Charles R. Bailey Bailey & Wyant, P.L.L.C. Charleston, West Virginia June 28, 2013

Transcription

1 Charles R. Bailey Bailey & Wyant, P.L.L.C. Charleston, West Virginia June 28, 2013

2 Violations of the Fair Labor Standards Act can include back wages and overtime, liquidated damages, attorney s fees, fines, and court costs. Employers may also be subject to government audits and tax penalties. Employees may also file a collective action lawsuit where other employee can opt into the lawsuit. Suits must be filed within two years or three years in willful violation cases.

3 FLSA CASES BY YEAR Cases Filed

4 Back Pay Difference between amount paid and should have been paid Includes minimum hourly wage and overtime. Liquidated Damages Recovered in addition to back pay unless company has a good faith belief that its practices complied with FLSA May be reduced if court finds (1) the employer had a subjective good faith belief it was not violating FLSA and (2) this belief was reasonable.

5 Attorney s fees Employees who prevail on their claims always entitled to attorney s fees and costs Fines and Imprisonment Willful violations may result in finds of up to $10, Repeated violations may result in 6 months of imprisonment.

6 Most common litigation issues: Misclassification of a worker as an independent contractor, rather than as an employee subject to FLSA; Misclassification as exempt or non-exempt; Failure to pay non-exempt workers for time actually worked.

7 This typically occurs when independent contractors really qualify as employees and when the employee is actually non-exempt. The tests to determine classification are vague and misuse can result in severe penalties.

8 Exempt v. Non-exempt Employees The DOL recently announced a strategy to target classification issues through Employers do not have to meet minimum wage requirements for exempt employees, thus the drive to classify an employee as exempt.

9 To qualify as an exempt employee, the employer must establish: (1) The Employee must satisfy the Salary Basis Test. 29 C.F.R (a). Receives a base salary of $455 per week on salary or fee basis Must be a predetermined amount, not subject to deductions for variations or quality work (2) Employees must fall within a statutory exemption category including executive, administrative, professional or outside sales, defined by DOL

10 Executive Employees: (1) primary duty must include managing the enterprise, or managing a customary department or subdivision of the enterprise. (2) customarily and regularly direct work of at least two or more other full-time employees or their equivalent; and (3) must have the authority to hire or fire employees, or recommendations of hire, fire, advancement, promotion, or change of status receive significant weight.

11 The employer bears the burden of proving that a particular employees falls within a certain exemption. Idaho Sheet Metal Works, Inc. v. Wirtz, 383 U.S. 190, 209 (1996). This requires regular reviews of employees duties and DOL definitions and maintenance of current and accurate job descriptions.

12 Important practice points Job titles alone are not determinative Employer bears the burden of establishing an exemption Properly apply exemptions Maintain and enforce written policies on overtime, work schedules, and hours worked Accurate record keeping Self-Audits

13 Recent cases: Rodriquez v. Pure Beauty Farms, Inc., 2013 U.S. App. LEXIS 514, employees classified as merchandisers or merchants by employer charged with ensuring employer product quality in stores Plaintiffs regularly worked more than 40 hours and paid straight time Court considered whether properly classified

14 The DOL classifications of agriculture and secondary agriculture was considered by the Court along with farmer The Court held Plaintiffs clearly fell under the farmer definition and Plaintiffs were not engaged in processing or manufacturing regarding the plants. Plaintiffs were properly paid straight time under the agriculture and farmer DOL definitions.

15 Sander v. Light Action, Inc., 2013 U. S. App. LEXIS 8506, Plaintiff sought reconsideration of her motion for summary judgment regarding her classification as Warehouse Manager. Plaintiff accepted the position with a base salary of $60,000.00, 45 hours of work per week, and a bonus for off-site work.

16 Plaintiff complained to management about her pay and overtime hours and eventually her employment was terminated. Plaintiff then sued asserting she was owed overtime pay pursuant to FLSA. The parties filed cross motions for appeal and the Court affirmed the employer s classification that Plaintiff was a salaried employee.

17 Plaintiff appealed asserting genuine issues of material fact whether she was exempt under FLSA due to the practice of prorating her hours. The appellate court held [e]mployees who receive a fixed, predetermined amount plus an amount that may be subject to deductions are generally not considered hourly employees. Plaintiff s pay was properly prorated by the employer.

18 Voluntary Classification Settlement Program (VCSP) Implemented by the IRS on September 21, Allows businesses to reclassify employees as employees for employment tax purposes. Employers participating in the program must pay 10% of employment tax liability owed to workers for the most recent tax year.

19 In return employers are not liable for interest or penalties on past-due employment tax liabilities attributable to those workers nor will the employer be subject to an IRS audit for those workers reclassified as employees. Employers also agree to be subject to a special 6 year statute of limitations instead of the usual 3 year statute of limitations for reclassifications.

20 Employers qualify if: Consistently treated past employees as nonemployees; Filed all required 1099 Forms for workers the previously 3 years (unless in business a shorter period); and Not currently under an IRS, DOL or state agency audit concerning classification.

21 The DOL uses the economic realities test to determine appropriate worker status as employee or independent contractor. Where the work done, in its essence, follows the usual path of an employee, putting an independent contractor label does not take the worker from the protection of FLSA. Rutherford Food Corp. v. McComb, 331 U.S. 772, 779 (1947).

22 DOL factors for determining independent contractor status include: Extent of services rendered as an integral part of business; Permanency of relationship; Worker s investment in facilities and equipment; Nature and degree of control by employer; Worker s opportunities for profit or loss; Amount of initiative, judgment, or foresight in open market competition required for worker success; Degree of independent business organization/operation

23 The Patient Protection and Affordable Care Act imposes additional fines and penalties for taxes and health insurance ramifications. On January 1, 2014, all employers employing more than 50 employees are required to provide health insurance coverage to all fulltime employees but not independent contractors or part-time employees.

24 Employers will be penalized for not offering health insurance if only one employee takes a government subsidy to buy coverage on his/her own. This amount is the lesser of $3, for subsidized coverage or $2, for each employee beyond the first 30 who are automatically excluded.

25 The IRS now views Independent Contractors under the right to control test, which considers 20 different factors, to a more simplified test which considers three characteristics to determine the relationships between workers and employers. Under the new requirements the IRS considers the employer s behavior and financial control over a worker as well as the relationship between the parties.

26 Employers should execute and abide by an Independent Contractor Agreement including. Require independent contractors to incorporate or have business cards. Invoices for work completed. Allow workers opportunity for profit or loss. Perform work off premises. Workers not hired to perform an integral function of the business.

27 If using a contracting company, do not control the rate and method of payment to workers. Do not maintain employment records for independent contractors. Do not have permanent relationships. Do not retain independent contractors after terminating their employment relationship.

28 Harris v. Bowlin Group, LLC, 2:12-cv (E.D. Ky. April 30, 2013), the Plaintiff asserted the company misclassified employees as independent contractors and failed to pay overtime compensation. Bowlin Group entered into an agreement to pay $1,075, in back wages and liquidated damages and permanent injunction baring future failures to pay overtime and minimum wages and keeping employee records.

29 Foster v. Nationwide Mut. Ins. Co., 710 F.3d 640 (6 th Cir. 2013), special investigators sued Nationwide to determine if they were improperly classified as administrative employees exempt from overtime pay. Plaintiffs did not dispute they were paid a base salary of at least $455.00, but contested that their primary duty was the performance of office or non-manual work directly related to management or general business operations.

30 The district court determined Plaintiffs were properly classified under both elements for exempt employees. For the third element, primary duties include the exercise of discretion and independent judgment with respect to matters of significance, the district court denied summary judgment. The parties agreed to a bench trial during which the district court ruled in favor of Nationwide.

31 The Plaintiffs were found to exercise independent judgment and their duties were not merely limited to providing facts determined during an investigation to other Nationwide employees.

32 Work is defined as mental or physical exertion controlled or required by the employer and pursed necessarily and primarily for the benefit for the employer and his business. Tennessee Coal, Iron & R. Co. v. Muscodo Local No. 123, 321 U.S. 590, 598 (1994). The exertion requirement was dropped in Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1942), for compensable hours being determined by the employer s control of the employee s time.

33 During the September 2013 Term of the Supreme Court, the Court will determine whether Donning and Doffing requirements of an employer is compensable under FLSA. In Clifton v. Sandifer, et al. v. United States Steel Corporation, No , U.S. Sup.), an employee brought a class action complaint in the U.S. District Court for the Northern District of Indiana against his employer on behalf of 800 former and current employees for time spent putting on and taking off work clothes.

34 The collective bargaining agreement between U.S. Steel and the union does not require compensation for this time. Sandifer argues the FLSA requires the compensation and overrides the agreement. The District Court ruled FLSA does not require that clothes changing time be compensated, but refused to dismiss the portion of the case seeking compensation for travel time.

35 U.S. Steel filed an interlocutory appeal. Sandifer cross-appealed. The Seventh Circuit U.S. Court of Appeals dismissed the cross-appeal finding Sandifer did not seek leave to appeal. The appellate panel then ruled that Sandifer s case had no merit and should be dismissed.

36 Sandifer filed a writ of certiorari with the U.S. Supreme Court arguing FLSA requires employees to be paid from the time they first engage in a principal activity. According to Sandifer the donning and doffing of safety gear by the employer is a principal activity when it is an integral and indispensible part of the activities for which the employee is employed.

37 Section 203(o) of the FLSA, does not require compensation for time spent changing clothes if that time is expressly excluded from compensable time under a collective bargaining agreement. The Supreme Court has limited arguments to the definition of changing clothes under Section 203(o).

38 These cases typically arise in hospital/health care workers for paid break periods, restaurant/service industry or tip sharing, manufacturing/food process for uniform change outs, and overtime/misclassification cases. FLSA does not mandate meal breaks and DOL does recognizes employees need not be paid for a bona fide meal break.

39 Tracy v. NVR, Inc., 04-cv-6541L, the Plaintiff brought a collective action suit for failure to pay overtime. The district court conditionally certified FLSA, concluding Plaintiff met his minimum burden to justify issuance of notice to class members. NVR moved to decertify, asserting three optin Plaintiffs testified they were correctly classified as exempt employees for overtime.

40 The court considered whether Plaintiff and other employees were properly classified as outside salesperson for FLSA purposes. Plaintiffs sold new homes to be constructed in new subdivisions, worked on a commission basis, and were not expected to report or track their hours worked. The court held the Plaintiffs failed to demonstrate they have sufficiently similar factual and employment settings for purposes of FLSA, that the defenses would be similar, and that the interest of fairness or judicial economy would be preserved by further pursuit as a collective action.

41 Deloso v. Multifresh, Inc., 2013 U.S. Dist. LEXIS (S.D.W.Va. 2013), Multifresh filed a motion to dismiss and Plaintiff filed a motion for conditional certification. Plaintiffs claimed Multifresh willfully failed to pay them for time worked through deducting time for lunches when lunches were not taken and that Plaintiffs frequently worked more than 40 hours a week and received straight pay.

42 Multifresh submitted an affidavit from Keith Cook, CEO of Multifresh who asserted Plaintiffs were not employed during the applicable time period. The court denied class certification holding [p]laintiffs have offered nothing beyond the allegations in their pleading in support of their assertion that similarly situated, aggrieved employees exists, did not present any factual evidence that Defendant maintained a statewide policy to deny appropriate compensation for overtime hours, or for requiring its employees to forego a lunch period.

43 Muriithi v. Shuttle Express, Inc., 712 F.3d 173 (4 th Cir. 2013), the court considered whether Plaintiff was wrongfully classified as an independent contractor and franchisee of Shuttle Express. The franchise agreement between the parties provided that all contractual disputes were to be resolved through arbitration. Plaintiff objected to the arbitration requirement and the one year statute of limitations.

44 The district court held the arbitration agreement was not enforceable and the Fourth Circuit reversed. The district court also held the one year statute of limitation violated FLSA and was unenforceable. The Fourth Circuit held the one year statute of limitation did not appear in the arbitration clause and only appeared in the general contract language that the district court erred in holding it violated FLSA provisions.

45 Genesis Healthcare Corp. v. Symczyk, 133 S.Ct (2013), addressed whether an offer of judgment to the named Plaintiff in a collective action case for alleged unpaid wages and reasonable attorney s fees and costs effectively mooted Plaintiff s claims even when the offer was not accepted by Plaintiff.

46 The district court held that since no other individuals joined Plaintiff s suit that the offer of judgment satisfied her individual claim. The Court of Appeals reversed and held the collective action was not moot. The Supreme Court held [i]n the absence of any claimants opting in, respondent s suit became moot when her individual claim became moot, because she lacked any personal interest in representing others in this action.

47 Since Plaintiff had not moved for conditional certification when the offer of judgment was made there were no other potential class members in the suit with continuing claims. The Court also refused to find Plaintiff s claims inherently transitory to allow the suit to go forward even though Plaintiff s personal claims were satisfied by the offer of judgment.

48 E-Verify which verifies an individual s authorization to work in the U.S. is currently only federally mandated for employers who have contracts (subcontracts) with the U.S. government. Some states also mandate use of the E-verify system. The Senate Immigration Reform Bill 2013, will make E-verify mandatory for all employers.

49 I-9 Audits conducted by Immigration and Customs Enforcement (ICE) audits , , , ,000 and issued nearly $13 million in fines,

50 Civil penalties range from $100 to $1,000 per violations. Knowingly hiring and continuing to employ unauthorized workers range from $375 to $3,200 per violation for some first time violations. Fines are determined by considering (1) size of business, (2) good faith effort to comply, (3) seriousness of the violation, (4) whether the violation involved unauthorized workers, and (5) history of prior violations.

51 United States v. Seven Elephants Distributing Corp., OCAHO Case No. 12A00031, ICE brought an action asserting Seven Elephants failed to prepare and/or resent an I-9 form for Dennise Villamor and found discrepancies in 33 other I-9 forms which had incomplete Section 2 attestations. ICE sought penalties of $1, for each violation based on ICE s assessment that there was no culpable conduct warranting a finding of bad faith, but noting the company could have implemented proper procedures.

52 Aggravation of fines were also recommended due to 7 unauthorized to work. The company did not dispute the charges for Ms. Villamor but suggested the other violations could be considered technical or procedural because it inspected and copied the employee s documents and retained the copies with the I-9, that it enrolled in E- verify, and suffered a burglary of over $600, from its warehouse and the fine was grossly disportionate to its resources.

53 The judge held that copying documents is not a satisfactory substitute for properly completing Section 2, and retaining copies is insufficient. The 7 undocumented workers was considered an aggravating factor, but only for those employees. The judge recommended a $600 fine for Ms. Villamor, $500 for the undocumented workers, and $400 for the other I-9s.

54 U.S. v. Four Seasons Earthworks, Inc., OCAHO Case No. 11A00083, ICE filed a 5 count complaint alleging Four Seasons violated 8 U.S.C. 1324(b) and 8 C.F.R. 274a.2(b). Four Seasons only documented List B documents without List A or List C documents. The judge held employees must present either one List A document or a List B and List C document together to verify employment status.

55 ICE previously used the Guide to Administrative Form I-9 Inspections and Civil Monetary Penalties, and took the number of I-9 forms with substantive violations (21), divided this number by the number of employees and former employees as of the date inspection (43). The percentage was less than 48.84%, and the base fine was set at $770 per violation. ICE then recommended a 10% aggravation.

56 ICE reconsidered this recommendation and altered its recommendation for 5% for the seriousness of the violations. The Judge considered Four Seasons lack of history of previous violations and lack of unauthorized workers, small business status, and recent downward trajectory of the business. The Judge adjusted the fines down to closer to mid-range for penalties.

57 U.S. v. Associated Painters, Inc., OCACHO Case No. 11A00033, ICE recommended a summary decision because Associated Painters employeed 3 undocumented workers. The judge solely addressed the issue of whether the employment was knowingly by the company.

58 Knowing includes not only actual knowledge but also knowledge which may fairly be inferred through notice of certain facts and circumtances which would lead a person, through exercise of reasonable care, to know about a certain condition. Constructive knowledge may include having information available indicating that the alien is not authorized to work, and/or the company acts with reckless and wanton disregard for the legal consequences of permitting another individaul to introduce and unauthorized alien into its workforce.

59 The judge held that constructive knowledge should only be used sparingly in order to preserve congressional intent and prevent employment of unauthorized aliens while avoiding discrimination. Associated Painters had previously ended an employment relationship with these employees due to document issues after a prior audit.

60 Associated Painters did not present any evidence that it took steps to ensure no undocumented employees were hired after the 2000 correction letter and ICE s failure to actually determine if the worker s were actually unauthorized to work in the U.S. The judge denied ICE s petition for summary decision.

61 It has always been illegal for employers to hire unauthorized workers in West Virginia. W. Va. Code 21-1B-1, et seq. makes sure employers now imposes stiffer penalties and even possible imprisonment for knowingly employing, hiring, recruiting or referring unauthorized workers. Fines include up to $1,000 for the first offense, $5,000 for the second offense, and $10,000 and/or one year in jail for third and subsequent offenses.

62 An employer convicted under these provisions is also barred from claiming payments greater than $ to an unauthorized worker as a deductible business expense on state income taxes. Three or more offenses may result in the Labor Commissioner suspending or revoking an employer s license.

63 Standiford v. Rodrigues-Hernandez, U.S. Dist. LEXIS (N.D.W.Va. 2012), the Plaintiff asserted violations of W. Va. Code 21-1B-1, et seq. for injuries sustained in a car accident. The district court held that failing to verify employment status was not a proximate cause of Plaintiff s injuries and denied Plaintiff s motion to alter or amend the court s order granting defendant s motion to dismiss on this ground.