Tougher Stance on Labor Law Enforcement May Challenge Employers
The Obama administration begins its second year in office with a renewed emphasis on the enforcement of many employment-related statutes. The Department of Labor’s (“DOL”) recently released budget for fiscal year 2011 reveals a shift of the DOL’s discretionary funding towards enforcement of existing laws. In fact, the DOL budget includes $25 million for a joint initiative between the DOL and the Department of the Treasury to strengthen and coordinate federal and state efforts to enforce various statutory prohibitions. The Fair Labor Standards Act (“FLSA”) is one of the statutes that is expected to receive increased attention from the DOL. This article will focus on the major aspects of the FLSA which are often problematic for employers.
Major Provisions of the FLSA
The FLSA contains a complex statutory section with a myriad of regulations including those covering the following:
- Classification of employees – requires employers to classify employees as being either exempt or non-exempt from the overtime provisions of the FLSA.
- Minimum wage – establishes a minimum wage for covered, non-exempt employees. Currently, the minimum wage is set at $7.25 per hour. Many states have minimum wage laws that create a higher minimum wage than the federal rate, and covered employers must pay the higher rate. Currently, Delaware’s rate is equal to the federal minimum wage. Included in the exceptions to minimum wage requirements are certain tipped employees and employees under the age of 20 during their first 90 days of employment.
- Overtime provisions – establishes a 40-hour workweek for covered, non-exempt employees. Employers are required to pay non-exempt employees at a rate of 1.5 times their regular rate for all hours worked in a week above 40 hours.
- Recordkeeping requirements – requires employers to keep and maintain specific records, including, but not limited to, the hours worked by non-exempt employees each day, even if that employee receives a salary.
Issues of Concern for Employers
Some of the FLSA issues expected to garner attention from the DOL enforcement division include classification, overtime and interns.
- Classification of Employees – One of the administration’s focal points is expected to be the classification or misclassification of employees under the FLSA. The major emphasis will be on investigating whether employers have misclassified individuals as “independent contractors,” which would exempt the individual from entitlements to minimum wage and overtime requirements. The DOL is expected to target certain industries, such as construction, child care, home health care, grocery stores, janitorial, business services, poultry and meat processing, and landscaping, where misclassification problems occur more frequently.
Whether an individual is an “independent contractor” or an employee depends on several factors including: (1) the degree of control exercised by employer over workers; (2) the workers' opportunity for profit or loss and their investment in business; (3) the degree of skill and independent initiative required to perform work; (4) the permanence or duration of the working relationship; and (5) the extent to which work is an integral part of employer's business. Godoy v. Restaurant Opportunity Center of New York, Inc., 615 F.Supp.2d 186 (S.D.N.Y. 2009). No single factor is controlling; rather the courts will focus on the level of dependence the individual has on the business. The greater the dependence, the more likely that there will be a finding that the individual is an employee. Employers should be wary of misclassifications of individuals as “independent contractors” not only from an FLSA perspective, but also from the standpoint of potential liability for failing to withhold taxes.
Aside from the “independent contractor” classification, employers should also take care not to misclassify employees under one of the other exemptions to the FLSA. The most common exemptions are for executive, administrative and professional employees. Under any of these exemptions, the employee must be compensated at a rate of at least $455 per week.
Additionally, with respect to the “executive exemption,” the classification applies where the: (1) employee’s primary duty is management of the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof; (2) employee customarily and regularly directs the work of two or more other employees; and (3) employee has the authority to hire or fire other employees or their suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees are given particular weight. 21 C.F.R. 541.100.
With respect to the “administrative exemption,” the employee’s primary duty must: (1) be 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 (2) include the exercise of discretion and independent judgment with respect to matters of significance. 21 CFR 541.200.
Finally, with respect to the “professional exemption,” the employee’s primary duty must be one that either requires: (1) knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction; or (2) invention, imagination, originality or talent in a recognized field of artistic or creative endeavor. 21 CFR 541.300.
- Work Hours and Overtime – Under the FLSA, non-exempt employees must be paid for all hours they are required to work. With the rise of various forms of technology, it has become much easier for employees to remain connected to the workplace after hours, and at the same time making it much harder for employers to track employees’ hours and time spent working. Where employees are checking email and voicemail from home after hours, there is potential for this time to invoke the FLSA requirements. While there does not appear to have been any litigation involving PDAs and the FLSA at this time, most experts expect that FLSA challenges are right around the corner. To guard against potential problems, employers should take precautions, such as not giving PDAs (Blackberries, iPhones, remote computer access, etc.) to non-exempt employees, or strictly monitoring their use after hours.
- Interns – With summer approaching, many employers are looking to hire summer interns where the major issue centers around whether these individuals are actually employees and thus subject to the FLSA’s provisions, or whether they can be considered as another category of workers. For the individual to be classified as a intern, the following criteria must be met: (1) the training must be similar to that which would be given in a vocational school; (2) the training must be for the benefit of the student; (3) the student must not displace a regular employee, but work under the close observation of a regular employee or supervisor; (4) the employer must provide the training and must not derive an immediate advantage from the activities of the student, and on occasion, the operations may actually be impeded by the training; (5) the student is not necessarily entitled to a job at the conclusion of the training period; and (6) the employer and student understand that the student is not entitled to wages for the time spent training.
The topics discussed are not meant to be an all instructive compliance guide to the FLSA, but rather a focus on some of the key compliance issues likely to cause problems for employers near-term. With the Obama administration’s renewed focus on the FLSA and other employment-related statutes, employers should take steps to ensure they are in compliance with wage and hour rules.
Reprinted with permission from 2/17/2010 issue of the Delaware Law Weekly© 2010 ALM Media Properties LLC. Further duplication without permission is prohibited. All rights reserved.