Making Lemonade Out of Lemons
Making Lemonade Out of Lemons

Are you tired of lawyers commenting already on the new overtime rules?

(The answer should be no, of course, since you’re reading this blog and thus have room for one more view.)

But I think it’s fair to say that we haven’t seen a feeding frenzy like this on employment law in many, many years.  And with the massive publicity of this rule comes an opportunity, as I’ll explain too.

So, dear readers, deep breath time.   We’ll get through it together.

There’s already been lots of pixels spilled about how employers can “solve” their overtime issues that will arise under this rule by making various changes in their workplace.

For example, employers can increase an employee’s salary to $47,476 annually if that employee otherwise meets the duties test, to keep an employee “exempt” from overtime.

Or the employer can limit the overtime that the employee can work, explaining that it is concerned with controlling costs.

But in all the analysis, I think one big thing has been overlooked: Employers can use this announcement as an opportunity to review and re-classify all sorts of employees — even if they are not directly impacted by the new rule.

Too often, employers who discover that they have misclassified employees believe that they are in a conundrum. Keep their head down and hope no one notices, or properly classify the employee and keep their fingers crossed that they don’t get sued for back pay.  Neither option is a great one for employers who need to get into compliance. (I once proposed an amnesty proposal to solve this dilemma.)   Sometimes, employers have legitimate reasons why an employee has been classified as non-exempt but wants to avoid any future issues. Perhaps in other situations the employee isn’t working overtime anyways.

But here is where the opportunity comes in: As I highlighted at the start, the new overtime rule has received unprecedented amounts of publicity in the workplace. No doubt most of your employees have now heard something about it.  So, some won’t be surprised if they are notified that things are changing for their position as a result of the new rule.

While the rule doesn’t provide amnesty for employers who make such changes, the new rule does remove some of the suspicions employees may have about the changes — even when those changes are perfectly legal.  Employees may be more understanding.  Employers can explain truthfully that the new rule has required them to review the classification of all of its employees and the changes are as a result of the rule.

So, yes, the rule may be difficult to comply with. But don’t miss out on the opportunities that may arise from this rule as well.  Full compliance with the law will be so much cheaper than paying for a massive wage-and-hour suit.  And as I’ve said before, compliance is the ultimate goal. You should not be looking for ways to circumvent the law.

So ultimately, perhaps you’ll view the new overtime rule as more about lemonade than lemons, as the saying goes.

Time to find your happy place.
Time to find your happy place.

Whatever happened to summer vacation? You remember, that downtime, when nothing much happened?

First, there were new proposed OT rules. Then, word came out EARLY (I got an alert at 6a!) today that the U.S. Department of Labor issued new “guidance” that will try to limit the misclassification of employees as indpendent contractors.

The goal is nothing less than ensuring that most of these workers qualify as employees under the federal Fair Labor Standards Act.

Here’s the key quote:

In sum, most workers are employees under the FLSA’s broad definitions… The very broad definition of employment under the FLSA as ‘to suffer or permit to work’ and the act’s intended expansive coverage for workers must be considered when applying the economic realities factors to determine whether a worker is an employee or an independent contractor.

It states elsewhere:

This Administrator’s Interpretation first discusses the pertinent FLSA definitions and the breadth of employment relationships covered by the FLSA. When determining whether a worker is an employee or independent contractor, the application of the economic realities factors should be guided by the FLSA’s statutory directive that the scope of the employment relationship is very broad. This Administrator’s Interpretation then addresses each of the factors, providing citations to case law and examples. 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.

I’ve talked about the economic realities test before.  This not a new issue.

In fact, the USDOL had a fact sheet in 2014 stating almost the exact same thing.

But the USDOL’s new “interpretation” is certainly going to force employers to take a new look at their relationships to determine whether independent contractors should be better classified as employees.  And it’s going to raise some questions on enforcement as well.

So, to remind you, what are those factors under the “economic realities” test?

  1. Is the work an integral part of the employer’s business?
  2. Does the worker’s managerial skill affect the worker’s opportunity for profit or loss?
  3. How does the worker’s relative investment compare to the employer’s investment?
  4. Does the work performed require special skill and initiative?
  5. Is the relationship between the worker and the employer permanent or indefinite?
  6. What is the nature and degree of the employer’s control?

But, and here’s where we all need to take a deep breath, this type of analysis isn’t all that new or surprising.  Courts have been using it for a while.  And it shouldn’t cause you to drop everything you’re doing today to look at this.

In fact, if you’re in Connecticut, I would actually suggest taking an even deeper breath because the issue is even more complicated than that.

There is a case now pending at the Connecticut Supreme Court — Standard Oil of Connecticut v. Administrator, Unemployment Compensation Act, that is examining whether certain contractors are “employees” under a different test — the ABC Test, and the proper application of that test under Connecticut’s own misclassification laws).

As explained by the CTDOL:

The ABC Test applies three factors (A, B, and C) for determining a worker’s employment status. To be considered an “independent contractor,” an individual must meet  all three of the following factors:
A. The individual must be free from direction and control (work independently) in  connection with the performance of the service, both under his or her contract of hire and in fact;
B. The individual’s service must be performed either outside the  usual course of business of the employer or outside all the employer’s places of business; and
C. The individual must be customarily engaged in an independently established trade, occupation, profession or business of the same nature as the service performed

Yes, in addition to the USDOL’s “Economic Realities” test, the Connecticut Department of Labor uses a different test for unemployment compensation purposes named the “ABC” test.

And don’t even get me started on the IRS’s “20 factor” test.

Are you in your happy place yet?

Maybe it’s time for that vacation after all.

Or, if you’re an employer, just take this latest news in stride. If you have independent contractors, the guidance is really just another reminder that the use of these contractors continues to be heavily disfavored by government agencies.

But if you’ve been reading this blog (see this post, for example, from 2010), you’ve known that, right?

Employees generally are eligible for overtime if they work more than 40 hours of work, unless one of the limited exceptions applies.

Employers typically rely on one of the three white-collar exemptions — administrative, executive or learned professional — when making arguments as to why an employee is not eligible for overtime.

A new federal district court case out of Connecticut illustrates the danger in assuming that one of the exemptions will apply, without a searching factual examination.

In Arasimowicz v. All Panel Systems, LLC et al (download here), the court was asked to review whether a CAD detailing and drawing position was exempt from overtime rules. The court, after a searching examination of the record, concluded it was not.

The court’s opinion is worth a read because the judge thoroughly addresses some typical arguments made by an employer — that the position involved specialized knowledge, or that the position involved direct support of management policies — and disposes of them fairly easily.

Notably, there haven’t been many cases in Connecticut to address this type of position, but employers in Connecticut who have CAD draftsmen ought to do a detailed review of the position to ensure their compliance with state and federal wage laws.

For remaining employers, the case is worth a review because it demonstrates that positions aren’t always what they seem.  Many employers have had exempt employees for so long that they have stopped worrying about whether their employees are actually exempt. This case ought to serve as a wake up call that if don’t audit yourself, you run the risk that a court will do it for you.

 

We had another great turnout last week  for my firm’s seminar on labor & employment law.  Many of the topics would be familiar to avid blog readers, but there were three interesting points that I haven’t talked much about that I thought were also notable.

1.  In September, the IRS announced a Voluntary Classification Settlement Program which allows employers who have misclassified employees as “independent contractors” to escape some tax consequences for re-classifying them as employees.  There are downsides to this program (including opening yourself up to a wage & hour lawsuit by the employee) but it might work for some employers in some circumstances.

Interestingly, Deputy Labor Commission Dennis Murphy indicated at the seminar that Connecticut is exploring a similar program which may (or may not) get announced in early 2012.

2.  The DOL has an active Rapid Reemployment Initiative that connects employers with unemployed workers.  In doing so, the state also is providing financial incentives to employers who hire unemployed workers.  Details can be found on the DOL’s website.

3. There are also changes to the NLRB’s election rules that got passed last week.  Labor Relations Today has all the details. Among the approved changes

  • giving hearing officers the discretion to deny requests by parties to submit post-hearing briefs
  • eliminating the 25 day period between the issuance of a decision and direction of election by a regional director and the holding of an election
  • giving the Board the discretion to refuse to review a regional director’s resolution of post-election disputes

If you signed up for the seminar and were unable to attend (or attended) and would like a copy of the materials, please send me a note at dschwartz@pullcom.com.

My thanks to all who attended and made the program a big success.  Stay tuned for details on our next program in Spring 2012.

When new laws get passed, the complications that arise from the passage aren’t immediately clear.  But a look at Connecticut’s new family violence leave provisions (effective October 1, 2010) demonstrates how some of those complications are now making themselves apparent. 

As you may recall, the new Family Violence Victim leave law permits employees to take up to 12 unpaid days leave for medical care or counseling arising from a domestic violence situation or to attend court proceedings related to the same (or a variety of other listed reasons.)  If an employee has compensatory time or vacation time or the like, the leave can be paid. 

The law specifies that employers do not need to provide paid leave if (1) the employee is not entitled to paid leave pursuant to the terms and conditions of the employee’s employment or (2) the paid leave exceeds the maximum amount of leave due the employee during any calendar year. However, the bill requires the employer to provide unpaid leave if paid leave is exhausted or not provided.

Easy enough, right?

But when the statute is put in the context of other wage & hour issues, there’s bound to be some confusion.  And indeed, its interaction with exempt employees should have employers scratching their heads a bit.  Let me explain. 

To simplify, for exempt employees in Connecticut (using the standard white-collar exemptions), employers can deduct from an employee’s pay for one or more full days "if the employee is absent for personal reasons other than sickness or accident" or for "sickness or disability" if pursuant to a policy where deductions are made when sick days are exhausted.  Deductions can also be made for FMLA-covered leave in less than a full day increment.

So, suppose an exempt employee is injured during a domestic violence assault and sees a physician. Can the employer not pay the exempt employee for the days not worked without losing the exemption? Part of the answer depends on whether you consider the absence for a "personal reason" or whether its a "accident".    

Now, suppose that an employee is taking only a half day off, can the employer dock the employee for a half-day without losing the exemption? One could argue "no" because less than a day increments are only allowed for FMLA-related leave, not other types of leave.  Which then raises the question, can the employer requires that the family violence leave be taken in increments of not less than a full day?

Now, suppose the employee needs to attend a court proceeding relating to a family violence issue, is that absence also to be considered a "personal reason"? 

Still more questions to ponder: Does the Department of Labor have any jurisdiction to issue regulations or guidance on the impact of this new law? If not, who does and how can we get more guidance on these types of issues as they arise?

Obviously, these types of situations are not going to be the everyday-type of issues that employers have, but I highlight them because even well-intended laws like the new family violence leave bill, can have unintended consequences and raise unexpected issues.   Unfortunately, as history has shown, it is often only through litigation through the courts that we may ultimately get some answers to the interpretation of this law.

It has been widely reported over the last month that the United States Department of Labor is planning some new initiatives to crack down on usage (or abuse) of independent contractors by companies. 

Several blogs have done a thorough job on reporting about it including the Delaware Employment Law Blog, Point Of Law, Florida Employment & Immigration Law Blog, and Minnesota Labor & Employment Law Blog

But beyond this, there is also talk about revising some of the exemptions to federal overtime laws, including the domestic service exemption for home health care aides, as discussed by the Prima Facie Law Blog

In short, 2010 is likely to mean further changes and focus on wage and hour laws for employers. 

What does this all mean for employers? For starters, it means its time for companies to do a hard look at their wage/hour practices and how they classify their workforce.  As one post stated: 

Don’t let your business get caught with misclassified employees. Review the business relationship between you and anyone currently classified as an independent contractor to prevent any litigation or penalties for your business.

Because it is such a hot topic, this month’s installment of our webinar series will focus on these initiatives from the federal government.  The next webinar is set for March 17, 2010 at 12 p.m. EDT and, as always, is free of charge. You can sign up here.  My colleague, Joshua Hawks-Ladds (who currently chairs the Connecticut Bar Association’s Labor & Employment Law Section) will lead the discussion.

The Second Circuit Court of Appeals (which includes Connecticut) recently ruled on two cases of keen interest to employers. The first relates to enforcement of EEOC subpoenas and the second relates to the classification of some financial services workers.

First, in EEOC v. United Parcel Services, the Court allowed the EEOC to press forward with its subpoena of UPS for records related to the religious rights of employees.  The Court stated that courts that review administrative subpoenas from agencies like the EEOC have a limited role and that if the subpoena meets certain criteria, it will be deemed to be reasonable. 

For employers who are faced with EEOC subpoenas, the case is important because it limits the avenues that employers have to challenge the breadth and scope of the subpoena. 

Second, as pointed out by the California Workforce Resource blog in an excellent post,  "Loan officers, analysts, and brokers of various financial products are generally considered to be well compensated and prestigious positions."  And yet a new decision from the Second Circuit will have employers in Connecticut challenging that assumption. 

In Davis v. J.P. Morgan Chase & Co., the Second Circuit held that "a given position cannot be considered exempt unless it falls on the correct side of the so-called ‘production/administrative dichotomy.’ According to this ‘dichotomy’ test, the administrative exemption cannot apply if a worker’s services are not being performed for the purpose of internally running the company, but are instead being sold to customers to generate revenue."

Here, an underwriter was deemed to be eligible to receive overtime. 

As you might imagine, the Connecticut Employee Rights Blog lauds the decision suggesting that even insurance underwriters might be eligible to receive overtime under this decision. 

I would not take the analysis that far (yet) but this financial services companies ought to be examining their job descriptions closely after this case and apply the Davis decision carefully to ensure that proper classifications are met. 

As I’ve cross-posted over at Overlawyered.com today, three wrestlers have sued Connecticut-based World Wrestling Entertainment, Inc.courtesy Wikipedia commons - Scott Levy (WWE) claiming that they have been improperly classified as "independent contractors" and not employees.

On Friday, WWE removed the lawsuit to federal court from state court claiming that federal questions are implicated in what would otherwise seem to be a "breach of contract" claim.  (You can read the removal papers here.) What federal questions? Well, federal employment tax questions for one.

But the interesting part of the case is not the removal papers, but the underlying lawsuit itself. (You can download the complaint here.) The wrestlers — who are seeking class-action status — claim that they were required to sign a "booking contract" that specified the terms of their engagement such as their training regiment, costumes, and — to the surprise of no one — the "outcome of each match".  They claim that they were akin to "employees" and should have been paid as such.  WWE denied the allegations in a 10-Q filing late last month.

While the employees are seeking damages, typically, the penalty for employers is to pay the employment taxes of the employees with some penalties.  It’s unclear here what else the wrestlers are actually seeking.  The case has been assigned to Senior Judge Peter Dorsey.

The proper classification of workers has been a thorny issue for employers, going back to the days of the landmark Microsoft lawsuit from the late ’90s.    As an employer, you can get a headstart on the issue by going to the IRS website which has lots of commentary and resources on the subject.