Current Wage & Hour Challenges

Current Wage & Hour Challenges Karen Thompson Pádraig Flanagan Keith McDonald Pat Collins Keya Denner The material provided herein is for informational purposes only and is not intended as legal advice or counsel.

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Why Be Concerned About Wage & Hour Issues Presented By: Karen Thompson

Why Be Concerned About Wage & Hour Issues: FLSA rules and regulations are confusing even to seasoned HR professionals Wage and hour lawsuits outpaced all other types of workplace class actions in 2009 and more suits are expected in 2010 FLSA collective actions in federal court outnumbered all other types of private class actions

Why Be Concerned About Wage And Hour Issues (cont’d): • Governmental investigations and enforcement suits are increasing • Obama administration’s emphasis on regulation resulted in more enforcement actions over workplace issues • 2011 federal budget includes appropriations to combat misclassification of employees as independent contractors • Additional $25 million allocated to hire 100 new DOL enforcement personnel • Revised regulations regarding FLSA recordkeeping requirements on the way

Why Be Concerned About Wage And Hour Issues (cont’d): • Class actions adversely affect corporation’s reputation & market share • FLSA suits can carry individual liability • DOL policy to pursue individual liability in cases of FLSA violations • Individuals may be subjected to significant monetary penalties • Courts take a liberal approach in defining individuals as employers • Settlements have become more costly • Top 10 private wage and hour settlements in 2008 totaled $252.7 million • Top 10 private wage and hour settlements in 2009 totaled $363.6 million

Significant Wage and Hour Litigation • WAL-MART STORES, INC.: • December 2008 – Wal-Mart agrees to settle 63 wage and hour suits pending in state and federal courts for a maximum payout of $640 million • December 2009 – Massachusetts Court approves $40 million settlement for 67,000 hourly workers forced to work off the clock and forfeit breaks (Polion v. Wal-Mart) • November 2009 – District of New Jersey approves settlement of FLSA suit of up to $28 million for hourly workers (Iliadis v. Wal-Mart) • September 2008 – Pennsylvania judge approves jury verdict of $185 million in state wage and hour lawsuit by workers forced to work off the clock and forfeit breaks (Braun v. Wal-Mart)

Other Significant Settlements/Verdicts February 2010 – Merrill Lynch settled 11 collective and class actions filed by its financial advisors for $43.5 million including $10.9 million in legal fees January 2010 – Staples, Inc. agreed to pay $42 million to settle a number of suits by assistant retail store managers who claimed they were misclassified May 2009 – Prudential Securities, Inc. paid $11 million to settle FLSA suits alleging overtime violations and improper deductions for certain branch managers 2007 – $65 million settlement by IBM in FLSA suit by IT Specialists and Technical Services Professionals misclassified as exempt employees (Rosenberg v. IBM)

Recent Filings February 2010 – FLSA collective action against American Express Travel Services by call center employees required to work off the clock and through lunch without pay February 2010 – FLSA collective action against Starbucks by assistant managers who claim they were misclassified as exempt employees November 2009 – Collective and class action under New York law against Smith & Wollensky Restaurant Group by servers who claim failure to pay overtime and employer’s improper retention of tips (Shahriar v. Smith & Wollensky) February 2009 – Twelve consolidated actions against Tyson Foods certified as FLSA collective action for failure to pay hourly employees for cleaning equipment, start up time and donning and doffing uniforms Suits against Big Pharma – FLSA actions by pharmaceutical sales reps challenging outside sales and administrative exemptions against Novartis, Sanofi Aventis US, Hoffman La-Roche, Eli Lilly, Schering Plough, Johnson & Johnson, Bristol-Myers Squibb and others

Top Ten Reasons for FLSA Lawsuits Number 10: Employers’ failure to compensate employees for training time Number 9: Employers’ failure to compensate employees who “volunteer” their time Number 8: Employers’ failure to include extra compensation in overtime pay Number 7: Employers’ failure to pay employees for short breaks Number 6: Employers’ failure to pay employees who work through lunch

Top Ten Reasons for FLSA Lawsuits (cont’d) Number 5: Employers’ docking time for employees working on the clock Number 4: Employers’ failure to pay employees working off the clock Number 3: Employers’ misclassification of employees as independent contractors Number 2: Employers’ misclassification of employees as exempt employees Number 1: FLSA favors employees through lower proof thresholds, statutory damages and attorneys’ fees

Fair Labor Standards Act:Navigating the Overtime Exemptions Keith McDonald

Common Misconceptions • Tom earns a “salary”, he is not eligible for overtime. Only “hourly” employees are eligible for overtime. • Janice is a Manager. Managers are not eligible for overtime. • Pat makes a lot of money, he shouldn’t be paid overtime if he has to spend a little extra time getting the job done. • Okay, Karen should have been paid a few hours of overtime. We will just make it up to her with comp time. • Keya was late to work again. That’s it, I’m docking his pay for every minute that he arrives after 9:00 AM.

FLSA – General Framework • Overtime • Time and one-half the regular rate of pay for all hours worked over 40 hours in a workweek • Overtime Exemptions • Employer bears the burden of proof • Recent litigation – Retail (Starbucks, Dollar Store, Abercrombie), Finance/Insurance (Citigroup, Countrywide, GEICO), IT (Sprint), Transportation (Peter Pan Bus Lines), Pharma (Novartis, AstraZeneca, Bristol-Myers, Schering and others) and general corporate/legal.

“White Collar Exemptions” • The FLSA provides an exemption from overtime pay for following employees: • Executive • Administrative • Professional • Outside sales employees • Computer employees • Highly Compensated Employees • Paid on a salary basis at not less than $455 per week (except outside sales employees) • Does not include manual laborers or other “blue-collar” workers

Salary Basis • Regularly receives a predetermined amount of pay each pay period (not less than $455/wk) • Pay period can be weekly, monthly, etc. • Pay cannot be reduced because of variations in quality or quantity of the work performed • Must be paid full salary for any week in which the employee performs any work • Need not be paid for any workweek when no work is performed • Salary basis must be maintained to preserve overtime exemption

Salary Basis – Deductions • No salary basis if deductions from salary are made for absences occasioned by the employer or by operating requirements of business • If employee is ready, willing and able to work, deductions may not be made if work is not available • Improper deductions: • Partial-day absence to attend teacher conference • Employer closed due to inclement weather • Employee absent for jury duty • Employee arrives late to work or leaves early

Salary Basis – Permitted Deductions • Absent for one or more days for personal reasons, other than sickness or disability • Absent for one or more days due to sickness or disability if deductions made under a bona fide plan, policy or practice of providing wage replacement pay for those types of absences • To offset any amounts received as payment for jury fees, witness fees, or military pay • Penalties imposed in good faith for violating safety rules of “major significance” • Disciplinary suspension of one or more days imposed in good faith for violations of workplace conduct rules • Pro-rata pay during first and last weeks of employment • Unpaid leave taken pursuant to FMLA

Effect of Improper Deductions • Actual practice of making improper deductions from salary will result in loss of the exemption: • During the time period in which deductions were made • For employees in the same job classification • Working for the same managers responsible for the actual improper deductions • Defenses – isolated or inadvertent deductions will not result in the loss of exempt status if the employer reimburses the employee

Actual Practice of Improper Deductions • The number of improper deductions • Time period during which the employer made improper deductions • The number and geographic location of both the employees whose salaries were improperly reduced and the managers responsible • Whether the employer has clearly communicated a policy prohibiting improper deductions

Safe Harbor • The exemption will not be lost if the employer: • Has a clearly communicated policy prohibiting improper deductions, including a complaint mechanism • Reimburses employees for any improper deductions; and • Makes a good faith commitment to comply in the future • Unless the employer willfully violates the policy by continuing to make improper deductions

Acceptable Payroll Practices That Preserve the Salary Basis • Taking deductions from exempt employees’ accrued leave accounts for full day absences • Requiring exempt employees to punch in/out • Requiring exempt employees to work a specified schedule • Implementing global schedule changes • Furloughs for exempt employees – so long as they are for full week periods

The Exemptions • Executive • Administrative • Professional • Outside sales employees • Computer employees • Highly compensated employees MUST MEET SALARY BASIS (except outside sales employees)

Executive Exemption • Primary duty is management of the enterprise or of a customarily recognized department or subdivision; • Customarily and regularly directs the work of two or more other employees; and • Authority to hire or fire other employees or whose suggestions and recommendations as to hiring, firing, advancement, promotion or other change of status of other employees are given particular weight.

Executive Exemption • “Primary duty” – principal duty that employee performs (50% or more performing exempt work) • “Management” • Interviewing, selecting and training employees • Setting and adjusting pay and work hours • Maintaining production or sales records • Evaluating employee performance • Handling employee complaints • Disciplining employees • Budget controls • Monitoring legal compliance

Executive Exemption • “Department or Subdivision” • HR – Benefits, Recruitment, Labor Relations, etc. • Sales – Regions, Products, etc. • Customarily and regularly directs the work of two or more other employees • Must be on regular basis • Must be full-time employees (cannot be shared) • Concurrent duties • Exempt employees decide when to perform non-exempt duties (Retail cases – Starbucks, etc.)

Administrative Exemption • Primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and • Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance • Regarded by most as most difficult exemption to distinguish

Does not include… • Working on manufacturing production line • Selling product in a retail or service establishment • Basic administrative assistant duties • Recording or tabulating data • Performance of mechanical, repetitive, recurrent or routine work • Applying well-established techniques, procedures or specific standards as set forth in manuals or other sources

Tax Finance Accounting Auditing Insurance Quality Control Purchasing Procurement Advertising Marketing Research Safety and Health Human Resources Employee Benefits Labor Relations Government Relations Legal Compliance IT Network, Internet and Data Administration Management or General Business Operations

Discretion and Independent Judgment • Evaluating possible courses of conduct regarding matters of significance • Final decision-maker • Implement policies or operating practices • Assignments relate to major business operations • Commit employer to matters of significant financial impact • Ability to waive or deviate from procedures • Ability to negotiate on behalf of employer • Involved in planning or establishing business objectives

Specific Examples • Insurance claim adjusters – ability to negotiate settlements or determine value of claim (not mere fact gathering and processing) • Financial services – providing actual advice to customers and determining best products for customer’s needs (not mere selling of financial products) • Human Resources – must formulate, interpret or implement policies (not mere screening of applicants) • Administrative assistants – must be delegated authority regarding matters of major significance for high level executive/owner (not common exemption)

Professional Exemption • Primary duty must be the performance of work requiring advanced knowledge • Intellectual in character – not involving routine mental, manual, mechanical or physical work • In a field of science or learning • Law, Accounting/Actuarial, Teaching, Engineering, Biological/Chemical Sciences and Medicine • Customarily acquired by a prolonged course of specialized intellectual instruction • Beyond a high school level – must have specialized academic training

Professional Exemption • Does not apply to occupations that may be performed with: • General knowledge acquired by academic degree • Knowledge acquired through apprenticeship • Training in performance of routine, mechanical or physical processes • Occupations where skills are learned by experience

Specific Cases • Nurses • Registered Nurses generally meet professional exemption (must also be paid on salary basis) • Licensed practical nurses generally not exempt • Medical Technicians, Dental hygienists, Physician Assistants – generally exempt with pre-professional studies from accredited school • Chefs – exempt if professional training • Creative Professionals generally exempt – artists, musicians, designers • Nonexempt “professionals” – paralegals, bookkeepers, accounting clerks, cooks, engineering technicians

Outside Sales Employees • Primary duty must be making sales, or obtaining orders or contracts for which consideration will be paid by the client or customer • Employee must be customarily and regularly engaged away from employer’s place of business • Promotional Work – main subject of litigation • Pharmaceutical cases

Computer Employees • Employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker (salary basis or at least $27.63 an hour) • Primary duty must consist of • Application of systems analysis techniques and procedures • Design or development of computer systems or programs • Does not include • Employees engaged in manufacture or repair of computer systems • Employees whose work is highly dependent upon, or facilitated by, the use of computers or software programs (drafters, designers) • Sprint – no exemption for customer service rep who served customer’s tech problems. Court determined that a substantially higher degree of skill was required for the exemption.

Highly Compensated Employees • Total annual compensation of at least $100K • Includes commissions and non-discretionary bonuses • Make-up payment permitted at year end • Perform office or non-manual work • Customarily and regularly perform any one or more of the exempt duties identified in the standard tests for executive, administrative or professional exemptions (don’t have to meet full exemption). • Strong presumption of exempt status • Not incorporated in all state laws (e.g., PA)

Employer Protections • Review compensation model – salary or hourly • Audit current employee roster • “Blue collar” workers not exempt • Clerical workers not exempt • Identify potential misclassified positions – lower level managers, employees performing routine tasks, etc. • Review policies re: payroll deductions • Review practices re: payroll deductions • Consult the FLSA regulations and resources (http://www.dol.gov/dol/topic/wages/overtimepay.htm) • Consult your lawyer

Identifying “Compensable Time” Presented by: Pat Collins Assisted by: Chris Elko

02/01/2010 Staples Settles Assistant Manager OT Suits For $42M • Staples Inc. agreed Friday to pay $42 million as part of a global settlement resolving several wage-and-hour collective actions claiming the office supply vendor misclassified its assistant store managers as exempt from federal overtime pay requirements. • 02/02/2010 Obama Allots $25M For DOL To Fight Misclassification • The $3.8 trillion federal budget for the 2011 fiscal year proposed by President Barack Obama includes $117 billion for the U.S. Department of Labor, with $25 million set aside to help the department combat employee misclassification. • 02/03/2010 Tech Support Worker Slams AT&T With OT Action • A former AT&T Inc. technical support worker has filed a proposed class action accusing the telecommunications giant of improperly classifying technical workers as exempt and shorting them on pay. • 02/04/2010 Pizza Hunt Drivers Sue Franchisees For More Dough • Two companies that run Pizza Hut franchises have been hit with a nationwide putative class action accusing them of improperly requiring delivery drivers to pay their own travel expenses, paying drivers less than the minimum wage and depriving them of delivery charges.

02/05/2010 AA Skycaps Win Certification Of National Class • A federal judge on Thursday certified a nationwide class of American Airlines Inc. skycaps who claim they lost out on tips when the airline imposed a curbside check-in fee for bags at airports, reversing an earlier ruling in a different case that a similar class would have been unmanageable. • 02/08/2010 Satellite Techs Hit MasTec With FLSA, Contract Suit • Four Florida satellite technicians have filed a putative breach of contract and Fair Labor Standards Act class action claiming contractor MasTec Inc. failed to pay them overtime wages and commissions. • 02/09/2010 Best Buy Settles OT Suit Over Workers Security Checks • Best Buy Co. Inc. has asked a federal judge to approve a $902,410 settlement that resolves claims that the consumer electronics giant did not pay retail workers in New York for time they spent going through a security check at the end of the workday. Employment Law360: Litigation, Policy & People News

“The Wage and Hour Division has simply dropped the ball in pursuing employers that cheat its workers out of their hard earned wages.” U.S. Congressman George Miller

FLSA lawsuits = Hot Topic and Big Money • A Little Time = Big Money • Wells Fargo settled a FLSA-related case for $13 million • IBM settled a FLSA class action lawsuit for $65 million • Wal-Mart paid out over $250,000,000 over the span of less than a year for FLSA overtime violations • Last year alone, the DOL recovered more than $171,500,000 in back wages for more than 246,000 employees. • Federal DOL per Violation Fines • $1000 per violation for Employers repeatedly or willfully violating the FLSA

FLSA lawsuits = Hot Topic FLSA violations have now replaced discrimination claims as the Department of Labor's top enforcement target.

Identifying “Work Time” • FLSA does not define “work” • Defines “employ” as "suffer or permit to work" • Includes anytime an employer requires OR allows an employee to work • No such thing as a volunteer • Employer Knowledge • Employer may not “sit back and enjoy the benefits” of an employee that works without entering time

Time Tracking ChallengesDetermining when your employees are “On the Clock” • Rest/Meal Breaks • Travel Time • Training Time • Waiting Time • On-Call Time • Preliminary/Postliminary Activities • Rounding Time

No requirement for Rest Breaks under the FLSA Short breaks (5-20 minutes) must be counted as compensable time Bona Fide meal periods are NOT compensable time Must last 30 minutes Time spent during break must not be “predominantly for the benefit of the employer” Oakes v. Pennsylvania Officers were permitted to: sleep, read, play games, watch TV, go to restaurants Officers were required to: remain in uniform, carry weapons, monitor radios, respond to emergency calls, remain in jurisdiction and refrain from drinking alcohol Third Circuit found the time was predominantly for the benefit of the employer and, therefore, compensable Rest/Meal Breaks

Travel Time • Home to Work: Regular – Not Compensable • Home to Work: Special Location – Compensable • Distance travelled minus normal travel time • Travel During Work Hours – Compensable • Travel Away From Home – Compensable • Pay for work-day hours on work days and non-work-days (Saturday/Sunday) • Non-work hours (i.e. - after 5:00 PM) not Compensable

Training • Six Factors determine whether training time is compensable • Training is similar to that which would be given in a vocational school • Training is for the benefit of the trainees • Trainees do not displace regular employees, but work under their supervision • Employer gains no immediate advantage from the activities of the trainees • Trainees are not necessarily entitled to a job at the completion of the training period • Employer and trainees understand that the trainees are not entitled to wages for the time spent training

Waiting Time • “Engaged to Wait” vs. “Waiting to be Engaged” • Rule: Time spent waiting for work is compensable if it is spend “predominantly for the employer’s benefit” • What control does the employer have over the employee • Can the employee effectively use that time for his or her own purposes • Chao v. Akron • Drinking coffee and socializing before the day was considered compensable time because the employer required the employee to be present at facility before leaving for job sites

Current Wage & Hour Challenges