Recent U.S. Labor Department enforcement activities, along with its collaborations with other governments and agencies, demonstrate its continued emphasis upon rooting-out the erroneous classification of workers as independent contractors.  And if U.S. Labor Secretary nominee Thomas Perez is eventually confirmed, officials can be expected to pursue the matter at least as aggressively as they have up to now.

Our Forbes.com article summarizes some important points to keep in mind with respect to the federal Fair Labor Standards Act status of "contract laborers", "freelancers", "casual workers", "contract employees", or independent contractors by any other name.

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Readers will recall that, in April 2011, the U.S. Labor Department declined to adopt an interpretation proposed in 2008 that would have acknowledged the federal Fair Labor Standards Act overtime-exempt status of employees doing the typical work of service writers, service advisors, etc. in automobile dealerships and truck dealerships.  Prospects were that USDOL would reverse an enforcement policy of two decades' standing and would begin challenging the FLSA Section 13(b)(10)(A) overtime exemption as applied to these workers.

However, Congress's 2012 Department of Labor Appropriations Act specifically prohibited USDOL from using any appropriated funds for this purpose.  Later comments by a U.S. Wage and Hour Division investigator led us to conclude that, unless Congress renewed this limitation in 2013 appropriations, dealerships should anticipate USDOL attacks on their treating these employees as being overtime-exempt.

Although the 2013 appropriation does not expressly refer to such a restriction, we conclude that the prohibition has been extended.  Among other things, Division F, Section 1105 of the recent appropriation calls for the continuation through September 30, 2013 of "the requirements, authorities, conditions, limitations, and other provisions" of the 2012 law.  Another example is Section 1104's statement that money allocated for 2013 may not be used to "initiate or resume any project or activity for which appropriations, funds, or other authority were not available" during the federal government's 2012 fiscal year.

Even if USDOL is unable to pursue such claims, current or former service writers or similar employees remain free to argue against overtime-exempt status in their own FLSA lawsuits.  And, as we said previously, employers embroiled in these lawsuits should be alert for any signs that USDOL is extending background assistance to these individuals.

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The publication Corporate Compliance Insights (which focuses upon matters of interest regarding compliance, governance, and risk in the business community) recently published an article we authored regarding the federal Fair Labor Standards Act's requirement that covered employers provide breaktime to a worker for the purpose of expressing breast milk for her nursing child.

The item summarizes the break requirements, raises some planning considerations, gives examples of unanswered questions, and highlights selected enforcement developments.  The piece is entitled, "Are You Ready To Accommodate Nursing Mothers?", and it can be accessed at this link.

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As we have been reporting, March 12 was the deadline for submitting comments regarding the U.S. Labor Department's proposal "to collect information about employment experiences and workers' knowledge of basic employment laws and rules so as to better understand employees' experience with worker misclassification."  Despite our having asked for a copy of the proposed survey in a letter to USDOL dated January 14, we never received one.  Those who responded to our February 20 straw poll said that neither had they received a copy.

We have now submitted a comment (link to reproduction below) taking the position that the proposed collection of information should not be cleared, approved, or undertaken.  As we said to USDOL:

[the] circumstances strongly suggest that the Labor Department has failed to provide an adequate opportunity for public comment on this proposed information collection.  The Labor Department has clearly failed to do so with respect to members of the public who have expressed their interest in commenting by requesting copies but to whom it has provided none.  This state of affairs does not comport with the requirements and purposes of the Paperwork Reduction Act of 1995.

If USDOL nevertheless proceeds with its proposal at this point, the design and content of the survey, as well as the results produced by it and the use to which that outcome is put, might well be tainted and subject to challenge in light of the inadequate opportunity afforded for public comment on the proposal.

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Worker Classification Survey Comment 03 12 13 .pdf (47.81 kb)

In April 2011, the U.S. Labor Department disavowed its 24-year-long acknowledgment that the federal Fair Labor Standards Act's Section 13(b)(10)(A) overtime exemption applies to automobile-dealership employees doing the typical work of service writers, service advisors, etc.  Instead, USDOL seemed to embrace the view that the absence of a literal reference to these kinds of employees in Section 13(b)(10)(A)'s "salesman, partsman, or mechanic" formulation meant that they are subject to the FLSA's overtime requirement.

USDOL said what it did despite the fact that, since the 1970s, five federal courts had looked at the same language and ruled the other way.  In fact, as of April 2011, every reported court decision to consider the issue determined that dealership employees who are selling service and parts to customers are within the exemption.  These courts concluded that this outcome was entirely consistent with Congress's intent.

Now, two additional rulings have continued this trend, including that these newest ones have done so notwithstanding USDOL's comments.

In Navarro v. Mercedes Benz of Encino (link to reproduction below), Fisher & Phillips LLP persuaded the U.S. District Court for the Central District of California to dismiss an FLSA overtime claim brought by several Service Advisors.  After evaluating USDOL's April 2011 statements, the court concluded that those views are "unreasonable" and unworthy of deference.  Instead, the court said, "Service Advisors .  .  . are functionally equivalent to salesmen and mechanics and are similarly responsible for the 'selling and servicing' of automobiles."  It ruled that the Service Advisors were exempt from FLSA overtime.

A few days later, the Montana Supreme Court concluded that the words of Section 13(b)(10)(A) itself demonstrate that it applies to the kind of work done by Service Advisors, Service Writers, and the like.  In Thompson v. J.C. Billion, Inc. (link to reproduction below), the court determined that USDOL interpretative material "conflicts with the plain wording of [Section 13(b)(10)(A)] by defining employees who are exempt from overtime as 'salesman' more narrowly than the statute does."  The court determined that "a plain, grammatical reading of [Section 13(b)(10)(A)] makes clear that the term 'salesman' encompasses a broader category of employees than those only engaged in selling vehicles," and that, "under a plain reading, the statute clearly exempts 'any salesman . . . primarily engaged in servicing . . . automobiles."

These decisions further bolster the decades-old proposition that the exemption applies to a dealership employee whose primary duty is to do such things as greet customers and obtain information regarding their service or repair concerns; diagnose the mechanical condition of the vehicle; attempt to sell appropriate diagnostic or repair services; provide estimates for services or repairs; write orders for work authorized by the customer; assign the work to various employees; direct and check on the work of mechanics; and communicate with customers regarding the status of their vehicles.  Only time will tell whether USDOL will continue to swim against the tide of these court rulings.

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Navarro v. Mercedes Benz of Encino.pdf (397.31 kb)

Thompson v. J.C. Billion, Inc.pdf (146.23 kb)

Readers will recall our January post concerning the U.S. Labor Department's announced intention to "to collect information about employment experiences and workers' knowledge of basic employment laws and rules so as to better understand employees' experience with worker misclassification."  As we said then, this is likely to be a precursor to a renewed "Right to Know" initiative.

USDOL did not publish the actual proposed survey along with its January 11 Federal Register entry.  On January 14, we requested a copy from the official to whom USDOL directed that these requests be sent (link to reproduction below).  As of this writing, 38 days later, and after appreciably more than half of the comment period has elapsed, we have received neither a copy nor any other response.

The end of the comment period is March 12, 2013, 21 days from now.  As matters stand, one may reasonably conclude that the public has had no adequate, fully-informed opportunity to evaluate the proposed survey or to formulate and submit substantive comments.

We are led to wonder whether our experience is representative of the public's at-large.  If you requested a copy of the proposed information collection also, please respond to our poll to let us know whether you received one.

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Request For Proposed Information Collection.pdf (62.35 kb)

The U.S. Labor Department recently responded to our July 2012 Freedom of Information Act request for documents relating to its enforcement of the federal Fair Labor Standards Act's Section 7(r).  This provision requires covered employers to grant breaktime to an employee for the purpose of expressing breastmilk for her nursing child.  We have been following developments regarding this provision since employers first found out that it was included in 2010's Patient Protection and Affordable Care Act.

USDOL sent no documents, but it did provide a summary of enforcement data and related information.

Dozens Of Investigations And Violations

The information covers the period from Section 7(r)'s effective date of March 23, 2010 through June 11, 2012, which USDOL says is the most recent available.  During that time, the Wage and Hour Division concluded 54 Section 7(r) investigations.  The Division found one or more violations in 36 of them.

The Division classified 29 of the violations as involving a "failure to provide space" for the break.  The response did not disclose how many of these instances involved an employer's providing no space, as opposed to its having provided space that was inadequate or inappropriate in some way.

Five violations were said to consist of a "failure to provide break time."  USDOL gave no further information about these scenarios.

In all 36 cases in which the Division found violations, the employers reportedly "remedied the problem" in unspecified ways and agreed to comply with Section 7(r) in the future.  USDOL also said, "In three cases the employer provided back wages to compensate the employee for compensation lost when her hours were cut or when she quit her job due to the failure to provide the break time."  Presumably, these situations involved allegations of retaliation or claims that the worker quit but was constructively discharged as a result of the violation claimed; USDOL did not expand upon its statements.

In one case, USDOL reports, "the employee was reinstated."  This might refer to the situation it mentioned in which the employee "quit her job".  In any event, presumably the reinstated worker was terminated (constructively or otherwise) supposedly due to an assertion of her Section 7(r) rights.

Points Of Emphasis

The overwhelming proportion of alleged violations arose from an employer's failure to provide any space, adequate space, and/or appropriate space for a break.  Section 7(r) itself requires that the space be shielded from view, free from intrusion from co-workers and the public, usable for expressing breastmilk, and something other than a bathroom.

USDOL's 2010 "Preliminary Interpretations" elaborate upon this, saying among other things that:

♦   Employers are required to make a suitable room available for use (at least temporarily) "where practicable";

♦   If this is not "practicable", the employer must "create a space with partitions or curtains" that is otherwise appropriate; and

♦   The obligation to provide suitable space also applies to employees who work offsite.

See 75 Fed.Reg. 80073, 80075-77 (December 21, 2010).  USDOL adds that:

♦   The space may not be so far from the employee that it is "impractical" for her to take the breaks; and

♦   The arrangement is inadequate if the number of employees needing to use the space effectively "prevents" an employee from taking breaks or "necessitates a prolonged waiting time."

Id.

The enforcement information underscores more generally that employers must ensure that they:

♦   Know, understand, and comply with all of their Section 7(r) obligations; and

♦   Take no adverse action against an employee who seeks to or does exercise her rights under Section 7(r).

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As we speculated in November, the U.S. Labor Department apparently does intend to reinvigorate its so-called "Right to Know" initiative.  This vague and ambiguous proposal first surfaced in 2010 but was eventually shelved.  USDOL has now announced its intention to conduct a survey "to collect information about employment experiences and workers' knowledge of basic employment laws and rules so as to better understand employees' experience with worker misclassification."

"Right to Know" About What?

In 2010, USDOL said that such a rule would require among other things the "notification of workers' status as employees or some other status such as independent contractors, and whether that worker is entitled to the protections of the [federal Fair Labor Standards Act]."  Many wondered at the time whether the provision would extend to disclosures about management's decisions as to which employees are considered to be exempt from the FLSA's pay requirements, and Wage and Hour Division officials seemed to be avoiding the question.  USDOL's recent announcement says, "Worker misclassification can be understood as the practice, intended or unintended, of improperly treating a worker who is an employee under the applicable law as in a work status other than an employee (i.e., an independent contractor)."  For the moment, then, the focus appears to be upon erroneously deeming workers to be independent contractors or incorrectly considering them to be functioning in some other non-employee capacity.

The announcement also provides at least some hint of what a "Right to Know" regulation will entail.  USDOL notes that "federal labor laws" do not require an employer to:

♦   Inform workers of their status as employees or non-employees;

♦   Provide the basis for these status determinations; or

♦   Notify the workers of their hours worked, pay rates, and wages paid.

Presumably, any "Right to Know" rules will obligate employers to provide this information, although to whom, when, in what form, to what extent, and at what level of detail remain unknown.

What Happens Next?

USDOL seeks comments on its proposed information collection by March 12, 2013.  However, it did not publish the actual information request.  Instead, a copy of this document must be obtained separately, raising the question of whether USDOL's announcement complies with the notice requirements of the Paperwork Reduction Act.  In any event, we have asked for a copy and will post the document when we receive it.

The notice specifies 30 months as the evaluation timeframe but then says in the same sentence that the period ends in March 2014.  Perhaps USDOL will later clarify which of these is its intention.

Businesses and other organizations (particularly those whose operational models include the use of non-employee workers) would be wise to take the opportunity to weigh-in on this proposed survey, to participate in the survey when it occurs, and otherwise to follow these developments closely.  It is foreseeable that the actual information collection might be orchestrated so as to provide a predicate for unprecedented new requirements.

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Now that the election is behind us, employers should consider what they might anticipate in the field of wage-hour law, which is already one of the largest sources of employment-law claims.  While the nature and number of the possible developments are practically unlimited, some of the foreseeable ones include these:

♦   The push to increase the minimum wage under the federal Fair Labor Standards Act, which was at fever-pitch before going dormant as the election season approached, will now re-emerge.  There will be similar efforts under many analogous state and local laws and ordinances.

This will probably include proposals to increase the FLSA's cash-wage requirement for tipped employees for whom employers take that law's tip-credit.  The public-relations approach will be that this increases "the minimum wage for tipped workers", despite the fact that the FLSA minimum wage for tipped employees is already the same as it is for everyone else.

 ♦   Analogous moves might well seek to increase the salary amount required for some of the FLSA's exemptions from minimum-wage and overtime, as well as to impose paid-leave requirements.  Recall the March bill introduced by Iowa Senator Tom Harkin which proposed both, including requiring most employers of at least 15 employees to accrue an hour of paid "sick time" for every 30 hours an employee works, up to at least 56 hours each calendar year.

Another possible measure might involve an attempt to raise the FLSA overtime-pay multiple from its current 1.5 times the regular rate to 2.0 times that rate.  This might be joined with reducing the threshold number of hours for FLSA overtime from 40 hours in a workweek to, say, 35 hours.  Similar FLSA amendments were proposed in the late 70s and early 80s, during another period of high unemployment and persistent economic stagnation.  A further impetus this time around might be the already-burgeoning rates of part-time employment, taken in conjunction with what could be a further trend toward part-time work driven by looming Affordable Care Act requirements.

 ♦   Aggressive government enforcement at federal and state levels is likely to expand.  There will be an even-more-intensified focus upon whether workers treated as independent contractors should instead be viewed as employees.  Employers should expect further national or regional enforcement initiatives undertaken with respect to entire industries.  These initiatives will include (among others) those directed at what the U.S. Labor Department has called "low wage" sectors, such as hospitality businesses and food retailing, retailing in general, some healthcare segments, landscaping, some construction segments, temporary-help agencies, daycare/homecare, agriculture, janitorial services, garment manufacturing, and guard services.

 ♦   Following a noisy notice-and-comment period that ended in March, proposals that would essentially spell the end of the FLSA exemptions for companions and live-in domestic-service workers suddenly dropped from view as the election season commenced.  These provisions will probably be released in their final form in the not-too-distant future.

Another distinct possibility is the revival of the so-called "Right to Know" regulations, which USDOL said would require "notification of workers' status as employees or some other status such as independent contractors, and whether that worker is entitled to the protections of the FLSA."  USDOL further said that the proposal would "also explore requiring employers to provide a wage statement each pay period to their employees," apparently so as to convey to employees "how their pay is computed."  The reach of these provisions would likely be even broader than USDOL has so far disclosed.

 ♦   The "wage theft" movement toward increasingly-draconian penalties and punishments will move forward with renewed energy, especially at the state and local levels.  For proponents of these measures, wage-law violations are unrelated to the multi-jurisdiction, patchwork nature of differing, obscure, sometimes-conflicting, ambiguous and ill-defined, rapidly-changing requirements that are proliferating across the nation.  No, as this publication [Editor's Note:  Link Apparently Taken Down] illustrates, in their eyes employers are instead "dishonest", unscrupulous scofflaws who are "stealing" money from workers.  Employers who remain disengaged on this front and who acquiesce in these pejorative campaigns do so at their peril.

It has never been more important for employers to remain vigilant, informed, and assertive about all of these matters.  It is also essential that each employer ensure right now that it is in compliance with all applicable wage-hour requirements.

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Readers will recall that, in 2010, the U.S. Labor Department announced that it would pay particular attention to multi-party business arrangements that it sees as obscuring or diluting responsibility for complying with the federal Fair Labor Standards Act.  USDOL's "fissured industry" enforcement effort seeks to tie together all of the participants, including subcontractors, vendors, suppliers, and the like.

Recent developments underscore that the Wage and Hour Division is indeed looking for opportunities to assert that different entities are sufficiently integrated with one another to make each participating business a joint-employer.  The Division is also making good on its warning that it would "bring pressure to bear" upon brand owners to induce them to insist upon and monitor FLSA compliance by others with whom they share a business relationship.

Joint-Employment Allegations

USDOL recently sued DirecTV, one of DirecTV's service contractors, and the contractor's owner for alleged FLSA violations.  The lawsuit contends that installers compensated on a piece-rate basis received less than the minimum wage, were not paid overtime premium, and were not paid the FLSA-required wages for all hours worked.  USDOL asks for back-wages, an equal amount as liquidated damages, and a court injunction requiring future compliance.

The Wage and Hour Division also claims that these alleged violations were "willful".  It intends to assess civil money penalties (which can be as much as $1,100 for each violation) against the defendants.  A Division official stated that, "[The defendants] were found to be responsible, as joint employers, for underpaying these employees.  The bottom line is that subcontracting labor does not absolve an employer from responsibility for compliance . . .."

Pressure To Oversee Compliance

A different approach is exemplified in connection with USDOL's having recovered more than $200,000 in FLSA back wages for the employees of five vendors and staffing agencies working at Gaylord Hotels' Texan Resort and Convention Center.  While there is no indication that the Wage and Hour Division asserted an FLSA joint-employment as to Gaylord, the Division nevertheless prevailed upon the company to agree to:

♦    Require vendors and suppliers to enter into FLSA compliance agreements,

♦    Provide compliance information to vendors and suppliers, and

♦    Maintain a toll-free complaint hotline.

The Division has earlier expressed its willingness to engage in adverse publicity and to work in conjunction with advocacy or consumer groups if it feels that this is warranted.  Reports do not indicate whether these prospects played a role here.

As these scenarios demonstrate, an employer could find itself embroiled in USDOL enforcement efforts initially undertaken against another participant in a collaborative business activity.  This is especially possible in targeted areas like construction; retailing, services, and manufacturing arrangements involving a variety of contractors or subcontractors; food retailing; and the hospitality industry.

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