Wage Hour - How Much Can it Cost You

1. Chicago, IL ~ November 8 - 10, 2006 Wage & Hour - How Much Can it Cost You?

2. How Do These Cases Arise? Class Actions Solo or Multi-Plaintiff Cases Audits by the Department of Labor (�DOL�) or State Labor Commissioners Private Attorney General Statute in California

3. What Laws Govern Wage & Hour Claims Federal Law, Fair Labor Standards Act (�FLSA�) Enforced by Department of Labor (�DOL�) State Law, State Labor Codes Enforced by State Labor Commissioners Local Ordinances

4. Wage & Hour 101: A Primer FLSA generally requires that employers: Pay employees minimum wage for all hours worked; Pay employees 1.5 times their regular hourly rate for all time worked > 40 hours in a workweek (unless exempt); and Keep accurate records of daily and weekly hours worked by non-exempt employees.

5. How Difficult Is That? The FLSA is one of the most complex of all federal laws, and one of the most difficult for employers to fully comply with Written in the 1930s Voluminous and technical DOL regulations Inconsistent opinion letters

6. Broad Coverage FLSA applies to any �enterprise� which has: Employees who touch goods/materials that have been moved in or produced for interstate commerce; and Annual business dollar volume of $500,000.

7. Covered �Employees� FLSA construed broadly in favor of coverage! Common Exclusions: Independent Contractors (in fact, not in title) Volunteers Trainees / interns / students learning skill or trade for their benefit

8. Hours Worked Includes all time an employee is required to be on employer�s premises, on duty, or at a prescribed workplace �The devil is in the details�

9. Hours Worked: HOT TOPICS Rest breaks Meal breaks Waiting time On-call time Commuting/travel time

10. Minimum Wage No matter how pay is determined, it must generate an hourly rate of at least the minimum wage when divided by the number of hours worked in a workweek Federal is $5.15/hour Many states have higher minimum wage laws Special rules for �tipped� employees

11. 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 California, may impose more stringent rules �Regular rate� can be complex and confusing Salaried non-exempt (What hours does salary cover?)

12. Regular Rate � Federal and State Law Overtime is calculated on the basis of an employee�s �regular rate� Must include �announced and expected� bonuses, commissions, and other extra compensation Piece rate employees are calculated by taking total compensation for week divided by hours worked, and may receive a new rate every week

13. Main Issue�Exempt vs. Non-Exempt Must meet �salary� test Must meet �duties� test Federal vs. California�there are many differences

14. Salary Test Under FLSA, must receive $455 a week Under California law, must receive salary equal to two times minimum wage, based on 40 hour work week � currently $28,080/year Minimum wage in California due to increase January 1, 2007 to $7.50 an hour, and again in 2008 to $8.00 Computer professionals different - In California, must be nearly $98,000 annually, adjusted every year

15. Salary Test Must pay based on work product not hours worked or performance No weekly deductions for plant closures or jury duty No daily deductions, unless taken from a bona fide vacation, sick or PTO plan

16. Duties TestExempt Employees Professional, Administrative or Executive Certain computer related employees Outside/inside sales employees

17. Professional EmployeesIn California� Licensed attorney, doctor, engineer, etc., or Engaged in occupation commonly recognized as a learned or artistic profession (FLSA definition) Work requiring knowledge of an advanced type in a field customarily acquired by prolonged course of specialized intellectual instruction and study or work that is original and creative in character in a field of artistic endeavor, and Work predominantly intellectual and varied in character and is of such character that the output produced cannot be standardized in relation to time, and Work customarily and regularly requiring the exercise of discretion and independent judgment

18. Professional EmployeesIn California� Under Federal law, college degree is probably sufficient; however, under California law, �prolonged course of study� is greater than a four-year college degree Registered nurses, dental hygienist, pharmacists, and paralegals are not professionals under California law Staff accountants and auditors who do not hold a CPA license are usually not exempt as professionals in California

19. Executive Employees Duties and responsibilities involve the management of the employer�s business or a customarily recognized department or division of the business, and Customarily and regularly directs the work of two or more other employees, and Has the authority to hire or fire other employees, or effectively recommend such action, and Customarily and regularly exercises discretion and independent judgment

20. Working Managers Federal law vs. California � issue regarding �primary duty� Key � In California, cannot spend more than HALF of his/her time on non-exempt functions Seating guests, pouring coffee, expediting food, stocking shelves, conducting inventory, providing customer service, bookkeeping, cooking and assisting on a cash register ARE NOT exempt duties! Based on actual work duties, not job description! �Assistant� managers are always suspect, especially in California

21. Administrative Employees Duties involve either: Performance of office or non-manual work directly related to management policies or general business operations of the employer or the employer�s customers, or Performance of functions in the administration of a school system or educational establishment

22. Administrative Employees Customarily and regularly exercises discretion and independent judgment, and either: Regularly and directly assists a business owner, or an employee working in a bona fide executive or administrative capacity, or Performs under only general supervision work along specialized or technical lines requiring special training, experience or knowledge, or Executes under only general supervision special assignments and tasks

23. Administrative Employees Again, cannot perform non-exempt functions more than half the time Non exempt functions include: Bookkeeping Clerical functions Technical services Customer service or support Payroll services Phone support/receptionist duties

24. Suspect Classes Accounting personnel below CFO or Controller level Customer service, account executives or account managers IT or IS personnel below manager level Secretaries, payroll clerks, general admin personnel Underwriters or adjusters

25. Primarily engaged in work that is intellectual or creative and requires the exercise of discretion and independent judgment, and Primarily engaged in one or more of the following: Application of systems analysis techniques and procedures, or Computer Personnel

26. Design, development, documentation, analysis, creation, testing or modification of computer systems or programs based on and related to user or system design specifications, or Documentation, testing, creation or modification of computer programs related to the design of software or hardware for computer operating systems, and In California, earns an hourly rate of at least $47.81 to be adjusted annually Computer Personnel

27. Sales Personnel Outside Sales More than 50% of time outside of office/home office More than half time dedicated to sales Inside Sales Earns at least 50% of income on �commission� basis Earns at least 1 � times minimum wage (currently $405.00 a week in California ) Only applicable to Wage Orders 4 and 7 in California AND �retail sales� under FLSA Only exempt from OT, not other rules (such as meal and rest breaks) BIG issue under federal as well as state law (e.g., stock brokers)

28. Chicago, IL ~ November 8 - 10, 2006 And then there is California�

29. Why the Surge in Wage & Hour Cases? FLSA dates back to 1930�s, so�? Sav-On decision (2005) Allowed classes to be certified more easily Cortez decision (2000) Allowed plaintiffs to use Business & Professions Code � 17200 as a tool to recover unpaid wages and extended statute of limitations to four years Increased internet advertising by attorneys

30. California�s Private Attorney General Act � Section 2699 Civil action by employee to recover penalties for certain violations of Labor Code where normally no private right of action Employee gets 25% of recovery; State gets the rest Employer pays employee attorneys� fees Effective August 11, 2004, SB 1809 amended Section 2699 to require a 30 day notice to DLSE before civil lawsuit can be filed

31. Rest and Meal PeriodsCalifornia�s Hottest Issue � Meal Period Minimum � hour, unpaid meal period for employee working at least five hours If employee works no more than six hours, meal period may be waived We recommend the waiver be in writing, but it�s not required by law Otherwise, under current law, employee MUST actually take the meal period DLSE has interpreted this to mean that an employee cannot work more than five consecutive hours without a meal break Employees must be fully relieved of all duties during the meal period unless nature of work does not permit On duty, paid meal period Very limited interpretation Must be authorized in writing with employee right to revoke

32. Rest and Meal PeriodsRest Breaks Ten minute paid break for every four hours worked Need only be made available, i.e., need not force employees to take them (unlike meal period!!)

33. Rest and Meal PeriodsWhat is the Cost? If employee does not receive meal or rest break, employer must pay one hour of employee�s pay for each day in which employee does not get all breaks and meal periods Employers may automatically pay the extra hour if the employee works through the meal

34. Uncertainty in Meal and Rest Break Rules Is one hour of additional compensation a �penalty� or a �wage�? If penalty, only one year statute of limitations; if wage, up to four year statute (Under Business & Professions Code Section 17200). If penalty, employee cannot recover other penalties in addition to the one hour; if wage, employee would be entitled to additional penalties for failing to pay wages owed. If penalty, employee cannot recover attorneys� fees; if wage, employee can recover attorneys� fees.

37. How Much Can a Mistake Cost? Unpaid overtime or other wages and/or penalties per employee One year for penalties per California Law For wages, three years under Labor Code For four years under Business & Professions Code section 17200 Double damages under FLSA Attorneys� fees for actions brought in court Cost of defense of the claim May be less than you think!

38. How Much Can a Mistake Cost?...Plus Penalties Failure to pay any owed wages upon termination Labor Code section 203 � 30 days waiting penalties at employee�s daily rate Refusal to pay owed wages Labor Code section 225.5 - $100 per employee, per violation, plus 25% of amount unpaid

39. How Much Can a Mistake Cost?...More Penalties Underpaid employee Labor Code section 558 - $50 for first violation, $100 thereafter, per violation, per employee Labor Code section 1197.1 - $100 for first violation, $250 thereafter per violation, per employee Failure to pay minimum wage Labor Code section 1194.2 � liquidated damages in amount equal to unpaid wages Fair Labor Standards Act � double damages

40. Who Has to Pay? The Company Per new California Supreme Court ruling in Reynolds, individuals are NOT liable for most wage and hour violations May be liable for penalties only under certain Labor Code Sections which expressly refer to �responsible persons� NOT insurance � Wage and hour claims are excluded from most insurance policies, including EPLI

41. Loss Prevention Strategies Class action risks Employers whose workforce is primarily comprised of non-exempt employees Employers whose work is performed primarily by �independent contractors� Multi-state employers Multi-city employers Certain cities impose wage and hour requirements Living wage Employers with centralized human resource departments No on-site management

42. Loss Prevention Strategies Litigation Economics Wage and hour - the perfect class action Claimants Past employees Present employees Class easy to recruit Easier to certify Violations easy to prove Facts rarely disputed Time cards ultimate proof No science needed Accountants only Damages easier to prove Interest and penalties act as multiplier Recovery small for individual claimants, but huge for attorneys

43. Loss Prevention Strategies Procedures Each locality must have its own payroll procedures An attorney should review the wage and hour procedures for each locality Job Descriptions Every job must be classified either as exempt or non-exempt A legal opinion should be obtained for any questionable exempt classification Employees should acknowledge their job description / classification

44. Loss Prevention Strategies Employee Handbook Should define the different classifications Should direct employees where they can discover their classification Should provide and outlet for questions and disputes Should incorporate retaliation prevention measures

45. Loss Prevention Strategies On-Site Controls Employers should have management personnel trained on wage and hour matters at every location Employers should audit each location�s payroll records every two years Every claim made to the Department of Labor or a state labor department should be investigated quickly and professionally

46. Loss Prevention Strategies Training Certain management personnel in each locality should be trained on the federal, state and local labor laws Human resources personnel an obvious choice All managers should be made aware of what they can and cannot do as to non-exempt employees� time Special attention to breaks, clocking in, and working overtime

47. Loss Prevention Strategies Payroll services Closely review their contractual obligations What they guarantee and do not guarantee Educate your insured/clients Review wage and hour opinions Monitor decisions Work closely with wage and hour specialists Many carriers offer wage and hour education as part of their loss prevention platforms Hot lines to attorneys with wage and hour questions

48. Chicago, IL ~ November 8 - 10, 2006 Wage & Hour - How Much Can it Cost You? Thank you for attending!