Wage/Hour and FLSA Issues: 2017 Update

The Obama Administration s Plans Expanding wage/hour protection was a key objective of the Obama Administration Wage/Hour Division annual budget increased by $250 million in one year alone, from 2015 to 2016 Wage/Hour Division budget for 2017 was expected to be $276 Million Increased scrutiny of independent contractors 2017 Warner Norcross & Judd LLP. All rights reserved. Page 4

The Best Laid Plans... 21 states sued for a preliminary injunction to halt the rule Claimed that DOL exceeded its authority by more than doubling the salary threshold 2017 Warner Norcross & Judd LLP. All rights reserved. Page 6

The Best Laid Plans... Federal judge in Texas agreed Ten days before rule to take effect, injunction granted New rules on hold pending further review Obama DOL appealed 2017 Warner Norcross & Judd LLP. All rights reserved. Page 7

The Trump Administration s Position Landscape has changed even more since the court granted the injunction Trump: regulatory freeze Appeal still pending But: repeated delays from Trump No briefs filed Originally due March 2 After 2 extensions: June 30 2017 Warner Norcross & Judd LLP. All rights reserved. Page 8

Working Families Flexibility Act Passed the House on May 2 Allow workers to choose 1.5 hours paid comp time; OR Time-and-a-half pay Opponents worry this system won t protect employees from coercion President Trump expressed support Awaiting Senate review 2017 Warner Norcross & Judd LLP. All rights reserved. Page 9

So What s Going On? No one knows yet All signs point to no new rules in 2017 Appeal still pending not withdrawn No formal word from Trump admin regarding FLSA regs 2017 Warner Norcross & Judd LLP. All rights reserved. Page 10

Misclassification 101 FLSA and Independent Contractors FLSA protections only apply to employees Independent contractors not covered Temptation is high to misclassify Economic reality test Complex set of factors to distinguish 2017 Warner Norcross & Judd LLP. All rights reserved. Page 12

Misclassification Case Study Caregivers in group home Misclassified as independent contractors Signed contracts agreeing that they were independent contractors Federal appeals court: no, they re employees Employer controlled all meaningful aspects of employment Lack of supervision independent contractor status 2017 Warner Norcross & Judd LLP. All rights reserved. Page 14

Interns as Employees Almost always employment Internships... will most often be viewed as employment Rigid six-factor litmus test to determine whether an intern is an employee or not 2017 Warner Norcross & Judd LLP. All rights reserved. Page 16

Classifying Interns Properly Education is the top priority Clearly define boundaries Intern work must be tightly regulated Interns must be paid at least minimum wage unless there is no benefit to the employer 2017 Warner Norcross & Judd LLP. All rights reserved. Page 17

It s Risky... Equal Pay Act States are taking action MA: New law prohibiting salary history inquiries Concept: counter the pay discrimination that can follow a woman through her career Courts are divided Federal court governing Michigan hasn t weighed in 2017 Warner Norcross & Judd LLP. All rights reserved. Page 19

Equal Pay Act Case Study Rizo v. Yovino - decided last month (CA federal court) Plaintiff, a schoolteacher, sued her employer Found out she was making less than male teachers School district s defense? Based her salary on her prior salary This was a factor other than sex, and thus permissible under EPA Court agreed with school district Prior salary is in some cases related to a business policy, not a teacher s sex Employer thus allowed to inquire, as long as they can identify a business reason 2017 Warner Norcross & Judd LLP. All rights reserved. Page 20

Determining Total Compensation Employees often receive various types of compensation Determining what goes into their regular rates for overtime calculation can be critical Standard items: commissions, attendance bonuses, productivity bonuses, shift differentials, on-call pay Nonstandard items? 2017 Warner Norcross & Judd LLP. All rights reserved. Page 22

Total Compensation Case Study Medical payments City made cash payments to police officers in lieu of medical benefits City argued that these payments were excludable because not directly related to work performed Court disagreed: medical pay counted toward regular rate 2017 Warner Norcross & Judd LLP. All rights reserved. Page 23

Travel Time Is it working time? Can be a challenging calculation Travel to/from work generally not compensable Traveling from job site to job site generally counts as hours worked Special rules for overnight travel 2017 Warner Norcross & Judd LLP. All rights reserved. Page 24

Travel Time Case Study Employer required laborers to engage in mandatory park and ride scheme All workers parked in one lot then rode busses to their work site Roughly 40-60 minutes of commute time Workers were not compensated for their time on the bus Federal appeals court: appropriate not to pay employees for their bus time 2017 Warner Norcross & Judd LLP. All rights reserved. Page 25

Current rate: $455 per week Proposed rule: 2017 Warner Norcross & Judd LLP. All rights reserved. Page 28 New minimum: $913/week $47,476 per year Adjustable every three years Can include non-discretionary bonuses up to 10% Still pending Unlikely to take effect

Executive Exemption: Case Study Store manager classified exempt Job Duties Sued Family Dollar, alleging that she spent 60-70% of her time on non-exempt duties Unloading freight Stocking shelves Court held that the manager was nevertheless exempt Time alone is not the sole test Even if most of her time was spent stocking, her primary job duties were managing her employees and protecting the store It is misleading simply to add up the time that [Plaintiff] spent unloading trucks, stocking inventory, running cash registers, or sweeping floors and conclude thereby that she was merely a clerk and not a manager. 2017 Warner Norcross & Judd LLP. All rights reserved. Page 31

Administrative Exemption: Case Study Job Duties Class action by brand advocates Responsible for promoting LG products in stores Employer s arguments? Advocates operated independently Had their own discretionary marketing budget Court rejected employer s rationale Not enough discretion or independent judgments Advocates had to refer to a script Independent judgment did not relate to matters of significance 2017 Warner Norcross & Judd LLP. All rights reserved. Page 32

Don t Be a Target Prepare and Maintain Keep adequate records Adopt and distribute written policies concerning time keeping, overtime pay and off-the-clock work (including remote work) Train managers in FLSA compliance Adopt formal payroll complaint mechanisms Handbook must say that salaried employees receive a set salary for all hours worked including all hours over 40 in a work week 2017 Warner Norcross & Judd LLP. All rights reserved. Page 34

Don t Be a Target Case Study Value of creating a process Employer established a reasonable process for employee to follow to report uncompensated work time Employee failed to follow the process Employer not liable for nonpayment 2017 Warner Norcross & Judd LLP. All rights reserved. Page 35

Don t Be a Target Audit any independent contractor or intern arrangements to ensure they comply with both the FLSA and tax laws Review bonus and travel payment procedures to ensure compliance 2017 Warner Norcross & Judd LLP. All rights reserved. Page 36

Don t Be a Target Conduct regular audits of exempt/nonexempt status of employees Utilize attorney-client privilege to do this Determine if it is necessary and appropriate to increase salary levels to keep employees exempt 2017 Warner Norcross & Judd LLP. All rights reserved. Page 37

Questions & Answers Thank you! Jon Kok jkok@wnj.com Ryan Grondzik rgrondzik@wnj.com These materials are for educational use only. This is not legal advice and does not create an attorney-client relationship. 2017 Warner Norcross & Judd LLP. All rights reserved. Page 38