Wage and Hour Law Update : Wage & Hour Lawyer & Attorney : Jackson Lewis Law Firm : Minimum Wage, Overtime & Service Contracts

Reflecting the Supreme Court’s 2011 decision regarding the scope of protected activity under the FLSA, the U.S. Department of Labor has issued Fact Sheet 77A, summarizing the Department’s view of the FLSA’s anti-retaliation provision.    Simultaneously, the Department also issued fact sheets addressing retaliation under the FMLA and the Migrant and Seasonal Agricultural Worker Protection Act.

Fact Sheet 77A sets forth the DOL’s assessment of the current legal landscape, including the Kasten decision, holding that the FLSA’s anti-retaliation provision (29 U.S.C. § 215(a)(3)) protects complaining employees “regardless of whether the complaint is made orally or in writing.” The fact sheet goes further, addressing the question the Supreme Court declined to answer in Kasten: namely, whether such written or oral complaints can be protected if made internally, or whether to be protected such complaint must be made formally to the Department of Labor or through a formal filing of a claim (i.e., a lawsuit). In the DOL’s view “most courts have ruled that internal complaints to an employer are also protected.” While this view has been endorsed in multiple forums, notably, courts within the Second Circuit have continued to adhere to the Second Circuit’s 1993 decision in Lambert v. Genesee Hosp., 10 F.3d 46, 55 (2d Cir. 1993), holding that a formal complaint is required. Son v. Reina Bijoux, Inc., 2011 U.S. Dist. LEXIS 116417 at * 12-14 (S.D.N.Y. Oct. 7, 2011) citing Lambert. 

The DOL’s fact sheet clarifies the Department’s position, but is not “news” to employers who monitor this space or otherwise educate themselves on these issues. Such employers also know that many state laws, including New York’s retaliation provision as modified by the 2011 Wage Theft Prevention Act, provide for greater protections than those contemplated under federal law and discussed in Fact Sheet 77A.

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On December 23^rd, President Obama signed the $1 trillion omnibus spending act, which set the Labor Department budget at $14.5 billion for fiscal year 2012. This constitutes a $145.4M increase (approximately 1%) from 2011. The bill, which prevented any government shutdown from occurring, places five restrictions on U.S. Department of Labor activities during the funded period. These are:

1)      A prohibition on DOL implementation of the H-2B wage rule for temporary nonagricultural workers;

2)      A prohibition on implementation or enforcement of DOL’s proposed “coal dust” rule -- a proposed rule to lower miners' exposure to respirable coal dust in all underground and surface coal mines –until an independent assessment of DOL’s process giving rise to the rule is conducted;

3)      Continued exempt classification of service technicians at auto dealerships from overtime requirements under the FLSA pursuant to 29 U.S.C. § 213(b)(10) for DOL enforcement purposes;

4)      A freeze on the Department’s proposed development of a musculoskeletal disorders reporting requirement (aka the “ergonomics regulation”); and

5)      A prohibition on the implementation of electronic voting procedures in representation elections before the National Labor Relations Board.

This funding, and these fairly narrow concessions limiting USDOL activity, ensures the continuation of active Department enforcement heading into the election year.

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As we reported here, the Wage and Hour Division of the U.S. Department of Labor previously announced it would propose a rule regarding the applicability of the companionship exemption to the FLSA's minimum wage and overtime requirements. This longstanding exemption was the subject of a rare Supreme Court opinion on FLSA issues, in which the Court upheld the exemption's historic application to individuals employed by third party agencies who provide care in a private home. Long Island Care at Home, Ltd. v. Coke, 551 U.S. 158 (2007). According to news reports, Labor Secretary Hilda Solis will announce the Department's rulemaking proposal today. 

If enacted, the proposed rules will likely eliminate or eviscerate the exemption, bringing many if not most home health aides and other domestic workers within the ambit of FLSA protection. This regulatory change would pose difficult fiscal challenges to individuals who require such services on a regular, sometimes round-the-clock basis, and to agencies which are in the business of providing such services to Medicare or Medicaid-eligible individuals, and which are reimbursed for providing those services at a fixed rate.

Industry employers should review the proposed rule closely and prepare to participate in the mandatory 60-day notice and comment period which will follow its announcement, as the comment period will provide the employer community with its first and likely best opportunity to influence the rule. 

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On August 29, 2011, the U.S. Department of Labor (DOL) published its final rule implementing Executive Order 13495.  This Executive Order, which was issued more than two year ago, generally requires contractors (including subcontractors) providing services under a federal government contract that succeeds a contract for performance of the same or similar services at the same location offer the predecessor contractor’s employees a right of first refusal of employment under the contract.  The final rule will take effect after the Federal Acquisition Regulatory Council (FAR Council) issues regulations.  A detailed analysis of the rule and its impact, including potential obligations to recognize and bargain with any union representing the predecessor’s employees, written by Jackson Lewis partner Leslie Stout-Tabackman is available here.

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The United States Department of Labor (USDOL) recently announced proposed amendments to the regulations governing the employment of minors in agricultural occupations. Now, the USDOL has announced a public hearing regarding the proposal. The meeting, at which “interested persons” will be given an opportunity to comment on the proposed rulemaking, will be held on October 14, 2011 from 10 a.m. to 12 noon EST in Tampa, Florida. This meeting will constitute industry employers’ best opportunity to describe the anticipated negative impact of the proposed regulations (if any) on their business.

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Of continued concern to governmental agencies – departments of labor, taxing authorities, workers compensation and unemployment boards – is the classification of workers as “independent contractors” and resulting exclusion of (and lost revenue from) such individuals from coverage under tax, benefits and wage statutes. Periodically, such agencies seek to coordinate their enforcement efforts with respect to misclassification, such as the Joint Enforcement Task Force on Employee Misclassification convened in 2007 by former New York Governor Eliot Spitzer. Earlier this month, the Internal Revenue Service and U.S. Department of Labor announced that they have entered into a memorandum of understanding to “improve departmental efforts to end the business practice of misclassifying employees in order to avoid providing employment protections.” The DOL also announced it had reached similar agreements with several state agencies.

This cooperative arrangement was followed shortly by a separate IRS announcement of a new Limited Amnesty Program for underpayments of federal employment taxes due to alleged misclassification. Under this program, an employer is eligible if it is: (a) not currently being audited by any federal or state agency regarding worker classification; (b) has consistently treated the subject workers as non-employees; and (c) has filed all required Form 1099s for the workers for the previous three years. An employer meeting those criteria can, through the program, voluntarily pay 10% of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year, without any additional interest or penalties. However, the employer must enter into a “closing agreement” with the IRS which, among other provisions, extends the statute of limitations for collecting back taxes (from three to six years) during the first three years following entrance into the program. The tax “amnesty” offered by the program, of course, does not extend to the bevy of other laws potentially applicable to the acknowledged misclassified contractors. 

“Coordination of misclassification enforcement efforts by governmental agencies is not a new concept,” notes Jackson Lewis tax partner Bruce Schwartz. “Unfortunately, none of the agencies has been able to provide a bright line definition for determining whether a worker is an employee or independent contractor and certain laws – for example, unemployment compensation laws – may use a definition of employees that is broader than the common law definition used by the IRS. Nevertheless, businesses should be aware that worker classification determinations made by government agencies usually have the presumption of being correct. Companies need to take this into account determining their business model in using employees and/or independent contractors.” 

These continued government initiatives coupled with the growth of class and collective wage and hour claims based on worker misclassification make it vital for all businesses to closely review their classification process and practices, particularly if contemplating participation in a government “amnesty” program, such as the one outlined above. Simply calling one a contractor, whether the individual requests or agrees to such classification, is not a legal defense, and neither is the participation in a voluntary program applicable to a particular statute. 

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Last week, the Department of Labor issued proposed amendments to the regulations governing the employment of minors in agricultural occupations, and solicited public commentary on the proposal ahead of a planned public hearing. These proposed amendments, which would not apply to children working on farms owned by their parents, are designed to strengthen the workplace safety requirements for minors working in agriculture, by modifying and expanding the specific occupations deemed “particularly hazardous” within agriculture, bringing those occupations in line with those applicable to to other industries. 29 CFR §§ 570.50-570.68

“These changes are comprehensive,” observes Jackson Lewis partner Craig Roberts, an expert on the DOL’s child labor regulations and enforcement practices. “Now is the time for agricultural employers to review the proposed regulations and voice any objections to them that they may have. The current regulations have been on the books unchanged for over forty years. Once final, the amended regulations will become similarly permanent and will also likely be vigorously enforced by the Department of Labor.” 

Public comments regarding the proposed regulations must be submitted to the Department by November 1, 2011. We will provide further information regarding all DOL initiatives.

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In January, President Obama re-submitted his nomination of deputy assistant attorney general and chief of staff of the Justice Department's Civil Rights Division, Leon Rodriguez, to be Administrator of the DOL’s Wage and Hour Division.  On Tuesday, the White House issued a press release indicating that Mr. Rodriguez’s nomination has been withdrawn.  No reason for the withdrawal has been indicated.  As the President continues to spar with Congressional Republicans over economic issues, and in the wake of Congressional debate regarding the impact of wage-and-hour law on the economy, this withdrawal sets the stage for the President to name a new nominee for Wage and Hour Administrator.  This nomination will doubtless have important political implications, as politicians and pundits on both side of the fence will analyze the background and views of the nominee.

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Earlier this month, the House of Representatives’ Sub-Committee on Workforce Protection convened a hearing entitled “The Fair Labor Standards Act: Is It Meeting the Needs of the Twenty-First Century Workplace?” A panel of speakers, representing Human Resources associations, management counsel and the employee advocacy group the National Employment Law Project, appeared before the Sub-Committee and responded to questions concerning, among other topics, the appropriateness of the current federal minimum wage of $7.25/hour, and whether the FLSA and its numerous arcane, difficult to understand provisions, create a barrier to compliance and economic growth. 

The three witnesses representing business interests all testified at length about the hardships associated with FLSA compliance, and the risks and costs of protracted and increasingly frequent litigation over FLSA issues. Judy Conti, a representative from the National Employment Law Project, an employee advocacy group, argued that absent the FLSA framework and private enforcement, employers would simply engage in a “race to the bottom” in an effort to further decrease labor costs. This viewpoint was also espoused by representative Dennis Kucinich (D-Ohio). Statements from Representative Kucinich during the hearing regarding the inappropriateness of curtailing the FLSA can be viewed here. 

While this Congressional investigation into the need for FLSA reform should be heartening to employers throughout the United States, the present landscape continues to pose baffling problems for employers in terms of compliance and litigation avoidance, to say nothing of state law obligations.  

Interestingly, certain contemplated USDOL Wage and Hour Division actions may further increase employer obligations under the FLSA and exposure to FLSA lawsuits. In its semi-annual regulatory agenda, the Division indicated that in the fall it will propose a rule addressing the applicability of the companionship minimum wage and overtime exemption to companionship services provided in a domestic setting. The Division also indicated that it is continuing to work on a disclosure rule that could require employers to expain to employees the basis for their exempt and/or contractor classification.

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The hospitality industry remains a favorite target for wage/hour lawsuits. On June 16, 2011, a group of industry associations led by the National Restaurant Association filed a lawsuit of its own in the District Court for the District of Columbia, challenging the new DOL regulations effective in May expanding the notice requirements associated with taking a tip credit against tipped employees’ wages, pursuant to 29 U.S.C. § 203(m). Representatives of the organizations observed that the rule creates draconian and confusing new burdens on small business owners such as restaurateurs, likely leading to exposure to regulatory and private enforcement action, and also that the changes were implemented without a notice and comment process to afford an opportunity for business leaders and others affected to provide input. 

“Hospitality industry employers have seen a disproportionate share of enforcement proceedings, in the form of both Department action and private litigation,” observes Jackson Lewis partner Paul DeCamp, former Administrator of the U.S. Department of Labor’s Wage and Hour Division. “This new lawsuit, like the similar action filed by the Mortgage Bankers Association earlier this year, sends a message to the Department about the need to follow the rules governing administrative procedure, as well as the importance to employers of being able to rely on agency rulings without worrying that they are going to be discarded each time the political winds change.”

We will apprise of further developments arising from this new litigation and other important developments in the heavily regulated hospitality industry.

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As discussed at length on the Jackson Lewis web site here, the U.S. Department of Labor has announced the launch of its first free application for smartphones, releasing an “App” compatible with iPhone and iPod Touch (and available in English and Spanish), with which users can track regular work hours, break time and any overtime hours they work for one or more employers. This application raises numerous issues for employers relating to the implementation of official employer time tracking policies and recording of hours worked, topics analyzed in the very recent Second Circuit decision on these subjects. 

Employers must keep this new time tracking tool in mind when reviewing wage-and-hour policies, and when issuing company smartphones.

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Following up on proposed regulations issued in 2008 for notice and comment, the U.S. Department of Labor issued final regulations last week, effective 30 days following publication in the Federal Register. These regulations address the issues below but other than in regard to use of the tip credit under Section 3(m), the changes to the text of the current regulations are minimal.

The final rule, consistent with the original proposed rulemaking, states that there is no maximum contribution percentage to valid mandatory tip pools, thus permitting employers to require tipped employees to pool their tips with other service personnel, without a hard cap restriction on the amount pooled.  The DOL previously has taken the position that a "customary and reasonable" maximum contribution meant 15 percent of an employee's tips. However, the rule also states that mandating an employee share his or her tips with a lawful tip pool is the only permissible use to which an employer can put an employee’s tips. This regulatory position contradicts the Ninth Circuit’s decision in Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010). In Woody Woo, the Ninth Circuit ruled that an employee has no property right in his or her tips under the FLSA, unless the employer takes a tip credit pursuant to Section 3(m). The new rules also require advance notice of the employer’s use of the tip credit and how the employer calculates it.

In addition to these changes, the enacted regulations eliminated the “20 percent rule” applicable to employees engaged in fire protection activities. As the regulation creating such a rule – permitting fire protection employees to spend up to 20% of their time on non-exempt non-fire protection work – 29 C.F.R. § 553.212, had been superseded by an amended to Section 3 of the FLSA to define the term “employee in fire protection activities,” the DOL eliminated the rule as applied to such employees, consistent with case law interpreting the regulation in light of the new amendment. 

Disappointingly, the DOL declined to adopt regulations clarifying the rules relating to the fluctuating workweek method of overtime compensation and the payment of compensatory time off to public sector employee under Section 7(o) of the Act.

It is vital to note that the DOL’s preamble raises significant questions regarding the application of the fluctuating workweek method of overtime in certain situations. Employers who utilize this payment method should discuss these issues with counsel. 

Otherwise, the changes effected by the new rules are unlikely to be substantial. The hospitality industry should continue to monitor its tip practices closely under federal and state law.

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Last Thursday, Donna Edwards (D-MD) introduced a bill to the House of Representatives which would increase the tip credit minimum wage for the first time since 1991.  The Working For Adequate Gains For Employment In Services Act (WAGE Act) would increase the tip credit minimum wage to $3.75/hour under federal law, with subsequent increases culminating in an increase to $5.50/hour after two years.  While the full federal minimum wage for non-tipped workers has increased in recent years, the tip credit minimum wage has remained $2.13/hour since 1991. 

This proposed legislation would increase the wage compensation requirements under federal law.  Of course, these new federal requirements would need to be compared with state obligations, which may impose higher rates as numerous states, including New York, California and Massachusetts, currently do.   

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As previously discussed here, President Obama’s choice for administrator of the Department of Labor’s Wage and Hour Division is deputy assistant attorney general and chief of staff of the Justice Department's Civil Rights Division, Leon Rodriguez. Mr. Rodriguez was nominated on December 12, 2010, but Congress failed to act on his nomination prior to adjournment of its previous session. His nomination has now been resubmitted.

In addition to the FLSA, the Wage and Hour Division is responsible for enforcement of other federal statutes relating to wage-and-hour issues, including the Migrant and Seasonal Agricultural Worker Protection Act, which creates special wage protections for migrant workers, and the Family and Medical Leave Act. We will report further developments regarding Mr. Rodriguez’s nomination.  Mr. Rodriguez is expected to continue the Division’s aggressive enforcement programs.

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Via notice published December 21, 2010, the United States Department of Labor’s Wage & Hour Division (“WHD”) sought commentary from the public regarding WHD’s preliminary interpretations of the new lactation break requirement added to the Fair Labor Standards Act (“FLSA”) on March 23, 2010 as part of the Patient Protection and Affordable Care Act.  These preliminary interpretations are available on this dedicated web page.

The WHD’s request for commentary seeks public input as to key issues raised by the new legislation, including: (1) the compensability of break time for lactating mothers; (2) factors in determining reasonableness of break times; (3) what constitutes an adequate place to express breast milk; and (4) the specific contours of the undue hardship exemption for small employers.  Specifically, the WHD sought comment concerning::

·        Its position that the FLSA’s new lactation provisions only apply to employees otherwise covered by overtime laws, i.e. only non-exempt employees who work for employers covered by the FLSA.

·        Its position that if an employer already provides paid breaks to employees, then a nursing mother who uses that allotted time to express milk “must be paid in the same way that other employees are compensated for break time.”

·        Its position that lactating mothers “typically will need breaks to express milk two to three times during an eight-hour shift,” with the act of expressing breast milk typically taking approximately 15 to 20 minutes per act.

·        Its position that an employer has no obligation to maintain a “permanent, dedicated space” for expressing milk, but rather part-time conversion of certain workspaces is appropriate: managers’ offices, storage spaces, utility closets, etc. (except bathrooms are never deemed appropriate). Further, the WHD’s position that employers may provide a space created by partitions, curtains, and/or by covering windows, or by utilizing signs to indicate occupation or by providing a lock on a door in order to ensure privacy.

·        Its position that the exemption for small employers with fifty (50) employees or less where providing a lactation space would cause an undue hardship is to be treated as an affirmative defense which must be proved by the employer. Further, the WHD’s position that “undue hardship” should be analyzed under the same standard as the Americans with Disabilities Act.

·        Its position that expressing milk would not be covered under the FMLA in most instances.

The notice also touches upon the role of the WHD as an enforcement agency of the new law, as well as the relationship of the new lactation requirements to the Family and Medical Leave Act (“FMLA”).

Demonstrating its awareness of the wide variety of workplace environments that exist, and the ease with which enforcement could impose hardships on various classes of businesses based upon the current interpretation, the WHD has indefinitely delayed creating final rules interpreting the new lactation legislation until it has had an opportunity to examine the most appropriate rules “based on [the WHD’s] experience administering and enforcing the break time requirement and the comments received in response to [its] Request for Information.” The WHD’s requested commentary period regarding this legislation will run for sixty (60) days, or until February 19, 2011.

Jackson Lewis attorneys frequently counsel employers regarding developing appropriate lactation policies tailored to any manner of workplaces, and are available to guide employers in complying with their obligation to provide adequate lactation spaces under this new law. Vitally, many states already have similar laws that cover all employees and impose broader obligations than under federal law.  

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The Wage and Hour Division of the Department of Labor, responsible for enforcing the Fair Labor Standards Act, has announced a new collaboration with the American Bar Association. Under this initiative, FLSA or Family and Medical Leave Act complainants who are informed that the Division is declining to pursue their complaint are provided a toll-free number to contact a newly created, ABA-sanctioned Attorney Referral System.  The Division has also pledged to provide prompt, relevant information and documents on the referred case to complainants and the referral attorney electing to take the case.  

This aggressive, previously-uncontemplated enforcement technique dovetails with the recent announcement that Leon Rodriguez, the current Chief of Staff of the Civil Rights Division of the U.S. Department of Justice and a former state and federal prosecutor, is President Obama’s new Wage Hour Administrator Designate. The Wage and Hour Administrator is the President’s top wage-and-hour enforcement official. 

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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.

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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.

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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:

1. 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;
2. The statutory changes to the FMLA imposed by the expanded rights to leave for active military veterans;
3. 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;
4. Application of the FLSA to domestic services companions; and
5. 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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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. 

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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.

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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.  

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