We’ve gotten several questions about the rules around furloughs and other reductions in pay. The Department of Labor has issued a timely new guidance entitled Frequently Asked Questions Regarding Furloughs and Other Reductions in Pay and Hours Worked Issues.

Here are the highlights . . .

If an employer is having trouble meeting payroll, does it still need to pay non-exempt employees on the regular payday?

Yes. Failure to do so violates the Fair Labor Standards Act (FLSA).

Is it legal for an employer to reduce the wages or hours of hourly employees?

Yes, as long as minimum wage and overtime laws are followed.

Does an employer need to pay an hourly employee for a full day of work if s/he was scheduled for a full day but only worked a partial day due to lack of work?

No. The FLSA does not require employers to pay non-exempt employees for hours not worked.

Can an employer reduce an exempt employee’s salary due to a slowdown?

Reductions in an exempt employee’s salary normally causes a loss of exemption, requiring payment of overtime and minimum wage. However, in some cases, a prospective reduction may not cause a loss of the exemption so long as other FLSA tests are met. (I’ll be posting more specifics on this particular question soon.)

Can an employer reduce the leave of a salaried exempt employee?

Generally, yes, provided that the employee still gets paid his/her salary in any week in which work is performed.

Can an exempt employee volunteer to take time off due to lack of work?

Yes (but it must be truly voluntary).

Can an employee still be on-call or performing work at home during a furlough day?

Whether on-call time is hours worked depends on the circumstances. Generally, if an employee is “engaged to wait,” it’s work time. If the employee is only “waiting to be engaged,” it’s not.

What are the penalties for violations?

Potential penalties include back wages and liquidated damages in an equal amount, plus interest, attorneys’ fees and court costs. Willful violations may result in criminal penalties, including fines and imprisonment.

(Special thanks once again to the Connecticut Employment Law Blog)

Wal-Mart has agreed to pay $35 million to settle a class action alleging that 88,000 employees in Washington state were forced to skip rest and meal breaks or work off the clock.

The three workers who brought the suit will get $10,000 each. Other employees will get varying amounts based on length of service and other factors.

How much do the attorneys get? A whopping $10.5 million.

“This lawsuit was filed years ago and the allegations are not representative of the company we are today,” said Wal-Mart spokesperson Daphne Moore. “Our policy is to pay associates for every hour worked and to make rest and meal breaks available.”

In December, Wal-Mart announced that it would pay more than $600 million to settle 60+ wage and hour lawsuits across the country.

Click here and here for more.

The New York Times is reporting on a Government Accountability Office (GAO) audit that is highly critical of the handling of wage claims by the Wage and Hour Division of the Department of Labor (DOL).

Among other things, the GAO is criticizing the DOL’s overall reduction of enforcement actions, handling of overtime and minimum-wage complaints, failure to focus on lower-wage industries and delays in handling cases.

Among the findings, according to the Times:

• Enforcement actions filed by the DOL decreased 37% over the past decade.
• The DOL mishandled “more serious cases” 19% of the time.
• The DOL mishandled 9 out of 10 cases brought by undercover agents posing as aggrieved workers, failed to record 5 of the matters in the DOL database, failed to investigate 3 of the matters and incorrectly reported that back wages had been paid in 2 of the matters when they had not.
• In one matter, the DOL reportedly failed to investigate a complaint that underage children were working during school hours at a California meatpacking plant with dangerous machinery.

In response, the DOL pointed to the fact that it has more than doubled its wage and hour recoveries in the past ten years despite a 20+% reduction in its number of investigators. It maintains that it reduced the number of enforcement actions due to improved case screening plus its decision to focus on more time-consuming systemic cases.

Secretary of Labor Hilda Solis reportedly intends to increase the Wage and Hour Division’s staff by a third by adding 250 investigators (100 as part of the stimulus package). The goal is to “refocus the agency on these enforcement responsibilities” and to “ensure that contractors on stimulus projects are in compliance with the applicable laws.”

For more, click here and here.

There are two things most HR professionals strive to avoid:  (1) class actions and (2) jail.  An HR professional at an Iowa meat-packing plant managed to find her way into both.

Agriprocessors Inc. was hit with nearly $10 million in fines for violating various wage and hour laws.  Among the alleged violations:

• $9,643,600 for 96,436 unlawful clothing deductions affecting 2,001 employees (reducing their wages by $192,597)
• $339,700 for 3,397 unlawful “sales tax/miscellaneous” deductions affecting 1,073 employees (reducing their wages by $72,190)
• $4,900 for failing to pay 42 employees their final paychecks

In other words, by attempting to unlawfully save about $270,000, the company now must pay more than 37 times that amount.

In a separate matter, Laura Althouse, one of the company’s HR professionals, pled guilty to charges of conspiring to harbor undocumented aliens and aggravated identity theft in connection with a May 2007 raid that uncovered nearly 400 undocumented workers.  Althouse faces up to 12 years in prison and up to $500,000 in fines.  Similar charges are pending against another Agricprocessor HR professional.

The Lessons

They’re pretty obvious here.  Know and follow the law, especially the nuances of wage and hour and immigration law.  Failure to do so could be hazardous to your career and — possibly — your freedom.

To avoid this happening to you, check out the handy materials under the “Tools & Tips” Section of the Blawg.

A federal judge has ordered Manhattan’s Saigon Grill to pay more than $4 million to three dozen $2-an-hour delivery workers.

The case is truly one of the most egregious I’ve ever seen.  Here are some of the findings from Judge Michael Dolinger’s 79-page decision.

• The delivery workers were paid only $520 a month despite the fact that many of them worked more than 260 hours apiece.
• The employer unlawfully deducted pay (sometimes as much as $200) for infractions such as letting the door slam on the way out of the restaurant and failing to log in deliveries.
• The employer failed to reimburse the employees for buying and maintaining bicycles used for the deliveries.
• Records kept by the employer were woefully incomplete and wrongfully destroyed.  The records that were kept contradicted sworn testimony from the owners that the employees worked less than they claimed.
• The employer retaliated against several employees by firing them after they notified the company of their intent to file a complaint.

In short, the judge found that owners Simon and Michelle Nget “showed no regard whatsoever for legal requirements in connection with their wage policies.”

Some of the delivery workers will receive as much as $328,000 as a result of the judgment.  “I’m very, very happy about this decision,” said Yu Guan Ke, one of the plaintiffs.  He said he plans to use the funds to buy health insurance for his family.

More money could be coming the plaintiffs’ way.  A hearing in December will determine whether the Ngets must pay the plaintiffs’ attorneys fees and costs.  In addition, the judge has yet to rule on the retaliation claims, for which the plaintiffs are seeking more than $1.5 million plus punitive damages.

Stay tuned.  Click here to read more on this case from the New York Times.

Wage and hour claims continue to dominate the headlines . . .

Fastenal Pays $10 Million

Fastenal Co., a construction supply distributor, agreed to settle overtime claims for $10 million.  Employees in California, Oregon and Pennsylvania alleged that the company improperly classified assistant managers as exempt, failed to pay overtime and violated meal period laws.  The company denied any wrongdoing and said it entered into the settlement to avoid legal fees and the uncertainty/distraction of a trial.

Interwall Pays $1.7 Million

The California Attorney General reached a settlement with Interwall, a Southern California drywall company, for alleged overtime, meal-period and record-keeping violations.  The company agreed to pay $1.4 million in damages, $200,000 in fines, $131,000 in back payroll taxes and nearly $100,000 in attorneys’ fees and other costs. 

Among other things, the company allegedly shifted employees among various corporate entities to avoid overtime as part of an effort to cut costs and underbid competitors.  The company denied any wrongdoing.

The Lessons

Once again, one of the best ways to avoid big-ticket liability is to ensure that your company fully complies with all wage and hour laws.  This is especially critical with exempt/non-exempt classifications, meal/rest period laws and record-keeping requirements.  Courts (and plaintiffs’ attorneys) continue to be very hard on employers where there’s even a hint of impropriety.

As a starting point, check out our Fair Labor Standards Act (FLSA) Cheat Sheet here or under the “Tools & Tips” section of the Blawg.

Yesterday, the U.S. Department of Labor (DOL) proposed new regulations interpreting the Fair Labor Standards Act (FLSA).

The proposals are designed to sync up the FLSA’s regulations with statutory amendments and court decisions issued over the past several decades.  Proposed changes include:

• including bonuses and premium payments in the calculation of overtime for employees with fluctuating workweeks
• excluding specified stock options from the regular pay rate
• updating the tip credit to reflect recent increases in the minimum wage
• clarifying rules around the use of comp time by public employees
• adding the “youth opportunity wage” of $4.20 an hour for employees under the age of 20 during their first 90 days of employment
• updating various rules regarding firefighters, irrigation workers and boat salespersons
• excluding certain food bank volunteers from the definition of “employee”

Click here to see all the proposals.  Comments may be submitted to the DOL until September 11.

Stay tuned for more.

Yesterday, a Minnesota judge awarded a class of more than 56,000 Wal-Mart employees $6.5 million in back pay for meal and rest period violations.  An October 20 penalties hearing could result in an additional $2 billion in damages.

The Facts

The employees alleged that Wal-Mart required them to work off the clock for training and didn’t allow full meal and rest periods in line with state law.  Wal-Mart denied the charges and argued that it fully complied with state law.

One of the centerpieces of the case was a series of internal audits conducted by Wal-Mart itself.  The audits showed that employees were missing breaks and one audit rated every Minnesota store “unsatisfactory” in the handling of rest periods.  Wal-Mart tried to argue that the audits were flawed.  The court rejected that argument, finding that it was Wal-Mart’s responsibility to correct or stop the audits if they weren’t accurate.

The court also pointed to the fact that Wal-Mart stopped using an electronic punch in/out system.  Once it did so, it no longer had a means to track break periods accurately.

The Lessons

The primary lesson is pretty simple:  pay employees for time spent working.  Break periods aren’t break periods if employees aren’t truly relieved of their duties.  With respect to meal periods, the Department of Labor states:  “The employee is not relieved if he is required to perform any duties, whether active or inactive, while eating.”  The solution is simple as well:  create a clear break policy and enforce it fairly and consistently.

Also, be careful when you conduct internal audits.  They can be a great way to monitor and improve compliance.  However, if you ignore the results and fail to make appropriate changes, you run the risk of creating Exhibit A for your next lawsuit.

(Special thanks to the Ohio Employer’s Law Blog)

Yesterday, the U.S. Supreme Court refused to overturn three important donning and doffing rulings.

The question posed in these cases is one that has vexed employers for years:  When exactly are employees entitled to pay under the Fair Labor Standards Act for time spent “donning and doffing”?  (For those unfamiliar with this area of the law, “donning and doffing” usually refers to putting on and taking off protective clothes/equipment.)

The Supremes let the following rulings stand:

• The Eleventh Circuit’s decision that union-represented poultry plant employees were not entitled to pay for time spent donning, doffing and washing sanitary and protective gear due to a ”custom or practice” of not paying for such time under a collective bargaining agreement.  Anderson v. Cagle’s Inc., No. 07-910.
• The Second Circuit’s decision that nuclear power plant employees were not entitled to pay for time spent donning and doffing protective boots, helmets and glasses and going through security because those activities were not “integral” to the employees’ ”principal activities” and were “relatively effortless.”  Gormon v. Consolidated Edison Corp., No. 07-1019.
• The Court also refused a request by Tyson Foods to reverse the Third Circuit’s decision to order a new trial on whether Tyson’s poultry plant employees must be paid for time spent donning, doffing and washing sanitary and protective gear.  Tyson Foods Inc. v. De Ascencio, No. 07-1014.

What does this mean for employers?

The short answer:  probably not much.

The employers and employees pushing for review of these cases agreed on one thing:  the law in this area is confusing and inconsistent.  By refusing to grant review, the Supreme Court provided little help.

While unionized employers may find some comfort in the Cagle’s case, still up in the air is exactly how much “exertion” is required for time to be compensable.  Tyson Foods pointed to inconsistencies among the circuits and argued that “compensable work” should include an element of actual “work.”  Tyson’s employees argued that “workweek” has long been defined as time an employee is “required to be on the employer’s premises, on duty or at a prescribed workplace.”  The Supreme Court refused to resolve the apparent conflict.

This is one area of the law in which it pays to consult with legal counsel in your particular jurisdiction.  The lack of crystal-clear standards and the inconsistencies from state to state and circuit to circuit increase the risk of class action lawsuits if time is not compensated properly.

A California court yesterday ordered Starbucks to pay almost $106 million to approximately 120,000 baristas because supervisors were unlawfully allowed to share tips left by customers.

The lawsuit was filed in 2004 by Jou Chou, who complained that supervisors were unfairly sharing in employee tips.  California law prohibits owners, managers and other company “agents” from tip-sharing.  The suit gained momentum in 2006 when it was granted class action status.

Starbucks argued that its shift supervisors weren’t covered by the law and should share the tips because they perform many of the same tasks as baristas.  The judge disagreed, ordering the company to make restitution going back eight years and indicating that she will issue an injunction to prevent future tip-sharing.

“I feel vindicated,” Chou said.  “Tips really help those receiving the lowest wages. I think Starbucks should pay shift supervisors higher wages instead of taking money from the tip pool.”

Starbucks vehemently disagreed.  The company says it plans an immediate appeal and called the decision “fundamentally unfair and beyond all common sense and reason” and “an extreme example of the abuse of class-action procedures in California courts.”

A hearing set for May 1 will determine how the money will be divided among the class members and how much their attorneys get.  Stay tuned.