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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compensation employee driving FLSA portal-to-portal
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.

FLSA: Restaurant Owners Can Take Tips From Employees

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The FLSA does not prohibit restaurant owners from taking the tips of employees who are otherwise paid the minimum wage.

In a one-sentence opinion, the Eleventh Circuit Court of Appeals recently held that the Fair Labor Standards Act (“FLSA”) does not prohibit restaurant owners from taking the tips of their employees:

Having carefully considered the written submissions and the arguments of the parties and of the amicus curiae, we conclude there is no free standing claim for relief under Section 203(m) of the Fair Labor Standards Act, 29 U.S.C. § 203(m), where, as here, there is no allegation that the employer does not pay the minimum wage.

Aguila v. Corporate Caterers IV, Inc., No. 16-15838, 2017 W 1101081 (11th Cir. Mar. 24, 2017).

With that one sentence, the Court affirmed the decision of the trial court in Auguila v. Corporate Caterers, II, Inc., 199 F.Supp.3d 1358 (S.D. Fla. 2016).  In that case, the plaintiffs were delivery drivers who claimed that they were supposed to receive tips, but their employer retained some or all of those tips.  They did not claim that their employer failed to pay them minimum wage.

At its heart, the FLSA is designed to ensure that employees are paid:  (1) minimum wage; and, (2) applicable overtime.  Section 203(m) of the FLSA deals with the minimum wage for tipped employees.  It allows employer to pay less than the federally-mandated minimum wage by using the employees’ tips as part of wages.  In short, the employer-paid wage, plus tips, should exceed minimum wage.  This “tip credit” is frequently misused by employers, who are then sued under the FLSA for failing to pay the correct minimum wage.

But, the employees in Aguila did not claim that they were paid less than minimum wage.  Instead, they argued that Section 203(m) of the FLSA gave them an independent right to retain their tips.  The employees were asking the Court to expand the scope of the FLSA beyond minimum wage and overtime to include a new right to retain tips.  They based their arguments on 2011 regulations issued by the United State Department of Labor and a decision from the Ninth Circuit Court of Appeals (traditionally one of the most liberal federal courts).  Despite those arguments, the trial court and the Eleventh Circuit in Aguila declined to expand the FLSA.

Aguila should not be taken as carte blanche authorization for employers to seize their employees’ tips.  Aside from morale problems, employees could potentially sue in state court for fraud and conversion — both of which carry the possibility of punitive damages.  Instead, Aguila should merely be read as a decision limiting the scope of federal power over employers.

Birmingham’s Minimum Wage Ordinance Suffers Another Setback

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A federal judge rejected an effort to enforce Birmingham’s minimum wage ordinance.

On February 1, 2017, United States District Court Judge David Proctor rejected an attempt to force businesses to comply with Birmingham’s minimum wage ordinance. In February 2015, the Birmingham City Council passed an ordinance requiring all businesses to pay a minimum wage of at least $10.10 per hour.  The federally-required minimum wage is $7.25 per hour, and Alabama does not have a state-mandated minimum wage.

In response to Birmingham’s ordinance, in 2016 the Alabama Legislature enacted the Alabama Uniform Minimum Wage and Right-to-Work Act.  That Act establishes the Legislature’s “complete control” over minimum wage policy in the State.  After passage of that Act, Birmingham declined to enforce the minimum wage ordinance, and Alabama Attorney General Luther Strange advised Birmingham businesses on the enforcement of the ordinance.

The NAACP, Greater Birmingham Ministries and several individuals sued the State of Alabama, the City of Birmingham, Attorney General Strange and Birmingham Mayor William Bell.  Primarily, this was a race-based challenge to the Alabama Act.  The plaintiffs claimed that the purpose and effect of the Act was to transfer control over minimum wages and all matters involving private sector employment in the City of Birmingham from municipal officials elected by a majority-black local electorate to legislators elected by a statewide majority-white electorate.

Judge Proctor dismissed the law suit primarily under the legal doctrine of standing.  Essentially, Judge Proctor found that the City and State officials were not responsible for any damages that the individual plaintiffs might suffer.  Instead, local employers who refuse to comply with the Birmingham minimum wage ordinance would cause the damage:  “[N]othing this court could order Attorney General Strange or the City Defendants to do will affect Plaintiffs’ wages.  Plaintiffs’ employers set those wages and it is the courts who will determine whether there is any violation of law with respect to the setting of those wages.”

Judge Proctor’s decision provides some reassurance to Birmingham employers that they are only subject to the federally-mandated minimum wage.  Nevertheless, his decision leaves open the possibility that individual employees might sue their employers for violating the Birmingham minimum-wage ordinance.  Undoubtedly, any employers sued under the ordinance will raise the Alabama Uniform Minimum Wage and Right-to-Work Act as a defense.

Migrant Farm Workers and the Fair Labor Standards Act

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Migrant workers and the FLSA
Migrant workers and the FLSA

For purposes of the Fair Labor Standards Act, migrant farm workers can be joint employees of the farm where they work and the company which supplies their services to the farm.  See Garcia-Celestino v. Ruiz Harvesting, Inc., No. 16-10790, 2016 WL 7240150 (11th Cir. Dec. 15, 2016).  The issue of joint employment is raising its head frequently as companies try to limit their liability to the people providing services to them.  As I previously discussed, the issue is frequently whether an employer possesses control over the worker: MY ACHING “JOINTS” – JOINT EMPLOYEES UNDER THE FLSA

In Garcia-Celestino, Basiliso Ruiz provided migrant workers to pick oranges for Consolidated Citrus.  Consolidated paid based upon the number boxes of fruit picked by each worker.  If the worker did not pick enough boxes of fruit to achieve minimum wage, Consolidated Fruit paid additional “build-up pay” to raise the worker to minimum wage.  Unfortunately, Mr. Ruiz then deprived the migrant workers of minimum wage by requiring them to hand-over the “build-up pay” to him under threat of deportation.  Ultimately, the migrant workers sued both Mr. Ruiz and Consolidated Citrus for failure to pay minimum wage under the FLSA.

The primary issue in Garcia-Celestino was whether the migrant workers were joint employees of Consolidated Citrus for purposes of breach of contract and FLSA claims.  The trial court found that Consolidated Citrus was a joint employer for both claims, and relied upon the FLSA’s “suffer or permit to work” standard of “employer” to reach that conclusion.  Under that definition, the ultimate question is whether, as a matter of “economic reality,” the hired individual is “economically dependent” upon the hiring entity.

The Eleventh Circuit found that the trial court incorrectly applied the “suffer or permit to work” standard to the migrant workers’ breach of contract claims.  As a result, the Eleventh Circuit remanded the case for the trial court to determine whether the migrant workers were Consolidated Citrus’s employees under the common-law standard — which focuses mostly on control.  Nevertheless, for purposes of the FLSA minimum wage claims, the Eleventh Circuit found that the trial court correctly applied the “suffer or permit to work” standard, and concluded that Consolidated Citrus was a joint employer for purposes of the minimum wage claims.

Garcia-Celestino provides a cautionary tale for all employers — not just farmers.  If you are contracting-out labor, you run the risk of liability as a joint employer of the contract laborers.

The Dangers of Christmas Hams And Other Workplace Holiday Issues

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Christmas is only three days away.  So, I decided to provide a review of three somewhat amusing cases in Alabama involving the interplay of the holidays and the workplace.

Don’t Give Employees Heavy Christmas Hams

Many employers give Christmas hams to employees.  Be warned:  if the ham is too heavy you might wind up paying workers’ compensation.  See Moesch v. Baldwin County Elec. Memb. Corp., 479 So.2d 1271 (Ala. Civ. App. 1985).  In Moesch, the employee injured her back at the end of the work day, when she picked up a 20-pound Christmas ham given by her employer.  The Court found that giving Christmas hams “would tend to boost the morale of employees, which would be beneficial to defendant.”  Moesch, 479 So.2d at 1273.  As a result, the court found that the employee’s injury “arose out of and in the course of” her employment, entitling her to workers’ compensation benefits.

It’s OK to Allow Dancing at Christmas Parties

While ham-based injuries appear to be compensable, dance injuries are not.  See Anderson v. Custom Caterers, Inc., 185 So.2d 383 (Ala. 1966).  In Anderson, an employee was injured as a result of a fall she sustained while dancing at a Christmas party.  The party was held at the employer’s place of business and alcohol was served.  The employee argued, like the employee in Moesch, that the employer received a benefit from the morale boost to employees.  Nevertheless, the Court found that the injury did not arise out of or in the course of employment, and the employee was not entitled to workers compensation.

Holiday Pay Can Save You From an Unemployment Claim

In Etowah County, a steel foundry closed for two weeks over the holidays.  A collective bargaining agreement provided that employees received “holiday pay” and were paid a full day’s wage for Christmas Day and New Years day, even though the foundry was closed.  Despite that generosity, employees claimed that they were unemployed during the two-week closure and sought unemployment benefits.  See Autwell v. State Dept. of Indus. Rel., 249 So.2d 625 (Ala. Civ. App.)  Nevertheless, they could only be considered unemployed if they did not receive “wages” as defined by the unemployment compensation statute.  The Autwell court found that the holiday pay was sufficient “wages” and affirmed denial of the claim for benefits.

 

Merry Christmas and Happy New Year!

DOL Appeals Order Halting Overtime Regulations

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DOL Appeals Overtime Regulation Order
The Department of Labor has appealed an order which halted new overtime regulations

Yesterday, the United States Department of Labor filed an appeal challenging an order which halted DOL’s new overtime regulations.  Those new regulations were scheduled to go into effect on December 1, 2016 and would have raised the minimum salary for exempt employees to $47,476.00.  I previously wrote about the injunction which stopped the new regulations here:  Federal Judge Halts New Overtime Regulations!

In a “normal” case, an appellate court can take a year or longer to issue a decision on an appeal.  Most likely, this appeal will be fast-tracked by the Fifth Circuit Court of Appeals.  Even so, employers should not expect a decision any earlier than some time in the first quarter of 2017.  Here is the DOL’s press release concerning the appeal: https://www.dol.gov/whd/overtime/final2016/litigation.htm

Fluctuating Workweek Overtime: An Alternative to Time and a Half

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The fluctuating workweek provides an alternative method for calculating overtime.

Many of my clients are calling with questions about the new overtime regulations, which become effective on December 1, 2016.  Those calls and a recent decision from the Eleventh Circuit Court of Appeals merit a discussion of the “fluctuating workweek” method of calculating overtime.  See Garcia v. Yachting Promotions, Inc., No. 16-10095, 2016 WL 6276046 (11th Cir. Oct. 27, 2016).  In summary, an employee with a fluctuating work schedule can be paid:  (1)  a fixed weekly salary; and (2) half-time (instead of time-and-a-half) as overtime compensation for all hours over 40.

This methodology should only be applied to employees who work irregular work hours.  Most importantly, their hours must fluctuate both above and below 40 hours per week. 

If an employee truly works a fluctuating workweek, then it is possible to pay them overtime at half-time rather than time-and-a-half.  But, there are numerous requirements that must be satisfied.  Critically, the employee must be paid a fixed weekly salary as straight time pay.  The employee receives this amount if they work less than 40 hours in a week, or more than 40 hours.  Additionally, the Department of Labor’s regulations provide:

  1. The employee clearly understands that the straight-salary covers whatever hours he or she is required to work;
  2.  The straight-salary is paid irrespective of whether the workweek is one in which a full schedule of hours are worked;
  3.  The straight-salary is sufficient to provide a pay-rate not less than the applicable minimum wage rate for every hour worked in those workweeks in which the number of hours worked is greatest; and
  4. In addition to straight-salary, the employee is paid for all hours in excess of the statutory maximum at a rate not less than one-half the regular rate of pay.

In Lopez-Garcia, the issue was whether there was a clear mutual understanding between the employer and the employee to apply the fluctuating workweek methodology.   “The employee does not have to understand every contour of how the fluctuating workweek method is used to calculate salary, so long as the employee understands that his base salary is fixed regardless of the hours worked.”  Lopez-Garcia, 2016 WL 6276046 at *2.  In Lopez-Garcia, the plaintiff possessed limited proficiency in English.  Nevertheless, he signed a memorandum acknowledging his understanding of the fluctuating workweek, and he knew that he was a “salary employee who did receive overtime.”  Id.  Those facts were sufficient for the Court to find that the employee was properly paid under the fluctuating workweek method.

The Department of Labor is concerned that employers might attempt to use the fluctuating workweek methodology to limit overtime paid to employees — particularly employees who do not truly work a fluctuating schedule.  Thus, application of this methodology should be approached very carefully.  But, if you have employees whose schedule truly fluctuates over and under 40 hours per week, this is a potential alternative method for calculating overtime.

Bad News For Lawyers: No Overtime For You!

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No overtime for attorneys.
Attorneys are not entitled to overtime.

The Eleventh Circuit Court of Appeals recently ruled that attorneys are not entitled to overtime under the Fair Labor Standards Act (“FLSA”).  Okonkwo v. The Callins Law Firm, No. 16-10192, 2016 WL 4916850(11th Cir. Sep. 15, 2016).

This ruling really should come as no surprise to any attorney who practices wage and hour law.  The FLSA expressly exempts those employees who are “employed in a bona fide … professional capacity.”  29 U.S.C. 213(a)(1).  Moreover, the United States Department of Labor (“DOL”) has defined a “bona fide professional” as “[a]ny employee who is the holder of a valid license or certificate permitting the practice of law … and is actually engaged in the practice thereof.”  29 C.F.R. 541.304(a)(1).

Nevertheless, the plaintiff in Okonkwo argued that, as a matter of policy, she should receive overtime because she was paid an hourly wage instead of on a salary basis.  The Eleventh Circuit rejected that argument because DOL regulations expressly provide that the salary basis test does not apply to licensed attorneys.  29 C.F.R.  541.304(d).  The Court deferred to those regulations.

Okonkwo simply reinforces that professionals like doctors and lawyers are not entitled to overtime.

The Equal Pay Act Does Not Prohibit Discriminatory Job Assignments

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Equal Pay Act Wage Discrimination
The Equal Pay Act Does Not Prohibit Wage Discrimination Resulting from Job Assignments

Recent decisions from the United States District Court for the Northern District of Alabama demonstrate that the Equal Pay Act cannot be used to sue employers for wage disparities caused by discriminatory work assignments.  See Crosby v. Massey Hauling, Co., No. 2:16-cv-00383-RDP, 2016 WL 6082047 (N.D. Ala. Oct. 18, 2016).

Generally, the Equal Pay Act prohibits wage discrimination on the basis of gender.  An employer cannot discriminate “between employees on the basis of sex by paying wages to employees … at a rate less than the rate at which he pays wages to employees of the opposite sex …for equal work ….”  29 U.S.C. 206(d)(1).  In Crosby, the plaintiff was a female truck driver.  Her employer paid truck drivers based upon the materials hauled in the trucks.  Most of the employer’s trucks were coal trucks, but the employer also used about seven dump trucks. The coal truck assignment were more lucrative for drivers than dump truck assignments.  The Plaintiff alleged that she suffered wage discrimination because her employer always assigned her to dump truck jobs, while allowing men to drive the coal trucks.

United States District Court Judge R. David Proctor dismissed the plaintiff’s Equal Pay Act claim.  He relied heavily upon an earlier opinion by Senior United States District Court Judge C. Lynwood Smith, Jr. in Caetio v. Spirit Coach, LLC, 992 F.Supp.2d 1199 (N.D. Ala. 2014).  Judge Smith found that “the Equal Pay Act does not provide relief for allegations of discriminatory work assignments.”  Caetio, 992 F.Supp.2d at 1213.  Because the Plaintiff in Crosby was seeking to recover for disparities in pay caused by discriminatory work assignments between coal trucks and dump trucks, Judge Proctor dismissed the Equal Pay Act claim.

Judge Proctor’s decision was only a minor win for the employer.  The plaintiff also filed a claim under Title VII of the Civil Rights Act of 1964 which generally prohibits gender discrimination. Potentially, discriminatory work assignments could violate Title VII.  The employer in Crosby did not seek dismissal of the Title VII claim, and that claim will proceed through the discovery process.