October/November 2006 Wage & Hour News

• Children's Dentistry Company to Pay More Than $343,000 in Back Wages to 523 Employees


• Engineering Firm Agrees to pay Over $460,000 in Back Wages for 103 Employees


• Fort Campbell Security Guard Contractor to Pay Over $269,000 in Back Wages to 469 Workers


• Cablevision Pays $400,000 in Back Wages to Nearly 2,400 Temporary Workers at Call Centers


• Claims Adjusters Were Exempt from FLSA Overtime Requirement


• Personal Security Agents Were Employees Under FLSA


• Spas and Nail Salons Agree to Pay More Than $222,000 in Back Wages and Interest


• The Wage & Hour Report


• Employees Stated RICO Claim Against Their Employer

---

Children's Dentistry Company to Pay More Than $343,000 in Back Wages to 523 Employees (10/5/06) - DOL

PUEBLO -- Forba LLC., doing business as Small Smiles Dental, Pueblo, Colo. has agreed to pay $343,479 in overtime back wages to 523 employees following an investigation by the U.S. Department of Labor's Wage and Hour Division. The Pueblo-based firm operates 27 children's dentistry offices in Colorado and nine other states including Arizona, Georgia, Idaho, Indiana, Massachusetts, New Mexico, New York, Ohio and South Carolina.

"This investigation reflects the Labor Department's commitment to ensure that employees receive the full wages they have earned," said Alex Salaiz, Wage and Hour Division district director in Denver. "Employers must make sure they pay their employees for all hours worked and that the exemptions allowed under the regulations are properly applied."

The employer violated the Fair Labor Standards Act (FLSA) by failing to pay for all hours worked and by erroneously classifying non-professional employees and clerical staff as exempt from overtime.

The company agreed to future compliance and payment of all back wages.

Enforced by the Wage and Hour Division, the FLSA requires that employers pay covered workers at least the federal minimum wage for all hours worked and time and one-half their regular rate of pay for hours worked more than 40 in a single workweek. Employers also must maintain adequate and accurate records of employees' wages, hours and other conditions of employment.

Back to top

---

Engineering Firm Agrees to pay Over $460,000 in Back Wages for 103 Employees (10/26/60) - DOL

SEI, a Huntsville, Ala., engineering firm, has agreed to pay $464,342 in back overtime wages to 103 employees after an investigation by the U.S. Labor Department's Wage and Hour Division found the company violated provisions of the Fair Labor Standards Act (FLSA).

During the time period covered by the Wage and Hour Division investigation, April 2004 through April 2006, the company paid engineers, architects, CADD operators, accountants and program managers an hourly rate of pay in lieu of a guaranteed salary.

Under the Fair Labor Standards Act, employees whose wages are paid on an hourly basis, in most cases, are entitled to time and one-half their regular rate of pay after working 40 hours in a single workweek," said Oliver Peebles III, Wage and Hour's district director for the Gulf Coast district office in Birmingham. "Our investigation revealed, however, that these professional and technical employees were paid only for the hours they worked. Those hours ranged from 8 hours a work week to as many as 84 in a work week."

Investigators determined that when these employees worked more than 40 hours in a work week wages for the over-forty hours were not paid at one and one-half times the regular rate as required by the FLSA.

The company cooperated fully during the investigation, agreed to pay the back wages, maintain accurate records and comply fully with the Fair Labor Standards Act in the future.

Information about the current exemption for executive, administrative, and professional employees can be found on the Internet at www.dol.gov/fairpay.

The Labor Department also offers a user-friendly Web site to help employers properly pay and classify their employees and an on-line tool for determining overtime eligibility called the E-laws FLSA Overtime Security Advisor, which can be found at www.dol.gov/elaws/overtime.htm.

Back to top

---

Fort Campbell Security Guard Contractor to Pay Over $269,000 in Back Wages to 469 Workers (10/17/06) - DOL

AKAL Security has agreed to pay $269,954 in back wages to 469 employees working at Fort Campbell, Ky., following an investigation by the U.S. Department of Labor's Wage and Hour Division.

"The department is committed to ensuring that employers with federal service contracts pay workers according to provisions of the government contract labor standards," said James Karn, Wage and Hour's Louisville district director.

AKAL Security, headquartered in Espanola, N.M., has a contract with the U.S. Army to provide security guards at Fort Campbell. The investigation, covering the period July 2004 to July 2006, was conducted under two laws administered by the agency - the Service Contract Act and the Contract Work Hours Safety Standards Act.

The investigation revealed that AKAL failed to compensate guards for the time required to pick up their weapons and report to assigned duty posts. Also, because the time was not recorded, overtime hours were not calculated correctly.

Under the Service Contract Act, contractors with federal service contracts over $2,500 must pay their service workers no less than the wages and fringe benefits prevailing in the locality. The Labor Department issues wage determinations that provide the required wage rate and fringe benefits for each service occupation. These determinations are incorporated into covered federal contracts.

The Contract Work Hours and Safety Standards Act requires that laborers and mechanics employed on certain federally-funded contracts be paid one-and-one-half times their regular rate of pay for all hours worked over 40 in a single workweek. Employers must also maintain accurate records of employees' wages, hours and other conditions of employment.

Back to top

---

Cablevision Pays $400,000 in Back Wages to Nearly 2,400 Temporary Workers at Call Centers - DOL

WESTBURY, N.Y. -- Cablevision Systems Corp., of Woodbury, N.Y., has paid more than $400,000 in back wages to 2,373 low-wage temporary employees as the result of a settlement agreement reached with the U.S. Department of Labor following an investigation by the department's Wage and Hour Division into violations of the Fair Labor Standards Act (FLSA).

According to Corlis Sellers, the Wage and Hour Division's regional administrator for the Northeast region, the investigation found that temporary employees working as customer service and technical support representatives at Cablevision call centers in Melville, Woodbury and Bronx, N.Y., Newark, N.J. and Stratford, Conn. had not been paid for work they performed before and after their regularly scheduled shifts.

"After bringing the violations to the attention of this employer, the Labor Department was able to achieve a settlement that secured payment for these workers and future compliance by this employer," said Sellers. "Employees must be paid for all hours that they work. Extra minutes of 'off-the-clock' time before or after a shift can result in a substantial back wage liability for employers."

The FLSA requires that employees be paid for all time worked and that eligible employees be paid one and one-half time their regular rates of pay for hours worked over 40 in a workweek. In this case, the addition of the uncompensated work to their regular shift meant that employees were working in excess of 40 hours per week and not being paid for their overtime.

In the settlement agreement with the U.S. Department of Labor, Cablevision agreed to pay a total of $400,999 in back wages covering the period Aug. 12, 2002 to Nov. 15, 2004, and agreed to comply in the future with all provisions of the FLSA. The company previously changed its work practices to correct the FLSA violations.

Back to top

---

Claims Adjusters Were Exempt from FLSA Overtime Requirement (10/26/06) - 9TH Cir.

For more than 50 years, the Department of Labor has considered claims adjusters exempt from the Fair Labor Standard Act's overtime requirement. In 2004, the DOL promulgated 29 C.F.R. § 541.203, which it viewed as "consistent with" existing law. Section 541.203 exempts claims adjusters if they perform activities such as interviewing witnesses, making recommendations regarding coverage and value of claims, determining fault and negotiating settlements.

In this case, the plaintiffs are nearly 2,000 former and current claims adjusters who handle, respectively, automobile damage claims, non-automobile property damage claims, personal injury claims and various combinations of these. They assert that their employer improperly classified them as exempt from the FLSA. The district court ruled that some of them are exempt, and some of them are not. On appeal, the 9th Circuit reversed that part of the district court's ruling, holding that all of the claims adjusters are exempt:

We hold today that all of the adjusters in this case are exempt. The district court's factual findings establish that, regardless of the type (personal injury v. property) or size (large v. small) of the claims they handle, the adjusters are required to do virtually all of the very things that § 541.203 contemplates: use discretion to determine whether the loss is covered, set reserves, decide who is to blame for the loss and negotiate with the insured or his lawyer. If the DOL should choose to distinguish between adjusters based on the type or value of the claims they handle, it is free to amend the regulations and tell employers how to do that. Unless and until that happens, we are obligated to follow § 541.203.

Miller v. Farmers Insurance

Read the case

The 9th Circuit Court of Appeals' jurisdiction includes California, Oregon, Washington, Arizona, Montana, Idaho, Nevada, Alaska and Hawaii.

Back to top

---

Personal Security Agents Were Employees Under FLSA (10/24/06) - 4th Cir.

Prince Faisal bin Turki bin Nasser Al-Saud (the Prince) is a diplomat and a member of the Saudi royal family. The Prince, who has a residence in McLean, Virginia, engaged Capital International Security, Inc. (CIS) to provide a personal security detail. Five of the agents who worked on the Prince's detail sued CIS and its president, Sammy Hebri, asserting claims for unpaid overtime under the Fair Labor Standards Act ("FLSA").

After a bench trial the district court entered judgment for CIS and Hebri, holding that the agents were not entitled to overtime pay because they were independent contractors, not employees.

On appeal by the agents, the 4th Circuit reversed, concluding that the Prince and CIS were joint employers and that the agents were their employees for purposes of the FLSA.

Schultz v. Capital Intl Security

Read the case

The 4th Circuit Court of Appeals' jurisdiction includes Maryland, North Carolina, South Carolina, Virginia and West Virginia.

Back to top

---

Spas and Nail Salons Agree to Pay More Than $222,000 in Back Wages and Interest - DOL

NEW YORK -- A chain of New York City spas and nail salons under common ownership have agreed to pay more than $222,000 in minimum wage and overtime back wages and interest to 152 employees to settle a lawsuit filed by the U.S. Department of Labor alleging violations of the federal Fair Labor Standards Act (FLSA).

Named in the department's lawsuit, filed in the U.S. District Court for the Southern District of New York, were: Spring Street Spa Belles Inc. (202 Spring St.), 7th Avenue Spa Belles Inc. (200 W. 15th St.), Spa Belles Inc. (326 Bleecker St.), Second Avenue Bloomie Nails Inc. (120 2nd Avenue), Seventh Avenue Bloomie Nails Inc. (170 W. 23rd St.), Yaerim Nail Corp. (132 7th Avenue), and Hong Chul Yi, individually and as owner of the companies.

According to Philip Jacobson, district director for the department's Wage and Hour Division in New York City, an investigation found that some employees at each location were not being paid the proper federal minimum wage and that others were not properly compensated for all the hours over 40 they worked in typical work weeks. The investigation also found that the employers were not maintaining proper records of employees' hours of work and rates of pay.

"In fact, we found that all the employees at these locations were being paid a flat day rate no matter how many hours they worked," said Jacobson. "This court action should signal all employers in New York City that the Labor Department is very serious about enforcing the FLSA and ensuring that employees are always properly paid for all of the hours they work, especially when it comes to workers employed in low-wage industries."

The FLSA requires that covered employees be paid at least the applicable minimum wage and one and one-half times their regular rate of pay for hours worked over 40 per week. The law also requires employers to maintain accurate records of employees' wages, hours, and other conditions of employment.

A consent judgment, approved by the court, prohibits the defendants from future violations of the minimum wage, overtime and recordkeeping provisions of the FLSA. The July 26 court order signed by U.S. District Judge Richard M. Berman also prohibits the defendants from taking retaliatory action against any employees who exercise their rights under the law and orders them to pay a total of $222,036 in back wages and interest in 48 installments. The back wage payments cover the period between September 2003 and September 2005.

According to the judgment, the court will appoint a receiver to collect the back wages in the event the defendants fail to make any of the payments. The receiver would have the power to seize and liquidate any of the defendants' assets in order to satisfy the back wage payment order. Finally, the defendants are ordered to advise their employees of their rights under the FLSA, the terms of the judgment, and their rights to engage in protected activities under the FLSA without fear of retaliation. Official posters must also be posted where all employees may view them. The defendants agreed to the entry of the consent judgment without admitting or denying any violations of the FLSA.

Back to top

---

The Wage & Hour Report

Constangy, Brooks & Smith

THE BUSINESS SECTION
Congress is unsuccessful at raising federal minimum wage, but several states take matters into their own hands.
In early August 2006, Senate Democrats blocked a bill, which had passed the House, that would have raised the federal minimum wage in several steps over the next three years. The bill was tied to various tax breaks that the Democrats opposed. The issue of a federal minimum wage increase is unlikely to surface again until after the November elections.

With the federal minimum wage unchanged for ten years, many states are taking action. Because there is no federal preemption for wage hour laws, employers subject to both laws must pay the higher of the federal or state minimum wage. State legislatures that have increased hourly minimum wages this year include the following:

Arkansas (to $6.25 October 2006)
California (to $7.50 January 2007 and $8.00 January 2008)
Delaware (to $6.65 January 2007 and $7.15 January 2008)
Maine (to $6.75 October 2006 and $7.00 October 2007)
Maryland (to $6.15 February 2006)
Massachusetts (to $7.50 January 2007 and $8 January 2008)
Michigan (to $6.95 October 2006, $7.15 July 2007 and $7.40 July 2008)
North Carolina (to $6.15 January 2007)
Pennsylvania (to $6.25 January 2007 and $7.15 July 2007)
Rhode Island (to $7.10 March 2006 and $7.40 January 2007)

Several other states - such as Florida, Oregon, Vermont, and Washington - had made or will make increases this year or next year to their minimum wages based on required consumer price indexing. Still others - such as Connecticut, the District of Columbia, Hawaii, New Jersey, and New York - had or will have minimum wage increases this year and/or next based on legislation passed in prior years. Finally, proposed increases in other states - including Arizona, Colorado, Missouri, Montana, Nevada, and Ohio - are also in the works, either as proposed bills in the state legislatures or voter initiatives on the upcoming November ballots.

Do your "exempt" executives have the authority to hire and fire or effectively recommend those decisions? They'd better!
This requirement, which before August 2004 was only part of the obsolete "long test" for the executives, became a requirement for all exempt executives with the August 2004 revisions to the white-collar regulations. On July 20, the U.S. Court of Appeals for the Third Circuit (Delaware, New Jersey, Pennsylvania) ruled that there were material facts in dispute as to whether the "hire and fire" requirement was met in a case before it. The Third Circuit noted that the plaintiffs did not have "hire and fire" duties in their job descriptions and that their staffing duties included ensuring proper staffing numbers through borrowing current employees, not recruitment or hiring. All employers should ensure that their exempt executives have an active role in the hiring and firing process.

No-overtime rule doesn't stop recovery when employer has actual or constructive notice.
Many employers have policies prohibiting overtime work and think that those policies relieve them of the obligation to pay for overtime. But a federal judge in Florida recently ruled that such a rule - in itself - is not enough to protect the employer: if the employer has actual or constructive knowledge, then it will probably be liable, even when the employee does not record the time. (In this context, "actual" knowledge means that the employer in fact knew that the overtime was being worked, and "constructive" knowledge means that the employer should have known with reasonable diligence.) Employers who want to control overtime should keep their policies, but always pay for any overtime worked that they're aware of, even if it has not been authorized. Employees who violate the rules can be dealt with through progressive discipline, up to and including termination.

Sears pays $15 MM settlement in suit alleging failure to pay for commuting time.
The settlement, approved this summer, resolves class actions filed in four states, in which 16,000 in-home service technicians of Sears alleged that they should have been paid for time commuting from their homes to their first assignments. The technicians alleged that they were required to download information about their daily assignments at their homes before their commutes began. Although ordinary commuting time is generally not compensable, employers should be aware that requiring employees to perform some work-related duty before the commute begins may render the commute time compensable.

They may be your employees, Part 1: Temporary staffing agencies.
A nurse's aide worked for one hospital through three separate staffing agencies. Although her time for any one agency did not exceed 40 hours a week, her cumulative time was in excess of 40 hours per week. She sued the hospital for unpaid overtime and won summary judgment. The federal court in New York that found in her favor used the "economic reality" test to determine whether the hospital was the aide's "employer" for purposes of the FLSA. Given that the aide worked on the hospital premises, performed a job integral to the hospital's process, was supervised by the hospital, and worked almost exclusively for the hospital during the relevant period, the court found that the hospital was her employer.

They may be your employees, Part 2: Independent contractors . . . or are they?
The U.S. Department of Labor has determined that three construction companies working to rebuild casinos in the Gulf Coast after last year's hurricanes were paying approximately 680 individuals who should have been employees as if they were independent contractors. The significance? The companies had not paid these employees overtime and were therefore in violation of the FLSA.

LITIGATION DEVELOPMENTS
Finance industry continues to be under attack for unpaid overtime for some of its highest paid employees.
Arguably the most lucrative recent FLSA collective action trend involves overtime claims by financial brokers. Proving that overtime is not just a requirement for low-wage earners, staggering settlements in the last year between financial companies and their well-compensated brokers include $37 million by Merrill Lynch, $42.5 million by Morgan Stanley, $89 million by Switzerland-based UBS, and $98 million by Smith Barney. In August, a federal court in California denied A.G. Edwards' motion for summary judgment in a lawsuit filed by its high-paid financial brokers for unpaid overtime.

Brokers in various finance-related companies are bringing claims for overtime because, despite their high pay, they often do not fit into any of the white-collar exemptions. They are not "professionals" or managers, but are more like inside salespersons. They also generally do not meet the retail sales exemption, given the courts' longstanding position that finance companies are not "retail establishments" for purposes of that exemption.

Motor Carrier Act exemption may apply to intra-state travel.
A federal judge in Tennessee ruled that even route sales supervisors who did not cross state lines qualified for the Motor Carrier Act exemption from the FLSA's overtime obligations. The Act exempts employees if their duties affect the safety of a vehicle traveling in interstate commerce. Although the deliveries at issue in the Tennessee case were intra-state, the judge noted that the products came to the company's warehouse from out of state, were ordered for specific in-state customers, and were delivered to those customers without processing or modification. Thus, applying well-established precedent, the judge found that the products were part of a "continuity of interstate commerce" and therefore that the exemption applied. The supervisors also met the "affect the safety" part of the test because they drove the vehicles, albeit only occasionally, usually as substitutes for regular drivers. Courts have determined that the positions of driver, drivers' helper, loader, and mechanic normally satisfy this requirement. According to the judge, the supervisors likewise satisfied the requirement because they were occasionally drivers and the exemption applies even if only part of an employee's services affect safety.

THE POLITICAL SCENE
DeCamp to head U.S. Wage and Hour Division.
Paul DeCamp, a private practitioner whose clients included Wal-Mart, was nominated earlier this year to head the Wage and Hour Division of the U.S. Department of Labor, and some senators had voiced their intention to try to block the appointment. Presumably to make an end run, the White House announced on the final day of Congress's August recess, that DeCamp would be given a recess appointment. DeCamp, whose recess appointment will expire at the end of the Senate session in 2007, was officially re-nominated on September 7.

Constangy, Brooks & Smith, LLC has counseled employers, exclusively, on labor and employment law matters since 1946. The firm represents Fortune 500 corporations and small companies across the country. More than 100 lawyers work with clients to provide cost-effective legal services and sound preventive advice to enhance the employer-employee relationship. Offices are located in Georgia, South Carolina, North Carolina, Tennessee, Florida, Alabama, Virginia, Missouri, and Texas. For more information about the firm's labor and employment services, visit www.constangy.com, or call toll free at 866-843-9555.

Back to top

---

Employees Stated RICO Claim Against Their Employer (9/27/06) - 11th Cir.
Employees of a large carpet and rug manufacturer brought a class action alleging that their employer's widespread and knowing employment and harboring of illegal workers allowed it to reduce labor costs by depressing wages for its legal hourly employees and discouraging worker's compensation claims, in violation of federal and state Racketeer Influenced and Corrupt Organizations (RICO) statutes.

The district court denied the employer's motion to dismiss the RICO claims. On appeal, the 11th Circuit affirmed, holding that the employees' complaint stated a RICO claim against their employer.

Williams v. Mohawk Industries, Inc.

Read the case

Back to top