Government Contracts: OFCCP Compensation Audits Might Change

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The OFCCP might make compensation audits more fair for government contractors.

Recent discussions inside the Office of Federal Contractor Compliance Programs (“OFCCP”) indicate that compensation audits of federal contractors might become more fair for employers.  On April 19, 2018, Bloomberg News released an article indicating that OFCCP was contemplating significant changes to its audit rules.  Here’s a link to the Bloomberg article: Bloomberg OFCCP Article.  The OFCCP conducts audits of government contracts and federal contractors to ensure that employers are complying with federal laws and regulations prohibiting pay discrimination.  Under the Obama Administration, the OFCCP issued Directive 307, which allows auditors to compare compensation of employees even if they perform different work.  For example, auditors might find discrimination by comparing the compensation of two “managers,” even though one manager works in accounting and the other in human resources.

Comparisons of dissimilar employees are generally not permitted in discrimination cases arising under Title VII of the Civil Rights Act of 1964.  Instead, an employee suing for pay discrimination must usually compare themselves to another employee doing the same work, in the same location, with the same supervisors.  Because of the discrepancies between OFCCP’s enforcement efforts and traditional employment law, the U.S. Chamber of Commerce released a report in late 2017 critical of the OFCCP.  It’s report, “OFCCP, Right Mission, Wrong Tactics” can be found here.

The Bloomberg article indicates that the OFCCP is about to scrap or significantly change Directive 307.  That’s good news for federal contractors, who need consistency in the law to succeed in business.  Unfortunately, the Bloomberg article caused some concern among civil rights groups, and an article from the Society for Human Resource Management (which can be found here) indicates the OFCCP’s plans may be delayed.  Even with the delays, the information coming from OFCCP is good news for government contractors, because it indicates a willingness by OFCCP to address employer concerns.

3 Rules for Overtime During International Travel

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International travel can raise issues on compliance with wage and hour laws.

How do you compensate employees who are working overseas?  And, how do you pay for their international travel time?  Let’s consider a hypothetical:  an employee takes a 16-hour flight from Nashville to China.  Because of changing time zones, he leaves at 4:00 a.m. on a Sunday and arrives at 11:00 p.m. on a Monday. International travel can cause difficulties in complying with wage and hour laws.

 1.  The FLSA Does Not Apply to Work in a Foreign Country

From a purely legal perspective, the Fair Labor Standards Act (“FLSA”) does not apply to employees whose services are performed in a workplace in a foreign country. 9 U.S.C. § 213(f).  Thus, if an employer really wants to be a jerk, it can argue that it is not required to pay overtime (or even minimum wage) for work overseas.  I strongly advise against this heavy-handed approach because of employee morale, and the possibility of subjecting yourself to foreign wage and hour laws.  In short, you don’t have to pay overtime for work in China, but you probably should pay it.  Notably, many U.S. territories, like Puerto Rico and the Virgin Islands, as well as Kwajalein Atoll (frequented by many Huntsvillians) are not considered foreign countries.

2.  The FLSA Does Apply if the Employee Works Part of the Week in the U.S.

There is always an exception to almost any rule.  According to the United States Department of Labor, an employee who works any part of a week in the United States is covered by the FLSA, even if he or she spends part of the week working overseas.  See DOL Wage & Hour Opinion Letter #1563 WH-510 (Jun. 29, 1981).  Thus, even if an employer wants to take the heavy-handed approach, it will be required to pay overtime for work in China if the employee performs any work in the U.S. during the same week. On this issue, employers should be mindful of their declared work week.  Let’s assume that my hypothetical employer’s work week is Sunday to Saturday.  As discussed below, time traveling can be compensable.  Because part of the travel occurred in the U.S., all work in China during the week of travel would be subject to the FLSA’s overtime requirements.

3.  Time in the Air May Be Compensable

The issue of pay for time-in-the-air is also a difficult one.  First, employees are entitled to pay for any time actually worked in international travel.  So, if the employee works on his computer for the entire 16-hour flight, then he is entitled to be paid for 16 hours of work.  But, what if he just kicks-back and watches movies for the entire flight?

The DOL considers travel away from home to be compensable “when it cuts across the employee’s workday.”  29 C.F.R. 785.39.  Thus, if your employee normally works 8:00 to 5:00, he or she is entitled to pay while flying, even if just watching movies, from 8:00 to 5:00.  Importantly, even if the travel occurs on a Saturday or Sunday, pay would required from 8:00 to 5:00.  The DOL does not consider time on a plane to be compensable if it occurs outside of regular working hours.  So, time in the air before 8:00 and after 5:00 would not be compensable.

Happy travels to all!

 

 

DOL Announces New Overtime Audit Program

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The DOL’s PAID program hopes that voluntary audits will result in better compliance with overtime and minimum wage requirements.

On March 6, 2018, the United States Department of Labor’s Wage and Hour Division (“WHD”) announced a new, voluntary audit program aimed at improving employers’ compliance with overtime and minimum wage requirements.  The program is called the Payroll Audit Independent Determination (“PAID”) program.  Here is a link to the DOL’s question-and-answer sheet on PAID:  Coming Soon: PAID

At this point, details on the program are scarce.  It will be a pilot program for six months, after which WHD will evaluate its effectiveness.  All employers covered by the Fair Labor Standards Act (“FLSA”) will be eligible to participate.  Employers will self-audit their compensation practices and identify potentially non-compliant wage practices.  They will then identify the potential violations to WHD.  Potentially, employers can benefit from this program because WHD will not require them to pay liquidated damages or civil monetary penalties for any voluntarily-disclosed violations.

WHD’s Acting Administrator, Bryan Jarrett, wrote an op-ed for The Hill discussing the new program, and it can be found here:  PAID Program a Win-Win-Win.  One interesting aspect of Mr. Jarrett’s op-ed is his observation that current laws prevent “employers from simply paying the wages due to conclusively settle overtime or minimum wage violations.”  That statement correctly recognizes that the only way to conclusively settle an FLSA claim is through litigation and a settlement in which a Judge finds the settlement fair and reasonable for the employee.  Rather than facing the issues arising from such suits, some employers simply refuse to pay money legally owed to an employee.

As with any new area of the law, the devil is in the details.  I will keep an eye out for details on the PAID program as they emerge, and attempt to keep you up-to-date.

Snow Day! Issues for Alabama Employers

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Snow days present several problems for Alabama employers

Snow Day!  It’s a glorious phrase to school kids everywhere, and a massive pain for employers.  Here in North Alabama, commerce was dragged to a halt yesterday by a dusting of snow.  While my friends in the North scoff, we play it safe in the Deep South even when there’s a possibility of ice.  As a result, employers need to think about the legal ramifications of inclement weather.

Let’s first focus on the “coldhearted” (pun intended) employers out there.  Some businesses cannot or do not close in the face of snow.  While surfing Twitter yesterday, I came across this interesting news story from Memphis:  Employers Can Legally Fire You for Not Coming To Work In Bad Weather.  It provides a correct analysis of the employee-at-will doctrine and its application to snow days — both in Tennessee and Alabama.  In most cases, if an employee does not possess an employment contract, and refuses to come to work because of weather, he or she can be terminated from employment.

Most employers will probably be more concerned about whether they are required to pay employees for snow days.  This question implicates the Fair Labor Standards Act (“FLSA”).  If the employer closes the business because of weather, it is not required to pay hourly, non-exempt employees for the time off.  The employer can allow such employees to use Paid Time Off to cover the absence, or consider the time-off unpaid.  As a practical matter, many employers pay employees, even though it’s not required, in the interest of employee relations.

Weather days for overtime-exempt employees are more difficult.  If an employer is open-for-business, but the employee chooses to stay home, the employee is not entitled to pay for the day.  The employer can dock the employee’s salary in full-day increments without violating the salary-basis test of the FLSA.  In contrast, if the employer closes the business, the employee’s full salary must be paid for the week — even though he or she may not have worked a full work week.

For Alabama employers, I hope that this post helps you to enjoy the snow while understanding your obligations to employees.

 

Nothing to Dance About: FLSA and Adult Entertainment

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Dancers at adult clubs claim that they are “employees” under the FLSA.

I’m sure you will surprised to hear this:  allegedly employers in the adult entertainment industry aren’t vigilant about complying with the law.  I previously wrote about the dangers of age discrimination at a “gentlemen’s club” in South Alabama here:  Age Discrimination and Dancers.  Now, one entertainer at a North Alabama landmark, Jimmy’s Lounge, has apparently decided to claim a violation of her rights to fair pay under the Fair Labor Standards Act (“FLSA”).  See Miller v. JAH, LLC, No. 5:16-cv-01543-AKK, 2018 WL 305819 (N.D. Ala. Jan. 5, 2018).

In an attempt to adequately describe Jimmy’s Lounge for non-Huntsvillians, I went to their Facebook page.  Their cover photo is a woman who is scantily “clothed” — in pizza.  Their “about” description is short:  “#1 Gentlemen’s Club.”  Hopefully, you get the picture.

Breeana Miller has decided to sue this renowned establishment, claiming that she is an employee who hasn’t been paid correctly under the FLSA.  Additionally, Ms. Miller has asked United States District Court Judge Abdul Kallon to certify a class action of all people who danced at Jimmy’s from September 16, 2013 to September 16, 2016.  The opinion released by Judge Kallon last week discussed that request for class certification and sheds some light on Ms. Miller’s claims.

Ms. Miller claims that Jimmy’s dancers are employees, covered by the FLSA, but they are not paid minimum wage as required by the FLSA.  Instead, their sole pay comes from the tips of patrons.  Ms. Miller claims that she is an employee because Jimmy’s maintains control over the terms and conditions of her work, including:  paying “tip out” fees to management and other non-tipped employees; requiring them to report to work at specific times with specific shifts; setting the prices of private dances; and, imposing monetary penalties for absences, lateness, leaving early, and their weight.

Jimmy’s denies that the dancers are employees, and instead claims the dancers are independent contractors.  Only employees can sue for violations of the FLSA.  Judge Kallon’s opinion does not provide much information discussing the details of Jimmy’s independent contractor defense.

Federal judges frequently grant conditional certification of a class in FLSA actions, and allow plaintiffs like Ms. Miller to contact potential class members.  Judge Kallon’s opinion discussed an interesting request by Ms. Miller to contact former dancers by e-mail and text message — claiming that dancers tend to move frequently.  Judge Kallon denied that request for now, and he seemed particularly reluctant to allow contact by text message.  Nevertheless, he seemed open to reconsidering the request if traditional contact by mail was unsuccessful.

I will try to keep tabs on this case and keep my faithful readers updated.  In the interim, if you assume that Ms. Miller’s accusations are true, the best lesson to be learned is one that I’ve talked about before.  Merely labeling somebody an “independent contractor” does not automatically prevent them from being considered your “employee”:  How “Independent” Are Your Independent Contractors.  The test for determining whether a worker is an “employee” for purposes of the FLSA can be a complex one, and it will be interesting to see what the evidence reveals as this case goes on.

 

 

 

FLSA: Litigating On Principle Costs $210K in Attorneys’ Fees

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In FLSA claims, employers which litigate “as a matter of principle” may wind up paying big money in attorneys’ fees if they lose.

Last week, Judge David Proctor issued a decision in a Fair Labor Standards Act (“FLSA”) case, which provides a warning to employers who want to litigate claims “as a matter of principle.”  See Lopez-Easterling v. Charter Communications, Inc., No. 2:14-cv-01493-RDP, 2017 WL 6406520 (N.D. Ala. Dec. 15, 2017).  Karen Lopez-Easterling sued her employer, Charter Communications, for overtime violations.  On May 18, 2017, a jury awarded her $5,355.72 as payment for those violations.

The FLSA permits a “prevailing party” to recover their attorneys’ fees.  Ms. Lopez-Easterling’s three attorneys spent 507.8 hours working on the case at rates between $325.00 and $450.00 per hour.  Thus, they asked Judge Proctor to award them $215,685.00 in attorneys’ fees.

Judge Proctor’s opinion largely granted the request for fees.  After some additions and a few reductions, Judge Proctor awarded $211,710.00 in fees.  The opinion strongly suggests that Charter Communications’ attitude towards the litigation influenced the fee award.  Judge Proctor discussed the fact that Charter “made crystal clear that it had no interest in resolving the case and exercised its right to ignore all of Plaintiff’s proposals.”    He also noted that Charter brought a “contest everything” approach to the litigation.  Finally, Charter’s own communications with the Judge during pre-trial conference may have been the deciding factor:

[Charter] had multiple opportunities to resolve this case prior to trial and chose not to do so.  [Charter] stated that it was not interested in settlement and was trying the case on principle.  In light of that position, the court gave [Charter] a warning that went something like this:  “you have the absolute right to take that position, but if you lose at trial — in for a dime, in for a dollar.”

Clients frequently want to go to court “as a matter of principle.”  But, principles can frequently be costly.  In this case, Charter could have settled for a relatively small payment early in the litigation, and avoided the substantial fee that Judge Proctor required after trial.  Instead, Charter will face a triple-threat of losses:  (1) $5,355.72 in overtime payments; (2) $211,710.00 in payments to the employee’s attorneys; and, (3) payments to their own attorneys of at least that amount.

 

Take Your Son to Work: Trainee or Employee under the FLSA?

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Employees are entitled to pay under the FLSA, but uncompensated trainees are not.

Under the Fair Labor Standards Act (“FLSA”)  “employees” are entitled to pay, but uncompensated “trainees” are not.  The Eleventh Circuit Court of Appeals recently wrestled with the issue of whether a son, who was “learning the business” from his father, was an employee or trainee.  Axel v. Fields Motorcars of Fla, Inc., No. 16-13829, 2017 WL 4461014 (11th Cir. Oct. 6, 2017).

Michael Axel worked as an automobile wholesaler for Fields Motorcars.  He asked the General Manager of Fields to hire his son, Scott Axel, but the General Manager claimed that Fields was not hiring any new employees.  Ultimately, the General Manager and Michael agreed on an arrangement under which Michael would hire Scott as his own employee and teach Scott how to become an automobile wholesaler.  Each day, Scott would arrive at work with his father, review inventory, attend a daily used-car meeting and then go to lunch.  After lunch, Scott posted cars on an internet website for Fields, discussed cars that could be listed for sale, and researched cars that were for sale at auction.  Over the course of his work, Scott purchased sixty or seventy cars for Fields.

After Michael was terminated from employment by Fields, Scott sued and claimed that he was an employee of Fields who was denied pay in violation of the FLSA.  Fields claimed that Scott was not entitled to pay because he was an uncompensated “trainee.”  A trial court in Florida agreed with that argument and dismissed Scott’s claims.  The Eleventh Circuit, however, found that more information was needed.

The court’s analysis borrowed from earlier decisions analyzing whether academic “interns” were entitled to compensation under the FLSA.  The “intern” test analyzes seven factors, which focus heavily on the academic nature of internships.   For non-academic “trainees,” the Court focused on:

  1. The extent to which the trainee and the employer clearly understand that there is no expectation of compensation.  Any promise of compensation, express or implied, suggests that the trainee is an employee — and vice versa.
  2. The extent to which the training period is limited to the period in which the trainee receives beneficial learning.
  3. The extent to which the trainee’s work complements, rather than displaces, the work of paid employees.
  4. The extent to which the trainee and the employer understand that the training opportunity is conducted without entitlement to a paid job at the conclusion of training.

The results of those factors were inconclusive.  The first and fourth favored Fields because Scott clearly understood that he was working without pay, and understood there was no promise of a job at the completion of training.  But, the other factors somewhat favored Scott.  The training period was of indefinite duration, and he did the work of other Fields employees when he did the online work for car sales.

The Court also noted that the analysis was not an “all or nothing” proposition.  Scott could have been a trainee at times and an employee at others.  As a result, the Eleventh Circuit vacated the dismissal of Scott’s claims and remanded the case back to the trial court.

The Axel case demonstrates how complex the issue of “interns” and “trainees” can be.  If somebody is working for you without pay, you need to proceed cautiously and make sure that you are not violating the FLSA.

 

 

Overtime Regulation Struck Down

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The Department of Labor’s Overtime Regulation Was Struck Down By a Federal Judge.

Yesterday, United States District Court Judge Amos Mazzant struck down a Department of Labor overtime regulation which increased the threshold for salary exemption under the Fair Labor Standards Act from $23,000 per year to $47,476 per year.  Here’s an article from The Hill discussing Judge Mazzant’s ruling:  Texas Judge Strikes Down Obama Overtime Rule

I wrote about the overtime regulation when it was released, here:  Overtime Rule Released.  After the regulation was released, numerous interested parties filed suit in Judge Mazzant’s court challenging the regulations, and he issued a preliminary injunction, which prevented the regulation from going into effect:  Judge Halts Overtime Regulation

The DOL under the Obama administration was not satisfied with Judge Mazzant’s ruling and filed an appeal with the Fifth Circuit Court of Appeals:  DOL Appeals Overtime Ruling  That appeal remains pending, but many attorneys believe that the DOL under the Trump administration may abandon the appeal.  I will keep you updated as the appeal progresses.

EPL: Does Your Employment Practices Insurance Cover Wage Claims?

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Employers should carefully review their EPL policies for coverage of wage claims or risk a denial coverage.

I strongly recommend that my business clients purchase Employment Practices Liability (“EPL”)Insurance.  Employment-related claims are extremely costly to defend — even frivolous claims.   But, it’s important to do your homework when purchasing EPL Insurance.   Many EPL Insurance policies do not cover claims related to employee wage disputes.  So, it’s vital that you ask your insurance agent about the full scope of coverage under your policy.   A Birmingham company learned that lesson the hard way in a recent decision issued in the Northern District of Alabama.  See American Chemicals & Equipment, Inc. v. Continental Casualty Co., No. 6:15-cv-00299-MHH, 2017 WL 2405102 (N.D. Ala. Jun. 2, 2017).

In American Chemicals, the employer purchased EPL Insurance.  But, the insurance policy contained an explicit exclusion for claims arising under the Fair Labor Standards Act as well as any “law anywhere in the world governing wage, hour and payroll practices.”  Also, the definition of a covered “loss” under the policy did “not include any compensation earned by the claimant but unpaid by the Insured ….”

One of American Chemicals’ employees sued in state court claiming that the company failed to pay him the salary and sales commission rate that he was promised when he accepted his offer of employment.  American Chemicals asked its insurance company for a defense of the claim, but the insurance company refused to provide that defense, because the claim was excluded by the policy.  After settling with the employee, American Chemicals sued its insurance company claiming breach of contract, bad faith failure to pay an insurance claim, negligence and wantonness.

The American Chemicals decision focused upon the insurance company’s duty to defend.  Insurance companies frequently have a duty to defend a claim (i.e., pay for the lawyer), even if a claim is not covered.  American Chemicals asked United States District Court Judge Madeline Haikala to enter an order finding that the insurance company breached its duty to defend — even if the wage claim was not covered.  After interpreting the policy, however, Judge Haikala found that American Chemicals was not entitled to a defense — under its primary argument.  Nevertheless, Judge Haikala found an issue that the parties did not argue.  The employee’s underlying claim asked for punitive damages, and Judge Haikala found that a punitive damages request might require a defense from the insurance company.  So, Judge Haikala ordered the parties to submit briefs to her on that issue.  As a result, American Chemicals’ case is severely damaged, but still alive.

The key takeaway here is to ask your insurance agent if wage claims are covered by your EPL policy.  If there is a wage exclusion, you need to seriously consider purchasing a separate wage-based policy.  FLSA claims are becoming more frequent, and some employee-focused law firms are concentrating on wage and hour claims, because employers regularly make inadvertent mistakes in paying their employees.  Here’s a link to a good article discussing the pros and cons of obtaining coverage for wage claims:  EPLI Wage Claims

 

Employers Can Owe Compensation for the Drive to a Work Location

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Employers can sometimes be required to compensate employees for time spent driving to their work site.

A recent decision from the Eleventh Circuit Court of Appeals demonstrates that, sometimes, employers are required to compensate employees for time spent driving to a work location.  See Meeks v. Paco County Sheriff, No, 16-16932, 2017 WL 2116130 (11th Cir. May 15, 2017).  In Meeks, a deputy sheriff drove his personal car to a “secure location” at the beginning of every shift.  He retrieved a patrol car from the “secure location” and drove to his patrol zone.  His employer refused to compensate him for the time driving from the “secure location” to his patrol zone.

The Portal-to-Portal Act discusses activities, associated with work, that are not compensable under the Fair Labor Standards Act.  Employers are not required to pay employees for:  (1) traveling to and from the actual place of performance of the principal activity or activities which the employee performs; or, (2) activities which are preliminary to or postliminary to the employee’s principal activities.  29 U.S.C. § 254(a).   But, an employee’s principal activity or activities are compensable.  Meeks, 2017 WL 2116130 at *2.

In Meeks, the Eleventh Circuit found that the time driving to the patrol zone was compensable, because it was part of the deputy’s principal activities.  The term “principal activities” includes all activities that are an “integral and indispensable” part of the employee’s duties.    Meeks, 2017 WL 2116130 at *2.  An activity is “integral and indispensable” if it is an intrinsic element of the activity and one with which the employee cannot dispense if he is to perform the activities.  Id.  The Court found that driving the patrol car from the “secure location” to the patrol zone was an “intrinsic element” of  the deputy’s principal activity — patrolling for crime.  Because driving to the patrol zone was part of the deputy’s principal activities, that drive time was compensable.

In most cases, time spent by an employee driving to work is not compensable under the Fair Labor Standards Act — particularly time spent driving from home to work.  But, Meeks demonstrates that there are always exceptions in the law.  Employers should review their drive-time compensation policies to ensure that they are complying with the FLSA.