American Bar Association
Forum on the Construction Industry
Employment and Discrimination
In the Real World
Mark M. Stubley
Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
Michael J. Ossip
Morgan, Lewis & Bockius LLP
Presented at the 2009 Fall Meeting
“The Two-Way Street of Construction Counseling:
Learning From the Ins & Outs”
October 15-16, 2009
©2009 American Bar Association
INTRODUCTION
The current economic environment is forcing companies to make tough business decisions to reduce costs and remain competitive. The effects of these decisions on employees have contributed to a notable increase in employment claims and litigation.
In 2008, discrimination claims filed with the EEOC increased by 15%. Over the last ten years, annual claims have increased from just under 80,000 per year to over 95,000 per year.[1] In 2009, the EEOC expects claims of discrimination to surpass 100,000.[2]
Jury awards have increased as well, with 20% of all employment verdicts from 2001 to 2007 surpassing $1 million[3] and the median award for a discrimination suit rising to approximately $200,000.[4]
The change in the political climate will result in even more vigorous enforcement of the nation’s employment laws and standards. U.S. Department of Labor Secretary Hilda Solis, for example, is seeking to add 670 investigators, inspectors and other staff in order to step up enforcement.[5]
The reality of these statistics is that managing employees in the construction industry has significant challenges in these difficult economic times. These challenges include the lawful use of background checks in the hiring process, compensating employees in compliance with the Fair Labor Standards Act and state wage and hour laws, properly handling employee leaves under the Family and Medical leave Act and Americans with Disabilities Act, and downsizing the workforce and reducing costs in ways that do not violate the many discrimination statutes with which employers must contend. The following discussion is intended to help construction employers effectively manage these issues and minimize liability.
LAWFUL USE OF BACKGROUND CHECKS
A. Introduction
Today’s employers use a variety of processes to seek and hire the most qualified applicants for available positions. Performing background checks on job applicants has become a more common practice among employers in all sectors of the economy, and the construction industry is no exception. More and more, background checks are utilized not only as a tool to locate and hire the most qualified and dependable employees, but also, and perhaps more importantly, to protect employers from the seemingly ever-growing list of potential legal claims.
Background checks can be as simple as an in-house review of applicants’ references, educational background and degrees, and employment histories to more sophisticated E-verification of employment eligibility and outsourced investigations of applicants’ criminal records, consumer credit reports and other information. Deciding whether or not to spend the time and resources to conduct such checks requires careful analysis of the legal risks and benefits.
Government at all levels, federal, state and local, are requiring special background checks for contractors performing certain types of work, particularly in areas such as education, transportation and the nuclear industry. There are also many staffing situations in which checking the background history of applicants is legally prudent, whether required by law or not.
B. Legal Reasons to Perform Background Checks
1. Legally Required Investigations
Background checks serve many interests for construction employers. But, such checks may be required by law or contract to actually execute certain types of work. For example, the Transportation Security Administration (TSA) and Department of Transportation (DOT) issued a joint regulation requiring background checks of all commercial drivers who transport hazardous materials.[6]
Additionally, the Transportation Worker Identification Credential (TWIC) is mandated by the Maritime Transportation Security Act (MTSA) and set up by TSA to safeguard the nation’s ports. The TWIC is a tamper-resistant credential that must be worn by workers who need unescorted access to secure areas of ports and other facilities used in maritime transportation.[7] The worker must submit fingerprints and other biometric information and pass a “security threat assessment” in order to receive the credential.[8] If any new construction, maintenance or modification of existing ports or other maritime transportation facilities (e.g., refineries, chemical plants, etc.) requires construction workers unescorted access, the cost and time required for obtaining TWIC authorization can significantly affect project budgets and staffing.
Similarly, the Nuclear Regulatory Commission instituted the Access Authorization (AA) program which requires background checks for all workers who require unescorted access to nuclear power facilities licensed under 10 CFR Part 50. The background check includes employment, military, criminal, credit and education history reviews, as well as reference interviews and drug and psychological screening.
Utility companies have plans in place to build over 20 new nuclear power plants, many of which are adjacent or within the boundaries of existing facilities. This massive construction effort, combined with the already bustling maintenance and outage work being performed on nuclear sites around the country, underscores the need for construction employers seeking to do this work to plan for and budget to comply with this requirement.[9]
Most employers are
familiar with the I-9 requirements created by the U.S. Customs and Immigration
Service (USCIS) to discourage the employment of illegal immigrants. The Immigration
Reform and Control Act of 1986 (IRCA) requires all U.S. employers to verify the
employment eligibility and identity of all employees hired to work in the United
States after November 6, 1986 by completing Employment Eligibility Verification
forms (Forms I-9) for all employees, including U.S. citizens. Employers who
hire or continue to employ individuals knowing that they are not authorized to
be employed in the
To enhance compliance, many construction employers have
voluntarily enrolled to use the free USCIS-overseen program, E-Verify, to
easily and quickly identify I-9 compliance through an electronic internet-based
system. Employers not required to enroll in E-Verify should do so only after
thoroughly examining the advantages and disadvantages of the program. Federal
contractors may be required to use E-Verification effective September 8, 2009[10]
and some states are also now requiring E-verification.[11]
State and local
laws may require construction employers to perform additional background
checks. For example,
Where not legally
mandated, background checks may be contractually imposed. Many owners now
contractually require various background checks of contractor workforces as a
condition of access to the owners’ sites. In some cases, owners even require
contractors to use the owner’s chosen provider and to share employee data with
that provider for future use. The Safety Councils in
2. Legally Prudent Investigations
Due to the economy, some construction employers may seek to eliminate the cost and resources expended on background checks that are not legally required. However, there are many practical benefits employers derive from background checks, and such investigations are often legally prudent depending on the nature of the project or position being filled.
Common law claims of negligent entrustment and negligent hiring can arise due to an employer’s failure to check an employee’s or job applicant’s background. Negligent entrustment is based on the theory that if an employer knew, or should have known, about an employee’s propensity to commit dangerous acts, it may be held liable for injuries caused by that employee. For example, entrusting a company vehicle or dangerous equipment to employees who have a past history of DUI or drug-related driving incidents, which a thorough background check should reveal, can place employers at significant risk of liability. See, e.g., DeMatteo v. Simon, 812 P.2d 361 (N.M. App. 1991) (where construction company was held liable for damages caused by employee with a poor driving record who was driving a company vehicle).
Because
construction projects are positioned in a number of different settings, the
failure to perform background checks for certain positions (e.g., crane operator) or types of work (e.g., school projects) may expose a
construction employer to significant liability for negligent hiring claims as
well. If the job that an applicant is applying for will give that person (if
hired) an increased opportunity to harm others, an employer must exercise
reasonable care when the hiring decision is made to ensure that others,
including other employees and the public, are not exposed to an unreasonable
risk of injury. Hines v. Aandahl Construction Co., LLC, 2006 WL 2598031 (Minn.App.)(contractor sued for negligent
hiring of painter who returned to owner’s home with three accomplices
and robbed and assaulted homeowners).
Contractors
should incorporate in contracts any requirements for background checks in order
to tier-down legally required investigations and to manage the risk posed by
potential third-party claims.
Contractors should also contractually disclaim any joint employment
relationship with the employees of other contractors and subcontractors and ensure
that all contracts contain appropriate indemnification provisions.
C. Legal Considerations/Restrictions on Background
Investigations
When employers are required or wish to perform background checks on applicants or current employees, there are several legal requirements, restrictions and risks that must be considered. Compliance with the Fair Credit Reporting Act (FCRA) and federal and state anti-discriminations laws are the primary concerns.
1. Fair Credit Reporting
Act
The FCRA was instituted in 1971 to protect individual privacy and confidentiality and to keep companies performing these credit reports and those requesting them accountable for their accuracy. If an employer uses any outside, fee-paid agency, known as “consumer reporting agencies,” to perform “consumer reports” on applicants, the employer must comply with the provisions of the FCRA.[15] Criminal background checks by employers are considered to be “consumer reports” and thus governed under the FCRA.[16] Furthermore, most outside companies performing information gathering functions are considered consumer reporting agencies.
Employers that use consumer reports to screen job applicants have several legal obligations concerning the collection, dissemination and use of information from these reports. First, employers must notify applicants that the employer may secure a consumer report on the applicant, and this notice must be separate from the actual application or other documents, in a clear and conspicuous document.[17] Second, employers must obtain the applicant’s express written authorization before they may have a background check performed.[18] Finally, upon receipt of the report, if an employer is contemplating making a hiring decision based “in whole or in part” on the background check, the employer has several requirements regarding notifying the applicant.[19] The employer must send a letter containing a summary of the individual’s rights and the consumer report.[20] After waiting a reasonable amount of time, the employer must then send the adverse action letter outlining several notice requirements.[21]
The FCRA generally does not apply to employers who obtain information directly from a source of public records. The FCRA also does not impact employers who do their own in-house investigation, provided they do not enlist the services of a consumer reporting agency.
2. Potential Federal and State
Discrimination Issues
Federal and state laws alike generally prohibit discrimination against job applicants or employees because of their age, race, color, religion, sex, national origin, disability, veteran status and other criteria. Therefore, information concerning an applicant or employee’s legally protected characteristics cannot be considered in making any employment decision.
Federal and state laws also may restrict an employer’s use of information, such as criminal background checks containing arrest and conviction records, where the use of such information has a disparate impact on a legally protected group of individuals. Studies show, for example, that racial minorities are arrested and convicted at rates disproportionately greater than their representation in the general populace.[22] The courts, the EEOC, and some states have concluded that this may lead to a “disparate impact” in the workplace on minorities if employers rely on such information to effectuate hiring decisions.
The EEOC does not prohibit employers from using criminal background checks on applicants. However, the EEOC has said that a conviction alone may not be an absolute bar to employment and warns employers not to use criminal histories as an automatic screening method without the crime having some direct correlation to the job applied for. The EEOC’s Guide to Pre-Employment Inquiries states that inquiries into an applicant’s criminal history should be “accompanied by a statement that a conviction record will not necessarily be a bar to employment, and that factors such as age and time of the offense, seriousness and nature of the violation, and rehabilitation will be taken into account.”[23]
Conviction records can be a cause for rejection based on a business necessity if their number, nature and proximity would cause the applicant to be unsuitable for the position.[24] However, if an employer cannot show a business necessity as a basis for rejecting an applicant, the rejection of an employee based merely on her criminal record may be unlawful. The EEOC has taken an even more restrictive view on the blanket use of arrest records to disqualify applicants and has given official guidance to employers saying that there is “rarely” a business justification for that practice.[25]
3.
State Defamation and Invasion of Privacy
Concerns
Some states have allowed employees and applicants for employment to pursue legal claims against employers for damages resulting from employer-ordered background checks. Claims of invasion of privacy and defamation are most frequently pursued, though usually unsuccessfully, against employers where applicants have been subjected to particularly intrusive background checks or where an employer has negligently revealed the findings of background checks.
In Montgomery Investigative Services, Ltd. v. Horne, 918 A.2d 526 (Md. App. 2007), a terminated employee brought a defamation action against an employer and the company that provided the background check because the background check contained an accusation of theft against the employee and the employer was reckless in handling the results of the investigation.
Although these causes of action against employers are generally met with little success, they illustrate the need for employers to have well-defined policies on conducting background checks as well as using and communicating the results of such reports.
HANDLING EMPLOYEE LEAVES UNDER THE FAMILY AND
MEDICAL LEAVE ACT, AMERICANS WITH DISABILITIES ACT AND STATE LAWS
The Family and Medical Leave Act (FMLA) became effective
August 5, 1993.[26] The Act provides
eligible employees up to 12 weeks of job-protected, unpaid leave in a 12-month
period for:[27]
·
the birth and care of
the newborn child of the employee
·
the placement with the
employee of a son or daughter for adoption or foster care
·
the care for an
immediate family member (spouse, child, or parent) with a serious health
condition, or
·
the employee’s own
serious health condition
It is a violation of the FMLA to deny or discourage an employee from exercising his/her rights or to retaliate against an employee who has exercised his/her rights under the FMLA.
Military Caregiver Leave
In January of 2008, the FMLA was amended as part of the enactment of the National Defense Authorization Act for FY 2008, which expanded FMLA’s leave entitlements to include certain military exigency and caregiver leave rights.
In December 2008, the Department of Labor implemented new rules to effectuate the new military family leave requirements. Under the new rules, an eligible employee is allowed to take FMLA leave where their spouse, son, daughter, parent or next of kin is injured during active duty or where there is another “qualifying exigency.”[28] Qualifying exigencies are those non-medical events requiring employee attention that occur as a result of an employee’s next of kin serving on active duty. The new regulations outline such events to include:
· Short-notice deployment
· Military events and related activities
· Childcare and school activities
· Financial and legal arrangements
· Counseling
· Rest and recuperation
· Post-deployment activities and
· Additional activities agreed to by the employer and employee
See id. at § 825.126
As with active-duty leave, an employer may require certification from any employee seeking military caregiver leave.
Effective January 16, 2009, the DOL also implemented new rules governing employer and employee rights and obligations under the FMLA. The regulations are 762 pages in length, illustrating the complexity involved in legally managing employee leave entitlements. Some legal issues common to construction employers include the following.
Covered Employers and Sites
A private employer is covered if it employs 50 or more employees within a 75-mile radius on the payroll during 20 or more calendar workweeks (not necessarily consecutive) in either the current or preceding calendar year. Once a private employer meets the 50-employee/20-workweek threshold, the employer remains covered until it reaches a point in time when it has no longer employed 50 employees for 20 (nonconsecutive) workweeks in the current or preceding calendar year.
In 2005, the United States Court of Appeals for the 5th Circuit determined that the 75-mile radius is measured by road miles rather than “as the crow flies.” Bellum v. PCE Constructors Inc., 407 F.3d 734 (5th Cir. 2005). In Bellum, a construction manager took leave for heart surgery and was denied coverage under the FMLA because the company he worked for did not employ 50 or more employees within a 75-mile radius of the work site. The construction company had 14 employees at its home base and 41 employees at a work site 68 linear miles away. However, the two sites were 88 miles apart in driving distance. The court, citing the DOL’s regulations, held that the “75-mile distance is measured by surface miles, using surface transportation over public streets, roads, highways and waterways, by the shortest route from the facility where the eligible employee needing leave is employed.”[29]
Determining an employee’s worksite is also unique for companies in industries like construction where the worksite is not fixed. When there is no fixed worksite, the “worksite” is the place where employees (1) have been assigned as their home base, (2) have been assigned their work, or (3) report to work.[30]
Joint Employers
When determining whether an employer is covered by the FMLA, it is also critical to consider several special coverage issues, including those related to joint employers, integrated employers and successor employers.
When
businesses exercise some control over the work or working conditions of the
same employees, the businesses may be considered joint employers under the
FMLA.[31] Joint employers may be completely separate
and distinct entities with separate owners, managers and facilities. When the
employee performs work simultaneously benefiting two or more employers, or when
he or she works for two or more employers at different times during the
workweek, a joint employment relationship may be considered to exist.
In joint employment relationships, it is necessary to distinguish between the primary employer and the secondary employer. Only the primary employer is responsible for giving required notices to jointly employed employees, providing FMLA leave and maintaining health benefits.[32] The secondary employer, however, may have specific responsibilities for accepting returning employees from FMLA leave,[33] irrespective of whether the secondary employer is covered by the FMLA.[34]
FMLA regulations also provide that joint employment will ordinarily be found to exist when a temporary or leasing agency supplies employees to a secondary employer. In most instances, the placement agency would be the primary employer. The secondary employer would be responsible, therefore, for accepting the employee returning from FMLA leave in place of the replacement employee, provided that the secondary employer continues to utilize an employee from the temporary or leasing agency and the agency chooses to place the employee with the secondary employer.[36]
Successor Employers
An employer under the FMLA may also include “any successor in interest of an employer.” The FMLA regulations[37] specifically provide that the factors used to determine successor employers under Title VII of the Civil Rights Act and the Vietnam Era Veterans’ Adjustment Act will be considered. Those factors include the following:
·
Substantial
continuity of the same business operations
·
Use
of the same plant
·
Continuity
of the work force
·
Similarity
of jobs and working conditions
·
Similarity
of supervisory personnel
·
Similarity
in machinery, equipment and production methods
·
Similarity
of products or services
·
The
ability of the predecessor to provide relief
The entire set of circumstances, rather than any single criterion, is to be considered in making the determination.
Where a “successor in interest” is found, the employee’s entitlements are the same as if the employment by the predecessor and successor were continuous employment by a single employer.[38] Thus, the successor must (1) grant leave for eligible employees who had provided appropriate notice to the predecessor and (2) continue leave begun under the predecessor (including continuing group health benefits during leave and providing job restoration), even if the successor is not a covered employer. In addition, a successor that meets the FMLA’s coverage criteria must count periods of employment and hours worked for the predecessor for purposes of determining employee eligibility for FMLA leave.
Employee Eligibility
To be eligible for FMLA leave, an employee must work for a
covered employer and, as of the date the
leave is to start, have worked for that employer for at least 12 months
or 52 weeks (the time need not be consecutive) and have worked at least 1,250 hours during the 12 months prior to the
start of the FMLA leave.[39] As of the date the employee gives notice
of the need for the leave, the employer must employ at least 50 employees
within 75 miles of the employee’s location.[40]
Because many employees in the construction industry are called in to work on an as-needed basis, construction companies often have unique situations that arise in determining eligible employees. The Fair Labor Standards Act’s (FLSA) principles of compensable hours[41] for work, are used when determining whether an employee has met the 1,250 hour threshold.[42] Generally, overtime hours[43] are considered “hours worked” under the FLSA, as is training directly related to an employee’s job.[44] However, personal and sick leave, holidays and vacations are not considered as “hours worked.”[45] The 12-month/52-week threshold is met by merely being on the payroll.
Intermittent Leave Entitlements
The FMLA permits employees to take leave in less than full
day or week increments or to work a reduced schedule under certain
circumstances when the employee is needed to care for a seriously ill family
member, or when medically necessary due to the employee’s own serious health
condition.[46]
FMLA
Notice and Designation
A. Employee Notice Requirements
Employees are required to provide notice of unforeseeable leaves as soon as practicable.[47] The initial notice can be verbal, although the employer may require the employee to complete a written request later. It is important to realize that an employee does not have to expressly cite the fact that FMLA leave is needed for it to be granted. All that is needed is for the employee to state that he needs leave, and the employer has an obligation to inquire further about the reason and to request medical documentation, if applicable.[48] Courts are generally lenient with employees on providing notice. However, under the new regulations, if an employee fails to provide required certification to support the leave, the employee may be denied leave benefits.
An employee may be required to provide at least 30 days’ advance notice before FMLA leave is to begin, if the need for the leave is foreseeable.[49] If an employee fails to give 30 days’ notice for a foreseeable leave with no reasonable excuse, the employer may deny the taking of the leave for up to 30 days after the date the employee does provide notice.
B. Employer Notice Requirements
The FMLA imposes some very specific notice requirements on employers.[50] The failure to comply with these notification requirements may deprive employers of defenses or preclude them from denying leave where an employee might not otherwise have qualified.[51]
1. FMLA
Poster (General Notice)
The employer must “post and keep posted” on its premises, in conspicuous places, a notice explaining the FMLA’s provisions and providing information concerning the procedures for filing complaints of violations of the FMLA with the DOL’s Wage and Hour Division.[52]
The DOL regulations provide the following guidelines on the posting requirement:[53]
· The poster must be posted conspicuously where it can be readily seen by employees and applicants whether or not the employer has any “eligible” employees.
· The poster and the text must be large enough to be easily read and contain fully legible text.
· An employer that willfully violates the poster requirement may be assessed a civil money penalty by the DOL not to exceed $110 for each separate offense.
· Electronic posting is sufficient to meet the posting requirements as long as it otherwise meets the requirements for posting.
If an employer has any eligible employees, a general notice, which contains the same information as the FMLA poster discussed above, must be distributed to all employees.[54] This notice must be distributed to employees, either as part of the employee handbook or other written materials, if these types of materials exist, or as part of the paperwork given to each new hire. The distribution may be accomplished electronically.[55]
2.
Notice at Time of Leave Request
In addition to the
general notice requirements, the employer must also provide the employee with written notice detailing the specific
expectations and obligations of the employee and explaining the consequences of
failure to meet such obligations. These notice requirements are split into
separate documents:
· A Notice of Eligibility[56] and Rights and Responsibilities,[57] must be provided to employees within 5 days of a request for FMLA leave or when the employer acquires knowledge that an employee’s leave may be for an FMLA-qualifying reason. The notice must indicate whether the employee is eligible for leave; if not, the notice must state at least one reason why the employee is ineligible (for example, that the employee has not yet worked for the employer for 12 months). If, at the time an employee provides notice of a subsequent need for FMLA leave during a 12-month period due to a different qualifying reason and the employee’s eligibility status has not changed, no additional eligibility notice is required. If an employee’s eligibility status has changed, however, the employer must notify the employee of the change in status within five business days absent extenuating circumstances.
If the employee is eligible for FMLA leave, the second part of the notice (Rights and Responsibilities for taking FMLA leave) must also be completed by the employer and provided to the employee. This notice should be provided to an employee any time the eligibility notice is provided. If the leave has already begun, it should be mailed to the employee’s home address. The "Rights and Responsibilities" section informs the employee of any responsibility to provide additional information, such as a medical certification, and the consequences of failing to provide such information. The notice also informs the employee of any right or requirement to substitute paid leave, any requirement for the employee to make premium payments to maintain health benefits, and information regarding the employee's status as a "key employee." The notice of rights and responsibilities may include additional information, such as whether the employer will require periodic reports of the employee's status and intent to return to work, but it is not required to do so. If certification is required, the Notice of Rights and Responsibilities may include a copy of the required certification.
·
A Designation Notice[58]
either designates time off as FMLA leave or notifies the employee that time off
will not be designated as FMLA leave.
After the employee has provided the employer with enough information to
determine whether the leave is being taken for an FMLA-qualifying reason
(usually by returning the certification form), the employer must notify the
employee within 5 business days (absent extenuating circumstances) whether the
time will or will not be counted as FMLA leave.
Only one notice of designation is required for each FMLA-qualifying
reason per applicable 12-month period.
The designation notice must also contain the following information:
o
Information regarding whether the employer will
require the employee to substitute paid leave for unpaid FMLA leave.
o
Information regarding any requirement that the
employee provide a fitness-for-duty certificate before returning to work. Failure to include a fitness for duty
certificate requirement in the Designation Notice precludes an employer from
later requiring it. (If the fitness-for-duty certification must address the
employee's essential functions, a list of essential functions must be
attached.)
If the amount of FMLA leave to be used is known, the notice must indicate how much leave (in hours, days or weeks) will be counted against the employee's FMLA entitlement. If the amount of leave is unknown, the employee can request a written statement of how much leave has been counted against his or her entitlement, no more often than every 30 days. Notice of the amount of leave taken may be oral or in writing. If it is oral, it must be confirmed in writing, no later than the following payday. If the following payday is less than one week after the oral notice, however, the written notice must be provided no later than the subsequent payday. The written notice may take any form, including a notation on the employee’s pay stub.
An employer’s failure to provide the required notices may be regarded as an interference with an employee's FMLA rights and the employer may be liable for compensation and benefits lost due to the violation.[59]
If an employer fails to properly designate FMLA leave as required, the employer may retroactively designate the leave as FMLA leave provided the employee would not be prejudiced by the retroactive designation.[60] For example, retroactive designation is permissible unless the employee can establish he or she detrimentally relied on the prior absence not being FMLA.
State FMLA Laws
There are many states which have their own separate family and medical leave requirements. The FMLA preempts any state law that would provide less rights and benefits than the FMLA. However, there is no prohibition under FMLA for state laws which provide more rights, and employees may be eligible for benefits under both the state and federal leave acts. Both the FMLA and applicable state law should be analyzed to determine which law gives a greater benefit or provides greater protection for employees.
Several state statutes provide broader and more inclusive rights and benefits than does the federal act. Examples of work-inclusive state laws include:
· Employees who are allowed to take up to 40 hours each school year to attend school functions[61]
· Time off to care for an ill grandparent,[62] in-law[63] or domestic partner[64]
·
Requiring
reinstatement into the same position instead of a similar or equivalent
position as provided under the FMLA[65]
Americans With Disabilities Act
Once employees
have exhausted FMLA leave benefits (or fail to qualify for FMLA leave), an
employer’s legal obligations to accommodate those employees may still exist
under the American with Disabilities Act (ADA). Employers should determine an
employee’s rights under each statute separately. Some employees may be entitled to extended
leave (e.g., beyond 12 weeks of FMLA
leave) under the
Further,
under the FMLA, employees are only entitled to be returned to an equivalent
position rather than the actual position that they left.[68] However, under the
THE TROUBLED ECONOMY SURVIVAL KIT FOR
EMPLOYERS –
SOLUTIONS FOR DIFFICULT TIMES
Coping with a Troubled Economy—The Challenge
Difficult times present a triple threat of challenges for most employers: (1) legal liability: poorly planned or executed changes can result in significant legal claims and liability, which may defeat the business goals underlying workforce reductions, wage or benefit changes, or other initiatives; (2) limited resources: a troubled economy causes significant financial and resource constraints within companies—workarounds cannot be easily or quickly implemented; (3) individual decisions about who should leave and who should stay: there are good reasons to devote attention to individuals whom you may have to let go, but it is equally important to focus on those whom you want to remain—the people who will be responsible for addressing present challenges and future business needs.
Reductions in Force—The Need for Planning
Many employers
confronting difficult times must reduce the size of their workforce. In every
case, the goals to be accomplished by a reduction in force (
There is enormous
variation among types of RIFs and their underlying causes and business
objectives. Sometimes, a
Most RIFs will be
effective only if there is adequate management planning. Many companies find
that detailed planning is essential to achieving a
Organizational Goals. Carefully evaluate and establish organizational goals and concrete objectives—for example, by answering the following questions:
·
Is the
· What organizational changes are required or desired?
· Is it necessary to change or adjust employee skill sets?
· What facilities, departments, or functions will be affected?
· Is a pure headcount reduction warranted with no structural or organizational changes?
· Key business executives from affected businesses
· Human resources and benefits representatives
· Communications and media relations professionals
· Legal counsel
Other
·
Review and reaffirm reasons responsible for the
·
Determine the type of
·
Establish the criteria and process by which
employees will be recommended or selected for potential separation. All RIFs
require an underlying business strategy, but they also typically involve a high
risk of litigation and potential legal liability. This calls for coordination
between business and legal professionals from the outset of
·
Create the written RIF procedure,
instructions/guidelines, communications, benefit descriptions,
releases/waivers, and other
·
What process will be followed for the
· What criteria should govern all separation and retention decisions, and who will make or approve all decisions
· Which company representatives (at least two) should be involved in all exit interviews, recommendations, and decisions
· What role (if any) should be played by existing performance evaluations, current or past discipline, etc.
· What documentation should be completed, when, and by whom
·
What type of higher level management review will
be conducted of
·
What disclaimers pertain to the
Union Issues
Special care is required for RIFs involving unionized operations. In some cases, employers cannot make final restructuring decisions unless unions have first been given notice and bargaining opportunities, which may take weeks or months to complete. Claims of anti-union animus and grievances can take years to resolve. If these issues are mishandled, the consequences are often severe, potentially including significant financial liability, the potential reinstatement of affected employees, and discontinued business operations. Although union presence in the private sector has dropped in recent years, there are formidable RIF-related risks for companies that disregard union obligations.
A
Severance Benefits. One
of the key decisions a company must make is whether to provide severance
benefits to employees terminated in a
· Easing the transition for displaced workers
· Severance serving as consideration for a release and waiver of claims against the company
· The positive impact that providing severance may have on the morale of retained employees (i.e., retained employees will see that the company treated terminated employees in a favorable fashion) against the costs of providing severance
· The out-of-pocket financial costs of providing severance
· The administrative burden of providing severance benefits and maintaining severance plans
· The possibility of compliance issues and liabilities arising out of the severance arrangements
Once a company makes a decision about severance, it may be necessary to take action to amend or terminate existing severance arrangements or establish new severance arrangements.
Retention Arrangements.
Sometimes lost in the context of a RIF is the impact the RIF has on
employees who continue to be employed by the company after the
As noted above, providing severance benefits to terminated employees may have some degree of positive impact on the retained workforce. But companies should consider whether revisions to existing benefit plans (particularly, bonus and incentive arrangements) or the establishment of new plans is necessary to retain and motivate current employees.
Other Company Benefit Plans.
Companies should methodically review and assess the impact of the
· Tax-Qualified Retirement Plans—A RIF involving a large number of employees who participate in a tax-qualified retirement plan may constitute a "partial termination" for purposes of the plan and require such employees to be fully vested in their plan benefits. Depending upon the terms of the plan, employees may qualify for special benefits (e.g., so-called “plant shutdown” benefits or special service enhancements in a pension plan).
· Health Plans—Employees participating in a health plan (a plan providing medical, dental, vision, or other healthcare benefits) will have COBRA continuation coverage rights upon termination. Also, see the next section for more on the recently established COBRA subsidy.
· Bonus or Incentive Arrangements—Employees who are terminated during the middle of a performance period may be entitled to a pro-rata payment under a bonus/incentive plan.
· Leave Arrangements—Terminated employees may be eligible to receive a payout of accrued vacation, sick leave, or other paid time off.
COBRA Subsidy. The recent stimulus legislation (the American Recovery and Reinvestment Act of 2009) substantially revised the COBRA rules to provide a subsidy for COBRA continuation coverage. In general:
· Employees who are involuntarily terminated between September 1, 2008 and December 31, 2009 and who pay 35% of the cost of the COBRA coverage are eligible to receive this subsidized COBRA coverage for up to nine months. Companies providing the subsidized COBRA coverage can recoup the 65% balance of the cost from the government by taking a credit against applicable withholding and payroll taxes.
· This subsidized COBRA coverage is available for coverage periods beginning after March 1, 2009 and companies must satisfy enhanced notice obligations to communicate the availability of the subsidy to affected individuals.
· Complicated coordination issues may exist for companies who already provide subsidized coverage for terminated employees (e.g., a company who provides coverage at “active employee rates” during the period severance is being paid). These companies may need to adjust their benefit plans in order to recoup the maximum available subsidy from the government.
Reduction-in-Force Alternatives
Even when a
Employers should consider whether their business objectives could be achieved by implementing alternatives to involuntary employment terminations, which could avoid many RIF-related costs, the potential negative impact on morale, and the risk of legal claims and potential liability associated with RIFs. Potential alternatives include:
· Hours reductions and work-sharing arrangements
· Overtime restrictions
· Hiring freezes and reliance on attrition to reduce headcount
· Elimination of contract employees, temps, consultants, and/or other “contingent” service providers
· Voluntary unpaid leave programs or short-term shutdowns. Voluntary separation and exit incentive programs involve yet additional decisions, including (among many others) what benefits will be offered as an exit incentive (e.g., severance pay, pension enhancements), whether everybody can participate in the program, and whether eligible employees will participate in the program completely at their own election
· Exit incentive or other voluntary separation programs
WARN ACT OBLIGATIONS—A SUMMARY
WARN – In a Nutshell
The Worker Adjustment and Retraining Notification Act (“WARN”), 29 U.S.C. §2101 et seq., provides that covered employers must give sixty days’ written notice to unions, nonunion affected employees and certain government representatives before any “mass layoff” or “plant closing.” WARN and the WARN regulations demonstrate, however, that the terms “mass layoff” and “plant closing” are very misleading. Also, there are specific content requirements that apply to written notices provided under WARN.
(1) When Is WARN Notice Necessary? There is a basic formula that governs whether WARN notices are required. This formula has three elements that are evident from WARN’s definition of a “plant closing” or “mass layoff.” WARN notices are required if, first, there is an “employment loss” which, second, involves enough employees whose employment losses occur over, third, the relevant time period (30 or 90 days).
The first element – the term “employment loss” – means: “(A) An employment termination, other than a discharge for cause, voluntary departure, or retirement, (B) A layoff exceeding 6 months, or (C) A reduction in hours of work of more than 50 percent during each month of any 6 month period.” 29 U.S.C. §2101(a)(6).
The second element – the requisite number of employees experiencing employment losses – is set forth in WARN’s definition of “plant closing” and “mass layoff.”
A “plant closing” means a “permanent or temporary shutdown of a single site of employment, or one or more facilities or operating units within a single site of employment” resulting in employment losses at the single site “for 50 or more employees excluding any part time employees” over a 30 day period. 29 U.S.C. §2101(a)(2). Even if thousands of employees work at a large facility, a WARN-triggering “plant closing” can occur whenever 50 full time employees at a single employment site experience employment losses resulting from the shutdown of one or more “facilities” or “operating units.”
A “mass layoff” means a reduction in force (not a plant closing) involving employment losses over a 30 day period for 33 percent or more of a single site’s employees (excluding part time employees) so long as at least 50 employees (again excluding part timers) experience employment losses at the single site over a 30 day period. However, if 500 employees (excluding part timers) experience employment losses over a 30 day period, a WARN-triggering “mass layoff” will occur regardless of whether the affected employees comprise 33 percent of the site’s full time employees. See 29 U.S.C.§2101(a)(3).
Important note: “part time” employees are not counted in evaluating whether a plant closing or mass layoff has occurred for purposes of WARN. Also, WARN contains a special “part time” employee definition which excludes certain low-service employees from many WARN calculations, as well as certain low-hour employees. Under WARN, “part time” employees – who are not counted in many calculations – are defined as employees who have been “employed for an average of fewer than twenty hours per week” or “employed for fewer than 6 of the 12 months preceding the date on which notice is required.” 29 U.S.C. §2101(a)(8). However, “part time” employees must still be covered by WARN notices if the number of other employees experiencing an employment loss is sufficient to trigger WARN’s notice obligations.
The
third element – the relevant time period – involves the time period within
which employment losses are counted when evaluating whether there is a
WARN-triggering “plant closing” or “mass layoff.” WARN’s “plant closing” and “mass layoff”
definitions generally provide that notice is required if the requisite number
of employees experience an employment loss over a 30 day period. 29 U.S.C. §§2101(a)(2), 2101(a)(3). However, a 90-day period is frequently
applicable – WARN Section 3(d) states that “employment losses for 2 or more
groups at a single site of employment” occurring within any 90 day period may
be considered “in the aggregate” at least where each group, standing alone, would be insufficient to constitute a
plant closing or mass layoff. 29 U.S.C.
§2101(d) (emphasis added). See also 54
Fed. Reg. at 16,053, 16,067 91989) (to be codified at 20 C.F.R.
§639.5(a)(1)(ii)). The successive
employment losses occurring more than 30 days apart would not be
aggregated in such situations if the employer “demonstrates” that the
employment losses “are the result of separate and distinct actions and causes
and are not an attempt by the employer to evade the requirements of [the]
Act.”
(2) Exceptions, Exemptions and Exclusions. There are several exceptions, exemptions or exclusions under WARN. These terms also are misleading. For example, WARN “exceptions” do not eliminate the obligation to issue WARN notices but, rather, they can permit an employer to provide notice of less than 60 days. WARN’s “exemptions” and “exclusions” can sometimes eliminate any obligation to issue WARN notices in a variety of situations. In all situations, employees should be careful when evaluating these WARN provisions – it is prudent to consult counsel and carefully evaluate the Department of Labor’s WARN regulations when considering WARN’s potential application in particular situations.
Here is an abbreviated summary of WARN’s exceptions, exemptions and exclusions:
(a) Sales. WARN contains an exclusion allocating responsibility and sometimes eliminating the need to provide notice in situations involving the sale of part or all of an employer’s business. 29 U.S.C. §2101(b)(1). WARN’s “sale” exclusion is discussed in more detail in part 3 below.
(b) Relocations/Consolidations. WARN contains an exclusion for relocations or consolidations where employees receive certain transfers (or transfer offers) to a different facility before the “plant closing” or “mass layoff” takes place. 29 U.S.C. §2101(b)(2).
(c)
Strikes/Lockouts. WARN contains an exemption for certain strikes and lockouts,
making notice unnecessary where a plant closing or mass layoff “constitutes” a
strike or lockout. See 29 U.S.C.
§2103(2). WARN notice also would not be
required before an employer permanently replaces economic strikers.
(d) Temporary Facilities/Projects. WARN contains an exemption making notice unnecessary if a closing involves a temporary facility or if a closing or layoff “is the result of the completion of a particular project or undertaking” where the affected employees “were hired with the understanding that their employment was limited to the duration of the facility or the project or undertaking.” 29 U.S.C. §2103(1).
(e) Low-Hour or Low-Service Employees. As noted above, certain part time employees (which can include some seasonal employees) are not counted in determining whether WARN notice is required, although these employees have to receive WARN notices if the number of other affected employees is sufficient to trigger WARN’s notice requirements. “Part time” employees are defined as those who have been “employed for an average of fewer than twenty hours per week” or “employed for fewer than 6 of the 12 months preceding the date on which notice is required.” 29 U.S.C. §2101(a)(8).
(f) WARN Notice-Reduction Provisions. There are three situations where, under WARN, an employer can provide less than sixty days advance notice, although employers must still provide as much notice as possible and explain why reduced notice is being given. 29 U.S.C. §2102(b)(3). These are frequently called “exceptions” but they do not eliminate WARN’s notice obligations. If these “exceptions” apply, WARN notices must still be issued but notice of less than 60 days will be permitted. See 29 U.S.C. §2102(b)(3): “An employer relying on [WARN’s notice reduction provisions] shall give as much notice as is practicable and at that time shall give a brief statement of the basis for reducing the notification period.”
– Faltering Companies. An employer may give less than sixty days notice prior to a closing if, at the time notice would have been required, the employer “was actively seeking capital or business which, if obtained, would have enabled the employer to avoid or postpone the shutdown,” provided that the employer “reasonably and in good faith believed that giving the notice required would have precluded the employer from obtaining the needed capital or business.” 29 U.S.C. §2101(b)(1).
– Unforeseeable Business Circumstances. WARN’s 60 day notice period may be reduced “if the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required.” 29 U.S.C. §2102(b)(2)(A).
– Natural Disasters. Under WARN, notice of less than sixty days can be provided “if the plant closing or mass layoff is due to any form of natural disaster, such as a flood, earthquake, or . . . drought. . . .” 29 U.S.C. §2101(b)(2)(B).
(3) How Are WARN Notices Issued?
WARN notices – if required – must be provided in writing (1) to each representative of the affected
employees as of the time of the notice or, if there is no such representative at that time, to each affected employee; and (2) to the State dislocated worker unit
(designated or created under Title III of the Job Training Partnership Act)[;]
and (3) [to] the chief elected official
of the unit of local government within which such closing or layoff is to
occur.” 29 U.S.C. §2101(a) (emphasis
added). WARN provides that “[i]f there
is more than one [local government] unit, the unit of local government which
the employer shall notify is the unit of local government to which the employer
pays the highest taxes for the year preceding the year for which the
determination is made.”
The Department of Labor’s WARN regulations set forth specific content requirements specifying what must be contained in different types of WARN notices. 54 Fed. Reg. 16,042, 16,059 60, 16,068 (to be codified at 20 C.F.R. §§639.1, 639.7) (1989). Service of notice in WARN cases can raise potential questions of fact, and employers should prepare and retain careful documentation showing in detail when, how, where, and to whom WARN notices were provided.
Relocations/Consolidations Under WARN
WARN contains an exclusion from the definition of “employment loss” which reads as follows:
[A]n employee may not be considered to have experienced an employment loss if the closing or layoff is the result of the relocation or consolidation of part or all of the employer’s business and, prior to the closing or layoff
(A) the employer offers to transfer the employee to a different site of employment within a reasonable commuting distance with no more than a 6 month break in employment; or
(B) the employer offers to transfer the employee to any other site of employment regardless of distance with no more than a 6 month break in employment, and the employee accepts within 30 days of the offer or of the closing or layoff, whichever is later.
29 U.S.C. §2101(b)(2) (emphasis added). See also 54 Fed. Reg. at 16,066 (to be codified at 20 C.F.R. § 639.3(f)(4)); 54 Fed. Reg. at 16,067 (to be codified at 20 C.F.R. § 639.5(b)).
Seller and Purchaser
Responsibilities Under WARN
WARN contains a separate exclusion from the definition of “employment loss” which relates to the sale of all or part of an employer’s business. This sale exclusion, which is hardly a model of clarity, states as follows:
In the case of a sale of part or all of an employer’s business, the seller shall be responsible for providing notice for any plant closing or mass layoff in accordance with section 3 of this Act, up to and including the effective date of the sale. After the effective date of the sale of part or all of an employer’s business, the purchaser shall be responsible for providing notice for any plant closing or mass layoff in accordance with section 3 of this Act. Notwithstanding any other provision of this Act, any person who is an employee of the seller (other than a part time employee) as of the effective date of the sale shall be considered an employee of the purchaser immediately after the effective date of the sale.
29 U.S.C. §2101(b)(1) (emphasis added).
The Department of Labor’s WARN regulations clarify the allocation of responsibility between a seller and buyer as follows:
In the case of the sale of part or all of a business, § 2(b)(1) of WARN defines who the “employer” is. The seller is responsible for providing notice of any plant closing or mass layoff which takes place up to and including the effective date (time) of the sale, and the buyer is responsible for providing notice of any plant closing or mass layoff that takes place thereafter. Affected employees are always entitled to notice; at all times the employer is responsible for providing notice.
* * *
54 Fed. Reg. at 16,067 (to be codified at 20 C.F.R. §639.4(c)) (emphasis added). The buyer, not the seller, will be responsible for notice obligations (or potential WARN liability) relative to the seller’s employees who suffer a loss of employment based on their failure to be hired or retained by the buyer. See 54 Fed. Reg. at 16,052, explaining 20 C.F.R. §639.4(c).
The Department of Labor’s WARN regulations also clarify WARN’s statement that “any person who is an employee of the seller . . . as of the effective date of the sale shall be considered an employee of the purchaser immediately after the effective date of the sale.” 29 U.S.C. §2101(b)(1). Most importantly, this provision does not mean that the seller’s employees have to actually be hired by the buyer. 54 Fed. Reg. at 16,052.
WARN’s “sale” exclusion is among the most difficult provisions in the Act to understand, and there is very little legislative history which provides guidance on the “sale” exclusion’s operation in practice. Given the uncertainty which predictably will exist concerning WARN’s “sale” exclusion, all parties to a proposed transaction would be prudent to negotiate indemnification language which clearly allocates WARN notice responsibilities (and potential WARN liabilities) between the buyer and seller, respectively.
WARN Liability and “Severance” Pay
WARN’s enforcement provisions make any violating employer liable for backpay and the cost of related benefits for every day that required notice is not provided (i.e., up to a maximum of sixty days). 29 U.S.C. §2104(a). Additionally, employers failing to provide adequate notice to local government officials incur an additional fine of up to $500 for each day of the violation (i.e., $30,000 over the 60 day notice period). 29 U.S.C. §2104(a)(3). However, the $500 per day fine does not apply if, within three weeks following the date a shutdown or layoff is ordered, the violating employer pays all affected employees the full amount for which the employer is liable to them.
WARN also provides that an employer’s liability will be reduced by “any voluntary and unconditional payment by the employer to the employee that is not required by any legal obligation. . . .” 29 U.S.C. §2104(a)(2)(B). Thus, any severance pay that is required under state or federal law (e.g., a private severance plan enforceable under ERISA), or pursuant to any contract or collective bargaining agreement, will not reduce an employer’s liability to affected employees. Alternatively, an employer can issue WARN notices, and thereafter continue every employee’s employment on a “paid leave” basis (i.e., without having the employees actually report to work). See 54 Fed. Reg. at 16,047 48.
State and Local Notice Requirements
Increasingly, states and local governments have enacted their own specialized WARN-type notice requirements that in many cases differ from WARN. Here, WARN indicates:
The rights and remedies provided to employees by this Act are in addition to, and not in lieu of, any other contractual or statutory rights and remedies of the employees, and are not intended to alter or affect such rights and remedies, except that the period of notification required by this Act shall run concurrently with any period of notification required by contract or by any other statute.
29 U.S.C. §2105 (emphasis added).
WARN Counting Rules
(1) Types of "Employment Losses" Counted. You only count actual "employment losses" that meet the "employment loss" definition set forth in WARN, which means employee separations are counted only if they constitute (i) an employment termination (other than a retirement, discharge for cause or voluntary departure), (ii) a layoff exceeding six months, or (iii) an hours reduction of more than 50 percent that persists for six consecutive months.
(2) Short-term Layoffs Not Counted. As noted above, one does not count short-term layoffs unless they last more than six months.
(3) "Part-time" Low-Hour Employees Not Counted. You do not count employment losses experienced by "part-time" employees (defined in WARN as individuals who work an average of fewer than 20 hours per week). Although part-time employees (as defined in WARN) are excluded from WARN computations, if WARN notice obligations are triggered by the number of full-time employees who experience employment losses, then affected part-time employees must also be included in WARN notices, and they can likewise file suit based on their failure to receive WARN notices.
(4) Low-Service Employees Not Counted. You do not count employment losses experienced by relatively short-term employees. Specifically, excluded from WARN calculations would be any employee who has been employed for less than six months of the twelve months immediately preceding the date on which WARN notice would otherwise be required. (Such short-term employees are also considered "part-time" as defined in WARN.) Again, because short-term employees (as defined in the Act) are considered "part-time" part-time for purposes of WARN, they are not included in WARN calculations. However, if WARN notice obligations are triggered by the number of full-time employees who experience employment losses, then affected part-time and short-term employees must also be included in WARN notices as well. This means, in many cases, employees would be excluded from WARN calculations if they were employed for less than eight months prior to the date of a planned reduction.
(5) Employees Accepting (In Some Cases, Offered) Job Transfers Not Counted. You do not count employees who, prior to a planned reduction, have accepted job offers at another site of employment owned and operated by the same employer. (If the remote site is within a "reasonable commuting distance," the act of offering a transfer will prevent the employee from being counted in WARN computations, even if the person declines the offer.)
(6) Each Site Considered Separately. Every "single site of employment" is considered separately, on a stand-alone basis, in WARN computations.
(7) Relevant Time Frame Usually 90 Days, But Sometimes 30 Days. When evaluating whether WARN notice requirements have been triggered, one usually adds together all employment losses, following the above rules, that have occurred at the site over a 90-day period. In some cases, however, a shorter 30-day aggregation period may apply to certain groups reductions, especially if they can be shown to result from "separate and distinct actions and causes" and absent any employer efforts to evade WARN's notice requirements. WATCH: at least one court has held that, in the event of a covered "plant closing" or "mass layoff," other employees experiencing employment losses more than 90 days removed may nonetheless be part of the "plant closing" or "mass layoff" if they " reasonably be expected to experience an employment loss as a consequence of [the] proposed plant closing or mass layoff" (this is WARN's definition of "affected employees."
(8) Multiple Small Shutdowns Over 30 Days Are Added Together.
When determining whether a WARN "plant closing" has occurred (which requires 50 or more shutdown-related employment losses over a 30-day period), you add together all employment losses resulting from the shutdowns of different "operating units" or "facilities" at a single site if they occur within a 30-day period. Over a 90-day period, you might likewise add together all employment losses resulting from different shutdowns, although this would depend on the specific circumstances.
(9) Headcount Reductions Excluded from "Plant Closing" Computations. When evaluating whether a WARN "plant closing" has occurred, one only counts shutdown-related employment losses (those that have resulted from some type of shutdown). This means, if you have shutdown-related reductions and unrelated "headcount" reductions within the same 90- or 30-day time period, you would generally exclude pure "headcount" reductions from WARN "plant closing" computations. WATCH: questions of proof with respect to "causation" (i.e., whether or not the "headcount" reductions in actuality resulted from the shutdown(s) occurring around the same time can be a source of risk here).
(10) "Plant Closing" Reductions Excluded from "Mass Layoff" Computations. If shutdown-related reductions are sufficient to constitute a WARN "plant closing," those reductions are not added together with "headcount" reductions occurring in the same 30- or 90-day period when evaluating whether a WARN "mass layoff" has occurred. However, if the shutdown-related reductions are not sufficient to constitute a WARN "plant closing," then the shutdown-related reductions would be added together with "headcount" reductions when determining whether a WARN "mass layoff'" has occurred.
(11) Who Gets Notice. If a triggering WARN event is likely to occur, then all affected employees at the particular site, including part-time employees, must be given the WARN notice. WARN notices need to be received by all affected unrepresented employees (full-time and part-time), and by the applicable state and local government units, at least 60 calendar days or more before the first employment separations included within the covered event.
(12) WARN Liability. An employer violating WARN is liable to each aggrieved employee who suffers an employment loss as a result of the plant closing or mass layoff for back pay for each day of the violation (e.g., up to 60 days), and for benefits due under an employee benefit plan, including the cost of medical expenses incurred during the employment loss which would have been covered under an employee benefit plan if the employment loss had not occurred. Any employer who violates WARN with respect to a unit of local government is subject to a civil penalty of not more than $500 for each day of such violation (e.g., $30,000 over 60 days). Additionally, courts may provide to prevailing parties reasonable attorney's fees as part of the cost of any litigation under WARN.
(13) State/Local Laws. All employers must carefully review whether state and local laws require notice or impose other obligations in the event of various types of business restructuring, including plant closings, mass layoffs, workforce reductions, sales, and other employer actions. These state or local requirements can be significantly different from WARN, and can impose more onerous requirements based on many types of changes that do not trigger WARN notice requirements.
TOP
ISSUES CONCERNING NONEXEMPT EMPLOYEES:
1.
Failing to record
and pay for all compensable hours of work between the first and last principal
activities of the day.
Possible
examples of compensable work: logging into computer programs or preparing a
work area before the shift, changing into work clothes or putting on protective
equipment, traveling between work locations, short smoking breaks.
Both large and small employers face potential liability when off-the-clock violations occur. The term “off-the-clock” is used to refer to work that employees perform for which they do not receive payment from the employer. When off-the-clock work claims are proven, they typically have one of three root causes: (1) fundamental misconceptions regarding what constitutes compensable working time, (2) inadequate or improper recordkeeping practices, and/or (3) supervisory negligence or misconduct. These cases have arisen in large numbers in the meat and poultry industries, at industrial workplaces in which employees must put on or take off protective clothing prior to entering the workplace, and at any workplace, such as a telephone call center, where employees must turn on computers before beginning their work. The US Department of Labor (DOL) has made clear its intention to expand its investigations to many other industries, especially those industries with low-wage workers. As a result, off-the-clock claims have become a primary focus of FLSA and state wage and hour lawsuits initiated by employees, often involving the aggregated claims of hundreds or thousands of employees.
Although the FLSA requires an employer to compensate employees for all time which the employer requires or permits employees to work, the Portal-to-Portal Act “exempts from compensation activities which are preliminary or postliminary to an employee’s principal activity or activities unless they are an ‘integral and indispensable part of the principal activities for which covered worker[s] are employed and not specifically excluded by section 4(a)(1) [of the Portal-to-Portal Act].’”[70] In light of the increasing number of lawsuits involving off-the-clock work claims and the announced intention of the DOL to aggressively pursue more investigations, employers should take proactive steps to ensure that they are in compliance with both federal and state wage and hour laws. Such steps may include a clearly defined and publicized policy prohibiting off-the-clock work and associated training of both supervisors and employees. Moreover, the employer should not only actively enforce the policy, but also adopt a structured reporting system for violations. Other routes employers may pursue include conducting self-audits and self-reporting to the DOL or creating a compensable grace period prior to shift commencement.
2.
Using improper
rounding policies and systems at the beginning and ending of work shifts and
meal periods.
Despite the DOL’s broad mandate that an “employer may not arbitrarily fail to count as hours worked any part, however small, of the employee’s fixed or regular working time,” the DOL allows employers to maintain minor discrepancies between the number of hours recognized in time clock records and hours actually paid.[71] In allowing for minor discrepancies, the DOL specifically has acknowledged and accepted the continued use of “rounding” practices where those practices averaged out so that employees were fully compensated for all the time they actually worked. According to the DOL, employers must set a certain interval which serves as the minimum block of time that will be recognized as a unit of time worked or not worked. Time missed or worked within that interval will not be deducted or added to the time worked, whereas time missed or worked outside that interval will result in that interval being deducted from or added to the time worked.
Various rounding practices have been examined by the courts
and the DOL. For example, an
The DOL has opined that rounding off to the nearest five minutes, one-tenth of an hour, or even one-quarter of an hour is permissible, so long as such a practice produces only minor discrepancies between time records and hours actually paid; (2) works both to the advantage and disadvantage of the employees; and (3) averages out so that employees are fully compensated for all the time they actually worked.
3.
Failing to record
and pay for work the employer knew or had reason to know was performed before
or after the scheduled work day, or at home or at other remote locations.
The FLSA requires employers to provide overtime compensation to their employees for any hours worked beyond a 40-hour workweek, regardless of whether an employee works at the office, at home or while traveling. Laptop computers, palm pilots, Blackberries, cellular telephones, pagers, remote access programs and other technological advancements (many provided or subsidized by employers) now enable employees to make work portable. In many instances, employees who do not finish their work at the office now may have the option of bringing that work home with them to finish later in the evening or over the weekend. With respect to overtime compensation, a potential difficulty arises due to the inability of the employer effectively to control and monitor the amount of overtime being worked by its employees. Because employees may perform overtime work in hotels, airports, and even in the comfort of their own homes, the employer may be unaware that a particular employee is working overtime until the employee turns in his/her time record for the week indicating those overtime hours. At that point, however, the employer already may be liable for overtime compensation.
As a result, activities that the employer believes are preliminary or postliminary to an employee’s principal activity and thus, noncompensable may in fact be compensable if they follow the first principal activity of the day. For example, employees who check their Blackberries as soon as they wake up might start the workday and turn personal grooming, commuting and other noncompensable preliminary activities into compensable work. To avoid overtime compensation claims for hours that the employer never authorized and probably did not know were worked until after the fact, employers should implement a clear written policy requiring employees to get written permission from superiors before taking work home to be completed during overtime hours.
4.
Failing to record
and pay for all meal periods of less than 30 uninterrupted minutes.
The federal regulations do not consider bona fide meal periods to be work time; thus, employees do not have to be compensated during these periods. A bona fide meal period is one in which the employee is completely relieved from work duties for the purpose of eating regular meals. Normally 30 minutes or more is sufficient for a bona fide meal period. Activities such as coffee breaks or time for smoking do not qualify as bona fide meal periods and thus, the employee must be compensated during these periods. Furthermore, if the employee is required to perform any duties, whether active or inactive, while eating, he is not relieved.[75] Although an employer is not required to permit the employee to leave the premises during the meal period, courts have held that requiring office employees to eat at their desks or factory workers to be at their machines constitutes working while eating and thus, does not qualify as a bona fide meal period.[76]
5.
Failing to
include all remuneration (except the statutory exclusions) in the regular rate
of pay before calculating the overtime rate of pay.
For
example, shift differentials, cash payouts from cafeteria benefit plans, call
back pay, nondiscretionary bonuses, some forms of profit- or gain-sharing,
supplemental compensation, deferred compensation, commissions.
Under the FLSA, overtime premium payments are based upon time and one-half the “regular rate” of pay. All remuneration for employment paid to, or on behalf of, an employee must be included in calculating the regular rate of pay, unless it fits within one of eight statutory exclusions.[77] The eight exclusions are: (1) gifts given as a reward for service which are not merit based—e.g., holiday gifts; (2) payments for occasional periods when no work is performed—e.g., vacation or failure of employer to provide enough work—and reimbursement for travel expenses; (3) discretionary bonuses, talent fees, or profit-sharing payments; (4) employer contributions to a trustee or third person pursuant to a bona fide plan for providing such coverage as old-age, retirement, life, accident, or health insurance; (5) overtime premiums for extra hours worked during the workweek; (6) overtime premiums for extra hours worked on the weekend or holidays; (7) overtime premiums for extra hours worked beyond the original terms of the employment contract or collective-bargaining agreement; and (8) any value derived from employer-provided stock option, stock appreciation right, or bona fide employee stock purchase program.
6.
Compensating
nonexempt employees for overtime in paid time off rather than premium wages.
The FLSA does not make any provision for compensatory time off in lieu of overtime for private employers. Nonetheless, there are certain methods of dealing with overtime hours that satisfy the FLSA, even though, at first glance, they seem to be no more than compensatory time off programs.
The FLSA requires only that an employer pay overtime when an employee works more than 40 hours in one workweek.[78] The FLSA also allows an employer to establish when the workweek begins and to establish different workweeks for different groups of employees. Thus, for example, an employee who normally works five eight-hour days can work 12 hours in one day without earning overtime, so long as over the course of the week, he or she works no more than 40 hours. If an employee works 12 hours on Monday, and only four hours on another day during the week, the overtime provisions of the FLSA do not come into play. Note, however, that many states require that overtime be paid for hours worked in excess of a specific number of hours per day (eight or twelve) or for hours worked on a sixth or seventh day of the week (regardless of whether the employee has worked 40 hours in that week).
An employer may also implement a time off policy in the second week of a two-week pay period to recoup the cost of overtime earned in the first week. If an employee works more than 40 hours in the first workweek, compensatory time may not be used as a payment for the overtime hours. However, if during the second week of the same pay period the employee is required to take one and one-half hours off for each hour of overtime worked the previous week, the employee’s overall pay for the pay period will be the same as what the employee would be entitled to if he or she worked 40 hours in each workweek. A time off practice cannot be applied to a salaried employee who is paid a fixed salary to cover all hours he or she may work in any particular workweek or pay period.[79] We caution against using this method of controlling overtime because it is so susceptible to misunderstanding and misapplication.
7.
Employing the
fluctuating workweek method of paying for overtime without meeting the
following conditions: (a) the hours must fluctuate, (b) there must be a clear
and mutual understanding, before the work is performed how overtime will be
calculated and (c) the salary may not be reduced in any workweek for any
reason.
The FLSA provides that a salaried employee whose hours of work fluctuate from week to week may reach a mutual understanding with her employer that she will receive a fixed amount as straight-time pay for whatever hours she is called upon to work in a workweek, whether few or many, and that she will be compensated for his or her overtime work at a rate of fifty percent of his or her regular hourly pay.[80] Fluctuating workweek overtime is legal as long as the following conditions are met:
(1) The employee must be on a guaranteed weekly salary which is paid to the employee as long as the employee performs any work in the workweek. No pay is required for a workweek in which the employee is out for the entire workweek and performs no work in that workweek. Pay periods can still be bi-weekly, semi-monthly, or monthly; but the work hours must be computed weekly to determine the hours worked each workweek. For this reason, we suggest that pay periods be either weekly or bi-weekly when an employee is paid on a fluctuating workweek overtime system so that the pay periods will correspond with each workweek.
(2) The hours of the employee must fluctuate from workweek to workweek. However, there are no rules as to how much or how little the hours must fluctuate from workweek to workweek. For example, both the Fourth and Seventh Circuits have held that the fluctuating workweek method is appropriate if there are fluctuations in overtime hours even if an employee never works under 40 hours in a week. Further, employees who work alternating 40 and 43 hour weeks, for example, may still be considered to have fluctuating workweeks.[81]
(3) The regular hourly rate of pay which is used to calculate the half-time overtime rate must be at least the minimum wage. An employee’s regular rate of pay may be calculated by dividing the employee’s weekly salary by the number of hours actually worked. This amount is then multiplied by the number of hours worked over 40 in the workweek and paid to the employee in addition to the salary. The employer should be aware, however, that state wage and hour laws may not recognize or permit this method of calculating overtime.
8.
In the restaurant
and hotel businesses, failing to properly inform non-exempt tipped employees
that the employer uses the tip credit when computing regular and overtime rates
of pay.
If certain conditions are met, an employer is permitted to pay a tipped employee lower wages. A “tipped employee” is one who is “engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.”[82] According to the DOL, an employer of a tipped employee is only required to pay $2.13/hour in direct wages if that amount combined with the tips received at least equals the federal minimum wage. If the employee’s tips combined with the employer’s direct wages of at least $2.13/hour do not equal the federal minimum hourly wage, the employer must make up the difference.
Many states, however, require higher direct wage amounts for tipped employees. Some states do not permit tip credits at all. Employers must be aware of their states’ requirements because if the state law differs from the FLSA, the more generous state law governs. In states where the tip credit is permitted, if the employer elects to use the tip credit provision, the employer must: (1) inform each tipped employee about the tip credit allowance (including the amount to be credited) before the credit is utilized; (2) be able to show that the employee receives at least the minimum wage when direct wages and the tip credit are combined; and (3) allow the tipped employee to retain all tips, whether or not the employer elects to take a tip credit for tips received, except to the extent the employee participates in a valid tip pooling arrangement. The requirement that an employee must retain all tips, however, does not preclude tip splitting or pooling arrangements among employees who customarily and regularly receive tips, such as waiters, waitresses, bellhops, counter personnel (who serve customers), busboys/girls, and service bartenders. Tipped employees may not be required to share their tips with employees who have not customarily and regularly participated in tip pooling arrangements, such as dishwashers, cooks, chefs, and janitors. Only those tips that are in excess of tips used for the tip credit may be taken for a pool. Tipped employees cannot be required to contribute a greater percentage of their tips than is customary and reasonable.
Where tips are charged on a credit card and the employer must pay the credit card company a percentage on each sale, the employer may pay the employee the tip, less that percentage. This charge on the tip may not reduce the employee’s wage below the required minimum wage. The amount due the employee must be paid no later than the regular pay day and may not be held while the employer is awaiting reimbursement from the credit card company. In the end, the employer must make sure that its wages comport with both the federal and state tip credit provisions.
9.
Failing to take
full advantage of industry specific exemptions in DOL regulations.
The newly revised white-collar exemptions and guidance from the DOL illustrate certain industry-specific exemptions that should not be overlooked.
Insurance Claims Adjusters:
Insurance claims adjusters generally meet the duties requirements for the administrative exemption and are not entitled to overtime pay if their duties include activities such as interviewing insureds, witnesses and physicians; inspecting property damage; reviewing factual information to prepare damage estimates; evaluating and making recommendations regarding coverage of claims; determining liability and total value of a claim; negotiating settlements; and making recommendations regarding litigation. It must be noted that the title alone does not make the position exempt. DOL warns that there must be a case-by-case assessment to determine whether an employee’s duties meet the requirements for exemption.
Employees in the financial services industry
Generally, employees in the financial services industry meet the duties requirements for the administrative exemption and are not entitled to overtime pay. An exempt employee in this industry will likely perform duties such as collecting and analyzing information regarding the customer’s income, assets, investments or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing or promoting the employer’s financial products. In applying the exemption, it does not matter whether the employee’s activities are aimed at an end user or an intermediary. It must be noted that this exemption does not apply to employees whose primary duty is selling financial products. However, employees who spend more than half of their time out of the employer’s offices selling financial products directly to customers may fit within the outside sales exemption.
ISSUES CONCERNING EXEMPT EMPLOYEES:
10.
Misclassifying
nonexempt employees as exempt under federal and/or state duties tests.
Inside sales people:
The newly revised white-collar exemptions strengthen overtime rights for inside sales employees. The DOL expressly states that it “does not have statutory authority to exempt inside sales employees from the FLSA minimum wage and overtime requirements under the outside sales exemption.” Moreover, as stated above, “[a]n employee whose primary duty is selling financial products does not qualify for the administrative exemption.”
Paralegals:
There is no case law precedent addressing the exempt status of paralegals. However, the DOL has taken the position on several occasions through opinion letters that paralegals do not meet the professional or the administrative exemption because they do not exercise a sufficient amount of discretion and independent judgment. One of the major reasons the DOL reached this conclusion mainly because it believes that if paralegals had the amount of authority to exercise independent judgment with regard to legal matters that would be required to meet the exemption, they would likely be engaged in the unauthorized practice of law as described by the American Bar Association’s Code of Professional Responsibility.
To the extent, however, that paralegals do not have as their primary duty “typical” paralegal work (i.e., those duties examined in the applicable opinion letters), and instead perform duties that are more akin to those of project managers and analysts, it is possible that courts and even the DOL would not find the opinion letters applicable to paralegals, and instead find such employees to be exempt administrative employees.
The DOL issued a pointed letter regarding the applicability of the professional exemption to paralegals. The employer in this case noted that the paralegal in question possessed a four-year college degree and a paralegal certificate, and had taken continuing legal education courses throughout her twenty-two-year paralegal career. Despite these facts, and noting that many commentators to the proposed rule changes lobbied for the DOL to make paralegals eligible for the exemption, the DOL reiterated its position that “paralegals and legal assistants do not qualify as exempt learned professionals because an advanced specialized degree is not a standard prerequisite for entry into the field.” The letter ruling did not address whether paralegals qualify for the administrative exemption.
Help desk operators and desk-side support
technicians:
The FLSA Computer Employee exemption applies to an employee who earns $455/week or $27.63/hour whose primary duties consists of: (1) the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional applications; (2) the design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; (3) the design, documentation, testing, creation or modification of computer programs related to machine operating systems; or (4) a combination of the aforementioned duties, the performance of which requires the same level of skills. Help desk operators and desk-side support technicians do not meet this exemption test. Simply because an employee can fix computers, install software or troubleshoot computer issues, it does not follow that the employee is exempt under the computer employee exemption.
1. Treating trainees as exempt before they fully qualify under the applicable exempt duties tests.
An employee who must undergo a period of training and who is not able or expected to operate at full capacity until that period of training is complete may not qualify for exemption immediately, despite the position he or she is training for (e.g., district manager, computer systems administrator, vice-president, etc.). The trainee is not exempt because he or she will not likely perform all of the duties of the position for which she is being trained or will not do so with the requisite independent discretion and judgment necessary to meet the white-collar exemptions. It is important to remember that an employee who is training to be in an exempt position may need to be paid as a non-exempt employee until the training is complete and the employee assumes the full responsibilities of the position.
In Catlett v. Eltra Corp.,[83] the court held that an employee in training was not disqualified from exempt status as a “trainee” when he actually performed exempt work while in training. The employee in Catlett was hired to promote the company’s product. He underwent a three month training program where he was actively engaged in telephoning and otherwise contacting customers to discuss the company’s product. The court held that, from the very beginning of his employment, the plaintiff was “actually performing the duties of an administrative employee, namely the promotion of Converse’s products.” In addition, the court noted that although the employee operated with a higher degree of supervision during his first three months of employment than he did after he completed his training, he still performed his duties with the required discretion and independent judgment. Therefore, the court concluded, at all times from the inception of his employment through his training and beyond, the employee was an exempt administrative employee and not a “trainee.”
In cases where courts have concluded that a trainee did not yet qualify for an exemption from the FLSA, the employee was not performing the work of an exempt employee. For example, in Roberts v. Autotech, Inc.[84] the court held that the store manager trainee did not qualify for the exemption when he was not highest level manager in store, did not report to the Operations Manger, and did not “manage the store.” Similarly, restaurant chain “associate managers” who underwent an eleven-week training course were trainees and not exempt employees when a large majority of their duties involved manual tasks such as preparing pizzas, running the cash register, waiting on customers, and cleaning stores; duties also performed by regular crewmembers.[85]
2.
Failing to
guarantee the proper salary amount to exempt employees.
The minimum salary level for exemption is $455 per week ($910/biweekly; $985.83/semi-monthly; $1.971.66 monthly). Computer employees may be paid this salary level OR an hourly wage of at least $27.63. Exempt teachers and outside sales employees do not have to meet this salary level test. Note that some States have different salary levels that must be met (see topic 20 below).
3.
Prorating the
salary of a part-time exempt employee to less than $455/week.
The salary level test is absolute. A part-time employee is not exempt if she receives less than $455/week. Therefore, an employer may not prorate an exempt employee’s salary to less than $455/week.
4.
Making improper
deductions from the salaries of exempt employees. For example:
· Docking pay
· Recouping cost of lost or damaged equipment
· Recouping cost of employee errors
In order to qualify for the professional, executive, and administrative exemptions, an employee must be paid on a “salary basis.” The DOL has promulgated regulations explaining when an individual’s compensation is on a salary basis. Generally, an individual is paid on a salary basis if he “regularly receives . . . on a weekly, or less frequent basis, a predetermined amount constituting all or part of his compensation . . . not subject to reduction because of variations in the quality or quantity of the work performed.”[86] The “no pay docking” rule prohibits, with a few specified exceptions, any reduction in compensation because of variations in the quality or quantity of work performed, and requires payment of a full week’s salary for any week in which the employee performs any work. An employer who improperly docks pay from an exempt employee runs the risk of causing that employee to lose her exempt status.
The salary basis test, however, does permit an employer to make deductions from the salary of an exempt employee under specified circumstances without defeating the exemption. Under the 2004 regulations there are seven exceptions from the no pay docking rule. Employers may deduct from an employee’s pay for: (1) absences for one or more full days for personal reasons; (2) absence for one or more full days for sickness or disability if the deductions are made pursuant to a bona fide plan, policy or practice; (3) offsets for payments for jury fees, witness fees, or military pay; (4) penalties imposed in good faith for violating safety rules of major significance; (5) disciplinary suspensions imposed in good faith of one or more full days for violations of workplace conduct rules (such as a violation of a sexual harassment policy); (6) proportionate amount of salary deducted for days worked during the employee’s first and last weeks of employment; and (7) partial-day deductions for absences that qualify under the Family and Medical Leave Act.[87] Employers should also be aware of the requirements of each state’s wage payment laws.
5.
Failing to
promulgate and communicate a complaint mechanism employees may use to report
improper deductions from salary so that prompt corrections can be made.
Under the 2004 regulations, employers will jeopardize the exempt status of their employees only if they have an “actual practice” of making improper deductions. Employers may avail themselves of this safe harbor provision if they satisfy certain conditions. First, employers must clearly communicate a policy prohibiting improper pay deductions. Although a written policy is not required, the best evidence of a clearly communicated policy is a written policy that was distributed to employees prior to the improper pay deductions. The policy can be distributed, for example, by providing a copy of the policy to employees at the time of hire, publishing the policy in an employee handbook or publishing the policy on the employer’s intranet. Second, the policy must provide a complaint procedure which an employee may use to report improper deductions. Third, if the employer makes an inadvertent improper deduction, it must reimburse employees for the improper deduction and make a good faith commitment to comply with the FLSA no docking rules in the future. Finally, if the employer “willfully” violates the policy by continuing to make improper deductions following a complaint, the employer will lose its exempt status for all employees in the same job classification working for the same managers responsible for the improper deductions for the time period in which the improper deductions were made.
This provision is more protective for employers than the holding in Auer v. Robbins[88] that a class of employees should not be exempt if the employer had an actual practice of making improper deductions. The safe harbor provision is advantageous to employers for at least two reasons. First, for employers that make improper deductions but do not fall within the safe harbor, the exemption will not be lost for an entire class of employees, but rather only for those employees in the same job classification working for the same managers responsible for the improper deductions. Second, employers can avoid losing the exemption by simply following the safe harbor requirement. See the attached Model Policy.
ISSUES CONCERNING ALL EMPLOYEES:
6.
Failing to meet
recordkeeping requirements for both exempt and nonexempt employees.
For example: Failing to keep a record of the official workweek(s) for employees; failing to record all hours of work and wages paid; or failing to track meal and rest break
The FLSA requires employers to keep records for both exempt and nonexempt employees. The records must be kept on the employer’s premises or in a place where they can be made available within seventy-two hours. A willful violation of the recordkeeping requirements is grounds for criminal prosecution. No particular order or form of records is prescribed by the regulations concerning FLSA recordkeeping. The regulations, however, provide the following with respect to the maintenance of records on electronic databases:
The records may be maintained and preserved on microfilm or other basic source document of an automatic word or data processing memory provided that adequate projection or viewing equipment is available, that the reproductions are clear and identifiable by date or pay period and that extensions or transcriptions of the information required by this part are made available upon request.[89]
Certain records must be kept for all employees: (1) name and identifying number or symbol; (2) home address and zip code; (3) date of birth, if under 19; (4) sex; and (5) occupation in which employed.[90] In addition to the records listed above, the following records must be kept for employees subject to the FLSA minimum wage and overtime provisions: (1) time of day and day of week workweek begins; (2) rate of pay; (3) hours worked each workday and each workweek; (4) total daily and hourly straight-time earnings; (5) total weekly overtime earnings; (6) total additions or deductions to wages each pay period; (7) hourly rate of pay for each week overtime is worked; (8) total wages each pay period; and (9) date of payment and pay period covered by the payment.[91]
7.
Failing to stay
informed of FLSA requirements by subscribing to publications, attending
training courses, and seeking periodic advice regarding changes in the law or
the interpretation of the law.
An employer may minimize the potential of violations of the FLSA by taking certain internal and external preventative steps. First, an employer should develop in-house awareness and expertise. The employer can accomplish this goal in a variety of ways, such as: (1) designating specific HR/Legal FLSA resource persons; (2) sending designated persons to FLSA training; (3) accessing FLSA reference treatises such as the BNA’s “The Fair Labor Standards Act” and “Wage and Hour Laws: A State by State Survey”; (4) conducting periodic self-audits/compliance reviews; and (5) providing periodic training to HR staff and managers. Second, an employer should seek external validation of its compliance by: (1) monitoring the DOL website for updates and training aids; (2) monitoring DOL opinion letters and case law; and (3) subscribing to mailing lists of outside counsel and industry/HR associations. Furthermore, if an employer has a particular concern, the employer can always request an opinion letter addressing its specific issue from outside counsel or the DOL. Finally, the employer should actively make sure it is in compliance with the FLSA by encouraging its managers and other employees to ask questions and raise concerns. When problems arise, the employers should fix them and not simply ignore them.
8.
Failing to
conduct periodic, preventative compliance audits and to conduct periodic
training of first-line managers and payroll staff, including in local
offices/branches/facilities and failing to document compliance efforts or
failing to document compliance actions to substantiate the good faith defense.
Documented internal and external preventative measures may mitigate an employer’s FLSA liability. An employer who violates the provisions of the FLSA requiring payment of overtime at the rate of one and one-half times the regular rate is liable for the unpaid overtime compensation, as well as an equal amount in “liquidated damages” unless the employer shows to the satisfaction of the court that “the act or omission giving rise to such action was in good faith and that [the employer] had reasonable grounds for believing that [its] act or omission was not a violation” of the FLSA.[92] It is important to note that only “wages lost” are doubled, not non-pecuniary damages such as those that may be awarded for claims for future losses, emotional distress, mental anguish and inconvenience.[93]
The FLSA states that upon a finding of a violation of the minimum wage or overtime provisions, employers “shall be liable . . . [for unpaid wages and for] an additional equal amount as liquidated damages.”[94] The Portal-to-Portal Act amended the FLSA to provide employers with a defense to the mandatory damages, and it permits the district court, in its sound discretion to award no, or less, liquidated damages.[95] However, before a district court can use its discretion to lower or eliminate liquidated damages, the employer must meet a “difficult” burden.[96] The employer has the burden of persuading the court by plain and substantial evidence that its failure to obey the law was in good faith and was predicated upon reasonable grounds, so that it would be unfair to impose more than a compensatory verdict.[97] The good faith requirement is subjective, and requires the employer to prove “an honest intention to ascertain and follow the dictates of the Act.”[98] The reasonableness requirement is objective and the determination is made by the judge. If the employer fails to meet its burden of proving good faith and reasonableness, the district court has no discretion and must award liquidated damages.[99]
Merely proving that the employer did not act intentionally, had good intentions, or was ignorant of the law is not sufficient to avoid liability for liquidated damages once an initial violation of the overtime and wage provisions is found; rather, “the employer must affirmatively establish that he acted in good faith by attempting to ascertain the Act’s requirements.”[100] In fact, several circuits have held that a court has no discretion to deny liquidated damages if the employer has not demonstrated that it took affirmative steps to ascertain the legality of its pay practices before a DOL investigation.[101]
9.
Failing to post
required materials.
Every employer covered by the FLSA must display the FLSA poster on
minimum wage, overtime compensation, and child labor in a conspicuous place for
employee review.[102] Failing to display a poster advising
employees of their wage rights may toll the statute of limitations under the
FLSA. Under the Portal-to-Portal Act,
claims arising under the FLSA for non willful violations are subject to a
two-year statute of limitations, whereas claims for willful violations are
subject to a three-year statute of limitations.
For example, the Sixth Circuit has held that a district court did not
abuse its discretion by tolling the statute of limitations for a class of
mandatorily retired police officers alleging violations of the ADEA and related
claims, where the officers had not been made aware through posting or distribution
of their rights under the ADEA.[103] Similarly, a
10. Failing to know and comply with state wage and hour laws requirements (including salary levels) that differ from the FLSA.
· Higher state/local “living wage” standards for nonexempt employees, state daily overtime requirements, absence of state computer employee or highly compensated exemptions; higher salary level test.
· Higher state minimum wage/overtime requirements.
· States which do not expressly recognize the computer employee or highly compensated employee exemptions.
· States with a higher salary level test.
[1] EEOC FY 2008 enforcement and
litigation statistics. See
http://www.eeoc.gov/stats/enforcement.html
[2] Eve
Tahmincioglu, Job Discrimination Claims Rise to Record Levels, Monday, March 9,
2009, http://www.msnbc.msn.com/id/29554931/ (March 27, 2009).
[3] Jury Verdict
Research, 2005,
[4] Jury Verdict
Research, 2008,
[5] Engineering
News Record, Solis Outlines Proposed
Budget, Staff Hikes (May 25, 2009).
[6] See
http://www.tsa.gov/what_we_do/layers/hazmat/index.shtm
[7] See
http://www.tsa.gov/what_we_do/layers/twic/index.shtm
[8]
[9] See http://www.nrc.gov/reactors/operating/ops-experience/access-authorization.html
[10] United States
Department of Homeland Security, “Secretary Napolitano Strengthens Employment
Verification with Administration’s Commitment to E-Verify.” Press Release, July
8, 2009.
[11] According to
the National Conference of State Legislators, as of June 30, 2009, twelve (12)
states require E-verify. See http://www.ncsl.org/?tabid=13127
[12] 24 P.S. §1-111.
[13] Charles V.
Bagli, City Unveils Plan to Improve
Safety at Construction Sites, N.Y. Times, June 5, 2008.
[14] Patrick
McGeehan, Port to Require Criminal Checks,
N.Y. Times, May 5, 2005.
[15] 15 U.S.C. §§
1681-1681u.
[16] See
http://www.ftc.gov/bcp/edu/pubs/business/credit/bus08.shtm
[17] 15 U.S.C. §
1681b(b)(2).
[18] 15 U.S.C. §
1681b(a)(2).
[19]
[20] 15 U.S.C. §
1681b(a)(3).
[21] 15 U.S.C. §
1681m(a).
[22] EEOC Policy Statement on the Issue of
Conviction Records under Title VII of the Civil Rights Act of 1964, as amended,
42 U.S.C. § 2000e et seq. (1982) (2/4/87).
[23] EEOC Guide to
Pre-Employment Inquiries, FEPM at 443:67 (BNA).
[24] See, e.g., Avant v. South
[25] Policy
Guidance on the Consideration of Arrest Records in Employment Decisions under
Title VII of the Civil Rights Act of 1964, as amended, 42 USC §2000e et seq.
(1982), Notice No. N-915-061 (9/7/90).
[26] FMLA is enforced by the Wage and Hour Division of the U.S.
Department of Labor’s (DOL) Employment Standards Administration. See 29 C.F.R. § 825.401.
[27] 29 C.F.R. § 825.100.
[28] 29 C.F.R. § 825.112.
[29] 29 C.F.R. §
825.111(b).
[30] 29 C.F.R. §
825.111(a)(2), (a)(3).
[31] 29 C.F.R. §
825.106.
[32]
[33] The secondary
employer is required to accept a returning employee in place of a replacement
employee if the secondary employer continues to utilize an employee from the
temporary employment agency and the agency still chooses to place the employee
with the secondary employer.
[34] 29 C.F.R. §
825.106(e).
[35] DOL Wage
& Hour Div. Op. Ltr. FMLA2004-1-A
(April 5, 2004).
[36] 29 C.F.R. § 825.106(e).
[37] 29 C.F.R. § 825.107(a).
[38] 29 C.F.R. § 825.107(c).
[39] 29 C.F.R. § 825.110(a)(1)-(2), (d).
[40] 29 C.F.R. § 825.110(a)(3), (e).
[41] 29 U.S.C. §
201.
[42] 29 C.F.R. §
825.110(c).
[43] Preamble to
the Final Regulations, 60 Fed. Reg. 2180, 2186 (Dep’t Labor Jan. 6, 1995).
[44] 29 C.F.R. § 785.29.
[45] Preamble to
the Final Regulations, 60 Fed. Reg. 2180, 2186 (Dep’t Labor Jan. 6, 1995).
[46] 29 C.F.R. § 825.202.
[47] 29 C.F.R. §
825.303(a).
[48]
[49] 29 C.F.R. § 825.302. If the need is not foreseeable or arises in an emergency, an employer may require workers to follow the employer’s usual and customary call-in procedures for reporting an absence unless unusual circumstances exist that prevent such notice. In the absence of any such policy, employees must give notice as soon as practicable. 29 C.F.R. § 303(a).
[50] 29 C.F.R. at
§ 825.300.
[51]
[52] 29 C.F.R. §
825.300(a).
[53] See generally 29 C.F.R. § 825.300.
[54] If an
employer has a significant portion of employees who are not literate in
English, the general notice must be provided in a language in which the
employees are literate.
[55] 29 C.F.R. §
825.300(a).
[56]
[57]
[58]
[59]
[60]
[61] See, e.g., Cal Lab Code, § 230.8.
[62] See, e.g., Haw. Rev. Stat. § 398-1.
[63] See, e.g., Alaska Stat. § 39.20.550(4).
[64] See, e.g., Haw. Rev. Stat. § 398-3(a).
[65]See, e.g., Del. Code Ann. Tit. 29, § 5116(a).
[66] 29 C.F.R. §
1630.2(o).
[67] E.E.O.C.
Guidance: Reasonable Accommodation and Undue Hardship Under the Americans with
Disabilities Act, 915.002 (October 17, 2002).
See http://www.eeoc.gov/policy/docs/accommodation.html#workplace
[68] 29 C.F.R. §
825.215.
[69] E.E.O.C.
Guidance, 915.002 (October 17, 2002).
[70] 29 U.S.C. §
254.
[71] 29 C.F.R. §
785.47.
[72] East v. Bullock, Inc., 34 F. Supp. 2d
1176 (D.
[73] 1994 DOLWH
LEXIS 89 (Maria Echaveste, Nov. 7, 1994); Op. of Acting Administrator FLSA-253
(Feb. 7, 1977).
[74] Hodgson v. Leeco Gas & Oil Co.,
No. 71-562-Civ.-T-H, 1972
[75] 29 C.F.R. §
785.19.
[76] N.L.R.B. v. Frigid Storage, Inc., 934
F.2d 506 (4th Cir. 1991); Alexander v.
City of
[77] 29 U.S.C. §
207(e).
[78] 29 U.S.C. §
207(a)(1).
[79] Nov. 19, 1998 DOL Opinion Letter FLSA 1998.
[80] 29 C.F.R. §
778.114(a).
[81] Condo v. Sysco Corp., 1 F.3d 599 (7th
Cir. 1993); Aiken v. County of Hampton,
172 F.3d 43 (4th Cir. 1998); Griffin v.
Wake County, 142 F.3d 712, 715 (holding that employees who worked alternating 48- and 72-hour
workweeks had fluctuating workweeks).
[82] 29 U.S.C. §
203(m).
[83] No. 74 Civ.
9611-CSH, 1977 WL 1684 (S.D.N.Y. Jan. 23, 1977).
[84] 192 F. Supp.
2d 672 (N.D.Tx. 2002).
[85] Dole v. Papa Gino’s of Am., Inc., 712
F.Supp. 1038 (D.
[86] 29 C.F.R. §
541.118(a).
[87] 29 C.F.R. §
541.602.
[88] 519
[89] 29 C.F.R. §
516.1(a).
[90] 29 C.F.R. §§
516.2, 516.11.
[91] 29 U.S.C. §
211(c); 29 C.F.R. § 516.2.
[92] 29 U.S.C. §
260.
[93] Brown v. Pizza Hut of Am. Inc., 113 F.3d
1245 (10th Cir. 1997).
[94] 29 U.S.C. §
216(b).
[95] 29 U.S.C. §
260; Williams v. Tri-County Growers, Inc.,
747 F.2d 121, 128 (3d Cir. 1984).
[96] Martin v. Cooper Elec. Supply Co., 940
F.2d 896, 908 (3d Cir. 1991).
[97] Tri-County Growers, 747 F.2d at 129.
[98] Marshall v. Brunner, 668 F.2d 748, 753
(3d Cir. 1982) (citation omitted).
[99] Tri-County Growers, 747 F.2d at 129; Brunner, 668 F.2d at 753.
[100] Tri-County Growers, 747 F.2d at 129.
[101] Cooper Elec., 940 F.2d at 910; see also Reich v. S.
[102] 29 C.F.R. §
516.4.
[103] EEOC v.
[104] Moss v. Crawford
& Co., No. Civ. A 98-1350, 2001 WL 33292715 (W.D.