Avoid the “traps” of MW, OT &

Exempt Employees

Danny Ramirez,

Monty & Ramirez LLP

• Introduction

• Common Minimum Wage & Overtime Pitfalls

• Classifying Employees

• Comp Time and OT

• U.S. Department of Labor

• Employer Under Siege: Collective Actions Lawsuits

• Retaliation

• Best Practices for Wage & Hour Compliance

Agenda

• The Obama Administration implemented rules expected to take effect

December 2016

• Old Salary Test: $23,660 ($455 weekly)

• New Salary Test: $47,476 ($913 weekly)

• In Nov. 2016, U.S. District Judge issued an injunction preventing the

rules from taking effect

• President Trump taps Alexander Acosta for DOL Secretary

• What now….?

Recall the 2016 Proposed DOL

Rules…

• $1.2 Billion in back wages recovered by WHD in last 5 years

• $266 Million in back wages recovered by WHD in 2016

• In 2016, over 1,000 wage and hour lawsuits were filed in Texas

• Texas has the highest number of FLSA lawsuits

Snapshot - DOL WHD & Litigation

FLSA Lawsuits

Overtime Ads Targeted at Employees

Common Minimum Wage & Overtime

Mistakes

• “Classifying” EEs as exempt from comp time/overtime:

• All Office/Clerical jobs are salaried

• EE agreed to receive salary

• Salary, non-exempt EEs

• Nobody allowed to work over 40 hours

• EE is exempt because their work is “important”

Pitfall #1

• Not Paying Comp Time/Overtime to Non-Exempt EEs:

• Compensating EEs straight time instead of Comp Time/OT rate

• Hours “cut” based on performance issues or no permission

• Relying on inaccurate records instead of accurate clock in/out records

Pitfall #2

• Off-the-Clock Work

• De Minimus work—no bright line rule

• Employees required to clock out at 5:30 p.m., but continue working off the clock

• Employee trying to “catch-up” on work, but not paid

• Employee working from home, but not paid

• Pre- and Post-job requirements

Pitfall #3

• Waiting Time

• Counted as hours worked when • Employee is unable to use the time effectively for her

own purposes; and

• Time is controlled by the employer

• Not counted as hours worked when • Employee is completely relieved from duty; and

• Time is long enough to enable the employee to use it effectively for his or her own purposes

• On-call time

Pitfall #4

• Rest and Meal Breaks:

• Rest Period less than 20 minutes must be compensated

• Meal Break less than 30 minutes must be compensated

• These periods must not be interrupted

Pitfall #5

• Misclassifying Employees as Independent Contractors:

• Employers improperly classify EEs as independent contractors

• Among other factors, if an employer has control or the right to control the worker, the worker may be misclassified as an independent contractor

Pitfall #6

• July 15, 2015 Department of Labor issues guidance on

Independent Contractor classification

• Broad and has far reaching implications

• Economic realities factors

Understanding DOL’s Guidance

• 6 Factors:

• Integral?

• Opportunity for Profit or Loss?

• Relative Investment?

• Special Skill and Initiative?

• Temporary or Permanent?

• Control?

• All considered, but none are determinative

Economic Realities Test

Employee

A social worker provides her services for the

City but:

• The engagement requires a personal work

commitment,

• The parents of the child, rather than the

social worker, largely controlled the work

situation, and

• The work was mainly performed in the

family’s home.

Worker’s Skill and Initiative?

Independent Contractor

A social worker provides his services for the

City but:

• The work was performed in the social

worker’s home,

• The worker has more autonomy in the

work provided, and

• The overall purpose was to provide a

separate experience outside of the

agency’s control.

• Incomplete & Inaccurate wage and hour records:

• An employer’s records must

be thorough and complete. If it is your word against the employee, you will lose every time

• Must be accurate

• Conduct frequent audits

Pitfall #7

Unpaid Interns

• Internship for college credit?

• Using interns instead of regular employees?

• Do interns benefits from the experience of this internship?

• What type of training or guidance is provided?

• Day-to-day tasks expected of an intern?

Pitfall #8

1. Internship is similar to training which would be given in an education environment;

2. Internship experience is for the benefit of the intern;

3. Intern does not displace regular employees;

4. Employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

5. Intern is not necessarily entitled to a job at the conclusion of the internship; and

6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Department of Labor 6-part test

So what are the “Rules” an

employer must follow?

Fair Labor Standards Act (FLSA)

• The FLSA establishes:

• Minimum wage

• Overtime pay / Compensatory Time

• Recordkeeping

Fair Labor Standards Act (FLSA)

• Vacation, holiday, severance, or sick pay

• Meal or rest periods, holidays off, or vacations

• Premium pay for weekend or holiday work

• A discharge notice, reason for discharge, or immediate payment of final wages to terminated employees

• Any limit on the number of hours in a day or days in a week an employee at least 16 years old may be required or scheduled to work

• Pay raises or fringe benefits

FLSA Does Not Require

TYPES OF EMPLOYEES:

– EXEMPT employees • Employer is not required to pay overtime or comp time; and • Employer is not required to guarantee at least the minimum wage is

paid for each hour worked.

– NON-EXEMPT employees • Employer is required to pay overtime / comp time for all hours beyond

40 worked in a work week; and • Employer is required to pay at least minimum wage (or hourly wage) for

up to 40 hours worked per workweek.

Exempt vs. Non-exempt

The Exempt Worker

Who qualifies as administrative, executive, or

professional exempt employee?

Exempt Employees – Paying the

Minimum Salary

• Minimum Salary Level: $455 per week

– Must be paid “free and clear”

• Job Duties

– Exempt employees must perform certain executive, administrative, professional, outside sales, or computer professional job duties set forth in the regulation.

• WARNING: Paying an employee a salary does not mean that employee is exempt!

• The “white collar” exemption—applies to certain EEs:

• Executive Exemption

• Administrative Exemption

• Professional Exemption

• Creative Exemption

• Highly Compensated Exemption

• Outside Sales Exemption

• Computer Professionals Exemption

Exempt From Overtime

• Job Duties:

• Primary duty is management of the enterprise or of a customarily recognized department or subdivision;

• Customarily and regularly directs the work of two or more other employees; and

• Authority to hire or fire other employees or recommendations as to the hiring, firing, advancement, promotion or other change of status of other employees given particular weight.

Exempt: “Executive” Employees

• Examples of Executive

Employees

• Plant Manager

• VP of Transportation

• HR Director

• Recruiting Lead

Exempt: “Executive” Employees

• Job Duties:

• Primary duty must be

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

• Exercise of discretion &

• Independent judgment with respect to matters of significance.

Exempt: "Administrative" Employees

• Examples of Administrative

Employees

• Human Resources EE

• In-House Accounting

• Public Relations

Exempt: "Administrative" Employees

Exempt Employees in the Office

• Receptionist

– No Way

• Billing Coordinator

– Probably not

• Legal Assistant / Executive Assistant

– Depends, but probably not

• Paralegal

– Not automatic – may not qualify for administrative

exemption

• No exercise of discretion and independent

judgment?

• Office Administrator

– May qualify for administrative exemption

– Do they have authority to unilaterally implement office-

wide policies, make unilateral office-related decisions,

independently commit office to matters with significant

financial impact, etc.?

Job Duties:

• Employee’s primary duty must be the performance of work requiring advanced knowledge, (intellectual in character and consistent exercise of discretion and judgment);

• Field of science or learning; and

• Advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction (generally a degree).

Exempt: Learned Professionals

Exempt: Creative Professional

• Employee’s primary job duties:

– Must be the performance of work

requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor

– Exemption as a creative professional depends on the extent of the invention, imagination, originality or talent exercised by the employee

– Employees in such fields as, for example, music, writing, acting and the graphic arts

• Job Duties:

• The application of systems

analysis techniques and procedures;

• The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs;

• The design, documentation, testing, creation, or modification of computer programs related to machine operating systems; and

• A combination of the above requiring the same level of skills.

Exempt: Computer Professionals

• Duties of Highly Compensated Employees:

• Perform office or non-manual work and paid total annual compensation of $100,000 or more (which must include at least $455 per week paid on a salary or fee basis); and

• They customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption

Highly Compensated Professional

Compensatory Time & Overtime

• Municipalities can pay “comp

time” instead of OT

• The municipality must have an

agreement with the EE to provide

comp time instead of OT

• Comp time is paid time off that is

given to an EE in lieu of paying

OT

Compensatory Time

• Supreme Court has held that acceptance of comp time in lieu of paid OT may be a condition of employment

• "Nothing in the FLSA or its

implementing regulations prohibits a public employer from compelling the use of compensatory time.”

• Christensen v. Harris County, 529 U.S. 576

(2000)

Compensatory Time

• Comp time must be

granted at a rate of 1.5

hours of comp time

for every 1 hour

worked over 40 in a

workweek

Compensatory Time

• An employee must be allowed to use compensatory time as long as it does not “unduly disrupt the operations” of the municipality

• Comp time must also be paid out when an employee is terminated or quits at the higher of:

• Average regular rate received by employee during last 3 years of employment, or

• Final regular rate received by such employee

Compensatory Time

• An employee who is NOT engaged in public safety activities can only accrue 240 hours of compensatory time off (~6 weeks)

• This is the equivalent of 160 hours of overtime

• Any time over this cap must be paid as overtime wages like any other industry/employer

Compensatory Time Cap

• Law enforcement and fire protection employees have unique rules

• Fire protection employees includes:

• Firefighters, paramedics, emergency medical technicians, rescue workers, ambulance personnel, and some other employees.

Public Safety Employees

• Law enforcement personnel are employees:

• Empowered by State or local

ordinance to enforce laws designed to maintain peace and order, life and property, and to prevent and detect crimes

• Who have the power to arrest, and

• Who have undergone training in law enforcement.

Public Safety Employees

• Fire protection and law enforcement

employees may accrue up to 480 hours of

comp time

• This is double the amount allowed for

ordinary workers

Public Safety Employees

• Fire protection and law enforcement employees may be paid OT or comp time on a “work period” basis:

• “Work period” can range from 7 consecutive days to 28

consecutive days

• The threshold for when OT must be paid depends on:

– Whether the employee is in law enforcement or fire protection AND

– The length of the “work period”

Public Safety Employees – Work Period

• After the threshold is met, the employee

must be paid overtime or provided comp

time, depending on which approach the

municipality uses

• The work period approach applies to either

overtime or comp time

Public Safety Employees – Work Period

• Wages (salary, hourly, piece

rate)

• Commissions

• Certain bonuses

Other Types of Wages

• Discretionary bonuses are

not included in regular rate

• Non-discretionary bonuses

ARE included in regular

rate

Discretionary Bonus

• How to keep a bonus

discretionary:

– Employer must retain

• Discretion as to $$$

• Discretion as to timing of

payment

– Cannot pay bonus pursuant

to any prior contract,

agreement or promise

• The types of incentive and production bonuses which must be taken into consideration when figuring overtime pay “because of a contract, agreement, or promise” are those based on:

• Production by individual or groups or employees;

• Attendance;

• Accuracy of work;

• Quality of work;

• Length of service;

• Efficiency;

• Courtesy; and

• Number of overtime hours worked.

Example of Non-Discretionary

• Hourly Employee’s Production Bonus – Total Hours = 48

– Hourly Rate = $9.00

– Bonus = $10

48 hours x $9.00= $432.00

Bonus + $ 10.00

$442.00

$442.00 / 48 hrs = $9.21 (Regular Rate) $9.21 x .5 = $4.61 $4.61 x 8 hrs = $36.88 (Comp Time /

Overtime Due)

• An employee in a single workweek performs

two or more different types of at different hourly

rates (on call, shift pay differential, etc.)

• Regular rate is the weighted average of both rates

• ((Rate 1 × Hours Worked) + (Rate 2 × Hours

Worked)) ÷ Total Hours Worked = Regular Rate

Paying 2 Different Hourly Rates

• Jason works on Machine A for 21 hours at a rate of $4.50 per hour and on Machine B for 26 hours at a rate of $5 per hour. Jason's total compensation will be figured as follows:

• 21 hours × $4.50 = $94.50 26 hours × $5 = $130.00 47 $224.50 regular pay

• Regular rate = regular pay ÷ hours worked

• Regular rate = $224.50 ÷ 47 hours

• Regular rate = $4.78 per hour

• Overtime pay = overtime hours × overtime rate

• Overtime pay = 7 hours × ($4.78 × ½)

• Overtime pay = 7 hours × $2.39

• Overtime pay = $16.73

• Gross wages = regular pay + overtime pay

• Gross wages = $224.50 + $16.73

• Gross wages = $241.23

Paying 2 Different Hourly Rates

• Errors result in employer paying more than is owed to EE such as:

• Pay amount of unpaid comp time / overtime for past 2 to 3 years

(depending on statute of limitation)

• Liquidated damages equal to the amount of unpaid overtime

• Attorneys fees for employee’s attorneys

• DOL Investigation

• Fines and Interest

Consequences of Misclassification

U.S. Department of Labor

• Enforcement of Employee Wages

• Objectives of U.S. Secretary Thomas E. Perez: • Increased budget

• Hiring of more investigators

• Coordinated investigations

• Labor Secretary - Alexander Acosta • Federal Prosecutor

• NLRB

• Civil Rights Chief at Justice Department

Wage & Hour Law

• DOL Investigations Begin • Employee Complaint

• Competitor Complaint

• Random Audit

• Follow-up Audit

• DOL Authority • Audit Wage and Hour Records – past 2 years

• Interview Employees (~ non-management)

• Calculate Back Wages Owed

• Liquidated Damages (*2)

• Civil Monetary Penalties

DOL Investigations

• DOL Investigations

• Liquidated Damages

• $50,000 in Back Wages

• $50,000 in Liquidated Damages

• $100,000 Total Liability

DOL Investigations

FLSA Collective Actions Lawsuits

Employers Under Siege:

• What is a FLSA Collective Action Lawsuit?

• Lawsuit alleging wage and hour violations.

• Worker’s (and plaintiff’s attorney) dream come true:

– Similarly situated workers are invited to join

– Workers at same location and different employer locations in Texas and

throughout U.S.

FLSA Collective Actions

• How does it affect the employer?

• Former AND current workers for past 3 years;

• Court-approved written notice

• Pay back wages

• Liquidated damages = Back wages *2

• Attorneys’ fees

FLSA Collective Actions

The Cost of Wage & Hour Collective

Actions?

• Wal-Mart

– $21 million for 1,800 workers

• J.P. Morgan Chase

– $16 million for collective

action

• Verizon California

– $15 million for 6,800

workers

• Cleveland, Ohio

– $2.2 million for 4,000

Department of Public Safety

workers

• Richmond, Virginia

– $7 million for 614 police

officers

• Kansas City

– $2 million for 110

ambulance workers

• Employee A is owed $5,000 for OT error. There are 20 other employees who are in the same positions as Employee A.

• Lawsuit filed: • Court will generally permit written notice to be sent to these 20 employees to

join lawsuit

• If all 20 employees join, this claim is now $100,000

• The liquidated damages = $100,000

• Total damages $200,000 + Attorney’s Fees ~ $100-200,000

• Total Liability = $300-400,000

FLSA Collective Actions

• Retaliation means seeking

revenge, sticking back, or

evening the score at a perceived

wrong.

• In the workforce, examples of

retaliation include termination,

suspension, disciplinary action,

denial of promotions or benefits,

or refusal to hire a person.

Retaliation

• Under the FLSA, it is illegal for any person to discharge or in any other manner discriminate against any employee because such employee has:

• filed any complaint or instituted or caused to be instituted any proceeding under or related to the FLSA, or

• has testified or is about to testify in any such proceeding, or

• has served or is about to serve on an industry committee.

• Complaints don’t have to be in writing (fair notice)

Retaliation

Retaliation

Three Prongs

Prong1 Plaintiff engages in protected activity by (1) complaining about an employer practice or (2) filing a formal claim of discrimination

Prong 2 After engaging in protected activity, plaintiff suffers a materially adverse action

Prong 3 Plaintiff must demonstrate a causal connection between alleged materially adverse action and the protected activity

Establishing a Retaliation Claim

Retaliation

• Know and understand employer’s anti-retaliation policy.

• Respond to a complaint according to that policy.

• Involve HR immediately after a complaint is made.

• Conduct regular performance evaluations.

• Document everything.

• Ensure someone other than the alleged discriminator review disciplinary actions taken against the complaining employee.

• Best Practices to Avoid Retaliation Claims

Creating a Culture of Wage & Hour Compliance

Best Practices

• Audit and enforce policies regarding wage &

hour practices and issue any disciplinary action

• Conduct routine internal and external audits of

pay practices and records

• Audit exemptions job descriptions.

Best Practices

• Create a culture of compliance with wage & hour policies, law, procedures

• Hold managers and supervisors accountable

• Accurate clock-in/out system

• Audit Independent Contractor Arrangements

Best Practices

Daniel N. Ramirez

dramirez@montyramirezlaw.com

Ph.: 281-493-5529

www.montyramirezlaw.com

Conclusion - FLSA Compliance

Daniel N. Ramirez

dramirez@montyramirezlaw.com

Ph.: 281-493-5529

www.montyramirezlaw.com

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• ABOUT US. Established in 1998, Monty & Ramirez LLP is a labor, employment and immigration law firm. The Firm offers a range of corporate legal services to Fortune 500, publicly-traded companies, major industry associations, municipalities, and government entities. The Firm represents employers in investigations and audits conducted by government agencies and represents clients in employment related lawsuits.

• DISCLAIMER. Please note that this presentation is for informational purposes only and provides general information concerning employment law to help you identify when you may need additional legal advice. It is not an exhaustive treatment of the statutes, case law or regulations that are involved with the subject. Please recognize that the law is developing rapidly in this area and you will want to obtain current legal advice on your specific situation before taking action. Employment law liabilities are often highly dependent on the particular facts and circumstances of the individual case or situation. As such, employers should seek the advice of counsel prior to making their determinations. Monty & Ramirez LLP is available to answer any employment or immigration related issue(s) with Your Company.

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