DOL Proposes Amendments to Child Labor Regulations

Posted on September 7, 2011 by Noel Tripp

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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President Withdraws Nomination of Rodriguez for Wage/Hour Administrator

Posted on August 4, 2011 by Noel Tripp

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 Rodriguez’s nomination has been withdrawn.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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DOL Rolls Out iPhone Application to Track Employee Work Hours

Posted on May 13, 2011 by Noel Tripp

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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USDOL Revises Tip Credit Regulations, Leaves Others Unchanged

Posted on April 14, 2011 by Noel Tripp

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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$130,000 Salary Alone Does Not Make Labor Manager Exempt

Posted on March 11, 2011 by Noel Tripp

In a case exemplifying that salary alone does not make an employee exempt, a district court in Idaho denied summary judgment to an employer in an overtime case brought by a Labor Manager earning $130,000/year. Wood v. Kinetic Sys., 2011 U.S. Dist. LEXIS 11221 (D. Idaho Feb. 4, 2011).

While it was undisputed the Plaintiff was paid $130,000 on a salary basis, questions of fact remained as to whether the Plaintiff performed primarily non-exempt duties, including working at times as a Project Superintendent, a non-exempt position he had previously held.  Noteworthy in this decision is the Court’s failure to afford any weight based on the employee’s high compensation. Curiously, the Court’s decision contained no reference to exemption to “highly compensated employees,” applicable to those earning more than $100,000 per year, where the duties test is easier to meet. 29 CFR § 541.601.  

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Department of Labor Requests Commentary Regarding Implementation of New Lactation Break Requirement

Posted on December 28, 2010 by Noel Tripp

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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Seventh Circuit Upholds Pro-Employer Method of Overtime Calculation for Misclassified Employees

Posted on August 6, 2010 by Noel Tripp

The Fair Labor Standards Act requires employers to pay non-exempt employees one and one half times their regular rate of pay for any hours worked in a workweek in excess of 40. United States Department of Labor regulations, as set forth in 29 C.F.R. § 778.114(a), allow an employer to utilize the fluctuating workweek (“FWW”) method of overtime payment. Pursuant to FWW, in determining overtime due, an employer divides the weekly wage by the total number of hours worked during the week and then pays additional half-time for overtime hours. The more overtime hours worked, the lower the regular rate of pay and the overtime due for each overtime hour. 

One would think that if a salaried employee is found to have been misclassified as non-exempt, this same formula should be applied in determining any overtime due. However, while the federal appellate courts have applies such formula, some district courts have taken the position that any overtime must be calculated by dividing the salary by 40 to determine the regular rate and paying 1.5 times the regular rate for all overtime hours. The difference in calculations can be significant as demonstrated by the following examples.

SALARY: $1,000

HOURS WORKED: 50

Half-time calculation (FWW): $1000/50 hours = $20/hour regular rate of pay/2 = $10 times 10 overtime hours -=$100 due

Time-and-a-half calculation: $1000/40 hours = $25/hour regular rate of pay X 1.5 = $37.50 times 10 overtime hours = $375 due

The difference between the amounts of overtime due under these two calculation methods is always at least three-fold. As the number of hours in the workweek increases, the spread between the two methods grows.

Earlier this week, the Court of Appeals for the Seventh Circuit endorsed the first FWW-type calculation. See Urnikis-Negro v. Am. Family Prop. Servs., — F.3d. —, No. 08-3117, 2010 U.S. App. LEXIS 16126 (7th Cir. 2010).  In finding this method of overtime calculation appropriate, the Seventh Circuit affirmed the district court’s determination that the parties “had a ‘clear and mutual understanding’ that [the employee’s] weekly salary of $1,000 was meant to compensate her for however many hours she worked, not 40 or some other number.”  Id. at *18.  Notably, in reaching this conclusion, the Seventh Circuit referred to an article published by Jackson Lewis partner Paul DeCamp (head of the Firm’s Wage and Hour Practice Group and former Wage and Hour Administrator for the United States Department of Labor) and associate Jacqueline C. Tully, Half-Time or Time and a Half? Calculating Overtime in Misclassification Cases, 278 Fair Lab. Stds. Handbook for States, Local Gov’t & Sch. Newsl. 3 (Nov. 2008). The Court specifically relied on this article for the proposition that the “proper focus in calculating [the] regular rate of pay for [a] misclassified employee is on whether [the] parties intended [a] fixed salary to compensate [an] employee for all hours worked in [a] work-week or solely for [the] first 40 hours.”  Id. at *45. 

The employee argued that “use of the more employer-friendly FWW method gives employers an incentive to misclassify employees as exempt from the FLSA’s overtime requirements or otherwise withhold overtime pay, as they will be little the worse off if and when sued to enforce the statute’s requirements.”  Id. at *55.  In response, the Seventh Circuit stated that the district court awarded liquidated damages, attorney’s fees and costs to the employee, thereby causing the employer to endure penalties for miscategorizing her as an exempt employee.

As with many other wage and hour issues, courts have not been fully consistent even when determining the regular rate is based on salary divided by total hours worked. Some courts have taken the position that time and a half the regular rate is due for all hours over 40 and not just additional half time. Further confusing the issue, some of these courts divide the salary by 40 hours to determine the regular rate, while others still use the total hours worked. These calculations are not supported by regulation but generally based on the court’s view of the equities. 

While this issue may ultimately need to be resolved by the Supreme Court, this is a helpful decision for employers, especially those within the Seventh Circuit. It also reminds employers to reiterate to all salaried employees that their salary covers all hours worked. The Court’s reference to the article published by Jackson Lewis attorneys also demonstrates that the Firm is at the forefront of legal analysis and theory in the wage and hour arena, the forum that continues to pose the highest level of risk related to workplace compliance.

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USDOL Issues Second Pro-Employee "Administrator's Interpretation"

Posted on June 17, 2010 by Noel Tripp

As discussed previously, the USDOL Wage and Hour Division has ceased issuing Opinion Letters in response to specific requests for guidance from the public, but rather has decided to issue more general “Administrator’s Interpretations” of its own volition on topics of the DOL’s choosing. As with the first such Interpretation, which set forth the Division’s current view that loan officers generally cannot qualify for the administrative exemption, the Division’s second Interpretation, issued on June 16, also evinces a pro-employee position and contravenes Opinion Letters issued by the Division during the Bush administration. 

Specifically, Deputy Administrator Nancy J. Leppink’s “Interpretation” significantly modifies the Division’s application of § 3(o) of the FLSA, 29 U.S.C. § 203(o), which provides that time spent “changing clothes or washing at the beginning or end of each workday” can be non-compensable pursuant to “the express terms” of a collective bargaining agreement, or “by custom or practice” thereunder. This is a vital provision for unionized employers, as pursuant to case law time spent donning and doffing protective equipment is generally compensable unless addressed by the CBA or “custom or practice”. The DOL’s revised position is that: (1) time spent donning and doffing “protective clothing” (e.g., helmets, smocks, plastic aprons, arm guards, gloves, knife holders, etc.) is a compensable activity not subject to § 3(o); and (2) changing into “ordinary clothes” (i.e. a uniform) can commence the compensable workday even if the changing time itself is not compensable.   This second conclusion has potentially expansive implications.

As to the first issue, the Interpretation specifically rejects Opinion Letters issued by the DOL in 2002 and 2007 stating that the term “clothes” typically includes such protective equipment, and thus time spent in donning and doffing them can be non-compensable. Deputy Administrator Leppink found that excluding such “protective equipment” from the definition of “clothes” is consistent with Congress’ intent to narrowly circumscribe the 3(o) exclusion. However, in reaching this conclusion, the DOL assumes that § 3(o) is an exemption to an FLSA requirement, and thus is to be construed narrowly, despite the fact that many courts (including multiple Circuit Courts) have ruled that § 3(o) is not an “exemption” but instead a definition of “hours worked”, to be construed broadly. Ms. Leppink relied on DOL Opinion Letters issued in 1997, 1998 and early 2001 stating that “protective equipment” was not clothes for purposes of 3(o). (All three of these opinion letters were issued by the Clinton administration.)   Deputy Administrator Leppink acknowledged that recent Circuit Court decisions were consistent with the 2002 and 2007 Opinion Letters and contrary to the DOL’s new position. The Interpretation attempts to distinguish those appellate court decisions, but the new position of DOL cannot be reconciled with them. 

In a second and potentially much more controversial opinion, Ms. Leppink stated that even if “changing clothes” is excluded from “hours worked” under § 3(o) and is non-compensable, it nevertheless can be a principal activity that may starts the continuous compensable workday if it is otherwise a “principal activity.” The FLSA provides that employees are entitled to compensation for all hours worked from the beginning of the first “principal activity,” until the end of the last “principal activity,” including any task which is “integral and indispensible” to those principal activities. The 2007 Opinion Letter and numerous court decisions which held that where § 3(o) excludes from “hours worked” the time cannot start the compensable work day. Ms. Leppink rejected that position and referred to the conclusions in the 2007 Opinion Letter as “conclusory.”   An argument can be made that such an interpretation renders § 3(o) meaningless and is directly contrary to the legislative history of the statute. The DOL’s new position as set forth in the Interpretation, is that any time spent following clothes changing, including time spent walking or commuting to an employee’s actual work station, is now compensable regardless of whether the employer is unionized or § 3(o) is applicable, unless the employer can demonstrate such changing time is not integral and indispensable.    

All employers should carefully review their practices regarding whether any mandatory attire worn by employees constitutes a “uniform”, and whether changing time and/or time immediately following changing time is compensable in light of this Interpretation due to the expansive nature of its language. Unionized employers who have negotiated time donning and doffing protective clothing as non-compensable must carefully consider whether to continue such a practice.   An influx of FLSA claims, especially against unionized employers who have availed themselves of § 3(o), is likely and it will be up to the courts to decide whether to adopt the DOL’s modified positions.
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Federal Court Finds Pre-Shift Time De Minimis And Non-Compensable

Posted on June 11, 2010 by Noel Tripp

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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An Example of the USDOL's New Proactive, Company-Wide Approach To Settlements

Posted on June 10, 2010 by Noel Tripp

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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Jackson Lewis Attends Wage and Hour Division Public Forum Articulating DOL Enforcement Agenda

Posted on May 25, 2010 by Noel Tripp

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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DOL Issues New Child Labor Regulations

Posted on May 24, 2010 by Noel Tripp

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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USDOL Officials Discuss Misclassification and Other Initiatives To Encourage Employer Compliance with FLSA

Posted on May 3, 2010 by Noel Tripp

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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California DLSE Modifies Its Standard For Legality of Unpaid Internships

Posted on April 12, 2010 by Noel Tripp

Subsequent to our post of April 6, the California DLSE issued a lengthy new opinion letter regarding trainees, available here. In it, the Division upholds the uncompensated “intern” status of participants in the Year Up program, a program in which a not-for-profit places 18-24 year olds in underserved communities to develop marketable skills in the information technology arena for 6 month assignments. The Division applied the six factor conjunctive test utilized under federal law in reaching its conclusion:

1)  The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;

2)  The training is for the benefit of the trainee

3)  The trainees do not displace regular employees, but work under close observation

4)  The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion his operations may actually be impeded

5)  The trainees are not necessarily entitled to a job at the completion of the training period

6)  The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

See, e.g., Reich v. Parker Fire Protection Dist., 992 F.2d 1023, 1026 (10th Cir. 1993).

The opinion letter departs from the DLSE’s more expansive eleven-factor test, which included the additional factors below, observing that they “do not appear to be based upon any source statute or regulation from which they derive nor are the additional factors identified with specific case law.”

7)       Any clinical training is part of an educational curriculum;

8)       the trainees or students do not receive employee benefits;

9)       the training is general, so as to qualify the trainees or students for work in any similar business, rather than designed specifically for a job with the employer offering the program, i.e. upon completion of the program, the trainees or students must not be fully trained to work specifically for only the employer offering the program;

10)   the screening process for the program is not the same as for employment, and does not appear to be for that purpose, but involves only criteria relevant for admission to an independent educational program, and

11)   advertisements for the program are couched clearly in terms of education or training, rather than employment, although the employer may indicate that qualified graduates will be considered for employment.

While the DLSE’s willingness to abandon these supplemental factors is an encouraging sign, the difficulty of satisfying the original six-factor test remains. Few internship programs, whether offered through the not-for-profit sector or otherwise, are as fully compliant with the prevailing federal test as that offered by Year Up.

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We Don't Have To Pay Our Interns - Do We?

Posted on April 6, 2010 by Noel Tripp

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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DOL Initiates "We Can Help" Campaign Aimed at Increasing Enforcement

Posted on April 2, 2010 by Noel Tripp

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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USDOL Issues Interpretation Reversing Prior Position As To Potential Application Of Administrative Exemption to Mortgage Loan Officers

Posted on March 25, 2010 by Noel Tripp

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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How Broad is the Ninth Circuit's Woody Woo Decision?

Posted on March 13, 2010 by Noel Tripp

The Ninth Circuit Court of Appeals recently ruled that the FLSA does not restrict employer-mandated tip-pooling arrangements when no tip credit is taken by the employer against the minimum wage obligation.  Cumbie v. Woody Woo, Inc., et al., No. 08-35718 (9th Cir. Feb. 23, 2010).  Further, the Court rejected the DOL’s regulation at 29 C.F.R. § 531.35, and held that the employees in Woody Woo had no legal right under the FLSA to retain all of their tips, except where the tip credit is taken by their employer. 

In Woody Woo, all tips received by the restaurant went into a “tip pool”, the proceeds from which were redistributed to all employees, including the kitchen staff, who (it is universally understood) are not “customarily tipped” for the purposes of the FLSA in the restaurant industry.  Importantly, all employees received an hourly wage that complied with both federal and Oregon minimum wage laws: again (it can’t be said enough), no tip credit was taken. 

Based on this decision, in states where state wage-and-hour laws track the FLSA (or states with no applicable state wage law), especially those within the Ninth Circuit, employers may want to consider tip pooling arrangement similar to the one addressed by Woody Woo. Where the FLSA is the only statute at issue, Woody Woo stands for the proposition that, provided all employees receive the federal minimum wage (currently $7.25/hour), tips can be collected and redistributed to the entire labor pool, or even potentially kept by management, without violating the FLSA. 

However, in many states, state wage and hour laws expressly  prohibit the construct Woody Woo authorizes. In New York, for example, tip pooling and tip distribution is limited to voluntary pooling among employees who “customarily” receive tips and an employer or its agent cannot retain any tips. N.Y. Labor Law § 196-d.

Finally, even in states with no state law restrictions, common law theories of contract, quantum meruit or unjust enrichment (which are part of most states’ common laws), or statutory theories under consumer protection or business practices statutes can be utilized by employees to attack tip distribution arrangements where any tips are siphoned away from employees engaged in direct service. This concern is underscored if the customer is not explicitly advised that non-service personnel may receive a portion of tips. 

Further discussion of this decision can be found on www.JacksonLewis.com by clicking here.

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