Tag Archives: exempt

"Multi-Tasking" Managers May Not Be Overtime Exempt

Lawsuits based upon the misclassification of employees as overtime-exempt have been extremely common in California for the past 10 years. Given the incentives for filing such suits, it’s not surprising that the trend continues. A new case involving an assistant manager working for a major grocery chain provides importance guidance on proper classification and should serve as a reminder for employers to audit any position potentially misclassified.

The rules on employee classification can be tricky and a number of tests must be applied. One of the most important tests focuses on the employee’s job duties. In order to be properly classified as exempt, an employee must be “primarily engaged” in exempt duties. This means that an employer facing allegations of misclassification must prove the employee was performing exempt duties more than 50 percent of the time. This can be difficult when an employee also performs non-exempt duties.

This was exactly the issue with the grocery store assistant manager, and the jury was charged with determining whether or not she was misclassified as exempt. The jury was informed that duties such as forecasting sales, scheduling the work of employees, interviewing and hiring employees and preparing reports were exempt. Duties such as stocking shelves, gathering shopping carts and cashiering were non-exempt.

The jury was further instructed that the grocery store was required to prove that the plaintiff spent more than 50 percent of her time engaged in exempt tasks. This quantitative test requires, first and foremost, examining the actual tasks performed by the plaintiff. The jury was told that merely because an employee has the duty of managing is not sufficient to establish exempt status. They were instructed to examine the time spent on all of the plaintiff’s activities and classify the time as either exempt or non-exempt. If the plaintiff was simultaneously doing exempt and non-exempt work, the jury was to consider the primary purpose for which the activity was undertaken in counting the time as exempt or non-exempt.

The grocery store argued that the instruction on how to count the time of simultaneous exempt and non-exempt activities was wrong. It proposed a different standard for determining whether a manager is performing exempt or nonexempt work. The standard was based upon the notion that a manager does not stop managing just because she performs some non-exempt tasks. So long as the manager is still actively functioning in her managerial capacity, and addressing her attention to managerial tasks such as observing how the store is running and considering how to make the store perform more efficiently and profitably, how to best model and train the store’s employees in proper service activities, how to resolve any employee or operational problems that have arisen or are arising, and instructing employees in that regard, all the time should be considered exempt.

The plaintiff countered that the grocery store’s proposed standard is inconsistent with California law. She relied upon an opinion from the Labor Commissioner which concluded that it would be impossible for an employee to be engaged with managerial work while at the same time performing other, non-exempt duties. In other words, there can be no activity which is concurrently exempt and non-exempt. It must be one or the other. The plaintiff argued that where she merely answers a question while stocking shelves, she is not performing managerial work. Rather, she is primarily engaged in non-exempt production work. In order to count as exempt work, the manager must clearly disengage from the non-exempt activity and engage in the exempt activity.

Although the court stated the grocery store’s argument had some intuitive appeal, it ruled that California law did not support the “concurrent activity” approach. The court noted that the applicable regulations recognize that managers sometimes engage in tasks that do not involve the actual management of a department or supervision of employees. In those circumstances, the regulations do not say that those tasks should be considered exempt so long as the manager continues to supervise while performing them. Instead, the regulations look to the manager’s reason or purpose for undertaking the task. If the task is performed because it is helpful in supervising the employees or contributes to the smooth functioning of the manager’s department, the work is exempt; if not, it is non-exempt.

It is extremely common for managers to “roll up their sleeves” and pitch in with non-exempt production work. This is not a phenomenon isolated to small businesses. Employers must be aware that even if a manager never stops monitoring and managing, once the manager engages in non-exempt duties, there is a risk that the entire time performing those duties will be counted as non-exempt time when evaluating the “primarily engaged” test for exempt status.

The court’s opinion can be found here.

Boston Furs Sued For $1M For Violations of Fair Labor Standards Act

Citing “knowing, deliberate and intentional” violations of federal wage and hour law, the Labor Department is suing Boston Hides and Furs Ltd. and company officials seeking at least $500,000 in back wages and an equal amount in liquidated damages for allegedly underpaying employees of the Chelsea wholesale animal hide business. See Solis v. Boston Hides & Furs Ltd., Anthony Andreottola, Angelo Andreottola and Antoinetta Andreottola Parisi, CV-1:12-CV-11997-MLW. The suit illustrates the significant liability that companies or their owners or management risk by failing to properly pay workers covered by the Fair Labor Standards Act and meet other Fair Labor Standards Act requirements.

Fair Labor Standards Act Wage & Hour Laws Big Business Responsibility
The Fair Labor Standards Act generally requires that an employer pay each covered employee at least the federal minimum wage of $7.25 per hour as well as time and one-half their regular rates for every hour they work beyond 40 per week. When the state minimum wage is higher than the federally mandated wage, and employees work more than 40 hours in a week calculated in accordance with applicable state laws, employees paid at the minimum permissible level are entitled to overtime compensation based on the higher state minimum wage. Time credited may be determined differently under state law versus the Fair Labor Standards Act. Employers must ensure proper crediting, recordkeeping and payment in time to meet both applicable requirements.

The Fair Labor Standards Act also requires employers to maintain accurate records of covered employees’ wages, hours and other conditions of employment and prohibits employers from retaliating against employees who exercise their rights under the law. Special rules also may apply to the employment of children or other special populations.

The rules generally establish a legal presumption that a worker performing services is working as a covered employee of the recipient. Unfortunately, many businesses that receive services often unintentionally incur liability because they ill-advisedly misclassify workers as performing services as independent contractors, salaried employees or otherwise exempt by failing to recognize the implications of this presumption. The presumption that a worker is a covered employee generally means that an employer that treats a worker as exempt bears the burden of proving that a worker is not a covered employee and of keeping accurate records to show that it has properly tracked the hours of and paid each covered employee.

The Fair Labor Standards Act provides that employers who violate the law are, as a general rule, liable to employees for back wages and an equal amount in liquidated damages. State wage and hour laws also typically provide for back pay and liquidated damage awards. Attorneys’ fees and other costs often also are recoverable. In certain instances where the violations are knowing, deliberate and intentional, violators often may risk criminal as well as civil liability.

Labor Department Sues Boston Hides and Furs Ltd For Knowing, Deliberate & Willful Fair Labor Standards Act Violations
The Labor Department lawsuit seeks to recover more than $1 million from Boston Hides and Furs Ltd and various company officials for allegedly engaging in knowing and deliberate violations of the Fair Labor Standards Act minimum wage, overtime and retaliation rules.

The Labor Department filed the lawsuit in federal court in the U.S. District Court for the District of Massachusetts after a Labor Department Wage & Hour Division investigation found the employer committed willful and repeated violations of the minimum wage, overtime and record-keeping provisions of the Fair Labor Standards Act including offering for shipment or sale “hot goods” produced in violation of the law during a period spanning at least three years. The suit also asserts that the company unlawfully retaliated against several workers by firing them after they cooperated with the federal investigation.

In its complaint, the Labor Department claims the investigation found that 14 Boston Hides & Furs employees worked approximately 10 hours per day, six days per week processing hides and furs for shipping to tanneries. These workers were paid a daily cash wage of $50 to $70, which amounted to an hourly pay rate far below the federal minimum wage of $7.25 per hour. The employees also were not paid time and one-half the required state minimum wage of $8 applicable for those hours worked above 40 in a week. Additionally, the defendants failed to keep adequate records of the workers’ employment, work hours and pay rates, and a representative of the defendants falsely told investigators that the company’s payroll records included all employees.

The lawsuit also charges that the defendants ordered employees to hide in a nearby house when Labor Department Wage and Hour Division investigators first arrived at Boston Hides & Furs so they could not be interviewed. Two days after investigators subsequently interviewed the workers, the defendants fired the workers. During their employment, Labor Department claims the workers were threatened and subjected to verbally abusive treatment on an ongoing basis, particularly when they asked about their pay rates.

In addition to back wages and liquidated damages, the Labor Department lawsuit seeks to permanently prohibit the defendants from future Fair Labor Standards Act violations — including a prohibition against shipping any goods handled by workers who were paid in violation of the law — and compensatory and punitive damages for the workers on account of their unlawful firing. The Wage and Hour Division also has assessed $100,000 in civil money penalties against Boston Hides & Furs Ltd. for willful violations of the Fair Labor Standards Act.

Overtime & Other Wage & Hour Enforcement Risks Rising
Employers increasingly risk triggering significant liability by failing to properly characterize, track and pay workers for compensable time in violation of the Fair Labor Standards Act or other laws. Unfortunately, many employers often are overly optimistic or otherwise fail to properly understand and apply Fair Labor Standards Act rules for characterizing on-call or other time, classifying workers as exempt versus non-exempt or making other key determinations.

Employers wearing rose tinted glasses when making wage and hour worker classification or compensable time determinations tend to overlook the significance of the burden of proof they can expect to bear should their classification be challenged. These mistakes can be very costly. Employers that fail to properly pay employees under Federal and state wage and hour regulations face substantial risk. In addition to liability for back pay awards, violation of wage and hour mandates carries substantial civil — and in the case of willful violations, even criminal — liability exposure. Civil awards commonly include back pay, punitive damages and attorneys’ fees.

The potential that noncompliant employers will incur these liabilities has risen significantly in recent years.

Under the Obama Administration, Labor Department officials have made it a priority to enforce overtime, recordkeeping, worker classification and other wage and hour law requirements. While all employers face heightened prosecution risks, federal officials specifically are targeting government contractors, health care, technology and certain other industry employers for special scrutiny. The Labor Department is also using smart phone applications, social media and a host of other new tools to educate and recruit workers in its effort to find and prosecute violators. See, e.g. New Employee Smart Phone App New Tool In Labor Department’s Aggressive Wage & Hour Law Enforcement Campaign Against Restaurant & Other Employers.

Meanwhile, private enforcement of these requirements has also soared following the highly-publicized implementation of updated Fair Labor Standards Act regulations regarding the classification of workers during the last Bush Administration. See Texas Landscaper’s $106,000 In Minimum Wage & Overtime Settlement Reminds Employers To Prepare For FLSA Enforcement, Minimum Wage, Overtime Risks Highlighted By Labor Department Strike Force Targeting Residential Care & Group Homes, Review & Strengthen Defensibility of Existing Worker Classification Practices In Light of Rising Congressional & Regulatory Scrutiny, 250 New Investigators, Renewed DOL Enforcement Emphasis Signal Rising Wage & Hour Risks For Employers, and Quest Diagnostics, Inc. To Pay $688,000 In Overtime Backpay.

Employers Should Strengthen Practices For Defensibility
To minimize exposure under the Fair Labor Standards Act, employers should review and document the defensibility of their existing practices for classifying and compensating workers under existing Federal and state wage and hour laws and take appropriate steps to minimize their potential liability under applicable wages and hour laws. Steps advisable as part of this process include, but are not necessarily limited to:

  • Audit of each position currently classified as exempt to assess its continued sustainability and to develop documentation justifying that characterization;
  • Audit characterization of workers obtained from staffing, employee leasing, independent contractor and other arrangements and implement contractual and other oversight arrangements to minimize risks that these relationships could create if workers are recharacterized as employed by the employer receiving these services;
  • Review the characterization of on-call and other time demands placed on employees to confirm that all compensable time is properly identified, tracked, documented, compensated and reported;
  • Review of existing practices for tracking compensable hours and paying non-exempt employees for compliance with applicable regulations and to identify opportunities to minimize costs and liabilities arising out of the regulatory mandates;
  • If the audit raises questions about the appropriateness of the classification of an employee as exempt, self-initiation of appropriate corrective action after consultation with qualified legal counsel;
  • Review of existing documentation and recordkeeping practices for hourly employees;
  • Exploration of available options and alternatives for calculating required wage payments to non-exempt employees; and
  • Reengineering of work rules and other practices to minimize costs and liabilities as appropriate in light of the regulations.

Because of the potentially significant liability exposure, employers generally will want to consult with qualified legal counsel prior to the commencement of their assessment and to conduct the assessment within the scope of attorney-client privilege to minimize risks that might arise out of communications made in the course of conducting this sensitive investigation.