Another Federal Court Finds "Fluctuating Workweek" Overtime Compensation Violates Pennsylvania Minimum Wage Act

This post was contributed by Adam R. Long, a Member in McNees Wallace & Nurick LLC's Labor & Employment Practice Group in Harrisburg, Pennsylvania.

Recently, Judge Mitchell Goldberg of the United States District Court for the Eastern District of Pennsylvania issued a decision in Verderame v. RadioShack Corp., finding that the "fluctuating workweek" method of overtime compensation violates the Pennsylvania Minimum Wage Act ("PMWA"). Under the fluctuating workweek method, an employee receives a guaranteed fixed weekly salary for all straight-time earnings, regardless of the number of hours worked, and an additional one-half of the employee's regular rate for all hours worked over forty in the workweek. The employee's regular rate may change from week to week, because it is based upon the employee's actual hours worked. The fluctuating workweek method is expressly permitted by the Fair Labor Standards Act's regulations and used by employers to compensate non-exempt employees on a fixed salary basis while minimizing overtime costs.

Judge Goldberg's decision in Verderame is the third recent federal District Court decision finding that use of the fluctuating workweek method violates the PMWA. See Foster v. Kraft Foods Global, Inc.(W.D. Pa. 2012); Cerutti v. Frito Lay, Inc. (W.D. Pa. 2011). The Third Circuit has yet to consider the issue.

The Verderame decision highlights the often forgotten facts that the requirements of the FLSA and the PMWA are not identical and that employers must ensure compliance with both laws. In addition, the growing number of decisions finding that the PMWA does not permit use of the fluctuating workweek have a much broader impact than simply for those employers that use this method of overtime compensation. Employers found liable in overtime exemption misclassification cases often seek to use the fluctuating workweek to calculate damages, as this method results in the payment of only an additional one-half of the employer's regular rate for overtime hours. If the fluctuating workweek method is not available under the PMWA, employers will be required to pay an additional one and one-half of the regular rate for purposes of damages.

Unless and until the Third Circuit weighs in, decisions like Verderame make it increasingly risky for Pennsylvania employers to use the fluctuating workweek method. These decisions also have increased the potential value of overtime misclassification cases, providing yet another reason for employers to conduct wage and hour audits and ensure that all employees are properly classified for overtime purposes.

Department of Labor Announces Proposed Rules to Raise the Minimum Wage for Federal Contract Workers; Federal Contractors Should Consider Making Their Voice Heard During the Notice and Comment Period

In response to President Obama's Executive Order earlier this year, the Department of Labor has issued a Notice of Proposed Rulemaking (NPRM) to establish standards and procedures for raising the minimum wage paid to employees of federal construction and service contractors to $10.10 per hour beginning January 1, 2015 and then increased on a yearly basis beginning January 1, 2016. Federal contractors have until July 17, 2014 to comment on the proposed regulations that could have a large impact on contractors' operations. UPDATE (7/9/14): The Department of Labor has extended the period for filing written comments until July 28, 2014.

The proposed rules clarify that the terms "contracts" and "contract-like instruments" as used in the Executive Order apply to "all contracts for construction covered by the Davis-Bacon Act; contracts for services covered by the Service Contract Act; concessions contracts, such as contracts to furnish food, lodging, automobile fuel, souvenirs, newspaper stands, and/or recreational equipment on Federal property; and contracts to provide services, such as child care or dry cleaning, in Federal buildings for Federal employees or the general public." The Order applies to new contracts and replacements for expiring contracts that result from solicitations on or after January 1, 2015.

The Order is incredibly narrow and noticeably excludes contracts for goods (the manufacturing or furnishing of materials, supplies, articles, or equipment to the federal government) from the new minimum wage requirements. The proposed rules also make it clear that the minimum wage increase does not apply to grants. Furthermore, the rules clarify that the new minimum wage need not be paid for ALL hours worked—just all hours spent performing work on covered contracts.

While the Administration maintains that increasing the minimum wage will increase employee morale (and it certainly will increase the morale of those receiving a wage increase), we are concerned about the following scenario. If an employee making $8.00 an hour is suddenly making $10.10 an hour, will an employee who was previously making $10.50 an hour and received no raise in response to the Executive Order and its implementing regulations feel slighted? Contractors should be aware of these potential unforeseen issues and consider examining their entire wage scale in preparation to comply with these new rules. Furthermore, as many federal contractors pay their employees well in excess of $10.10 per hour, these new rules could prove to be a non-factor in their operations.

We strongly encourage all contractors to read the proposed rules, determine if the rules will apply to them, and participate in the public comment process by submitting a comment by July 28!

Are Your Sales Employees Properly Classified as Exempt?

This post was contributed by Adam R. Long, a Member in McNees Wallace & Nurick LLC's Labor & Employment Practice Group in Harrisburg, Pennsylvania.

Many employers treat their sales employees as exempt from the Fair Labor Standards Act's overtime and minimum wage requirements. Regardless of whether they pay them a salary, commissions, or some combination of both, employers often assume that all salespersons are exempt and not entitled to overtime. Depending on the circumstances, this assumption can be problematic and costly.

For example, a federal district court in Georgia recently approved the proposed settlement of an FLSA collective action brought against Russell Stover Candies by a class of "sales representatives." The plaintiffs in Carter v. Russell Stover Candies, Inc., No. 13-cv-1552 (N.D. Ga.) alleged that they and other sales representatives were misclassified as exempt and entitled to damages for unpaid overtime compensation. After the court conditionally certified a class of sales representatives, Russell Stover Candies agreed to pay $3.075 million to settle the collective action. The settlement included payment to 103 class members.

The FLSA and Pennsylvania Minimum Wage Act both contain overtime exemptions for bona fide outside sales employees and for employees paid commissions by retail or service establishments. Neither exemption will cover every employee labeled a salesperson, however. The outside sales exemption applies only if the employee's primary duty is "making sales" and the employee is "customarily and regularly engaged away from the employer's place of business." This exemption does not apply to "inside" salespersons, and sales made via telephone, mail, and the Internet do not qualify as outside sales. In addition, the commissioned employee exemption applies only to employees of "retail or service establishments" who are compensated in a manner that meets the exemption's requirements. Simply paying an employee on a commission basis does not automatically make the employee exempt from the overtime requirements.

Misclassification of salespersons has been a fertile ground for both class-based litigation and DOL investigations in the last few years. To avoid such an unexpected and unpleasant experience, employers who treat sales employees as exempt should confirm that these employees qualify for one of the exemptions or consider making changes to their compensation practices.

President Obama Directs DOL To "Modernize" FLSA Overtime Regulations

This post was contributed by Adam R. Long, a Member in McNees Wallace & Nurick LLC's Labor & Employment Practice Group in Harrisburg, Pennsylvania.

Yesterday, President Obama signed a Presidential Memorandum directing the Secretary of Labor to "modernize and streamline" the existing Fair Labor Standards Act (FLSA) overtime regulations, specifically with respect to the "white collar" exemptions. The FLSA's white collar exemptions apply to covered professional, administrative, and professional employees. Last updated in 2004, the FLSA regulations on the white collar exemptions generally require that an employee receive a guaranteed minimum salary of at least $455 per week and meet one of the duties tests to qualify for an exemption to the FLSA's minimum wage and overtime compensation requirements.

The Presidential Memorandum does not change the legal requirements currently applicable to employers. Instead, it merely directs the Department of Labor to "propose revisions" to the existing FLSA regulations. Any changes would need to go through a notice and comment period and the full rule-making process before taking effect. This process can take numerous months, if not years, to complete.

Until the Department of Labor issues proposed revisions to the existing FLSA regulations, we will not know how and to what extent the white collar exemptions may change. That said, comments made by the White House give some guidance on what we might expect. The Fact Sheet issued by the White House yesterday specifically references the $455 minimum weekly salary requirement. We can expect that any proposed changes would include a significant increase to the minimum salary threshold to qualify for these exemptions. Also, the Fact Sheet mentions convenience store managers, fast food shift supervisors, and office workers as examples of the types of workers the changes would address. As such, the proposed changes likely will reduce the applicability of these exemptions to lower-level supervisors and managers and office administrators. Finally, the Memorandum states that "[b]ecause these regulations are outdated, millions of Americans lack the protections of overtime and even the right to the minimum wage." To make millions of currently exempt workers eligible for overtime compensation, the changes to the regulations will need to be broad and significant.

It is important to note that the Presidential Memorandum, White House comments, and resulting media attention have made no changes to the current law or obligations on employers. However, we can now expect proposed regulations sometime during the remainder of the Obama administration that will propose significant changes to the current FLSA white collar exemptions. Stay tuned for more updates.
 

President Obama Announces Raise in Minimum Wage for Employees of Federal Contractors

In last night's State of the Union Address, President Barack Obama announced that he planned to sign an Executive Order requiring that employees of federal contractors be paid at least a minimum wage of $10.10 per hour. This represents a $2.85 increase over the current federal and Pennsylvania minimum wage of $7.25 per hour. Specifically, the President said, "In the coming weeks I will issue an executive order requiring federal contractors to pay their federally-funded employees a fair wage of at least $10.10 an hour because if you cook our troops’ meals or wash their dishes, you should not have to live in poverty."

President Obama's Executive Order will only impact new and renewed contracts so there will be no immediate impact on federal contractors. According to a report from the Associated Press, more than 90% of federal contractors already make over $10.10 and the Executive Order will only impact about 200,000 workers. It is expected that the President will use this Executive Order in an effort to goad Congress into raising the minimum wage for all American workers to $10.10 over the next three years and then index it to inflation thereafter. The President told Congress that raising the minimum wage for all will "give businesses customers . . . more money to spend. It does not involve any new bureaucratic program. So join the rest of the country. Say yes. Give America a raise."

14 states raised their minimum wage effective January 1, 2014. While Pennsylvania did not raise the minimum wage, neighboring Ohio raised the minimum wage to $7.95 per hour and New Jersey raised the minimum wage to $8.25 per hour. California will raise its minimum wage to $9.00 per hour in July and is scheduled to raise it to $10.00 per hour in January 2016. Washington has the highest state minimum wage at $9.32 per hour and San Francisco comes in with the highest minimum wage in the country at a whopping $10.74.

A recent Associated Press poll found that 55% of Americans support an increase in the minimum wage, 21% oppose it, and 23% are neutral.

Federal contractors and subcontractors should be aware of these new requirements and prepare and price their bids accordingly as they enter into and renew existing contracts with the federal government. All employers should follow the news closely in the coming months as Congress considers increases to the minimum wage nationwide.

In addition to the upcoming minimum wage changes, many federal contractors and subcontractors are aware that beginning on March 24, 2014, in addition to their responsibilities to collect employee and applicant demographic data regarding race, gender, and ethnicity, contractors will also be required to collect demographic data related to veteran and disability status. If you are a contractor and these changes sound completely foreign to you, be sure to attend the McNees Wallace & Nurick seminar entitled "Counting Heads: New Rules That Impact EVERY Federal Government Contractor and Subcontractor." Seminars will take place in Harrisburg, PA on January 30 and State College, PA on February 6. A seminar will take place in Scranton, PA on February 26 (details to be announced soon). See below for more information. To sign up, e-mail us here!


 

Supreme Court Rules That "Donning and Doffing" Protective Gear Subject to Collective Bargaining; Leaves Door Open for Future Claims

On Monday, January 27, 2014, the United States Supreme Court unanimously ruled that a group of unionized steel workers at U.S. Steel Corporation did not need to be compensated for the time they spent "donning and doffing" safety gear before and after work. Justice Antonin Scalia wrote for the majority in Sandifer v. United States Steel Corp., Case No. 12-417 (Jan. 27, 2014), a case he described as requiring the Court to determine the meaning of the phrase "changing clothes" under section 203(o) of the Fair Labor Standards Act (FLSA). Although section 203(o) applies only to employers with collective bargaining agreements, certain aspects of the decision could have broader implications in "hours worked" cases under the FLSA.

Plaintiff Clifton Sandifer led a class-action suit representing a group of current and former employees of a U.S. Steel facility in Indiana. The Plaintiffs sought to recover backpay for time spent "donning and doffing" protective gear that U.S. Steel required employees to wear due to hazards encountered working in steel mills. Protective gear cited by the Plaintiffs included flame-retardant jackets, work gloves, leggings, "metatarsal boots" and respirators. Under the terms of the applicable collective bargaining agreement between U.S. Steel and the union, the time spent dressing and undressing was not compensable.

Section 203(o) of the FLSA provides that "any time spent in changing clothes or washing at the beginning or end of each workday" may be determined by a collective bargaining agreement. While the Sandifer Plaintiffs recognized that their collective bargaining agreement stated that dressing and undressing was noncompensible, they argued that the donning and doffing of protective safety gear does not qualify as "changing clothes" and thus must be compensated. The Supreme Court rejected this argument but left the door open to future claims where the protective gear is less like clothing and more like equipment.

To determine whether the protective gear in question was "clothes", Justice Scalia turned to his orignalist roots and examined the dictionary definition of clothing from the time Section 203(o) was passed in the late 1940s. Quoting Webster's Dictionary, Scalia stated that "clothes" are "items that are both designed and used to cover the body and are commonly regarded as articles of dress". It is important to note that the Court did not go so far as to define "clothes" as "essentially anything worn on the body—including accessories, tools, and so forth." The Court's definition of clothes "leaves room for distinguishing between clothes and wearable items that are not clothes, such as some equipment and devices."

Justice Scalia found that the items at issue in the case fell within the definition of clothes, except for items like glasses, earplugs, and respirators which are not typically considered articles of dress. The Court then examined whether the donning of items like earplugs and respirators could be considered de minimis and, thus, noncompensable. While Justice Scalia did not apply the de minimis doctrine, he ultimately concluded that the time spent putting on the clothes and other protective gear could, on the whole, be characterized as "time spent changing clothes," even though some of the items fell outside the definition of clothes. The Court concluded: "If an employee devotes the vast majority of the time in question to putting on and off equipment or other non-clothes items (perhaps a diver’s suit and tank) the entire period would not qualify as “time spent in changing clothes” under §203(o), even if some clothes items were donned and doffed as well. But if the vast majority of the time is spent in donning and doffing “clothes” as we have defined that term, the entire period qualifies, and the time spent putting on and off other items need not be subtracted."

Employers with unionized employees should make sure that the compensability of time spent changing clothes is covered under their collective bargaining agreement. Such employers should also assess the activities that take place during noncompensible time to confirm that a majority of this time is spent washing and changing "clothing" as defined by the Supreme Court. If most of the time spent by workers relates to donning and doffing equipment, rather than clothing, failure to compensate for this time could result in liability. Finally, we also suggest that all employers consider whether the Court's treatment of the meaning of the term de minimis under the FLSA might require any changes to time keeping procedures.
 

Wage and Hour Compliance Priorities for 2014

Recently, Adam R. Long, a Member in McNees Wallace & Nurick LLC's Labor and Employment Law Group, prepared a White Paper regarding Wage and Hour Compliance Priorities for 2014.

Employers should conduct regular and comprehensive wage and hour audits that examine all facets of the employer's pay practices to ensure compliance with the myriad wage and hour laws. That said, we recognize that HR professionals, in-house counsel, and senior management have very limited time and resources to devote to wage and hour compliance. This complimentary white paper discusses specific areas where employers should focus their wage and hour compliance efforts in 2014.
 

Click to view the entire white paper.

CFPB Weighs in on Employer Use of Payroll Cards

This post was contributed by Adam R. Long, Esq., a Member in McNees Wallace & Nurick LLC's Labor and Employment Law Group. 

In a recent blog post, we discussed the legal issues associated with employer use of payroll debit cards in lieu of printed paychecks.  We concluded that because of the lack of federal and state regulatory guidance on the issue, it was unclear whether employers could elect to pay wages exclusively through payroll debit cards.

Recently, the federal Consumer Financial Protection Bureau (CFPB) issued Bulletin 2013-10 (pdf) on the subject of payroll card accounts. The Bulletin broadly defined payroll card accounts as "accounts that are established directly or indirectly through an employer, and to which transfers of the consumer's salary, wage, or other employee compensation are made on a recurring basis." The Bulletin stated that the Electronic Fund Transfer Act (EFTA) and its implementing Regulation E apply to payroll card accounts and described numerous consumer protections under Regulation E that apply to payroll cards, including certain mandatory disclosures, access to account history, and error resolution rights.

In the Bulletin, the CFPB stated its position that "Regulation E prohibits employers from mandating that employees receive wages only on a payroll card of the employer's choosing." Instead, the CFPB believes that an employer may "offer employees the choice of receiving their wages on a payroll card or receiving it by some other means," including paper check or direct deposit. The Bulletin concluded by noting that the CFPB has the authority to enforce the EFTA and Regulation E against both financial institutions and employers.

With Bulletin 2013-10, the CFPB has made clear that it believes that the EFTA and Regulation E prohibit an employer from mandating that employees receive wage payments exclusively through payroll cards. Whether this position could survive a legal challenge remains unclear. Unless and until such legal challenge occurs, employers should be aware that at least one federal agency has publicly taken the position that mandatory use of payroll cards is unlawful and stated its intention to enforce its position on the issue.
 

Taking the Check Out of Paycheck: The Legality of Payroll Debit Cards

This post was contributed by Adam R. Long, Esq., a Member in McNees Wallace & Nurick LLC's Labor and Employment Law Group, and Esch McCombie, a Summer Associate with McNees. Mr. McCombie will begin his third year of law school at the Penn State University Dickinson School of Law in the fall, and he expects to earn his J.D. in May 2014.

Recently, the practice of paying employees via payroll debit cards came under fire when an employee filed a class action lawsuit against her employer, a McDonalds' franchisee, alleging that payment of wages via a Chase Payroll Card violated the Pennsylvania Wage Payment and Collection Law ("PWPCL"). The employee claimed that the card's fees cut into her wages, potentially bringing her pay below minimum wage, and that she and other class members were not being "paid in lawful money" as required by the PWPCL. The case currently is pending in Luzerne County.

Pennsylvania employers, large and small, increasingly use payroll debit cards in lieu of printed paychecks. The Federal Deposit Insurance Corporation ("FDIC") recently estimated that employers will disperse $60 billion in wages via payroll debit cards in 2014. The cards save employers money and often make fund retrieval more convenient for the employee. As demonstrated by the lawsuit recently filed in Luzerne County, it remains unclear whether the use of such cards complies with Pennsylvania law.
 

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UPDATE: Dive into Employee Tip Pools and Find Yourself Swimming With Sharks

Recently, we shared with you an article published by our Alcoholic Beverage and Liquor License Practice Group regarding the use of employee tip pools. The article discussed the allure of employee tip pooling, which allows for employees who may not directly interact with customers to share in tips. As we often do, we also mentioned the potential pitfalls associated with this practice. Since the publication of the prior article there have been a couple of high profile disputes that have made headlines, including:

  • A class action lawsuit filed against a restaurant owned by celebrity chef Gordon Ramsay, accusing the restaurant of withholding employee tips and other wage and hour violations.
  • The denial of celebrity chief Daniel Boulud's attempt to have a class action law suit against him and his restaurant dismissed. The lawsuit alleges that employees were not being compensated appropriately when they performed non-tipped tasks.

Unfortunately, tip pools are making headlines and not in a good way! And we are likely to see more headlines in the future. For example, a federal court in Oregon is set to decide whether the Department of Labor overstepped its authority when it issued rules regarding tip pools (which we discussed with you in our prior article). In addition, there is case pending before the New York Court of Appeals (New York's supreme court) involving Starbucks' tip practices, which could have major repercussions for employee tip pool arrangements in New York.

As we mentioned before, it's important for employers to understand what they are jumping into when they approve employee tip pooling.
 

Unpaid Internships May Cost Your Business Dearly in the Long Run

This post was contributed by Tony D. Dick Esq., an Associate in McNees Wallace & Nurick LLC's Labor and Employment Practice Group in Columbus, Ohio.

Summer has finally arrived. While many of us will soon become consumed with pool parties, backyard barbeques, and well-deserved vacations, a new crop of summer interns is just beginning their first endeavor in the working world with the hope of making a lasting impression on prospective employers in their chosen fields.

According to various surveys, the number of internships nationwide has climbed significantly over the last two decades. Approximately half of all college graduates report participating in some form of internship during their high school or college careers. Anywhere between 25% and 50% of these internships are unpaid. However, it is becoming an increasingly risky proposition for employers to take on unpaid interns. In fact, in just the past few days, Warner Music Group, Atlantic Records, and media giant Condé Nast have all been sued by former interns who claim that they should have been compensated for their internships. These latest lawsuits come on the heels of a sweeping New York federal court decision finding Fox Searchlight Pictures liable for violating minimum wage laws for failing to pay interns who worked on the 2010 movie Black Swan.

At the heart of these cases is whether the unpaid interns should have actually been classified as employees of the business. If so, the interns would be entitled to wages and overtime pay under the Fair Labor Standards Act (“FLSA”). While there are no bright line rules, the Department of Labor has developed a six-factor test to determine when an intern should be considered entitled to wages under the FLSA. Under these factors, an employer does not violate the FLSA by failing to pay wages to an intern only if:
 

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Liquor Law Update

McNees Wallace & Nurick LLC's Alcoholic Beverage and Liquor License Practice Group recently published a Liquor Law Update, which can be accessed by clicking here.  The Update contains an article on employee tip pools that readers may find interesting. 

Whether you need to acquire a liquor license, sell a liquor license, keep a liquor license, move a liquor license, expand the use of a liquor license, restrict a liquor license, or just need some advice about what you can do with a liquor license, McNees attorneys in the Alcoholic Beverage and Liquor License Practice Group are ready and able to assist you. We are familiar with the workings of both the Pennsylvania Liquor Control Board (PLCB) and the Ohio Department of Commerce, Division of Liquor Control (DOLC), and routinely interface with personnel at PLCB and DOLC.

PA Child Labor Act Modernizes and Clarifies Work Hour Restrictions for Minors in Time for Summer Hiring Season

With spring upon us and warmer temperatures hopefully just over the horizon, many employers are beginning to recruit high school students for after-school and summer employment. When doing so, employers must be aware of specific rules under both federal and state laws regarding the employment of minors (i.e., individuals under 18 years of age).

Earlier this year, the Pennsylvania Child Labor Act (“PCLA” or “Act”) went into effect. The Act is designed to clarify the state law and make it consistent with child labor standards imposed under the federal Fair Labor Standards Act (“FLSA”). For all intents and purpose, compliance with the PCLA will satisfy the employer’s obligations under the FLSA.

The Act sets forth minimum age requirements, permissible working hours and time restrictions, and permitting requirements. The most notable requirements of the PCLA are outlined below:

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Investigations/Audits of Employers by DOL Increase and Expand in Scope

This post was contributed by Joseph S. Sileo, Esq., a new addition to McNees Wallace & Nurick LLC's Labor and Employment Law Practice Group.  McNees recently welcomed Joe, Jennifer LaPorta Baker and Jennifer J. Walsh in Scranton, Pennsylvania

The Department of Labor (DOL) routinely investigates and audits employers to ensure compliance with a variety of important labor and employment laws. Historically, wage and hour (overtime) compliance under the Fair Labor Standards Act has been the most common subject of the DOL's enforcement efforts.

Fueled by additional resources, funding and staffing, the DOL is increasing its enforcement efforts both in terms of frequency and scope. This concerning trend means that employers can expect an increase in the number of investigations and that such investigations, once initiated, will cover a broader range of compliance issues and dig deeper into those issues under review. In this regard, our clients are reporting that, in addition to typical wage and hour issues, expanded DOL inquiries as a matter of course now include review of other laws, such as the Family and Medical Leave Act, and even the Patient Protection and Affordable Care Act. It is also common for DOL investigations to "spread," resulting in the inquiry ultimately moving into areas other than the initial issue under review.

DOL audits can be inconvenient, disruptive and costly. If a violation is found, the DOL will attempt to compel remedial/corrective action, which may require an employer to revise its policies and pay damages. In the case of a wage and hour violation, for example, an employer may be liable for any unpaid overtime over the course of the past two to three years for each affected employee. Given the potential consequences, it is typically best to seek the advice of counsel at the onset of an audit. 

To reduce the negative impact and potential liabilities associated with a forced government audit, particularly in the face of the DOL's more aggressive and expanded enforcement approach, employers are advised to review relevant employment practices and polices, and to periodically conduct internal compliance self-audits, before any outside investigation occurs. Our Labor & Employment Practice Group can assist you with reviewing employment polices/practices, conducting internal self-audits, and responding to any DOL compliance inquiry. Please do not hesitate to contact any member of our Group for assistance with these issues and any questions you may have.

Top Ten Wage & Hour Developments in 2012 for Pennsylvania Employers

Recently, Adam R. Long, a Member in McNees Wallace & Nurick LLC's Labor and Employment Law Group prepared a White Paper regarding the Top Ten Wage and Hour Developments in 2012 for Pennsylvania Employers. 

For Pennsylvania employers, 2012 was another eventful year in the world of wage and hour law. Even in the absence of new federal legislation, a number of noteworthy developments occurred at both the federal and state levels, confirming that wage and hour compliance remains a moving target for employers. This complimentary white paper summarizes ten of the more significant wage and hour developments in 2012 for Pennsylvania employers.

Click to view the entire white paper.

Federal Court Holds That FLSA's "Fluctuating Workweek" Method of Overtime Compensation Violates PA Law

This post was contributed by Adam R. Long, a Member in McNees Wallace and Nurick LLC's Labor and Employment Group.

In the wage and hour realm, even the most knowledgeable Pennsylvania employers often are unaware of potential compliance pitfalls presented by state law. Like the FLSA, the Pennsylvania Minimum Wage Act ("PMWA") contains overtime and minimum wage requirements applicable to Pennsylvania employers. The PMWA is similar, but not identical, to the FLSA, and compliance with the FLSA does not always guarantee compliance with this state law. For example, unlike the FLSA, the PMWA does not contain a specific overtime and minimum wage exemption for employees in computer-related occupations. Thus, a computer professional in Pennsylvania who safely falls within the FLSA exemption still may be entitled to overtime compensation pursuant to the PMWA. In other words, compliance with the FLSA could result in overtime liability for the unwary Pennsylvania employer.

Earlier this week, a federal court in Pennsylvania highlighted another area where the requirements of the FLSA and PMWA arguably differ. In Foster v. Kraft Foods Global, Inc. (pdf), the employer compensated non-exempt employees pursuant to the "fluctuating workweek" method of overtime compensation. Under the fluctuating workweek method, an employee receives a guaranteed fixed weekly salary for all straight-time earnings, regardless of the number of hours worked, and an additional one-half of the employee's regular rate for all hours worked over forty in the workweek. The employee's regular rate may change (or "fluctuate") from week to week, because it is based upon the employee's actual hours worked. The fluctuating workweek method of overtime compensation is expressly permitted by the FLSA's regulations and used by many employers to compensate non-exempt employees on a fixed salary basis while minimizing overtime costs.

The court in Foster held that, contrary to the FLSA's regulations, the PMWA's regulations do not allow payment of only an additional one-half of the regular rate for overtime hours pursuant to the fluctuating workweek method. Instead, the court found that the PMWA requires that employees compensated under this method receive an addition one and one-half of their regular rate for overtime hours, essentially eliminating this method of compensation's primary advantage to employers.

Pennsylvania employers who compensate non-exempt employees pursuant to the fluctuating workweek method should reevaluate their practices in light of the Foster decision. The decision serves as a stark reminder for all Pennsylvania employers, even those who do not use the fluctuating workweek method, that FLSA compliance may be only half the wage and hour battle. All Pennsylvania employers should be aware that the requirements of the FLSA and the PMWA are not identical and ensure compliance with both laws.

Third Circuit Clarifies "Joint Employer" Test Under FLSA

This post was contributed by Adam R. Long, a Member in McNees Wallace and Nurick LLC's Labor and Employment Group.

As in most types of class-based litigation, plaintiffs in Fair Labor Standards Act (FLSA) collective actions typically seek certification of as broad a class as possible. As the number of potential class members grows, so does the size of the employer's potential liability and the plaintiffs' leverage to obtain a large and lucrative settlement. One way to broaden the class size is to include employees of the employer's sister companies in the class, under the theory that the sister companies' parent company qualifies as the plaintiffs' "joint employer."

In the context of an FLSA collective action, the Third Circuit recently considered and established the test to be used to determine whether a parent company qualifies as the "joint employer" of its subsidiaries' employees under the FLSA. In In re Enterprise Rent-a-Car Wage & Hour Employment Practices Litigation (pdf), plaintiff Nickolas Hickton, a former assistant branch manager employed by Enterprise-Rent-a-Car Company of Pittsburgh ("Enterprise Pittsburgh"), pursued a nationwide FLSA collective action claiming that he and other Enterprise assistant branch managers were misclassified as exempt and owed overtime wages under the FLSA. In support of his claim for a nationwide class, Hickton alleged that Enterprise Pittsburgh's parent company, Enterprise Holdings, Inc. ("Enterprise Holdings"), was his and the other class members' "joint employer." Enterprise Holdings is the sole shareholder of Enterprise Pittsburgh and 37 other domestic subsidiaries that rent and sell vehicles and conduct other business under the "Enterprise" brand name.

Enterprise Holdings does not rent or sell vehicles, but rather provides optional administrative services and support to its subsidiaries, including business guidelines, employee benefit plans, and insurance, technology, and legal services. Enterprise Holdings' human resources department also provides job descriptions, best practice guidelines, training materials, a standard performance review form, and compensation guidelines to the 38 subsidiary companies. Each individual subsidiary can choose whether and to what extent it wishes to use any of these services. Each subsidiary has the same three board members, all of whom also served on Enterprise Holdings' board. At a 2005 meeting attended by representatives of both Enterprise Holdings and its subsidiaries, Enterprise Holdings "recommended" that its subsidiaries not pay overtime wages to their assistant branch managers employed outside of California.

Enterprise Holdings moved for summary judgment, claiming that it was not a joint employer of the alleged class members and, thus, not liable for the FLSA overtime claims. The District Court granted the motion, and the Third Circuit affirmed the dismissal of the claims against Enterprise Holdings on appeal. After noting that it had not previously considered the standard for determining "joint employment" status under the FLSA, the Third Circuit reviewed the relevant statutory and regulatory language and decisions of other courts and confirmed that
 

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Proposed Legislation To Reverse Court Decision, Permit Pennsylvania Health Care Institutions to Rely on 8/80 Overtime Method

[Update: On July 5, 2012, Governor Corbett signed House Bill 1820 into law. The amendments to the PMWA permitting the use of the 8/80 method by health care institutions in the Commonwealth become effective immediately.]

The federal Fair Labor Standards Act (“FLSA”) imposes a general requirement that employers pay overtime to non-exempt employees for hours worked in excess of 40 hours per workweek. Section 7(j) of FLSA provides, however, that certain employers in the health care industry can rely on the “8/80” method of overtime calculation instead of the standard 40 hour workweek approach.

Under the 8/80 method, hospitals, nursing homes, and other medical institutions that provide residential care can pay non-exempt employees overtime for hours worked in excess of 8 hours per day or 80 hours per 14-day period. Prior to implementing the 8/80 arrangement, the health care institution must reach an agreement or understanding with its employees regarding application of the 8/80 rule.

Prior to 2010, health care institutions in Pennsylvania had a long history of relying on the FLSA’s 8/80 method. In March 2010, however, the Philadelphia Court of Common Pleas ruled that the FLSA’s 8/80 rule conflicted with the Pennsylvania Minimum Wage Act (“PMWA”). Specifically, in Turner v. Mercy Health System, the court held that because the PMWA does not explicitly provide for the 8/80 overtime payment method, the 8/80 rule is not valid under Pennsylvania’s wage and hour laws. According to the court, therefore, healthcare employers in Pennsylvania could not rely on the 8/80 method, but were required to comply with the PMWA’s strict 40 hours per workweek overtime requirement.

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Truck Drivers and the Pennsylvania Prevailing Wage Act

Recently, Andrew L. Levy, Esq., a Member in McNees Wallace & Nurick LLC's Labor and Employment Law Practice Group published an article titled: Truck Drivers Hauling Material Between a Turnpike Construction Site and a Borrow Pit Adjacent to the Project Are Entitled to be Paid the Prevailing Wage

The article, which can be accessed by clicking here, discusses a recent Commonwealth Court of Pennsylvania decision that clarified the scope of coverage under the Pennsylvania Prevailing Wage Act with respect to truck drivers and other workers whose work in relation to a prevailing wage project extends beyond the actual project boundaries.

Pennsylvania Court Finds Employee Handbook Creates Contract, Upholds $187.6 Million Award

The year 2011 saw a number of employee-friendly changes to the laws governing the workplace. The U.S. Supreme Court expanded the scope of retaliation claims under Title VII and under the Fair Labor Standards Act. The Equal Employment Opportunity Commission (EEOC) implemented regulations further broadening the definition of “disability” under the ADA. The National Labor Relations Board actively protected employee social media use. And the EEOC has cracked down on inflexible leave of absence and attendance policies.

Pennsylvania courts have not shied away from the action. In 2011, the Pennsylvania Superior Court upheld one of the largest awards in a wage and hour class action in the state’s history. In Braun v. Wal-Mart, the court awarded $187.6 million in back wages, damages, and fees to employees of Wal-Mart stores throughout Pennsylvania for paid rest breaks they were not permitted to take. Approximately 187,000 current and former hourly Wal-Mart employees claimed that the employee handbook promised paid rest breaks, but they were forced to work during those breaks and were not compensated for the missed breaks.

The employees brought their claims under Pennsylvania’s Wage Payment and Collection Law (WPCL). The WPCL does not entitle employees to wages or fringe benefits, but rather provides a remedy when an employer fails to pay for wages or benefits due under the terms of a contract or agreement. According to the court in Braun, payment associated with paid rest breaks pursuant to a contractual agreement between an employer and employee constitutes wages as that term is broadly defined in the WPCL. And the court ultimately found such a contractual agreement for paid rest breaks under the facts before it.

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Supreme Court Says Verbal Complaints of Alleged FLSA Violations are Protected

This post was contributed by Tony D. Dick Esq., an Associate and a member of McNees Wallace & Nurick LLC's Labor and Employment Practice Group in Columbus, Ohio.

In a 6-2 decision, the United States Supreme Court recently ruled in Kasten v. Saint-Gobain Performance Plastics Corp., ___ U.S. ___, No. 09-834 (2011) (pdf), that an employee’s verbal complaint about alleged wage and hour violations can be sufficient to trigger the anti-retaliation protections under the Fair Labor Standards Act (“FLSA”).

At issue was the provision in the statute that makes it illegal “to discharge . . . any employee because such employee has filed any complaint” alleging a violation of the Act. 29 U.S.C. § 215(a)(3). Plaintiff Kevin Kasten, a former employee of Saint-Gobain, alleged he was terminated in retaliation for making oral complaints to his supervisors and human resources personnel regarding the location of the company’s time clocks, which Kasten alleged prevented employees from recording time spent “donning and doffing” protective equipment. The question before the Court was whether the phrase “filed any complaint” in the statutory text of the FLSA included both verbal and written complaints. The District Court granted Saint-Gobain’s motion for summary judgment, concluding the FLSA's anti-retaliation provision did not cover verbal complaints. The Seventh Circuit affirmed the lower court’s decision.

In reversing the Seventh Circuit’s decision, the Supreme Court first analyzed the actual text of the statute but, finding the text to be open to multiple interpretations, ultimately relied on an examination of congressional intent and the Department of Labor’s and the Equal Employment Opportunity Commission’s interpretation of the phrase. With respect to Congress’s intended purpose in enacting the anti-retaliation provision of the FLSA, the Court stated specifically:

Several functional considerations indicate that Congress intended the anti-retaliation provision to cover oral, as well as written, “complaint[s].” First, an interpretation that limited the provision's coverage to written complaints would undermine the Act's basic objectives. The Act seeks to prohibit “labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers.” 29 U.S.C. § 202(a). It does so in part by setting forth substantive wage, hour, and overtime standards. It relies for enforcement of these standards, not upon “continuing detailed federal supervision or inspection of payrolls,” but upon “information and complaints received from employees seeking to vindicate rights claimed to have been denied.” And its anti-retaliation provision makes this enforcement scheme effective by preventing “fear of economic retaliation” from inducing workers “quietly to accept substandard conditions.”

Slip op. at 7.

The Court articulated a test to determine whether a complaint is “filed” for FLSA purposes. Under the test, if a reasonable and objective person would have “fair notice” that the employee is asserting statutory rights, the employee is protected under the FLSA. “Fair notice” is achieved where a “complaint [is] sufficiently clear and detailed for a reasonable employer to understand it, in light of both content and context, as an assertion of rights.”

What does the Court’s decision mean for employers? It should be clear that the case expands the bounds of potential employer liability under the FLSA. The Court’s decision may also have farther reaching implications beyond the FLSA as several other federal statutes, including Occupational Safety and Health Act and the Clean Air Act, contain similar anti-retaliation provisions. A cautious employer will treat a verbal complaint the same as a written complaint. In disciplinary investigations, employers should ask supervisors whether the particular employee has made any oral complaints to determine whether the employee may make an argument in the future that any disciplinary action was in retaliation for making the complaint. As always, employers should document the specific reasons for employee terminations and disciplinary actions and follow established company policies to limit later arguments by a terminated employee that he or she was terminated because of a retaliatory motive on the part of the employer.

DOL Announces Introduction of Smartphone Application to Help Employees Track Work Hours

This post was contributed by Eric N. Athey, Esq., a Member in McNees Wallace & Nurick LLC's Labor and Employment Law Practice Group.

Over the past several years, federal courts across the United States have experienced a surge in class action lawsuits alleging wage and hour violations by employers. In many of these cases, the primary allegation is that employees were not paid for all of their activities that are considered "compensable work" under federal regulations. An employer's failure to pay employees for short breaks and for work from home are often cited violations. In an apparent attempt to provide support for such claims, the U.S. Department of Labor (DOL) has announced the launch of its first application, or "app," for smartphones. The iPhone-compatible app is an electronic timesheet that is intended "to help employees independently track the hours they work and determine the wages they are owed."

The DOL announcement notes that this new technology is significant because, "instead of relying on their employers' records, workers now can keep their own records," which can "prove invaluable during [a DOL]…investigation when an employer has failed to maintain accurate employment records." The DOL further indicated that future apps may be launched to assist employees with compliance issues relating to payment of tips, commissions, bonuses, holiday pay, weekend pay, shift differential and pay for regular days of rest, as well as for impermissible pay deductions.

The introduction of the new DOL app serves to highlight the importance of carefully drafted employer wage policies and practices. Such policies include procedures for proper timekeeping, a requirement that overtime be authorized in advance, a procedure for reporting and correcting payroll errors (overpayments and underpayments) and a sound understanding by managers of what activities must be treated as paid work.

If you have any questions regarding this article or suggested wage policies, please contact any member of our Labor and Employment Law Group.
 

Update: Break Time for Nursing Mothers under the FLSA

On May 3, 2010, we posted information about what was then a little known provision of the Patient Protection and Affordable Care Act (PPACA) (pdf): the requirement that employers provide reasonable unpaid breaks for nursing mothers to express breast milk. Recently, the Department of Labor issued Fact Sheet #73: Break Time for Nursing Mothers under the FLSA (the "Fact Sheet"). The Fact Sheet clarifies the unpaid break provision of the PPACA. 

Essentially, the PPACA requires that employers provide reasonable, unpaid break time and a private space for mothers to express breast milk for children up to one year in age.  There is an exemption for small employers, those with fewer than 50 employees, if the PPACA's requirements would pose an undue hardship. 

The Fact Sheet clarifies that employers need not provide the break to those employees who are considered FLSA exempt. It also makes clear that while the breaks are unpaid, if employees are not completely relieved from duty during the breaks, then they must be compensated for the time.

The Fact Sheet also clarifies that the private space to be provide does not have to be dedicated solely to breast feeding. However, if it is not, the space must be available when needed, as well as shielded from view and free from intrusion from coworkers and the public. 

The Fact Sheet also states that the small employer "undue hardship" exemption will be analyzed by examining the difficulty or expensive of compliance, with reference to "the size, financial resources, nature and structure of the employer's business." 

Employers should evaluate their practices with regards to breaks for breastfeeding mothers to ensure compliance with the PPACA, as clarified by the Fact Sheet.  

BREAKS FOR BREASTFEEDING PART OF HEALTH CARE REFORM?

Yes, that is right, the Patient Protection and Affordable Care Act (H.R. 3590) (pdf), signed into law on March 23, 2010, amended the Fair Labor Standards Act (FLSA) to require employers to provide reasonable unpaid breaks to nursing mothers. Previously, the FLSA did not require that employers provide breaks, but now employers must provide reasonable, unpaid break time and a private space for mothers to express breast milk.

This requirement applies to all employers covered by the FLSA; however, there is an exception for small employers. Small employers are those covered by the FLSA, but with less than 50 employees. These employers need not comply with the new requirements if doing so would impose an undue hardship.

The breaks must be provided for nursing mothers for up to one year after a child's birth. While it appears that employers need not provide such breaks for exempt "white collar" employees under the FLSA, employers that do provide such breaks must be sure not to lose the exemption for such employees by improperly docking such employees' salary.

In addition to providing "reasonable break time," covered employers must also provide space, "other than a restroom, that is shielded from view and free from intrusion from coworkers and the public." Employers should begin to proactively identify possible private locations for nursing mothers.

The reasonable unpaid break provision of the Patient Protection and Affordable Care Act (the Act) was effective immediately, and it is anticipated that the Department of Labor will issue regulations in the future to provide additional guidance on the Act's requirements. Pennsylvania employers should modify policies and ensure that supervisors and managers are aware of the reasonable break time provision of the Act. In addition, employers should stay tuned for further guidance from the Department of Labor.

The Act contains many provisions that will impact employers, but the breaks for nursing mothers provision was a surprise for many of us. In fact, employers have been inundated with new laws and regulations over the past year. The requirements of the Act, and other critical legal updates, will be covered in depth at the McNees Wallace & Nurick LLC 20th Annual Labor and Employment Seminar on May 21, 2010 in Hershey, Pennsylvania. For more information and to register for the Seminar, click here (pdf).

Pennsylvania Based Employees May Be Entitled to Overtime for work in Foreign Countries

Recently, the District Court for the Western District of Pennsylvania delivered some potentially bad news to Pennsylvania employers. In Truman v. DeWolff, Boberg & Associates, Inc., the Court held that an employee may be entitled to overtime payments for time worked in foreign countries under the Pennsylvania Minimum Wage Act and the Pennsylvania Wage Payment and Collection Law. The plaintiff, Michael Truman, worked for D.B.A., Inc. for a little over a year, and during that time worked in both England and in Canada. Truman sought overtime pay for overtime hours he worked in excess of 40 hours per week in both England and Canada.

At the summary judgment stage, the Truman admitted that he was not entitled to overtime payments under the Fair Labor Standards Act (FLSA) which specifically exempts work in foreign countries from overtime pay entitlements. However, Truman argued that under the Pennsylvania Minimum Wage Act he was entitled to such overtime payments because the Pennsylvania Minimum Wage Act provided for benefits exceeding those under the FLSA. The Court stated that unlike the FLSA, there was no specific exemption for working in foreign countries under the Pennsylvania Minimum Wage Act. The Court also noted that the Eastern District of Pennsylvania previously held that work in other states by Pennsylvania-based employees was covered by Pennsylvania Law. The Court concluded that there is nothing within the Pennsylvania Minimum Wage Act that restricts the benefits of the Act to work performed within the United States.

The Court also noted that the FLSA allows for state laws to provide greater protection than allowed under the FLSA, and therefore, there was no preemption issue in this case. The Court noted that there was no implied foreign work exemption under the Pennsylvania Minimum Wage Act, and therefore, for Pennsylvania residents working for Pennsylvania-based employers, there is no exemption from overtime pay requirements for work in foreign countries. The Court said that the analysis under the FLSA and the Pennsylvania laws is only identical if the language of the FLSA and state laws is identical. In this case, the analysis was different because the language was not identical, and therefore, the Court allowed the Plaintiff to move forward on his claim that he was entitled to overtime pay for hours worked in a foreign country under Pennsylvania law.

This decision has the potential to be costly for some Pennsylvania employers. How the courts will define who is a Pennsylvania resident and who is a Pennsylvania based employee for purposes of the Pennsylvania Minimum Wage Law and the Pennsylvania Wage Collection Act is unclear. These, and other issues, will need to be defined by the Courts in the future. In the meantime, employers are well advised to review their compensation practices in light of this decision.

Prohibition on Excessive Overtime in Health Care Act effective July 1, 2009

The Prohibition on Excessive Overtime in Health Care Act (Act 102) became effective on July 1, 2009. Health care facilities covered by the law include hospitals, ASCs, hospices, long-term care facilities and other inpatient facilities, but it excludes private physician offices and group practices. Employees protected by the law include all nonsupervisory employees involved in direct patient care activities or clinical services, including individuals employed through a temporary service or employment agency. Physicians, physician’s assistants, dentists, and job classes with no direct patient care are excluded from the overtime limitations.

A health care facility cannot compel a protected employee to work more than an agreed to, predetermined and regular daily shift exclusive of “on call” time, unless one of the following exceptions applies:

  1. the employee voluntarily agrees;
  2. there is an unforeseen emergent circumstance but as a “last resort”, after exhausting other staffing options and giving the employee one hour arrange for family care alternatives;
  3. the extended work is required to complete a patient care procedure already in progress, but only if the employee’s departure would have an adverse effect on the patient.

Employers are permitted to have agreed upon, predetermined and regular shifts greater than 8 hours; however, an employee who volunteers to work more than 12 consecutive hours shall be entitled to 10 hours off duty but may waive the entitlement. Employers may not retaliate against employees who refuse to accept work in excess of the limits. Employers who violate the law are subject to fines ranging from $100 to $1000 per violation.

The Department of Labor and Industry has posted a FAQ on its website summarizing common compliance questions. There is also a summary of the law.

Jon & Kate Plus 8 Reality TV Show faces Child Labor Investigation

The Gosselin Family, which has been the center of a media attention in recent weeks, is reportedly under investigation by the Pennsylvania Department of Labor and Industry for child labor law violations stemming from their children's appearance on the reality TV show "Jon & Kate Plus 8". Much of the reality show is filmed in the family's Wernersville, Pennsylvania home. The Gosselins have twin daughters age 8 and five-year old sextuplets, all of whom appear on the show.

The obvious legal issue is whether a children's involvement in a reality TV filmed in the children's home with the participation of parents constitutes "work in, about, or in connection with, any establishment." An "establishment" is a place "where work is done for compensation of any kind, to whomever payable." Children employed on a farm or in domestic service in private homes are excluded.

In Commonwealth V. McKaig (decided in 1937), a court found that it is not a violation of child labor laws for a nine year old child to give skating exhibition for an amateur skating society where she received no compensation; the exhibition was not for profit, although admission fee was charged; and the exhibition was not held at place of public resort but one privately leased for purely private purpose. The court focused on the role that the child played in the overall program and found that it is material that professional skater appeared on same program for compensation if child's skating was in no way linked with his. However, a child would have been engaged in "work" If  the participation of the child been "linked with commercial channels and so connected with the work of others as to be immediately supplementary to that work or in direct aid and direction of the work of others." Reality TV as "work" will be an interesting legal issue. The Gosselin children play an integral part the show and their roles may be somewhat staged. Furthermore, the family has created a business around the show. 

Pennsylvania's Child Labor Law regulates that hours and types of work that minors under the age of 18 may perform. The Child Labor Law specifically requires the Department of Labor and Industry (L&I) issue a special permit for "the employment of minors seven and under eighteen years of age in theatrical productions, musical recitals or concerts, entertainment acts, modeling, radio, television, motion picture making, or in other similar forms or media of entertainment in Pennsylvania where the performance of such minor is not hazardous to his safety or well-being." The Child Labor Law requires that performances occur before 11:30 p.m. and be no more frequent than two per day and 8 per week. There are also rules for "temporary" employment of minors as part of the performing cast in the production of a motion picture, if the department determines that adequate provision has been made for the educational instruction, supervision, health and welfare of the minor provided a minors work as part of the performing cast does not exceed forty-four hours in any one week and eight hours in any one day.

With the end of school approaching and children entering the summer workforce, employers should review their child labor law compliance.

Healthy Families Act: Proposed Legislation Mandates Seven Days of Paid Time Off

Representative DeLauro introduced the Healthy Families Act (H.R. 2460) which would require businesses with 15 or more employees to provide up to seven days of annual paid sick leave.  The paid leave could be taken to attend to an employee's own or a family member’s illness, or used for preventative care such as doctor’s appointments. In addition, the bill provides leave for employees who are the victims of domestic violence, stalking or sexual assault.  Sick time requests may be oral or in written at least seven days prior to foreseeable absence or otherwise as soon as practicable. The employee must provide notice of the expected duration of the absence. Medical certification is required if more than three consecutive days are taken off.

Employees would earn one hour of paid sick time for every 30 hours worked up to a maximum of 56 hours (seven days) annually. Leave begins accruing from the first day of employment, but may not be taken until an employee works for 60 days. Up to 56 hours of paid sick leave would carry over from year to year, but an employer may permit additional accrual beyond the 56 hour minimum. Employers are not required to pay terminated employees for unused paid time off. If a separated employee is rehired within 12 months, that employee is entitled to the accrued leave already earned, and would be entitled to take sick leave immediately.

A business's existing paid time off policy would not need to modified if it met or exceeded the minimum time periods and allow employees to take such leave for illness and other circumstances outlined in the Health Families Act. Employers must post a notice of the substantive and remedial provisions of the Act.

Aggrieved employees may bring civil claims to recoup unpaid time off benefits and to enforce the Act's discrimination and retaliation protections.  The Secretary of Labor also has investigative and enforcement powers. The Bill, if enacted, is effective six months after the Department of Labor issues required regulations.

Time to Re-evaluate Employment Practice Liability Insurance

Employment Practices Liability Insurance (EPLI) can provide valuable protection; particularly,  given the predicted rise in employment related legal claims and enhanced government enforcement initiatives. Furthermore, EPLI remains a relative bargain in the continued “soft” insurance market and employers should consider adding or increasing insurance coverage to protect against employment claims. EPLI insurance is somewhat quirky and the following are some considerations when evaluating policies:

1.         Coverage: EPLI policies usually cover claims of wrongful discharge, workplace harassment and discrimination. Many offer a more comprehensive list of covered acts, including negligent hiring/supervision/evaluations, invasion of privacy, defamation and intentional infliction of emotional distress. Coverage typically applies to claims made by full time employees so as to exclude those by part-timers, temporary, seasonal and independent contractors. In comparing policies, look for one that has the most expansive coverage. 

2.         Exclusions: EPLI policies exclude many claims based on the statute that creates the legal right or the activity that gives rise to the claim. Exclusions apply to the Fair Labor Standards Acts; the National Labor Relations Act; the Worker Adjustment and Retraining Notification Act (WARN); the Consolidated Omnibus Budget Reconciliation Act (COBRA); the Employee Retirement Income Security Act (ERISA); the Occupational Safety and Health Act (OSHA); the costs associated with providing "reasonable accommodation" under the Americans with Disabilities Act (ADA); as well as claims arising out of downsizing, layoffs, workforce restructurings, plant closures or strikes. Punitive damages are always excluded. Carefully evaluate the excluded claims in light of your business practices. In the case of multi-state operations, be aware that some state laws create substantial employment rights that must also be evaluated under the policy language.

3.         Policy Limits and Deductibles: Policy limits and deductibles usually apply on a per claim and aggregate basis. For example, coverage may be limited to $250,000 for each separate claim with an overall aggregate cap of $1 million for all claims. Employers must formulate their insurance goals in setting the appropriate deductibles and limits. Some employers view EPLI insurance as catastrophic coverage and are willing to accept a high deductible that allows them to handle smaller claims themselves. However, other employers are looking for more blanket coverage.

4.         Defense Costs, Selection of Counsel and Settlement: Defense costs are usually included within the EPLI policy’s limits, which has good and bad points. Many times, the legal expense is the largest cost to an employer in dealing with merit less claims. However, including defense costs means that every dollar an employer spends defending a claim reduces the amount available for settlement or to pay a judgment. Since the existence of insurance coverage must be disclosed as part of discovery in most law suits, a plaintiff’s attorney will factor insurance coverage into his or her case evaluation. The defense cost feature may influence plaintiffs’ counsel to try to settle early, rather than force an employer to incur litigation costs that will only erode the insurance dollars available for potential settlement. Employment claims often have significant employee relations ramifications making settlement a particularly important issue. Insurers view employment claims the same as any other insurance matter by evaluating only the potential for liability and the amount of damages. The employer and insurer may be at odds over settling a case. EPLI policies address this stalemate by either giving the insurer the right to settle without the employer’s approval or, more frequently, giving an employer control over settlement, but adding a “hammer clause”. These clauses are designed to limit the insurer’s potential exposure if the policyholder passes up an opportunity to settle a claim recommended by the insurer. Hammer clauses provide that if there is an offer to settle a claim that the policyholder refuses accept, then the insurer will not be liable for a subsequent settlement or judgment in excess of a rejected settlement amount.  

5.         Policy Types and Insurance Company Notification: EPLI policies are typically written on a “claims made” basis meaning that the claim must be incurred during the coverage period and reported to the insurer during an extended reporting period. Employers who have already experience significant layoffs prior to the effective date of coverage will not have claims arising from those actions covered by new insurance; however, if an employer increases coverage, it may be able negotiate a retroactivity for the larger policy limits. Since employment actions may take years to turn into a claims, an employer may be left with no coverage if the policy is dropped or tail coverage isn’t purchased. Untimely notice to an insurance carrier can void coverage for and employment claim.

Ledbetter now Law: Employers must Focus on Compliance

President Obama signed into law the Ledbetter Fair Pay Act nullifying the U.S. Supreme Court decision in Ledbetter v. Goodyear Tire & Rubber Company. Previous posts on the content and effect of the law are as follows:

Ledbetter Fair Pay Act passed by Senate and awaiting Obama Signature

Bad News: Ledbetter Fair Pay Act and Paycheck Fairness Act Pass the House.

Record Retention Nightmare Created by Ledbetter Fair Pay Act

An employer's first concern should be the revival of claims otherwise thought extinguished under the Ledbetter decision. The law is retroactive to overrule the Supreme Court standard for assessing the timeliness of wage discrimination claims. A wage-based discrimination claim in Pennsylvania can now be filed within 300 days of the last paycheck affected by the discriminatory pay action.

An employer's next focus should be on creating a pay and evaluation system that preserves evidence supporting the nondiscriminatory basis of the decisions. The system must capture both witnesses' recollections and records associated with the decisions for all similarly situated employees.

The difficulty in defending these "old" claims lies in documenting both the decision made relative to the employee bringing the claim and the treatment of comparable employees. The legal analysis of a discrimination claim involves a comparison of the compensation paid to a member of a protected class as compared with those outside the protected class. If a compensation disparity is shown, the employer must demonstrate a legitimate nondiscriminatory reason for the difference in compensation. Once demonstrated by the employer, the employee may show that the employers reason is a pretext for discrimination. Much of this analysis will change if the Paycheck Fairness Act also becomes law.

The EEOC has a road make for its analysis of compensation discrimination claims under its Compliance Manual. The types of evidence the EEOC collects and evaluates in assessing a claim includes the following:

  • Initially the EEOC determines if a wage differential exists by evaluating documents including the following:
    • Organization charts and other documents which reflect the relative position of the charging party in comparison to other employees, including written detailed job descriptions;
    • Written descriptions of the respondent's system for compensating employees -- including collective bargaining agreements; entry level wage rates or salaries; any policies or practices with regard to periodic increases, merit and other bonus compensation plans; and the respondent's reasons for its pay practices; and
    • Job evaluation studies, reports, or other analyses made by or for the employer with respect to its method of compensation and pay rates.
  • If a compensation differential(s) exists, the employer should be asked to produce a non-discriminatory reason for the differential. If a an employer leaves the pay disparity unexplained, or provides an explanation that is "too vague, is internally inconsistent, or is facially not credible," the investigator should find "cause." If the employer does provide a nondiscriminatory reason, an inquiry should be made into whether it satisfactorily explains the pay differential.
  • The EEOC requests information explaining the pay decisions of comparable or similarly situated employees. The EEOC may also request pay information for similarly situated employees to evaluate a disparate impact case based on a statistical analysis of compensation decisions and treatment.

 

Ledbetter Fair Pay Act passed by Senate and awaiting Obama Signature

The Senate passed the Lilly Ledbetter Fair Pay Act of 2009 by a vote of 61 to 36 with both Pennsylvania Senators supporting the legislation.   President Obama has previously stated he will sign the law.

The Ledbetter Fair Pay Act redefines the "accrual" of a compensation discrimination claim as follows:

For purposes of this section, an unlawful employment practice occurs, with respect to discrimination in compensation in violation of this title, when a discriminatory compensation decision or other practice is adopted, when an individual becomes subject to a discriminatory compensation decision or other practice, or when an individual is affected by application of a discriminatory compensation decision or other practice, including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice.

Violations of the law entitle employees to recover compensatory and punitive damages including recovery of back pay for up to two years preceding the filing of the charge, where the unlawful employment practices that have occurred during the charge filing period are similar or related to unlawful employment practices with regard to discrimination in compensation that occurred outside the time for filing a charge.

The law is retroactive to the May 28, 2007 (the date of the Supreme Court's Ledbetter decision) effectively reviving all claims that are pending or after that date.

Forces employers to modify their pay practices and evaluation procedures including the following:

  • Better justify and document their compensation decisions.
  • Review promotion procedures which may fall under the law because of the attendant compensation adjustment.
  • Create an institutional memory that captures the basis for compensation and promotion decisions.
  • Design a record retention system that allows for the defense of claims.

Next on the Senate Agenda will likely be the Paycheck Fairness Act (S. 182).

Thanks to the Connecticut Employment Law Blog for insights.

Bad News: Ledbetter Fair Pay Act and Paycheck Fairness Act Pass the House.

Congress has passed The Lilly Ledbetter Fair Pay Act of 2009 (H.R. 11) and The Paycheck Fairness Act (H.R. 12). Anaylsis of the new legislation to come.

The Ledbetter Fair Pay Act is discussed in a prior post on Record Retention Nightmare Created by Ledbetter Fair Pay Act .  The Paycheck Fairness Act changes the burden of proof in gender based pay claims requiring the employer to affirmatively demonstrate that any pay differential is not based on sex. Employers who cannot meet this burden face unlimited compensatory and punitive damages. The EEOC would be required to collect employer payroll information based on sex, race, and national origin thereby targeting its enforcement activities. The Bill also changed rules on class actions automatically including employees in such claims unless they specifically opt out.  PFA subjects employers to wage related class actions with unlimited damages and makes it easier for employees to prove such claims.

Ann Bares analyzes the impact of the new law from a compensation perspective in her post: Dear Legislators: A Missing Link to Paycheck Fairness?

 

Record Retention Nightmare Created by Ledbetter Fair Pay Act

Ledbetter Fair Pay Act (H.R. 2831/ S. 1843) is on the fast track with full support of the Obama Administration. LFPA overturns the Supreme Court’s decision in Ledbetter v. Goodyear Tire and Rubber Co. effectively eliminating the 180 or 300-day statute of limitations for filing a wage-related discrimination claim. The Bill allows family members and others affected by discrimination to file claims and reinstitutes the Paycheck Accrual Rule for determining when a claim arises. It also allows claims based on paychecks and annuity payments which would permit retirees to bring claims.

Ms. Leddbetter's discriminatory pay claims originated from pay raises allegedly denied her based on supervisor's discriminatory evaluations of her performance conducted over a period between 1979 and 1998. The U.S. Supreme Court held that the pay setting was a discrete act triggering the180 day limitations period for filing a discrimination claim, therefore a timely discrimination claim must be based on acts of discrimination occurring within the 180 day period. Leddbetter argued that“[E]ach paycheck that offers a woman less pay than a similarly situated man because of her sex is a separate violation of Title VII with its own limitations period, regardless of whether the paycheck simply implements a prior discriminatory decision made outside the limitations period”.

The effect of the argument is to call into question decisions of supervisors made almost 20 years before the employer received notice of the alleged discrimination. Leddbetter counters that she had no way of knowing about her discriminatory treatment because of the confidentiality of the performance reviews and salary adjustments

In its Ledbetter decision, the Supreme Court enunciated a classic application of the statute of limitations governing the time period for bringing legal claims:

Statutes of limitations, which "are found and approved in all systems of enlightened jurisprudence, represent a pervasive legislative judgment that it is unjust to fail to put the adversary on notice to defend within a specified period of time, and that "the right to be free of stale claims in time comes to prevail over the right to prosecute them. These enactments are statutes of repose; and although affording plaintiffs what the legislature deems a reasonable time to present their claims, they protect defendants and the courts from having to deal with cases in which the search for truth may be seriously impaired by the loss of evidence, whether by death or disappearance of witnesses, fading memories, disappearance of documents, or otherwise. (emphasis added). 

The implication's are huge for employers in terms of faulty memories, missing witnesses, and mountains of documents. Defense of decades old discrimination claims will necessitate the retention of more documents for longer time periods. The expense associated with storage and production of documents (whether paper or electronic) may be staggering. Imagine a Request for Production of Documents or subpoena that demands access to 20 or 30 years of employer records associated with the evaluations and salary adjustments for an employee (or retiree) claiming pay discrimination. Add in all of the employee's peer comparators who were similarly situated over the same time period for a truly nightmarish perspective. Now the rationale for the statute of limitations becomes clearer.

Human Resources Legal Compliance Checklist for 2009

Human Resource Professionals face a demanding legal compliance year in 2009. The following five items should be added to your "To Do" list for the first quarter of '09:

ADA Amendments Act Compliance (effective 1/1/2009):  The amendments greatly expand the definition of disability refocusing compliance on determining whether the employee is "qualified" and evaluating reasonable accommodations. Employers should consider the following:

  • Revising job descriptions to define essential job functions and minimum qualifications.
  • Formalizing the interactive process for assessing disability issues.
  • Educating supervisors on the expanded ADA coverage.

E-Verify Registration and Immigration Compliance (effective 1/15/2009):  Government contractors and subcontracts may need to register for and use the E-Verify System for new and existing government contracts. Employers who may be covered should inventory their existing contracts and review prospective contracts and subcontracts to determine whether they are covered by the regulations.

U.S. Citizenship and Immigration Services (USCIS) has amended regulations governing the types of acceptable identity and employment authorization documents that employees may present to their employers for completion of the Form I-9, Employment Eligibility Verification. Under the interim rule, employers will no longer be able to accept expired documents to verify employment authorization on the Form I-9. There are other changes to the types of acceptable documents. Employers must use the revised Form I-9 (not yet issued) for all new hires and to re-verify any employee with expiring employment authorization beginning January 31, 2009. The current version of the Form I-9 will no longer be valid as of February 2, 2009.

 

FMLA Regulations Implementation (effective 1/16/2009):  Amendments to the FMLA's regulations require action by employers in the following areas:

EFCA and RESPECT Act Planning:  This pending legislation has enormous potential consequences for employers. Developing an action plan should include the following items:

Wage & Hour Self-Audit:  As evidenced by Wal-Marts recent record settlement, wage and hour lawsuits will play prominently in 2009. A self-audit of compliance practices can mitigate these claims particularly in the following areas;

  • Employee classification (exempt vs. non-exempt)
  • Off the clock work (starting times, breaks and meal periods)
  • Donning and Doffing
  • Child labor

Department of Labor Issues FMLA posters and Forms

The DOL issued a revised Family and Medical Leave Act (FMLA) poster, reflecting the recently published final rule which is now available for viewing and downloading. Every employer covered by the FMLA is required to post and keep posted on its premises, in conspicuous places where employees are employed, a notice explaining the Act’s provisions.  

The Department provides optional forms for use by employers and employees during the FMLA process.  The Department has revised its Certification of Health Care Provider form (WH-380), and divided it into two separate forms for an Employee’s Serious Health Condition (WH-380E) and a Family Member’s Serious Health Condition (WH-380F).  The Department has also revised its Notice of Eligibility and Rights and Responsibilities form (WH-381).  In addition, the Department has added new forms for Designation Notice to Employee of FMLA Leave (WH-382), Certification of Qualifying Exigency for Military Family Leave (WH-384), and Certification for Serious Injury or Illness of Covered Servicemember for Military Family Leave (WH-385).

The poster and forms become effective on January 16, 2009.  Additional compliance assistance materials are also available on our FMLA Final Rule Web site at http://www.dol.gov/esa/whd/fmla/finalrule.htm. Employers must also amend handbook provisions to reflect the new regulations.

Another Headache for HR in 2009: Twenty-Seven Bi-Weekly Paydays

As if HR didn't have enough on its plate with E-Verify compliance, new FMLA regs, and EFCA planning, next year is one of those strange years with 27 bi-weekly paydays instead of 26. Bi-weekly pay programs pay employees in 14-day increments resulting in a 364 day annual pay cycle. Since there are either 365 or 366 days in a year, every 5 years or so, there is a calendar year with 27 pay periods instead of the typical 26.

The 27 pay periods for 2009 create a compensation issue for salaried employees. Bi-weekly pay is typically calculated by dividing annual salary by 26 and employees are accustomed to a payroll amount based on this division. Continuing this practice in 2009 will result in an "extra" paycheck in 2009, but the normal 26 pay periods will resume in 2010. Some commentators have characterized this as a "timing issue". It is not. There are never years with only 25 pay periods to offset the years with 27.

Employers approach this situation in two ways. Some employers adjust salaried employee bi-weekly compensation for the 27 pay period years by dividing the stated annual salary by 27 rather than 26 resulting in a lower pay for each pay period in the year. Salaried employees are paid the same gross salary in smaller increments. However, this approach can cause problems with automatic deductions. Other employers allow the extra pay check and inflated compensation, not wanting to mess with the largely automated payroll system. Both approaches will require employee communication and may be influenced by an employer's past practice.   Legal issues can arise from reducing the bi-weekly salary amount.

 

Paying salaried employees on a semi-monthly basis (twice a month) avoids this problem because there are always 24 paydays. However, semi-monthly pay doesn't always work well for hourly employees because it may require estimating hours and overtime based on misalignment of the 7-day workweek with the 15 or 16-day pay period. Many employers don't want the expense of running two payrolls so they live with the 27 payday problem.

Avoid Wage & Hour Problems from Year End Bonus Payments to Hourly Employees

Many employers traditionally provide year end bonuses and holiday gifts for their employees. Bonuses may be included in a nonexempt employee’s regular rate depending upon the manner in which the bonus is calculated and the company’s prior communication. Inclusion in the regular rate impacts overtime calculations and payments.

Bonuses paid to nonexempt employees are included in the determination of the employees’ regular rate under section 778.208 unless the bonus falls into one of several exceptions. The bonuses are allocated to the pay period and added to other wages paid to nonexempt employees and then divided by the hours worked for the same period to determine the new regular rate under the methodology described in section 778.209. For bonuses earned over more than one work week, the bonus must be allocated to pay periods to which the bonus applies and the regular rate recalculated. If overtime was worked during this period, the overtime rate must be revised to be time and a half the recalculated regular rate that includes the bonus payment. This is a nightmare.

 

Department of Labor regulations provide for several exclusions. Among these excludable bonus payments are discretionary bonuses, gifts and payments in the nature of gifts on special occasions, contributions by the employer to certain welfare plans and payments made by the employer pursuant to certain profit-sharing, thrift and savings plans. These exemptions are discussed in Section 778.211 Discretionary Bonuses, Section 778.212 Gifts and Holiday Bonuses, Section 778.213 Qualified Profit Sharing and Savings Plans, and Section  778.214 Other Qualified Plans.  Bonuses which do not qualify for exclusion from the regular rate as one of these types must be totaled in with other earnings to determine the regular rate on which overtime pay must be based.

 

Typically any bonus announced in advance and tied to work performance, hours or other productivity will not qualify for an exemption.  There three ways to manage the recalculation problem, other than utilizing qualified plans:

 

1.  Holiday Bonuses: The Holiday Gift and Bonus exemption under section 778.212 allows for the exclusion from calculation of an employees “regular rate” of pay “sums paid as gifts; payments in the nature of gifts made at Christmas time or on other special occasions, as a reward for service, the amounts of which are not measured by or dependent upon hours worked, production, or efficiency…”   The following sets forth some of the parameters of the exclusion:

If the bonus paid at Christmas or on other special occasion is a gift or in the nature of a gift, it may be excluded from the regular rate under section 7(e)(1) even though it is paid with regularity so that the employees are led to expect it and even though the amounts paid to different employees or groups of employees vary with the amount of the salary or regular hourly rate of such employees or according to their length of service with the firm so long as the amounts are not measured  by or directly dependent upon hours worked, production, or efficiency. A Christmas bonus paid (not pursuant to contract) in the amount of two weeks' salary to all employees and an equal additional amount for each 5 years of service with the firm, for example, would be excludable from the regular rate under this category.

 

2.  Discretionary Bonuses: This is an area of DOL audit scrutiny and should not be used on a regular or aggressive basis. Truly discretionary bonuses are not included in the regular rate of pay under section 778.211, if both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly. The following sets forth some of the parameters of the exclusion:

For example, any bonus which is promised to employees upon hiring or which is the result of collective bargaining would not be excluded from the regular rate under this provision of the Act. Bonuses which are announced to employees to induce them to work more steadily or more rapidly or more efficiently or to remain with the firm are regarded as part of the regular rate of pay. Attendance bonuses, individual or group production bonuses, bonuses for quality and accuracy of work, bonuses contingent upon the employee's continuing in employment until the time the payment is to be made and the like are in this category. They must be included in the regular rate of pay.

 

3.  Percentage Total Earnings Bonus: Bonuses based on a percentage of the nonexempt employee’s total earnings under section 778.210 do not result in a recalculation of the regular rate because overtime is already been accounted for in the calculation.   Under this method, the bonus is described as a percentage of the nonexempt employee’s total (W-2) earnings, thereby including both regular and overtime payments and obviating the need for recalculation of the regular rate.

 

The Ohio Employer's Law Blog is also a great resource on this topic.

HR GENERALIST RESOURCES: Inclement weather policies in Pennsylvania

With the first measurable snowfall hitting many parts of Pennsylvania this week, it's time to start thinking about inclement weather policies. Closing a business for any reason can have a dramatic impact on customers and employees.  Many employers struggle with business closings and delays necessitated by inclement weather. Good communication and planning can help eleviate some of the issues created weather-related closures.  However, there are a few legal issues thrown in this wintery mix.  I recommend adopting a policy that addresses at least the following three areas:

Will employees be paid for the time when the business is closed?

Nonexempt employees need not be paid for time when they do not work because the business is closed. Exempt employees must be paid their salary for the week regardless of the business closing. PTO or vacation may be charged, but exempt employee salaries may not be docked for time when the business is closed. A Department of Labor Compliance Assistance Letter details some of the Wage and Hour considerations applicable to the payment of wages for exempt employees.

 

Will employees be paid if they don’t report to work due to inclement weather when the business is open?

Nonexempt employees need not be paid for times they are absent from work. Exempt employees need not be paid for a whole day absence taken due to inclement weather. An exempt employee absent for part of a day may be forced to use vacation or PTO time. If the exempt employee has no vacation or PTO time, his or her salary may not be docked for a partial day absence.  The same Department of Labor Compliance Assistance Letter addresses this situation.

 

Can an employer discipline or discharge and employee for failing to report to work due to weather conditions when the business is open?

An employer may generally apply its normal attendance policy to weather related absences; however, most will make an exception for absences due to weather if the employee makes a reasonable effort to get to work. Collateral issues abound such as childcare, public transportation, and the “snow phobic” employee (chionophobia). With the ADA Amendments Act, this may be an area of accommodations. Keep in mind that “exceptions” should be uniformly made to avoid discrimination claims.

 

There is one major legal exception. Under Pennsylvania law (43 P.S. §§ 1481-1485), an employer may not discipline or discharge an employee who fails to report to work due to the closure of the roads in the county of the employer's place of business or the county of the employee's residency, if the road closure is the result of a state of emergency declared by the Governor.  The most obvious and likely scenario is a snow storm or other inclement weather.

 

Employers are not required to pay an employee who is a no show based on road closures, unless a union contract dictates otherwise.  An employee who can prove the employer's "knowing and intentional" violation of the law may recover lost pay, be reinstated or have discipline revoked, and may collect attorneys fees and costs.The law does not apply to the following jobs: drivers of emergency vehicles, essential corrections personnel, police, emergency service personnel, hospital and nursing home staffs, pharmacists, essential health care professionals, public utility personnel, employees of radio or television stations engaged in the gathering and dissemination of news, road crews and oil and milk delivery personnel.

Prohibition of Excessive Overtime in Health Care Act will Exacerbate Nursing Shortage

Clinical staffing problems for Pennsylvania healthcare facilities created by shortages of nursing professionals will be greatly exacerbated by a new law prohibiting mandatory overtime for employees engaged in direct patient care. The Commonwealth is already facing a nursing shortage, which is growing worse. According to the Health Resources and Services Administration (HRSA), an arm of the U.S. Department of Health and Human Services, Pennsylvania health care providers will experience a 41 percent vacancy rate in nursing positions by the year 2020, requiring more than 54,000 nurses to provide adequate patient care. Restrictions on the amount of work time for an already short labor pool will likely increase problems.

The Prohibition on Excessive Overtime in Health Care Act becomes effective on July 1, 2009. Health care facilities covered by the law include hospitals, ASCs, hospices, long-term care facilities and other inpatient facilities, but it excludes private physician offices and group practices. Employees protected by the law include all nonsupervisory employees involved in direct patient care activities or clinical services, including individuals employed through a temporary service or employment agency. Physicians, physician’s assistants, dentists, and job classes with no direct patient care are excluded from the overtime limitations.

 

A health care facility cannot compel a protected employee to work more than an agreed to, predetermined and regular daily shift exclusive of “on call” time, unless one of the following exceptions applies:

(1)     the employee voluntarily agrees;

(2)     there is an unforeseen emergent circumstance but as a “last resort”, after exhausting other staffing options and giving the employee one hour arrange for family care alternatives;

(3)     the extended work is required to complete a patient care procedure already in progress, but only if the employee’s departure would have an adverse effect on the patient.

 

Employers are permitted to have agreed upon, predetermined and regular shifts greater than 8 hours; however, an employee who volunteers to work more than 12 consecutive hours shall be entitled to 10 hours off duty but may waive the entitlement. Employers may not retaliate against employees who refuse to accept work in excess of the limits. Employers who violate the law are subject to fines ranging from $100 to $1000 per violation.

 

The Department of Labor and Industry is to develop regulations within 18 months.  The law received modest press as it was signed by the Governor along with 31 other pieces of legislation.

Employer's Guide to the Election

The election rhetoric has been relatively quiet on employment-related topics, except for the brief mention in the last debate. Candidate Obama has a clear agenda employment legislation based on his co-sponsorship of various bills and other media comments. Candidate McCain’s position is less clear. Detailed below is a summary of the key legislative initiatives considered by Congress in 2008, all of which have passed the House of Representatives except the RESPECT Act.

Employee Free Choice Act (H.R. 800 and S. 1041)

Summary:  The EFCA amends the NLRA to change the procedures for union certification and first contract negotiation. The primary components of the act are as follows:

  • Allows NLRB certification of a relevant bargaining unit upon authorization card showing from 50% plus one of employees bypassing secret ballot election.
  • Mandates initial collective bargaining contract be negotiated within 120 days or first contract is produced by an arbitrator covering employees for 2 years.
  • Provides new fines for employer unfair labor practices.

Impact:   EFCA is a monumental change to the NLRA. Much has been made of the abrogation of the secret ballot election, but equally dramatic are the limitations placed on collective bargaining and contract determination by an arbitrator if no agreement is reached in 120 days of negotiations.   If enacted, EFCA will result in unprecedented organizing activity with employers losing their ability to demand an election and engage in hard bargaining over a first contract.

Candidate Positions:  H.R. 800 passed the House but did not receive enough votes for consideration by the Senate. Candidate Obama is a co-sponsor of the Senate Bill and supports its passage. Candidate McCain opposes the Senate Bill.

Prior Posts:  NOW is the Time for Employers to Gear up for the Employee Free Choice Act (Unions Are)

 

Employment Non-Discrimination Act (H.R. 3685/ no Senate Bill)

Summary:  ENDA adds sexual orientation to the protected classes under Title VII for all employers except religious organizations. It allows reasonable access to adequate facilities that are not inconsistent with the employee’s identified gender, but does not require domestic partner benefits or protect “gender identity”.

Impact:  ENDA adds a protected class to employment discrimination protections allowing compensatory and punitive damage claims against employers.     

Candidate Positions:  H.R. 3685 passed the House but did not receive enough votes for consideration by the Senate.  No legislative position by either candidate.   Candidate Obama’s website expresses support for the legislation.

 

Ledbetter Fair Pay Act (H.R. 2831/ S. 1843)

Summary:  FPA overturns the Supreme Court’s decision in Ledbetter v. Goodyear Tire and Rubber Co. effectively eliminating the 180 or 300-day statute of limitations for filing a wage-related discrimination claim. The bill allows family members and others affected by discrimination to file claims and reinstitutes the Paycheck Rule for determining when a claim accrues. It also allows claims based on paychecks and annuity payments which would allow retirees to bring claims.

Impact:  FPA virtually eliminates the statute of limitations for wage-related claims.

Candidate Positions:  H.R. 2831 passed the House but did not receive enough votes for consideration by the Senate.  Candidate Obama is a cosponsor of the Bill. Candidate McCain has expressed no opinion on the Bill.

 

Paycheck Fairness Act (H.R. 1338/ S. 766)

Summary:  PFA changes the burden of proof in gender based pay claims requiring the employer to affirmatively demonstrate that any pay differential is not based on sex. Employers who cannot meet this burden face unlimited compensatory and punitive damages. The EEOC would be required to collect employer payroll information based on sex, race, and national origin thereby targeting its enforcement activities. The Bill also changed rules on class actions automatically including employees in such claims unless they specifically opt out.

Impact:  PFA subjects employers to wage related class actions with unlimited damages and makes it easier for employees to prove such claims.

Candidate Positions:  H.R. 1338 passed the House but did not receive enough votes for consideration by the Senate.  Candidate Obama is a cosponsor of the Bill. Candidate McCain has not taken any position on the Bill.

 

RESPECT ACT (H.R. 1644/ S. 969)

Summary:  The so-called Re-Empowerment of Skilled and Professional Employees and Construction Tradesworkers (RESPECT) Act would change the NLRA definition of “supervisor” to exclude “working supervisors” who do not spend a majority of their worktime in strictly managerial duties excluding the tradition duties of assigning work and directing the activities of others.

Impact:  Respect would allow many working or front line supervisors to join a union dividing their loyalties to the company, as they would be permitted to assist in the unionization of the company.

Candidate Positions:  Candidate Obama is a cosponsor of the bill and Candidate McCain has taken no position on the Bill.

Prior Posts: Bosses do not Deserve RESPECT

 

If there is a Democratically-controlled House, Senate, and President, it is likely that some or all of the above legislation will be enacted in 2009. Others have commented on the HR landscape following the election:

What The Future of HR Looks Like in 2009

Small business owner’s guide to the election

Bosses do not Deserve RESPECT

October 16th is the annual celebration of Boss’s Day, which has traditionally been the day for employees to “thank their boss for being kind and fair throughout the year”. In most workplaces, it is clear who is a boss and who is not. The boss is the one who tells you what to do, completes your performance review and hassles you when you do not follow company policy.

The term “boss” generally means “supervisor”. For us in the legal-compliance world, knowing who is a supervisor and who is not is very important. Supervisors are not paid minimum wage and overtime; cannot be members of a union; and make the company liable for their actions like sexual harassment. Organized Labor has pushed the NLRB to narrowly define supervisor, but the Supreme Court rejected previous definitions as inconsistent with the text of the NLRA. In Oakwood Healthcare Inc, the NLRB modified the definitions of "assign," "responsibly direct," and "independent judgment" (all used to determine a supervisor) to conform to the Supreme Court rulings in NLRB v. Kentucky River Comty. Care, Inc. and NLRB v. HCR.

The RESPECT Act would make three major changes to the current definition. It would eliminate the two most common supervisory duties- the authority "to assign" other employees, and the authority to "responsibly to direct" other employees. In addition, the RESPECT Act would require that the "majority of a supervisor's work time" be spent engaging in the remaining duties outlined in the NLRA definition below.

The new definition of “supervisor” under Section 2(11) of the NLRA would read as follows:

Any individual having authority, in the interest of the employer, and for a majority of the individual’s worktime, to hire, transfer, suspend, lay-off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them,or to adjust their grievances or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.

 

Changing the definition of “supervisor” would significantly affect many workplaces by:

  • Create divided loyalties among front-line supervisors who assign work to employees. Under the RESPECT Act, such supervisors would be covered by the NLRA and could then form, join or assist labor organizations; be eligible to vote in NLRB supervised elections; solicit signatures for union authorization cards from "co-workers;" or picket, go on strike or engage in other work stoppages that would be inconsistent with a supervisor's duty.
  • Fundamentally tip the balance between the dual functions of the national labor policy: (1) to protect the rights of rank-and-file employees in exercising their rights to form, join or assist a union without managerial or supervisory interference, while at the same time (2) ensuring supervisors act as agents in the interests of their employers in matters of labor-management relations.
  • To the extent that the NLRA definition is changed, there may also be changes to the FLSA’s definition, triggering litigation involving individuals currently classified, as "supervisors" but who may not meet a new definition.

Organized Labor’s legislative wish list includes the Re-Empowerment of Skilled and Professional Employees and Construction Trades workers ("RESPECT") Act, along with similarly misnamed Employee Free Choice Act.   Candidate Obama supports both acts; while Candidate McCain opposes them. The addition of supervisors to the ranks of potential union members and the ease of organizing workforces without a secret ballot election would dramatically change the balance of labor management relations. It would also greatly increase the dues collected by unions from organized employees.

Managing a Business and its Employees in Financial Crisis Requires Communication from HR

The specter of business failure and personal financial setbacks wreak havoc on employee morale challenging Human Resources with dual management problems. First, HR needs to formulate a communication strategy to address the concerns of employees surrounding job security and compensation. Employee jitters surround the viability of their employer and the security of their jobs. Retirement savings evaporate as the stock market plummets leading some to forego matching 401k contributions. Compensation packages and incentives tied to stock continue their downward spiral. Wordsmith the message that the CFO might send out: “They are lucky to have a job.”

Second, HR must manage the collateral effects of an employee’s personal financial problems, which can lead to bankruptcy, foreclosure and even divorce, any of which may influence his or her job and job performance. Businesses must be prepared to respond to employee performance issues created by financial problems. Employers should be aware of legal limitations placed on their actions with regard to an employee’s financial problems. In addition, human resource professionals should appreciate the relationship between their performance management program and other resources to address employee issues created by financial distress.

 

Pennsylvania and federal laws limit actions employers may take against employees that file for bankruptcy or are subject to wage attachments. Many employers, particularly those in the financial sector, face customer relation problems when one of their employees does not pay his or her bills or files for bankruptcy. Legal limitations on employer responses are as follows:

  • Garnishment/Attachment of Wages. Pennsylvania prohibits garnishment/attachment of wages for the repayment of personal debts, except in limited circumstances for child support, alimony or student loans.   Employees may not be disciplined, discriminated against or discharged because of wage garnishments.
  • Employee BankruptcySection 575 of the Bankruptcy Act protects employees and applicants from discrimination if an individual:(1) is or has been a debtor under this title or a debtor or bankrupt under the Act; (2) has been insolvent before the commencement of a case under the Act or during the case but before the grant or denial of a discharge; or (3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Act. Courts have limited the reach of this provision by requiring that the discrimination be "solely because" of the individual's bankruptcy participation.
  • Worries about Temptation for Theft. Businesses may become concerned that an employee in financial distress may be more likely to embezzle and react by trying to find out the scope of an employee’s credit problems. The Fair Credit Reporting Act limits an employer’s use of employee credit information. A business’ usual financial controls should be uniformly applied, but, if inadequate, should be revised for all employees.

Employees experience financial distress are subject to performance problems including declining productivity, absenteeism and depression.  The usual performance management tools can be used: however, special attention should be paid to other resources like the EAP and Debt/Credit counseling.

 

Making Sure Your "HEART" Is In The Right Place When It Comes To Soldier-Employee's Benefits

On June 17, 2008, President Bush signed into law the Heroes Earnings Assistance and Relief Tax Act of 2008 (the "HEART Act"). The HEART Act extends or modifies several tax and retirement benefits for active-duty and former military service members, and employers and plan administrators should be familiar with its provisions.

Retirement Plans

            Currently, for purposes of retirement plan vesting or accruals, an individual's period of qualified military service is treated as a period of employment, which is credited when the soldier-employee returns to work. As such, if the individual dies during military service, his or her survivors do not receive accelerated vesting, ancillary life or other benefits they may have received if the employee died while actively performing his civilian employment. Under the HEART Act, retirement plans must pay the survivors of a soldier-employee who dies during qualified military service any benefits (other than those that accrued during military service) that the plan would have paid had the employee died during active employment. If a plan fails to follow this provision, it will be disqualified. Of note, this provision is effective for military service related deaths and disabilities occurring on or after January 1, 2007, so some plan sponsors may have to provide this benefit retroactively or risk disqualification.

            In addition to this mandatory provision, the HEART Act provides that retirement plans may elect to provide optional benefits to soldier-employees and their families. Notably, under one of the optional benefits, a plan may treat someone who dies or becomes disabled during qualified military service as if he or she resumed employment the day before the death or disability occurred and then terminated employment because of the death or disability. This optional benefit allows the plan to pay out benefits that would have accrued during the soldier-employee's military service presuming he or she was reemployed. Plan sponsors that elect to make this benefit available must do so for all employees performing qualified military service on a reasonably equivalent basis.

Differential Wage Payments

            The voluntary payments made by some employers to service members during a qualified military leave to account for the difference between what the soldier-employee makes in the military and what his or her average compensation was while actively employed are commonly referred to as "differential wage payments." Under prior law, the Income Revenue Service (IRS) took the position that these payments were not subject to tax withholding and were not required to be treated as compensation for retirement plan purposes. Under the HEART Act, however, as of January 1, 2009, differential wage payments will be deemed wages subject to income tax withholding and must be treated as compensation of the employee for retirement plan purposes. In the HEART Act, "differential wages" is a term of art that includes: "compensation paid by an employer to an individual who is on active duty in the uniformed services for a period of more than 30 days, that represent all or a portion of the wages the individual would have received from the employer if the individual had remained in active employment with the employer." Any plan amendments relating to differential wages must be made on or before the last day of the first plan year beginning on or after January 1, 2010. 

Flexible Spending Arrangements

            The HEART Act permits health flexible spending arrangements ("FSA") to provide "qualified reservist distributions." A soldier-employee may be eligible for a "qualified reservist distribution" if he or she is called to active military duty for at least 180 days (or for an indefinite period), and the distributions are made during the period beginning with the active-duty call and ending on the last day of the FSA's coverage period that includes the date of the active-duty call. Although this provision will help employees avoid the FSA use-it-or-lose-it rule, a number of important issues remain open for clarification. Specifically, the permissible amount of the distribution, timing of the distribution, and taxation of the distribution are not squarely addressed under the HEART Act. Accordingly, employers may amend their FSAs to include qualified reservist distributions as of June 17, 2008, it is advisable for employers to wait to offer these distributions until after the IRS clarifies some of the foregoing issues.

Electronic Monitoring of Teleworkers

John Phillips at The Word on Employment Law posted about the “Electronic Leash” and cites to a Wall Street Journal post by Sue Shellenbarger that conjures up visions of 1850 sweatshops with following description of employer’s exploitive electronic monitoring of home workers:

In a budding trend some employment experts say is invasive, companies are stepping up electronic monitoring and oversight of tens of thousands of home-based independent contractors. They're taking photos of workers' computer screens at random, counting keystrokes and mouse clicks and snapping photos of them at their computers. They're plying sophisticated technology to instantaneously detect anger, raised voices or children crying in the background on workers' home-office calls. Others are using Darwinian routing systems that keep calls coming so fast workers have no time to go to the bathroom.

The Home Shoring business proponents put a different spin on the work environment tauting flexibility for workers and accountability for businesses using their services. Although I have never worked in a call center, my interaction with employers that have them shows me that they are highly structured work environments where productivity is closely monitored. Many employees who do not work at home are subject to some of the same types of electronic monitoring that seems objectionable to home workers. Maybe this begs the question, but why should the home-work environment be any less supervised than the at-work environment?

Employer’s biggest concern for at home workers is the lack of supervision. Many advocates of working at home know it has limitations. Teleworking is not for everyone. As noted by Brittany Maling at HR World, it requires self-disciplined and efficient workers who are most successful if their home office mimicks the traits of the traditional work environment. Perhaps the future of telecommuting has reached its tipping point, but there are still many issues to be worked out including the proper balance between mistrust and obsessive monitoring.

From a legal perspective, the degree of electronic supervision directed toward an independent contractor will likely result in a recharacterization of the relationship to one of employee/employer.   We have previously outlined the other legal issues in Legal issues in Telecommuting: Gas Prices make Businesses Reconsider Policies.

FLSA causes Global Warming: Sixteen Other Reasons to Consider a 4-day Work Week

It’s no secret that the FLSA is anachronistic, but now it’s ruining the planet too. The 40-hour week divided into 5 consecutive workdays is a product of the FLSA, which was enacted in 1938. During the last 70 years, we have been consuming energy by commuting to work and operating facilities all the while pumping green house gasses into the atmosphere for an extra day a week.

Aaron Newton makes this brilliant observation in his post on The 4 Day Work Week:

The notion of our standard work week here in America has remained largely the same since 1938. That was the year the Fair Labor Standards Act was passed, standardizing the eight hour work day and the 40 hour work week. Each Monday, Tuesday, Wednesday, Thursday and Friday workers all over the country wake up, get dressed, eat breakfast and go to work. But the notion that the majority of the workforce should keep these hours is based on nothing more than an idea put forth but the Federal government almost 70 years ago. To be sure it was an improvement in the lives of many Americans who were at the time forced to work 10+ hours a day, sometimes 6 days of the week. So a 40 hour work week was seen as an upgrade in the lives of many of U.S. citizens. 8 is a nice round number; one third of each 24 hour day. In theory it leaves 8 hours for sleep and 8 hours for other activities like eating, bathing, raising children and enjoying life. But the notion that we should work for 5 of these days in a row before taking 2 for ourselves is, as best I can tell, rather arbitrary.

Mr. Newton then goes on to offer Sixteen Reason Why this is an Idea Whose Time has Come. This post is a “must read” for HR Professionals whose businesses may be evaluating the 4-day workweek option and looking for supporting reasons. The key downsides to the four-day week are losses in employee productivity and customer service. Comments challenging the 4-day workweek appear at the Oil Drum, which reprinted Newton’s post.

We have also outlined some legal limitations on the four-day concept in previous posts as it continues to garner a lot of media attention:

Four-Day Work Week Wave is Coming and Energy Expenses And Gas Prices Motivate Employers To Move To Four Day Workweek: What Are The Legal Issues?

 

Overtime Exempt Status: Don't Forget About State Law (Especially When Dealing With Computer Employees)

Most Pennsylvania employers and their counsel are familiar with the overtime compensation requirements and the exemptions from these requirements established by the federal Fair Labor Standards Act ("FLSA"). The exemptions, such as the bona fide executive, professional, and administrative employee exemptions, define when employers may lawfully treat certain employees as exempt from the FLSA's overtime compensation requirements. 

Fewer Pennsylvania employers are aware that the Pennsylvania Minimum Wage Act of 1968 ("PMWA"), a state law, also creates a statutory right to overtime compensation and, like the FLSA, includes exemptions to these requirements. At one time, the state overtime requirements and exemptions generally mirrored the FLSA. More recently, however, the federal and state rules on overtime compensation and exempt status have diverged in numerous areas. Compliance with the FLSA requirements no longer ensures compliance with the state PMWA.

For example, the federal Small Business Job Protection Act of 1996 codified prior U.S. Department of Labor interpretations and included an exemption for computer employees. To qualify for the computer professional exemption, the employee must be employed as a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker in the computer field and must have a primary duty of

(a)             the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications;

(b)             the design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;

(c)             the design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or

(d)            a combination of the aforementioned duties, the performance of which requires the same level of skills.

The PMWA and its regulations contain no companion to the federal computer professional exemption. Thus, an otherwise exempt computer professional still may be entitled to overtime compensation under the state law. If an employer has a computer professional that meets the federal exemption, the employer should examine whether the employee also qualifies for another white-collar exemption, such as the administrative or professional exemption, that also is recognized by state law. However, Pennsylvania’s white-collar exemptions require that the exempt employee be paid on a Salary Basis; while the federal computer employee exemption allows for payment on an hourly basis if the rate exceeds $27.63 per hour. If the employee in question would not qualify for any other exemption, the employer may be liable for unpaid overtime compensation under the PMWA.

Please note that, even under federal law, "help desk" employees often do not meet the computer professional exemption or any of the other white-collar overtime exemptions

Switching to a Paid Time Off Program (PTO) has Practical and Legal Implications

Traditional leave programs segregate time off into categories like vacation, sick time and personal time requiring HR professionals to track both the time off and the reason it is being taken. Sick time abuses are addressed by tightly monitoring the reasons for sickness-related absences and disciplining employees for excessive absenteeism. Many employers have decided to get away from policing the circumstances of an employee's absence by just creating a bank of paid time off that can be used for any reason. Once PTO is exhausted, time off is unpaid and subject to the attendance discipline policy. This certainly sounds like a great idea, but here are some practical and legal considerations in converting from a traditional sick pay program to a PTO plan:

Timing the Change Over to PTO:

Changes in leave policies should be coordinated with either the end of the leave year period or some other workplace change like moving to a four-day workweek. The obvious choice is converting to PTO bank at the end of the year, since most employers administer their time off programs on a calendar/fiscal year. For employers using anniversary date leave years, it is too difficult administratively to run dual programs, so they should pick a date and change over for everyone.

Effect on Four-Day Workweeks

Employers need to remember that a change in workweek from five eight days to four day ten hour days also affects time off policies. A handbook or CBA may describe time off (PTO, vacation, holidays, personal and sick time) in terms of “days”. However,

a workday, which used to be an 8-hour day, is now a 10-hour day. The 8-hour day was 20% or the workweek, but the 10-hour-workday is 25% of the workweek. If a day expands to 10 hours, employees are getting more time off and, as a result, the company is losing 5% productivity. If a day stays at 8 hours then employees can’t cover the whole day off. Converting the whole PTO bank to hours can address this situation. (see Energy Expenses And Gas Prices Motivate Employers To Move To Four Day Workweek: What Are The Legal Issues?)

Addressing the Perception of a "Take Away":

Converting to PTO means combining vacation, sick days, personal days, and other time off into one bank. Employers almost never credit the entire amount of sick time to PTO banks. Therefore, employers need to address the perception that employees are losing sick time. I have found that referring to the statistic mentioned in the prior posting (average 8 sick days, use 5) makes some sense. Based on this ratio, I convert 60% of sick days to PTO and couple it with an explanation about trade offs.

Dealing with Accumulated Sick Time:

Some employers allow the accumulation of unused sick time as an incentive not to use it. (This practice drives accountants crazy). The accumulated time may be used in some of the following ways: to satisfy a waiting period for STD/LTD; as a pay out upon separation, typically at a reduced percentage (50%); or it is simply forfeited. Employers may seize the opportunity to clean up their balance sheet and pay out a portion of the accumulated time or convert it to PTO. This approach softens the blow of the perceived take away mentioned above. However, an employer's flexibility in dealing with accumulated sick time depends on its written policy and practice with regard to payouts. Be careful not to create a claim for unpaid fringe benefits under the Pennsylvania Wage Payment and Collection Law.

Exhausting PTO:

Employees who use all of their PTO are unpaid for additional absences and are subject to discipline under the attendance policy. Some traps for the unwary include: the prohibition on salary docking for exempt employees; additional unpaid leave as an accommodation under the ADA, and discrimination claims under the ADA.

Administering FMLA:

FMLA administration becomes more challenging in a PTO program since the employer is not necessarily aware of the reason for an absence. A serious health condition under the FMLA triggers an obligation to notify an employee of his or her FMLA rights and starts the counting of the time against the 12 weeks of leave. Employers must also address the concurrent use of PTO and FMLA leave in their policies.

Integrating STD and other Leave Programs:

Some sick leave policies were designed to integrate with the waiting period for STD benefits. A move to PTO creates a disconnect. The disconnect can be mitigated by allowing an employee with accumulated sick time to use it to satisfy the waiting period if he or she becomes eligible for STD benefits. Otherwise, PTO or unpaid time is used during the waiting period. Employers might address hardships by creating a PTO donation program where employees may donate unused PTO to a fellow worker who needs additional time.

Contesting Unemployment Claims:

 An employer's proof of willful misconduct to deny unemployment benefits will generally look at the incident that gave rise to the discharge. If the reason is a violation of employer's attendance policy, the employee can show that the violation was not his or her fault. An employee who is fired for excessive absences after "squandering" PTO, may still be eligible for unemployment if the absence that gave rise to termination was for a legitimate illness.

Drafting a Policy:

A written policy on PTO is strongly suggested and it should address at least the following areas:

  • Accrual Basis or Award Basis
  • Notice of Absence
  • Unused PTO carryover or forfeiture
  • Concurrent use of FMLA and PTO
  • Consequences of Exhausting PTO
  • Discipline/Discharge

Pennsylvania Minimum Wage Increases for Small Employers and Trainees:

“Small Employer” minimum wage increases to $7.15 per hour effective July 1, 2008 

All employers in Pennsylvania must pay the state’s minimum wage of $7.15 per hour based on the expiration of the Small Employer exemption. Previously, an employer who had an employee complement composed of the equivalent of 10 or less full-time employees had a lower minimum wage rate of $6.65 per hour until July 1, 2008.

Pennsylvania's Training Wage Increases to $6.55 per hour effective July 24, 2008

Pennsylvania’s training wages is scheduled to increase from $5.85 to $6.55 effective July 24, 2008. The training wage is no longer allowed after July 23, 2009. A 60-day training wage may be paid to employees under 20 years old effective January 1, 2007. This wage matches the current federal minimum wage. Eligible employees may be paid the training wage up to the day before the employee’s 20th birthday. On and after the employee's 20th birthday, pay must be raised to the regular Pennsylvania minimum wage even if the 60-day period has not expired.

The 60-day period starts on the first day of work. The 60-day period is counted as consecutive days on the calendar, not as days worked or business days. A break in employment (e.g. vacation, school year, etc.) does not affect the calculation of the 60-day period of eligibility and does not allow the employer to “restart” the 60-day period.

A youth under 20 may be paid the training wage for up to 60 consecutive calendar days after initial employment with any employer, not just the first employer. The fact that an eligible youth may be employed at the same time by more than one employer (unrelated to each other) does not affect either employer’s right to pay the training wage.   An employee may be “initially employed” only once by any one employer even if there are breaks in employment.

Employers must notify these employees at the time of hire of this wage and their right to receive the regular Pennsylvania minimum wage after 60 calendar days. Current employees may not be displaced, have their hours reduced or have their wages or employment benefits reduced to allow hiring of persons eligible for the training wage. Employers do not have to meet any training requirements to pay an eligible youth this training wage.

Pennsylvania’s Mandatory Minimum Wage Poster

FAQ on Pennsylvania Minimum Wage

HR GENERALIST RESOURCES: THE FINAL PAYCHECK: Without Exception, It Should Be Paid On Time

The scenario is a common one. An employee quits or is discharged before the end of the pay period. The employer has the employee's final paycheck, and the employee has certain property belonging to the employer (e.g., a uniform, laptop computer, cell phone). The employer explains to the employee that it will give the employee his/her final paycheck as soon as the employee returns the employer's property.

In Pennsylvania, the employer's proposed swap of paycheck for property may run afoul of the law. The Pennsylvania Wage Payment and Collection Law expressly states that whenever an employee is separated from employment, the wages or compensation earned "shall become due and payable not later than the next regular payday of his employer on which such wages would otherwise be due and payable." 

Simply put, a employer in Pennsylvania cannot use the final paycheck as leverage to recover its property, even if it is not disputed that the employer is legally entitled to the property. Holding the final paycheck exposes an employer to potential liquidated damages and liability for the employee's attorney fees, in addition to the value of the withheld wages.

Employers essentially have two options (neither of which are ideal) when giving employees property for their use that the employer wants returned at the end of the employment relationship. In the first option, the employer can get written authorization from the employee to deduct the cost of any unreturned equipment from the employee's final paycheck. This option, however, presents some risk. The Wage Payment and Collection Law allows deductions from the paycheck with the employee's written authorization if the deduction is "for the convenience of the employe[e]." It is unclear whether deducting the cost of an unreturned laptop from an employee's final paycheck is a deduction "for the convenience of the employee" and thus permissible. In addition, the final paycheck itself may be insufficient to cover the cost of the unreturned property. This problem is made worse by the fact that the deduction should not take an employee's wages during the final pay period below the statutory minimum wage.

The second option is to pursue legal action against the employee for the cost of the unreturned property. In many cases, such legal action would be in the form of a civil action filed with a District Justice. In many circumstances, an employer spends time and resources pursuing the property in such a legal action well in excess of the value of the property itself.

There exists no perfect solution to the problem of employees failing to return an employer's property upon separation of employment. Despite the lack of good solutions, holding the final paycheck as leverage is not a permissible option and may result in additional liability.

Energy Expenses And Gas Prices Motivate Employers To Move To Four Day Workweek: What Are The Legal Issues?

Companies face increased energy cost as the nation’s average gasoline price reached $4.00 per gallon this week spurring a new round of cost cutting measures. Even in prior years, some employers have allowed employees to work alternate workweek schedules, such as four 10 hour days, for summer months. When this schedule is feasible from a production and service perspective, the benefits typically can be two-fold: reduced operational costs for the employer and longer weekends for employees.

As featured recently on the TODAY SHOW, many employers are considering changes to their workweeks as a means of cutting employee commuting expenses and reducing business operational costs. Changes in workweeks can raise legal issues for employers as follows:

  • Overtime. Under the Fair Labor Standards Act and the Pennsylvania Minimum Wage Act, non-exempt employees must be paid for all hours worked in excess of 40 in a workweek. Nevertheless, employers in some industries may have a practice of paying 'daily overtime' for work in excess of 8 hours per day. This must be considered in assessing the value of any alternative workweek.  
  • Child Labor Limitations. State laws limit the number of hours that children may work in a day and week depending on the age of the child. Pennsylvania limits the hours of work in a day for children under the age of 18 who are covered by its child labor laws.
  • Unemployment Compensation. Employees who quit because of a change in their hours or schedule generally are not eligible for unemployment compensation. A change from a day day workweek to a four day work week, without any loss of hours, is not likely to be viewed as a 'substantial change' that might provide necessitous and compelling reason for someone to quit their employment and receive benefits. 
  • Collective Bargaining.  Absent a clear provisions in a CBA delegating such discretion to the employer, a change in the hours of work would be a mandatory subject of bargaining. As such, most unionized employers would be required to obtain the Union's assent prior to adopting a "four-10's" type work week. This may also require addressing and resolving contractual issues involving shift differentials, premium pay and daily overtime in the context of a side letter agreement.

We previously discussed telework as a strategy for addressing similar employee relations issues in our post "Legal Issues in Telecommuting:  Gas Prices make Businesses Reconsider Policies."

Bonus and other Lump Sum Payments to Nonexempt Employees may Impact Overtime Calculations

Employers sometimes pay bonuses to nonexempt employees without a thought of potential wage and hour compliance. Ann Bares at Compensation Force notes that Companies may pay a “lump sum” merit increase for employees who are topped out of a salary range. Other examples of lump sum payments include attendance and production bonuses, year-end bonuses and holiday gifts.  Bonuses and other lump sum payments may be included in a nonexempt employee’s regular rate depending upon the manner in which the bonus is calculated and the company’s prior communication. Inclusion in the regular rate impacts overtime calculations and payments.

Bonuses paid to nonexempt employees are included in the determination of the employees’ regular rate under section 778.208 unless the bonus falls into one of several exceptions. The bonuses are allocated to the pay period and added to other wages paid to nonexempt employees and then divided by the hours worked for the same period to determine the new regular rate under the methodology described in section 778.209. For bonuses earned over more than one workweek, the bonus must be allocated to pay periods to which the bonus applies and the regular rate recalculated. If overtime was worked during this period, the overtime rate must be revised to be time and a half the recalculated regular rate that includes the bonus payment. This is a nightmare.

Department of Labor regulations provide for several exclusions. Among these excludable bonus payments are discretionary bonuses, gifts and payments in the nature of gifts on special occasions, contributions by the employer to certain welfare plans and payments made by the employer pursuant to certain profit-sharing, thrift and savings plans. These exemptions are discussed in Section 778.211 Discretionary Bonuses, Section 778.212 Gifts and Holiday Bonuses, Section 778.213 Qualified Profit Sharing and Savings Plans, and Section  778.214 Other Qualified Plans.  Bonuses, which do not qualify for exclusion from the regular rate as one of these types, must be totaled in with other earnings to determine the regular rate on which overtime pay must be based.

Typically, any bonus announced in advance and tied to work performance, hours or other productivity will not qualify for an exemption.  There three ways to manage the recalculation problem, other than utilizing qualified plans:

1.            Percentage Total Earnings Bonus: Bonuses based on a percentage of the nonexempt employee’s total earnings under section 778.210 do not result in a recalculation of the regular rate because overtime is already been accounted for in the calculation. Under this method, the bonus is described as a percentage of the nonexempt employee’s total (W-2) earnings, thereby including both regular and overtime payments and obviating the need for recalculation of the regular rate.

2.            Discretionary Bonuses: This is an area of DOL audit scrutiny and should not be used on a regular or aggressive basis. Truly discretionary bonuses are not included in the regular rate of pay under section 778.211, if both the fact that payment is to be made and the amount of the payment are determined at the sole discretion of the employer at or near the end of the period and not pursuant to any prior contract, agreement, or promise causing the employee to expect such payments regularly. The following sets forth some of the parameters of the exclusion:

For example, any bonus which is promised to employees upon hiring or which is the result of collective bargaining would not be excluded from the regular rate under this provision of the Act. Bonuses which are announced to employees to induce them to work more steadily or more rapidly or more efficiently or to remain with the firm are regarded as part of the regular rate of pay. Attendance bonuses, individual or group production bonuses, bonuses for quality and accuracy of work, bonuses contingent upon the employee's continuing in employment until the time the payment is to be made and the like are in this category. They must be included in the regular rate of pay.

3.            Holiday Bonuses: The Holiday Gift and Bonus exemption under section 778.212 allows for the exclusion from calculation of an employees “regular rate” of pay “sums paid as gifts; payments in the nature of gifts made at Christmas time or on other special occasions, as a reward for service, the amounts of which are not measured by or dependent upon hours worked, production, or efficiency….” The following sets forth some of the parameters of the exclusion:

If the bonus paid at Christmas or on other special occasion is a gift or in the nature of a gift, it may be excluded from the regular rate under section 7(e)(1) even though it is paid with regularity so that the employees are led to expect it and even though the amounts paid to different employees or groups of employees vary with the amount of the salary or regular hourly rate of such employees or according to their length of service with the firm so long as the amounts are not measured  by or directly dependent upon hours worked, production, or efficiency. A Christmas bonus paid (not pursuant to contract) in the amount of two weeks' salary to all employees and an equal additional amount for each 5 years of service with the firm, for example, would be excludable from the regular rate under this category.

Legal issues in Telecommuting: Gas Prices make Businesses Reconsider Policies

As gas prices approach $4.00 per gallon, more employees desire the telework options that have typically been of greater interest to workers for “family reasons”. Companies that formerly dismissed telework programs now find that attracting and retaining employees may depend on increased flexibility around attendance at the office. While productivity and IT issues abound, there are also some important legal considerations, including the following:

  • Worker’s Compensation: Employees who work at home have worker’s compensation coverage for injuries that occur in the scope of their employment. Employment scope excludes activities that are not in furtherance of the employer’s business or that are purely for the personal convenience of the employee.   Working at home blurs this distinction.

A carefully drafted policy can address some of the legal concerns including the following:

  • The class of jobs eligible for the telework based on an analysis of the position’s essential functions.
  • Limits on employees in those classes of eligible jobs based criteria such as performance, disciplinary record, time with company and time in the job realizing that ADA accommodation may trump these requirements.
  • Job performance and productivity standards including the consequences of not meeting these standards.
  • Restriction defining the “workday” and the “work location”
  • Prohibitions on performing personal activities while working during the workday.
  • The system for tracking hours of work including clear delineation of work/nonwork time and settling limits on overtime.
  • Compensation for travel to and from company office.
  • Safety mandates for the home work environment.
  • Protections for IT and other confidential/proprietary information.
  • Systems for addressing problems that arise when the employee is fired or quits.

Sex may Sell, but Gender-based Employment Decisions are Unlawful Discrimination

The EEOC announced a $1 million settlement for sex discrimination against men arising from a restaurant’s preference for hiring and promoting only women into bartending positions. The lawsuit highlights the tension between a business’s marketing efforts and legal compliance. What marketers may pander to in the name of “customer preference,” employment laws prohibit as discrimination.

Businesses spend millions of dollars to find out what motivates customers to buy by evaluating their preferences. Demographics play an important role in tying the right product to the right market. Also critical is having the “right” salesperson to make the pitch.

A business’s natural, but unlawful reaction may be to make staffing decisions based upon appealing to a target demographic group.  The “customer preferences” for the right salesperson cannot create employer hiring or promotion criteria for someone of a particular gender, religion, age, etc. Courts have universally rejected this form of customer preference, except in the narrow case where it is a Bona Fide Occupational Qualification (BFOQ). A BFOQ may exist where it is necessary for the purpose of authenticity or genuineness, such as, a model for gender specific clothing. 

In its lawsuit, the EEOC said that Razzoo's, a Cajun food restaurant chain, refused to hire or promote men to the position of bartender. The EEOC had evidence that the restaurant's management set up and communicated to managers by e-mail, a plan for an 80-20 ratio of women to men behind the bar. Male applicants and servers were told that management wanted mostly “girls” behind the bar. Men who worked as servers at the restaurant were generally denied promotion to bartender because of their gender. The few men who were promoted to bartender were not allowed to work lucrative “girls-only” bar­tend­ing events.

The EEOC’s settlement with Razzoo shows a developing trend in the agency of making an employer improve its approach to human resources. In addition to paying $775,000 to be divided among a class of male applicants, male servers, and male bartenders who were discriminated against, Razzoo's was also required to retain the services of a human resources consultant or to develop an in-house human resources department spending no less than $225,000 for these human resources services.   Razzoo's agreed to injunctive relief requiring training on equal employment opportunity for all its employees, the posting of an anti-discrimination notice, and EEOC monitoring of employee complaints of discrimination.

Suzanne M. Anderson, EEOC supervisory trial attorney and lead counsel on the lawsuit, summed up the EEOC’s position by saying that, "Some may think that sex sells drinks, but gender ratios are illegal… Razzoo's decision to hire and promote by gender is a clear violation of federal law. A hiring ratio is illegal whether it is 80-20 whites to blacks or 80-20 women to men."   It will be interesting to see how far the law will go in policing an employer’s efforts to appease a customer preference. For example, would an OBGYN practice be subject to an EEOC lawsuit if it specifically hired a female doctor based on the preference of its patients?