Employment Law Watch : Employment & Labor Lawyer & Attorney : Reed Smith Law Firm

May 28^th marks the anniversary of the effective date for the Lilly Ledbetter Fair Pay Act, the first bill signed into law by President Obama.  The Act sparked renewed focus on improving wage-equality for the American workforce and continues to be an important  goal for administrative agencies such as the Equal Employment Opportunity Commission.  Employers are encouraged to review their wage/hour policies to ensure they are up-to-date and compliant with federal and state laws.

To read the entire post on Forbes.com, click here.

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As previously reported, the Fifth Circuit recently enforced a private settlement of certain FLSA claims. More recently, however, Judge Christopher Conner of the U.S. District Court for the Middle District of Pennsylvania reached the opposite conclusion and agreed with the majority view of courts that unsupervised FLSA settlements are not enforceable.

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This post was written by Hannah L. Kaplan and Betty S.W. Graumlich.

Recently, the Fifth Circuit created a crack in a thirty-year old doctrine, based on the Eleventh Circuit’s Lynn’s Food Stores, Inc. v. United States decision and followed by nearly all federal courts, that wage and hour claims brought by individuals under the Fair Labor Standards Act (“FLSA”) can be settled only with the signoff of the Department of Labor (“DOL”) or a supervising court.

In Martin v. Spring Break ‘83 Productions, LLC, certain union-represented employees working on a movie set grieved that they had not been paid for work performed. Following his own investigation, a union representative found it impossible to determine whether the grievants had actually worked the claimed hours. The union and the employer then entered into a settlement agreement to resolve the matter.

Before the union signed the settlement agreement, some of the affected employees sued the employer to recover the claimed wages. Enforcing the union settlement agreement, the district court issued a 20-page reasoned opinion granting summary judgment for the employer. The employees then appealed to the Fifth Circuit, arguing, among other things, that Lynn’s Food Stores made the settlement agreement unenforceable because it lacked involvement and approval from a court or the DOL.

On appeal, in a lengthy footnote, the Fifth Circuit expressly rejected the Eleventh Circuit’s longstanding holding in Lynn’s Food Stores that wage and hour claim settlements must always be supervised by the DOL or a court. Instead it adopted the opinion and supporting logic of a 2005 Texas federal district court case that found that “a private compromise of claims under the FLSA is permissible where there exists a bona fide dispute as to liability.”

While this ruling has only been adopted by a footnote in a Fifth Circuit panel decision, it may provide a path for employers to settle FLSA disputes confidentially and avoid costly litigation, where there is a bona fide dispute over whether the disputed wages are owed. Employers should, however, enter into any such settlement with the understanding that this “settlement crack” is still in gestation and therefore uncertain, especially in circuits other than the Fifth.

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This post was written by Valerie M. Eifert and Michael D. Jones.

A federal court in Pennsylvania ruled that the fluctuating workweek method of calculating overtime, while compliant with the Fair Labor Standards Act, violates Pennsylvania's Minimum Wage Act ("PMWA"). The fluctuating workweek method of calculating overtime permits an employer to pay a non-exempt employee a fixed, weekly salary, regardless of the number of hours that employee works. Overtime is then paid at 50% of the regular rate of pay, rather than 150% of the regular rate of pay. The regular rate of pay is calculated by dividing the fixed salary by the total number of hours worked in the applicable week. Using this method benefits employers whose employees typically work in excess of 40 hours per week.

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On Monday, August 20, a federal judge in Philadelphia upheld the Department of Labor ("DOL") rule setting minimum wage requirements for foreign workers holding H-2B visas. The proposed rule has drawn much attention, and criticism, because it potentially will cost $874,000,000 or more per year in increased labor costs for employers with H-2B visa holders.

For over fifty years, employers have relied on non-immigrant workers with H-2B visas to fill temporary positions in non-agricultural industries that qualified U.S. workers declined to accept. Although the Department of Homeland Security ("DHS") has final authority to determine whether to issue a H-2B visa, it defers to the DOL for advice on the validity of the employer’s need to hire such non-immigrant workers. Critics argue that availability of H-2B visas is a millstone on U.S. workers because it permits employers to hire non-immigrant workers at depressed rates.

In January 2011, the DOL issued proposed rules that, among other things, would require H-2B visa holders to be paid wages equal to or exceeding the highest of the prevailing wage among the applicable federal, state and local minimum wages. The DOL estimated its new rule would increase hourly wages for such positions by $4.83 per hour. Not surprisingly, the DOL received over 300 comments to its proposed rule. After a series of DOL postponements, the rule is now to go into effect on October 1, 2012.

The proposed rule also sparked lawsuits by industry groups that argued that the DOL lacks congressional authority to promulgate rules on the H-2B program because (i) final decision making authority lies with the DHS, and (ii) the DHS’ rulemaking authority is non-delegable and/or DHS never delegated it to the DOL. In response to these legal challenges, the DOL postponed implementation of the proposed rule three times. Monday’s decision in The Louisiana Forestry Assn v. Solis may be a significant first-step towards final adoption of the proposed rule. Rejecting the procedural challenges described above, the court found that the DOL had followed proper guidelines and procedural requirements in formulating and announcing the proposed rule. More importantly, the court also determined that the DOL had acted properly when promulgating guidelines for a program technically administered by another agency. According to the court, while the DHS has the ultimate power to grant H-2B visas, it may rely upon recommendations from the DOL in determining whether to grant a particular H-2B visa application. Accordingly, to the extent the DHS has sought the DOL’s advice, the agency has the authority to establish its own set of requirements or guidelines that employers seeking its blessing must satisfy.

Interestingly, before the court entered Monday’s ruling, other industry groups filed a lawsuit in the United States District Court for the Northern District of Florida that raised the same procedural challenges. In that case, Bayou Lawn & Landscaping Service v. Solis, the court entered a temporary injunction barring the DOL, on a nationwide basis, from implementing its proposed rule. Appealing to the United States Court of Appeals for the Eleventh Circuit, the DOL, among other arguments, asserts that the lower court abused its discretion in entering a nationwide injunction. Undoubtedly, the DOL will raise The Louisiana Forestry Association, Inc. to support the legality of its rulemaking authority and as evidence of a "split" among the federal courts over this issue that requires review by the United States Supreme Court.

These conflicting decisions muddy whether the DOL’s proposed rule will actually be implemented on October 12. The DOL also recognizes the immediate limbo and, in its appellate submission, suggests a interim hiatus of the H-2B visa program. That "solution", however, is likely as unpalatable for most affected employers because of the "Can we or can’t we?" increased costs they face if the proposed rule is ultimately adopted. Reed Smith will continue to monitor and provide guidance regarding the status of DOL’s proposed rule and its impact for employers.

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On June 30, 2012, the Pennsylvania Legislature passed into law Senate Bill 637 which will require public works contractors and subcontractors subject to the Pennsylvania Prevailing Wage Act (essentially, construction projects where the estimated cost is at least $25,000)  to use  E-Verify to confirm that their employees are legally permitted to work in the United States.  Violators of the new law are subject to progressive penalties including fines and debarment from working on public projects for up to three  years.  The law also protects employees who participate in an investigation, report, or complain about possible violations of the statute.  The law is awaiting signature from Governor Corbett and, if signed, will take effect January 1, 2013. 

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On June 26 and 27, 2012, the Pennsylvania legislature passed an amendment to the Pennsylvania Minimum Wage Act to allow medical facilities to pay overtime to its employees for time worked over 8 hours per day or 80 hours in a 14-day period. The employer must provide advance notice to its employees before taking advantage of this overtime payment schedule and must first negotiate any change to overtime calculations with the unions of any of their represented employees. Previously, hospitals and other medical facilities were required to pay overtime for time worked in excess of 40 hours per week. This amendment brings the state’s minimum wage law in line with the Fair Labor Standards Act and will eliminate the confusions and litigation that resulted from the previous discrepancy between the state and federal law. It is anticipated that Governor Tom Corbett will sign the act into law.

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On the heels of its long-awaited decision in Brinker v. Superior Court (Hohnbaum), No. S166350, the California Supreme Court this week issued another important wage and hour decision that favors employers. In Kirby v. Immoos Fire Protection, Inc. (Liu), No. S185827, the court ruled that neither employees nor employers can recover attorney's fees as prevailing parties on claims for meal and rest period violations. This is a key victory for California employers that routinely are subject to “one-way” statutes requiring them to pay attorneys’ fees to prevailing plaintiffs, but rarely, if ever, permitting employers to obtain such fees when they prevail. 

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This post was written by Lisa M. Carvalho and Seth C. Carmack .

On April 12, 2012, the California Supreme  Court issued its long-awaited decision in Brinker Restaurant Corporation v. Superior Ct. (Hohnbaum), No. S166350. The decision clarified several important issues regarding California employers’ obligations in connection with meal and rest breaks for non-exempt employees. It also offered guidance regarding the certification of meal and rest period wage and hour class actions.

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California's new Wage Theft Protection Act of 2011 (Labor Code Section 2810.5, effective January 1, 2012), requires employers to provide most new non-overtime-exempt employees with a written notice that contains specified information regarding, among others, wage rate, payday, employer name and address, workers' compensation insurance carrier information, and other information added by the Labor Commissioner as it may deem necessary

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Most employers assume that if they successfully defeat a plaintiff’s motion for class certification in a wage and hour class action, the same class claims cannot be raised again in another case. On January 18, 2012, however, the California court of appeal in Bridgeford v. Pacific Health Corp, 2012 WL 130615, dashed that commonly held assumption.

In Bridgeford, the court held that “under California law, … the denial of class certification cannot establish collateral estoppel [i.e., issue preclusion] against unnamed putative class members on any issue because unnamed putative class members were neither parties to the prior proceeding nor represented by a party to the prior proceeding so as to be considered in privity with such a party for purposes of collateral estoppel.” The plaintiffs in Bridgeford were unnamed putative class members in prior litigation brought by a different plaintiff against the same employer defendants in both the prior litigation and in Bridgeford. The defendants in the prior litigation had defeated class certification of the wage and hour claims asserted against them. Undeterred by the lack of success of the other plaintiff in the prior litigation, the Bridgeford plaintiffs brought their own action against the same employer defendants seeking class certification of the same wage and hour claims which were not previously certified.

Concluding that the class claims were not barred as a matter of law, the Bridgeford court relied substantially on the United States Supreme Court decision in Smith v. Bayer Corp, 131 S. Ct. 2368 (June 16, 2011). That decision held that, under federal law, “unnamed putative class members cannot be bound by issue preclusion if the class was never certified in the prior proceeding.”

The Bridgeford court disagreed with a few other California courts of appeal, including the one that decided Alvarez v. May Department Stores Co. (2006) 143 Cal. App. 4th 1223. In Alvarez, the court determined that, under appropriate circumstances, the doctrine of collateral estoppel “does not lead to an unfair result” and, therefore, can bind in subsequent litigation the unnamed putative class members from the prior litigation. The Bridgeford court made clear that it was reaching a conclusion “contrary” to the one reached in Alvarez.

The conflict which now exists between the decisions of different courts of appeal on the application of collateral estoppel to denials of class certification motions may spur the California Supreme Court to resolve the conflict, and it may happen if a petition for review is filed in Bridgeford.

Even without a petition for review, or if one is filed and denied, employers still may be able to defeat repetitive class action litigation based on perhaps the only helpful portion of the United States Supreme Court’s decision in Bayer. In particular, the Court states that, even if a collateral estoppel is inappropriate in a denial of class certification, courts should still “apply principles of comity to each other’s class certification decisions when addressing a common dispute” so as “to mitigate the sometimes substantial costs of similar litigation brought by different plaintiffs.” In other words, while collateral estoppel may not stop the revolving door of class action litigation, a court’s discretion to respect another court’s prior decision on class certification might.

 Keep informed on this changing area of the law.

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In accordance with New York's Wage Theft Prevention Act (WTPA), which took effect on April 9, 2011, employers are required to give written notice of wage rates to New York employees:

• upon hire to new employees, and
• by February 1st of each year to all employees

The notice must include:

• Rate or rates of pay, including overtime rate of pay (if it applies)
• How the employee is paid: by the hour, shift, day, week, commission, etc.
• Regular payday
• Official name of the employer and any other names used for business (DBA)
• Address and phone number of the employer's main office or principal location
• Allowances taken as part of the minimum wage (tips, meal and lodging deductions)

The notice must be given both in English and in the employee's primary language (if the Labor Department offers a translation). The Department currently offers translations in the following languages: Spanish, Chinese, Haitian Creole, Korean, Polish and Russian.

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Attached is a decision from the NLRB in D. R. Horton, Inc. (decided the last day of Member Becker's term). In a 2-0 decision with Member Hayes recusing himself, the Board finds that an employer violates Section 8(a)(1) of the Act when it requires its employees who are covered by the Act, as a condition of their employment, to sign an agreement that precludes them from filing joint, class, or collective claims addressing their wages, hours and working conditions against their employer in any forum, arbitral or judicial. The Board finds such waivers to unlawfully restrict the Section 7 rights of employees to engage in concerted activity for their mutual aid and protection, notwithstanding the provisions of the Federal Arbitration Act.

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California's new Wage Theft Protection Act of 2011 (Labor Code Section 2810.5, effective January 1, 2012), requires employers to provide most new non-overtime-exempt employees with a written notice that contains specified information regarding, among others, wage rate, payday, employer name and address, workers' compensation insurance carrier information, and other information added by the Labor Commissioner as it may deem necessary. The new law requires that the Labor Commissioner create a notice template for employer use, which employers eagerly have been awaiting since the new requirements were signed into law in October 2011. Now the wait is over -- employers can access the Labor Commissioner's template for compliance with the new law at: http://www.dir.ca.gov/dlse/Governor_signs_Wage_Theft_Protection_Act_of_2011.html.

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This post was written by John DiNome, Joel Barras and Valerie Eifert.

Effective January 1, 2012, a signature amendment to the Pennsylvania Unemployment Compensation Law will require that severance pay in excess of 40% of the average annual wage in Pennsylvania offset unemployment compensation benefits otherwise payable to separated employees.

Prior to Act 6 of 2011, the amount of unemployment compensation a qualified claimant would receive would be offset only by: (1) compensation received for employment services performed during the week in which the individual claimed benefits; and (2) vacation pay in excess of partial benefit credit, which did not apply to employees who had been permanently or indefinitely separated from employment. The most recent “poster child” benefiting from these limited offsets is the former Superintendent of the Philadelphia School District, who received $905,000.00 as part of a severance package and still qualified for unemployment compensation benefits.

The amendment adds a third offset to the weekly unemployment benefit to help avoid a Philadelphia School District anomaly by offsetting the benefit with any severance pay received. Severance pay is “one or more payments made by an employer to an employee on account of separation from the service of the employer, regardless of whether the employer is legally bound by contract, statute or otherwise to make such payments.” 43 P.S. § 804(d)(1).

Severance pay, however, is deductible from unemployment compensation benefits only to the extent it exceeds 40% of the average annual wage in Pennsylvania. That 40% threshold is currently $17,853.00. Only the excess over 40% will be an offset. 

Any severance pay offset is applied “to the day, days, week or weeks immediately following the employee’s separation” until used up. The severance pay offset applied to each day or week is equivalent to the regular full-time daily or weekly wage of the claimant. As an example, an individual who is entitled to receive $500 per week in unemployment benefits but is also entitled to $19,853 in severance pay ($2,000 more than the 40% average) would collect no unemployment benefits for the first four ($500 times four is $2000) weeks following her separation from employment and would begin to collect her $500 weekly benefit for and after the fifth week. 

If the amendment had been in effect at the time the former Philadelphia School District Superintendent received her severance package, the size of her severance payment would have offset her unemployment benefit for her entire 26 weeks of benefits eligibility. 

These changes apply to severance compensation payable by agreement or policy on and after the January 1, 2012 effective date of the amendment. 

Contact your Reed Smith attorney or an experience employment lawyer for added guidance.

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This post was written by Don A. Innamorato and Sherri A. Affrunti.

The NJ DOL has published the new mandatory notice that, by December 7, 2011, must be posted in a conspicuous location and distributed to all existing employees who work in New Jersey. In addition, ALL new employees hired in New Jersey on November 7, 2011 or after must be immediately provided with a copy of this notice. Accordingly, it is recommended to include this notice immediately in all new hire packets, and to post it immediately on all bulletin boards or other locations where you, as an employer, post similar notices. If you have an internet or intranet site for exclusive use by employees and to which all employees have access, electronic posting of the notice on the site will satisfy the conspicuous posting requirement. Similarly, you may provide the notice to employees by email to satisfy the requirement to provide each employee with a copy of the notice. You may access a copy of the notice by clicking here.

The notice summarizes the record-keeping requirements under the following New Jersey statutes: the Wage Payment Law, the Wage and Hour Law, the Unemployment Compensation Law, the Temporary Disability Benefits and Family Leave Insurance Law, the Workers' Compensation law, the Prevailing Wage Act, and the Gross Income Tax Act. It also includes contact information for New Jersey State representatives who are available to provide employees with information or to facilitate their filing of complaints regarding an employer's alleged failure to meet the requirements of these statutes.

Employers risk fines up to $1,000 for failing to comply with the notice and posting requirements, in addition to potential criminal penalties.

This notice follows on the heels of last year's new legislation imposing stricter penalties - including the loss of operating licenses - for New Jersey employers who repeatedly fail to comply with the State's wage, benefit and tax laws. This new law was summarized in an Alert published in June 2010 and can be accessed by clicking here.

If you have any questions concerning the attached posting, the corresponding law, how it will impact your business, or the risks of non-compliance, please contact the authors of this Alert or the Reed Smith attorney with whom you regularly work.

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Effective January 1, 2012, private California employers of non-exempt employees not subject to certain collective bargaining agreements will face new reporting and recordkeeping requirements and penalties for violations of California's aggressively-titled "Wage Theft Prevention Act" signed into law in October 2011. Similar to New York's law of the same name enacted last year, the Act includes:

• New Labor Code Section 2810.5 requires private employers of newly-hired, non-overtime-exempt employees to provide each new hire with:

(a) The job rate or rates of pay and whether it pays by the hour, shift, day, week, salary, piece, commission, or otherwise, including any rates for overtime.
(b) Any allowances claimed as part of the minimum wage, such as for uniforms, meals, and lodging.
(c) The employer's regular payday, subject to the Labor Code.
(d) The employer's name, including any “doing business as” names used.
(e) The address of the employer's main office or principal place of business, and its mailing address, if different.
(f) The employer's telephone number.
(g) The name, address, and telephone number of the employer’s workers’ compensation insurance carrier.
(h) Other information added by the Labor Commissioner as material and necessary.

Exempted from the Act and these requirements are public employees, employees exempt from California wage/hour laws requiring overtime pay and, under circumstances detailed in the Act, employees covered by collective bargaining agreements.

• Employers must also notify employees of any changes in this information within seven days of the change.
• Increases in civil and criminal penalties for wage-related violations, as well as an increase from 1 to 3 years for the Department of Labor Standards Enforcement to seek wage-violation-related penalties, but no change in the 1-year limit for seeking penalties in private enforcement actions.

In addition to increasing employers' administrative reporting and recordkeeping requirements and penalty risks, the Act adds pressure on employers to properly classify their employees as overtime exempt versus non-exempt. That is because employers who misclassify employees as exempt risk violating the Act and incurring incurring its increased penalties.

California employers need to work on prompt compliance strategies. Consider, for instance, periodic, attorney-led, privileged reviews of wage/hour practices to ensure compliance.

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Last week, the IRS announced the Voluntary Classification Settlement Program (the “VCSP”), allowing eligible employers to voluntarily resolve U.S. past worker classification issues and reclassify workers as employees for federal employment tax purposes. Reclassifying workers as employees, however, raises many issues other than employment tax issues including, for example: retirement benefit plan issues; health and welfare benefit plan issues; and state tax classification, unemployment tax, and workers’ compensation issues. To learn more about the VCSP, please click here.

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This post was written by David L. Weissman, Cindy Schmitt Minniti and Daniel A. Schleifstein.

Connecticut recently became the first state to mandate that employers provide paid sick leave for service workers (the “Act”), effective January 1, 2012. 

The Act may indicate an emerging trend of which employers should be aware. Cities, including San Francisco, Washington, D.C., and Milwaukee, have already passed mandatory paid sick leave legislation in recent years, and legislation is currently pending in Philadelphia and Denver. Massachusetts and California (the latter of which enacted its own Paid Family Leave legislation back in 2002) are also moving to pass similar legislation.

Which companies are covered?

The Act applies to companies with 50 or more employees in Connecticut not already offering at least five paid days off for full-time workers.

Which employees are covered?

Covered by the Act are "service workers." They are hourly paid, overtime-eligible workers employed in dozens of specific occupations listed in the federal Bureau of Labor Statistics Standard Occupational Classification system. Included are waiters, cashiers, cooks, hair stylists, security guards, nursing aides, administrative personnel, and employees without discretionary and independent authority. 

The Act excludes manufacturing workers, salaried employees, day or temporary workers, workers at nationally chartered nonprofit organizations, managers with authority to hire and fire staff, professionals such as lawyers and physicians, outside salespeople, and certain computer professionals.

What is required?

Hours: Service workers accrue one hour of sick leave for every 40 hours of work but no more than 40 hours in a calendar year. They can carry over as many as 40 hours into the next calendar year, but cannot use more than 40 hours of leave in any year. Service workers employed prior to January 1, 2012 can begin accruing sick leave as of January 1, 2012. Service workers hired on or after January 1, 2012 can begin accruing sick leave on their hire date. Service workers cannot use accrued sick leave until they have worked at least 680 hours after the benefit starts accruing, and they must have worked an average of 10 hours a week for the employer during the most recently completed calendar quarter.

Pay: Service workers' paid sick leave must be the greater of: (1) the worker's normal hourly wage, or (2) the statutory minimum wage required while the worker is on leave. If the service worker's hourly wage varies, the “normal hourly wage” is the average hourly wage paid to him or her in the pay period prior to the leave. An employer does not have to pay a service worker for unused sick leave upon termination, unless otherwise provided by an employer policy or a collective bargaining agreement.

Notice: Covered employers must inform each service worker at hiring that: (1) s/he is eligible to accrue paid sick leave, in what amount, and how it can be used; (2) retaliation for requesting or using sick leave is illegal; and (3) s/he can file a complaint with the labor commissioner for any violation. 

Displaying a poster with this information, in English and Spanish, in a conspicuous place, accessible to employees, at the employer's place of business, satisfies this notice requirement.

What qualifies as "sick leave"?

An employer must allow a service worker to use paid sick leave for the worker’s, or his or her spouse's or child's: (1) illness, injury, or health condition; (2) medical diagnosis, care, or treatment of a mental or physical illness, injury, or health condition; or (3) preventive medical care.

If the service worker is a victim of family violence or sexual assault, paid sick leave is also available for: (1) medical care or psychological or other counseling for physical injury or disability; (2) services from a victim services organization; (3) relocating; or (4) participation in any civil or criminal legal proceedings.

What about service workers subject to a labor agreement?

The Act does not preempt or override the terms of any collective bargaining agreement effective prior to January 1, 2012.

Do employees need to provide advance notice prior to taking sick leave and may employers require verification?

Employers may require service workers to provide notice: (1) up to seven days before taking any leave that is foreseeable, or (2) as soon as practicable for any leave that is not foreseeable.

If the leave is for three or more consecutive days, the employer can require reasonable documentation verifying the leave's purpose. 

What are the penalties for failing to comply?

Prohibited is retaliating against any employee by terminating, suspending, constructively discharging, demoting, unfavorably assigning, refusing to promote, disciplining, or taking any other adverse employment action against an employee because the employee: (1) requested or used paid sick leave under the Act or an employer's own paid sick leave policy, or (2) filed a complaint with the labor commissioner alleging an employer violated the Act’s provisions, regardless of whether the employee is a service worker or would otherwise be excluded from sick leave pay.

The Act permits the filing of administrative complaints but not court actions.

Civil penalties include $500 fines for each instance of retaliation and "all [other] appropriate relief." This may include payment for used paid sick leave, reinstatement to the employee's previous job, back wages, and employee benefits for which the worker would have been eligible if the retaliation or discrimination had not occurred. 

The Act provides for penalties of up to $100 for any other violation.

What do we recommend?

Connecticut employers should take the following steps to ensure compliance:

• Review paid and unpaid personal leave policies in your employee handbook.
• Determine whether and which employees are covered by the Act.
• Obtain posters and/or add to interviewing/hiring documents to explain the Act and its benefits.
• Train and sensitize supervisors and managers on Act documentation and record-keeping, and the illegality of retaliation.
• Consult an experienced, knowledgeable labor & employment attorney to ensure full compliance.

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In a unanimous opinion, the California Supreme Court has ruled that California's overtime laws apply to workers from out of state who perform work in California for a California-based employer. Sullivan v. Oracle Corp., No. 06-56649 (9th Cir. June 30, 2011). Answering certified questions from the U.S. Court of Appeals for the Ninth Circuit, the court ruled that California laws on overtime pay applied to software trainers employed by California-based Oracle Corporation with respect to work they performed in California, even though the employees resided in Colorado and Arizona. The court noted that "California's overtime laws apply by their terms to all employment in the state, without reference to the employee's place of residence. . . . To exclude nonresidents from the overtime laws' protection would tend to defeat their purpose by encouraging employers to import unprotected workers from other states." The court rejected Oracle's argument that interstate comity required that the employee's resident state's wage law traveled with the employee, as well as Oracle's complaints about the practical burdens on employers that might result from requiring them to apply California law to such employees.

Answering two other certified questions, the court also held that California's Business & Professions Code section 17200 applies to the overtime work issue (providing a four-year limitations period for such claims), but that time-barred FLSA wage claims that had accrued as to work performed in other states could not be resurrected in California under that longer limitations period.

While Sullivan specifically addresses a California-based employer's obligation to follow California's wage and hour laws for its out-of-state-resident employees who perform work in California, the case has implications for all employers with employees working in California who do not reside there. All employers with employees working in California, even on a transient basis, should be prepared to observe the state's wage and hour rules for work performed in the state.

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The United States Supreme Court has held that under the Fair Labor Standards Act (“FLSA”), the federal law that requires proper payment of wages and overtime pay, an employer cannot retaliate against an employee who complains about a possible violation of that law, even where the complaint is oral rather than in writing. Kasten v. Saint-Gobain Performance Plastics Corp., No. 09-834 (Mar. 22, 2011).

The FLSA provides that employers cannot “discharge or otherwise discriminate against an employee because such employee has filed any complaint or otherwise instituted any proceeding under or related to the [FLSA].” [emphasis added] The employer in Kasten argued, and the U.S. Court of Appeals for the Seventh Circuit had found, that by using the phrase “filed any complaint,” Congress meant to protect only those employees who put their complaints in writing. The Supreme Court disagreed, finding that interpretation would deter employees, particularly those who are uneducated or illiterate, from coming forward with good-faith concerns about possible violations of the law. At the same time, however, the Court recognized that the reference to filing a complaint “contemplates some degree of formality,” and that for a complaint to be protected, it “must be sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights protected by the statute.”

The employer also argued that employees should be protected only if they complain to government agencies, not to their employer. Although the Court declined to address that issue, its opinion in this case, and in others where the Court has broadly interpreted anti-retaliation provisions, leaves little doubt that employees who complain about possible FLSA violations – internally or externally, orally or in writing – are protected from retaliation.

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This post was written by David Weissman, Cindy Minniti and Daniel Schleifstein.

On December 13, 2010, New York Governor David A. Paterson signed the Wage Theft Prevention Act (“Act”). The New York Labor Law currently requires employers to notify employees in writing, at the time of hiring, of their rate of pay, pay date, and overtime rate (if applicable). The Act amends the law to significantly increase the penalties for wage payment violations, particularly for repeat offenders, and now requires employers to provide additional information regarding the payment of wages to employees. All New York employers must revise their pay practices by the Act’s effective date, April 12, 2011.

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This post was written by Cindy S. Minniti and Daniel A. Schleifstein.

In light of recent high-profile lawsuits in New York involving defendants such as Starbucks and Del Posto, employers must be aware of important new changes to New York labor laws that can significantly affect their business and profits. 

Minimum Wage Increase for Tipped Employees

Minimum wages for tipped workers in the hospitality industry, such as restaurant and hotel workers, will increase as follows effective January 1, 2011:

• Tipped non-food service employees in the hospitality industry must now receive at least $5.65/hour (up from $4.90/hour)
• Tipped food service employees in the hospitality industry must now receive at least $5.00/hour (up from $4.65/hour)
• Service workers for resort hotels must now receive at least $4.95/hour (up from $4.35/hour)

Employers have until February 28, 2011 to make any necessary changes to their payroll systems, but must pay employees the new wage rates retroactive to January 1, 2011.

Employers May Mandate Tip Pooling

Under the new law, restaurants also may now mandate tip pooling, the distribution of tipped food service workers' gratuities among tipped and nontipped workers. Restaurants using tip pooling must maintain a daily log of tips collected and handed out for at least six years. Tip sharing, when food service workers give a cut of their tips to nontipped employees, is also allowed. However, unlike the practice of tip pooling, employees conduct these transactions themselves.

Tips for Employers

• Maintain accurate payroll records
• Maintain accurate tip pooling records (if applicable)
• Know your employees' current tipping practices and remediate as necessary

Reed Smith is ready to assist employers in complying with all New York and federal labor laws and regulations while minimizing the adverse impact and cost to the employer. Please feel free, at any time, to contact Cindy Minniti, Daniel Schleifstein or any Reed Smith lawyer you work with to discuss these important new changes.

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This post was written by Daniel J. Moore and Eugene K. Connors.

A little-noticed provision of the 2010 health care reform legislation requires employers to provide nursing mothers with "reasonable break time" to express breast milk for one year after a child's birth.  Section 4207 of the Patient Protection and Affordable Care Act (P.L. 111-148), 29 U.S.C. § 207(r)(1) ("PPACA"), which became effective March 23, 2010, amends the Fair Labor Standards Act ("FLSA") to require employers to provide a break each time an employee needs to express milk, in a location other than a bathroom that is "shielded from view and free from intrusion by coworkers and the public."

The Department of Labor ("DOL") has yet to issue regulations defining a "reasonable" break or what sort of location may be used for lactation.  In July 2010, the DOL did release a "Fact Sheet" that says employers should provide break time to express milk "as frequently as needed by the nursing mother," and that the frequency and duration of the breaks will "likely vary" among mothers.  The Fact Sheet also says that the location provided must be a "functional space" for expressing milk, but need not be dedicated solely for a nursing mother's use, as long as it is available whenever needed.  The Fact Sheet, however, is only intended for general information and is not an official statement of the law, like federal regulations.

Although the new law applies to employers of any size, those with fewer than 50 employees need not provide such breaks if doing so "would impose an undue hardship by causing the employer significant difficulty or expense when considered in relation to the size, financial resources, nature, or structure of the employer's business."

Under the new law, these breaks may be unpaid.  That is an exception to the FLSA's rule that breaks of fewer than 20 minutes be paid as compensable time.  But employers should look out for more "generous" state or local laws that "trump" that unpaid exception.  This law does not preempt state laws that offer greater protection for nursing mothers who work, and 24 states and the District of Columbia have laws that apply to such employees.

The law itself contains no penalties for violations.  Both penalties and remedies available to aggrieved employees are likely to be in forthcoming DOL regulations.

Feel free to contact a Reed Smith attorney with any questions or concerns about break times for nursing mothers.  Additional information and the full Fact Sheet are accessible through the DOL Wage and Hour Division website.

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A new law will make it much more costly for Illinois employers that fail to pay employees their earned wages, including final compensation such as accrued but unused vacation pay.  The Illinois Wage Theft Enforcement Act, S.B. 3568 (the "Act"), signed into law July 30, 2010, increases both civil and criminal penalties for violating the state's wage payment law, imposes new risks for employers who ignore or unsuccessfully challenge employees' wage claims, and creates a new cause of action for employees who face retaliation for having complained about unpaid wages.  The Act will take effect January 1, 2011.

Illinois Wage Payment and Collection Act

The Illinois Wage Payment and Collection Act (the "Wage Payment Act") requires employers to pay employees their earned wages no later than a specified period following the date on which the wages are earned, and to pay employees who resign or are terminated all wages they earned through their last day of employment, no later than the first regular payroll date thereafter.  The law applies to every employee in Illinois, exempt or non-exempt, regardless of the employer's size or location.  "Earned wages" includes not only an employee's salary or hourly pay, but also any earned bonuses or vacation pay.  With some limited exceptions such as tax withholdings and authorized deductions for benefits, the Wage Payment Act also prohibits employers from deducting anything from an employee's wages, unless the employee signs an authorization at the time of the deduction.  The law also allows employees to recover damages from any corporate officer or agent of an employer who knowingly permits the employer to violate the Wage Payment Act.

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Tracking the trend of increased federal and state focus on the misclassification of workers, the U.S. Court of Appeals for the Ninth Circuit recently applied California law to hold that plaintiffs were entitled to a trial on the merits against their former employer for improperly classifying its California drivers as independent contractors, notwithstanding that the drivers had all signed independent contractor agreements that provided that Texas law controlled.  Narayan v. EGL, Inc., Case No. 07-16487 (9th Cir. July 13, 2010).

EGL - an international transportation, supply chain management, and information services company headquartered in Texas - retained drivers to pick up and deliver freight in California, classifying them as independent contractors rather than as employees.  EGL required each driver to sign a "Leased Equipment and Independent Contractor Services" agreement that, among other things, referred to the driver as a "Contractor," provided that the parties intended to "create a vendor/vendee relationship," and in which each driver acknowledged that neither the "Contractor nor any of its employees or agents shall be considered to be employees of" EGL.  The agreements also contained a provision requiring that they be interpreted under Texas law.

Several California drivers sued EGL, claiming that they had been misclassified as independent contractors, and demanding damages for unpaid overtime wages, business expenses, missed meal breaks, unlawful deductions from wages, and other relief under the California Labor Code.  Applying Texas law per the agreement, the district court found that the drivers were independent contractors and granted summary judgment in favor of EGL.

The Ninth Circuit reversed.  As a starting point, the court refused to apply Texas law to the dispute.  Noting that the drivers sought entitlement to employment benefits under California's Labor Code and that state's statutory and regulatory scheme, the court held that it was not required to interpret the agreements to decide the case.  The court instead found that California law should apply to determine whether EGL could be liable for violating the California Labor Code.

Turning to the merits of the case, the Ninth Circuit again disagreed with the district court, finding that the drivers had established a prima facie case that they were employees rather than independent contractors.  The appellate court applied California's multifactor test in analyzing whether the drivers worked as employees or independent contractors, citing, among others, the following facts as supporting the drivers' claim that they were employees:

• The delivery services provided by the drivers were integral to the regular business operations of EGL
• EGL's Safety and Compliance Manual and Driver's Handbook instructed the drivers on how to conduct themselves
• The drivers were ordered to report to the EGL station at a set time each morning
• EGL controlled other aspects of the details of the drivers' performance, such as requiring that they wear EGL-branded shirts, safety boots, and EGL identification cards
• EGL supplied branded equipment, such as boxes and packing tape
• The agreement provided for automatic renewal clauses and could be terminated on 30 days' notice, which was a substantial indicator of an at-will employment relationship
• The drivers' occupation did not require a high level of skill
• The indefinite and lengthy duration of the drivers' relationship with EGL (some of whom had worked for EGL for several years)

The court noted that in light of these facts, the drivers' acknowledgment that they were independent contractors was not significant under California law.

In reaching its conclusion, the Ninth Circuit found that once a plaintiff presents evidence that he provided services for the "employer," the plaintiff is presumed to be an employee unless the employer can prove that the individual was in fact an independent contractor.

In light of this case, and the continuing scrutiny by federal and state agencies on the misclassification of workers as independent contractors, companies should audit and analyze their independent contractor agreements with vendors, owner-operators, or contractors, as well as the practices of its contractors, to determine whether the relationship is truly one of independence.  Where there are any questions or concerns about possible misclassification,  experienced employment counsel should be consulted to determine how best to address the situation before any company is forced to defend time-consuming and expensive litigation.

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Reed Smith is proud to have been named one of the top employment and labor firms in the United States by Legal 500, a leading legal industry publication. The firm was highly ranked for both Labor and Employment Litigation and Labor Management Relations. Legal 500 cited in particular Reed Smith’s national reputation for experience in the areas of wage and hour and employee benefits class action defense, as well as our strong reputation for advising employers on traditional labor-law matters in diverse industries on a multi-state, regional and national basis.

Chambers USA also ranked the firm’s labor and employment practice in Pennsylvania and California as being industry leaders. In addition, seven of our U.S. attorneys were highly ranked by Chambers USA for their practices.

To learn more about the firm’s Legal 500 rankings, please click here.

To learn more about the firm’s rankings, Chambers USA, rankings or the methodology behind the rankings, please click here.

For more information about Reed Smith's Labor and Employment practice, please contact Karl Fritton, Casey Ryan, Linda Husar, Jim Burns, or the Reed Smith attorney with whom you regularly work.

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This post was written by Samantha M. Clancy, E. David Krulewicz and Robert M. Jaworski.

The United States Department of Labor (“DOL”), Wage and Hour Division, recently published an Administrator’s Interpretation that takes the position that mortgage loan officers with certain “typical” job duties are not subject to the administrative employee exemption of the Fair Labor Standards Act. The DOL reasoned that mortgage loan officers’ primary duties are to make sales, and these are not administrative functions as defined by federal regulations. As a result, mortgage loan officers are not exempt from the FLSA’s minimum wage and overtime compensation rules under the administrative employee exemption. The DOL based its new interpretation on the statutory and regulatory framework, as well as on a thorough review and analysis of recent case law. With this determination, the DOL reverses its previously held position and explicitly withdraws Opinion Letters from February 2001 and September 2006, which stated that mortgage loan officers could be considered exempt administrative employees. 

The administrative exemption applies to employees whose job duties and qualifications meet all of the following tests: (1) the employee is compensated on a salary or fee basis as defined in the regulations at a rate of not less than $455 per week; (2) the employee’s primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and (3) the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. 

The DOL’s interpretation focuses on the second test. The DOL noted that a mortgage loan officer’s typical duties include contacting and gathering financial information from customers, entering data into computer programs to determine which loan products may be offered to a customer, assessing the loan products identified, and trying to match the customer’s needs with one of the company’s products. Those duties, combined with other factors, led the DOL to conclude that mortgage loan officers’ primary duty is to make sales, rather than administrative functions.     

In reaching its conclusion, the DOL also relied on the following factors:

• In lawsuits brought by mortgage loan officers, mortgage companies have typically conceded that the officers’ primary duty is sales.
• Mortgage loan officers are usually paid commissions based on sales, and their performance is evaluated based on sales volume.
• The DOL could not find any reported case holding that a mortgage loan officer, whether working inside or outside, had a primary duty other than sales.
• A primary duty to make sales is not directly related to the management or general business operations of an employer or an employer’s customers, a necessary part of meeting the administrative exemption. 

Although Wage and Hour Administrator Interpretations do not have the force of law, they are given considerable weight by the courts.  This new interpretation, therefore, will significantly affect financial institutions and other related organizations that currently consider their mortgage loan officers to be exempt from overtime pay. Such employers should take immediate steps to address this new interpretation, such as by engaging outside counsel to audit current practices and to otherwise ensure full compliance with all parts of the FLSA. And given that the DOL’s new approach does not limit application of other FLSA exemptions to mortgage loan officers, employers should also consider whether other exemptions may apply. For example, mortgage loan officers may qualify as exempt employees pursuant to the FLSA’s exemption for outside sales staff, i.e., employees who are primarily responsible for sales or for obtaining contracts for services, and who are customarily and regularly engaged away from their employer’s place of business in performing such duties. Counsel familiar with FLSA issues can provide valuable assistance in this process. It may also be necessary to reorganize compensation plans or reclassify employees to ensure compliance.

Whatever approach is chosen, in light of the real potential for class action lawsuits seeking double damages and attorneys’ fees on behalf of all mortgage loan officers who an employer has employed going back as far as three years, this Administrator’s Interpretation cannot be safely ignored.

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As employers seek to avoid substantial exposure for alleged violations of wage and hour laws, including the continuing flood of class actions, many are asking outside counsel to review or audit their pay practices so that any problems can be fixed to minimize such risks. In a welcome development, the California Supreme Court recently rejected an effort to force an employer to disclose the results of such a review to managers who had sued, affirming that such advice is protected by the attorney-client privilege.

For more information on this recent ruling, please see the following client alert.

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This post was written by John A. DiNome, Remy Kessler, Joel S. Barras and Marytza J. Reyes.

A series of wage and hour collective actions initially filed in New York and Pennsylvania have begun to swell across the country. Plaintiffs’ attorneys are targeting health care facilities over their alleged failure to comply with meal break rules. Specifically, such suits claim that employers have automatically deducted 30 to 60 minutes of time for employees’ meal periods, even if employees never took the breaks. The plaintiffs allege that by failing to provide unpaid meal periods free of interruptions from work, or by failing to fully compensate the employees for the time they were not relieved of duty, health care facilities have violated the Fair Labor Standards Act (“FLSA”) and other laws. Because employees can recover for violations that took place as many as three years before suit is filed, damages in these cases can be substantial. Employers may be liable for double the employees’ overtime rate of pay for the unpaid meal breaks that were improperly deducted. In addition, plaintiffs are entitled to recover their attorneys’ fees and costs, which often exceed the actual damages. 

Not surprisingly, the Internet has become an effective tool for plaintiffs’ lawyers seeking to identify deep-pocket defendants. Some attorneys have even gone so far as to set up websites to provide information to employees about their investigations of health care employers. (See, e.g., www.hospitalovertime.com or www.overtimecases.com.) Such websites have become an easy way for a plaintiffs’ counsel to gather information about a particular health care employer’s practices, reach employees throughout the country, and publicize large settlements in wage and hour lawsuits.

Health care facilities throughout California have experienced a recent wave of wage and hour lawsuits. In 2008, at a time when registered nurses were in high demand and hospitals across the country were struggling financially, California completed implementation of landmark legislation passed almost a decade before, mandating minimum nurse-to-patient ratios. Not surprisingly, the shortage of nurses and other medical professionals has made it increasingly difficult for employers to comply with California laws requiring them to provide employees who work more than six hours with an uninterrupted 30-minute meal period. While many nurses acknowledge that the demands of their positions do not always permit an uninterrupted meal period, they uniformly object to not being compensated when they are unable to take the breaks to which they are legally entitled. 

In addition to requiring payment of overtime when an employee works more than 40 hours per week, California law requires overtime pay when an employee works more than eight hours per day. Depending on the length of the shift, California employees who are denied meal periods may be entitled not only to overtime, but also to an additional hour of a “premium wage” for each missed meal period. California law permits employees to seek damages for meal period violations going back three years before suit is filed; but if the same allegations are brought under California’s Unfair Competition Law (Business & Professions Code Section 17200), the statute of limitations is four years.

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