSA, and to provide information regarding hours worked and wage computation. Any employers that seek to exclude workers from the FLSA’s coverage will be required to perform a classification analysis, disclose that analysis to the worker, and retain that analysis to give to WHD enforcement personnel who might request it." The Fact Sheet can be accessed via this link.
Ms. Leppink's comments mirror those of Deputy Labor Secretary Seth Harris. At a conference, Mr. Harris discussed the DOL's "misclassification initiative", which encompasses various labor department agencies as well as the IRS and several state agencies. Mr. Harris stated that the goal of the initiative is to ensure "employers will no longer be able to opt employees out" of statutory and regulatory protections.
With an increasingly aggressive USDOL, employers must continue to take steps to ensure their practices, especially in regard to employee classification, comply with federal and, as applicable, state law.
New Version of Proposed Contractor Misclassification Legislation Introduced
On April 22, 2010, a revised version of the Employee Misclassification Prevention Act (“Act”) was introduced. If enacted, the Act, would amend the FLSA and provide a host of new enforcement mechanisms and penalties to combat employer use of the “independent contractor” classification to avoid minimum wage and overtime payment obligations.
If passed the Act would (among other provisions):
- require employers to keep records reflecting the correct status of each worker as an employee or nonemployee (which the FLSA currently does not require);
- require employers to notify workers in writing of their classification as an employee or nonemployee (not required); and
- make it unlawful to retaliate against non-employee workers who advocate for their rights under the Act (as discussed here, the FLSA does not typically protect non-employees from retaliation for seeking alleged unpaid monies).
Due to the federal and state focus on misclassification, all employers should closely review whether contractors are “economically dependent” on the business as well as (1) the degree of control exercised by the employer over the workers; (2) the workers' opportunity for profit or loss and their investment in the business; (3) the degree of skill and independent initiative required to perform the work; (4) the permanence or duration of the working relationship; and (5) the extent to which the work is an integral part of the employer's business.” See, e.g. Velu v. Velocity Express, Inc., 666 F. Supp. 2d 300 (E.D.N.Y. 2009).
A more detailed Jackson Lewis analysis of the proposed legislation is available here.
We Don't Have To Pay Our Interns - Do We?
For years, students and recent graduates have accepted internships with employers to gain work and practical experience. Many, if not most, employers have treated and continue to treat these internships as “unpaid.” What’s more, in many industries (including film and advertising) this practice is an institutional rite of passage – part of “dues paying”. Recent actions and pronouncements by representatives of the federal and various state departments of labor require employers to review their practices to ensure that good intentions (or professional rites of passage) are not leading to wage and hour liability.
Technically, under the FLSA, there is no such thing as an “intern.” In general, in order for an employer to avoid any minimum wage obligations an individual must be a “volunteer” or a “trainee”. Since volunteers generally are not recognized in the for-profit sector, the utility of that classification is limited. Thus interns, if they are to be unpaid, most likely must be “trainees” for FLSA purposes. In order to determine if an individual is a “trainee” exempt from minimum wage, the following six factors generally must be satisfied.
1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction;
2. The training is for the benefit of the trainees;
3. The trainees do not displace regular employees, but work under their close observation;
4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded;
5. The trainees are not necessarily entitled to a job at the conclusion of the training period; and
6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.
The rub is that in many instances the intern is performing productive work that would normally be performed by a paid employee. In such a situation, even if the intern is receiving school credit, minimum wage is due under the FLSA. In fact, per Nancy J. Leppink, the acting director of the USDOL’s Wage and Hour Division: ““If you’re a for-profit employer or you want to pursue an internship with a for-profit employer, there aren’t going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law.” It is also vital for those with internship programs to note that M. Patricia Smith, the Solicitor of Labor responsible for coordinating the Wage and Hour Division, initiated investigations against several businesses for their use of interns during her tenure as New York Commissioner of Labor.
As always, state law also must be considered. While many states track the FLSA standard, there are various differentiations particularly relevant to multi-state employers. For example, in New York, if an individual is receiving school credit, the individual generally is exempt from minimum wage payment obligations under state law.
What is the takeaway? Businesses need to analyze exactly what the intern will do during the internship. If the intern’s time will be spent primarily on productive work that would normally be performed by another employee, the business should consider paying the intern minimum wage to avoid any trailing legal issues.
DOL Initiates "We Can Help" Campaign Aimed at Increasing Enforcement
Yesterday the United States Department of Labor (DOL) gave another indication that it is preparing to ramp up enforcement efforts, in the form of its We Can Help campaign. We Can Help is designed to educate workers about their rights under the Fair Labor Standards Act. The campaign includes, among other features, a separate website with links to pages explaining the rights of workers and Public Service Announcements in both English and Spanish by Hollywood stars, including Jimmy Smits and Esai Morales. Hilda Solis (Secretary of Labor) and Dolores Huerta (co-founder of the United Farm Workers of America, AFL-CIO) also recorded PSAs in support of the campaign.
We Can Help appears to be targeted toward specific industries, i.e., construction, day laborers and farm workers, and clearly reaches out to non-citizens and/or undocumented workers. The campaign’s encouragement of self-action in employee recordkeeping, coupled with the impending media blitz, will likely increase complaints filed with the DOL. To that end, the DOL recently added some 250 additional investigators (a staff increase of approximately 33%), in large part to support this campaign.
USDOL Issues Interpretation Reversing Prior Position As To Potential Application Of Administrative Exemption to Mortgage Loan Officers
On March 24, 2010, Nancy J. Leppink, the Deputy Administrator for the Wage and Hour Division of the United States Department of Labor, issued an “Administrator’s Interpretation” stating that employees who perform the typical job duties of a mortgage loan officer generally do not meet the prerequisites for the administrative exemption under the FLSA. The issuance of the Interpretation is a significant departure from the Division’s past practice of generally issuing legal opinions solely in response to requests for guidance from the public, and may be a sign of a more aggressive Wage and Hour Division. The Interpretation is directly contrary to a September 8, 2006 opinion letter issued by the Division stating that mortgage loan officers could qualify for the exemption, and in fact the Deputy Administrator stated that the previous opinion was based on a misleading assumption and a selective and narrow analysis.
The Division bases its new position on the following conclusions:
- A Mortgage Loan Officer’s primary duty is to make sales and accordingly he/she performs production work and not administrative work. As stated by the Deputy Administrator, “[w]ork such as collecting financial information from customers, entering it into the computer program to determine what particular loan products might be available to that customer and explaining the terms of the available options and the pros and cons of each option, so that a sale can be made, constitutes the production work of an employer engaged in selling or brokering mortgage loan products.”
- While in certain situations, providing advice to a business regarding a potential mortgage to purchase land could qualify as exempt work based on it being related to the management or general business operations of the employer’s customers, home loans do not as “[i]ndividuals acting in a purely personal capacity do not have “management or general business operations.”
- Its belief that the September 8, 2006 opinion letter improperly created an alternative standard for the administrative exemption for employees in the financial services industry.
This is a significant development for industry employers that relied on the administrative exemption for loan officers based on the 2006 opinion letter. This narrowing of the definition of “administrative” work by the DOL is also consistent with the Second Circuit’s recent decision in Davis v. J.P. Morgan Chase & Co., 587 F.3d 529 (2d Cir. 2009)(underwriter “produced” bank’s product of making loans, and thus was not an administrative employee).
While it is not a resolved legal issue, some courts have held that the 7(i) “commissioned employee” exemption also is inapplicable to mortgage loan officers because they do not work in a “retail” industry. Compare Gatto v. Mortgage Specialists of Ill., Inc., 442 F. Supp. 2d 529 (N.D. Ill. 2006) with In re: Wells Fargo Home Mortg. Overtime Pay Litig., 2008 U.S. Dist. LEXIS 46595 (N.D. Cal. June 11, 2008). This would leave the outside sales exemption as the only potential exemption on which employers in the industry can rely, however, such exemption typically has limited application in the industry as most mortgage loan officers perform services from a fixed location. An additional open question remains as to whether loan officers who are “highly compensated” (i.e., are paid on an FLSA-compliant salary basis and receive more than $100,000/year in total compensation) may still qualify for exemption. 29 CFR § 541.601.
New Federal Posting Requirement for Employers With H-2A Workers
Effective March 15, 2001, employers who employ H-2A workers must display a new H-2A poster where employees can readily see it. The poster is also available in Spanish. The poster can be accessed through the links in the prior sentences.
Full information regarding federal posting requirements related to the workplace is available via this link - http://www.dol.gov/compliance/topics/posters.htm.
Of course, there are also state law requirements in many states.
Wage and Hour Nominee Withdraws
As reported previously, the Department of Labor’s Wage and Hour Division has been staffing up in anticipation of more aggressive enforcement. Who will lead those enforcement efforts has recently come into question with the revelation that the Obama Administration’s nominee for Wage and Hour Administrator, Lorelei Boylan, has withdrawn from consideration for the post.
Coupled with the difficulties faced by Solicitor nominee Patricia Smith, who has a hold placed on her nomination by Wyoming Senator Mike Enzi, the Department lacks confirmed leaders in two of the most significant positions for wage and hour enforcement. Exactly what effect this absence might have on the enforcement efforts of the agency remains to be seen.
We will continue to post developments regarding the nomination and confirmation process for these two key positions.
UPDATED: The official White House press release announcing the withdrawal of Ms. Boylan's nomination can be found here.
Increased Enforcement at DOL
In today’s Wall Street Journal, Melanie Trottman notes that the U.S. Department of Labor has started shifting its focus towards what has long been assumed would be the case:
Labor Secretary Hilda Solis has spent her first few months in office focusing on handing out $46 billion in stimulus money. Now, her department is adding staff and signaling it will soon begin putting in practice the more assertive regulation of business she promised early in her tenure.
Ms. Solis has begun hiring 670 new investigators to enforce labor regulations.
Among the new hires will be some 250 additional enforcement personnel in the Department’s Wage and Hour Division, an increase of 33%.
The Department's more aggressive enforcement stance, coupled with an increased number of investigators, places employers of all sizes in jeopardy.
Employers should review their practices and policies now to address possible wage and hour violations in advance of a federal investigation. Investigations by WHD can lead to the payment of back wages, liquidated (double) damages, civil monetary penalties, and, in the case of government contracts, can also lead to debarment from future government contracts.
DOL Issues Guidance on Furloughs and Reductions in Pay
The United States Department of Labor’s Wage and Hour Division (WHD) recently issued a fact sheet containing information on furloughs and other reductions in pay. Set forth in question and answer format, the fact sheet walks employers through a number of issues raised by the Fair Labor Standards Act in a difficult economic environment.
Primarily, WHD focuses on the tension between furloughs and reductions in pay on the one hand and the salary basis of payment on the other. Under the FLSA, the salary basis test requires that an employee receive (subject to several enumerated exceptions) each pay period “a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.” Furloughs and similar devices are, by definition, reductions in pay and/or work schedules.
Relying on several opinion letters issued earlier this year, WHD identified a number of issues related to salaried, exempt employees:
- The failure to pay a salary for a workweek in which an exempt employee performs no work does not impact that employee’s salary basis status. See Wage and Hour Opinion Letter FLSA2009-14 (Jan. 15, 2009).
- Because the FLSA does not require an employer to provide paid vacation benefits, restrictions on the use of those benefits is left to the employer, and “the employer may require exempt employees to use accrued vacation time for any absence, including one resulting from a plant shutdown, without affecting their exempt status, provided that employees receive a payment in an amount equal to their guaranteed salary.” Wage and Hour Opinion Letter FLSA2009-2 (Jan. 14, 2009).
- An employer can “substitute or reduce an exempt employee’s accrued leave for the time an employee is absent from work, even if it is less than a full day and even if the absence is directed by the employer because of lack of work, without affecting the salary basis of payment, provided that the employee still receives in payment an amount equal to the employee’s guaranteed salary.” Wage and Hour Opinion Letter FLSA2009-18 (Jan. 16, 2009).
- An employee’s salary can be reduced on a prospective basis, provided that the change is bona fide and not an effort to evade the salary basis requirements.
The WHD fact sheet and opinion letters make clear that employers have a number of FLSA-permissible options when considering how best to deal with an economic downturn. The critical consideration is whether the employee receives a predetermined amount (either through salary or the use of leave)each workweek in which the employee performs any work.
Federal Minimum Wage Increase
On July 24, 2009, the final stage of the three-phase minimum wage increase contained in the Fair Minimum Wage Act of 2007 goes into effect. Employees covered by the Fair Labor Standards Act must now be paid no less than $7.25 per hour. A revised minimum wage poster has been prepared by the Department of Labor’s Wage and Hour Division.
Employers should take this opportunity to ensure that they have the required notices properly posted in their facility. In addition, employers should review their payroll systems to ensure that appropriate rates are being paid, particularly in the case of employees being compensated on piece rate, shift rate, or daily rate, or employees for whom the employer takes a tip credit.
