Fair Labor Standards Act Law

DOL Moves Closer to Finalizing New Regulations on Overtime Exemptions for 2020

2019-07-09T06:30:00.000-04:00

The U.S. Department of Labor ("DOL") is one step closer to publishing final regulations on the FLSA's overtime exemptions for "white collar" workers in executive, administrative, and professional positions. The DOL published its Notice of Proposed Rulemaking ("NPRM") on March 7, 2019, outlining its proposed final rule and inviting public comment. That comment period is now closed, and the next step is the anticipated publishing of the final regulations. If they become final, it is expected that the new regulations would go into effect sometime in calendar year 2020.

The proposed new regulations, like the failed 2016 proposed regulations, propose to update the so-called “white collar” or "EAP" exemptions applicable to executive, administrative, and professional employees. However, the 2019 NPRM proposes more modest changes than the 2016 version. The 2019 NPRM, if it becomes final, will increase the minimum salary level required for EAP employees to be exempt from overtime, and will increase the annual compensation level required for employees to be exempt as highly compensated employees. No exception is made for small businesses. Easing the compliance burden, the 2019 NPRM does not propose automatic cost of living increases for employers to keep track of, and will not change the duties tests that are currently in effect for the EAP exemptions.

As an executive summary, the key provisions of the 2019 NPRM are the following:

The minimum salary level for the EAP exemptions will increase to $679 per week or $35,308 per year (which is a significant increase from the current level set in 2004 of $455 per week or $23,660 per year).

For highly compensated employees, the total annual compensation level will increase to $147,414 per year (up from the current level of $100,000 per year).

To meet the salary level, the proposed regulations will permit employers to include nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to ten percent (10%) of the salary level requirement.

The DOL will review these levels periodically, but no automatic increases are proposed as part of the 2019 NPRM.

As businesses begin planning their budgets and thinking about salary increases for workers next year, they should keep an eye on the anticipated new regulations. The DOL expects that the final rule will result in over one million workers that were formerly classified as exempt from overtime becoming eligible for overtime pay, unless their employers make a change to their pay or duties. So, as a practical matter, the proposed regulations will mean that fewer employees will meet the requirements to be exempt from overtime, or that employers must pay higher salaries in order for many employees to remain exempt under the FLSA.

The DOL's helpful Fact Sheet on the NPRM can be found here, and its FAQs on the NPRM can be found here.

Welcome to Womble Bond Dickinson!

2017-11-03T13:16:00.002-04:00

We are proud that our firm, US-based Womble Carlyle Sandridge & Rice, LLP, and UK-based Bond Dickinson LLP have combined to create Womble Bond Dickinson. Effective November 1, 2017, our combined platform now includes:

24 offices in key commercial and financial markets across the US and UK, including the firm’s newest offices in Boston and Edinburgh as well as access to Europe through existing relationships;
The bench strength of 1,000 lawyers. By size, the combined firm is a Top 20 firm in the UK, Top 80 firm in the US, as well as a Global Top 100 firm by annual revenue ($410 million/£340million);
A client base that includes more than 250 publicly traded companies.

The combined firm will have eleven key sectors: Energy & Natural Resources, Financial Institutions, Healthcare, Insurance, Manufacturing, Real Estate, Retail & Consumer, Transport & Infrastructure, Pharmaceuticals Biotechnology & Life Sciences, Communications & Technology and Private Wealth. Womble Bond Dickinson will use its global strengths in these areas to advance and protect clients’ interests; provide hands-on, switched-on legal advice; give outstanding personal service, and offer exceptional value.

We have great Employment practice. We understand that people are your most important asset and that careful management of employment law matters can mean the difference between achieving your organizational objectives and opening yourselves up to financial and reputational risk. We advise clients across the full spectrum of general employment advice including:

Fair Labor Standards Act and state and local wage laws
Wage and hour compliance
Litigation and agency investigations

Across our substantial, experienced employment team, we support your needs whatever the urgency and level of advice required. Our experience enables us to spot critical issues quickly and present solutions that help you achieve your business objectives. Our new website is www.womblebonddickinson.com, and the Fair Labor Standards Act Law blog will stay right here. Cheers!

Proposed 2016 “White Collar” Regulations Struck Down; DOL Starts Work on New Regulations

2017-09-20T07:00:00.000-04:00

The winding legal path of the 2016 “white collar” regulations has come to an end. On August 31, 2017, the Honorable Amos L. Mazzant of the U.S. District Court for the Eastern District of Texas struck down the U.S. Department of Labor’s (“DOL”) regulation that would have, among other things, doubled the minimum salary requirements for workers classified as exempt from overtime under the FLSA’s executive, administrative, and professional exemptions. The court held that the DOL overstepped its rulemaking authority by increasing the salary threshold to a point that rendered employees’ duties irrelevant.

As widely reported and commented upon (including here), the new regulations were to have gone into effect on December 1, 2016. However, a group of states and business groups challenged the rules in federal court, asserting that the DOL exceeded its rulemaking authority and that only Congress had the authority to so greatly change the regulations. To the surprise of many, the federal court agreed, and issued a preliminary injunction that prevented the regulations from taking effect. The DOL, under the President Obama administration, appealed the preliminary injunction to the United States Court of Appeals for the Fifth Circuit. However, following the election of President Trump, the DOL changed course, ultimately informing the Court of Appeals that the DOL would not advocate for the higher salary level, but instead intended to undertake further rulemaking to determine the appropriate salary level.

While that appeal remained pending, the lower court issued its final decision on August 31, granting summary judgment to the states and groups, and striking down the new regulations. The court based its holding on the fact that Congress defined the FLSA’s executive, administrative, and professional exemptions with a focus on employees’ duties. As a result, the DOL’s “authority is limited to determining the essential qualities of, precise signification of, or marking the limits of those bona fide executive, administrative, or professional capacity employees who perform exempt duties and should be exempt from overtime pay.” For this reason, the court held that the DOL “does not have the authority to use a salary-level test that will effectively eliminate the duties test.” The court clarified that the DOL “has the authority to implement a salary-level test,” but the rule’s “significant [salary] increase would essentially make an employee’s duties, functions, or tasks irrelevant if the employee’s salary falls below the new minimum salary level.”

Following the court’s decision, on September 5, 2017, the DOL filed an unopposed motion with the Fifth Circuit Court of Appeals asking it to dismiss its appeal of Judge Mazzant's preliminary injunction order invalidating the overtime rule, given that the lower court's new summary judgment decision rendered the preliminary injunction moot. The Fifth Circuit granted the DOL’s motion and dismissed the appeal on September 7, 2017. This leaves Judge Mazzant’s order striking down the regulations as the final legal word on the 2016 regulations.

However, that is not end of the story. The DOL is committed to updating the white collar exemptions, and new regulations are in process. This past summer, on July 26, 2017, the DOL issued started the rulemaking process anew with a request for information soliciting public comments on the overtime exemptions for certain executive, administrative, professional, outside sales, and computer employees. The DOL’s Request for Information specifically acknowledges stakeholders’ concerns that “the new salary level [proposed in the 2016 regulations] inappropriately excludes from exemption too many workers who pass the standard duties test” and “would adversely impact low-wage regions and industries.” The DOL hopes to receive comments regarding “whether the standard salary level set in [the final] rule effectively identifies employees who may be exempt, whether a different salary level would more appropriately identify such employees, the basis for setting a different salary level, and why a different salary level would be more appropriate or effective.” The comment period closes September 25, 2017, and those interested in commenting can find the Request for Information in the Federal Register.

By: John E. Pueschel and Patricia I. Heyen

Waiting Game: Future of Proposed "White Collar" Rules Remains Uncertain

2017-04-07T22:49:00.002-04:00

There is still no decision on when—or if—the proposed “white collar” regulations will go into effect. On November 22, 2016, a federal court in Texas issued an order that blocked the U.S. Department of Labor’s (“DOL”) proposed regulations that would have doubled the minimum salary for many “white collar” workers just before the regulations were to go into effect. As expected, on December 1, 2016, the Department of Justice (then under the President Obama administration), on behalf of the DOL, filed a notice with the U.S. Circuit Court of Appeals for the Fifth Circuit to appeal the order. The DOL sought to fast-track the appeal, asking the Fifth Circuit Court of Appeals for an expedited schedule. The Fifth Circuit initially granted the request, and issued an order to expedite the legal arguments, with the DOL's reply brief to be filed by February 7, 2017.

However, on January 25, 2017, shortly after the inauguration of President Trump, the DOL asked the Fifth Circuit for an extension of time to file its legal arguments in order “to allow incoming leadership personnel adequate time to consider the issues.” The Fifth Circuit ultimately agreed to extend the deadline for the DOL to file its legal argument until May 1, 2017.

It will be interesting to see what position that the DOL will take under the President Trump administration. President Trump has endeavored to demonstrate that he is an advocate for American workers, while at the same time also espousing a pro-business agenda. This issue of increasing the minimum salary under the FLSA is one where advocates for workers and business groups have sharply disagreed. (For example, the AFL-CIO and the Center for American Progress previously argued the increased salary would allow adjustments for inflation, strengthen the middle class, and help Millennials attain financial stability. On the other hand, business organizations, like the United States Chamber of Commerce and the National Retail Federation, have argued that the proposed regulations would hinder industry and job growth.) In addition to the possible significant change in the law if the regulations are upheld, how the DOL navigates these differing viewpoints will likely provide important insight into the DOL’s approach to wage issues under the new administration.

New "White Collar" Final Rule Issued; Takes Effect December 1, 2016

2016-05-18T13:47:00.001-04:00

Updated, September 19, 2017: The proposed 2016 "white collar" regulations were struck down in federal court, and never went into effect.

Today, the U.S. Department of Labor issued its much-anticipated final rule changing the regulations for the so-called "white collar” exemptions under the FLSA, and significantly increasing the minimum salary level necessary for employees to be properly classified as exempt executive, administrative, and professional employees.

The final rule and its increased salary requirements will take effect on December 1, 2016. The new regulations will:

Increase by slightly more than double the minimum salary level for exempt “white collar” employees from $455/week ($23,660/year) to $913/week ($47,476/year);
Raise the highly compensated employee (“HCE”) threshold from $100,000 to $134,004; and
Automatically update every three years (1) the minimum salary level to the 40th percentile of full-time salaried workers in the lowest income region of the country; and (2) the HCE threshold to the 90th percentile of full-time salaried workers nationally.

No exception is made for small businesses. The final rule does not make any changes to the duties tests for executive, administrative and professional employees. The final rule also allows for up to 10 percent of the minimum salary level for non-HCE employees to be met by non-discretionary bonuses, incentives, or commissions, if these payments are made on at least a quarterly basis.

As a practical matter, these changes to the “white collar” regulations mean higher wages to employees, higher wage costs for employers, and likely increased exposure and risk to employers in wage and hour cases.

A "pre-publication" version of the final rule can be found here.

Final "White Collar" Overtime Regulations Expected Soon

2016-02-18T08:50:00.000-05:00

The final rule for the new "white collar" overtime regulations from the U.S. Department of Labor (“DOL”) is likely to be published in spring or summer of 2016.

As we previously reported, the DOL issued proposed regulations in July 2015 announcing significant changes to the law governing certain “white collar” workers who are exempt from minimum wage and overtime pay. The DOL’s proposed regulations more than double the current minimum salary level for exempt employees, significantly increase the salary level required for employees to be exempt from overtime as highly compensated employees, and automatically adjust the minimum salary level each year to account for the increase in the cost of living.

The DOL’s Fall 2015 Semiannual Regulatory Agenda indicates that the timetable for publishing the final rule is July 2016. However, there is reason to think that the final rule might come sooner. In an interview with Bloomberg BNA on December 16, 2015, Labor Secretary Thomas Perez stated, “I'm confident we’ll get the final rule out by the spring of next year.”

The final rule is expected to increase the minimum salary level for "white collar" exempt employees, and to add a mechanism for an automatic annual increase of that minimum level. It is expected that fewer employees will meet the requirements to be exempt from overtime, and thus either will be entitled to receive overtime pay, or will have to receive a higher salary in order to remain exempt under the FLSA.

Labor Day Hot Topics

2015-09-07T16:39:00.000-04:00

Happy Labor Day 2015! In the spirit of the day, we thought it fitting to reflect on the three, hot topics that have been dominating the labor and employment news this summer, and which are certain to impact employers and employees in 2016.

Revision to FLSA's "White Collar" Regulations. In summary, these proposed amendments to the Fair Labor Standards Act regulations more than double the minimum salary level (from $23,660 to over $50,000 per year in 2016) for certain employees deemed to be exempt from overtime as administrative workers, executives, professionals, and computer employees. The amendments also increase the minimum pay level necessary to be deemed an exempt "Highly Compensated Employee" from the current $100,000 to $122,148 per year. These proposed regulations are a compliance and budgeting issue for many businesses. Barring some unexpected event, the regulations are likely to become effective in 2016.
New DOL Guidance on Contractor Misclassification. The U.S. Department of Labor issued a new administrative interpretation for the legal test of whether a worker is an independent contractor or an employee. The bottom line is that under the new interpretation, it will be more difficult than ever to properly classify a worker as a contractor. This new guidance has significant implications for businesses who rely on contract labor, as there are substantial tax, wage and hour, and benefits consequences for misclassification.
Expansion of NLRB's Test for "Joint Employment." The National Labor Relations Board (NLRB) announced in an August 27, 2015 decision that it was changing the test to determine whether two related businesses are "joint employers." In sum, the federal position announced in the NLRB decision is that many more businesses, like franchisors-franchisees, manufacturers-distributors, and staffing agencies and their clients can be held jointly liable for employment claims (wage and hour violations, discrimination and harassment, etc.) and could more easily organized by labor unions. This new legal test will be a major change for many businesses if it survives the expected court challenge.

We will be watching these changes in the law closely in the coming months as businesses begin making adjustments to comply with them and to mitigate their legal risks.

Be Warned: Federal Guidance on Misclassification States that “Most Workers Are Employees,” Not Independent Contractors

2015-09-03T09:16:00.000-04:00

On July 15, 2015, the United States Department of Labor (“DOL”) released official guidance addressing the misclassification of employees as independent contractors. The guidance, Administrator’s Interpretation No. 2015-1 (“AI 2015-1”), explains how the legal test for classifying workers as either employees or contractors will be interpreted by the DOL, and states that most workers are employees covered by the Fair Labor Standards Act (“FLSA”), which is the federal wage and hour law.

Strictly speaking, AI 2015-1 is not a new statute or regulation. Rather, it sets forth how the DOL will apply the FLSA and the “economic realities test” used to determine whether a worker is a contractor or employee under the law. The guidance makes clear that when the DOL considers the issue of classification in an enforcement action, employers will face a higher bar to establish that a worker should be treated as an independent contractor. In addition, because the guidance is an official pronouncement of the agency charged with administering and enforcing the FLSA, courts will give weight to the DOL’s interpretation. To the extent that courts consider and defer to the guidance, defending such classifications in lawsuits will be more difficult.

What is Misclassification?
Generally speaking, workers are deemed to be either employees or independent contractors, and different legal rules apply to each class. Employees are subject to host of legal protections related to minimum wage and overtime pay, benefits, equal employment opportunity, on-the-job injuries and other issues. Likewise, businesses are obligated to pay certain state and federal taxes for their employees. On the other hand, workers who are contractors are considered independent of the business that engages them for work. As such, contractors lack the legal protections afforded to employees, and no employment or payroll taxes are paid for contractors.

There is an increasing focus by state and federal agencies, as well as by lawyers for workers who are treated as independent contractors, to challenge the classification of the contractors. In those challenges, the worker is alleged to have been misclassified as a contractor when in reality, the worker should have been classified as an employee. The exposure to the business for which he or she worked is often significant, in terms of claimed damages for unpaid wages, overtime pay, employment law violations, etc., as well as often substantial back-tax and penalty liabilities arising from the improper classification of the work for tax purposes. The largest risk is for companies that use large numbers of similarly situated workers classified as contractors. In those cases, a company may face the risk of a large, collective action suit that can imperil its entire business model.

The Economic Realities Test
The legal test to determine whether a worker is an employee or a contractor varies depending on the legal context, as there can be varying tests applied under tax law, employment law, workers’ compensation law, etc., and those tests can be different from state to state. At bottom, the analysis typically turns on control, i.e., whether the worker is truly an independent agent who controls his or her own work (contractor), or whether the worker’s service was controlled and directed by the business (employee).

Relevant to this discussion, AI 2015-1 starts with the proposition that under the FLSA, the definition of “employ” includes to “suffer or permit to work.” The FLSA’s “suffer or permit to work” standard is construed broadly, and brings within the coverage of the FLSA not only work that an employer directly requests or demands of an employee, but also work that the employer allows (i.e., suffers or permits) to be performed.

When analyzing whether there is an employment relationship under the FLSA, courts follow “the economic realities test.” This test requires an analysis of all of the relevant factors concerning the work relationship. As AI 2015-1 notes, under the economic realities test, the factors include: “(A) the extent to which the work performed is an integral part of the employer’s business; (B) the worker’s opportunity for profit or loss depending on his or her managerial skill; (C) the extent of the relative investments of the employer and the worker; (D) whether the work performed requires special skills and initiative; (E) the permanency of the relationship; and (F) the degree of control exercised or retained by the employer.” The test is a flexible one, judged on a case-by-case basis. While all of the factors are to be considered, none are determinative.

AI 2015-1
The DOL’s interpretation announced in AI 2015-1 does not change the formulation of the economic realities test. However, as it explains how the factors under the test should be considered, AI 2015-1 makes clear that the DOL’s interpretation will result in most workers being classified as employees under the FLSA. As AI 2015-1 states:

All of the factors must be considered in each case, and no one factor (particularly the control factor) is determinative of whether a worker is an employee. Moreover, the factors themselves should not be applied in a mechanical fashion, but with an understanding that the factors are indicators of the broader concept of economic dependence. Ultimately, the goal is not simply to tally which factors are met, but to determine whether the worker is economically dependent on the employer (and thus its employee) or is really in business for him or herself (and thus its independent contractor). The factors are a guide to make this ultimate determination of economic dependence or independence.

As the DOL applies the test, “a worker who is economically dependent on an employer is suffered or permitted to work by the employer.” Accordingly, in the DOL’s view, such workers fall within the FLSA’s “suffer or permit to work” standard, and should thus be treated as employees.

What is perhaps dramatic, but certainly not unexpected to those who have been following the issue of misclassification, is the DOL’s conclusion that in most cases, the economic realities test will demonstrate economic dependence (rather than independence). As the DOL directly states: “[A]pplying the economic realities test in view of the expansive definition of ‘employ’ under the Act, most workers are employees under the FLSA.” Id. (emphasis added).

AI 2015-1 provides specific examples of workers in hypothetical cases and how the DOL says the cases should be analyzed under each of the six factors of the economic realities test. These examples demonstrate that many typical facts (at least in the DOL’s view) necessarily weigh in favor of classification of workers as employees. Indeed, following the DOL’s guidance on each factor of the test will, in most cases, make it very challenging to reach a conclusion other than the worker should be classified as an employee. In addition, it seems plain that AI 2015-1 will serve to assist workers and plaintiffs’ attorneys with arguments and citations when bringing misclassification claims.

Unsurprisingly, reactions to the Administrator’s Interpretation have varied, with businesses and industry groups expressing concern and workers and advocates expressing approval. For example, The Wall Street Journal reported that the National Association of Home Builders “blasted the new guidance as improperly introduced without public vetting and a boon to labor unions seeking to organize various industries.” Melanie Trottman, Employees vs. Independent Contractors: U.S. Weighs In on Debate Over How to Classify Workers, Wall Street Journal, July 15, 2015. On the other hand, National Employment Law Project (“NELP”) Executive Director Christine Owens praised the guidance, stating that it is “a wake-up reminder to companies playing fast and loose with labels and overusing 1099 hiring.” NELP Commends U.S. Department of Labor’s Independent Contractor Misclassification Guidance, NELP.org (July 15, 2015), http://nelp.org/news-releases/nelp-commends-u-s-department-of-labors-independent-contractor-misclassification-guidance/.

AI 2015-1 can be found in its entirety at http://www.dol.gov/whd/workers/Misclassification/AI-2015_1.htm.

Action Items
As we have been suggesting to businesses for some time, and as AI 2015-1 underscores, it is imperative for businesses who classify any workers as contractors to evaluate whether there is a risk of misclassification. The ideal time to address the issue (and correct any misclassification) is before the business is faced with a tax audit, DOL complaint or investigation, or a lawsuit. For businesses whose model is premised on contract labor, particularly those with many similarly situated workers, they must understand that the legal environment is a hostile one and take steps to ameliorate the risks to the extent possible. Dealing with these issues is never easy, but becomes exceedingly more difficult when trying to address them in the midst of a government investigation or a lawsuit

Major Changes to Overtime Regulations for "White Collar" Workers

2015-08-26T14:25:00.000-04:00

Authored by John Pueschel

On July 6, 2015, the U.S. Department of Labor (“DOL”) issued proposed new regulations that will significantly change the law governing certain “white collar” workers who are exempt from minimum wage and overtime pay. All employers need to become familiar with these proposed rules, which may, if they become final, greatly impact wages and overtime pay to workers. In addition, for those that want to have their voices heard, there is still time (until September 4, 2015) for the public to make formal comments to the DOL.

Under the Fair Labor Standards Act (“FLSA”), which is the federal wage and hour law, some employees may be classified as “exempt” from the Act’s minimum wage and overtime pay requirements. The most well-known and commonly used exemptions are the so-called “white collar” exemptions applicable to executive, administrative, and professional employees. The DOL’s proposed rules will change the current regulations to more than double the current minimum salary level for exempt employees, significantly increase the salary level required for employees to be exempt from overtime as highly compensated employees, and automatically adjust that minimum salary level each year to account for the increase in the cost of living.

As a practical matter, the proposed regulations will mean that fewer employees will meet the requirements to be exempt from overtime (and thus will be entitled to overtime pay), or that employers must pay higher salaries in order for the employees to remain exempt under the FLSA. Here are the specific changes proposed to the white collar exemptions, which are expected to become effective by 2016:

Increase (by more than double) the current minimum salary threshold (currently $455 per week, or $23,660 per year) to $921 per week, or $47,892 per year, which will be adjusted annually by DOL. Assuming the rules become final, the salary level is estimated to be set at $970 per week, or $50,440 per year for 2016.

Increase the minimum compensation for Highly Compensated Employees (HCE) from its current level ($100,000 per year) to $122,148 per year.

Create an automatic, annual adjustment mechanism for the minimum salary thresholds for the standard exemption and that for HCE. (The DOL is asking for public comments to guide its determination to use one or the other of two adjustment mechanisms.)

The DOL states that under the proposed regulations, approximately 4.6 million workers would lose their exemption under the proposed rules (and thus be eligible for overtime pay), unless employers increase their pay. In terms of economic impact, these changes are significant. The DOL estimates that the “average annualized direct employer costs will total between $239.6 and $255.3 million per year.” In addition, the DOL also states that this “proposed rulemaking will also transfer income from employers to employees in the form of higher earnings. Average annualized transfers are estimated to be between $1.18 and $1.27 billion, depending on which of the two updating methodologies is used.”

After a period of public comment, the DOL will publish the final rules, which will be codified as final and binding federal regulations. It seems all but certain, barring some sort of exceptional set of circumstances, that the proposed rules increasing the salary levels and adding a mechanism for automatic annual increase will become final.

For those who wish to have their voices heard on these proposed regulations, the DOL is accepting public comments until September 4, 2015. Details for submitting comments are can be found here.

Womble Carlyle Launches Resource Page for Proposed Rules on "White Collar" Exemptions

2015-02-20T15:11:00.000-05:00

Updated, September 19, 2017: Due to the 2016 regulations being struck down by a federal court, we have removed the Resource Page as no longer relevant or accurate.

The last week of February is upon us, and the Department of Labor has not yet issued the highly anticipated new FLSA regulations which will propose changes to the white collar exemptions. Announced by President Obama nearly a year ago, the proposed rules (which have already been postponed once) are currently scheduled for release sometime this month. If the FLSA proposed rules become law, they are expected to dramatically change which employees can be classified as exempt, which in turn may significantly impact wages and overtime pay to workers.

Womble Carlyle is pleased to announce a Resource Page to help businesses prepare for these proposed rules, which will be the most significant change to the FLSA in more than a decade. The Resource Page provides businesses with the latest information and updates on these proposed rules, including background information and references to key materials.

The Resource Page can found here.

When the proposed rules are finally released, we look forward to offering our analysis and practical recommendations to assist businesses with understanding the proposed rules, and meeting the expected compliance challenges if the proposed rules become law.

As Intern Season Approaches, Remember That Unpaid Internships Can Be Risky

2015-02-13T08:46:00.000-05:00

Right now, many organizations are getting ready for a new class of interns to arrive in May when schools and colleges finish for the summer. With fully laudable intentions, many organizations offer summer internships as a chance to allow students to get their feet wet in a business or industry, fully recognizing that the students’ contributions and added value, if any, are not that great.

Experience teaches that many organizations do not pay interns. However, this is often a risky proposition. Under the Fair Labor Standards Act, the legal standard to qualify as an unpaid internship is actually quite high. The consequence of failing to meet that legal standard—and in our experience many may not—is that the “intern” is deemed to be a misclassified employee, and would be entitled to be paid minimum wage and overtime for all of the hours worked as an unpaid intern.

This exposure, including liquidated (i.e., double) damages and potential penalties and attorneys’ fees, can be significant. In addition, there could be tax exposure for any unpaid employment taxes and withholdings that were not made because the wages that should have paid were not.

So, if you are considering an unpaid internship program this summer, take the time to ensure it is legally compliant. For those that want to take a closer look at their internship programs, our Client Alert on this issue provides a detailed summary of the compliance issues and risks, and practical tips for employers. The Client Alert can be found here.

Wisconsin Joins DOL’s Worker Misclassification Initiative

2015-02-04T14:10:00.000-05:00

On January 20, 2015, the U.S. Department of Labor announced that Wisconsin has also joined the growing list of states that have entered into formal agreements with the DOL to share information about worker misclassification. Under the terms of a "partnership agreement," the DOL and the Wisconsin Department of Workforce Development agreed to share information about workers who may be improperly classified as independent contractors instead of employees. The DOL's news release can be found here.

As noted here previously, workers who are misclassified as contractors may be denied benefits, minimum wage, and overtime pay that they might receive if properly classified as employees. Likewise, the federal government and state taxing authorities miss out on payroll and other taxes that they would receive if the workers were properly classified.

By sharing information, the DOL and the states participating in the initiative hope to reduce misclassification and increase compliance with employment, wage and hour, and tax laws. The DOL reports that similar agreements have been entered into with the states of Alabama, California, Colorado, Connecticut, Florida, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New Hampshire, New York, Utah and Washington.

U.S. Supreme Court Rules That Time Spent In Mandatory Security Screening at the End of a Workday Is Not Compensable

2015-01-28T08:21:00.000-05:00

The United States Supreme Court issued an interesting decision last month on whether employees who are required to undergo security screening after their work was done should be paid for that time. The Supreme Court found in favor of the employer, and concluded that workers did not have to be paid for that that time because the screening was a non-compensable “postliminary” activity under the Portal-to-Portal Act.

In Integrity Staffing Solutions, Inc. v. Busk, the employer was a company that provided staff to work in warehouses for the online giant, Amazon. A group of workers filed a class action in 2010 against the staffing company seeking unpaid wages under the FLSA. According to their complaint, workers were required to pass a security screening at the end of the day in order to deter theft of product from the warehouse. The workers alleged that it could take workers up to 25 minutes to compete the screening process, for which they were not paid. Because the screening was allegedly necessary and for the employer’s benefit, the workers claimed they should have been compensated for the time.

Initially, the federal district court dismissed the workers' case for failing to state a viable legal claim. The district court ruled that the security screening was a non-compensable "postliminary" activity under the Portal-to-Portal Act because it was not an "integral and indispensable part" of the warehouse duties the workers were hired to perform. The U.S. Court of Appeals for the Ninth Circuit disagreed and reversed, holding that the screening was a postliminary activity, but was compensable because it was necessary to the warehouse work and for the benefit of the employer. The employer successfully petitioned the U.S. Supreme Court to hear the case.
In a unanimous opinion written by Justice Thomas, the Supreme Court reversed. The Court started with the proposition that the Portal-to Portal Act makes noncompensable "activities which are preliminary to or postliminary to said principal activity or activities" of a worker’s job. Citing its long-standing interpretation of the Act, the Court stated that “the term ‘principal activity or activities’ [embraces] all activities which are an ‘integral and indispensable part of the principal activities.’”

The Court held that under the Portal-to-Portal Act, employers were not required to pay workers for postliminary activities that were not integral to the workers' warehouse duties. In a succinct analysis, the Court concluded:

The security screenings at issue here are noncompensable, postliminary activities. To begin with, the screenings were not the “principal activity or activities which [the] employee is employed to perform.” 29 U. S. C. §254(a)(1). Integrity Staffing did not employ its workers to undergo security screenings, but to retrieve products from warehouse shelves and package those products for shipment to Amazon customers.

The security screenings also were not “integral and indispensable” to the employees’ duties as warehouse workers. As explained above, an activity is not integral and indispensable to an employee’s principal activities unless it is an intrinsic element of those activities and one with which the employee cannot dispense if he is to perform those activities. The screenings were not an intrinsic element of retrieving products from warehouse shelves or packaging them for shipment. And Integrity Staffing could have eliminated the screenings altogether without impairing the employees’ ability to complete their work.

As savvy HR professionals and in-house counsel know, this case does not create a blanket rule that renders noncompensable every activity after a worker leaves his or her work station. Each situation is different and will generally require a detailed analysis of the particular facts. Indeed, in this case, it took about half a decade in the federal courts to come to a final answer.

The case is a relatively straightforward read, and contains a good history and discussion of the Portal-to-Portal Act. For those who are interested, the Supreme Court's decision can be found here.

Because you are asking . . . DOL Says New Proposed Rule On White Collar Exemptions Under The FLSA Will Be Issued In February 2015

2015-01-22T08:57:00.000-05:00

As many of you know, last year President Obama directed the DOL to issue new regulations to “modernize and streamline” the white collar exemptions to the minimum wage and overtime requirements under the FLSA. (Keep in mind that under federal rulemaking procedures, the DOL will first issue a “Notice of Proposed Rulemaking” and allow a period of public comment before issuing a final rule.) We have been waiting for the proposed rule so that we can see what changes the DOL has in mind for these key provisions of the FLSA, which are expected to revise the current regulations for the executive, administrative, and professional exemptions.

Initially, the DOL said the proposed rules would be issued last Fall, but the DOL later announced the notice would be delayed. Currently, the DOL’s expected release date is sometime in February 2015, according to a notice from the Office of Management and Budget. Like you, we will be watching closely for these highly anticipated rules which (if finalized) are likely to significantly impact workers and businesses.

Florida Joins U.S. DOL’s Worker Misclassification Initiative

2015-01-19T14:51:00.000-05:00

On January 13, 2015, the U.S. Department of Labor announced that Florida joined the ranks of states that have entered into formal agreements with the DOL to share information about worker misclassification. Under the terms of a memorandum of understanding, the DOL and the Florida Department of Revenue agreed to share information about workers who may be improperly classified as independent contractors instead of employees. The announcement can be found here.

Workers who are misclassified as contractors may be denied benefits, minimum wage, and overtime pay that they might receive if properly classified as employees. Likewise, the federal government and state taxing authorities miss out on payroll and other taxes that they would receive if the workers were properly classified.

By sharing information, the DOL and the states participating in the initiative hope to reduce misclassification and increase compliance with employment, wage and hour, and tax laws. The DOL reports that similar memoranda of understanding have been entered into with the states of Alabama, California, Colorado, Connecticut, Hawaii, Illinois, Iowa, Louisiana, Maryland, Massachusetts, Minnesota, Missouri, Montana, New York, Utah and Washington.

New Year Resolutions for North Carolina Staffing Firms (A Legal Perspective)

2013-01-14T15:20:00.000-05:00

Like most of us, recruiting and staffing firms prioritize their New Year resolutions to ensure a prosperous and successful year. Here are a couple of legal compliance issues to keep in mind when considering your “resolutions” as you kick-off the New Year:

E-Verify

As you are aware by now, North Carolina law requires some private employers to use the federal E-Verify program to verify the work authorization of all new hires. As of January 1, 2013, private businesses with more than 100 employees are required to enroll in the Internet-based E-Verify system.

The E-Verify program is operated by the Department of Homeland Security in partnership with the Social Security Administration. It verifies a new hire’s work eligibility by comparing the employee’s I9 Form information with the Social Security Administration’s database. It is free, and it has been designed to be user-friendly for employers.

The final phase of the NC E-Verify law goes into effect on July 1, 2013 and requires private business with more than 25 employees to enroll in the E-Verify system. North Carolina businesses should be aware of the E-Verify requirements including recordkeeping requirements for storing and retaining E-Verify results and the I9 Form.

Fair Credit Reporting Act (FCRA)

Beginning January 1, 2013, businesses, including staffing firms, must begin using new FCRA forms to notify applicants and employees of their legal rights. FCRA sets forth the procedural requirements that employers must adhere to when conducting background checks through Consumer Reporting Agencies. A Consumer Reporting Agency (“CRA”) is any third party that handles your background checks for new hires.

While there are no substantive changes to the FCRA forms (which consist of the consent form for obtaining a background check, preadverse decision notification, and adverse action notification), the forms must be updated to reflect that the Consumer Financial Protection Bureau has taken over enforcement of FCRA (which was previously handled by the Federal Trade Commission).

Conclusion

While a legal forecast for 2013 cannot be fully addressed in this article, we will touch upon some of the 2013 legal trends facing employers at the NCASP Annual Spring Conference (April 25-27, 2013).

The new E-Verify and FCRA requirements went into effect on January 1, 2013. Accordingly, all North Carolina employers should be prepared to comply with these changes immediately.

This article first appeared in the Jan./Feb 2013 issue of Staffing Now, the North Carolina Association of Staffing Professionals (NCASP) Ezine.

Wage and Hour Claims: Is the Staffing Industry a Target for the Department of Labor and Plaintiffs’ Counsel?

2012-11-26T15:03:00.000-05:00

This article first appeared in the November/December 2012 issue of Staffing Now, the North Carolina Association of Staffing Professionals (NCASP) Ezine.

The number of wage and hour lawsuits filed in the United States is dramatically increasing, with thousands of federal wage and hour claims brought against employers so far this year. The increase is due in large part to the weak economy and high unemployment rate. These lawsuits arise primarily out of the Fair Labor Standards Act (the “FLSA”) which is the federal law governing minimum wage, overtime pay, recordkeeping requirements, child labor standards, and equal pay in employment. Wage and hour claims can also arise under state law, and, recently, we have seen a “hybrid” of cases consisting of both federal and state law claims. Not surprisingly, the staffing industry has been impacted by this rapid rise in wage and hour claims.

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Incorporating GINA’s Safe Harbor Language into Employment Policies

2012-05-08T16:56:00.001-04:00

This article first appeared in the May/June 2012 issue of Staffing Now, the North Carolina Association of Staffing Professionals (NCASP) Ezine. Authored by Womble Carlyle's Jill Benson.

The Genetic Information Nondiscrimination Act of 2008 ("GINA") makes it illegal for employers (that employ 15 or more employees) to discriminate against applicants or employees because of their "genetic information." Under GINA, employers are prohibited from requesting genetic information from applicants or employees and cannot use genetic information in making employment decisions. The Equal Employment Opportunity Commission is responsible for enforcing GINA’s anti-discrimination provisions.

More American Workers Sue Employers for Overtime Pay

2012-04-16T12:57:00.002-04:00

From USA Today: Americans were pushed to their limit in the recession and its aftermath as they worked longer hours, often for the same or less pay, after businesses laid off almost 9 million employees.

Now, many are striking back in court. Since the height of the recession in 2008, more workers across the nation have been suing employers under federal and state wage-and-hour laws. The number of lawsuits filed last year was up 32% vs. 2008, an increase that some experts partly attribute to a post-downturn austerity that pervaded the American workplace and artificially inflated U.S. productivity.

US Labor Department Sues Bluefield, W.Va., Accounting Firm and President To Recover Back Wages

2012-04-06T13:35:00.002-04:00

The U.S. Department of Labor has filed a lawsuit against Bluefield accounting firm Raymond A. Froy Jr. CPA, PC and its president, Raymond A. Froy Jr., for alleged violations of the federal Fair Labor Standards Act that affected five employees. The suit followed an investigation by the department’s Wage and Hour Division that found the defendants had violated the FLSA’s minimum wage, overtime and record-keeping requirements.

FLSA Headlines

2012-03-30T13:53:00.003-04:00

CarMax Faces Unpaid Overtime Class Action (Lawyers and Settlements)

Wage and Hour Litigation is Big—and Getting Bigger (Corporate Counsel)

Fourth Circuit finds duty to defend Fair Labor Standards Act case (Lexology)

Minimum Wage Proposal For Servers Opposed By Restaurant Owners (Courant.com)

Jill Benson to Discuss Employment Law Changes with NCASP Members

2012-02-23T13:48:00.002-05:00

Womble Carlyle attorney Jill Benson will be a speaker at the 2012 North Carolina Association of Staffing Professionals (NCASP) Annual Training Conference, to be held May 17-19 in Wrightsville Beach, N.C.

Benson has been a regular speaker at the NCASP Annual Training Conference in recent years, speaking on a variety of employment law compliance topics. This year, she will discuss recent changes in employment law that will affect NCASP members. Benson’s presentation takes place Saturday, May 19th.

Womble Carlyle is a Bronze Sponsor of the event.

Career GPS for In-House Counsel

2012-02-14T16:38:00.000-05:00

Womble Carlyle Chief Leadership and Executive Development Officer Vandana Allman will participate in a discussion of “Career GPS for In-House Counsel” with members of the Washington Metropolitan Area Corporate Counsel Association (WMACCA). The luncheon takes place from noon-2 p.m. on Feb. 29th at the Tysons Corner Marriott, 8028 Leesburg Pike in Tysons Corner, Virginia. The “Career GPS For In-House Counsel” presentation will provide a guidance system for in-house counsel who want to design and implement professional-growth routes that will help them reach their destination as quickly and efficiently as possible.

WMACCA’s Career GPS for In-House Counsel is 12-2 p.m. Feb. 29 at Tysons Corner Marriott http://bit.ly/yzHfMJ. Register today.

Federal Courts Increasingly Unhappy with Proposed FLSA Settlements

2012-02-06T11:54:00.004-05:00

Federal courts are increasingly unhappy with proposed settlements of FLSA collective actions in which attorneys’ fees are disproportionate to the back pay for plaintiffs and “class” members, as the attached decision out of the Southern District of Florida demonstrates. Such cases are not conducive to percentage contingent fee arrangements in any event, but where, as here, the suggested fee was three times the aggregate back pay, Judge Donald Graham threw a flag and ordered a replay.

Southern District of Florida Settlement (pdf)

When “letting off steam” becomes protected activity under the FLSA

2012-01-27T16:23:00.003-05:00

The Fourth Circuit Court of Appeals today held that an employee who complains to her employer about alleged violations of the Fair Labor Standards Act is protected from retaliatory action from the employer. In Minor v. Bostwick Laboratories, Inc., 10-1258, the court joined the majority of circuit courts of appeals in giving a broad interpretation to the anti-retaliation provisions of 29 U.S.C. § 215(a)(3). Although prior Fourth Circuit authority appeared to require an employee to file a formal complaint with the Department of Labor or the court, today’s opinion makes clear that an employee’s intracompany complaint to management will be sufficient to warrant protection. Ms. Minor had complained to a senior executive that she believed her supervisor was altering time cards to eliminate overtime. The executive responded that he would look into it. A few days later, the company terminated Ms. Minor allegedly for being disruptive in the workplace. She sued claiming illegal retaliation.

The court recognized that employees simply letting off steam will not be sufficient to invoke the protection of the FLSA. The employee’s report to the employer 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 and a call for their protection." The court did not decide if the facts of the case supported a verdict. It simply decided that Ms. Minor had alleged enough facts to pursue the claim.

Employers need to be careful in how they respond to employee complaints regarding wage and hour issues.

By David Yandle

Mr. Yandle represents employers in all facets of employment law, including Title VII, ADA, ADEA, FLSA and FMLA.