The Department of Labor (DOL) has been very aggressive in auditing employers over the misclassification of workers as independent contractors, instead of employees.  Properly classifying workers is important for employers to avoid hefty fines, additional taxes, interest, and additional wage and overtime obligations.

The old test focused on the employer’s control over the worker.  Since 2015, the DOL has applied an “economic realities test,” to determine whether the worker is economically dependent on the employer.  The test asks six questions to determine a worker’s proper employment status.  They are:

  1. Is the work to be performed integral to the operation of the business? If the work is integral to the business of the employer, the worker is economically dependent on the employer and therefore considered an employee.
  2. Does the worker’s managerial skills affect their opportunity for profit and loss? This is generally determined by whether or not the worker has the ability to make decisions and use their managerial skill and initiative to impact their profit and loss.
  3. How does the worker’s relative investments in facilities and equipment compare to the employer? Under this test the worker must make an investment and bear some risk of loss in order to be an independent contractor in business for themselves. Examples of investments might include the purchase of a specialized business vehicle, advertising for the business, rented office space for the business, etc.  The investment can’t be minor and needs to be compared to the employer’s investment.
  4. Does the work require special skills and initiative? To qualify as an independent contractor, the worker would need to exhibit independent business judgment. Business judgment must be used in some independent manner which demonstrates initiative.  These may include marketing the business, ordering supplies and equipment for the business etc.
  5. Is the work relationship indefinite? Indefiniteness in the working relationship makes it appear more likely the worker is an employee. Generally, an independent contractor relationship is evidenced by a contract for a limited period of time or a special project.
  6. What is the nature and degree of the employer’s control? Analysis of this factor takes into consideration who sets the amount of and hours of work, who determines how the work is performed, as well as whether the worker is free to work for others and/or hire helpers.

The DOL has specifically stated however, that the fact a worker has incorporated a business and/or is licensed by a state or local government has little bearing on determining the nature of the employment relationship.  Similarly, the mode or time of the payment to the worker is not determinative.

Since the DOL has declared most workers are employees under their broad definition, it is a good time for employers to review their independent contractors, to determine if they in fact are misclassified.  Getting it right will save a lot of time, effort, and money.

Last month, El Azteca, a Wisconsin business which owns four restaurants, reached a consent judgment in U.S. District Court to resolve a lawsuit filed by the U.S. Department of Labor. The U.S. Department of Labor’s Wage and Hour Division conducted an investigation and discovered numerous violations of the Fair Labor Standards Act.  The violations included:

–          Failing to keep records of daily and weekly hours worked.

–          Failing to pay employees the federal minimum wage for all hours worked.

–          Failing to pay overtime.

–          Paying kitchen staff, a flat salary without regard to numbers of hours they worked.

–          Making illegal deductions from servers’ pay for uniform shifts, nametags and aprons.

Under the consent judgment, the restaurant will pay 129 current and former employees $350,000 in back wages, and $350,000 in liquidated damages.  The defendants will also be paying $25,000 in civil penalties.  Additionally, the restaurants are now required to provide to employees:

1)      Several wage and hour division publications in both Spanish and English;

2)      The Wage and Hour division’s phone number; and

3)      Each pay day, a pay stub showing the pay period, hours worked, rate of pay, overtime hours worked, overtime rate and all deductions.

The FLSA provides that employers who violate the law are generally liable to employees for any back pay, and an equal amount of liquidated damages. The law also prohibits employers from retaliating against employees who exercise their rights under the law.

I have blogged in the past about FLSA issues in the food service industry. The Department of Labor has targeted their investigative efforts on FLSA violations.  Take this opportunity to:

1) confirm your business is accurately tracking hours worked and maintaining records of hours worked;

2) all employees are being compensated correctly; and

3) all your required posters are up to date.

US%20Department%20of%20Labor%20logoThe final overtime regulations on exempt employees were issued by the Department of Labor last week, raising the salary test from $23,660 annually to $47,476.  It is estimated this will result in an additional 4.2 million more employees qualifying for overtime.

The new salary threshold has sparked controversy and claims by both labor and management suggesting the sky was falling.  Others have predicted the true impact has yet to be determined.  No one seems to dispute the changes were long overdue.  The previous salary test has not changed in over 10 years.  The good news is they built in an automatic update to occur every three years based on wage growth in the lowest-income census region, which is currently in the south.

The DOL has provided guidance for non-profits, public sector, and private sector employers to assist in applying the new salary test.  In general the DOL suggested options for addressing the new regulation including: 1) limit exempt employee hours to 40 hours per week, 2) pay the employees time and one half for work over 40 hours, or 3) raise the employee’s salary to exceed the new salary threshold..

All employers should review the salaries of their exempt employees and determine the impact of the new DOL regulations now, so they can be ready for implementation December 1, 2016.  

The U.S. Department of Labor’s Wage and Hour Division announced a contest yesterday to individuals interested in developing an app that would integrate the Department’s public enforcement data along with consumer rating websites, geo-positioning tools and other data. The purpose of the app is to allow consumers and job seekers to see if a business they want to frequent is in compliance with federal labor laws. It would also allow individuals to get in touch with the Labor Department if they have questions.

Really, an app contest? It sounds to me like the Doritos Crash The Super Bowl contest in search of a funny commercial, but this time it is actually the government trying to encourage compliance with the FLSA and to keep the public informed.

The contest ends on October, 11, 2013, and the winner will be announced around November 2. Information on the contest is available on the Department of Labor’s website.

Business owners should pay attention to this contest and potential app. Consumers, employees, or prospective employees will soon have easier access to compliance information about your business. Most businesses don’t intentionally try to violate the Federal Fair Labor Standards Act, and this new app will have the potential to make non-compliance information a viral nightmare. It may be a good time for businesses to do a wage and hour audit to ensure compliance with the FLSA.

Many employers are tempted this time of year by the thought of using an unpaid summer intern. Free labor coupled with a weak economy, sounds like a perfect match. I try to caution our employer clients, if it sounds too good, it just may be illegal. Unpaid internships have been subject to increased scrutiny by the Department of Labor since at least 2010, when I first blogged about the issue.

Last week, a New York Federal Judge ruled that Fox Searchlight Pictures violated federal and state wage laws by using unpaid interns during the filming of the movie “Black Swan,” starring Natalie Portman. According to Steven Greenhouse of the New York Times, “the Judge noted that these internships did not foster an educational environment and that the studio received the benefits of the work.” The use of interns in the workplace has increased over the years, and reportedly there are more than a million internships a year, with half of them unpaid. Instead of unpaid interns, Fox Searchlight Pictures had some pretty costly plaintiffs helping on the movie set.

Legitimate interns are not considered employees under state or federal law, if their use in the workplace generally passes six tests offered by the Department of Labor. The tests are:
1. The training experience is similar to what is provided at school;
2. The training experience is for the benefit of the student/interns;
3. The student/interns do not displace regular employees;
4. The employer providing the training receives no immediate advantage from the activities of the trainees;
5. Student/interns are not necessarily entitled to a job at the conclusion of the training; and
6. The employer and the student/interns understand the work is unpaid training. (Note: a reasonable stipend may be permitted)

Not every intern is a potential costly plaintiff, as long as the employer carefully follows the rules. I am pleased to say my firm has a bright paralegal intern in our office this summer by the name of Larissa Luhring (pictured above). She is required to intern with a law firm for 400 hours, as a requirement to earn her Bachelor of Science degree in paralegal studies from Winona State University. (An ABA accredited program.) My law partner’s undergraduate degree was from the paralegal program at Winona State, and she truly valued the 400 hour intern experience. We are consciously trying to offer Larissa an educational experience, exposing her to the real life practice of law. As a matter of fairness, we are also providing her with a stipend.

Employers should not shy away from using interns, if they follow the rules. It can be a win-win situation for all concerned.

50 years ago today, President John F. Kennedy signed the Equal Pay Act which prohibited arbitrary discrimination against women through wages. Back in 1963, women earned only 60₵ on the dollar compared to men. Now, 50 years later women still earn less than men, though the gap has been reduced, women now earn about 81% of men.

One of the myths about why women earn less than men is because of the stereotype that women will put family above work, so employers tend to undervalue a female employee. Cornell University conducted a research survey to determine if there is a “motherhood penalty.” The audit study revealed that actual employers discriminate against mothers, but not against fathers. In fact, the disadvantages mothers have in the workplace are not limited to pay. Mothers are considered to be less competent, less dependable and less authoritative. However, this “motherhood penalty” myth, does not explain why young, single women who are not mothers, and just starting their careers earn less than men.

As a mother of three young daughters, I’m interested in seeing this gap close. Thankfully, the United States Department of Labor is working to help close this gap, by letting women know their worth in the workplace, rescinding outdated guidance, and teaming up with other members of the National Equal Pay Task Force. I hope employers are doing the same. Equal pay for equal work is important.