Addressing Current FLSA Challenges While Managing Risk

1. Addressing CurrentFLSA ChallengesWhile Managing Risk Clay Gill, Moffatt Thomas Tresa Ball, HR Precision September 2012

2. Current FLSA Trends • Increase in Wage & Hour audits • increased # of auditors, budget expanded • DOL and IRS are increasing their audits and specifically looking for employee misclassifications • DOL narrowing its interpretation of administrative exemption • Continued challenges with classifications • administrative, professional • Current workplace issues different than past • use of technology after hours, telecommuting, etc. • Clarity often needed regarding: • defining compensable work time • ensuring accurate recording of time • appropriate rate of pay

3. Risk Considerations • DOL audits • Litigation trends • Class actions (making small issues a big issue—and very expensive) • Overtime claims tied to wrongful termination claims (misclassification of exempt employees) • ERISA claims (misclassification of independent contractors) • Claims against officers, directors, and managers for individual liability

4. Litigation Trends • Penalties • 2x (federal), 3x (state) • Important: audits, documenting reasons for classifications, consulting with experts (good faith defense to liquidated damages claim under FLSA) • Service Employees Intern. Union, Local 102 v. County of San Diego, 60 F.3d 1346 (9th Cir. 2004) – reversing award of liquidated damages (2x penalty under FLSA) where ER “relied on substantial legal authority” and “consulted experts and the DOL in an attempt to comply with the law.”

5. Recent Cases, Laws, Regs • Boucher v. Shaw, 572 F.3d 1087 (9th Cir. 2009) • officers of a corporation can be held personally liable for damages and penalties under the FLSA if they have a significant ownership interest in the company, exercise significant operational control of the company’s day-to-day functions, have the power to hire and fire employees, have the power to determine salaries, and have the responsibility to maintain employment records • significant liability for owners of closely held companies who are also involved in running the day-to-day affairs of the company

6. Recent Cases, Laws, Regs • Christopher v. SmithKline Beecham Corp., 132 S.Ct. 2156 (June 18, 2012) • outside sales exemption – (1) a large portion of their pay is commission based; (2) they are able to dictate their hours and their pay based upon the results of their work; (3) the focus of their job is not to educate or to generally promote the product or service, but rather to commit someone to buying the product or service; (4) they work away from the employer’s place of business; and (5) they are subject to minimal supervision • Supreme Court rejected DOL interpretation that outside sales reps must close sales to qualify for this exemption

7. Recent Cases, Laws, Regs • Wang v. Chinese Daily News, Inc., 623 F.3d 743 (9th Cir., Oct. 3, 2011) • Chinese Daily News (“CDN”) misclassified its reporters as exempt under the creative professional exemption • Creative professional exemption applies if the employee’s primary duties are the performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor as opposed to routine mental, manual, mechanical or physical work • reporters who merely rewrite press releases or write standard recounts of public information by gathering facts on community events do not qualify • Reporters whose primary duties are performing on the air or radio, conducting investigative interviews, analyzing or interpreting public events, writing editorials or opinion columns may qualify

8. Recent Cases, Laws, Regs • Solis v. State of Wash., Dep’t of Soc. & Health Serv., 656 P.3d 1079 (9th Cir., Sept. 9, 2011) • State of Washington misclassified certain social workers as exempt under the learned professional exemption • general higher education degree coupled with specific on-the-job training does not qualify for the exemption, rather must be “advanced specialized intellectual instruction rather than practical experience.” • Kasten v. Saint-Gobain Performance Plastics Corp., 131 S.Ct. 1325 (March 22, 2011) • FLSA anti-retaliation provisions apply to both oral and written complaints made by an employee complaining about an FLSA violation

9. Classification Reviews • Regularly conduct classification reviews • each position/job, including levels (not just title) • accurate/current job descriptions, feedback from supervisor/employee, FLSA exemption questions/answers • Document outcome/classification decisions • Examples: • Generally E: management, engineers, many IT professionals, outside sales, many purchasing agents, etc. • Generally NE: clerical support, call center reps, IT help desk, most technicians, inside sales, working suprs/leads, inspectors, etc. • Depends: coordinators, analysts, reps, non-people managers, office managers, writers, etc.

10. Classification: Administrative • “primary duty” of “office or nonmanual” work “directly related to management or general business operations” (ie, running/servicing the business) • exercise “discretion and independent judgment” with respect to “matters of significance” • insufficient if discretion is exercised narrowly, limited decisions within clearly prescribed parameters • must be more than the use of skill in applying well-established techniques, procedures, or established standards described in manuals or other sources…even if have some leeway in reaching a conclusion • Involves comparison/evaluation of possible courses of conduct and acting/deciding after considering…independent choice free from immediate direction/supervision

11. Classification: Professional • Learned Professional • “primary duty” performing work requiring “advanced knowledge”…defined as predominantly intellectual in character, including consistent exercise of discretion and judgment • specialized academic training is a standard prerequisite for entrance into the profession…customarily acquired by a “prolonged course of specialized intellectual instruction”…in a “field of science or learning” • NE if work involves routine mental, manual, mechanical, or physical work • NE if the advanced/specialized education is not customarily required for the job (regardless of duties)

12. Recent Cases, Laws, Regs • DOL’s Administrator’s Interpretation No. 2010-1 (March 24, 2010) • DOL consistently classifies in-house sales employees as non-exempt because they are not involved in the administration of the business • DOL focuses on activities which relate to the design, production, and sale of the products (non-exempt) from activities which contribute to running the business itself (can qualify for administrative exemption) • Bamonte v. City of Mesa, 598 F.3d 1217 (9th Cir. 2010) • police officers were not entitled to pay for the time it took them to don and doff their uniforms because they were not required to do so at work

13. Recent Cases, Laws, Regs • In re Farmers Ins. Exch., Claims Representatives’ Overtime Pay Litigation, 481 F.3d 1119 (9th Cir. 2007) • claims adjustors were properly classified as exempt under the administrative exemption • …because the adjusters exercised the requisite discretion and independent judgment where they determined coverage, recommended reserves, conducted investigations, negotiated settlements, advised the company regarding fraud indicators and potential subrogation, and communicated with the opposing counsel and the company’s counsel • …and such duties were directly related to the general business operations of the company

14. Recent Cases, Laws, Regs • Rutti v. Lojack Corp., 596 F.3d 1046 (9th Cir. 2010) • employer’s requirement that employee use company vehicle to commute to/from work did not make employee’s compute time compensable, even though employee spent time each morning mapping out route to his job site and even though employer placed certain restrictions on use of the vehicle in commuting to/from work • jury must decide whether time required to electronically download information about customers at end of each day from employee’s home was de minimis or compensable applying three factors: (1) practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work • some clarification on de minimis threshold – “most courts have found daily periods of approximately 10 minutes de minimis even though otherwise compensable.”

15. Compensable Work • Traditional problem areas to address • meal periods – unpaid if no duties performed, away from work station; no auto deductions • breaks – paid if <20 minutes • before/after work hours while on site – when work starts, time starts • time to “don/doff” uniforms – include as time worked if they must don/doff on your premises • pass-down discussions – if employees are required to pass down information to other employees replacing them on next shift, it is compensable time • orientation/training time – an employee’s attendance or participation in lectures, meetings, orientations, and training programs must be counted as work time unless four criteria are satisfied: attendance is outside of the employee’s regular working hours, attendance is in fact voluntary, the activity is not directly related to the employee’s job, and the employee does not perform any productive work during the activity • monitoring and enforcing off the clock policies with both employees and supervisors

16. Compensable Work • Use of technology / accessing work online after hours • Require EE to track/report accurately; no off-clock work • Expect ER to monitor for accuracy, reasonableness • Telecommuting • Set expectations, monitor, hold accountable • Legal standard: • the activities must be primarily for the benefit of ER; • the activities must be principal activities or integral and indispensable to principal activities in order to count as work; • ER must know or have reason to know that EE engaged in such activities • If you do not have an expectation that EE work from home, adopt a policy that prohibits any such work without supervisor approval • de minimis time need not be compensated (<10 minutes)

17. Compensable Work • On-call time • Consider if EE is “substantially relieved from duties,” the response time required, frequency of being called in, whether EE can pursue typical life/interests, how far EE can travel from place of work, etc. • Factors considered by 9th Circuit, with no one factor dispositive: • whether there was an on-premises living requirement; • whether there were excessive geographical restrictions on employee’s movements; • whether the frequency of calls was unduly restrictive; • whether a fixed time limit for response was unduly restrictive (<20 minutes, yes); • whether the on-call employee could easily trade on-call responsibilities; • whether the use of a pager could ease restrictions; • whether the employee had actually engaged in personal activities during call-in time; • the agreement between the parties (collective bargaining agreement)

18. Compensable Work • Dual responsibility to ensure accurate time records • create culture of compliance—both management and employees • require that employees report all time worked, prohibit off-the-clock work, and outline process/approval necessary for working overtime hours • set expectations via policy and reinforce by disciplining for violations • expect management to monitor work hours • ER has ultimate responsibility to ensure the records are detailed and accurate • required records and length of time you must keep them is set forth in 29 C.F.R. Part 516 • don’t forget to document your defined workweek used for calculating overtime

19. Regular Rate of Pay • Overtime rate based on “regular rate of pay” • includes commissions, non-discretionary bonuses, other forms of additional pay • Example: EE works 45hr workweek at $10/hr • Paid $475 ($400 regular pay + $75 overtime). • If also received $45 bonus for the workweek, calculate overtime rate to include both regular pay and bonus: 45hrs*$10+$45=$495. $495/45hrs=$16.50/hr • Paid $527.50 ($400 regular pay + $45 bonus + $82.50 overtime)

20. Recent Cases, Laws, Regs • DOL Regulations Implemented Effective May 5, 2011 • do not use fluctuating workweek payment of wages if you are going to pay your employees extra pay such as bonuses or shift premiums • new regulations for employers using a “tip credit” to pay its employees something less than the required minimum wage – employer must notify its affected employees of: (1) the cash wage the ER is paying, which needs to be at least $2.13 per hour; (2) the amount of tip credit the ER is taking, which cannot exceed the difference between the federal minimum wage and the employee’s cash wage (presently a maximum of $5.12 per hour); (3) that the amount of the tip credit claimed by the ER cannot exceed the amount of tips actually received by the employee; (4) that the ER cannot claim a tip credit unless it first informs employees about their tip credit rights under the FLSA; and (5) that all tips are the property of the employee, unless the ER uses a valid tip pool for employees who customarily and regularly receive tips

21. Recent Cases, Laws, Regs • DOL Regulations Implemented Effective May 5, 2011 (cont.) • abolishment of prior regulation that limited employee contributions to mandatory tip pools, but new regulation requires employer to notify employees what percentage of their tips will be pooled, limits employees who can share in the pool to those who customarily and regularly receive tips (e.g. not cooks), and the cash wage paid by the employer and the net tips received by the employee after deductions for tip pool contributions must exceed the minimum wage

22. Recent Cases, Laws, Regs • Breaks for Nursing Mothers via Patient Protection and Affordable Care Act – 29 U.S.C. Section 207(r) • requires employers with 50 or more employees to provide “reasonable break time for an employee to express breast milk for her nursing child for one year after the child’s birth each time such employee has need to express the milk” and provide “a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk.” • applies only to non-exempt employees and employers are not required to compensate employees for the reasonable break time

23. Wrap Up • Train supervisors/managers on wage and hour risks and how they create/reduce company liability – goal to minimize risk. • Prevention is the best way to win wage and hour claims! • Audit classification designations regularly, especially those that may be in question or current trends are changing. • Monitor regularly compensable work and rate of pay practices for compliance. • Invest in external assistance as needed to minimize risk and prevent claims.

24. Tresa Ball HR Precision tball@hrprecision.com 208.846.7888 Clay Gill Moffatt Thomas ccg@moffatt.com 208.385.5478