FLSA Dissonance: Exempt or Nonexempt?

Over the last few weeks, FLSA issues have surfaced in places I would least expect.  Otherwise savvy clients, it turns out, sometimes incorrectly characterize and pay part-time and other hourly workers as exempt, or have been paying overtime to salaried workers in exempt positions.  It seems that even when good intentions are there, complicated FLSA requirements can confuse employers. But, it is not as hard to sort it all out as it may seem.

The Fair Labor Standards Act, 29 U.S.C. 201, et seq., requires employers to pay workers a minimum hourly wage and to pay at least one and one-half times the regular hourly wages for all hours worked in excess of 40 in a single week.  The FLSA also establishes certain exemptions to the overtime payment requirements.  The most well known exemptions are those that apply to workers employed in bona fide executive, administrative, or professional capacities; outside sales workers; and well-compensated computer systems analysts, computer programmers or software engineers.  (Some lesser-known FLSA exemptions include certain railway workers, agricultural employees, domestic employees and reporters for small newspapers.)  

To qualify for an exemption, employees generally must meet certain Department of Labor tests regarding their job duties and be paid on a salary basis of not less than $455 per week.  Job titles do not determine exempt status.  The DoL provides online Fact Sheets to help employers understand whether employees qualify for the executive, administrative, professional, computer or outside sales exemptions.  The administration of FLSA requirements does not end with properly classifying employees.  Once an employee is considered exempt from FLSA overtime requirements, the employer must be careful not to make certain deductions from pay, even when the employee does not work the usual assigned hours, or the claimed exemption may be jeopardized.  

As if FLSA rules were not complex enough, state wage and hour rules can further complicate matters. Many states set their minimum wage above the federal level.  In addition, state wage laws may require that employers pay overtime for work done in excess of daily rather than weekly limits (such as in Alaska, California, Nevada and Colorado) or provide narrower, different or fewer exemptions to overtime pay requirements (such as in Hawaii and Pennsylvania).  No matter where you are located, it is important to know and understand both the FLSA and the applicable state wage and hour laws. As the penalties for misclassification or non-payment of overtime wages under federal or state law can be severe, it is important to keep an eye on these issues, especially as employees move from part-time to full-time employment, or when they move from short-term contractor positions to regular employees.  

For help determining proper FLSA and state law classifications or to determine if employees have been misclassified, contact an employment attorney immediately.  Please feel free to contact me through the Contact page of this website or directly at shari@kleinerlegal.com.   

Learn From the Law Firm: Employers Must Curb Insensitive Comments

The Family Medical Leave Act (FMLA) provides eligible employees with up to 12 weeks of leave to care for a new baby or a family member with a serious medical condition.  But a Boston-based attorney claims that, after used his FMLA leave to care for his wife who was suffering from serious mental illness following the birth of their baby, his career was negatively impacted.  In mid-October, in Ayanna v. Dechert LLC, the attorney's FMLA retaliation claim survived the firm's motion for summary judgment in part because when the attorney was informed that he was being let go, a firm partner stated that his "personal" issues constituted one of reasons.

 

Although the U.S. District Court for the District of Massachusetts dismissed the associate attorney's sex discrimination claim (because there was evidence that women attorneys were treated similarly badly when they returned from family care leave), it refused to dismiss the FMLA retaliation claim because of the comment made and because, despite the law firms assertion that the termination resulted from his low billable hours, unlike the plaintiff, many of the other attorneys who were let go at the same time had received warnings for low hours the previous year and there was no evidence that all attorneys with similar hours were terminated.

The lessons are clear:  when it comes to retaliation claims under the FMLA or other protective statutes: employers must beware - even one insensitive comment that could be viewed as discriminatory can sink a case.  As this happened at a legally sophisticated employer, it can happen anywhere.  All managers, supervisors and HR professionals should be trained to avoid indiscreet comments that can force employers terminating employees to defend those decisions in front of a jury.  

Another lesson for employers can't be overstated -- employers must be consistent in their application of discipline.  If other employees (especially those who have not recently returned from FMLA leave) are guilty of the same infraction, they should be subject to similar discipline or their situation must be capable of being distinguished in some meaningful way.  As always, clear, uniformly applied policies provide the best defense. 

First Circuit Revives Age Discrimination Claim Because Employer's Reasoning Could Be Considered Pretextual

In a recent affirmation of employee rights, the First Circuit Court of Appeals (covering cases arising in Massachusetts, Maine, New Hampshire, Rhode Island and Puerto Rico) ruled that an employee's age discrimination case should have survived summary judgment because the employer's reasons for termination could be viewed as pretextual and because a jury could find that the employer treated the employee's replacement differently with regard to discipline.  In Acevedo-Parilla v. Novartis Ex-Lac, Inc., 10-2276P-01A, decided on October 10, 2012, the First Circuit makes clear that an employer cannot protect itself in an age discrimination suit, merely by proffering evidence that the employee was terminated for misconduct that it documented.  Rather, employers that cite multiple incidents of misconduct or poor performance as the reasons for an employment termination are subject to findings of possible pretext if they are not able to show that each of the reasons given was fairly blamed upon the plaintiff and that they followed usual employment termination processes in relying on those incidents.  Similarly, if the employee who replaced the plaintiff is not held to the same tough standard as the plaintiff, a plainitiff can survive summary judgment (or have a summary judgment finding reversed) based on a showing of possible pretext.  Employers should be wary of listing multiple 'kitchen-sink' reasons for an employment termination.  Clear communication and performance management are the best ways to protect employers from discrimination claims.  Similarly, employers should be able to show uniform application of standards in evaluations and discipline when defending against claims of discrimnation related to performance-based employment terminations.  

Small Employers - Become Compliant with MCAD Requirements Now

Just because you are a small company and you treat your employees well, does not mean that regulations meant to protect employees at larger, more diverse companies do not apply to you.  In fact, smaller employers are at a greater risk of inadvertantly failing to comply with administrative and other requirements causing such failures to be used against them if and when they are forced to defend against allegations of workplace wrongdoing.

If you are in Massachusetts, Chapter 151B of the Mass. General Laws defines employers as any entity employing 6 or more individuals. (Remember, calling a worker a consultant does not necessarily mean they are not employees for purposes of Chapter 151B!)  If that means you, you should be both familiar and compliant with all of 151B's requirements.  Most importantly, 151B broadly prohibits employment based discrimination based upon race, color, religious creed, national origin, sex, sexual orientation, genetic information, military service, age, ancestry or disability.  It also requires employers to promote a workplace free of sexual harassment, by adopting a policy against sexual harassment which must include specific criteria and distributing that policy annually to all continuing employees and to new employees at the beginning of employment.  In addition, 151B includes specific posting reuirements related to filing a complaint under 151B and related to employee rights under the Massachusetts Maternity Leave Act (the MMLA), a sub-section of 151B, providing employees with 8-weeks of unpaid leave upon the birth or adoption of a child.  If you operate outside of Massachusetts, similar state laws likely require similar action.  If any of this is news to you, don't panic.  Complying is simple and easy.  Contact me or any employment attorney for sample policies and for help drafting and administering an appropriate policy for you.  All the posting requirements can be found online at mass.gov, as can a sample (but not necessarily ideal) sexual harassment policy.  Putting compliance off can be a big mistake - especially when compliance before a problem arises is so easy!  

Consultant or Employee?

So many companies are finally hiring - but are they hiring employees?  It seems that many workers who have finally landed jobs after long waits on unemployment, or after just plain waiting for a great new opportunity, have accepted jobs as consultants or independent contractors.  Or at least they think they have.  Under the Massachusetts Independent Contractor Law (MICL), regardless of the designation given, there is a rebuttable resumption of employee status for purposes of wage laws.  This presumption is nearly impossible to overcome when the workers in question are providing services that are within or close to the company’s usual course of business.  The MICL provides a difficult to pass three-prong test in order for a worker to be classified as an independent contractor.  And the consequences of failing, yet being treated as an independent contractor, are not negligible.

Why do businesses use independent contractors? Independent contractors provide flexibility and cost savings and often possess specialized knowledge and skills. For some companies, the use of independent contractors is part of the companies’ business models. Various types of consulting firms use independent contractors to provide the consulting work performed at client locations. Similarly, many home health care businesses use independent contractors to provide services to clients in their homes.

For many businesses the primary motivation for using independent contractors rather than employees is the cost savings. Businesses generally do not spend the time and money training contract workers. Further, businesses receive significant tax savings, including avoiding paying the employer share of FICA and Unemployment Tax and state unemployment and workers compensation insurance, not to mention the substantial savings from not providing employee benefits plans. This windfall however, is not without significant legal risk. 

While enjoying the savings, employers must accept the inherent risk that a government authority (federal or state) will determine that individuals in question are employees and not independent contractors for taxes, wage and hour, unemployment, workers' compensation and/or employee benefits purposes. Any such claim could lead to significant penalties.  The MICL gives the Attorney General and private litigants the ability to win stiff penalties (civil and criminal), treble damages, and the right to recover attorneys’ fees and costs.  In the Massachusetts Attorney General's Office's 2008 Advisory Report,  the three prongs of the MICL test are explained and analyzed, and some helpful enforcement priorities are explained.  

So what to do?  If you are a company using independant contractors to get your work done, or a consultant who believes you may really be a misclassified employee, do not wait until someone else brings the issue to light.  Contact me or any other competent employment attorney to make sure you understand the various legal criteria involved - including the IRS test (federal tax purposes), the DoL test (federal wage and hour laws) and the MICL or other state law test to understand your potential risks and exposures.  Evaluating whether to convert contractors to employees or to take steps to limit potential exposure by paying certain relevant taxes or limiting hours worked may save you great headaches and potential damages.  It is never too late to make changes.