WHAT TO TELL YOUR CLIENT ABOUT THE NEW PROPOSED FLSA REGS AND OTHER HOT TOPICS IN EMPLOYMENT LAW

Kimberly R. StuartCrain Caton & James

September 2015

What does the FLSA govern?• Overtime compensation• Exemptions to Overtime• Misclassification of Contract Labor• Child Labor• Volunteer pay• Internship pay, etc.

Exempt v. Non-Exempt• Exempt employees do not get overtime and must meet

the salary basis test and fall within one of the exemptions

• Non-Exempt employees are entitled to overtime for hours worked in excess of a 40 hour work week

What is the Salary Basis?

Enacted 8/23/2004

• Is the employee paid at least $455 per week and not subject to reductions due to quantity or quality of work?

•  • Minimum weekly salary must be $455

($910 biweekly; $985.83 semi-monthly; $1971.66 monthly; $23,660 per year)

• Full Salary must be paid for any week in which employee works that cannot be reduced because of variations in quantity or quality of work performed (except first and last week)—Exceptions:

• Absence for full days for personal reasons• Absence for full days for sickness or disability if bona fide policy

for sick or disability leave, even if employee has not yet qualified for benefits

• To offset amounts received for jury fees, witness fees, or military pay

• Penalties for Violating safety rules of “major significance”• Unpaid disciplinary suspension of one or more full days imposed

in good faith for violations of written workplace conduct rules. (NOTE: this does not include performance or attendance issues)

• Unpaid leave (even less than full day) under FMLA• Does not apply to Outside Sales employees, doctors, lawyers,

teachers, covered computer employees paid at least $27.63/ hour• Highly compensated employees $100,00 per year including at

least $455 per week.

To Be Enacted

• To qualify as exempt employee must be paid minimum $970 / week, $3880 monthly, or $50,440 per year

• Highly compensated employees $122,148 annually including at least $455 per week

WHITE COLLAR EXEMPTIONSExecutiveAdministrativeProfessionalHighly CompensatedOutside Sales Employees

ExecutiveMust meet the following three-part test:• Have as his or her primary duty the management of the

enterprise or a recognized subdivision of the enterprise; and

• Customarily and regularly direct the work of two or more other full-time employees or their equivalent; and

• Have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change in status of other employees must be given particular weight (NOTE: must be authority over “change in status”)

Administrative• Employee must have the primary duty of performing office or

non-manual work directly related to the management or general business operations of the employer or the employer’s customers (admin v. production)

• Must include the exercise of discretion and independent judgment with respect to matters of significance

• Specific Examples of exempt Administrative Employees: work in functional areas such as tax, finance, accounting, budgeting, auditing, insurance, quality control, safety and health, personnel management, human resources, employee benefits, labor relations, public relations, government relations, computer network, internet and database administration, legal and regulatory compliance and similar activities

ProfessionalLearned Professionals:• the employee’s primary duty must be the performance of work requiring advanced knowledge, defined

as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment; and

• the advanced knowledge must be in a field of science or learning; and • the knowledge must be customarily acquired by a prolonged course of specialized intellectual

instruction; and

Creative Professionals:• The employee’s primary duty must include work requiring invention, imagination, originality or talent in

a recognized field of artistic or creative endeavor as opposed to a routine mental, manual, mechanical or physical work ; Examples: music, writing, acting and the graphic arts

Computer Professionals:• The employee’s primary duty must consist of the application of systems-analyst techniques and

procedures, including consulting with users, to determine hardware, software, or systems functional specifications; or the design, development, documentation, analysis, creation, testing or modification of computer systems or programs; or the design, documentation, testing, creation or modification of computer programs related to machine-operating systems, or a combination of these duties.

• Must meet salary basis, or if paid hourly, $27.63 per hour.

Highly Compensated Employees• Employee’s primary duty must include performing office or non-

manual work; and• Employee must “customarily and regularly” perform at least one of the

exempt duties or responsibilities of an exempt executive, administrative or professional employee; and

• Employee’s annual total compensation must equal $100,000 or more, which includes at least $455 per week paid on a salary basis

• Non-exempt regardless of pay: employees performing manual work, including non-management production line workers; non-management employees in maintenance, construction, and similar occupations such as carpenters, electricians, mechanics, plumbers, ironworkers, craftsmen, operating engineers, longshoremen, construction workers, laborers, and other employees who perform work involving repetitive operations with their hands, physical skill and energy. Not including duties performed by outside salespersons or computer employees.

Outside Sales• (Need not be paid $455 salary level or on salary basis)• Employee’s primary duty must be making sales or

obtaining orders for contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and

• Employee must be customarily and regularly engaged away from the employer’s place or places of businesses• Sales by phone, e-mail, or Internet are not considered outside

sales work if they are the principal vehicle for the sale• To be exempt, promotional activities must relate to the employee’s

own sales

Independent Contractor v. Employee

Employee

• The FLSA defines “employee” as “any individual employed by an employer,” 29 U.S.C. 203(e)(1), and “employer” as including “any person acting directly or indirectly in the interest of an employer in relation to an employee,” 29 U.S.C. 203(d). The FLSA’s definition of “‘employ’ includes to suffer or permit to work.” 29 U.S.C. 203(g).

• Ultimate test is economic dependence

Contractors

• Real focus is economic dependence• (A) the extent to which the work

performed is an integral part of the employer’s business;

• (B) the worker’s opportunity for profit or loss depending on his or her managerial skill;

• (C) the extent of the relative investments of the employer and the worker;

• (D) whether the work performed requires special skills and initiative;

• (E) the permanency of the relationship; and

• (F) the degree of control exercised or retained by the employer. 

EXAMPLES OF HOW THIS MAY COME INTO PLAY FOR YOUR CLIENTS• Hiring new employees • Reorganization• Fired employee• New WHD opinion or court decision

What does raised salary basis mean for your clients?• In current proposed regulations bonuses and

commissions are not included in the salary basis• Whether to raise salaries• Examine overtime policies and enforcement• Examine workloads• Changing exempt salaried employees to non-exempt

hourly employees (morale, record keeping)• Whether to lower salaries to offset overtime potential• Remote access, work from home how to track time?

Emails, texts, conference calls? Impact on ADA accommodations?

Ignorance is not a defense:Why Self Audit?• Under FLSA statute of limitations is 2 years back wages• Violation may result in back pay up to 2 years + equal amount

liquidated damages if not in good faith+ attorneys’ fees• A “Willful violation” results in extending the sol to 3 years of back pay

+ equal amount of limited damages if not in good faith + attorneys’ fees

• To establish willfulness for the purposes of extending the limitations period, the employee must prove by substantial evidence that the employer knew it was in violation of the Act or acted in reckless disregard as to whether it was in violation of the Act. The Code of Federal Regulation defines reckless disregard as the “failure to make adequate inquiry into whether conduct is in compliance with the Act.” One federal court upheld willfulness based upon depo testimony manager knew of the need to meet minimum wage and overtime; thus FLSA “was in the picture.”

The Safe HarborWhy to Self Audit?• Safe Harbor enables employers to avoid liquidated

damages if they acted in good faith “under the reasonable belief it was in compliance with the act”

• Subjectively “an honest intention to ascertain what FLSA requires and to act in accordance with it”

• Objectively “reasonable grounds for believing its conduct comported with the act”

• Ignorance does not get you there• What does? Legal opinion, consultation with DOL or

other authorities

The Conundrum: What do you do after you self audit?• The FLSA states that claim for wages must be approved

by DOL or a court• Circuits split• Fifth Circuit held in Martin v. Spring Break ‘83 Prods.

(2012) that a private settlement agreement which constituted resolution of a bona fide dispute over the number of hours worked or compensation due was sufficient to release parties rights to sue under FLSA

• General waivers not sufficient whether before any dispute or after an unrelated dispute

• Social Media –• Many states have enacted laws prohibiting requests for passwords

to social media• Having a good social media policy (discrimination, harassment,

threatening, vulgar, disclosure of trade secrets• Whether to , what to and how to consult social media in hiring• Facebook and firing, NLRB

• Concerning conditions of employment or wages; may even be disloyal insubordinate or defaming – but magnitude and detail of insubordinate acts may warrant action (Teen Center story)

• Why do you care about the NLRB?• Confidentiality and Nondisclosure policies and

agreements may violate it• Would employees reasonably construe policy to prohibit

union activity or communication regarding terms and conditions of employment or wages

NLRB AND CONFIDENTIALITY

Unlawful Lawful