Reducing Employer Liability Newsletter
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This is a monthly newsletter.  Each issue covers one specific area of employer liabilities with suggestions to control that liability.  You are not to rely on this publication as legal advice and must seek competent legal assistance.


 

In This issue: AVOIDING THE PITFALLS OF THE FEDERAL WAGE AND HOURS LAWS

 

The number of lawsuits involving violations of overtime laws has risen sharply in recent years with the predominance of cases being decided in favor of underpaid and “misclassified” employees.  In fact, between 1998 and 2000, Fair Labor Standards Act (FLSA) suits increased by almost 25% (38 MAY Trial 80, 2002).

The Federal Wage and Hour division of the U.S Department of Labor (DOL) and private plaintiffs remain aggressive in pursuing enforcement of the FLSA. This is a vital aspect of employment law where employers must be diligent in their compliance efforts.

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One of the most common areas of DOL enforcement action is the misclassification of employees as exempt from overtime compensation. Technically speaking, administrative, executive and professional employees are independent contractors, exempt from any FLSA protection.  However, it is employee duties and not job titles, descriptions or employment contracts that determines their status.

Errors in classification have led to substantial awards for unpaid overtime to construction workers (Secretary of Labor v Davis Acoustical, 1998, 21 F. Supp/ 2d 130; workers awarded $1,318,648.93 plus interest); topless dancers (Secretary of Labor v Circle C. Investments, Inc., 1993, 998 F 2d 324; dancers awarded $539,630.00), cable television installers (Nash v Resources Incorporated,1997, 982 F. Supp. 1427; summary judgment denied to defendants) and nurses (Secretary of Labor v Superior Care, Inc., 1988, 840 f 2nd 1054; nurses awarded $697,140.66 plus interest).

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Regardless of how the employer classifies an employee, and even if an employee has signed a written agreement acknowledging independent contractor status, a court will determine whether the worker is an employee or not and subject to overtime exemption.

The Salary Basis Test – Establishing Exempt Status

An employee meets the “salary basis test” and is exempt from overtime if he regularly receives each pay period on a weekly, or less frequent basis, a pre-determined amount constituting all or part of his compensation, which amount is not subject to reduction because of variations in the quantity or quality of work performed. Subject to the exceptions provided below, the employee must receive his full salary for any week in which he performs any work without regard to the number of days or hours worked. In general, an employee need not be paid for any workweek in which he performs no work.

There is a presumption under the rules of the FLSA that every employee is entitled to be paid overtime for hours worked in excess of 40 hours within a workweek. The employer has the burden of establishing the exemption. The DOL has issued regulations that set forth in detail the basis for establishing these exemptions.

In all of the cases cited at the beginning of this article, the employer had classified the employees as independent contractor and failed to comply with overtime provisions.  In more than one instance, the employees had even signed independent contractor status agreements.  However if you wind up in court, the Economic Realities Test will determine whether or not your company is liable.

The Economic Realities Test

This test is rooted in case law and generally examines the work relationship as a whole . Factors influencing a determination that an employee is protected by FLSA include whether the employer had the power to hire and fire the employee, how much control the employer had over work schedules and the conditions of employment, rate and method of compensation, as well as the skills demanded, the relative investments of the employee and the employer, and the employee’s opportunity for profit or loss.

What is Compensable Working Time?

There is also much confusion about what constitutes compensable working time. The 1947 Portal to Portal Act, amendment to the FLSA, eliminates from working time certain travel and walking time and other similar activities performed prior or “subsequent” to the workday that are not made compensable by contract, custom or practice. Like so many other seemingly simple concepts under the FLSA, this can prove a pitfall for the unwary employer. Here are some examples of some trouble spots.

“Suffered or Permitted” to Work

Work time not requested but “suffered or permitted” is compensable. For example an employee who comes to work prior to the start of the shift to get caught up on paperwork is working even though the employee was not requested to come in early and the time was not authorized. Likewise an employee who stays over a “few minutes” at the end of the day to finish a task is working. This time must be paid. It is a common error to believe that because extra time was not authorized, it does not have to be paid. It also does not matter if the employee is willing to work the extra time without pay because he wants to get caught up.

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Preparatory and Concluding Activities

This is a troublesome area and has been the focus of the DOL in particular industries, specifically the meatpacking and poultry industries. The DOL has been examining those circumstances where the “donning and doffing” of protective clothing should be considered compensable time.

The DOL considers activities that are “an integral part of a principal activity” to be closely related activities indispensable to the principal activity’s performance and thus regarded as “working time.” For example, if an employee in a chemical plant cannot perform his principal activities without putting on certain clothes, changing clothes on the employer’s premises at the beginning and end of the workday would be an integral part of a principal activity.

Two cases decided by the U.S. Supreme Court illustrate these concepts. In one case, employees changed their clothes and took showers in a battery plant where the manufacturing process involved the extensive use of caustic and toxic materials. Steiner v. Mitchell, 350 U.S 247 (1956). In another case, knifemen in a meatpacking plant sharpened their knives before and after their scheduled workday. Mitchell v. King packing Co., 350 U.S. 260 (1956). In both cases, the Supreme Court held these activities to be in integral and indispensable part of the employee’s principal activities, constituting work time.

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More recently, the U.S. Court of Appeals for the Tenth circuit upheld the DOL’s position that employees working in the meatpacking plants of Iowa Beef Processors and Monfort Corp. should be paid overtime for time spent putting on, taking off and cleaning the clothing and equipment they used while working on the production lines. Reich v. IBP, 127 F.2d 959. 4 WH cases 2d 229 (10th cir.1997); Reich v Monfort Inc.,144 F.3d 1329, 4 WH Cases 1106 (10th Cir, 1998). Although the amount of individual time involved in these activities was relatively small (10 minutes at the beginning and end of the shifts), it involved overtime with several hundred employees over a two-year period, resulting in millions of dollars in liability for these employers.

There is help! Compliance with FLSA and many other complex federal and local statutes governing employment practices is the expertise of a qualified PEO.  If you would like to find out how your organization can obtain qualified assistance, click on www.PEO7.com. 

For more information check out: www.PEO7.com.

ABOUT THE AUTHOR
David Sheehan is a licensed attorney and a member of the California State Bar, specializing in Business law, Employment Law, and Estate Planning. 

To read Previous Issues click here


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