Identifying and Preventing Wage and Hour Landmines

1. Identifying and Preventing Wage and Hour Landmines Jeffrey A. Risch, Esq. Labor & Employment Group Chair SmithAmundsen LLC 630.569.0079 – Direct 24/7 jrisch@salawus.com

2. SIGNIFICANT CASE LAW ACTIVITY • The United States Supreme Court ruled on April 27, 2011 that plaintiffs can be legally bound by an arbitration clause in a contract even when state law permits a class-action lawsuit for claims arising from the contract. AT&T Mobility, LLC. v. Concepcion.

3. SIGNIFICANT CASE LAW ACTIVITY • A former financial adviser for Ameriprise Financial Services who alleged the company violated myriad provisions of California's wage and hour laws must arbitrate her individual claims and may not pursue class claims on behalf of other Ameriprise employees, the U.S. District Court for the Central District of California ruled Oct. 12th 2011 (Dauod v. Ameriprise Fin. Servs. Inc., C.D. Cal., No. 8:10-cv-00302). Granting Ameriprise's motion for partial summary judgment in a suit filed by former employee Iman Dauod, the court said the U.S. Supreme Court's April decision in AT&T Mobility LLC v. Concepcion makes clear that a class arbitration waiver contained in Dauod's signed arbitration agreement with Ameriprise is enforceable.

4. SIGNIFICANT CASE LAW ACTIVITY • On January 3, 2012, the NLRB held that a nationwide home builder committed an unfair labor practice under the NLRA by implementing a mandatory arbitration agreement that waived the rights of employees to participate in class or collective actions (D.R. Horton Inc. and Michael Cuda, 357 NLRB 184). In short, the NLRB held that employers may not compel employees to waive their right to collectively pursue litigation of employment claims in all forums --- to do so is a violation of employees’ right to engage in CONCERTED ACTIVITY (i.e. file class actions).

5. SIGNIFICANT CASE LAW ACTIVITY In Iskanian v. CLS Transp.Los Angeles LLC, 2012 Cal. App. LEXIS 650 (Jun. 4, 2012), the California Court of Appeals upheld a lower court’s decision to require a California driver to arbitrate his wage and hour claims and its dismissal of his class claims against his employer based on the AT&T Mobility v. Concepcion case.  Since the “FAA is not a statute the NLRB is charged with interpreting; we are under no obligation to defer to the NLRB’s analysis.” The court also pointed to the fact that the U.S. Supreme Court issued another ruling enforcing arbitration agreements a week after Horton was decided, holding that arbitration agreements should be enforced under the FAA absent a showing that this mandate was “overridden by a contrary congressional command”  (CompuCredit v. Greenwood, 132 S. Ct. 665).

6. SIGNIFICANT CASE LAW ACTIVITY Ervin v. OS Restaurant Serv, (7th Cir. Jan. 18, 2011) Ervin brought a minimum wage and overtime claim under the Fair Labor Standards Act (“FLSA”) and the Illinois Minimum Wage Law (“IMWL”).  The question on appeal was whether both a collective action under the FLSA and a class action under the IMWL could be maintained in the same lawsuit.  The problem, as the lower court saw it, stems from the fact that the FLSA requires potential plaintiffs to “opt in” to participate in such an action, while the plaintiffs in a Rule 23(b)(3) class action are included in the lawsuit unless they affirmatively “opt out.”  The Appellate Court overturned the District Court and held there is no categorical rule against certifying a Rule 23(b)(3) state-law class action in a proceeding that also includes a collective action brought under the FLSA. 

7. SIGNIFICANT CASE LAW ACTIVITY • The administrative exemption continues to trouble the financial services industry. On June 6, 2012, a federal district court in Washington D.C. rejected the Mortgage Bankers Association’s legal battle to invalidate the United States Department of Labor’s (DOL) March 24, 2010 interpretation.  As a reminder, the DOL’s March 24, 2010 interpretation boldly reversed its prior September 2006 opinion to conclude that mortgage loan officers no longer qualify for the administrative exemption under the Fair Labor Standards Act (FLSA).  • Not only did this decision permit the DOL to flip-flop on critical guidance concerning the exemption of loan officers, but it also sends a reminder that the DOL has its sights on the financial services industry and the DOL intends to maintain its strict interpretation of wage and hour laws, making application of the administrative exemption in the banking industry that much more precarious.

8. SIGNIFICANT CASE LAW ACTIVITY On May 29, 2012, a federal district court in Washington, D.C. upheld the Department of Labor’s (DOL) final rule on the Fair Labor Standards Act (FLSA) “tip credit.” As a result of the court’s holding, tipped employees must be notified of the following: • The amount of the cash wage that is to be paid to the tipped employee by the employer; • The additional amount by which the wages of the tipped employee are increased on account of the tip credit claimed by the employer, which amount may not exceed the value of the tips actually received by the employee; • That all tips received by the tipped employee must be retained by the employee except for a valid tip pooling arrangement limited to employees who customarily and regularly receive tips; and • That the tip credit shall not apply to any employee who has not been informed of these requirements.

9. SIGNIFICANT CASE LAW ACTIVITY • On June 18, 2012, the U.S. Supreme Court rejected the DOL’s interpretation of the “outside salesman” exemption to the Fair Labor Standards Act and determined that pharmaceutical sales representatives who encourage doctors to prescribe the use of a company’s products are exempt from the overtime protections of the FLSA. (Christopher v. SmithKline Beecham Corp. d/b/a Glaxo SmithKline, U.S. No. 11-204).

10. SIGNIFICANT CASE LAW ACTIVITY • On December 14, 2011, the Seventh Circuit held that an employee who claimed that she worked 15 to 45 minutes every day without pay before the start of her scheduled shift was not eligible for back pay under the Fair Labor Standards Act (Kellar v. Summit Seating, Inc., No. 11-1221).  The employee at issue, who was paid by the hour, would show up early to review employee schedules, make coffee, gather and distribute fabric and materials to employee workstations, clean work areas, and perform other preparatory activities.  • The Seventh Circuit explained that the FLSA does not go so far as to require an employer to pay for work that it “neither knew nor should have known” that the employee was performing. Also, of note, the company never told the employee to arrive before her shift to perform these tasks.

11. SIGNIFICANT CASE LAW ACTIVITY • On February 22, 2012 the District Court in the Northern District of Illinois granted conditional certification of a collective action under the Fair Labor Standards Act (FLSA) for a group of hourly employees who allege that they were required by their employer to perform work while not on the clock.  Smith v. Family Video Movie Club, Inc., 2012 U.S. Dist. LEXIS 21935. • In Smith, the plaintiffs pointed to evidence that there was an unwritten policy at Family Video Movie Club (FVMC) requiring employees to perform work off the clock and after hours including making bank deposits, running errands and buying store supplies. FVMC argued that the plaintiffs were not entitled to certification of the collective action because FVMC’s official policy stated that employees were required to clock-in for all work performed.  The court found that the written policy alone did not insulate FVMC from an FLSA action and the fact that there was some evidence that more than a rogue manager may have required employees to work off the clock was enough to support certification of the collective action.

12. SIGNIFICANT CASE LAW ACTIVITY Can employers “kill” class actions based on “mootness” of the purported class representatives’ claim? For now, generally, it is possible in the 7th Circuit (NOTE: U.S. Sup. Ct. is currently weighing a split amongst the circuits): Make an offer to make a worker whole before a class is certified; Clearly establish through hard evidence (a sworn declaration attesting that the offer is complete and include actual payroll documents) so that the offer fully satisfies the claims (err on the side of overcompensation); and Be clear in the FRCP Rule 68 Offer re: whether the offer is exclusive of or inclusive of attorney's fees (note: this can be tricky). Example: July 24, 2012, class action dismissed by federal court Avila v. Watts Electric Co., 2012 U.S. Dist. LEXIS 102425

13. Illinois’ Equal Pay Act – New Amendment Effective January 1, 2012 The Equal Pay Act of 2003 prohibits employers from paying unequal wages to men and women for doing the same or substantially similar work. It also prohibits employers from taking any negative action against employees who share/discuss wages. 2012 Penalty… Amends the Equal Pay Act of 2003. Provides for a civil penalty of up to $5,000 when any employer or person violates sections of the Act prohibiting an employer or person from interfering or discouraging another from exercising his or her rights under the Act.

14. Illinois Crackdown! • Amendments to the Illinois Wage Payment & Collection Act and Illinois Minimum Wage & Overtime Laws Substantially increase employer penalties to the employee, the employee’s attorney and the IDOL!!!

15. “WHITE-COLLAR” EXEMPTIONS Salary Basis • Don’t mess with an exempt employee’s salary! *** Salary Level • $455 gross per week minimum salary! *** Duties • Depends on type of exemption sought. ***Note: “highly compensable” exempt worker under federal law = $100,000 or more; “outside sales” = no salary or minimum wage due; and “computer occupational exempt” can be paid $27.63 per hour.

16. Executives/Managers • Executive Exemption • Better Direct/Control two or More Employees (80 hours per week) • Must Manage • Manual Work Must Be Nominal

17. Administrators • Administrative Exemption • Must Make Decisions with Independent Judgment & Discretion Concerning Matters of Significance • Manual Work Must Be Nominal

18. Learned Professionals • Professional Exemption (Learned) • Should Have Advanced Degree of Higher Learning or Instruction (i.e. BA/BS) • Must Use Advanced Degree • Manual Work Must Be Nominal ***Certain occupations are automatically exempt (i.e. doctors, lawyers, teachers).

19. Outside Salespersons • Outside Salesperson 1. Must Be Engaged In Sales of Products or Services Away from Employer’s Office

20. Computer Professionals • Computer-Related Occupations • Must Analyze & Develop Software, Technical Components, Hardware Integration, Related Systems • Help-Desk Duties Must Be Nominal

21. COMPENSABLE VS. NON-COMPENSABLE EXAMPLES FOR NON-EXEMPT STAFF • Compensable • changing clothes at facility, if required by nature of work • rest periods of less than 30 minutes • training programs required by employer • travel from office to work site and vice versa • Non-compensable • changing clothes at home • jury duty or witness subpoena • traveling from home to a work site and vice versa

22. WAITING TIME – NON-EXEMPT STAFF • Generally, an employer must compensate employees for all time during which the employees are required to wait while on duty or while performing a principal activity.

23. On vs. Off Duty – Non-Exempt • On Duty • all time spent in periods of inactivity while on duty must be counted as hours worked. • Off Duty • employees who wait before starting their duties because they arrive earlier than the required time are not entitled to be paid for the waiting time. (however, time cards will control matters in controversy)

24. SPLIT SHIFTS AND LAYOVER TIME – Non-Exempt • If an employee has time off in the middle of a workday which is longenough to effectively use as he or she wishes, and the employee understands that he or she doesn’t have to return until a definite specified time, the employee does not have to be considered to be working during the time-off period. Must be at least 30 minutes…

25. On-Call Time – Non-Exempt • Must be compensated when such time is spent “predominately for the employer’s benefit”. • Compensability of on-call time involves a fact-specific, case-by-case analysis. • Use of Pagers and Cell Phones can result in relaxation of compensability but are HOT BEDS for litigation.

26. TRAINING PROGRAMS, LECTURES AND MEETINGS – Non-Exempt • All of the following must be met for the activity not to be counted as working time: • Attendance must occur outside the employee’s regular working hours; and • Attendance must in fact be voluntary; and • The employee must do no productive work while attending; and • The program, lecture or meeting should not be directly related to the employee’s job.

27. UNAUTHORIZED WORK – Non-Exempt • Employees who, with the knowledge of their employer, continue to work after their shift is over or work before shift begins, are engaged in compensable working time but subject to discipline!

28. Travel Time – Non-Exempt Extremely fact-sensitive analysis… Home to Work Travel: An employee who travels from home before the regular workday and returns to his/her home at the end of the workday is engaged in ordinary home to work travel, which is not work time. Home to Work on a Special One Day Assignment in Another City: An employee who regularly works at a fixed location in one city is given a special one day assignment in another city and returns home the same day. The time spent in traveling to and returning from the other city is work time, except that the employer may deduct/not count that time the employee would normally spend commuting to the regular work site.

29. Travel Time – Non-Exempt Extremely fact-sensitive analysis… Travel That is All in a Day's Work: Time spent by an employee in travel as part of their principal activity, such as travel from job site to job site during the workday, is work time and must be counted as hours worked. Travel Away from Home Community: Travel that keeps an employee away from home overnight is travel away from home. Travel away from home is clearly compensable work time when it cuts across the employee's workday. The time is not only hours worked on regular working days during normal working hours but also during corresponding hours on nonworking days. As an enforcement policy, the DOL will not consider as work time the time spent in travel away from home outside of regular working hours as a passenger on an airplane, train, boat, bus, or automobile.

30. Record Keeping Requirements • Employee's full name and social security number. • Address, including zip code. • Birth date, if younger than 19. • Sex and occupation. • Time and day of week when employee's workweek begins, hours worked each day and total hours worked each workweek. • Basis on which employee's wages are paid. • Regular hourly pay rate. • Total daily or weekly straight-time earnings. • Total overtime earnings for the workweek. • All additions to or deductions from the employee's wages. • Total wages paid each pay period. • Date of payment and the pay period covered by the payment.

31. MAJOR WAGE/HOUR PITFALLS! 1. OFF CLOCK WORK – TIME NOT RECORDED OR PAID 2. UNEQUAL PAY FOR EQUAL WORK 3. MISAPPLICATION OF WHITE COLLAR EXEMPT STATUS 4. IMPROPER CALCULATION OF OT PREMIUM RATE 5. NON-DISCRETIONARY UNPAID BONUS OR UNPAID EARNED COMMISSIONS (and lack of written plan design re: same)

32. WORD TO THE WISE… • Review internal documents such as training materials, performance evaluations, job descriptions, etc. to ensure they are consistent with the exempt classification relied upon (e.g. the exempt employee is being evaluated on non-manual work directly related to the business operations). • It is imperative to have a written policy and complaint mechanism through which employees can bring issues related to deductions/docking of exempt classifications (aka “Safe Harbor”). • Implement policies addressing a commitment to investigating wage complaints, policies on overtime work, meals and rest breaks, equal pay issues, travel time as well as payroll integrity policies for actions such as falsifying time records and working off the clock.

33. WAGE/HOUR WAIVERS??? • NOT ENFORCEABLE UNLESS APPROVED BY THE COURT OR DOL (or, perhaps approved by the union, if applicable). • However, ACKNOWLEDGEMENTS as to payment in full or receipt of certain monies may go a long way in preventing future/further controversies.

34. Thank you… • Jeffrey A. Risch Labor & Employment Practice Chair SmithAmundsen LLC www.salawus.com 630.569.0079 www.laborandemploymentlawupdate.com