June 2007
Volume 3, Issue 2

By Amanda L. Walls

The realm of legal issues that can impact your workforce is diverse and evolving. You are likely to frequently make decisions that have employment law implications, whether it is in developing policies and procedures, administering payroll, evaluating fringe benefit offerings, or managing quality control and safety. This issue of Workfor$e touches a wide variety of those legal areas that you should keep in mind while managing your daily business.

First, Sally Still (Boca Raton) presents a comprehensive and informative article on how to avoid wage and hour violations under the Fair Labor Standards Act. Janice Casanova (Columbus) provides an update on the status of proposed legislation in Ohio that would mandate all employers to provide paid sick leave for their workers. Tod Morrow (Canton) summarizes an important new decision from the Occupation Safety and Health Review Commission that will particularly benefit employers in the construction industry.

Finally, the News and Notes section contains updates on changes to the Federal minimum wage as well as information about the Equal Employment Opportunities Commission’s new enforcement focus for certain types of employment discrimination.

Hopefully, this issue will help you to manage your daily organization by providing a strong basis and broad perspective informing all of your important business decisions.

Amanda Walls is an Associate in the Employment & Workers' Compensation Practice Group.  She can be reached at awalls@bdblaw.com or 330.491.5315.

By Sally Still

In the last few years, there has been a substantial increase in the number of Fair Labor Standards Act (FLSA) actions filed in federal courts. Plaintiffs’ lawyers are doing an excellent job of exploiting employers’ deficiencies. Their task is made all the easier by mistakes employers sometimes make in their attempts to follow the FLSA’s mandates.

Compliance is especially important because the FLSA, unlike most other laws, in effect puts the burden of proof on the defendant employers. An employee need only allege he or she worked overtime — and unless and until the employer proves otherwise, the employee will probably prevail on the claim. This article addresses common errors and tips on correcting them without alerting plaintiffs’ lawyers.

Insufficient or Inaccurate Time Records

FLSA regulations state that employers are obligated to maintain a record of the hours worked each workday and the total hours worked each workweek for each of their nonexempt employees (29 C.F.R. §516.2(a)(7)). The regulations allow an employer that places employees on a fixed schedule to maintain records showing the schedule of daily and weekly hours the employee normally works, and, in weeks in which the employee adheres to the schedule, indicate by check mark or other statement that such hours were in fact actually worked. In weeks during which an employee works more or less than his or her scheduled hours, the employer must show the exact number of hours actually worked (29 C.F.R. §516.2(c)). The regulations do not mandate that any particular recordkeeping methods be used, and virtually any storage medium is acceptable (29 C.F.R. § 516.1).

In the absence of these records, employers may be surprised to find that “the sky’s the limit” when their (usually former) employees file a wage and hour action. (Actually, 24 hours a day is the limit; if the employer operates long hours or the employee has keys to the building, the employer is particularly vulnerable to such excessive claims.)

The best defense to these claims is to maintain accurate time records. While the recordkeeping medium does not matter in the eyes of the law, the time clock seems to be the most reliable and respected method of tracking hours. (One notable exception is found in the case Savaglio v. Wal-Mart Stores, Inc., No. C-835687 (Cal. Super. Ct. Dec. 22, 2005), in which Wal-Mart employees alleged that after they clocked out each day, they went back to work off the clock.) Plaintiffs’ lawyers tend to retreat from exaggerated overtime claims when presented with employees’ time cards.

The second-best method of recordkeeping, as far as defending overtime claims goes, is one in which the employee records the hours worked each week, signs the time sheet (verifying its accuracy) and turns the time sheet in to his or her supervisor for review and approval. Approval, in turn, requires the supervisor to inspect the time sheet, review and compare it to the established schedule (and/or to the supervisor’s independent record of hours worked) and ensure that signatures of both the employee and the supervisor acknowledging the accuracy of the records are present.

As an example of this principle, the author recently defended an action in which an employee indicated only arrival and end time on her time sheets, and never indicated her lunch break, even though she routinely took at least one hour for lunch each day. Nevertheless, her supervisor signed off on the time sheets. After the employee was fired, she filed a lawsuit claiming that she never took a lunch break, so she was owed five hours of overtime each and every week she worked her 40-hour workweek. The supervisor’s failure to counsel the employee and correct the records cost the employer about $120 per week over two years, in addition to liquidated damages, attorney’s fees and costs of defense.

FLSA recordkeeping requirements are slightly less stringent with regard to exempt employees; the regulations require employers to keep the same records they keep on their nonexempt employees, but not the exact number of hours worked (29 C.F.R. §516.3). This apparent “gift,” or relief from the burdens of recordkeeping, can be a major vulnerability that a plaintiff’s lawyer can exploit if the exemption is challenged or defeated (see the section on “Misclassified Employees,” below). Consequently, employers should keep accurate time records on their exempt employees, even though the law does not explicitly require it.

Insufficient or Inaccurate Payroll Records

FLSA regulations (29 C.F.R. §516.2(a)(5)-(12)) require employers’ records to include, among other things:

·         time of day and day of week on which the employee’s workweek begins,

·         regular hourly rate of pay for any week in which overtime is due,

·         explanation of the basis of pay (i.e., per hour, per day, commission on sales),

·         amounts excluded from the regular rate,

·         total daily or weekly straight-time earnings,

·         total premium pay for overtime hours,

·         total wages paid,

·         date of payment, and

·         period covered by payment.

Employers using professional payroll services usually have this information printed on “payroll registers” and on the employee’s pay stub.

But when employers prepare their own payroll, they frequently fail to provide all of the information required by the regulations. Employers tend to take short cuts — for example, an employer may lump together straight time and overtime earnings, rather than separating the earnings from each other. That short cut may result in a claim that the earnings reflect only straight time and that overtime was not paid.

However, pay errors will not necessarily be eliminated when a payroll service is used. Payroll services input data that the employer provides, and typically do not correct the employer’s mistakes. Thus, for example, when an employer indicates all time worked as “straight-time” payable at the employee’s regular hourly rate, even where the workweek exceeds 40 hours, the payroll service will not correct the employer’s mistake and remind the employer that it must pay overtime on the hours in excess of 40. Moreover, because the service provides detailed records, the errors are obvious when the plaintiff’s lawyer reviews them. However, in the absence of such errors, a detailed payroll register and corresponding pay stubs (the employees tend to retain their pay stubs and show them to their lawyers) are effective evidence of compliance.

Misclassified Employees

Besides recordkeeping errors, another common mistake that can leave employers vulnerable to wage and hour claims is misclassifying employees as exempt from overtime requirements. Because the employer bears the burden of proof on this issue, it is always subject to challenge, so the employer must consider the risks associated with the classification.

Similarly, employers are particularly vulnerable when they have misclassified a worker as an “independent contractor” (see the section on “Under-the-Table Agreements,” below). Often, the employer has classified an individual as an independent contractor on the advice of an accountant. This can be a particularly bad idea, as accountants often fail to consider the employment issues attendant to the classification, such as minimum wage and overtime liability, workers’ compensation and jurisdictional thresholds. In any event, once the employee challenges the classification, the question of hours worked becomes an issue; if the employer loses on the exemption, the apparent “gift” or relief that 29 C.F.R. §516.3 provides from the detailed recordkeeping requirements of 29 C.F.R. §516.2 backfires. Accordingly, the employer should keep accurate time records on its exempt employees and those independent contractors who perform services on-site.

Under-the-Table Agreements

Smaller employers are sometimes inclined to make “Under-the-Table” agreements with employees. They may include, for example, an agreement to pay overtime in cash, an agreement to reclassify an employee as an independent contractor, or “allowing” an employee to work overtime at his or her straight-time rate (as in cases when an employee needs the extra money but doesn’t want a part-time job). Such agreements are always a bad idea. Even if it seems like a good idea at the time, employers should never agree to ignore the FLSA’s requirements. Ultimately, when the employment relationship sours, the employee has the option of suing; it will not matter that the employee prompted and tolerated the violation when it comes to assessing the employer’s liability.

Tips on Correcting Problems

Once an unlawful or erroneous pay practice has been discovered, employers may decide to correct the problem. Often, they may want to make changes in a way that will not alert employees to the error. (Note: This article does not address the employer’s opportunity to make restitution to its employees or engage the U.S. Department of Labor (DOL) in an audit, or the consequences of restitution without DOL or court supervision. For example, see Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350 (11th Cir. 1982).) In such cases, the employer needs to consider the timing and the effect of the changes.

Implement changes at opportune times. Employers may decide to roll out changes at times when other apparently unrelated events are expected. For example, the start of the New Year gives employers the opportunity to introduce changes on a “go-forward” basis. Similarly, changes to payroll practices or the implementation of supervisor-approved and employee-verified time sheets may be announced in connection with a new handbook, or the New Year, or the introduction of a new corporate officer or human resources director. Employers may introduce changes to timekeeping in conjunction with their selection of a new payroll provider. Likewise, many employers used the release of the new “white collar” regulations in 2004 as an occasion to evaluate, correct and update their practices. However, employers should not anticipate another comprehensive update to the FLSA to support a reevaluation of their practices.

Implement changes slowly. Employers may decide to implement changes incrementally rather than wait for a global or comprehensive rollout described above. For example:

·         If record-keeping has been lax, employers may decide to introduce an electronic time clock in place of their existing system.

·         Employers may introduce a new payroll service, and then bootstrap revised timekeeping requirements as part of the new service.

·         Employers may use an employee’s annual review to evaluate the employee’s exempt status. During the employee’s annual review, the employee may provide information that suggests it is time to reclassify the employee because his or her job duties have changed enough to affect the existing classification.

Implement changes that benefit employees. Many employers used the adoption of the “white collar” regulations to assess their pay practices. In doing so, many employers found that they had improperly classified employees as exempt. The employers then began implementing changes. Ironically, employees often took exception to the reclassification, believing the reclassification to nonexempt somehow discredited them or minimized their importance to the organization.

Thus, getting the employees to support changes in pay practices (as discussed below) is vital to avoiding lawsuits. Any changes should be presented in such a way that employees understand that the changes are being made to protect their rights and to ensure that they are being properly compensated. To that end, employees should be made to understand how the changes benefit them.

As an easy example, employers can explain that new time clocks help them ensure that employees get compensated for all the time they work and reduce the potential for error. Compare: “We’re installing time clocks because we found you haven’t been reporting your lunch breaks” to “We’re installing time clocks to help us streamline payroll and ensure that you are paid accurately.” The benign explanation doesn’t necessarily suggest the existence of error as much as an effort to improve efficiency.

Similarly, employers should explain that a switch from exempt to nonexempt does not mean that the position or employee is less significant, but rather that the employee will now receive overtime. An employee who understands the benefits of a change is less likely to complain about it. Nevertheless, whenever employers correct an error or deficiency, the tension remains: how to do so in an otherwise litigious environment without inviting a lawsuit over the former practice. Good employee relations go a long way.

Implement changes with employee buy-in. In any event, it is easier to implement changes with employees’ support and participation. For example, employers may ask for suggestions from the employees for ways to improve productivity or accountability. Certainly, tracking time is one way to do that. At annual reviews, employers should have employees update their job descriptions. This may be the impetus to reclassify an employee. Moreover, a job description written by an incumbent employee often goes a long way in defending an employer’s decision to classify a position as exempt, since employees rarely trivialize or minimize the extent of their duties while they are still employed, as they tend to do when they file a lawsuit challenging their exempt status. Also, employers should explain, to the extent that a change is company-wide, that employees are not being singled out.

In the end, employees should fully understand the consequences of any change from exempt to nonexempt, or vice versa. The more they participate in the process, the less likely they are to complain to an outsider.

This article was originally published in Thompson Publishing Group’s Employer’s Guide to the Fair Labor Standards Act.
_______________________________

Sally Still is a Partner of the Employment & Workers' Compensation Practice Group.  She can be reached at sstill@bdblaw.com or 561.241.0414.

By Janice E. Casanova

On April 6, 2007, the Service Employees International Union (SEIU) filed a petition with the Ohio Attorney General to start the process of advancing a new statute entitled the “Healthy Families Act” before the Ohio General Assembly.  The Healthy Families Act, if enacted, would require employers to provide seven days of paid sick leave annually for employees working 30 hours or more a week, or a pro-rated amount of paid sick leave annually for employees working less than 30 hours per week or less than 1,560 hours per year.  On April 26, 2007, the Ohio Ballot Board endorsed the petition.  The Assembly now has four months in which to vote on the proposed Act to place it on the November 2008 general election ballot.

 
The proposed Act mirrors pending federal legislation under the same title and is meant to supplement the Family and Medical Leave Act.  It would apply to all Ohio employers who employ 25 or more employees.  In addition to providing a guarantee of seven paid sick days a year to full-time employees and a pro-rated amount to part time employees, the proposed Act would also allow employees to carry over up to seven paid sick days each year.

For any foreseeable leave, the proposed Act would require the employee to provide at least seven days’ notice to his employer.  If the leave is not foreseeable, the notice must be given as soon as practicable.  Under the proposed Act, the employer may require a medical certification only when sick leave exceeds 3 consecutive work days; however, the employee would have 30 days to provide the certification.  Further, all health information regarding the leave would be treated as confidential.

Employers have reason to be cautious about this “one size fits all” proposed Act.  In addition to the obvious monetary costs of such leave, the proposed Act severely limits employers' flexibility in making even minor adjustments to their leave benefits.  The proposed Act will also most likely ignore or conflict with varying notice, eligibility, and entitlement provisions of existing state and federal family leave laws, creating more confusion and risk of liability for employers trying to comply with existing laws.  Further, with the carry-over option, employees will be able to take longer sick leaves without having the financial incentive to return to work as early as medically possible.  Finally, employers' ability to evaluate the medical certification will be hampered because of the confidentiality provision.

Passage of mandatory paid leave is part of a national movement to enact similar issues at the local level.  Ohio employers of 25 or more employees should be aware of the consequences the Healthy Families Act could have on them.

_______________________________

Janice Casanova is an Associate in the Employment & Workers' Compensation Practice Group.  She can be reached at jcasanova@bdblaw.com or 614.227.4298.

By Tod T. Morrow

The Occupational Safety and Health Review Commission (OSHRC) recently issued a decision that prevents the Occupational Safety and Health Administration (OSHA) from citing general contractors for the safety violations of subcontractors at construction sites.  In a major victory for general contractors, two of the three OSHRC Commissioners held that OSHA’s Multiemployer Worksite Policy is invalid as applied to general contractors that have neither created nor exposed employees to a safety hazard.

In Secretary of Labor v. Summit Contractors, Inc.,  OSHRC  Docket No. 03-1622 (April 27, 2007),  the general contractor, Summit Contractors, Inc., was cited for scaffolding violations committed by one of its subcontractors.  Although no Summit employees were exposed to a fall hazard, the company was cited under OSHA’s Multiemployer Worksite Policy because it was deemed to be the “controlling employer” on the worksite. 

Under OSHA’s Multiemployer Worksite Policy, employers can be cited in four situations:

1. If they expose their employees to a hazard (“exposing employer”);

2. If they create a hazard (“creating employer”);

3. If they have the ability or duty to correct a hazard (“correcting employer”); or

4. If they control the work site (“controlling employer”)

With respect to general contractors, the rationale behind the policy is that by virtue of their contractual authority and supervisory responsibility on the jobsite, general contractors have the ability to require and ensure subcontractor compliance with OSHA safety standards.

Summit Contractors, Inc., appealed the citation, arguing that the Multiemployer Policy was inconsistent with a specific safety regulation (29 C.F.R. § 1910.12(a)), which provides that “[e]ach employer shall protect the employment and places of employment of each of his employees engaged in construction work by complying with the appropriate standards prescribed in this paragraph.”  (Emphasis added.)  The OSHRC agreed with Summit Contractors and invalidated OSHA’s application of the Multiemployer Worksite Policy to general contractors.  In so doing, the Commission was persuaded by OSHA’s inconsistent application of the policy as well as the inherent unfairness of holding general contractors responsible for violations committed by other contractors.

The Summit Contractors case is one of major significance for OSHA and the construction industry.  The decision essentially reverses more than 30 years of case law that upheld the Multiemployer Worksite Policy.  Consequently, the Secretary of Labor is expected to appeal the decision to the U.S. Court of Appeals.

_______________________________

Tod Morrow is a Shareholder in the Employment & Workers' Compensation Practice Group.  He can be contacted at tmorrow@bdblaw.com or 330.491.5229.

If you are interested in obtaining information on upcoming seminars or would be interested in having speakers from Buckingham, Doolittle & Burroughs, LLP make a presentation to your organization, please contact: Lorna Henderson, Client Relations Administrator lhenderson@bdblaw.com or 800.686.2825 ext. 86473.