On March 6, 2018, the U.S. Department of Labor announced a new nationwide pilot program called “PAID” – Payroll Audit Independent Determination. For an initial 6 month trial period, employers can self-audit their wage and hour practices.  If violations are found, an employer can voluntarily report it to the DOL’s Wage and Hour Division (WHD), in hopes of resolving the potential violations without liquidated damages penalties (usually an amount equal to the back wages due) and with a release of claims (as to the violations only).

Why? The DOL is hopeful that employers who discover violations will come forward and pay the employee 100% due promptly, in exchange for a settlement waiver and no liquidated damages, lawsuit, attorneys’ fees, etc. In turn, employees are paid faster than in a lawsuit or DOL investigation, and 100% of what is allegedly due.

Who is eligible? All employers subject to the FLSA. The program cannot be used for any pending investigation, arbitration, lawsuit, or threatened lawsuit (with an attorney involved). Also repeat offenders are ineligible.

What’s the catch? The DOL notes that it is an employee’s right to not accept the back wages, and not release any private right of action against the employer (and they cannot be retaliated against for such refusal). Further, unlike a typical litigation settlement release, the release must be narrowly tailored to only the identified violations (i.e. overtime, minimum wage, off-the-clock, misclassification, recordkeeping (for every violation)), and time period for which the back wages are paid. The WHD can still conduct future investigations of the employer, and employers cannot use the program to repeatedly resolve the same violations. So, in reality, an employer could notify 100 employees that they were paid incorrectly, and 90 accept and 10 reject and file a lawsuit seeking liquidated damages and attorneys’ fees (since they were just told by the employer that they “stole” their wages).

That being said, an employer could, as always, pay the employee the alleged back wages due in a supplemental check, and thus cut off their alleged damages as to that portion (which makes it a lot less attractive as a case to a plaintiff’s attorney), but they will not get a release. Sure, the employee cannot be forced to cash the check, but that would be a remote occurrence. Of course, the employee could still sue, stating they are entitled to interest or liquidated damages, etc., but such suit would likely not sit as well before a court without additional claims (i.e. you were paid what you were due, why are you taking up our limited judicial resources…).

How does the process work? Employers wanting to participate must review the program information and compliance assistance materials that will be available on the PAID website.  The employer then conducts the audit and identifies the potential violations, affected employees, time frame, and back wages. Next, the employer contacts WHD to discuss the issues, and the WHD determines if it will allow the employer to participate in the program. If allowed, the employer must then submit information such as the backup calculations, scope of violations for release, certification that this is all in good faith and the materials have been reviewed, and that practices will be adjusted to avoid the same violation in the future. The WHD finally issues a summary of unpaid wages (this is likely the same form they use today except no liquidated damages will be assessed).  KEY – once this process has been completed, the employer must issue the back wages by the end of the next full pay period.  Thus, employers should be careful to not begin/end the process until ready and able to pay.

In reality…while some are calling it a “get out of jail free card” for employers, I really don’t see it. An employer who discovers an error after a good faith internal investigation can chose to report itself to the DOL. Now, they are on the DOL’s radar with an admission that they believe they have paid their employees in error. The DOL can reject participation in the program and conduct a full investigation. If the DOL allows participation, all affected employees will be notified of the error (who may not have otherwise known), and can chose to opt-out and file a private lawsuit against the employer that just came clean. Further, neither relieves the employer of a future DOL investigation. Get out of jail free card? I think not. More like playing a game of Risk.

While this blog is clearly for the hearty Up North employers (who I know, like me, are all completely ready for summer), I also know that many now have employees nationwide – including California. Thus, I don’t wan’t to dwell on this too much, but wanted to at least mention a new decision issued yesterday by the California Supreme Court that has a big impact on California employees who are given “flat sum” bonuses during a single pay period (i.e. attendance bonuses, if you work on Sunday, you will get an extra $20) and who work overtime.

In a March 5, 2018 opinion, the Court in Alvarado v. Dart Container Corp. of CA held that “the flat sum bonus at issue here should be factored into an employee’s regular rate of pay by dividing the amount of the bonus by the total number of nonovertime hours actually worked during the relevant pay period and using 1.5, not 0.5, as the multiplier for determining the employee’s overtime pay rate.” Finally, the Court decided that, even though the DLSE’s language was not clear, any such overtime is owed retroactively.

In August 2017, the EEOC sued Estee Lauder Companies, Inc. based on a parental leave program that provided employees with paid leave to bond with a new child, as well as flexible return-to-work benefits. Mothers were given 6 additional weeks of paid bonding leave, while fathers were only given 2 weeks, and were not provided the flexible return-to-work benefits. The EEOC alleged such a policy violated Title VII and the Equal Pay Act of 1963, prohibiting discrimination in pay or benefits based on sex. It was recently announced that the lawsuit has been settled, while the terms have yet to be disclosed.

What does this mean for employers? While bonding leave or parental leave policies that go above and beyond any legal requirement are more common and certainly routed in good intentions, you should consider taking another look at any such policy that provides different benefits based on gender.

 

As I briefly mentioned in my last post on the Minneapolis minimum wage increase, a Hennepin County District Court denied Graco Inc., the Chamber of Commerce, and two other business groups’ request for a temporary injunction. While the business groups dropped out of the lawsuit after the court denied the temporary injunction, Graco continued the suit, claiming the Minnesota state law mandating a lower minimum wage preempted the Minneapolis ordinance.

On February 27, 2018, the District Court ruled in favor of the City of Minneapolis, finding the Minnesota Fair Labor Standards Act (MFLS) merely sets a floor not a ceiling regarding minimum wage regulation. As a result, the Court held: “The Minneapolis Minimum Wage Ordinance is not repugnant to, but in harmony with the MFLS [. . .] because they both [are] minimum wage law[s] aimed at protecting the health and well-being of workers.” The Minnesota District Court has joined the majority of courts, including Wisconsin, in rejecting preemption challenges to city ordinances mandating higher minimum wages.

Employers should make sure they are in compliance with all relevant city, state, and federal laws governing minimum wage. As a reminder, the second phase of the Minneapolis minimum wage increase goes in effect on July 1, 2018. At this time, small employers (100 or fewer employees) must pay employees a minimum wage of $10.25 per hour, while large employers (more than 100 employees) must pay $11.25 per hour.

 

In Velox Express Inc., National Labor Relations Board, the National Labor Relations Board (Board) is considering under what circumstances, if any, should the Board deem an employer’s act of misclassifying employees as independent contractors a violation of Section 8(a)(1) of the National Labor Relations Act (Act). On February 15, 2018, the Board announced it was inviting the parties and others interested to submit a brief addressing their opinion on the issue. Briefs are due to the Board on or before April 16, 2018.

The Board is reviewing the case after an Administrative Law Judge found that Velox had violated the Act by misclassifying its drivers as independent contractors rather than employees. By misclassifying the drivers, the ALJ held that Velox had effectively told the drivers they were not entitled to the protections for concerted activity offered under Section 7 of the Act.

What rights does Section 7 offer, that Velox allegedly denied to its drivers? Generally, Section 7 gives employees the right to self-organize, form, join, or assist unions, collectively bargain for changes in terms and conditions of employment, and engage or refrain from protected concerted activities. Under Section 8 of the Act, it is a violation for an employer to take adverse action or threaten to take adverse action against an employee for invoking their rights under Section 7. The Administrative Judge found that by misclassifying the drivers as independent contractors, Velox had effectively told the drivers they were not entitled to the protections under Section 7, since the Act only affords protection to employees.

Why does this matter?  Well, not only will an employer be liable for FLSA damages associated with misclassification (double damages plus attorneys’ fees), it can also be found to have engaged in an unfair labor practice under Section 8 (typically resulting in a cease and desist order, reinstatement or back pay, and other affirmative actions such as notice posting). Thus, in reality, such decision would likely add a notice and cease and desist to the mix, as the wage (and benefit) piece would already be handled from the FLSA side.

Being the wage and hour geek that I am, which I have fully embraced, I subscribe to the Minnesota Department of Labor and Industry Bulletin. Today’s bulletin speaks directly to employers, so I thought, why not pass it along. Besides, now I have completed No. 10 (keep reading), and feel like I have accomplished something today after I made my bed this morning (watch at 4:45: Naval Adm. William H. McRaven, Ninth Commander of U.S.Special Operations Command 2014 Commencement Address to the University of Texas at Austin).

So, here you go, courtesy of MnDOLI, 10 tips to not steal from employees:

Ten tips to help employers avoid committing wage theft

  1. Pay your employees at least the state minimum wage. New rates became effective Jan. 1, 2018 (see current requirements at www.dli.mn.gov/LS/MinWage.asp).  Employers operating in the city of Minneapolis need to be aware of the Minneapolis Minimum Wage Ordinance (see http://minimumwage.minneapolismn.gov).
  2. Pay your employees for all hours worked. Employees must be paid for employer-required training and for time needed to prepare to perform work, such as restocking supplies and performing safety checks. If you require employees to meet at a centralized location before driving to a worksite, pay the employee for the drive-time from the location to the worksite. Employers cannot require employees to remain at work and “punch in” only when it gets busy, “punching out” when business gets slow.
  3. Pay your hourly employees for overtime when their work hours exceed 48 hours in a work week. Federal law requires some hourly employees to receive overtime after working 40 hours in a work week. Some employees are exempt from this requirement. More information about federal and state overtime requirements is online at www.dli.mn.gov/LS/Overtime.asp.
  4. Pay your employees at least every 31 days.
  5. Do not misclassify employees as independent contractors. Such misclassification not only adversely impacts the employees, it also creates a competitive disadvantage for employers that comply with state laws related to workers’ compensation, unemployment insurance and tax withholding.
  6. Do not take unlawful deductions from your employees’ paychecks. Deductions for lost or damaged property, cash shortages, tools or uniform expenses generally cannot be made.
  7. Do not require your employees to pool or share tips.
  8. If you have a question, call us. We are available by phone at (651) 284-5070, Monday through Friday, 7:30 a.m. to 6 p.m.
  9. Get more information online. Visit www.dli.mn.gov/LaborLaw.asp for information about all Minnesota labor standards laws.
  10. Share these tips. Encourage other employers and associations to subscribe to our Wage and Hour Bulletin at www.dli.mn.gov/LS/Bulletin.asp.

That about sums it up (though we know it is never that easy), and I have accomplished making my bed and No. 10.

Late last year, the U.S. Department of Labor (DOL) issued a notice of proposed rulemaking, requesting comments related to rescinding portions of the 2011 Obama Administration tip pooling regulations that prohibit an employer from controlling or diverting tips (tips remain with the employee they are given to and up to him/her to share with others or not). The new rule would rescind “the parts of its tip regulations that bar tip-sharing arrangements in establishments where the employers pay full Federal minimum wage and do not take a tip credit against their minimum wage obligations.” As the tip-pooling ban may negatively affect the potential earnings of back-of house-staff, this is not only an issue for employers to keep an eye on, but those back-of-the-house employees as well.  While most wait staff share tips, it is not often split equally, resulting in a disproportionate amount of tips to the front-of-the-house and rescinding this regulation would allow employers to ensure all its staff are equally tipped for their combined team efforts.

Interestingly, after the notice and comment period ended on February 5, 2018, the DOL Office of the Inspector General (OIG) informed the DOL’s Wage and Hour division that an audit on the rulemaking process the DOL engaged in regarding the proposed tip pooling regulation was ongoing.  OIG launched the audit in response to concerns the DOL allegedly hid internal estimates of the proposal’s impact on workers. Accordingly, employers in industries where tipping is a prevalent practice should continue to monitor the developments with the proposed rule.

Minnesota employers of drivers take note – the Minnesota District Court in Farah v. Alpha & Omega USA, Inc. dba Travelon Transportation held that drivers’ trip logs provide constructive notice of unpaid overtime. The employer, a transportation service company for elderly and disabled individuals, employed Plaintiffs under an independent contractor agreement as drivers. As a part of their job, the drivers were required to track, for each individual trip, the mileage traveled, the customer’s name, the addresses of each customer’s pick up and drop off location, as well as when the driver began and ended driving.

The drivers brought a lawsuit claiming the company misclassified them as independent contractors, and as a result denied them minimum wage and overtime in violation of the FLSA. The court dismissed the company’s claim that it was unaware the drivers were working overtime hours because the pay system was based on number of jobs, not on hours worked. The Court found the trip logs provided the company with constructive notice the drivers were working overtime because “the trip logs were the very records used to document the work Plaintiffs performed and which formed the basis for their compensation.”

A couple of takeaways here. First, recall that employers may require all employees – even salaried employees – to record their time.  In the event of a claim of misclassification, the parties can avoid usually the most costly part of the dispute – how many hours the employee allegedly worked (unless they allege off-the-clock work, of course).  Second, the employer can avoid a recordkeeping violation that almost always accompanies a misclassification claim because the salaried employee didn’t record hours worked (as required of an hourly employee). And finally, this goes to hourly (properly classified) workers – if there is a log of time driven (or worked) as here, it should be cross referenced against a time card so as to avoid an “off the clock” argument.  Nothing new here, just a reminder.

 

On January 5, 2018, the Eighth Circuit Court of Appeals (this includes Minnesota), in Boswell v. Panera Bread Co. (8th Cir. 2018), held that Panera Bread Company (Panera) was not able cap the bonuses it had offered a group of 67 managers. In an effort to recruit and retain managers, Panera offered a large-one time bonus. Under the compensation plan, managers were to receive a one-time performance bonus, five years after signing the agreement. Moreover, the manager had to be a manager on the date the bonus was payable (5 years in the future). After the bonus plan was implemented, Panera modified the plan to include a $100,000 cap on the amount of the bonus a manager could receive.

The Court found the bonus cap breached the unilateral contract established when Panera offered to pay the managers a bonus for the managers’ continued at-will employment. Departing from prior Missouri cases finding that an offer could be revoked under a unilateral contract prior to substantial performance, the Court held the managers “beginning of performance would render the offer irrevocable.”

What does this mean for employers?  Tread carefully when offering long term bonus or commission plans; be sure that circumstances can’t change so much that you may not be able to deliver on the promise.  Be sure to insert an explicit reservation clause, stating that the employer may revoke or (prospectively) modify the offer, in its sole discretion. Panera attempted to argue it had reserved the right to revoke or modify the bonus payment, since the payment was conditioned on the managers’ continuance of work, a condition Panera argued it controlled under the employment at will rule. However, the Court rejected that argument, finding “Panera was not entitled to move the goalposts on [the managers] by imposing a bonus cap, which was outside the contemplation of the unilateral-contract offer.” In order to demonstrate the parties contemplated a modification or revocation, employers should make sure upon offering a bonus to include clear language stating the bonus is voluntary and may be withheld or modified without notice. That being said, it is also probably not a bad idea to state you will only do so “prospectively” – in other words, provide notice the bonus program is changing before it actually changes.  Then have all employees acknowledge the change.  In this instance, the Court alluded to the fact that Panera could have changed the bonus plan formula, but did not; it erred by adding new conditions (a cap on a bonus).

Not the most exciting news, but rumor has it, the EEOC recently (end of January) finished mailing the 2017 EEO-1 survey Notification Letters to applicable employers.  Who is an “applicable employer”?  Private employers with 100 or more employees and a federal government contractor or first-tier subcontractors with 50 or more employees and a sub/contract of $50,000 or more.

The Notification Letters contain information on how to file the EEO-1 report (of course its all online too www.eeoc.gov/eeo1survey). If your company filed an EEO-1 report in 2016 or meets the criteria for filing the report and have not received the Notification Letter you should immediately reach out to the EEO-1 Joint Reporting Committee at 1-877-392-4647 or e1.techassistance@eeoc.gov.  Don’t forget – the OMB stayed the revised EEO-1 report requiring employers to report employee’s compensation data. Accordingly, employers should continue using the previously approved EEO-1 form that requires employers to report data about employees’ ethnicity, race, and sex by job category, to comply with FY2017 reporting requirements. The deadline for submitting the EEO-1 report is March 31, 2018.