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THE FAIR LABOR STANDARDS ACT IN TEN MINUTES

www.lfhc.com

Jim Mulroy

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Why is this important?Why is this important?

• Recently rediscovered by plaintiffs’ Recently rediscovered by plaintiffs’ lawyerslawyers

• Many reported large damage awardsMany reported large damage awards

• In some jurisdictions, one-third of all In some jurisdictions, one-third of all federal lawsuits are wage and hour federal lawsuits are wage and hour suitssuits

• Typically brought as class actions and Typically brought as class actions and can be expensive to resolvecan be expensive to resolve

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Typical Lawsuits InvolveTypical Lawsuits Involve

• Misclassification of non-exempt employees Misclassification of non-exempt employees as exemptas exempt

• Off the clock overtimeOff the clock overtime– Failure to provide uninterrupted lunch breaksFailure to provide uninterrupted lunch breaks– Preliminary and post work activityPreliminary and post work activity– Misapplication of “no overtime rules”Misapplication of “no overtime rules”

• Failure to properly calculate “regular rate” Failure to properly calculate “regular rate” and “overtime rate”and “overtime rate”

• A lot of strategic consideration in A lot of strategic consideration in defending these casesdefending these cases

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Basic StandardsBasic Standards

• A “workweek” is defined as seven A “workweek” is defined as seven consecutive, 24-hour daysconsecutive, 24-hour days

• Employers should study overtime Employers should study overtime pattern of employees and establish a pattern of employees and establish a workweek which minimizes overtimeworkweek which minimizes overtime

• Overtime is computed on a weekly, Overtime is computed on a weekly, not daily, basisnot daily, basis

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Minimum Wage & OvertimeMinimum Wage & Overtime

• Federal Minimum Wage: $5.15/hourFederal Minimum Wage: $5.15/hour

• Overtime: 1 ½ times the Overtime: 1 ½ times the regular rateregular rate of pay for hours worked over 40 in a of pay for hours worked over 40 in a work weekwork week

• Determination of “regular rate”Determination of “regular rate”

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““Regular Rate” DefinitionRegular Rate” Definition

• The “regular rate” is the employee’s The “regular rate” is the employee’s total compensation for the week, total compensation for the week, divided by the total number of hours divided by the total number of hours actually workedactually worked

• Employer must include most forms of Employer must include most forms of compensation, including: base rate; compensation, including: base rate; non-discretionary bonuses; non-discretionary bonuses; commissions; incentives; etc.commissions; incentives; etc.

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Regular Rate ExclusionsRegular Rate Exclusions

• Payments excluded from the regular rate:Payments excluded from the regular rate:– GiftsGifts– Paid leavePaid leave– Reimbursed expensesReimbursed expenses– Discretionary bonusesDiscretionary bonuses– Employer contributions to profit-sharing Employer contributions to profit-sharing

plans, trusts, savings accountsplans, trusts, savings accounts– Payments to third parties for insurance and Payments to third parties for insurance and

pension planspension plans

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Exempt/Non-exemptExempt/Non-exempt

Exempt - exempt from FLSA’sExempt - exempt from FLSA’s▪ Minimum wageMinimum wage▪ OvertimeOvertime▪ Record keeping requirements as to hours workedRecord keeping requirements as to hours worked

Non-exempt – Subject to above requirementsNon-exempt – Subject to above requirements

An employee may be “salaried exempt” or salaried An employee may be “salaried exempt” or salaried “non-exempt”“non-exempt”

Salaried “non-exempt” still must be paid overtime Salaried “non-exempt” still must be paid overtime

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■The two most often used in your The two most often used in your industry:industry:▪ExecutiveExecutive

▪AdministrativeAdministrative

▪Note that if everyone in your Note that if everyone in your organization is classified as “exempt” organization is classified as “exempt” you you havehave a problem a problem

““White Collar” ExemptionsWhite Collar” Exemptions

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■Salary Basis (periodic payment of Salary Basis (periodic payment of same amount)same amount)

■Salary Level ($455 weekly)Salary Level ($455 weekly)

■Job DutiesJob Duties

Three Tests for ExemptionThree Tests for Exemption

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■Receives predetermined compensation Receives predetermined compensation each pay period (on a weekly or less each pay period (on a weekly or less frequent basis).frequent basis).

■The compensation cannot be reduced The compensation cannot be reduced because of variations in the quality or because of variations in the quality or quantity of the work performed.quantity of the work performed.

■Must be paid the full salary for any week Must be paid the full salary for any week in which the employee performs in which the employee performs anyany work. work.

■Need not be paid for any workweek when Need not be paid for any workweek when no work is performed.no work is performed.

Salary Basis TestSalary Basis Test

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Deductions From SalaryDeductions From Salary

■If deductions from the If deductions from the predetermined salary are made for predetermined salary are made for absences occasioned by the absences occasioned by the employer or by the operating employer or by the operating requirements of the businesses, requirements of the businesses, exemption may be lostexemption may be lost

■Deductions may not be made for Deductions may not be made for time when work is not available and time when work is not available and employee isemployee is

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Permitted Salary Permitted Salary DeductionsDeductions

■ Seven exceptions from the “no pay-Seven exceptions from the “no pay-docking” rule:docking” rule:

1.1. Absence from work for one or more full Absence from work for one or more full days for personal reasons, other than days for personal reasons, other than sickness or disability.sickness or disability.

2.2. Absence from work for one or more full Absence from work for one or more full days due to sickness or disability if days due to sickness or disability if deductions made under a bona fide plan.deductions made under a bona fide plan.

3.3. To offset any amounts received as To offset any amounts received as payment for jury fees, witness fees, or payment for jury fees, witness fees, or military pay.military pay.

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Permitted Salary DeductionsPermitted Salary Deductions

■ Seven exceptions from the “no pay-Seven exceptions from the “no pay-docking” rule:docking” rule:

4.4. Penalties imposed in good faith for violating Penalties imposed in good faith for violating safety rules of “major significance”.safety rules of “major significance”.

5.5. Unpaid disciplinary suspension of one or more Unpaid disciplinary suspension of one or more full days imposed in good faith for violations of full days imposed in good faith for violations of workplace conduct rules.workplace conduct rules.

6.6. Proportionate part of an employee’s full salary Proportionate part of an employee’s full salary may be paid for time actually worked in the first may be paid for time actually worked in the first and last weeks of employment.and last weeks of employment.

7.7. Unpaid leave taken pursuant to the Family and Unpaid leave taken pursuant to the Family and Medical Leave Act.Medical Leave Act.

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■Primary dutyPrimary duty is is managementmanagement of the of the enterprise or of a enterprise or of a customarily recognized customarily recognized department or subdivisiondepartment or subdivision; ;

■Customarily and regularlyCustomarily and regularly directs the work directs the work of of 2 or more2 or more other employees; and other employees; and

■Authority to hire or fire other employees or Authority to hire or fire other employees or whose suggestions and recommendations whose suggestions and recommendations as to hiring, firing, advancement, promotion as to hiring, firing, advancement, promotion or other change of status of other or other change of status of other employees are given employees are given particular weightparticular weight..

Executive DutiesExecutive Duties

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■A frequency that must be greater than A frequency that must be greater than occasional but which may be less than occasional but which may be less than constantconstant

■Includes work normally and recurrently Includes work normally and recurrently performed every workweekperformed every workweek

■Does not include isolated or one-time Does not include isolated or one-time taskstasks

Customarily and RegularlyCustomarily and Regularly

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■The phrase “two or more other The phrase “two or more other employees” means two full-time employees” means two full-time employees or the equivalent (must employees or the equivalent (must equal 80 hours weekly)equal 80 hours weekly)

Two or MoreTwo or More

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Assistant Manager

Assistant Manager

Full-timeEmployee

Half-timeEmployee

General Manager

Assistant Manager

Half-timeEmployee

Full-timeEmployee

Full-timeEmployee

Half-timeEmployee

Half-timeEmployee

Half-timeEmployee

Half-timeEmployee

Staffing Meets the “Staffing Meets the “Two or Two or MoreMore” Requirement” Requirement

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Assistant Manager

Assistant Manager

Full-timeEmployee

Full-timeEmployee

Full-timeEmployee

Staffing Does Not Meet the Staffing Does Not Meet the ““Two or moreTwo or more” Requirement” Requirement

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Administrative DutiesAdministrative Duties

■Whose Whose primary dutyprimary duty is the performance is the performance of office or non-manual work directly of office or non-manual work directly related to therelated to the management or general management or general business operationsbusiness operations of the employer or of the employer or the the employer’s customersemployer’s customers; and; and

■Whose primary duty includes the Whose primary duty includes the exercise of exercise of discretion and independent discretion and independent judgmentjudgment with respect to matters of with respect to matters of significance.significance.

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Discretion and Discretion and Independent JudgmentIndependent Judgment

■The comparison and evaluation of possible The comparison and evaluation of possible courses of conduct, and acting or making a courses of conduct, and acting or making a decision after the various possibilities have decision after the various possibilities have been considered.been considered.

■Must be exercised with respect to “matters of Must be exercised with respect to “matters of significance,” which refers to the level of significance,” which refers to the level of importance or consequence of the work importance or consequence of the work performed.performed.

■Decisions and recommendations may be Decisions and recommendations may be reviewed at a higher level and, upon reviewed at a higher level and, upon occasion, revised or reversed.occasion, revised or reversed.

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Discretion and Discretion and Independent JudgmentIndependent Judgment

■Discretion and independent Discretion and independent judgment judgment does notdoes not include: include:▪Applying well-established techniques, Applying well-established techniques,

procedures or specific standards procedures or specific standards described in manuals or other sources;described in manuals or other sources;

▪Clerical or secretarial work;Clerical or secretarial work;

▪Recording or tabulating data;Recording or tabulating data;

▪Performing mechanical, repetitive, Performing mechanical, repetitive, recurrent or routine work.recurrent or routine work.

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Unauthorized WorkUnauthorized Work■Unauthorized work is compensable if Unauthorized work is compensable if

employer knew, or had reason to employer knew, or had reason to know that work was being performedknow that work was being performed – “suffered to work”– “suffered to work”

■Misapplication of “no overtime rules” Misapplication of “no overtime rules” often misinterpreted to mean “we do often misinterpreted to mean “we do not pay overtime”not pay overtime”

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Meal/Rest PeriodsMeal/Rest Periods

■ Non-compensable time:Non-compensable time:▪ Meal breaks of 30 minutes if completely Meal breaks of 30 minutes if completely

relieved of duty.relieved of duty.

■ Compensable:Compensable:▪ Rest periods of 5 to 20 minutesRest periods of 5 to 20 minutes

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Lectures/Meetings/Lectures/Meetings/TrainingTraining

Compensable time:Compensable time:

▪On-the-job trainingOn-the-job training

▪Work-related meetingsWork-related meetings

▪Required attendance at lectures, meetings, Required attendance at lectures, meetings, trainingtraining

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Fluctuating Workweek Fluctuating Workweek MethodMethod• AdvantagesAdvantages

– Reduces overtime costsReduces overtime costs– Provides less fluctuation in earningProvides less fluctuation in earning– Discourages unnecessary overtimeDiscourages unnecessary overtime

• DisadvantagesDisadvantages– Employee Employee mustmust be paid the full base salary be paid the full base salary

for every week in which for every week in which anyany work is work is performedperformed

– Difficult to explainDifficult to explain

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Fluctuating Workweek Fluctuating Workweek MethodMethod• How it worksHow it works

– Employee is paid straight-time compensation for Employee is paid straight-time compensation for allall hours worked, not just for 40 or fewer hourshours worked, not just for 40 or fewer hours

– Overtime is still owed at half the regular rate for hours Overtime is still owed at half the regular rate for hours worked beyond 40worked beyond 40

• Example: Employee is paid salary of $400 per Example: Employee is paid salary of $400 per week and works 50 hours. Regular rate of pay is week and works 50 hours. Regular rate of pay is 400/50 = $8.00 per hour. Half-time overtime 400/50 = $8.00 per hour. Half-time overtime would be paid at $4.00, so employee’s total pay would be paid at $4.00, so employee’s total pay that week is $440that week is $440

• Flat Rate Method (a variation of the Fluctuating Flat Rate Method (a variation of the Fluctuating Workweek Method)Workweek Method)

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Jim Mulroy6410 Poplar Avenue

Suite 300Memphis, Tennessee 38119

Phone: (901) 767-6160Fax: (901) 767-7411jrmulroy@lfhc.com

www.lfhc.com