Frequently, my clients think that every managerial employee is exempt from overtime. That assumption is dangerous and can lead to liability for overtime — particularly under the new overtime rule which will go into effect on December 1, 2016.
In determining eligibility for overtime, the first hurdle is not the duties performed by the employee. Instead, look at their salary first. Under the current regulations, almost every employee who earns a salary less than $23,660 is entitled to overtime — regardless of whether their duties might make them executive, administrative or professional employees under the Fair Labor Standards Act. On December 1, 2016, that salary threshold will increase to $47,476. Here’s a link to a previous post about the new rule: Breaking News: Final Overtime Rule Released
So, if you have a manager making a salary less than $47,476, you will probably be required to pay them overtime starting December 1, 2016. I strongly encourage you to conduct an audit/review of all of your employees to determine if they will be entitled to payment of overtime under the new rule.
Yesterday, the United States Department of Labor released its highly-anticipated (and much-debated) final rule regarding overtime compensation. Here is a link to the Department of Labor’s Fact Sheet on the new rule: DOL Fact Sheet on New Overtime Rule
Prior to release of the rule, every prognosticator was trying to predict the new threshold salary for exempt employees. Currently, that salary is $23,660. Under the new rule, the threshold salary is $47,476. That is a massive increase for employers.
The new rule becomes effective on December 1, 2016. On that date, employees with an annual salary of $47,476 or less must be paid overtime. I previously advised that employers should begin planning for the new rule here: What Would Saban Do? Preparation for DOL’s New Overtime Rules If you have not done so, it’s time to conduct a wage audit of your employees and make difficult decisions regarding salaries.
A recent case from the Southern District of Alabama demonstrates the substantial costs that can be associated with violations of the Fair Labor Standards Act. SeeMiller v. Spence, No. 14-0468-CG-B, 2016 WL 2350142 (S.D. Ala. May 3, 2016).
The Defendants in Miller were the owners of seafood restaurants along the Alabama Gulf Coast, including The Shrimp Basket, Mikee’s Seafood, and The Steamer. The plaintiffs were employed as servers at the restaurants and sued for unpaid compensation in the form of wages and overtime. Among other things, the servers claimed that they were not paid the federally-mandated minimum wage because a portion of their tips were contributed to a tip pool that included non-tipped employees.
Ultimately, the defendants agreed to pay $260,326.54 as part of a settlement for back wages, liquidated damages and class representative incentive payments. Additionally, the restaurant owners agreed to pay the plaintiffs’ attorneys $130,000.00 in legal fees.
In Miller, Senior United States District Court Judge Callie Granade was asked to approve the settlement. Judge Granade approved the payment of $260,326.54 to the servers, but requested additional information before approving the payment of attorneys’ fees.
Nevertheless, Miller provides an important warning to employers about the dangers of violating the Fair Labor Standards Act. Notably, there are attorneys who represent employees and specialize in NLRB violations. The same attorneys represented the plaintiffs in Miller and the plaintiffs in the Landry’s “Throwed Rolls” case which I discussed previously: “Throwed Rolls” and Attorneys’ Fees: The High Costs of FLSA Violations
Ingram is the gift that keeps on giving, because it also demonstrates the danger of attempting to avoid overtime requirements by labeling employees as “subcontractors.” I previously wrote about that danger here: How “Independent” Are Your Independent Contractors?
In Ingram, Passmore Towing & Recovery called its tow truck drivers “subcontractors” and hoped that it would not be required to pay those drivers overtime. But, Judge Kallon found that Passmore offered no evidence to refute the drivers’ assertion that they were actually employees. As required by the FLSA, Judge Kallon analyzed six factors to determine that the drivers were employees — the first factor being “control.” He found: “Passmore hired the drivers, set their commission, disciplined the drivers, paid their wages, and hired managers to supervise their work. Additionally, Passmore had the opportunity to unilaterally change the conditions of employment,which it did on multiple occasions.”
Ingram provides a cautionary tale for employers. Ignoring the law and attempting to use the label of “subcontractor” are a recipe for disaster.
On March 29, 2016, United States District Court Judge Abdul Kallon entered an order finding that ignorance of the law could not excuse an Alabama employer’s failure to pay overtime to its employees. SeeIngram v. Passmore, No. 2:14-cv-00004-AKK, 2016 WL 1212570 (Mar. 29, 2016).
In Ingram, Passmore admitted that he failed to pay overtime to office workers. Based on that admission, the Fair Labor Standards Act would generally require that the employees receive compensatory damages equal to the unpaid overtime, plus “an additional equal amount in liquidated damages.” But, the FLSA also gives courts discretion to deny liquidated damages if an employer establishes that it failed to pay overtime based upon a good faith belief that its conduct complied with the FLSA.
So, Passmore asked Judge Kallon to exercise his discretion and deny liquidated damages to the office workers. Passmore asked “the court to excuse his failure due to his purported lack of knowledge and his belief that the FLSA did not apply to him.” Judge Kallon flatly rejected that argument, finding that Passmore would be liable if he “had the opportunity to acquire the knowledge through reasonable diligence.” In Judge Kallon’s words: “In ascertaining an employer’s good faith, ignorance of the law is insufficient to establish the employer’s reasonableness.”
Ingram demonstrates the importance of conducting a regular inventory and review of your employees to ensure that all eligible employees are receiving overtime. Courts will not be lenient on employers who could have paid overtime, but failed to do so.
Most employers know that salaried employees are not entitled to overtime, and, as a result cannot generally have their salary reduced based upon missed work hours. If an employer regularly cuts the pay of a “salaried” employee based upon missed work hours, courts may find that the employee is actually an hourly employee entitled to overtime under the Fair Labor Standards Act. Nevertheless, there are always exceptions to every general rule. In certain circumstances, the pay of exempt employees can be reduced. Here are a few examples:
If an employer has a policy that provides compensation for loss of salary caused by illness or childbirth, salary can be reduced if the employee exhausts his/her leave bank.
In appropriate circumstances, salary can be cut based upon violations of work rules.
If the employee fails to perform any work in a work week, the employer is not required to pay salary.
These exceptions and others depend upon the facts of each case. Consult with your attorney before docking the pay of an exempt employee.
On January 20, 2016, the United States Department of Labor issued an administrative interpretation concerning “joint employees” and the Fair Labor Standards Act. The purpose of that interpretation is to discuss situations where employers attempt to avoid their obligations to pay overtime. It can be found here: Joint Employment
First, the Department of Labor discussed “horizontal” employment relationships. Those relationships occur when an employee works for two (or more) separate, but related, companies. For example, an employee may work for Joe’s House of Burgers for five hours, and then walk next door to Joe’s House of Chicken to work an additional five hours. If Joe owns and operates both companies, Joe might try to argue that his employee only accrues 25 hours per week at each business — thus avoiding overtime. The Department of Labor’s interpretation will look more carefully at the relationship to see if Joe is actually employing individuals for 50 hours per week.
The Department of Labor also discussed “vertical” relationships. This scenario involves situations where one company’s employee works in a location owned by a second company. For example, the Department of Labor noted that employees of temporary staffing agencies may also be employees of the businesses where they are employed. While the Department of labor noted many factors for resolving this issue, the key element will be control of the employee – an issue which I also discussed here: How “Independent” Are Your Independent Contractors?
If you are looking for ways to avoid paying overtime, proceed cautiously and talk with your attorney.
Some employers issue smartphones to their employees for use on the job. There are at least two reasons that employers should proceed cautiously before giving employees a smartphone.
First, a smartphone increases the risks of accidents of all kinds. Employees can trip and fall while checking e-mail. Or worse, they can have a car accident while texting and driving. Employers issuing smartphones should develop policies strictly limiting the use of those devices. More importantly, employers must follow those policies and discipline employees who fail to follow them.
Second, a recent decision from Chicago indicates that employees may be entitled to overtime for off-duty time spent working on a smartphone. Allen v. City of Chicago, 2015 WL 84939966 (N.D. Ill. Dec. 10, 2015). In Allen, the judge found that the employer was not required to pay overtime; but the judge also set up a framework under which smartphone use could be compensable. If off-duty e-mail is necessarily and primarily a part of the job and if the employer knows, or has reason to know, about the smartphone use, the employee may be entitled to overtime.
Once again, the lesson of Allen is that employers should have strict policies on smartphone use and enforce those policies.
Occasionally, a client will ask if they are required to pay employees for lunch breaks. The answer is: “It depends.” Employers are not required to provide employees with any kind of breaks, including “lunch breaks,” “rest breaks” or “smoke breaks.” Nevertheless, if an employer provides breaks, the Fair Labor Standards Act generally requires that employees receive pay for “short breaks” of 20 minutes or less. The FLSA does not require pay for “bona fide lunch breaks.”
So, what is a “bona fide lunch break”? In the Eleventh Circuit (which reviews cases from Alabama), a bona fide lunch break is one where employees are completely relieved from work for the purpose of eating a regularly scheduled meal. For some employers, this can be a difficult standard.
A 2014 case from Judge Sharon Blackburn demonstrates the burdens placed on employers. SeeLedbetter v. Mercedes Benz U.S. International, Inc., No. 7:10-CV-0467-SLB, 2014 WL 1247988 (N.D. Ala. Mar. 24, 2014). In that case, workers at the Mercedes Benz plant were scheduled to have an uninterrupted 45-minute lunch break. Nevertheless, the evidence showed that they were “frequently” recalled during their meal period to perform their customary duties. Judge Blackburn refused to dismiss the case against Mercedes Benz and found that employees “were not completely relieved of their work duties and their meal breaks, even the rare, uninterrupted meal break, are compensable.”
In short, if an employer “frequently” makes an employee work during lunch breaks, then it is possible that the employee is entitled to pay for all lunch breaks — even uninterrupted lunch breaks.
Effective January 1, 2016, many federal contractors are required to pay their employees a minimum wage of $10.15 per hour. This requirement applies to: (1) Contracts/replacement contracts that result from solicitations issued on or after January 1, 2015; (2) Modifications of existing contracts which have more than 6 months remaining on their term; and, (3) Service Contract Act and Davis Bacon Act Contracts. The minimum wage requirements are the result of President Obama’s Executive Order 13658.
Importantly, the Executive Order also requires notification of employees. The Department of Labor has issued a revised “EEOC is the Law” poster, which can be found here: Poster
Finally, the minimum wage requirements must be flowed-down to subcontractors, which can be accomplished with the addition of the following language to the subcontract: “Executive Order 13658 – Establishing a Minimum Wage for Contractors, and its implementing regulations, including the applicable contract clause, are incorporated by reference into this contract as if fully set forth in this contract. FAR Clause 52.222-55, Minimum Wages Under Executive Order 13658 (Dec 2014) (Executive Order 13658).”
Take some time to review your contracts and make sure you comply with Executive Order 13568.