Wage and Hour Claims: A New Frontier

1. Wage and Hour Claims: A New Frontier • MODERATOR: Michael A. Kaufman, Esq., Partner Kaufman Dolowich & Voluck LLP • John Black United States Department of Labor- Office of the Solicitor • Carrie A. Brodzinski, Product Manager, Specialty Lines Beazley Group plc • Paul DeCamp, Partner Jackson Lewis LLP

2. The Law • Fair Labor Standards Act (“FLSA”) • Enforced by Department of Labor (“DOL”) • State Laws, and Local Ordinances • Enforced by State Labor Commissioners

3. Wage and Hour Collects a Record $220 Million in Back Wages for Over 341,000 Employees in Fiscal Year 2007

4. Over 311,000 Employees Received Fair Labor Standards Act Back Wages

5. DOL published 123 Opinion Letters between 2004 and 2006. • (only 35 between 2001 and 2003) • In 2006 insurance workers, securities brokers, carpet installation mechanics, and auto damage adjusters all brought class actions for OT. • The number of wage and hour class actions filed in federal courts has more than doubled from 2001 to 2006. • Nationwide, over 75% of all class action lawsuits filed were wage and hour related (1257 out of 1655).

6. The Most CommonWage & Hour Violations • Minimum Wage Federal State & Local • Overtime • Non-Exempt/Hourly Employees must receive 1.5 times their regular hourly rate for all time worked in excess 40 hours in a workweek. • Record Keeping Violations • Child Labor • Misclassification

7. What Else Does the USDOL Cover? • FMLA • Immigration (H2A H2B) • Davis Bacon

8. Minimum Wage • An employee must be paid the minimum wage for every hour worked. • Federal is $5.85/hour. Scheduled to increase to $6.55 on July 24, 2008. • Many states and localities have higher minimum wage laws (i.e., California $8.00, San Francisco $9.36, Florida $6.79, Georgia $5.85, Massachusetts $8.00, New York $7.15, Illinois $7.50, scheduled to increase to $7.75 on July 1, Texas $5.85, scheduled to increase to $6.55 on July 24, 2008.) Special rules for “tipped” employees. Some states have a spread of hours.

9. Arguably Not Compensable Time • Break Time (Rest and Meal Periods) • Charging Time • Waiting time • On-call time • Commuting/travel time

10. Common Mistakes Employers Make • Salaried • Pay by shift • Work through breaks (Suffer or Permit) • Start and ending time (Suffer or Permit)

11. Payment for All Hours Worked • The “suffer or permit to work” standard. • Improper to not pay employees for work performed, even if unauthorized. • Discipline employee for unauthorized work pursuant to a written policy, not by failing to pay the employee.

12. Overtime Pay • UNLESS EXEMPT, employees are entitled to overtime pay of 1.5 times the employee’s “regular rate” for all time worked in excess of 40 hours in a workweek. • Certain States, such as Alaska, California, Colorado, Michigan, North Dakota, Oregon & Vermont, require overtime after 8 hours in a day.

13. Regular Rate – Federal and State Law • Overtime is calculated on an employee’s “regular rate” • Also includes “announced and expected” bonuses, commissions, and other extra compensation.

14. “White Collar” Exemptions • Section 13(a)(1) of the FLSA provides an exemption from both minimum wage and overtime pay for employees who are employed in a bona fide: • Executive; • Administrative; • Professional; or • Outside Sales Capacity. • Certain computer employees may be exempt professional under Section 13(a)(1) or exempt under Section 13(a)(17) of the FLSA.

15. Exempt vs. Non-Exempt • Salary test • Duties Test • “A rose by any other name is still a rose”

16. Salary Basis • Salary must be at least $455.00 per week. States may have their own (i.e., $536.10 in New York). • Predetermined amount per pay period. • No reduction in pay due to variations in quantity or quality of work. • Full salary must be paid for any week in which any work is performed.

17. Salary Basis cont’d. • No deductions for jury duty • Whole day deductions for personal reasons. • Whole day deductions for sickness and disability if pursuant to a bona fide plan. • Partial day deductions pursuant to a bona fide plan (including PTO plans).

18. Salary Basis cont’d. • Deductions as penalties imposed in good faith for infractions or safety rules of major significance (smoking in an explosive plant). • Deductions for unpaid whole day disciplinary suspensions based on violations of written workplace conduct rules. • Safe Harbor Policies

19. “Executive” Employees • Primary duty is the management of commonly recognized subdivision. • Regularly directs work of 2 or more employees. • Authority to hire/fire or whose recommendations are given “particular weight” • Does not apply to “working supervisors”

20. Working Managers • Based on actual work duties, not job description! • “Assistant” managers are always suspect.

21. “Administrative” Employees • Primary duty is office or nonmanual work directly related to employer’s policies. • Regularly exercised independent judgment and discretion as to matters or significance. • Does not include ordinary clerical/support employees (i.e., secretaries, clerks). • CANNOT perform non-exempt functions more than half the time.

22. More Suspect Classes • Accounting personnel, AP & AR & Payroll Clerks • Adjusters • Customer service • account executives • account managers • IT or IS personnel • Loan officers & Tellers • Marketing, public relations, graphic artists • Quality control • Stock brokers

23. “Professional” Employees • Primary duty is work requiring: (i) knowledge of an advanced type in the field of science or learning customarily acquired through prolonged study; or (ii) requires invention, imagination, originality or talent in a recognized artistic or creative endeavor.

24. Computer Personnel Are exempt only if: • Primarily engage in one or more of the following: • Application of systems analysis techniques and procedures, or • Design, development, documentation, analysis, creation, testing or modification of computer systems or programs based on and related to user or system design specifications.

25. Sales PersonnelOutside Sales • Primary duty is: • Customarily and regularly engaged in making sales away from the employer’s place(s) of business. • Obtaining orders or contracts for services or facilities for consideration paid by customer. • No compensation test.

26. Sales PersonnelInside Sales • The employee must be employed by a retail or service establishment. • Employees of a retail service establishment who are paid more than half their total earnings on a commission basis may be exempt from the overtime pay requirements of the FLSA. • More than half the employee’s total earnings in a representative period must represent commissions on goods or services. • Employee’s total compensation divided by number of hours worked or regular rate must exceed one and one-half times the minimum wage. • Unless all three conditions are met, the exception does not apply, and overtime premium pay must be paid for all hours worked over forty in a workweek at one and one-half times the regular rate of pay.

27. Other Exempt Categories • Independent Contractors • Volunteers • Trainers/interns/students learning skill or trade for their benefit • Motor Carriers Act Exemption

28. Recordkeeping • It is the EMPLOYER’S obligation to accurately maintain time and earnings records. • The next best evidence used by DOL is the employees’ best recollections!

29. The Big Picture • Employer generally has burden of proof in FLSA cases and inaccurate or inadequate records could impair employer’s ability to defend itself. • Inaccurate or inadequate records may be evidence of a willful violation of the FLSA, extending statute of limitations from 2 to 3 years and justifying liquidated damages.

30. Cradle to Grave A US DOL Complaint • Intake • Who are the complainants? • Who are the investigators? • What do they do? • Questions • Audit of employers • Self audits

31. What happens if can’t resolve administrative office? • Meet the solicitor • Federal Court action

32. Consequence of Violation • Wages • Liquidated damages (2X) • Fines • Contempt

33. Common Actions Brought by USDOL • OT • Shifts • Record keeping

34. Common/Target Employers(Low Wage Industries) • Restaurants • Construction • Gulf Coast workers • Janitorial • Hotel/Motel

35. Back Wages Collected for Workers in Low-Wage Industries Increased

36. Private Actions • Class actions • Misclassifications • Prevailing wage

37. Damages • Compensatory (wages) • Liquidated (2X) • Attorney fees

38. Bigger Cases • Wal-Mart – $200 Million, violation of meal & rest period, defense costs in excess of $10 Million. • Starbucks – 135,000 workers, $106 Million in Back Pay and Interest. • Alaska Supreme Court – Fieldwork & bonuses must be factored in regular rate. • Gotham Registry – Nurse outsourcing company found liable for not managing overtime.

39. Underwriting this Risk • What did you look at? • How are policies written? • Loss prevention strategies

40. Newer Developments • Class Action Fairness Act of 2005 • New Massachusetts Law – Treble Damages

41. Emerging Litigation Areas • Exempt/non-exempt issues: • Stockbrokers • Information Technology workers • Pharmaceutical sales representatives • Employment relationship issues: • Independent contractor status (e.g., construction workers) • Joint employment (e.g., cleaning crews)

42. Emerging Litigation Areas • Hours worked issues: • Booting up, logging on, logging off, powering down, and other starting and ending tasks. • BlackBerry, voicemail, logging onto network from home. • State-law meal and rest break rules. • Standard off-the-clock claims continue to arise.

43. Emerging Litigation Areas • Tipped employment issues: • Improper participants (e.g., management) in tip pool. • Challenges to taking tip credit for time spent on tasks that allegedly do not generate tips. • Challenges to employers retaining service charges rather than distributing them as tips.

44. Thank you for attending