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.

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.

 

 

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.

DOL Appeals Order Halting Overtime Regulations

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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

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.

Holding Last Paycheck Does Not Make Exempt Employees Overtime-Eligible

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Frequently, employers will refuse to issue a final paycheck to a terminated employee.  Usually, this occurs because the employee has caused damage of some kind (property or financial) to the employer.  The Eleventh Circuit Court of Appeals recently held that holding a final paycheck does not convert an overtime-exempt employee into a “non-exempt” overtime-eligible employee.  Pioch v. IBEX Engineering Svcs., No. 15-10845, 2016 WL 3254138 (11th Cir. Jun. 14, 2016).

In Pioch, the employee was paid by the hour, but was exempted from overtime by the FLSA’s “computer employee exemption.”  Over a four-year period, the employee collected $147,230 in per diem payments for time allegedly traveling from IBEX’s main office in Nevada to a location in Florida.  In actuality, the employee had purchased a house in Florida, was not traveling from Nevada and was not eligible for the per diem payments.  Thus, IBEX withheld his pay for the last three weeks prior to his resignation.

The employee sued and argued that withholding his pay converted him to a non-exempt, overtime-eligible employee during the three weeks his pay was withheld.  After an extensive analysis, the Eleventh Circuit held that an employee’s exempt status “does not evaporate simply because the employer withholds a final paycheck.”  Pioch, 2016 WL 3254138 at *6.

In short, holding a final paycheck does not magically confer overtime eligibility on an employee.  Nevertheless, this does not mean that employers are immune from all types of liability.  In fact, the Eleventh Circuit’s Pioch opinion repeatedly emphasized that Pioch might possess a breach of contract claim against his employer.  Such a claim is resolved in state court instead of federal court.

 

 

Judge Hopkins Certifies Overtime Class Action For Clothing Store Managers

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Judge Virginia Emerson Hopkins recently certified a potential class action by store managers seeking overtime compensation from Cato women’s clothing stores.  See Prince v. Cato Corp., No. 1:14-CV-1708-VEH, 2016 WL 2997217 (N.D. Ala. May 25, 2016).  Cato contends that its store managers are “bona fide executive, administrative or professional” employees who are exempt from overtime requirements.

The request for a class action was made by Virginia Prince, a store manager at Cato’s Anniston, Alabama store.  Ms. Prince claims that she was required to work at least 45 hours per week, but that the overwhelming majority of her time was spent performing manual labor instead of bona fide managerial work.  A special provision of the Fair Labor Standards Act regulations permits an executive or administrative employee in the retail sector to spend up to 40% of their time on non-administrative duties without loss of the overtime exemption.

Ms. Prince asked Judge Hopkins to certify a nationwide class of Cato store managers, but Judge Hopkins declined.  Instead, she certified a class solely within the Northern District of Alabama consisting of current and former store managers from September 17, 2011 to the present.

Judge Hopkins’s certification is merely the first step in the process for a potential class action.  Cato obviously denies that its managers are entitled to overtime and will have the opportunity to de-certify the class at a later dater.  Nevertheless, Prince provides a cautionary tale for employers.  Large employers with employees performing the same duties in similar locations are potentially subject to class actions for overtime compensation under the FLSA.

$100,000 Salary and an Impressive LinkedIn Profile Not Enough to Exempt Employee from Overtime

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LinkedIn

In a recent overtime dispute, an employer attempted to use an employee’s LinkedIn profile to establish that the employee was exempt from payment of overtime under the Fair Labor Standards Act.  See Trammell v. Amdocs, Inc., No. 2:15-cv-01473-RDP, 2016 WL 3618367 (N.D. Ala. Jul. 6, 2016).  Unfortunately, Judge David Proctor was forced to send the case to trial.

In Trammell, Scott Trammell worked as a Project Management Office Professional for Amdoc, Inc. and was paid more than $100,000.00 in salary in 2014.  He sued for overtime after leaving Amdoc’s employment in 2015.  Amdoc attempted to have the case dismissed at the summary judgment stage and  argued that Trammell was exempt from overtime because he was a highly-compensated employee.  But, the highly-compensated employee exemption only applies if the employee customarily and regularly performs exempt executive, administrative or professional duties.

Trammell flatly denied that he performed executive, administrative or professional duties. Instead, he claimed that he merely generated reports for his supervisor and responded to e-mail correspondence.  So, Amdoc pointed to Trammell’s LinkedIn Profile which suggested that his duties included: management of seven employees and two applications; monitoring and coordinating team projects; providing end to end project management; managing team overload; providing overall delivery of multiple projects; and, coordinating, tracking and reporting IT releases.

In an entertaining opinion, Judge Proctor was forced to send the case to trial because the Federal Rules of Civil Procedure required him to believe Trammell’s denials of responsibility — even when contradicted by the LinkedIn Profile.  The difficulty of Judge Proctor’s decision is found in the following passage:

Would an employer really pay someone like him over $100,000 to merely answer emails and generate reports?  (If so, where can recent college graduates in the IT field obtain an Amdocs application for employment?)  It might even be said that his denial lacks credibility.  But it emphatically is the [jury] who must say that,  not this court ruling on a motion for summary judgment.

Trammell, 2016 WL 3618367 at * 4.

Managerial Employees Can Still Be Entitled to Overtime

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Manager

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.