Posted on July 26, 2012 by Richard S. Zackin

Third Circuit Establishes Test for Determining "Joint Employer" Liability Under the FLSA

A recent Third Circuit decision, In re Enterprise Rent-A-Car Wage & Hour Employment Practices Litigation, addresses the circumstances under which a parent company will be liable under the Fair Labor Standards Act (“FLSA”) as a “joint employer” of employees of the parent’s subsidiaries. The Third Circuit’s opinion gives concrete guidance to employers confronted by the broad definition of “employer” set forth in the FLSA’s regulations, providing a standard for assessing joint employer liability. (The FLSA defines an employer as “any person acting directly or indirectly in the interest of an employer in relation to an employee.”) Although the standard announced by the Third Circuit is by no means a bright-line test, it does provide fair notice to employers of the factors that will determine joint employer status.

Background

Former assistant managers of a number of Enterprise car rental locations commenced lawsuits in various federal courts alleging they had been misclassified as “exempt” employees under the FLSA and thus had been wrongfully deprived of overtime wages as mandated by the statute. Each of the car rental locations employing one or more of the former assistant managers was a wholly-owned subsidiary of Enterprise Holdings, Inc. These cases were eventually transferred by the Judicial Panel on Multidistrict Litigation to the United States District Court for the Western District of Pennsylvania. Thereafter, the parent company moved for summary judgment on the grounds that it was not a joint employer.

The District Court found that the Boards of Directors of Enterprise Holdings, the parent company, and each of its subsidiaries consisted of the same three people. Additionally, the parent company made available to each subsidiary a panoply of services, including business guidelines, employee benefit plans, rental reservation tools, insurance, technology, employee relocation services, legal services and various human resources services, such as job descriptions, best practices, compensation guides, training materials and standard performance review forms. These materials included recommendations for subsidiary employee salary ranges and whether these employees should be salaried or receive an hourly wage. In addition, the parent company recommended that the subsidiaries, other than the California subsidiaries, not pay overtime to their assistant managers. The District Court also found, however, that each subsidiary could elect to use any or all of these guidelines or services in its own discretion and that none were mandatory. Finally, the District Court found that Enterprise Holdings had no authority to hire, fire or discipline assistant managers or to promulgate work rules or assignments and did not maintain control over employee records. Based on all of these findings, the District Court granted Enterprise Holdings’ motion for summary judgment.

The Third Circuit’s Decision

The Third Circuit noted that the FLSA’s regulations provide for joint employer status when “the employers are not completely disassociated with respect to the employment of a particular employee and may be deemed to share control of the employee, directly or indirectly, by reason of the fact that one employer controls, is controlled by, or is under common control with the other employer." Emphasizing that shared control should be determined by “economic reality” rather than by “technical concepts,” the Court concluded that joint employer status depended on evidence showing that the two employers “share or co-determine those matters governing essential terms and conditions of employment.” The Court ruled that the appropriate inquiry should be “does the alleged employer have: (1) authority to hire and fire employees; (2) authority to promulgate work rules and assignments, and set conditions of employment, including compensation, benefits, and hours; (3) day-to-day supervision, including employee discipline; and (4) control of employee records, including payroll, insurance, taxes, and the like.” The Court was careful to note that these factors were not an exhaustive list and that there might be other indicia of “significant control in any given case.”

In the case before it, the Third Circuit adopted the findings of the District Court that Enterprise Holdings had no authority to hire or fire assistant managers, to promulgate work rules or assignments, or to set compensation, benefits, schedules, or rates or methods of payment. Moreover, Enterprise Holdings was not involved in employee supervision or discipline, nor did it maintain control over employee records. The Court rejected the plaintiffs’ contention that the guidelines and manuals promulgated by Enterprise holdings to its subsidiaries evidenced the requisite control over the assistant managers, finding that these materials were no more than recommendations that the subsidiaries could follow or not in their discretion. The Court acknowledged that the issue of interlocking directorates raised by plaintiffs was a factor to be considered, but ruled that on balance this fact did not outweigh the other factors indicating that the parent company did not exercise shared control over the assistant managers. Accordingly, the Court affirmed the grant of summary judgment in favor of Enterprise Holdings.

Conclusion

The Third Circuit’s opinion provides useful guidance on the issue of joint employer liability, especially in the parent-subsidiary context. Although the Court noted that its list of relevant factors for assessing joint employer status was not exhaustive, an examination of those specific factors and the manner in which they were applied by the Court in the Enterprise case should allow companies in future cases to make reasoned assessments of their exposure as joint employers under the FLSA.

If you have any questions regarding joint employer status or any FLSA-related issues, please feel free to contact any of the attorneys in the Gibbons Employment & Labor Law Department.


Richard S. Zackin is a Director in the Gibbons Employment & Labor Law Department.
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Posted on June 25, 2012 by Mitchell Boyarsky

U.S. Supreme Court Rules Against OT Pay for Pharmaceutical Salespeople

In a major victory for pharmaceutical companies, the U.S. Supreme Court recently held that company sales representatives who promote their employer’s products to doctors and hospitals are exempt from the overtime requirements of the Fair Labor Standards Act (“FLSA”). In doing so, the Court resolved a split in the Circuit Courts of Appeal over the scope of the “outside salesman” exemption to the FLSA’s overtime pay requirements. The Court’s holding in Christopher v. SmithKline Beecham Corp. regarding the scope of this exemption has provided much needed clarity to pharmaceutical companies and employers with similar types of sales forces who have relied – and hope to continue to rely – on the exemption.

Whether the FLSA requires pharmaceutical companies to pay their sales representatives overtime under the FLSA has generated significant litigation. As we have previously reported, a number of federal appellate courts have considered whether the FLSA’s “outside salesman” and/or “administrative” exemptions applies to these employees. Until now, the results have been inconsistent, leaving employers with many questions. Indeed, cases from the Second Circuit (covering the states of New York, Connecticut, and Vermont), Third Circuit (covering the states of New Jersey, Pennsylvania, Delaware, U.S. Virgin Islands), and the Ninth Circuit (covering California, Alaska, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) had reached varying conclusions.

Factual Background to the SmithKline Decision

The exemption at issue in SmithKline, the “outside salesman” exemption, applies to those employees “[w]hose primary duty is [ ] making sales.” Under the FLSA, a “sale” includes “any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” Because federal law prohibits pharmaceutical manufacturers from directly selling prescription medications to patients, many companies practice what is called “detailing,” whereby their sales representatives, or “detailers,” provide information to physicians about the company’s products with the goal of encouraging them to write prescriptions for these products to their patients. The representatives are legally prohibited from actually consummating sales with the physicians. Consistent with this practice, SmithKline’s sales representatives, including plaintiffs Michael Christopher and Frank Buchanan (the “Reps”), would “call[ ] on physicians in an assigned sales territory to discuss the features, benefits, and risks of an assigned portfolio of [SmithKline’s] prescription drugs.” The primary objective of these visits would be to obtain a non-binding commitment from the physician to prescribe those drugs so “detailed.” In the course of these efforts, the Reps would typically spend approximately 40 hours per week “detailing,” and approximately 10 to 20 hours each week attending events, reviewing product information, returning phone calls, and other miscelleneous tasks.

The FLSA obligates employers to compensate non-exempt employees for hours in excess of 40 per week at the rate of one-and-a-half times the employees’ regular wages. SmithKline did not pay the Reps time-and-a-half wages when they worked in excess of 40 hours per week because it classified them as exempt from overtime. As a result, the Reps brought suit alleging violations of the FLSA for failing to compensate them for overtime.

In a prior similar lawsuit brought in the Second Circuit Court of Appeals, the U.S. Department of Labor (“DOL”) filed an amicus brief in which it advocated against applying the outside sales exemption to the detailers – reasoning that the outside sales exemption does not apply unless a “transfer of title” to the property takes place. The DOL filed a similar amicus brief in the Supreme Court in the SmithKline case.

The Court’s Decision

The Supreme Court held that pharmaceutical sales representatives are covered by the outside salesman exemption and, in so ruling, rejected the position of both the Reps and the DOL that under the FLSA’s regulations a transfer of title is required for a “sale” within the meaning of the exemption. The Court focused on the unique relationship between pharmaceutical sales representatives and the physicians whom they solicit: 

Obtaining a nonbinding commitment from a physician to prescribe one of [SmithKline’s] drugs is the most that [the Reps] were able to do to ensure the eventual disposition of the products that [SmithKline] sells. This kind of arrangement, in the unique regulatory environment within which pharmaceutical companies must operate, comfortably falls within the [regulation’s] catch-all category of “other disposition."

In further support of its decision, the Court noted that the Reps “bear all of the external indicia of salesman.” For example, the Court emphasized that the Reps:

  • were hired for their sales experience;
  • were trained to close each sales call by obtaining the maximum commitment possible from the physician;
  • worked away from the office with minimal supervision; and 
  • were rewarded for their efforts with incentive compensation.

Finally, in considering the equity of fair warning for employers, the Court emphasized that the DOL had previously interpreted the FLSA regulations as requiring only that an employee “in some sense” make a sale, and otherwise “acquiesce[d] in the sales practices of the drug industry for over 70 years.” It would, therefore, be unfair to change the guidance given employers for many years especially when lack of notice would have significant financial repercussions.

Conclusion

The Supreme Court’s decision in SmithKline generally gives employers in the pharmaceutical industry vindication in classifying their sales representatives as exempt from overtime under the FLSA. In this case, the Court looked to job duties and responsibilities of the particular detailers and took into consideration industry practice and regulatory compliance. While there may exist analogous situations outside of the pharmaceutical industry, where the same arguments for application of the outside salesman exemption can be made, employers should conduct an analysis of their own circumstances and not rely unconditionally on SmithKline. Employers should consult with counsel to make these assessments. Attorneys in the Gibbons Employment & Labor Law Department regularly assist employers in these reviews and other employment and labor matters.


Mitchell Boyarsky is a Director in the Gibbons Employment & Labor Law Department. Michael J. Riccobono, an Associate in the Gibbons Employment & Labor Law Department, co-authored this post.
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Posted on April 4, 2012 by Peter J. Dugan

Third Circuit Opens the Door for "Hybrid" Wage & Hour Claims in New Jersey, Pennsylvania, Delaware, and the U.S. Virgin Islands

On March 27, 2012, the United States Court of Appeals for the Third Circuit issued a precedential decision in Knepper v. Rite Aid Corp. which dramatically alters the landscape for wage and hour litigation for employers operating in the jurisdictions within the Third Circuit, i.e., in New Jersey, Pennsylvania, Delaware, and the U.S. Virgin Islands. Specifically, the Third Circuit ruled that the procedures for litigating a class action alleging state wage and hour violations is not “inherently incompatible” with the procedures for litigating a collective action under the federal Fair Labor Standards Act (“FLSA”). As a result, courts in these jurisdictions may well see a wave of hybrid class/collective actions alleging wage and hour violations under both the FLSA and the corresponding state wage and hour laws in the same complaint.

Background

The Knepper plaintiffs are assistant store managers who had “opted in” to a national FLSA collective action filed against Rite Aid in the Middle District of Pennsylvania. Under the FLSA, courts can assert jurisdiction only over those employees who affirmatively “opt in” to the lawsuit. The lawsuit alleged that Rite Aid misclassified the plaintiffs as exempt from the federal overtime and minimum wage requirements. Subsequently, these individuals filed their own separate class actions in federal courts in Maryland and Ohio under Rule 23 of the Federal Rules of Civil Procedure alleging violations of those states’ wage and hour laws. In a class action certified under Rule 23, the court acquires jurisdiction over all class members, but individual members may elect to “opt out” of the lawsuit. These newly filed lawsuits were ultimately transferred to the Middle District of Pennsylvania. That court dismissed the state law claims because, in its view, the Rule 23 “opt-out” process for litigating class actions under the state-law claims was “inherently incompatible” with the “opt-in” process utilized in FLSA collective actions. Over the years, numerous federal district courts in the Third-Circuit have reasoned that the contrast between an opt-in and opt-out procedure bars federal courts from hearing such dual-filed wage and hour actions.

The Third Circuit Decision

After analyzing the text and legislative history of the FLSA, the Third Circuit found no evidence of Congressional intent to preclude the joinder of “opt out” class action claims under state law with “opt in” FLSA claims. Thus the Third Circuit reversed the district court, stating: “[i]n sum, we disagree with the conclusion that jurisdiction over an opt-out class action based on state-law claims that parallel the FLSA is inherently incompatible with the FLSA’s opt-in procedure.” Moreover, the Court noted that many other circuits, specifically, the Second, Seventh, Ninth, and D.C. circuits have found that such dual filing “does not defeat otherwise available jurisdiction.” In reversing the District Court, the Court of Appeals opened the door for dual-filed and hybrid wage and hour actions in the Third Circuit.

Employer Takeaways

In light of this development, employers with operations in the Third Circuit may be forced to litigate wage and hour claims under both federal and state law as part of the same lawsuit. The differing statutes of limitations, recoverable damages and burdens of proof as between the FLSA and the various state laws will certainly complicate the litigation of these claims, making them more costly for employers to litigate and more difficult to settle and subjecting employers to a wider array of damages.

Given this development, now is a good time for employers with operations in New Jersey, Pennsylvania, Delaware, and Virgin Islands to communicate with experienced wage and hour counsel regarding strategies to avoid wage and hour litigation. If you have any questions, please feel free to contact any of the attorneys in the Gibbons Employment & Labor Law Department.


Peter J. Dugan is an Associate in the Gibbons Employment & Labor Law Department.
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Posted on January 30, 2012 by Peter J. Dugan

New York Wage Theft Prevention Act Notification Deadline is February 1

In January and May 2011, we reported on a series of changes to New York Labor Law contained within the Wage Theft Prevention Act (“WTPA”). These changes are now applicable to all New York private-sector employers (including charter schools, private schools, and not-for-profit corporations). Affected New York employers must provide all employees with written pay notices at the time of hire on or before February 1 in each year.

Given that this deadline is fast approaching for 2012, now is a good time for employers to communicate with experienced wage and hour counsel regarding compliance strategies. If you have any questions, please feel free to contact any of the attorneys in the Gibbons Employment & Labor Law Department.


Peter J. Dugan is an Associate in the Gibbons Employment & Labor Law Department.

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Posted on January 17, 2012 by Suzanne Herrmann Brock

NLRB Rules That Class Action Waivers in Employment Agreements Violate the NLRA

On January 3, 2012, The National Labor Relations Board issued its decision in D.R. Horton, Inc. Case No. 12-CA-25764. This is a significant decision for all employers as it prohibits the use of class action waivers in employment arbitration agreements. Specifically, the Board held that arbitration agreements that contain provisions that prohibit employees from filing joint, class or collective claims addressing their wages, hours or other working conditions against their employer, in any forum, violate Section 8(a)(1) of the National Labor Relations Act (NLRA).

The arbitration provision at issue in D.R. Horton, Inc., required employees, as a condition of their employment, to agree that they would not pursue class or collective litigation of claims in any forum, arbitral or judicial. The Board found that the provision violated the Section 7 NLRA because it expressly prohibited employees from excising their right to engage in “concerted activities for the purpose of ... mutual aid or protection ..." The Board explained that courts and the Board have long held that Section 7 protects the rights of employees to bring legal action addressing their wages, hours, and working conditions, and that this right includes the right to bring employment-related claims on a class wide or collective basis. Notably, union and non-union employees alike are covered by the NLRA, and thus the Board’s ruling is applicable to virtually all employers.

The Board’s decision is surprising in light of the U.S. Supreme Court’s recent decision in AT &T Mobility v. Concepcion. In AT &T Mobility, the Supreme Court struck down a California law that prohibited class action waivers in arbitration agreements, holding that the Federal Arbitration Act (FAA) preempts state law. In its decision, the Board distinguished AT &T Mobility by stating that AT&T Mobility did not involve a right protected by the NLRA or even employment agreements. The Board further opined that AT&T Mobility involved a conflict between the FAA and state law, which is governed by the Supremacy Clause, and that the instant case involved two federal statutes. In addition, the Board held that its decision did not conflict with the FAA, and even if there was a direct conflict, “there are strong indications that the FAA would have to yield under the terms of the Norris-LaGurardia Act.”

Importantly, the Board’s decision does not ban employers from requiring that their employees arbitrate claims relating to employment, nor does the Board’s decision restrict the right of employers to insist that arbitral proceedings be conducted on an individual basis. However, employers must now be careful that any such agreements leaves open a way for employees to bring class or collective claims in either court or arbitration.

In light of the Board’s decision, employers should review all agreements with employees to ensure that they do not violate Section 7 of the NLRA. Attorneys in Gibbons Employment & Labor Law Department have extensive experience counseling employers regarding employment contracts and labor relations issues. If you have any questions regarding the impact that this decision may have on your business, please feel free to contact any of the attorneys in the Department.


Suzanne Herrmann Brock is an Associate in the Gibbons Employment & Labor Law Department.
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Posted on September 27, 2011 by Michael J. Riccobono

Wage and Hour Guidance: IRS and Department of Labor Focus on Worker Misclassification

Employers should be aware of two recent announcements from the U.S. Department of Labor (“DOL”) and the Internal Revenue Service (“IRS”) regarding the misclassification of workers as independent contractors or non-employees. First, the DOL on September 19, 2011 signed a memorandum of understanding with the IRS that is designed to improve the DOL’s efforts to curtail employee misclassification by employers by sharing information with both the IRS and participating states. Second, the IRS announced on September 21, 2011 the launch of a new program, the Voluntary Classification Settlement Program (“VCSP”), that will enable employers to resolve prior misclassification of employees as independent contractors. The VCSP significantly limits past taxes for misclassified workers if an employer comes forward voluntarily in an attempt to comply with the tax laws.

Department of Labor Enforcement Efforts

The DOL’s memorandum of understanding (“MOU”) with the IRS “enables the DOL to share information and coordinate law enforcement with the IRS and participating states in order to level the playing field for law-abiding employers and ensure that employees receive the protections to which they are entitled under federal and state law.” Among others, signatory states to the MOU include New York, Connecticut, Massachusetts and Maryland.

The MOU goes on to note that “[b]usiness models that attempt to change, obscure or eliminate the employment relationship are not inherently illegal, unless they are used to evade compliance with federal labor laws -- for example, if an employee is misclassified as an independent contractor and subsequently denied rights and benefits to which he or she is entitled under the law.”

Voluntary Classification Settlement Program

Under the VCSP, employers will have the opportunity to voluntarily reclassify their workers as employees for future tax periods with limited federal employment tax liability for the past non-employee treatment. At its core, the VCSP is “designed to increase tax compliance and reduce the burden on employers by providing greater certainty for employers, workers and the government.” The VCSP is open to employers who have erroneously treated workers as non-employees or independent contractors and who meet the following criteria:

  • Consistently have treated the workers in the past as non-employees;
  • Have filed all required Forms 1099 for the workers for the previous three years;
  • Not currently under audit by the IRS, the DOL or a state agency concerning the classification of these workers.

Qualifying employers will:

  1. pay 10% of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year;
  2. will not be liable for any interest and penalties on the liability; and
  3. not be subject to an employment tax audit with respect to the worker classification of the workers for prior years.

The VCSP provides employers an extraordinary opportunity to avoid the tax risks associated with misclassification of their workers. Employers should be cautioned, however, that the VCSP does not grant them total immunity. The previously misclassified workers may have claims for benefits and wages under either local, state and/or federal wage and hour laws.

Employee vs. Independent Contractor

As illustrated by the DOL’s MOU and the VCSP, worker misclassification is a serious issue. A recent study conducted by the Government Accountability Office estimated that the IRS is losing billions of dollars on worker misclassification, and a DOL study indicates that up to 30% of employers misclassify their workers.

The classification of a worker as either an “employee” or an “independent contractor” has significant implications for the employer’s payment of payroll taxes and workers’ compensation, unemployment and disability insurance, as well as compliance with minimum wage, overtime and other wage and hour laws.

Of course, determining whether a worker should properly be classified as an independent contractor or employee is no simple task. The Gibbons Employment & Labor Law Department can help you avoid misclassification issues, mitigate risks associated with same, and ensure compliance with applicable tax and employment laws. Please feel free to contact our attorneys for assistance.


Michael J. Riccobono is an Associate in the Gibbons Employment & Labor Law Department.
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Posted on August 25, 2011 by Michael J. Riccobono

Wage and Hour Guidance: Individual Liability for Officers and Directors under the FLSA

Introduction

Corporate directors, officers, and agents need to be aware of the potential personal risks associated with the non-payment of wages to their company’s employees. Although the existence of a corporate or other business-entity form generally provides protection from individual liability for corporate actors, one significant exception is for claims brought pursuant to the Fair Labor Standards Act (“FLSA”). A corporate director, officer or agent’s own individual assets may be used to satisfy any judgment for unpaid wages in favor of the company’s employees. As employers continue to deal with the economic downturn, and more companies are finding themselves struggling to meet payroll, corporate officers, directors, or agents may more frequently find themselves the individually-named targets of an FLSA lawsuit.

Fair Labor Standards Act

The FLSA provides that “[e]very employer shall pay to each of his employees who in any workweek is engaged in commerce or in the production of goods for commerce, or is employed in an enterprise in commerce,” a minimum wage. As to liability for failure to pay such wages, the FLSA requires “any employer who violates the provisions of [this] section shall be liable to the employee or employees affected in the amount of their unpaid minimum wage, or their unpaid overtime compensation, as the case may be, and in an additional equal amount as liquidated damages.”

Although these wage and hour basics are par for the course for any company, many officers and directors are nonetheless surprised to learn that they personally are considered the “employer” for purposes of the the FLSA. The FLSA broadly defines an “employer” as “any person who acts, directly or indirectly, in the interest of an employer to any of the employees of such employer.” (Emphasis added). Likewise, the New Jersey Wage and Hour Law, the New York Labor Law, and the Pennsylvania Wage Payment and Collection Law similarly include individual persons in their definitions of “employers.” As a result, liability under the FLSA or corresponding state statute for failure to pay employees’ wages applies with the same force and effect to individual corporate defendants, jointly and severally, along with the company itself.

Individual Liability

For individual corporate defendants, the FLSA’s definition of “employer” has been applied in circumstances where that individual had “operational control over the corporation.” Courts have consistently given an expansive interpretation of the term “employer” under the FLSA so as to effectuate the Act’s broad remedial purposes. To illustrate, courts focus on a number of factors, including, but not limited to: (a) the significant ownership interest of the corporate officers; (b) their operational control of significant aspects of the corporation’s day-to-day functions, including compensation of employees, hiring and discharging employees, and establishing other terms and conditions of employment; (c) the role played by the corporate officer in causing the corporation to under-compensate employees and to prefer the payment of other obligations and/or retention of profits. Importantly, there may be instances in which there are several simultaneous “employers” under the FLSA, any one of which is responsible for compliance with the Act and may be held liable. In other words, the fact that a corporate defendant is considered an employer under the FLSA does not preclude a determination that others are also employers for the purposes of the FLSA.

Depending on the facts of the case, courts have held corporate actors liable (in their individual, not representative, capacity) along with any other corporate entity or individual meeting the definition of “employer.” The potential exposure of officers, directors and agents includes back-pay, penalties, attorneys’ fees, liquidated damages, or any other relief a court may award in an FLSA lawsuit.

Conclusion

Individual corporate officers, directors and agents need to be mindful of the FLSA’s provisions regarding personal liability. To that end, corporate actors must ensure the prompt payment of all accrued employee wages. Should your company find itself unable to pay timely wages to your employees, consider options that could help avoid or minimize an unpaid wage claim, such as a possible reduction in pay rates, periodic furloughs, changes in vacation and/or PTO policies, or reductions in force. Of course, before implementing any of the aforementioned alternatives, please feel free to contact one of the attorneys in the Gibbons Employment & Labor Law Department.


Michael J. Riccobono is an Associate in the Gibbons Employment & Labor Law Department.
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Posted on May 4, 2011 by Peter J. Dugan

New York Wage Theft Prevention Act Effective April 9, 2011

We previously reported on a series of changes to New York Labor Law contained within the Wage Theft Prevention Act (“WTPA”) that are now applicable to all New York private-sector employers (including charter schools, private schools, and not-for-profit corporations).

As discussed in our previous post, the WTPA requires New York employers to provide all employees with written pay notices at the time of hire and on or before February 1 of each year that include:

  • The employee’s rate or rates of pay
  • The overtime rate of pay, if the employee is nonexempt
  • The basis of wage payment (e.g., per hour, per shift, per week, piece rate, commission, etc.)
  • The allowances to be claimed against the minimum wage (e.g., tip, meal, and lodging allowances)
  • The regular pay day
  • The employer’s name and any name under which the employer conducts business
  • The physical address of the employer’s main office or principal place of business (if different from the mailing address)
  • The employer’s telephone number

The above disclosures must be given in English as well as the employees native language (if the NYDOL has provided a notice template in the employee’s primary language, with Spanish, Chinese, Korean, Creole, Polish, and Russian versions supposedly being made available soon on the NYDOL's website). Moreover, the WTPA requires that employers get signed acknowledgments from employees that verify the above disclosures.

To assist New York employers with compliance, the NYDOL has issued the following materials:

Based on the information released by the NYDOL, we wanted to bring the following WTPA-related items to your attention:

  • Employers are not required to use the above-linked template forms. Employers can develop their own pay notices so long as they comply with the WTPA. Moreover, the NYDOL has specified that the notice obligations can be included in a letter and/or employment agreement; however, it must be on its own form. In other words, the NYDOL seems to be directing that the notice obligations appear on a separate page or pages from the rest of the agreement, such as in an appendix.
  • The pay notice can be distributed electronically, but there must be a system in place where the employee can acknowledge the receipt of the notice as well as print copies.
  • The NYDOL has specified that: (i) new-hire notices must be provided to employees hired on or after April 9, 2011 before they perform any work; and (ii) annual notices must be provided to all employees between January 1 and February 1 beginning in 2012. The WTPA’s annual notice requirement will not be satisfied if notice is given at any other time.
  • Under the WTPA, employers are required to keep copies of the notices and acknowledgments for six years and must be able to provide them to the NYDOL upon request.
  • If an employee refuses to acknowledge the notice, the NYDOL has instructed employers to still provide the notice and to note the employee’s refusal to sign.

In addition to the above notice requirements, the WTPA requires employers to provide certain information in writing along with each payment of wages. Specifically, the dates of work covered, the employer’s name, address and phone number, the employee’s rates of pay and basis thereof (e.g., hour, shift, day, week, salary, piece, commission, etc.), gross wages, deductions, net wages, and allowances claimed against the minimum wage (e.g., tip, meal, lodging), overtime rates, and the number of regular and overtime hours worked.

The NYDOL has indicated that employers can provide these pay statements electronically if the employee can access the statements on a computer provided by the employer and print a copy for their records. The NYDOL has indicated that it will at some point issue a sample pay statement that demonstrates the necessary entries.

Given that the WTPA became effective last month, now is a good time for employers to communicate with experienced wage and hour counsel regarding compliance strategies. If you have any questions, please feel free to contact any of the attorneys in the Gibbons Employment Law Department.


Peter J. Dugan is an Associate in the Gibbons Employment Law Department.
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Posted on January 4, 2011 by Peter J. Dugan

New York Employers Must Comply with Wage Theft Prevention Act Effective April 12, 2011

On December 14, 2010, New York Governor David Patterson signed the Wage Theft Prevention Act (“WTPA”), a new law that significantly changes the wage and hour landscape for all New York employers. This amendment to the New York Labor Law targets those employers who engage in “wage theft” by underpaying employees. In application, however, the WTPA will affect all New York employers by imposing burdensome notification and recordkeeping requirements, expanding the scope of penalties for violations, and increasing opportunities for employment litigation through strengthened anti-retaliation provisions. In compliance with these new amendments, New York employers will need to amend their payroll practices on or before April 12, 2011. Our summary and analysis of the key amendments is set forth below.

Notification Obligations

Under the WTPA, New York employers must now provide all employees with written notifications that contain the following information:

  • The employee’s rate of pay, the basis thereof (e.g., hourly, weekly, salary, commission, etc.), the regular pay date, and allowances claimed against the minimum wage (e.g., tip, meal, or lodging allowances);
  • The employer’s name (including any “doing business as” names), telephone number, and the physical address of the employer’s main office or principal place of business;
  • Nonexempt employees must also be given notice of their regular rate of pay as well as their overtime rate of pay.

Employers must provide this information at the time of hire as well as on or before February 1 in each year thereafter. The above disclosures must be in English as well as the employee’s self-identified primary language. Moreover, employers are required by the WTPA to obtain signed acknowledgments from employees, verifying that the notifications were made. Employers who fail to comply may face legal actions and be subject to monetary damages, injunctive relief, as well as paying reasonable attorneys’ fees and costs.

Pay Statement Obligations

Under the WTPA, New York employers must now provide written statements along with each payment of wages. The statements must include the dates of work covered, the employer’s name, address, phone number, rates of pay and basis thereof (e.g., hour, shift, day, week, salary, piece, commission, etc.), gross wages, deductions, net wages, and allowances claimed against the minimum wage (e.g., tip, meal, or lodging allowances). For nonexempt employees, the statement must also include the regular hourly rates of pay, overtime rates of pay, and the number of regular and overtime hours worked. In addition, upon the request of an employee, the employer must now furnish an explanation in writing as to how specific wages were computed. These compliance obligations extend beyond the recordkeeping requirements imposed on employers under federal law. New York employers who fail to comply with these new obligations may face legal actions and may be subject to monetary damages, injunctive relief, as well as paying reasonable attorneys’ fees and costs.

Recordkeeping Obligations

Under the WTPA, employers are now required to keep wage-related records for 6 years. For each week, employers must maintain contemporaneous, true, and accurate payroll records showing hours worked, rates of pay and basis thereof (e.g., hourly, salary, shift, day, piece, commission, etc.), gross wages, deductions, net wages, and allowances claimed against the minimum wage (e.g., tip, meal, lodging allowances) for each employee. The records for nonexempt employees must also indicate regular hourly rate of pay and overtime rate of pay as well as the total number of regular and overtime hours worked.

Expanded Remedies

The WTPA increases the scope of available remedies for wage and hour violations.

  • Liquidated Damages: Unless they can prove a good faith basis for believing they were in compliance, New York employers who fail to pay wages (e.g., minimum wages, overtime wages) are liable for the total amount of unpaid wages, costs, attorneys’ fees and liquidated damages. Liquidated damages presently are calculated to equal 25% of the total amount of wages due. The WTPA quadruples the amount to equal 100% of the wages due. On its face, this increase appears to mirror the liquidated damages available under the federal Fair Labor Standards Act (“FLSA”). However, employers should be mindful that the statute of limitations for violations of the New York Labor Law is 6 years (currently the longest of any state wage law), whereas the FLSA statute of limitations is at most three years. Additionally, employers must be mindful that at least some courts have found that liquidated damages under the FLSA and the New York Labor Law do not offset one another and may be recovered simultaneously.
  • Workplace Postings: The WTPA empowers the Commissioner of Labor to post a notice (for up to 1 year) in an area visible to employees and which summarizes the employer’s violation. If the violation is willful, the Commissioner may post the notice (for up to 90 days) in an area that is visible to the public.
  • Criminal Penalties: Under the New York Labor Law, employers that fail to pay the minimum wage or overtime compensation may be found guilty of a misdemeanor, and therefore fined up to $20,000 dollars or imprisoned for up to one year. If a second violation and conviction occurs within 6 years, the employer will be guilty of a felony. The WTPA expands these criminal penalties to partnerships and limited liability companies.
  • Attorneys’ Fees: The WTPA eliminates the potential for judicial discretion by directing the courts to award “all” reasonable attorneys’ fees as well a prejudgment interest in cases involving the underpayment of wages.

Anti-Retaliation

The WTPA grants anti-retaliation protection to employees who “reasonably and in good faith believe” that a violation of the Labor Law or Order of the Commissioner has occurred. Accordingly, we foresee this vague standard leading to an uptick in employees alleging retaliation claims. If successful, these employees will entitled to injunctive relief, liquidated damages of up to $10,000, back pay, and reinstatement. The WTPA also provides for an award of front pay in lieu of reinstatement. Unlawful retaliation is now deemed a class B misdemeanor.

Conclusion

In sum, the WTPA changes the way New York employers, large and small, will need to conduct business and keep records. The myriad of wage and hour laws was already complicated and is becoming more so. The cost to employers of non-compliance — regardless of whether from ignorance, misunderstanding, or willfulness — is getting even costlier. Accordingly, now is a good time for employers to communicate with experienced wage and hour counsel regarding compliance strategies.


Peter J. Dugan is an Associate in the Gibbons Employment Law Department.
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Posted on November 29, 2010 by Gibbons P.C.

Individual Paychecks Re-start the Statute of Limitations in Discriminatory Compensation Claims Under the NJLAD

Peace of mind. That is what the two-year statute of limitations period applicable to claims filed under the New Jersey Law Against Discrimination (“LAD”) afforded employers. With respect to discriminatory compensation claims, however, the New Jersey Supreme Court’s decision in Alexander v. Seton Hall University has destroyed that peace of mind, holding that each individual paycheck effecting a discriminatory compensation decision constitutes an actionable unlawful employment practice. No longer is the two-year statute of limitations measured from the date of the compensation decision.

At issue before the Court in Alexander were the claims of three female professors who alleged that they were paid unequal wages on the basis of gender and age in violation of the LAD. The Appellate Division had affirmed the trial court’s decision that a portion of the professors’ claims were untimely because the compensation decisions at issue were made more than two years before the professors filed their complaint and thus those claims were barred by the two-year statute of limitations applicable to LAD claims. In their appeal to the New Jersey Supreme Court, the professors argued that no portion of their pay claims were time-barred and that “each paycheck that perpetuates a discriminatory wage continues the original LAD violation and sweeps in all prior and current discriminatory, disparate paychecks.” The University, on the other hand, argued that the statute of limitations period commenced as of the date that the allegedly discriminatory compensation decision was made. The New Jersey Supreme Court did not accept the professors’ “continuing violation” argument in its entirety but did hold that each paycheck received by an employee serves to “restart” the two-year limitations period. Logically then, a plaintiff should be able to assert claims for discriminatory compensation only with regard to compensation received within two years of the filing of plaintiff’s complaint - and the Supreme Court so held.

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Posted on November 10, 2010 by Gibbons P.C.

Third Circuit Refused to Apply Ledbetter to Promotion Claims

On an issue of first impression in the Third Circuit whether “a failure-to-promote claim” constitutes “discrimination in compensation” as prohibited by the Lilly Ledbetter Fair Pay Act of 2009 (“FPA”) the Court of Appeals recently held that a failure to promote claim is not the same as a discrimination in compensation claim. Consequently, the plaintiff in Noel v. The Boeing Company could not avail himself of the FPA’s more flexible statute of limitations period.

By way of brief background, before a potential plaintiff can file a lawsuit asserting a violation of Title VII, a plaintiff must first file a charge of discrimination with the Equal Employment Opportunity Commission (“EEOC”) within 180 days from the date of the unlawful employment practice or 300 days in states that have human rights agencies. When compensation decisions are at issue, the FPA states that each paycheck reflecting the allegedly discriminatory compensation decision constitutes the unlawful employment practice, as opposed to the date the compensation decision was made. Thus, each paycheck received by the plaintiff serves to “restart” the statute of limitations period.

The Facts and Procedural History

Plaintiff Emmanuel Noel, a black Hatian national, started working for Boeing in 1990. On occasion, Boeing would offer its employees the ability to work offsite with greater pay and additional training. Any promotions or increases associated with an offsite assignment were limited to the period the employee was offsite. Noel and two white co-workers were assigned to the same offsite facility. In May 2003, after seven months of working at the offsite facility, Noel’s co-workers were promoted to higher-paying positions, while Noel remained in the same lower-paying position. Noel complained internally and to the union representatives about these promotions. Eighteen months later, Noel filed a charge of discrimination with the EEOC and, fifteen months after he filed the charge, he filed a Title VII complaint against Boeing in Federal Court. In his Complaint, he complained inter alia that Boeing’s failure to promote him in May 2003 constituted race and national origin discrimination in violation of the Title VII. Following a four-day bench trial, the District Court ruled, in relevant part, that Noel’s claims were time-barred because he failed to exhaust administrative remedies, as required by Title VII, by first filing an EEOC charge within 300-days after the alleged adverse employment action.

The Third Circuit’s Decision

On appeal to the Third Circuit, Noel challenged the District Court’s decision that his charge of discrimination was untimely. Specifically, he argued that because he was not promoted, he received less pay than his white co-worker and that the FPA therefore governed his claims. The Third Circuit took issue with plaintiff’s argument because he failed to specifically assert a pay discrimination claim before the District Court. Instead, his claims were purely focused on Boeing’s failure to promote him. The Third Circuit also closely examined the FPA and determined that the FPA was limited to compensation decisions and did not apply to failure to promote claims. Because the FPA did not apply, the statute of limitations period commenced once the allegedly discriminatory employment decision occurred and that, as a result, plaintiff’s claims were time-barred.

Conclusion

There is no question that the Noel decision, which determines that a discrimination claim premised on a failure to promote claim is not interchangeable with a discrimination in compensation claim, is helpful to employers in limiting the reach of the FPA. It is also worth noting that the decision follows on the heels of oral argument before the New Jersey Supreme Court in the Alexander v. Seton Hall University case. In Alexander, the New Jersey Supreme Court is considering whether to uphold the Appellate Division’s decision that the FPA does not apply to pay claims brought pursuant to the New Jersey Law Against Discrimination.
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