Back in 2011, I discussed a titillating case of strip club dancers (or, a decision says, “performers”, “entertainers”, “dancers” or even “exotic dancers” — although not “strippers”) who were trying to claim wages for the time they worked at a popular strip club in Connecticut.

The story at the time was that they were compelled to arbitrate their claims. 

So private arbitration should mean end of the public story, right?

Well, as it turns out, no. And the analysis of the case has some very real practical implications for employers.

I’ve been going to back through some older posts to do some followups. And in doing so, I discovered that this case had a public ending — except for the fact no one reported on it.

It seems that the dancers won big in an arbitration proceeding and then asked the court to “confirm” the award — making the whole thing public.  (You can read the arbitrator’s award here.)

And as a result, we get a revealing look at the efforts one club made to try to avoid having strippers be deemed “employees” and how it ultimately failed.

The strip club  — sorry, “adult entertainment establishment” as it called itself — had the strippers sign leases “renting” out the poles and space of the strip club. In doing so, the Club argued that these dancers were no more than tenants, and therefore, not entitled to wages, benefits or any of the normal protections that come with being an employee.

Under the “lease”, according to the decision, the dancers agreed to perform “semi-nude (topless) and/or nude dance entertainment” at the Club.”

In doing this work, dancers agreed to “perform consistent with the industry standards of a professional exotic dancer.”

(Aside: Professional exotic dancers have INDUSTRY standards?)

The Lease also provided that there will be set fees (called “entertainment fees”) for certain performances, “such  as couch and table dances,” and that dancers “may not charge more than the set fees.”

Oh, and they wouldn’t be paid any wages.

And here’s where it gets REALLY interesting.

If they ever DID claim wages, the lease provided that they would forfeit all of the entertainment fees they previously earned. And, to top it all off, should the dancers claim to be employees, they will also be liable for any attorneys’  fees, costs, or other damages incurred by the Club as a result of that claim.

But the arbitrator was having none of it.

He detailed the requirements of the strippers saying that there were four principal ways a dancer can “perform” — all of which indicated that they were tied to the Club (and therefore employees).

  • A “stage set”, in which the only income is the tips the customers choose to give her.
  • A “private dance” or “booth dance”, in which the Club sets the “mandatory entertainment fees”.  (A booth dance here cost $25, of which the dancer keeps $20 and pays $5 to the Club.)  Tips encouraged.
  • A “VIP” area in which the fee for that performance is $100 for 15 minutes, $200 for 30 minutes and $300 for an hour and in which the entire fee goes to the Club.  Tips encouraged as well.
  • A “Champagne Room” performance, in which the customer is charged $110 for one half hour and in which the entire fee goes to the Club.  Customer is free to tip the dancer.

At the end of a shift, the dancer must pay “rent” to the Club of $20 and a tip to the DJ.

The arbitrator said that the dancers were employees and therefore entitled to the protections under state and federal law.  Minimum wage was owed, for example. Moreover, the “lease” violated state law because it called for a refund of wages under Conn. Gen. Stat. Sec. 31-73.  

The arbitrator noted that while employers and employees have “wide latitude” to enter into wage agreements, that latitude does not extend to permitting parties to override or ignore the requirements of Connecticut law.

The arbitrator took particular note of the paragraphs that required the dancers to return “all” entertainment fees if they challenged their employment status.  These provisions are “clearly designed to penalize the employee for exercising her right to insist upon proper classification.  The inherent purpose of the Lease is to violate the law.”

The decision goes on to analyze the proper penalties and set-offs in such a case.  Here, the arbitrator again was not sympathetic to the employer — and for good reason.  The employer failed to prove it acted “in good faith” — and therefore the dancers were entitled to liquidated (or double) damages.

How much? Nearly $130,000 in damages for two strippers — plus attorneys’ fees.

The case is a great example of what happens on the fringes of wage and hour law. The vast majority of employers in this state play by the rules and wouldn’t even dream of cooking up a “lease” for its employees to sign.

But the law exists to protect the dancers too and here, there’s little doubt that justice has been well-served by the award here.

Thanks to all who came to our Labor & Employment seminar on Thursday. Our biggest crowd yet. In it, we talked about the importance of offer letters.  Marc Herman returns today with a post updating us on a recent Connecticut Supreme Court decision that came out while I was on vacation a while back that makes that point even clearer.  

hermanPicture this: Jill works for you.  You fire her as an at-will employee.  Two weeks later, you receive a letter from Jill claiming that she is owed commission for several sales that she completed prior to her termination.

What should you do?

Let’s look at her offer letter.  That it usually a good starting place.

Blah, blah, blah. . . ah, something about commission.  Let’s see what it says:

Commission is only paid once work has been performed and invoiced to the client.  Upon termination of employment, all commissions cease, except those commissions that have been invoiced to the client.

You look again at Jill’s letter and look-up her recent sales.  You realize that the commission to which she refers relates to sales that had not yet been invoiced to the client when Jill was fired.

You excitedly draft a response to Jill  – “Sorry, Jill – you’re out of luck!” (or words to that effect — your lawyer can probably help with the wording).

Jill sues you.  She argues that you owe her money.  Moreover, she argues that the commission provision is unenforceable as a matter of public policy — “you can’t deprive me of commission that I worked hard for!”

Now what?

Well, in a recent decision, the Connecticut Supreme Court concluded that provisions like the one above may be enforceable — and that employers may not have to pay a commission because of the language used in the offer letter.

In Geysen v. Securitas Security Services USA, Inc. (bearing facts very similar to Jill’s), a former employee argued that such compensation provisions are unenforceable as a matter of public policy and therefore his former employer had violated the law by not paying him commission.

The trial court agreed.

On appeal, the CT Supreme Court issued a thoughtful decision.  It made two main points:

Point One: Parties should have the freedom to make contracts with unfavorable terms.

Point Two:  You cannot draft a contract that simply tries to work-around the law.  They violate public policy — A big no-no.

So what about provisions like the one above?

The easiest answer is that such provisions should pass legal muster.  Sure, it may contain terms that favor the employer, but that’s ok because the parties bargained for it.  Nor is it a work-around the law; the law simply requires that employers pay employees in accordance with any agreement.

After concluding that the provision was enforceable, the Court read it literally: no commission due.  The Plaintiff’s hard work aside, he had previously agreed that no commission would be “due” prior to the client being invoiced.

The Court also agreed with the defendant-employer that the employee’s claim of wrongful discharge (as a matter of public policy) was also without merit.  No violation of public policy and therefore no wrongful discharge.

Note, however: the Court left open the possibility that such practices could amount to a breach of the implied covenant of good faith and fair dealing.  This really concerns the employer’s motive.

For example, an employer’s motive for firing an employee was simply to avoid paying commission, that would be a breach of the implied covenant of good faith.

What’s the lesson here? Agreements with employees are not unenforceable simply because they may seem unfair to the employee.  However, apply caution in drafting agreements that seek to work-around the law.

Freedom of contract is alive and well. . . for now.

GA2It’s been a long-time coming but the General Assembly finally approved of a measure that would allow employers to pay employees on a bi-weekly basis without receiving prior CTDOL approval.

The provision, part of a set of “technical” revisions to various Department of Labor matters, is long overdue.

Several employers had moved to a bi-weekly payroll scheme without realizing that they needed approval from the CTDOL beforehand.  That approval won’t be required anymore (assuming this bill is approved by the governor).

I’ve previously discussed the requirement so now employers who have been wary about seeking such approval, can just move ahead on their own.

Senate Bill 220 also makes lots of technical changes to the unemployment compensation scheme and even to drug testing (getting rid of the suggesting that the DOL develop some regulations in this area).  These probably won’t be of interest to most employers, but it’s worth a look through the bill summary to see if something else touches on your industry.

The measure will become effective when the Governor signs the overall bill.  (Other provisions in the bill go into effect October 1, 2016.)

generalassemblyPayroll cards are finally here.

The General Assembly finished their regular session last night with several employment law bills getting passed, including some that have been kicking around for years.

One of them is Senate Bill 211, which authorizes employers to use payroll cards — instead of checks or direct deposit — to pay their employees.

But there are a number of conditions that must be met before this happens and there are a number of restrictions as well.  The bill will become effective October 1, 2016 — assuming the governor signs the measure, which is expected.

The Office of Legislative Research has done a thorough recap, which I’ll liberally borrow from here.

In order to use the card, an employee must “voluntarily and expressly authorize, in writing or electronically, that he or she wishes to be paid with a card without any intimidation, coercion, or fear of discharge or reprisal from the employer. No employer can require payment through a card as a condition of employment or for receiving any benefits or other type of remuneration.”

In addition, as noted by the OLR report:

  1. employers must give employees the option to be paid by check or through direct deposit,
  2. the card must be associated with an ATM network that ensures the availability of a substantial number of in-network ATMs in the state,
  3. employees must be able to make at least three free withdrawals per pay period, and
  4. none of the employer’s costs for using payroll cards can be passed on to employees.

Under the bill, a “payroll card” is a stored value card (similar to a bank account debit card) or other device, but not a gift certificate, that allows an employee to access wages from a payroll card account. The employee can choose to redeem it at multiple unaffiliated merchants or service providers, bank branches, or ATMs. A “payroll card account” is a bank or credit union account (1) established through an employer to transfer an employee’s wages, salary, or other compensation (pay); (2) accessed through a payroll card; and (3) subject to federal consumer protection regulations on electronic fund transfers.

Another big change, according to the OLR report: The bill also allows employers, regardless of how they pay their employees, to provide them with an electronic record of their hours worked, gross earnings, deductions, and net earnings (i.e., pay stub). To do so, the (1) employee must explicitly consent; (2) employer must provide a way for the employee to access and print the record securely, privately, and conveniently; and (3) employer must incorporate reasonable safeguards to protect the confidentiality of the employee’s personal information.

Lastly, current law allows employers to pay employees through direct deposit only on an employee’s written request. The bill allows an employee’s request for direct deposit to also be an electronic request.

An amendment, which also passed, (1) changes the timeframe in which an employer must switch an employee from a payroll card to direct deposit or check; (2) specifies that the limit on fees or interest charged for the first two declined transactions each month applies to calendar months; and (3) requires the cards to be associated with ATM networks that ensure, rather than assure, the availability of in-network ATMs in the state.

Overall, this is a big boost for both employers and employees.  The CBIA had supported the measure and it had received “cautious” support from the AFL-CIO as well.

capitolWe’re nearly at the end of the legislative session and the bills are coming fast and furious.

Late Friday, the General Assembly passed a bill (Senate Bill 914) that mandates (rather than allows) double damages to be granted in instances where an employer failed to pay an employee the proper minimum wage or overtime pay.

Courts will still have discretion to determine what may be “allowed” for costs and “reasonable attorney’s fees.”

The bill creates one exception: Under the bill, the double-damage requirement does not apply to employers who establish a good-faith belief that their underpayments were legal. Such employers must, however, pay full damages, plus court costs and attorney’s fees, as those fees are determined by the court.

The bill, if signed by the governor (which is expected), will go into effect October 1, 2015.

I previously discussed this bill back in March here.

As to what else is out there (as of late Sunday evening):

Well, it’s official.  Connecticut is under a Blizzard Warning as of Sunday afternoon.

This is, of course, nothing new for employers in the state. We’ve had more than our fair share of big “monster” storms. If you’ve been following this blog for some time, you’ll have read more than your share of blog posts about what to do with your employees when a storm hits.

But here are three issues you may not have thought of recently.

Reporting Time or Minimum Daily Earnings Guaranteed: Connecticut has a “reporting time” obligation (as do several of our neighboring states). It is contained in various regulations and applies to certain industries like the “mercantile trade”. You should already be aware of this law, but it has particular application in storm situations where people may not work full shifts.

For example, in Conn. Regs. 31-62-D2(d) for stores, an employer who requests an employee to report to duty shall compensate that employee for a minimum of 4 hours regardless of whether any actual work ends up getting assigned. So if you bring your employees in on Tuesday only to send them home 30 minutes later, you may be on the hook. For restaurant workers, it is typically a minimum of two hours (Conn. Regs. 31-62-E1)

Takeaway? For certain industries, be sure to know whether you will need to pay employees for a minimum amount of time if you send them home early from their shift.

Wage Agreements: Also be aware of any wage agreements (collective bargaining agreements mainly) that require you to provide employees with a guaranteed minimum number of work hours. Typically, these will need to be followed.

Hours Worked: Be aware of Connecticut’s “hours worked” regulation found in Conn. Regs. 31-60-11. That regulation says that “all time during which an employee is required to be on call for emergency service at a location designated by the employer shall be considered to be working time” regardless of whether the employee is called to work.

When an employee is on call, but is simply required to keep employer informed of whereabouts or until contacted by the employer, working time starts when the employee is notified of his assignment and ends when that employee is finished.

As you contemplate whether to close the office this week, make sure you’ve thought about these issues:

  • What are the situations when an office will close?
  • How will employee receive notice that an office is closed? Is there a central number that they can call for information? Will an e-mail be sent out? What about text message?
  • Will employees be paid for the time when the business is closed?
  • Will employees be paid if they don’t report to work due to inclement weather when the business is open?
  • Will the employer discipline or discharge and employee for failing to report to work due to weather conditions when the business is open?

As I said before, none of these issues should really be new for an employer in Connecticut. But with this being the first big storm of the season, it’s time to shovel out those policies.

Stay warm and safe the next few days!

Back from a long holiday weekend, my colleague Chris Parkin this morning takes a look at a new Connecticut Appellate Court case about employee compensation.  

A new case that will be officially released tomorrow reminds employers to take care with their words and promises when it comes to employee compensation.

The facts of the case are fairly straightforward:

A 20-year employee for a major financial firm had been rewarded handsomely with generous six-figure bonuses that typically exceeded his annual base pay.  The financial crisis hit the employer hard.  Bonuses paid in early 2008 were down appreciably compared to prior years.  By 2009, the employer had been infused with cash from the United Kingdom government to maintain stability.

The tenuous financial position caused the employer to alter its bonus system.  In January 2009, bonus eligible employees were advised that they would be subject to a “deferral program.”  This program called for the bonuses to be paid as bonds with vesting dates over a three year period.  The full amount of the bond would only be owed if the employee was still employed by the employer at the end of the three year term.

The employee resigned before the first vesting date and the employer determined that he forfeited his right to payment on the bonus bond. The employee sued, alleging that he was entitled to his bonus as a matter of contract.

Who wins?

The lower court said that there was no contractual obligation to pay a bonus because the employee was never guaranteed a bonus but rather was simply eligible for one in the discretion of his employer.

On appeal, the Appellate Court agreed, noting that while, “all employer-employee relationships not governed by express contracts involve some type of implied contract of employment,” there was no contractual obligation to pay a bonus here.

The Court’s analysis in Burns v. RBS Securities, Inc. (download here).  hinged on the fact that no evidence was introduced to suggest that the employee was ever guaranteed a bonus.  His supervisor testified that the employee had only been told he was “eligible” for a bonus and the employee handbook clearly conditioned the payment of any bonus on discretionary factors including the health of the company.  There was also undisputed evidence that the financial health of the employer was “abysmal” at the time.

The one argument available to the employee was that he was entitled to the bonus because an implied obligation arose over the course of years of generous annual bonus payments.  The court flatly rejected this argument noting that “the mere practice or custom of an employer does not, by itself, create a contractual obligation.”

This decision is, of course, good news for employers who are careful not to make promises about bonus payments.  Managers should be trained not to make any promises about bonuses unless there is absolute certainty that the company will make such payments.  Handbooks should similarly be drafted to prevent the creation of an implied contract to pay a bonus.

The Appellate Court underscored this advice by distinguishing another matter, Ziotas v. Reardon Law Firm, P.C. (which was covered here back in 2010).  In Ziotas, the court said the employer was obligated to pay a bonus because it made a verbal promise that “this has been a very successful year for the firm, and for you, and… you’re going to get a bonus that fairly reflects that.”

It may not sound like much, but the difference between, “you’re getting a bonus” and “you’re eligible for a bonus” could be costly.

Over the last few weeks, I’ve been seeing more tweets from human resources types and mainstream reporters using the phrase “wage theft”.  Two recent examples? William Tincup (who runs the popular online DriveThruHR show that I appeared on a while ago) recently tweeted:

And The New York Times labor reporter, Steven Greenhouse yesterday tweeted:

Yes, even The New York Times Editorial Board is beginning to use the term with surprising carelessness suggesting “law enforcement officials” (a term typically reserved for police officers, not Department of Labor officials) routinely use it.

It’s time for employers to beware this phrase and fight its usage because, in my view, it’s really an attempt to turn something often unintentional, into something nefarious and intentional.

Or as Mandy Patinkin’s character in The Princess Bride said: You keep using that word. I do not think it means what you think it means.

What DO I mean? Well, think of the word, “theft” and most of us think of the intentional taking of something that belongs to someone else. Like your jewelry, or your iPhone. Even your company’s trade secrets.

Continue Reading “Wage Theft”: The Trendy Phrase That May Not Mean What You Think It Means

We interrupt our normally scheduled post on a recent Second Circuit case….

Monday is an anniversary that many of us in Connecticut will long remember — the anniversary of the big October snowstorm (or “Alfred” as Channel 3 called it).   Combine that storm with Irene earlier in 2011, and we’ve seen more than our share of storms recently. 

Lots of Tricks

Just like the Ice Storm of 1973, these storms had devasting consequences and made work quite difficult for employers. 

The forecasts on Thursday just got a lot more serious with Sandy heading up the coast taking dead aim at the Northeast.

Are we in for a repeat?

First off, employers should, by now, understand the rules regarding “reporting pay” and whether you need to pay employees when your office is closed, even due to power outage out of your control.  For more information, there are several posts out there on the subject like this one

But more importantly, the time is now for employers to break out all the lessons learned from those storms and start implementing them. What are some of things to still consider?

  • Emergency contact information for getting in touch with employees. This includes having backup numbers in case of widespread power outages. With mobile phones being used so readily, that’s a great place to start but even those aren’t entirely useful either when the power to the cell towers goes down too. 
  • Clear communications to employees about what should happen in the event of a storm. Who should they call? Where can they find the information? Will your e-mail work to them?
  • Rules for human resources to follow regarding absences.
  • Amending your policies so employees understand when time out of the office (even for power outages) may or may not count towards PTO. 

This may be a long duration storm.  It goes without saying that we should plan for the worst and hope for the best.  Let’s just hope we don’t have a repeat of last year. 

For more on storms, snow days, hurricanes, and other natural disasters (!), you can find some prior posts here, here, here, and here.

A federal court judge this week rejected claims by the Connecticut Department of Labor that a company’s failure to pay a performance based bonus constituted a failure to pay wages.  In doing so, the Court appears to be in line with recent Connecticut Supreme Court precedents rejecting such claims as well.

In State of Connecticut Commissioner of Labor v. Chubb Group of Insurance Companies (download here), the CTDOL alleged that Chubb failed to pay an employee performance-based incentive wages for 2008 pursuant to the company’s Annual Incentive Compensation Plan. Under the Plan, the Organization and Compensation Committee of Chubb‟s Board of Directors “may reduce or eliminate any Award under the plan, . . . .”

As I’ve addressed in previous posts, a key factor in whether a bonus should constitute wages is whether the bonus is discretionary in nature.  The District Court adopted that logic in rejecting the CTDOL’s claims rather easily.

The Plan explicitly provided that the committee may reduce or eliminate any award under the Plan. This language makes the bonus discretionary, both as to whether it should be awarded and, if so, the amount to be awarded.

The Court also rejected claims by the CTDOL that it had the authority to bring the claim by a separate state statute. The problem with such a claim, the court said, is that the authority is still limited to claim to collect unpaid wages. Because the bonus is not a “wage”, there is still no authority for the CTDOL.

For employers, this case should again reinforce the fact that any bonus plans that you have should be reviewed by legal counsel.  Importantly, if the employer wants to provide some discretion in the payment of bonuses, it can reserve that right — but it has to be done carefully and explicitly.