Ninth Circuit: An employee’s knowing violation of the FLSA is the employer’s willful violation, and you can’t necessarily collect from joint employers 2020-03-10T11:29:27-06:00

Posted on March 10, 2020

By Matt Hesketh and Lindsay Hesketh

A staffing company (Company A) got into hot water with the DOL for failing to pay overtime. Scalia v. Employer Solutions Staffing Group, LLC, No. 18-16493 (March 2, 2020). The employees at issue were placed by a second company (Company B). Company B instructed Company A’s payroll employee to pay all time worked as “regular hours” instead of overtime, and this resulted in over 1,000 FLSA violations. The court ordered Company A to make overtime back-payments, and, because the payroll employee knew the pay was violating the FLSA, Company A had to pay an equal amount in liquidated damages.

On appeal, Company A asserted that it should not have to pay the liquidated damages because Company B told Company A’s “low-level” employee to violate the law. Company A also tried to have the court divide the liability between the companies. The Ninth Circuit was not impressed with either argument.

The court held that Company A was liable for its employee’s violation of the FLSA. Allowing an employer to “evade liability simply because none of its ‘supervisors’ or ‘managers’ processed the payroll would create a loophole in the FLSA.” Further, the employee’s conduct was willful (justifying liquidated damages) because the employee repeatedly dismissed the payroll system’s warnings about overtime pay. Finally, the court ruled that the FLSA does not itself imply a right of contribution or indemnification among joint employers.

The court’s ruling serves as a warning and reminder to train and supervise employees. Company A provided FLSA training and implemented the warning system, but it should have exerted more oversight over its payment of wages, the instructions its employees received from outsiders, and the dismissal of the warnings. Also, if Company A was going to accept payroll instructions from Company B, it might have considered assigning the risk through the contract between the two companies.

Security Screenings At Work: When Is This Time Compensable? 2020-02-25T12:36:19-07:00

Posted on February 25, 2020

By Alyssa L. Levy

In Aguilar et al. v. Management & Training Corp., 948 F.3d 1270 (10th Cir. 2020), the Tenth Circuit Court of Appeals ruled that the employer of a group of prison detention officers violated the Fair Labor Standards Act (FLSA), 29 U.S.C. §§ 201–19, by failing to pay the officers to undergo pre-shift security screenings; gather keys, handcuffs, and other equipment; walk to their post; receive a security briefing from the previous officer at the post; and then, post-shift, complete the same activities in reverse.

In District Court, the employer had won summary judgment by arguing that the time for these activities was not compensable under the FLSA. On appeal, however, the Tenth Circuit determined the activities before, during, and after were “integral and indispensable to the officers’ principal activities” under the FLSA, because the pre- and post-shift security screenings were required to ensure the overall safety of the prison.

The Tenth Circuit differentiated the prison security screenings from non-compensable security screenings under the FLSA where security is not part of the employee’s duties. Specifically, in Integrity Staffing Solutions, Inc. v. Busk, 574 U.S. 27 (2014), the Supreme Court held that time spent undergoing mandatory security screenings was not compensable under the FLSA, but in that case, the screenings were to prevent theft by employees and were not “integral and indispensable” to employees’ duties.

While the Tenth Circuit followed federal law on compensable activities, other courts may use different, conflicting standards based on state laws. For example, the California Supreme Court recently ruled that security screening time is compensable under California law when the employer searched employees’ personal bags for stolen merchandise or trade secrets, because the workers were “clearly under [the employer’s] control while awaiting, and during, the exit searches.” Frlekin v. Apple Inc., 2020 WL 727813 (Cal. Feb. 13, 2020). California’s “employer control” standard is very different from the FLSA “integral and indispensable to the duties” standard, resulting in compensable time under California state law that may not be granted under the FLSA.

When analyzing compensable time for security screening, awareness of different courts’ standards under federal and state law, and evolving case law, is crucial. Employee activity may be compensable in one court but not another.

State Law Overtime Calculation Prevails Over Established Federal Method 2019-12-12T17:04:09-07:00

Posted on December 12, 2019

By Alyssa L. Levy and Amy Knapp

In November 2019, the Pennsylvania Supreme Court looked at the conflict between federal and state law concerning the calculation of overtime compensation for non-exempt salaried workers. The Court ruled that although federal law explicitly adopted the fluctuating workweek (FWW) method for employees paid a set amount each week, despite the hours worked fluctuating, Pennsylvania law necessitated a different, more employee-friendly overtime calculation method.

Both the Pennsylvania Minimum Wage Act of 1968 (PMWA) and the federal Fair Labor Standards Act (FLSA) require payment of at least “one and one-half” of the employee’s “regular rate” for each hour worked in excess of 40 hours. This calculation is straightforward for employees who earn a set hourly wage, but it is more complicated for employees who are paid a set weekly amount for fluctuating hours. In these cases, the “regular rate” is calculated under the FLSA by dividing the employee’s weekly compensation by the actual hours worked in the week. With this calculation, the employees receive their “straight” time for hours over forty as part of the set weekly amount, and employers only owe an additional half of the regular rate for overtime hours.

The PMWA, however, does not address how to calculate overtime for these workers. The employer in this suit argued Pennsylvania should use the federal FWW method. The employees argued that the PMWA had not specifically incorporated the FWW method’s 0.5 multiplier, and if Pennsylvania wanted to adopt the federal method for salaried employees, it would have.

The Court ultimately agreed with the employees. Based on a mechanical application of the PMWA’s statutory and regulatory language, the Court concluded that use of the federal calculation method violated the PMWA, and Pennsylvania salaried, non-exempt employees are entitled to a 1.5 overtime multiplier.

The effect is retroactive liability for an employer that used recognized federal pay practices. Employers in many states might find themselves in the same situation. The legality of the FWW method is not fully resolved in Connecticut, Delaware, Hawaii, Idaho, Indiana, Maine, Maryland, Nevada, New Hampshire, New Jersey, New York, North Dakota, Rhode Island, Vermont, Virginia, Washington, West Virginia, Wisconsin, or Wyoming. See Wage & Hour Defense Institute, State-By-State Wage and Hour Law Summary (2017).

Chevalier v. General Nutrition Centers, Inc., No. 22 WAP 2018, No. 23 WAP 2018 (Pa. Nov. 20, 2019)

FLSA Applies to Employers in the Marijuana Industry 2019-10-01T09:55:54-06:00

Posted on October 1, 2019

By Lindsay H. S. Hesketh

A company providing services to the Colorado marijuana industry recently moved to dismiss an employee’s claims under the Fair Labor Standards Act. The company argued that the court lacked jurisdiction over the claim because marijuana is an unlawful substance under the Controlled Substances Act (“CSA”). The district court rejected the argument and denied the motion to dismiss. The Tenth Circuit affirmed.

The company argued that applying the FLSA to employees working in an industry deemed unlawful by other federal law, i.e. the CSA, would render the laws mutually inconsistent. The company claimed that courts would be forced to find that “Congress intended to both forbid (under the CSA) and reward (under the FLSA) the same conduct: drug trafficking.” The Tenth Circuit disagreed, relying on the broad purpose of the FLSA to benefit all workers, the lack of any marijuana exclusion under the FLSA, and the potential windfall employers engaged in the marijuana business could obtain if they did not have to comply with the FLSA. Notably, the Court stressed that case law “has repeatedly confirmed that employers are not excused from complying with federal laws just because their business practices are federally prohibited.”

Although this case was decided in the context of the marijuana industry, the Court’s decision pointed out that other courts have reached similar conclusions involving businesses engaged in other illegal operations. Accordingly, companies falling under the FLSA’s definition of “employer” should ensure their compliance with its requirements (period).

Kenney v. Helix TCS, Inc., Case No. 18-1105 (10th Cir. Sept. 20, 2019).

A “Fair Reading” of the FLSA Exempts Paralegals From Overtime Pay 2019-07-15T17:22:43-06:00

Posted on July 15, 2019

By Alyssa Levy

Should highly compensated paralegals (likely more experienced paralegals) receive overtime pay? The new DOL Wage and Hour Administrator, Cheryl Stanton, says paralegals earning at least $100,000 annually and performing certain duties are “exempt” employees. The Administrator’s guidance letter zeroed in on the paralegals’ duties to justify their exempt status as a “fair reading” of FLSA Section 13(a)(1).

The Administrator issued her first set of opinion letters on July 1, 2019, on a slew of questions posed by employers. Among the opinions, the Administrator offered guidance to a global trade organization on whether its paralegals are exempt from overtime requirements under Section 13(a)(1) of the FLSA.

FLSA Section 13(a)(1) exempts employees employed in a bona fide executive, administrative, or professional capacity from minimum wage and overtime pay requirements. In addition, an employee is exempt as a highly compensated employee if: (1) the employee’s “primary duty includes performing office or non-manual work”; (2) the employee receives total annual compensation of at least $100,000; and (3) the employee “customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee.”

The Administrator opined that the paralegals at issue satisfy the highly compensated employee exemption. All of their duties are non-manual, and they receive total annual compensation of at least $100,000. The paralegals also customarily and regularly perform at least one exempt duty of an administrative employee. Notably, only one of paralegals’ duties must be that of an exempt administrative employee, and need not be their primary duty.

In March 2019, the DOL proposed raising the highly compensated employee salary exemption threshold to $147,414. The DOL’s letter maintains that because “[a] high level of compensation is a strong indicator of an employee’s exempt status,” the highly compensated employee exemption “eliminate[s] the need for a detailed analysis of the employee’s job duties.” Raising the salary threshold would be in line with this school of thought. Regardless, an employee’s duties will still be given great consideration to justify “exempt” status.

Read the full guidance letter (FLSA 2019-8) here.

DOL Proposes Revamp of the “Regular Rate” 2019-04-01T10:41:18-06:00

Posted on April 1, 2019

By James Korte

The DOL continues to issue proposed rules to “modernize” the FLSA. The latest proposal, if finalized, would clarify and update the requirements for how employers calculate the “regular rate” of pay. The “regular rate” is the hourly rated used to calculate the overtime premium pay for non-exempt employees. The proposal:

provides more specific examples of exclusions from the “regular rate,” including exclusions for health and wellness programs, tuition benefit programs, and employee discounts on goods and services, among others; and
clarifies rules regarding “show up,” “call-back” pay, and paid meal breaks during which no work is performed.

Finally, the proposal increases the safe harbor for small nondiscretionary bonuses. Ordinarily, a nondiscretionary bonus has to be factored into the hourly rate for all the weeks during which it was earned. With the proposed rule, employers may skip this calculation if the additional overtime pay for the week would be less than 40% of the federal minimum wage.

The full proposal can be found here. The proposal is a win-win for both employers and employees, updating examples for employers with modern wage plans. The proposed rulemaking is not final and the DOL is taking public comments on the proposed regulation changes. For anyone would like to respond to the DOL’s proposals, comments will be accepted electronically or by mail. The instructions can be found at http://www.regulations.gov/

Don’t Mess With the IRS… and Don’t Misclassify Your Employees 2019-03-27T08:53:50-06:00

Posted on March 27, 2019

By Beth Ann Lennon

For those of you who were able to join us for Sherman & Howard’s Construction Law seminar earlier this month, you may remember our warnings about making sure your company is properly classifying and paying its employees. In case you need a reminder on how serious these issues can become, be sure to consider the 30 month prison sentence one employer from North Carolina just received for failure to report and pay employment taxes, along with a hefty $1.7 million restitution bill. https://www.justice.gov/opa/pr/north-carolina-mental-health-executive-sentenced-prison-failure-pay-employment-taxes. While this may be an extreme example, it is very real and very terrifying.

Remember – when you have one agency knocking at your door, you are likely to hear from more. In fact, here in Colorado the US Department of Labor (“DOL”), the Colorado Department of Labor and Employment (“CDLE”), and the Internal Revenue Service (“IRS”) have been sharing information concerning potentially misclassified employees since 2011. https://www.dol.gov/whd/workers/Misclassification/co.htm; https://www.dol.gov/whd/workers/MOU/irs.pdf. While it is unlikely that a company, or its executives, that unintentionally misclassifies an employee will end up facing jail time, the financial repercussions can still be staggering, with agencies reporting huge recoveries due to misclassification on a regular basis. See, e.g., https://www.dol.gov/newsroom/releases/whd/whd20160817-0 ($365,000 paid – “the Wage and Hour division considers misclassification a top enforcement priority and is working alongside our state, local and federal partners to achieve greater compliance with the law”); https://www.dol.gov/newsroom/releases/whd/whd20110309 (over $700,000 paid – “misclassification of employees as exempt from the FLSA has become a common problem and one the Labor Department is determined to bring to light”); https://www.osha.gov/news/newsreleases/region1/02222016-0 (OSHA fines of over $20,000 upheld against company who attempted to “evade their responsibility by claiming that workers on a job site are independent contractors when the facts show otherwise”).

Don’t be the next news story – avoid the risky business of misclassifying your employees. Conduct an individualized assessment with the assistance of legal counsel, if necessary, to determine whether the classification you are considering using is permissible under the applicable laws before the agencies come knocking.

DOL says: Don’t Be Too Generous With Your Employees 2019-03-18T11:43:13-06:00

Posted on March 18, 2019

By Beth Ann Lennon

Thursday the Department of Labor (”DOL”) issued three new opinion letters, two of which warrant a quick note. One provided guidance regarding the Family Medical Leave Act (“FMLA”), and the other addressed the Fair Labor Standards Act (“FLSA”). Both had the same ultimate takeaway – employer generosity easily backfires.

Providing more than unpaid FMLA Leave – According to the DOL, employers who want to provide employees more leave than the FMLA requires violate the FMLA if they delay designating leave as FMLA-qualifying to allow employees to exhaust other available paid leave. “[A]n employer may not delay the designation of FMLA-qualifying leave or designate more than 12 weeks of leave . . . as FMLA leave,” even if doing so benefits the employee. Employers have five days from when they have “enough information” to determine whether an employee’s leave is for a “FMLA-qualifying reason” to designate that leave as FMLA leave. The catch-22? The DOL also considers it a violation of the FMLA for an employer to not provide FMLA eligible employees “any employment benefit [provided for in a company policy] . . . that provides greater family or medical leave rights to employees than the rights established by the FMLA.” In other words, employers who provide more than 12 weeks of unpaid leave to employees need to make sure their leave policies are properly drafted and implemented, or their generosity could get them into hot water.

Encouraging Volunteer Work – The DOL also determined that employer generosity can be a violation of the law when employers provide bonuses for employees who engage in company sponsored volunteer work. According to the DOL, employers who encourage employee participation in volunteer activities may have to treat that volunteer time as “hours worked” under the FLSA unless they are very careful. Don’t want to pay overtime for your employees’ weekend housebuilding activities? Follow these (not so) simple rules…

Employers cannot “direct or control the employees’ activities” during these volunteer activities.
Employers cannot “guarantee a bonus for volunteering.”
Employers cannot require participation in the volunteer program or even “unduly pressure its employees to participate.”
And employees cannot suffer any “adverse effect” on “working conditions or employment prospects” because they do not participate.

Again, the takeaway is clear – if you encourage volunteer activities by your employees, this encouragement must be through a policy that is effectively drafted and administered to ensure compliance with the DOL’s new list of “do not”s.

Escaping Trial on FLSA Overtime Claim as Difficult as an Alcatraz Jailbreak 2018-12-13T17:09:32-07:00

Posted on December 13, 2018

By Chance Hill

On December 6, 2018, a federal district court in Maryland denied Defendants’ motion for summary judgment regarding an overtime claim, among others. Defendants, including a Maryland corporation providing medical care services to the elderly, employed the plaintiff primarily as a driver. The employer uses a Facial Recognition System, which takes a photo of each worker upon arrival and departure, to track the hours of its employees. The employer also mandates that employees record hours on timesheets.

Defendants argued the plaintiff could not provide any evidence of his overtime work, because he was paid in accordance with both the Facial Recognition records and the timesheets, and at some points in his deposition, he agreed that he used the Facial Recognition system. (At other points, he said he left by the back door.) But the plaintiff attested that he regularly worked more than forty hours per week. The Court ruled that the claim to recover unpaid overtime would have to go to trial, despite the employer’s high tech solution to time card fraud. Three former co-workers attested that they saw the plaintiff working beyond his prescribed hours, and any inconsistency among the various statements presents an issue to be resolved at trial.

After implementing Facial Recognition as well as timesheets, the employer still could not get summary judgment on a claim for unpaid overtime. All it took for the plaintiff to get a trial was for him to contradict his own testimony in the deposition and a co-worker or two to agree he worked after hours.

Chen v. Royal Garden Adult Medical Daycare Center, Inc., No. SAG-17-2087 (D. Md. Dec. 6, 2018).

Individual Liability for Owners 2018-11-19T11:43:42-07:00

Posted on November 19, 2018

By Matt Hesketh

The District Court of Arizona recently reminded us that the “expansive” definition of “employer” under the FLSA includes “any person acting directly or indirectly in the interest of an employer in relation to an employee.” The Court held on summary judgment that a company owner was an employer because he had the authority to hire/fire employees and determine pay rates.

Under the FLSA, an employer is anyone who “exercises control over the nature and structure of the employment relationship, or economic control over the relationship.” The Ninth Circuit applies a multi-factor “economic realities” test that asks whether the alleged employer has the power to (1) hire and fire employees, (2) determine the rate and method of payment, (3) supervise and control employee work schedules or conditions of employment, and (4) maintain employment records. No factor is dispositive, and courts look at the “circumstances of the whole activity.”

As applied to the case, the owner was an employer because he had a “significant ownership” interest and exercised “operational control of significant aspects” of the company’s day-to-day functions. Although he had only a minority interest (20-30%), the Court found it significant that he was “the only active owner” and “at the very top of the company’s hierarchy” due to the apparent lack of a board or other officers. In addition, the Court focused on the owner’s power to hire/fire employees regardless of whether he actually exercised the power. Finally, even though the owner did not know the current pay rate, he had (1) personally determined the formula, (2) implemented it through payroll staff, and (3) approved subsequent adjustments.

The lesson: owners beware; with great responsibility comes great potential liability.

Read the full case here.

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