Visit the global automotive industry news blog with Global automotive human capital and human resources news.
Need an office somewhere in the world? Office suites, meeting rooms, virtual offices, network access
GLOBAL: "Global Economic Outlook 2007" report
GLOBAL: "Global Economic Outlook 2007" report. 12-page report by Deloitte.
proceed to download
GLOBAL: "Global Economic Outlook 2007" report. 12-page report by Deloitte.
proceed to download
eJournals
Top Five Wage and Hour Developments U.S. Employers Need to Know This Quarter
1. Worker Misclassification Still a Challenge
A continuing challenge for employers in 2012 is the classification of workers as independent contractors versus employees. In the U.S., employers continue to face heightened enforcement from tax authorities, the Department of Labor (DOL), and state agencies. Companies also confront state and federal legislation imposing new notice and recordkeeping requirements and creating significant civil penalties for employee misclassification.
Agencies Cooperate to Combat Misclassification
On September 19, 2011, the DOL and Internal Revenue Service (IRS) entered into a Memorandum of Understanding enabling the DOL and the IRS to share information with each other regarding worker misclassification. Eleven states have signed a similar memorandum with the DOL's Wage and Hour Division, including Colorado, Connecticut, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Hampshire, Utah and Washington. This may lead to potentially multi-pronged scrutiny for employers and enforcement proceedings from the DOL, IRS and various state agencies.
IRS Announces New Voluntary Worker Classification Settlement Program
In the last quarter of 2011, the IRS launched a program that will enable many employers to resolve contractor classification tax liabilities by voluntarily reclassifying their workers as employees. Employers are eligible to participate in this program if: they consistently treated past workers in a particular position as contractors, filed all required Forms 1099 for such workers in the past three years, and are not currently under audit by the IRS, DOL or other state agency concerning the worker's classification. Under the program, eligible employers can settle for 10% of the federal employment tax liability under the reduced rates of Revenue Code section 3509, will not be subject to interest or penalties, and will not be audited on payroll taxes related to these workers for prior years.
Planning Tip:
This program provides an incentive for employers to reevaluate the defensibility of their current contractor classifications and possibly avoid tax liabilities. The IRS program, however, does not address other, non-tax employment and benefits liabilities for contractor misclassifications. Companies should evaluate their potential for exposure, and make an informed decision on whether reclassification of some workers and participation in the IRS program is something to consider in 2012.
New Penalties for Independent Contractor Misclassification
States continue to target worker misclassification. For example, effective January 1, 2012, California companies will be subject to much higher civil and liquidated damages penalties for willfully (i.e., knowingly and voluntarily) misclassifying employees as independent contractors. If an employer has misclassified an employee as a contractor, the employer will be subject to the following civil penalties:
· at least $5,000 and up to $15,000 for each violation; and
· for a pattern or practice of misclassifying contractors, penalties increase to a minimum of $10,000 and a maximum of $25,000 per violation.
An employer found to have knowingly misclassified California-based contractors will also be required to display a notice on its website that it violated the law. These new state penalties are in addition to the existing tax, benefit, overtime, and meal and rest break liabilities that can arise from misclassifying contractors in California.
Other states similarly have enacted new laws or strengthened existing laws with respect to employee misclassification. For example, effective February 1, 2011, Pennsylvania increased the civil and criminal penalties in the construction industry for misclassification of contractors. Wisconsin's misclassification bill also took effect in January 2011.
Planning Tip:
Under heightened scrutiny and with new higher penalties, as well as IRS whistleblower bounties, U.S. companies should ensure that independent contractors are properly classified.
2. Employers Consider Use of Arbitration Agreements to Minimize Class Action Risk
The U.S. Supreme Court's 2011 decision in AT&T v. Concepcion is proving to be a significant ruling in the wage and hour class action arena. In Concepcion, the plaintiff challenged a consumer contract provision that mandated arbitration and waived class action dispute resolution on the grounds that it violated California law. The Supreme Court held that California state law disfavoring class action waivers for arbitration was preempted by §2 of the Federal Arbitration Act.
While the case involved a consumer contract, the Supreme Court's analysis has given employers a basis for obtaining enforcement of employment agreements that prohibit employee wage and hour class actions and require the individual arbitration of employment claims. In the aftermath of Concepcion, some courts have been more inclined to enforce employment arbitration provisions and require employees to individually arbitrate in lieu of pursuing class action lawsuits:
In Dauod v. Ameriprise Financial Services (10/12/2011), a federal district court in California held a plaintiff employee's arbitration agreement and class action waiver were enforceable. The court dismissed the plaintiff's wage and hour class allegations with prejudice and ordered the plaintiff to arbitrate her individual claims.
On November 22, 2011, in Brown v. TrueBlue Inc., the U.S. District Court for the Middle District of Pennsylvania held two employees were required to arbitrate their minimum wage claims under federal and Pennsylvania law. The court rejected plaintiffs' argument that the arbitration provisions in their employment agreements were unenforceable under Pennsylvania's unconscionability doctrine, holding that under Concepcion, the Federal Arbitration Act preempts the Pennsylvania state rule.
In contrast, in Raniere v. Citigroup Inc. (11/22/2011), a federal district court in New York held two employees retained a statutory right to proceed collectively under the Fair Labor Standards Act despite their arbitration and class action waiver agreements. The court held that the U.S. Supreme Court's decision in Concepcion did not compel a different answer and granted the plaintiffs' motion for conditional collective certification. According to the district court, the collective action waiver was unenforceable because it would not allow plaintiffs to vindicate their statutory rights and would prevent the FLSA from serving its remedial and deterrent functions.
Planning Tip:
Concepcion provides significant opportunities for companies who prefer individual arbitration over class or collective action litigation. Companies should consider whether to include individual arbitration agreements with class action waivers as part of their employment policies and practices. At the same time, this is a fast-developing and potentially far-reaching area of law. Companies should carefully follow developments in this area as courts and federal agencies continue to address the enforceability of these agreements.
3. Governments Get Tough on "Wage Theft"
California Enacts Wage Theft Protection Act
Effective January 1, 2012, California's Wage Theft Protection Act (Assembly Bill 469; codified at California Labor Code Section 2810.5) requires California employers to provide each California non-exempt employee, at the time of hiring, with a written notice specifying the rate and basis of the employee's wages (e.g. hourly, overtime, and double time rates, commissions, credits against minimum wage, etc.). Any changes to the wages must be provided in writing within seven (7) calendar days, unless the changes are otherwise timely reflected in a wage statement or other writing. Notice is not required for exempt employees or employees covered by a collective bargaining agreement. On December 29, 2011, the California Department of Labor Standards Enforcement published a template for employers to use in order to meet their obligations under the Act. The template is available on the DLSE's website in English, Spanish, Chinese, Korean, Vietnamese and Tagalog.
Providing a one-year grace period, effective January 1, 2013, California law will also require all employers to enter into written contracts with commissioned employees that specify the method of calculating and paying commissions. The employee and the employer must retain a signed copy. This law applies to employees who receive any commission-based payment and perform their work in California. For commission agreements that expire but the employee continues to work, the Act states that the commission agreement terms are presumed to remain in full force until the contract is superseded or employment is terminated.
New York Wage Theft Prevention Act Requires Notice in Early 2012
Other states likewise have targeted wage theft this year. In April 2011, New York's Wage Theft Prevention Act took effect. The Act amends the notice of wage rate requirements employers must give to employees stating their rate(s) of pay, designated pay day, the employer's intent to claim allowances (like tip or meal allowances) as part of the minimum wage, and the basis of wage payment (whether paying by hour, shift, day, week, piece, etc.). The Act also expands the civil and criminal remedies available when employers fail to comply with these provisions. The first annual notice must be provided prior to February 1, 2012. The New York State Department of Labor has issued model notices in English and other languages as well as guidance for complying with the requirements of the new law.
San Francisco Raises Minimum Wage and Targets Wage Theft
Effective January, 1, 2012, San Francisco's minimum wage rate will increase to $10.24/hour. Also effective January 1st, San Francisco employers will face higher fines for violating the City's minimum wage requirements under the new Wage Theft Prevention Ordinance. In addition to increased penalties, the ordinance also amends existing law to allow the City's Office of Labor Standards Enforcement ("OLSE") to inspect books and records, interview employees and conduct an investigation at the San Francisco worksite during normal business hours without prior notice. The ordinance also allows the OLSE to issue immediate citations to employers for violations without any opportunity to cure. San Francisco's Minimum Wage Ordinance continues to provide that the OLSE may recover its costs and reasonable attorneys' fees for enforcing a penalty.
Planning Tip:
Employers should ensure compliance with state and local wage theft laws to avoid enhanced civil and criminal penalties.
4. DOL Continues Aggressive Industry Enforcement Initiatives
The DOL continues to target certain industries on a state by state basis. On December 1, 2011, the Labor Department's Wage and Hour Division announced that it secured more than $682,000 in back wages and penalties for 271 employees in its ongoing enforcement initiative targeting full-service buffet restaurants in South Florida. The enforcement effort included 34 investigations of establishments during fiscal year 2011 and found "consistent and widespread noncompliance" with the minimum wage, overtime, and record-keeping provisions of the FLSA. Common violations included paying cash wages "off the books," requiring employees to work exclusively for tips or paying a fixed salary for all hours worked, managers participating in the tip pool, and falsification of employees' time and payroll records.
The announcement for the restaurant industry enforcement came a day after DOL announced that WHD had secured more than $840,000 in back wages and penalties for 689 agricultural workers through its multiyear enforcement initiative in central Florida's agricultural industry.
On December 14, the DOL also announced that it cited thirty-five hotels and motels in Tennessee for violations of wage and hour standards and child labor violations during the past fiscal year. According to DOL, those establishments were assessed $14,552 in penalties, and wages totaling $173,045 were recovered for 283 employees. Common violations uncovered during its investigations included owners overcharging their employees for room and board, failing to pay their workers overtime rates, and not paying for all hours worked by temporary employees or workers provided by staffing agencies. Other common violations included paying housekeepers by the room, which often resulted in pay below the minimum wage rate, and misclassifying employees as independent contractors, which denied them the legal protections under the Fair Labor Standards Act.
Planning Tip:
The WHD continues to concentrate its investigations on what it considers to be high-risk industries that employ vulnerable workers, including the agricultural, janitorial, construction, and hotel industries. The Department also announced its intent to fully utilize all tools at its disposal in enforcement efforts, including search warrants, subpoenas, liquidated damages, civil money penalties, and advanced settlement agreements that include monitoring hot goods. Employers in targeted industries should ensure their practices and records comply with wage and hour laws and regulations in order to be prepared for surprise audits or inspections.
5. Developments Impact Trucking Industry
New DOT Regulations On Truckers' Hours Of Service
On December 22, 2011, the Federal Motor Carrier Safety Association, a division of the Department of Transportation, announced new scheduling rules for truck drivers to address safety concerns resulting from driver fatigue. FMCSA's new hours-of-service (HOS) final rule reduces by 12 hours the maximum number of hours a truck driver can work within a week. Under the old rule, truck drivers could work on average up to 82 hours within a seven-day period. The new HOS final rule limits a driver's work week to 70 hours, although it retains the current 11-hour daily driving limit.
In addition, truck drivers cannot drive after working eight hours without first taking a break of at least 30 minutes. Drivers can take the 30-minute break whenever they need rest during the eight-hour window.
The rule also requires truck drivers who maximize their weekly work hours to take at least two nights' rest, from 1:00 a.m. to 5:00 a.m. This rest requirement is part of the rule's "34-hour restart" provision that allows drivers to restart the clock on their work week by taking at least 34 consecutive hours off-duty. The final rule allows drivers to use the restart provision only once during a seven-day period.
Companies and drivers that commit egregious violations of the rule could face the maximum penalties for each offense. Trucking companies that allow drivers to exceed the 11-hour driving limit by 3 or more hours could be fined $11,000 per offense, and the drivers themselves could face civil penalties of up to $2,750 for each offense.
Action Item:
Commercial truck drivers and companies must comply with the HOS final rule by July 1, 2013.
Court Holds California's Meal and Rest Periods Rules Do Not Apply To Trucking Industry Employers
On October 19, 2011, in Dilts v. Penske Logistics (S.D. Cal., Oct. 19, 2011), a federal trial court granted summary judgment to a "motor carrier" employer, dismissing claims by intrastate delivery drivers and installers who alleged violations of California's meal and rest period laws. Employees delivering and installing appliances entirely within California brought a class action alleging numerous claims, including that they were not provided meal and rest breaks under California law. The employer's policy automatically deducted time for meal periods and did not require employees to clock in and out for meal and rest break periods, during which employees were required to remain with their trucks and continue to monitor their employer-provided phones.
Federal transportation laws provide that a State "may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier...or any motor private carrier, broker, or freight forwarder with respect to the transportation of property." The federal trial court reasoned that meal and rest period rules, even when applied to employees who deliver and install appliances entirely within California, interfere with interstate commerce by reducing the timely delivery of goods.
Planning Tip:
This ruling is welcome news for companies with delivery and installation employees within California. Employers should watch this case closely, as the plaintiffs have indicated an appeal to the Ninth Circuit is likely.
Other Federal News
First Circuit Holds Sales Managers for Banquet Facility Exempt
In Hines v. State Room, Inc., the First Circuit held that sales managers for a banquet facility in the Boston area were properly classified as exempt under the FLSA's administrative exemption. The court held that the sales managers exercised discretion and independent judgment in their duties insofar as they used creative freedom in working with clients to create custom products and events. The fact that sales managers had to submit proposals to management for approval did not take away from their judgment in creating the proposal.
Hines provides support to the argument that employees engaged in sales and marketing who perform the "primary duty of engaging potential clients in assisting them and selecting from various options" -- not within a prescribed sales technique or pitch, but rather using discretion within general guidance from the employer -- exercise sufficient independent judgment to qualify for the administrative exemption. This is particularly true where job duties require a significant degree of creativity and where employees serve as the "face" of the business to prospective clients.
Unknown and Unreported Work Held Non-Compensable
On December 14, 2011, in Keller v. Summit Seating Inc., 2011 U.S. App. LEXIS 24745 (7th Cir. 2011), the Seventh Circuit held that an employee's unknown and unreported work was non-compensable under the FLSA. In Keller, the employee filed an overtime claim asserting that she arrived to work between 15 and 45 minutes before her shift and worked during that period. Affirming summary judgment for the employer, the Seventh Circuit held that the employee's work was noncompensable because the employer had no actual or constructive knowledge of her pre-shift work. According to the court, the FLSA does not require an "employer to pay for work it did not know about, and had no reason to know about." In this regard, the court noted that Keller was a manager and was aware of, and at times enforced, the employer's policy of prohibiting unauthorized overtime. The court further determined that Kellar's early punch-ins would not constitute notice to the employer of pre-shift work because early punching was a common practice and did not necessarily mean she was performing pre-shift work.
Planning Tip:
While the Seventh Circuit's ruling is fact-intensive, it nonetheless provides support for the position that unauthorized, unreported work is not compensable in the absence of the employer's actual or constructive knowledge of the work. At the same time, the evidence in Keller demonstrated that the employer would not have known of the work – which can be difficult to prove in many cases.
Proposed Rule Extends FLSA Protections to Home Care Workers
In mid-December, President Obama announced a new rule to provide in-home care workers the same minimum wage and overtime protections afforded under the FLSA. Currently, in-home care workers classified as 'companions' are exempt from the FLSA's minimum wage and overtime pay requirements.
In the mid-70s, the companionship exemption was intended to cover neighbors or family members performing elder sitting. In the last several decades, with the aging of our population, the demand for in-care professional caregivers has exploded. On December 27, 2011, the DOL published a Notice of Proposed Rulemaking to amend the FLSA companionship and live-in worker regulations in order to: (1) more clearly define the tasks that may be performed by an exempt companion; and (2) limit the companionship exemption to companions employed only by the family or household using the services. Third party employers, such as in-home care staffing agencies, could not claim the exemption, even if the employee is jointly employed by the third party and the family or household. Employers can submit written comments on the proposed rule on or before February 27, 2012 at www.regulations.gov.
Other State News
California
California Supreme Court Rejects Application of Administrative/Production Worker Dichotomy, Holding Insurance Claims Adjusters Administratively Exempt
On December 29, 2011, the California Supreme Court issued its opinion in Harris v. Superior Court analyzing the administrative exemption and so-called "administrative / production worker dichotomy." The FLSA's administrative exemption is limited to certain employees whose work is related to the company's or its customer's management policies or general business operations. Because of this statutory limitation, courts created the "administrative / production worker dichotomy" rule and historically have held that employees who work on their employer's core goods or services (i.e., production workers) cannot qualify for the administrative exemption even though they may exercise discretion and independent judgment in their jobs. In Harris, the California Supreme Court rejected the application of this rule, joining a handful of other similar holdings in recent years.
In Harris, claims adjusters for an insurance company challenged their exempt status under the administrative exemption. While the trial and appellate court disagreed on whether claims adjusters could be administratively exempt, the California Supreme Court held that lower courts may not use the administrative / production worker dichotomy as a dispositive test for finding employees non-exempt. Instead, claims adjusters can properly be classified as exempt under the administrative exemption -- even though they work on the core services of their insurer employer -- if they meet the other requirements of the exemption (such as exercising discretion and independent judgment).
Planning Tip:
This decision is a mixed bag for California employers. Many employers were put in a difficult position when classifying employees who performed the direct services of the employer, but also routinely exercised discretion and independent judgment in their job duties (such as account and project managers). California employers can now consider whether the guidance set forth by Harris allows them to classify additional, direct service employees as exempt under the administrative exemption. On the other hand, because Harris directs courts to consider the particular facts to determine whether work qualifies as administrative, winning summary judgment on this issue has become more challenging.
Unlicensed Accountants can be Exempt under the Administrative Exemption
In Soderstedt v. CBIZ Southern Cal. (2011) 197 Cal. App. 4th 133, a California appellate court held that unlicensed accountants could qualify for California's administrative exemption. In CBIZ, current and former junior accountants employed in CBIZ's California offices, who did not have their CPA licenses, challenged their exempt classification under the administrative exemption. Plaintiffs argued they were excluded from the administrative exemption as a matter of law. The appellate court rejected this argument, pointing to the recent Ninth Circuit decision in Campbell v. PricewaterhouseCoopers, LLP, holding that unlicensed accountants may qualify for the administrative exemption. In fact, based on declarations submitted by CBIZ's unlicensed accountants, the court determined that at least some of the unlicensed accountants qualified for the administrative exemption based upon their discretion, independent judgment, and performance of work related directly to the employer's management policies or general business operations.
Planning Tip:
This is good news for employers with accounting staff who work at a high level and exercise judgment and independent discretion, (even if staff members do not hold CPA licenses).
Appellate Court Holds Insurance Agent Properly Treated as Independent Contractor
In Arnold v. Mutual of Omaha Insurance Co., a California appellate court held that an insurance agent was properly classified as an independent contractor. In Arnold, the plaintiff entered into a nonexclusive contract with Mutual of Omaha to be an insurance agent authorized to sell Mutual's products and be paid strictly on commission for such sales. In analyzing the plaintiff's claim that an employment relationship existed, the appellate court relied on common law factors outlined in the California Supreme Court's decision in S.G. Borello & Sons, Inc. v. Department of Industrial Relations. In determining that Mutual had no significant right of control over the insurance agent during the time she was under contract, the appellate court pointed to the insurance agent's own testimony that she:
· determined who to solicit for Mutual's products;
· determined the time, place and manner in which she would make such solicitations;
· was free to, and in fact did, solicit for other insurance companies products while under contract with Mutual;
· did not have her work supervised or monitored by Mutual's management, and did not receive performance evaluations;
· was not required to attend any training for Mutual, except only training required for compliance with state law;
· was free to choose whether to use Mutual's offices to conduct business, but was required to pay a fee for use of the workspace or telephone line if she chose to do so; and,
· was paid solely on the results of her performance rather than the amount of time she spent working.
Planning Tip:
The Arnold case comes as welcome news to companies with independent contractor sales agents in California, particularly in the light of California's stiff new penalties for independent contractor misclassifications and increased DLSE enforcement efforts (see Q3 Wage and Hour Quarterly Newsletter for more information) This case outlines several "best practices" companies can use to ensure that they accurately classify independent contractors.
California Computer Professional Salary Increase
Effective January 1, 2012, California's minimum salary for exempt computer professionals increases, up to $38.89 per hour or $81,026.25 annually. National employers should pay close attention as this salary requirement is significantly higher than the federal salary requirement for this exemption.
Action:
Employers relying on the California computer professional exemption should review computer professionals' salary to ensure that they meet California's minimum salary requirement.
Employees May Receive Two Additional Hours of Pay Per Day for Missed Meal and Rest Breaks
In United Parcel Service, Inc. v. Superior Court, a California appellate court held that California's Labor Code §226.7 authorizes up to two, one-hour premium payments per workday - one for failure to provide a meal period and another for failure to provide a rest period.
Planning Tip:
The court's decision underscores the importance of ensuring non-exempt employees are provided with the opportunity to take meal and rest breaks as required under applicable IWC Wage Orders. Employers should ensure that managers of non-exempt employees are aware of these requirements, as well as the significant potential costs of noncompliance.
Texas
Update on Home Sales Employees Exempt Status Ruling
In our Q3 2011 Newsletter, we reported that a district judge in the Southern District of Texas held that home salespeople were properly classified as exempt under the FLSA's outside sales exemption in Edwards v. KB Home. On November 14, 2011, the court granted reconsideration and permitted further discovery. In doing so, the court agreed with plaintiffs that it could not be irrefutably decided that the employees fell into the category of "outside salespeople" under the FLSA based on the evidence submitted to date.
Warning:
Classifying sales employees as exempt or non-exempt is a fast developing area of the law, with a significant increase in lawsuits challenging the exempt classification of sales employees across all industries. Employers who classify their sales force as exempt should re-examine those classifications in light of recent court rulings.
Source: Baker & McKenzie - GAI
For more information or to contact Baker & McKenzie, please click here.
backGLOBALtalk April, 2012
Top Five Wage and Hour Developments U.S. Employers Need to Know This Quarter
1. Worker Misclassification Still a Challenge
A continuing challenge for employers in 2012 is the classification of workers as independent contractors versus employees. In the U.S., employers continue to face heightened enforcement from tax authorities, the Department of Labor (DOL), and state agencies. Companies also confront state and federal legislation imposing new notice and recordkeeping requirements and creating significant civil penalties for employee misclassification.
Agencies Cooperate to Combat Misclassification
On September 19, 2011, the DOL and Internal Revenue Service (IRS) entered into a Memorandum of Understanding enabling the DOL and the IRS to share information with each other regarding worker misclassification. Eleven states have signed a similar memorandum with the DOL's Wage and Hour Division, including Colorado, Connecticut, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Hampshire, Utah and Washington. This may lead to potentially multi-pronged scrutiny for employers and enforcement proceedings from the DOL, IRS and various state agencies.
IRS Announces New Voluntary Worker Classification Settlement Program
In the last quarter of 2011, the IRS launched a program that will enable many employers to resolve contractor classification tax liabilities by voluntarily reclassifying their workers as employees. Employers are eligible to participate in this program if: they consistently treated past workers in a particular position as contractors, filed all required Forms 1099 for such workers in the past three years, and are not currently under audit by the IRS, DOL or other state agency concerning the worker's classification. Under the program, eligible employers can settle for 10% of the federal employment tax liability under the reduced rates of Revenue Code section 3509, will not be subject to interest or penalties, and will not be audited on payroll taxes related to these workers for prior years.
Planning Tip:
This program provides an incentive for employers to reevaluate the defensibility of their current contractor classifications and possibly avoid tax liabilities. The IRS program, however, does not address other, non-tax employment and benefits liabilities for contractor misclassifications. Companies should evaluate their potential for exposure, and make an informed decision on whether reclassification of some workers and participation in the IRS program is something to consider in 2012.
New Penalties for Independent Contractor Misclassification
States continue to target worker misclassification. For example, effective January 1, 2012, California companies will be subject to much higher civil and liquidated damages penalties for willfully (i.e., knowingly and voluntarily) misclassifying employees as independent contractors. If an employer has misclassified an employee as a contractor, the employer will be subject to the following civil penalties:
· at least $5,000 and up to $15,000 for each violation; and
· for a pattern or practice of misclassifying contractors, penalties increase to a minimum of $10,000 and a maximum of $25,000 per violation.
An employer found to have knowingly misclassified California-based contractors will also be required to display a notice on its website that it violated the law. These new state penalties are in addition to the existing tax, benefit, overtime, and meal and rest break liabilities that can arise from misclassifying contractors in California.
Other states similarly have enacted new laws or strengthened existing laws with respect to employee misclassification. For example, effective February 1, 2011, Pennsylvania increased the civil and criminal penalties in the construction industry for misclassification of contractors. Wisconsin's misclassification bill also took effect in January 2011.
Planning Tip:
Under heightened scrutiny and with new higher penalties, as well as IRS whistleblower bounties, U.S. companies should ensure that independent contractors are properly classified.
2. Employers Consider Use of Arbitration Agreements to Minimize Class Action Risk
The U.S. Supreme Court's 2011 decision in AT&T v. Concepcion is proving to be a significant ruling in the wage and hour class action arena. In Concepcion, the plaintiff challenged a consumer contract provision that mandated arbitration and waived class action dispute resolution on the grounds that it violated California law. The Supreme Court held that California state law disfavoring class action waivers for arbitration was preempted by §2 of the Federal Arbitration Act.
While the case involved a consumer contract, the Supreme Court's analysis has given employers a basis for obtaining enforcement of employment agreements that prohibit employee wage and hour class actions and require the individual arbitration of employment claims. In the aftermath of Concepcion, some courts have been more inclined to enforce employment arbitration provisions and require employees to individually arbitrate in lieu of pursuing class action lawsuits:
In Dauod v. Ameriprise Financial Services (10/12/2011), a federal district court in California held a plaintiff employee's arbitration agreement and class action waiver were enforceable. The court dismissed the plaintiff's wage and hour class allegations with prejudice and ordered the plaintiff to arbitrate her individual claims.
On November 22, 2011, in Brown v. TrueBlue Inc., the U.S. District Court for the Middle District of Pennsylvania held two employees were required to arbitrate their minimum wage claims under federal and Pennsylvania law. The court rejected plaintiffs' argument that the arbitration provisions in their employment agreements were unenforceable under Pennsylvania's unconscionability doctrine, holding that under Concepcion, the Federal Arbitration Act preempts the Pennsylvania state rule.
In contrast, in Raniere v. Citigroup Inc. (11/22/2011), a federal district court in New York held two employees retained a statutory right to proceed collectively under the Fair Labor Standards Act despite their arbitration and class action waiver agreements. The court held that the U.S. Supreme Court's decision in Concepcion did not compel a different answer and granted the plaintiffs' motion for conditional collective certification. According to the district court, the collective action waiver was unenforceable because it would not allow plaintiffs to vindicate their statutory rights and would prevent the FLSA from serving its remedial and deterrent functions.
Planning Tip:
Concepcion provides significant opportunities for companies who prefer individual arbitration over class or collective action litigation. Companies should consider whether to include individual arbitration agreements with class action waivers as part of their employment policies and practices. At the same time, this is a fast-developing and potentially far-reaching area of law. Companies should carefully follow developments in this area as courts and federal agencies continue to address the enforceability of these agreements.
3. Governments Get Tough on "Wage Theft"
California Enacts Wage Theft Protection Act
Effective January 1, 2012, California's Wage Theft Protection Act (Assembly Bill 469; codified at California Labor Code Section 2810.5) requires California employers to provide each California non-exempt employee, at the time of hiring, with a written notice specifying the rate and basis of the employee's wages (e.g. hourly, overtime, and double time rates, commissions, credits against minimum wage, etc.). Any changes to the wages must be provided in writing within seven (7) calendar days, unless the changes are otherwise timely reflected in a wage statement or other writing. Notice is not required for exempt employees or employees covered by a collective bargaining agreement. On December 29, 2011, the California Department of Labor Standards Enforcement published a template for employers to use in order to meet their obligations under the Act. The template is available on the DLSE's website in English, Spanish, Chinese, Korean, Vietnamese and Tagalog.
Providing a one-year grace period, effective January 1, 2013, California law will also require all employers to enter into written contracts with commissioned employees that specify the method of calculating and paying commissions. The employee and the employer must retain a signed copy. This law applies to employees who receive any commission-based payment and perform their work in California. For commission agreements that expire but the employee continues to work, the Act states that the commission agreement terms are presumed to remain in full force until the contract is superseded or employment is terminated.
New York Wage Theft Prevention Act Requires Notice in Early 2012
Other states likewise have targeted wage theft this year. In April 2011, New York's Wage Theft Prevention Act took effect. The Act amends the notice of wage rate requirements employers must give to employees stating their rate(s) of pay, designated pay day, the employer's intent to claim allowances (like tip or meal allowances) as part of the minimum wage, and the basis of wage payment (whether paying by hour, shift, day, week, piece, etc.). The Act also expands the civil and criminal remedies available when employers fail to comply with these provisions. The first annual notice must be provided prior to February 1, 2012. The New York State Department of Labor has issued model notices in English and other languages as well as guidance for complying with the requirements of the new law.
San Francisco Raises Minimum Wage and Targets Wage Theft
Effective January, 1, 2012, San Francisco's minimum wage rate will increase to $10.24/hour. Also effective January 1st, San Francisco employers will face higher fines for violating the City's minimum wage requirements under the new Wage Theft Prevention Ordinance. In addition to increased penalties, the ordinance also amends existing law to allow the City's Office of Labor Standards Enforcement ("OLSE") to inspect books and records, interview employees and conduct an investigation at the San Francisco worksite during normal business hours without prior notice. The ordinance also allows the OLSE to issue immediate citations to employers for violations without any opportunity to cure. San Francisco's Minimum Wage Ordinance continues to provide that the OLSE may recover its costs and reasonable attorneys' fees for enforcing a penalty.
Planning Tip:
Employers should ensure compliance with state and local wage theft laws to avoid enhanced civil and criminal penalties.
4. DOL Continues Aggressive Industry Enforcement Initiatives
The DOL continues to target certain industries on a state by state basis. On December 1, 2011, the Labor Department's Wage and Hour Division announced that it secured more than $682,000 in back wages and penalties for 271 employees in its ongoing enforcement initiative targeting full-service buffet restaurants in South Florida. The enforcement effort included 34 investigations of establishments during fiscal year 2011 and found "consistent and widespread noncompliance" with the minimum wage, overtime, and record-keeping provisions of the FLSA. Common violations included paying cash wages "off the books," requiring employees to work exclusively for tips or paying a fixed salary for all hours worked, managers participating in the tip pool, and falsification of employees' time and payroll records.
The announcement for the restaurant industry enforcement came a day after DOL announced that WHD had secured more than $840,000 in back wages and penalties for 689 agricultural workers through its multiyear enforcement initiative in central Florida's agricultural industry.
On December 14, the DOL also announced that it cited thirty-five hotels and motels in Tennessee for violations of wage and hour standards and child labor violations during the past fiscal year. According to DOL, those establishments were assessed $14,552 in penalties, and wages totaling $173,045 were recovered for 283 employees. Common violations uncovered during its investigations included owners overcharging their employees for room and board, failing to pay their workers overtime rates, and not paying for all hours worked by temporary employees or workers provided by staffing agencies. Other common violations included paying housekeepers by the room, which often resulted in pay below the minimum wage rate, and misclassifying employees as independent contractors, which denied them the legal protections under the Fair Labor Standards Act.
Planning Tip:
The WHD continues to concentrate its investigations on what it considers to be high-risk industries that employ vulnerable workers, including the agricultural, janitorial, construction, and hotel industries. The Department also announced its intent to fully utilize all tools at its disposal in enforcement efforts, including search warrants, subpoenas, liquidated damages, civil money penalties, and advanced settlement agreements that include monitoring hot goods. Employers in targeted industries should ensure their practices and records comply with wage and hour laws and regulations in order to be prepared for surprise audits or inspections.
5. Developments Impact Trucking Industry
New DOT Regulations On Truckers' Hours Of Service
On December 22, 2011, the Federal Motor Carrier Safety Association, a division of the Department of Transportation, announced new scheduling rules for truck drivers to address safety concerns resulting from driver fatigue. FMCSA's new hours-of-service (HOS) final rule reduces by 12 hours the maximum number of hours a truck driver can work within a week. Under the old rule, truck drivers could work on average up to 82 hours within a seven-day period. The new HOS final rule limits a driver's work week to 70 hours, although it retains the current 11-hour daily driving limit.
In addition, truck drivers cannot drive after working eight hours without first taking a break of at least 30 minutes. Drivers can take the 30-minute break whenever they need rest during the eight-hour window.
The rule also requires truck drivers who maximize their weekly work hours to take at least two nights' rest, from 1:00 a.m. to 5:00 a.m. This rest requirement is part of the rule's "34-hour restart" provision that allows drivers to restart the clock on their work week by taking at least 34 consecutive hours off-duty. The final rule allows drivers to use the restart provision only once during a seven-day period.
Companies and drivers that commit egregious violations of the rule could face the maximum penalties for each offense. Trucking companies that allow drivers to exceed the 11-hour driving limit by 3 or more hours could be fined $11,000 per offense, and the drivers themselves could face civil penalties of up to $2,750 for each offense.
Action Item:
Commercial truck drivers and companies must comply with the HOS final rule by July 1, 2013.
Court Holds California's Meal and Rest Periods Rules Do Not Apply To Trucking Industry Employers
On October 19, 2011, in Dilts v. Penske Logistics (S.D. Cal., Oct. 19, 2011), a federal trial court granted summary judgment to a "motor carrier" employer, dismissing claims by intrastate delivery drivers and installers who alleged violations of California's meal and rest period laws. Employees delivering and installing appliances entirely within California brought a class action alleging numerous claims, including that they were not provided meal and rest breaks under California law. The employer's policy automatically deducted time for meal periods and did not require employees to clock in and out for meal and rest break periods, during which employees were required to remain with their trucks and continue to monitor their employer-provided phones.
Federal transportation laws provide that a State "may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier...or any motor private carrier, broker, or freight forwarder with respect to the transportation of property." The federal trial court reasoned that meal and rest period rules, even when applied to employees who deliver and install appliances entirely within California, interfere with interstate commerce by reducing the timely delivery of goods.
Planning Tip:
This ruling is welcome news for companies with delivery and installation employees within California. Employers should watch this case closely, as the plaintiffs have indicated an appeal to the Ninth Circuit is likely.
Other Federal News
First Circuit Holds Sales Managers for Banquet Facility Exempt
In Hines v. State Room, Inc., the First Circuit held that sales managers for a banquet facility in the Boston area were properly classified as exempt under the FLSA's administrative exemption. The court held that the sales managers exercised discretion and independent judgment in their duties insofar as they used creative freedom in working with clients to create custom products and events. The fact that sales managers had to submit proposals to management for approval did not take away from their judgment in creating the proposal.
Hines provides support to the argument that employees engaged in sales and marketing who perform the "primary duty of engaging potential clients in assisting them and selecting from various options" -- not within a prescribed sales technique or pitch, but rather using discretion within general guidance from the employer -- exercise sufficient independent judgment to qualify for the administrative exemption. This is particularly true where job duties require a significant degree of creativity and where employees serve as the "face" of the business to prospective clients.
Unknown and Unreported Work Held Non-Compensable
On December 14, 2011, in Keller v. Summit Seating Inc., 2011 U.S. App. LEXIS 24745 (7th Cir. 2011), the Seventh Circuit held that an employee's unknown and unreported work was non-compensable under the FLSA. In Keller, the employee filed an overtime claim asserting that she arrived to work between 15 and 45 minutes before her shift and worked during that period. Affirming summary judgment for the employer, the Seventh Circuit held that the employee's work was noncompensable because the employer had no actual or constructive knowledge of her pre-shift work. According to the court, the FLSA does not require an "employer to pay for work it did not know about, and had no reason to know about." In this regard, the court noted that Keller was a manager and was aware of, and at times enforced, the employer's policy of prohibiting unauthorized overtime. The court further determined that Kellar's early punch-ins would not constitute notice to the employer of pre-shift work because early punching was a common practice and did not necessarily mean she was performing pre-shift work.
Planning Tip:
While the Seventh Circuit's ruling is fact-intensive, it nonetheless provides support for the position that unauthorized, unreported work is not compensable in the absence of the employer's actual or constructive knowledge of the work. At the same time, the evidence in Keller demonstrated that the employer would not have known of the work – which can be difficult to prove in many cases.
Proposed Rule Extends FLSA Protections to Home Care Workers
In mid-December, President Obama announced a new rule to provide in-home care workers the same minimum wage and overtime protections afforded under the FLSA. Currently, in-home care workers classified as 'companions' are exempt from the FLSA's minimum wage and overtime pay requirements.
In the mid-70s, the companionship exemption was intended to cover neighbors or family members performing elder sitting. In the last several decades, with the aging of our population, the demand for in-care professional caregivers has exploded. On December 27, 2011, the DOL published a Notice of Proposed Rulemaking to amend the FLSA companionship and live-in worker regulations in order to: (1) more clearly define the tasks that may be performed by an exempt companion; and (2) limit the companionship exemption to companions employed only by the family or household using the services. Third party employers, such as in-home care staffing agencies, could not claim the exemption, even if the employee is jointly employed by the third party and the family or household. Employers can submit written comments on the proposed rule on or before February 27, 2012 at www.regulations.gov.
Other State News
California
California Supreme Court Rejects Application of Administrative/Production Worker Dichotomy, Holding Insurance Claims Adjusters Administratively Exempt
On December 29, 2011, the California Supreme Court issued its opinion in Harris v. Superior Court analyzing the administrative exemption and so-called "administrative / production worker dichotomy." The FLSA's administrative exemption is limited to certain employees whose work is related to the company's or its customer's management policies or general business operations. Because of this statutory limitation, courts created the "administrative / production worker dichotomy" rule and historically have held that employees who work on their employer's core goods or services (i.e., production workers) cannot qualify for the administrative exemption even though they may exercise discretion and independent judgment in their jobs. In Harris, the California Supreme Court rejected the application of this rule, joining a handful of other similar holdings in recent years.
In Harris, claims adjusters for an insurance company challenged their exempt status under the administrative exemption. While the trial and appellate court disagreed on whether claims adjusters could be administratively exempt, the California Supreme Court held that lower courts may not use the administrative / production worker dichotomy as a dispositive test for finding employees non-exempt. Instead, claims adjusters can properly be classified as exempt under the administrative exemption -- even though they work on the core services of their insurer employer -- if they meet the other requirements of the exemption (such as exercising discretion and independent judgment).
Planning Tip:
This decision is a mixed bag for California employers. Many employers were put in a difficult position when classifying employees who performed the direct services of the employer, but also routinely exercised discretion and independent judgment in their job duties (such as account and project managers). California employers can now consider whether the guidance set forth by Harris allows them to classify additional, direct service employees as exempt under the administrative exemption. On the other hand, because Harris directs courts to consider the particular facts to determine whether work qualifies as administrative, winning summary judgment on this issue has become more challenging.
Unlicensed Accountants can be Exempt under the Administrative Exemption
In Soderstedt v. CBIZ Southern Cal. (2011) 197 Cal. App. 4th 133, a California appellate court held that unlicensed accountants could qualify for California's administrative exemption. In CBIZ, current and former junior accountants employed in CBIZ's California offices, who did not have their CPA licenses, challenged their exempt classification under the administrative exemption. Plaintiffs argued they were excluded from the administrative exemption as a matter of law. The appellate court rejected this argument, pointing to the recent Ninth Circuit decision in Campbell v. PricewaterhouseCoopers, LLP, holding that unlicensed accountants may qualify for the administrative exemption. In fact, based on declarations submitted by CBIZ's unlicensed accountants, the court determined that at least some of the unlicensed accountants qualified for the administrative exemption based upon their discretion, independent judgment, and performance of work related directly to the employer's management policies or general business operations.
Planning Tip:
This is good news for employers with accounting staff who work at a high level and exercise judgment and independent discretion, (even if staff members do not hold CPA licenses).
Appellate Court Holds Insurance Agent Properly Treated as Independent Contractor
In Arnold v. Mutual of Omaha Insurance Co., a California appellate court held that an insurance agent was properly classified as an independent contractor. In Arnold, the plaintiff entered into a nonexclusive contract with Mutual of Omaha to be an insurance agent authorized to sell Mutual's products and be paid strictly on commission for such sales. In analyzing the plaintiff's claim that an employment relationship existed, the appellate court relied on common law factors outlined in the California Supreme Court's decision in S.G. Borello & Sons, Inc. v. Department of Industrial Relations. In determining that Mutual had no significant right of control over the insurance agent during the time she was under contract, the appellate court pointed to the insurance agent's own testimony that she:
· determined who to solicit for Mutual's products;
· determined the time, place and manner in which she would make such solicitations;
· was free to, and in fact did, solicit for other insurance companies products while under contract with Mutual;
· did not have her work supervised or monitored by Mutual's management, and did not receive performance evaluations;
· was not required to attend any training for Mutual, except only training required for compliance with state law;
· was free to choose whether to use Mutual's offices to conduct business, but was required to pay a fee for use of the workspace or telephone line if she chose to do so; and,
· was paid solely on the results of her performance rather than the amount of time she spent working.
Planning Tip:
The Arnold case comes as welcome news to companies with independent contractor sales agents in California, particularly in the light of California's stiff new penalties for independent contractor misclassifications and increased DLSE enforcement efforts (see Q3 Wage and Hour Quarterly Newsletter for more information) This case outlines several "best practices" companies can use to ensure that they accurately classify independent contractors.
California Computer Professional Salary Increase
Effective January 1, 2012, California's minimum salary for exempt computer professionals increases, up to $38.89 per hour or $81,026.25 annually. National employers should pay close attention as this salary requirement is significantly higher than the federal salary requirement for this exemption.
Action:
Employers relying on the California computer professional exemption should review computer professionals' salary to ensure that they meet California's minimum salary requirement.
Employees May Receive Two Additional Hours of Pay Per Day for Missed Meal and Rest Breaks
In United Parcel Service, Inc. v. Superior Court, a California appellate court held that California's Labor Code §226.7 authorizes up to two, one-hour premium payments per workday - one for failure to provide a meal period and another for failure to provide a rest period.
Planning Tip:
The court's decision underscores the importance of ensuring non-exempt employees are provided with the opportunity to take meal and rest breaks as required under applicable IWC Wage Orders. Employers should ensure that managers of non-exempt employees are aware of these requirements, as well as the significant potential costs of noncompliance.
Texas
Update on Home Sales Employees Exempt Status Ruling
In our Q3 2011 Newsletter, we reported that a district judge in the Southern District of Texas held that home salespeople were properly classified as exempt under the FLSA's outside sales exemption in Edwards v. KB Home. On November 14, 2011, the court granted reconsideration and permitted further discovery. In doing so, the court agreed with plaintiffs that it could not be irrefutably decided that the employees fell into the category of "outside salespeople" under the FLSA based on the evidence submitted to date.
Warning:
Classifying sales employees as exempt or non-exempt is a fast developing area of the law, with a significant increase in lawsuits challenging the exempt classification of sales employees across all industries. Employers who classify their sales force as exempt should re-examine those classifications in light of recent court rulings.
Source: Baker & McKenzie - GAI
For more information or to contact Baker & McKenzie, please click here.
Loading
Other articles from the same issue (April, 2012).
China Effect has Wages Rising Across Much of the Rest of Asia
read on
Europe's Auto Industry Is Crashing, But Layoffs Are Out Of The Question
read on
Top Five Wage and Hour Developments U.S. Employers Need to Know This Quarter
read on
As US-Mexico Trade Booms, Border Area Draws Jobs Away from China
read on
India Inc needs to improve on executive pay governance
read on
Talent Management at Multinational Firms in China
read on
Business Beyond Borders - Global Skills for Today’s Boards to Secure Tomorrow’s Success
read on
US Visa Bulletin Update: Big Gains for China and India
read on
Korea's Reward Trends in Transition
read on
Building a High-Skilled Economy: The New Vietnam
read on
Russia: Recent Changes to the Procedure for Resolving Collective Employment Disputes
read on
Managing Public Affairs in Brazil
read on
German labor costs rising faster than EU average
read on
As Labor Unrest Increases, Government and ACFTU Continue Collective Bargaining Push
read on
Rising Chinese wages a headache for US firms
read on
International Labor Organization lashes out at German wage policies
read on
New Trends on Collective Terminations in Brazil
read on
Brazil: Overtime Law Could Have Monumental Impact… or Merely Minor Effect
read on
Manpower Employment Outlook Survey India (Q1/2012)
read on
China: Ministry Issues Labor Dispute Mediation Regulations
read on
UK Bribery Act
read on
The 2012 AEB Step by Step guide to living in Russia
read on
More Americans Than Ever Are Filing Job Discrimination Claims
read on
Reducing the Impact of Language Barriers
read on
USA: Workers in demand; skills in short supply
read on
Mexico: Increase to the Minimum Wages for 2012
read on
Mexico: Rest periods during non-continuous working shifts
read on
India Update: Scaling a National Workforce
read on
Southeast Asia Is Tops for Expats, but Don't Bring Kids
read on
Japan to Start Grading Skilled Foreign Workers in Spring
read on
China: Tightening reporting and collection of social security contributions
read on
Unemployment: EU vs. Germany
read on
The latest fashion in industrial relations in Italy: the bespoke employment code
read on
Spain Passes Major Employment and Labor Law Amendments
read on
Leading across borders: Inclusive thinking in an interconnected world
read on
Moving to Brazil? Warn Your Wallet
read on
Obama Signs Executive Order To Ease Inbound International Travel
read on
USA: Indiana's New Right to Work Law Presents Bargaining Options for Employers and Unions
read on
China: Labor shortage to affect Pearl River Delta hardest
read on
China: Social Insurance – Impact on Employers Depends Upon Location
read on
Expats Flock to India Seeking Jobs, Excitement
read on
subscribe to eJournals
View our blogs:
The Asian Automotive Industry Market
The Brazil Automotive Industry Market
The Chinese Automotive Market
The European Automotive Market
The Global Automotive Market (HR edition)
The Indian Automotive Market
The Mexican and Latin Automotive Market
The U.S. Automotive Market
To visit GlobalAutoExperts Directory, click here.