New Jersey Employment Law Blog

Or is it the other way around?  You decide.

Wage and hour violations continue to pop up everywhere.  Yesterday it was law firm employees, today Hooters waitresses.

Whatever your business, if you think that similar problems can't happen to you, you're wrong.

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I don't single out law firms for items to post about, but I'm still struck by how many of my posts over the years have involved the employment law problems of law firms.  You'd think that we'd all know better, wouldn't you?

The fact that even members of the bar get themselves into trouble underscores just how arcane and complex employment law compliance can be.

Here's the latest lawsuit we've found.  It involves an Ohio firm that got caught failing to pay overtime to a secretary.  Their reason?  She was paid by "salary."  As we've said before, and doubtless will again, the fact that you call someone's compensation a salary doesn't make it so, and you may still be liable to pay time and a half for weekly hours worked over 40.

Here's the link to the Lawyer's Weekly article.

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Michael Fox at Jottings By an Employer's Lawyer reminds us that wage and hour litigation is an increasing problem for business.  The latest involves a $2 million (yes, "million") order to pay back wages and penalties to employees.  The offenders?  A husband and wife team who own 5 Chinese restaurants in Grandville, Michigan.  Mike's analysis is amusing and apt:  "It will take a lot of kung pao chicken to cover that fine." 

No kiddin'. 

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Mark Tabakman has an interesting post at Wage & Hour Developments & Highlights.  It demonstrates how creative lawyering, combined with common sense on the part of the client, can dispose of a problem quickly and cost-effectively.

In a nutshell, the defendant employer (which seems clearly to have violated the Fair Labor Standards Act) was sued in an opt-in class action.  They headed off the problem of years of expensive class action litigation by making an offer of judgment under Federal Rule of Civil Procedure 68.  In essence, they surrendered by offering to give the plaintiffs all of the relief to which they were legally entitled.

Not content with a quick, easy, and complete victory, the plaintiffs rejected the offer. That proved to be a fatal mistake. The court held that the defendant's offer to pay all that could possibly be owed mooted the litigation.  This resulted in there being no justiciable case or controversy --- essential to maintaining a case in federal court --- and therefore dismissed the complaint.

So in this case creative defense counsel used the too-seldom-invoked Rule 68 mechanism to turn a bad situation into a win.  The case is Simmons v. United Mortgage and Loan Investment, LLC, in case you want to take a look.

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Although we haven't been looking for them, wage and hour stories are prominent in the employment law news these days.  This one comes from Massachusetts, via Lee Sevier at the Wage & Hour - Developments & Highlights blog.

Here a worker was misclassified by the employer as an independent contractor rather than an employee.  The employer was able to show that the employee made more when paid more as a contractor than he would have been if properly classified as an employee.  So, one might think, no harm, no foul.

But in employment law, as in Wonderland, sometimes up is down and down is up and nothing's quite as it seems.  And so it was in Somers v. Converged Access, Inc.  The court held that the employee could still recover damages based upon his misclassification by the employer, even though he benefited financially from it.

The lesson, as our fellow blogger well put it, is that employers need "to make sure your independent contractors truly are independent, because if a person is misclassified as an independent contractor, he can still seek damages even if as an employee he would have been paid less."

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Labor Secretary Solis has announced that she will hire 250 new wage and hour investigators to hold business's feet to the fire to comply with minimum wage and overtime laws.  The text of her statement is here.

The Secretary specifically referenced a new study that details many alleged deficiencies in compliance with the Fair Labor Standards Act.  That study can be found here.  It has drawn criticism from some management lawyers.  We can't comment on that as we have not read the whole thing.  Secretary Solis apparently has, and she's relying upon it.

So where will the regulatory hammer fall?  Probably on smaller businesses which, according to the study, violate the FLSA more than big businesses.  At a time when small and medium sized businesses are already suffering from the economy, that is not welcome news.

Perhaps there's one bit of solace --- or at least an opportunity to vent --- for NJ businesses, though.  The NJ Minimum Wage Advisory Council is soliciting the thoughts of the public on the adequacy of the minimum wage, currently $7.25 per hour.  Submit your comments, if you care to, by November 9.

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The Strategic HR Lawyer has a timely reminder that the government's quest for tax revenues affects every business.  They don't pursue just the big fish.  Read the post to learn how a New York pizzzeria with 24 employees is being pursued by the US Department of Labor for failing to pay time and a half for overtime.

Now, I know what you're thinking.  You're thinking "Steinberg, I've been in business for 14 years and I've never had a problem.  It's not gonna happen to me."  My answer is that that's an incautious thought, if not a dangerous one.  If I had to guess I'd say that wage and hour regulations are the most violated of all laws that affect employment.  And I'd extend my guess to say that most of those violations are unintentional, resulting from simple mistakes or lack of knowledge.  Almost every business violates wage and hour laws in one way or another.  But that won't save you when the tax man comes knocking.

What seems clear is that one NY pizza owner is going to be spinning a lot of dough to make enough dough to pay back the dough that the government says that he owes.  They won't take payment in pizza.

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We conclude our August series on HR basics with a look at what is probably the most-violated set of employment laws and regulations: wage and hour. Plaintiffs' lawyers routinely look for wage and hour violations, and more often than not find them.  And you think that your employees won't enlist legal help if they think they're being shorted on pay?  Consider this crew, for instance.

Nasty, huh?

But it doesn't have to be this way.  Compliance with the legal requirements is, with an exception or two, straightforward. 

Both federal and NJ minimum wage is $7.25 per hour.

There are some exceptions, most notably for restaurant workers who are paid partly through tips.  Here's how the state tells us to handle those situations.

If an hourly-compensated employee works more than 40 hours in one week, she must be paid time and a half for the hours worked in excess of 40.  No exceptions. More here and here.

And then there's the big legal question: who is an employee and who is an independent contractor who can be excluded from all of the usual compensation considerations?  The legal news is continually full of reports of cases that decide which is which.  The dollars that hang on these decisions can get very, very big.  Here's one way to head off trouble, guidance courtesy of the IRS.

So that concludes are quick run through HR Basics.  There are areas that we haven't covered, but those mentioned in our four "basics" posts are the ones that will most commonly be encountered by the average business.

While we'll probably post a bit more before August is done, here's our main message as the month approaches its close.

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The federal minimum wage rises today to $7.25 per hour.  Same for New Jersey.

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A recurring problem in wage and hour law is trying to distinguish between employees, who are are protected by the law, and independent contractors, who are not.  The issue has arisen again, this time in the form of a class action filed in California against Northwestern Mutual Insurance.  As reported by the National Law Journal, "the quiet company," like many in the insurance industry, classifies its sales force as independent contractors.  Among other things, the plaintiffs allege that they were required to work at least 10 hours per day, five to six days per week, for less than minimum wage and (presumably) no overtime pay.  According to the article, Northwestern won a similar dispute in a Pennsylvania court.

But with $200 million potentially at stake, you have to think that Northwestern wants its sales representatives to keep quiet and just sell insurance.

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A  question recently sent to us asks why the writer was unable to get his employer to pay for "overtime" worked on Christmas and New Year's Day.  As a point of general information, the right to overtime arises only after 40 hours are worked in one week.  If the time spent working on holidays does not bring the week's total hours to more than 40 then there is no right to overtime. 

Another possibility is if the employer agreed in advance to pay overtime rate for holiday time worked, either on an individual basis or under a collective bargaining agreement.

If the employer either has agreed contractually to pay an overtime rate, or weekly hours worked total more than 40, but the employer has refused to pay, the quickest and easiest remedy is to file a complaint with the NJ Department of Labor.    In most cases there is no need to hire a lawyer to do this.

Another suggestion: if your employer asks you to work on Christmas, make sure he commits in writing to pay at the overtime rate before you give up your holiday.

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Our friends at the Adjunct Law Prof Blog bring to our attention an important employment tax decision from the US Court of Appeals for the 3rd Circuit.  The case deals with an employee's attempt to recover an alleged overpayment of FICA tax from her employer.  The case is Umland v. PLANCO Financial Services.

Here's the short version of the decision.  Umland worked for PLANCO under an "Independent Contractor Agreement."  As an IC, Umland was required to pay 15.3% of her self-employment income in SECA (self-employment) tax, the same amount as the combined employer and employee contributions to the familiar FICA tax.  PLANCO did not withhold taxes from Umland's paycheck, nor did it pay the employer's share of FICA.  This went on for about 3 years, when PLANCO made Umland a Regional Marketing Director and changed her status from IC to direct employee. 

Here's the rub.  Umland said that despite the change in title, nothing about her job changed except the way she was paid.  As a result, she was now paying the 7.65% employee share of FICA, while PLANCO paid the other 7.65%.

A year and a half later Umland's employment ended, and she filed a class action suit against PLANCO to recover one half of her SECA payments on the theory that she should have been classified as an employee throughout her relationship with PLANCO, and thus should not have been responsible for the full 15.3%. 

The court threw out Umland's complaint, holding that her state law breach of contract claims were preempted by federal law.  Where's the preempting  law?  The court found that our old friends at the IRS have a comprehensive regulatory scheme to address claims based upon misclassification of employment.  Thus, according to the court, Umland could have (and  should have) either filed a Form SS-8 to ask the IRS to determine whether she was an IC or employee, or filed an administrative claim for refund of SECA tax, or filed a tax refund suit against the federal government.  However, the law does not establish a private right of action against an employer and therefore Umland was found to have no claim against PLANCO.

For the lawyers in the crowd, there's some interesting dictum towards the end of the opinion on the sufficiency of Umland's pleading of her claim for unjust enrichment.

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We've posted before on a burgeoning issue of employment law --- so-called independent contractor litigation.  In essence, the cases claim that in some circumstances workers are treated by their employers as independent contractors are in fact employees of the company.  The issue is not just a matter of definition, but has important consequences in the real world of business.  Employees are entitled, for instance, to the overtime protections of the Fair Labor Standards Act and similar state laws.  Independent contractors are not. 

There is an obvious business reason for employers to want to classify as workers as contractors: it's cheaper and allows them to control their costs.   But it's not a low-risk strategy, as employers invite the scrutiny not only of the affected workers, but also of the IRS.

Here's a story from Lawyers USA involving such a claim against Federal Express.  We won't take your time with the facts.  They're well-explained in the story.  The important thing is that this kind of story is increasingly common, reminding employers --- all employers, large and small --- that they need to make their classification decisions carefully.  Failure to do so invites trouble. 

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Radio Shack is the latest big company to get caught in the web of federal and state overtime regulations.  The Dallas Morning News reports that Radio Shack has just concluded a settlement with a class of plaintiffs consisting of about 4,000 Radio Shack store managers. 

The settlement calls for payment of $8.8 million to the "managers."   The court found that they were entitled to overtime pay because, despite their managerial titles, they were not exempt from the overtime requirement of the FLSA.  The court had "ruled that store managers who did not supervise at least 80 hours of subordinate time at least 80 percent of their workweeks did not meet the legal standard for exemption and were therefore entitled to overtime pay.

The Fair Labor Standards Act, along with many state law analogs, requires that most employees be paid time and one half every time they work more than 40 hours in a week.  There are exemptions for certain classes of employees, such as executive, administrative, and professional employees.  As demonstrated once again by the Radio Shack case, the correct classification of employees is a problem that continues to plague business.  The United States Department of Labor has useful information on its web site, including this fact sheet. 

The proper classification of employees for FLSA purposes is deceptively complex.  The fact that sophisticated employers continue to have trouble in this area teaches us that all employers, large and small, should periodically review their wage and hour practices to ensure that they comply with applicable federal and state laws.

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Here's an article from Business Week, via MSNBC, that neatly explains how huge amounts of money are changing hands in wage and hour litigation brought under the Fair Labor Standards Act and coordinate state laws.   Whether you are with a business that wants to avoid wage problems, or are an employee with a wage problem, this article is well worth the five minutes of your time that it will take to read.

A tip of the hat to Candice Boyd of the California Labor & Employment Law Blog, who brought this worthwhile article to our attention. 

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According to a recent report, up to 80% of all employers fail to comply with federal and state wage and hour law requirements.  That's a startling number but one worth noting.  There's substantial legal risk to employers, including the risk of class actions, from these violations, which often are easy to prove.  Employers of all sizes should check with their attorneys to be sure that they comply.

Thanks to Carrie Kurzon of The Ottinger Firm for posting information on this problem. 

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An editorial in this morning's Newark Star-Ledger applauds "a little-noticed decision last week by the state Supreme Court that allows 72,000 current and former New Jersey employees to bring a class-action lawsuit against Wal-Mart."  The decision in Iliadis v. Wal-Mart may not have attracted much notice from the public at large, but it is just a few days old and already is attracting lots of notice from employment lawyers.  See preliminary reactions from Law.com, Bloomberg News (via Wal*Mart Watch), and New Jersey Lawyer.

We posted on this case on January 10, 2007, when the Appellate Division of NJ Superior Court affirmed a trial court's denial of class action status to a claim that could involve as many as 72,000 Wal-Mart employees.  We noted that "a lot of dollars are riding on the outcome" of the pending appeal to the Supreme Court.

The plaintiffs allege that Wal-Mart violated statutes, regulations, and its own policies about how employees should be paid.

The Court's 5-1 opinion by Chief Justice Zazzali ordered (over the dissent of Justice Rivera-Soto) that the plaintiff class be certified, so the case will go forward as a class action.  We will keep you informed as it does.

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If the allegations of a recently filed class action complaint are true, defense contractor Michael Bianco, Inc. of New Bedford, MA, got too cute in its effort to avoid paying overtime wages to its workers.

The Boston Herald reports that about 500 workers, many of them illegal immigrants, are members of the class.

The lawsuit alleges that Bianco created a second firm, Front Line Defense, also listed as being in New Bedford, and used that firm to pay employees who worked a second late shift each day. Michael Bianco checks were issued for the work done in the morning, said the suit.

Front Line Defense allegedly was a shell corporation. Thus, say the plaintiffs, they were paid base rate for all hours worked even though they were entitled to time and a half for hours in excess of 40per week.  You have to give Bianco some credit for creativity, but if it loses it will wish that it had arranged its pay practices in a more conventional way.

We note that Bianco denies the allegations and will keep you advised of developments.

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The news today brings word of two cases that address an employer's obligation to pay wages and overtime in accordance with the law, but in much different contexts. 

First, a federal judge in Idaho recently approved a settlement between a class of plaintiffs and Albertson's LLC, which owns the Supervalu chain of supermarkets.  An early report comes from the AP.  The amount of the $53 million settlement is eye-popping.  About 7,000 employees will receive an average of $7,000 each in unpaid overtime.  Tack on an additional $6.5 million in attorneys fees and you have a total settlement package of about $60 million.   

The second story comes from Kansas, where an undocumented worker sued to recover wages that he was promised by his employer, Burrito Express.  A related story is here and the opinion of the Kansas Supreme Court is here.  The short story is this:  give an undocumented worker a job and you owe him full compliance with applicable wage and hour laws.  You cannot hide behind his immigration status to deny him the benefit of a statute.

This same issue was raised before New Jersey federal district judge Joseph Greenaway in 2005.  He came to exactly the same conclusion; in fact, his written opinion was cited by the Kansas court.  As Judge Greenaway synthesized the concept:

 the persuasive force of the broad language of the [Fair Labor Standards Act], the decisions of other federal courts, and the Labor Department's interpretation of the Act, leads this Court to conclude that Plaintiffs should not be precluded, as a matter of law, from obtaining relief under the FLSA for work already performed, merely by virtue of their undocumented status.

Note that the ruling applies not only to the obligation to pay base wages, but also to statutory penalties that can be imposed against employers for intentional violations of the statute.

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You seemingly can't look at the business news any more without finding a story about Wal-Mart's overtime wage payment problems.  Here's another one.  This time they turned themselves in, to the tune of about $33 million owed to about 87,000 employees.

Even so, it sounds like they may have dodged a larger potential liability.  No fines or penalties were assessed by the U.S. Department of Labor.  

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Wal-Mart just got potentially bad news from the New Jersey Supreme Court.  The nation's largest employer is the target of lawsuits around the country that claim that Wal-Mart engaged in a variety of unlawful employment practices, including intentionally depriving its associates (that's "employees" to the rest of us) of required rest breaks.  The purpose, say the employees, was to cut costs and boost profits.

The Appellate Division of NJ Superior Court denied the plaintiffs' attempt to have the case certified as a class action.  That was good news for Wal-Mart.  However, the NJ Supreme Court just granted the plaintiffs' motion for leave to appeal, which is the bad news.  So now the Supremes will decide whether the case will proceed as a class action.   A lot of dollars are riding on the outcome.

You will find the Appellate Division and Supreme Court opinions here.

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Here's another reminder of how careful businesses must be when determining which of their employees must be paid overtime.  This time it's pharmaceutical sales representatives who are claiming entitlement to overtime, as reported here.  As the article makes clear,

New Jersey, of course, is "pharma central," so this is an issue that could affect many businesses and business people in the Garden State.

We will keep you advised.

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We recently came across a good article listing the "top 5" mistakes that employers make under the recently revised Fair Labor Standards Act. Given the complexity of the statute, these may or may not actually be the top 5, but they are indisputably problem areas.

1. Believing salaried employees are automatically exempt from overtime.
2. Misclassifying assistant managers.
3. Automatic deductions for meal breaks.
4. Not paying for overtime that has not been approved in advance.
5. Allowing employees to "waive" their right to overtime.

To this list we would add a 6th. New Jersey, like some other states, has its own version of the FLSA. It imposes some additional obligations upon employers. Both the federal and state laws must be complied with!

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Yesterday was the first official day of Summer. Today my daughter graduates from high school. No doubt about it --- it is vacation time.

Which brings to mind a common question in severance negotiations.

What obligation does an employer have to pay a terminating employee for accrued but unused vacation time? (What constitutes "accrued" vacation time is a question for another day.)

In New Jersey, under Botany Mills v. Textile Workers, an old and infrequently cited court decision, the answer is "all of it," unless the employer has adopted and made available to its employees a policy that says otherwise. There are sound reasons why particular employers may want to adopt such a policy, and equally sound reasons why they might allow terminating employees a full payout of vacation time. The important thing is that the policy accurately define the rights that you want your employees to have. Conversely, terminating employees should be familiar with the policy so that they receive all compensation to which they are entitled.

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Three former mortgage brokers for Washngton Mutual, the country's third largest mortgage lender, have filed a class action lawsuit claiming that they were unlawfully denied overtime pay. Here's the link to an early report. This development follows the recent settlement of similar charges against stock brokerage companies.

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