“The Shrimp Basket” Pays Big Money In FLSA Claim

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shrimp

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.  See Miller 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

Judge Kallon Confirms That Merely Labeling Employees As “Subcontractors” Does Not Avoid FLSA Liability.

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Yesterday, I wrote about Judge Abdul Kallon’s decision in Ingram v. Passmore, No. 2:14-cv-00004-AKK (Mar. 29, 2016):  Judge Kallon Finds That Ignorance Of The Law Is No Excuse For Failing To Pay Overtime

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.

Judge Kallon Finds That Ignorance Of The Law Is No Excuse For Failing To Pay Overtime

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Ignorance

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.  See Ingram 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.

3 EXAMPLES OF CUTTING PAY FOR SALARIED EMPLOYEES WITHOUT VIOLATING THE FLSA.

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Salary Cut

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:

  1. 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.
  2. In appropriate circumstances, salary can be cut based upon violations of work rules.
  3. 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.

MY ACHING “JOINTS” – JOINT EMPLOYEES UNDER THE FLSA

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3d people - men, person and a question mark. Businessman.
3d people – men, person and a question mark. Businessman.

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.

IS IT SMART TO ISSUE SMARTPHONES TO YOUR EMPLOYEES?

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Smart Phone
Clock and mobile phone on a wooden table. Old wood texture. Deadline or time concept with technology. Close up with copy space. There is also a green plant on the table.

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.

Hungry for Pay —  The FLSA and Lunch Breaks

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Yellow sticky note on a laptop keyboard with 'Gone for Lunch' on it.
Yellow sticky note on a laptop keyboard with ‘Gone for Lunch’ on it.

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.  See Ledbetter 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.

“Throwed Rolls” and Attorneys’ Fees:  The High Costs of FLSA Violations

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On January 22, 2015, Ramona Brown sued Lambert’s Café, III, Inc. in Foley, Alabama for alleged violations of the Fair Labor Standards Act.  You may know Lambert’s as “the only home of throwed rolls” — where servers actually throw dinner rolls to customers.  Ms. Brown claimed that she and other servers at the restaurant were not properly paid for time they were required to work.  A review of court records indicates that the parties entered into settlement negotiations relatively early in the process.  

On September 24, 2015, the court approved a settlement under which Lambert’s paid $38,000.00, which was split among five employees.  Because those employees were “prevailing parties,” their attorneys were entitled to payment of attorneys’ fees.  But, the parties could not agree on the amount of a “reasonable” fee. 

So, on January 27, 2016, Magistrate Judge William E. Cassady of the United States District Court for the Southern District of Alabama entered an order awarding the employees’ attorneys $41,943.15 in fees and costs.  Notably, the employees’ attorneys submitted hours and billable rates to the Court which could have totaled more than $60,000.00 in fees.  Thus, the Lambert’s case demonstrates that the costs of violating the FLSA can easily skyrocket — not only from damages to employees, but also to pay their attorneys.

 

What Would Saban Do? Preparation for DOL’s New Overtime Rules

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businessman-311337_640 (1)We all procrastinate.  Give us a deadline and we’ll wait to the last minute to complete the project.  At the University of Alabama, Nick Saban has rejected that tendency and turned The Process into forward thinking preparation.  While college football players aren’t entitled to overtime compensation, employers can adopt some principles of The Process and start preparing for the Department of Labor’s new overtime rules.

The release-date for the new overtime rules is unclear.  The Department of Labor’s Fall 2015 Unified Agenda stated that the anticipated release date would be in July 2016.  However, in November of 2015, Solicitor of Labor M. Patricia Smith said the rules wouldn’t be issued until “late 2016”.

If you start preparing now, the uncertainly of the release date won’t have as much impact on your business.  We know that the threshold salary to exempt employees from overtime is going to increase.  Right now, an employee making a salary of $23,660 can potentially be exempted from overtime requirements.  In other words, if you pay an employee a minimum salary more than $23,660 and they perform certain executive, administrative or professional duties, you don’t have to pay them overtime.

That threshold amount is going to increase.  The Department of Labor’s draft rule proposed to increase the salary requirement to $50,440 — which is the 40th percentile for full-time salaried workers in America.  Legal pundits believe there is some potential for compromise on the amount, but everybody agrees there will be an increase.  The 35th Percentile is $44,304 per year and the 30th Percentile is $40,196 per year.

Potentially, your business has employees who are making more than the current threshold of $23,440, but less than the potential new threshold — and you are not paying them overtime.  But, under the new DOL regulations, you could be required to pay them overtime.  Start identifying those employees now.  Also, you need to be thinking about tough internal policy decisions.  Do you increase the salary of those employees to “bump” them over the new threshold?  Do you actually lower their salary to account for the overtime that they will now accrue?   Do you take the “hit” to your profitability and keep their salary the same — plus pay overtime.

The new regulations will unquestionably require businesses to make difficult decisions.  But, following The Process, preparing early, and clearly communicating changes to employees can make the transition less difficult.