Texas Employer Handbook

Insight on Employment Law for Texas Businesses

DOMA Stricken Down: What does this Mean for Texas Employers?

Posted in Quick Questions

On June 26, 2013, the United States Supreme Court issued a decision in the case of Windsor v. United States holding the Federal Defense of Marriage Act (“DOMA”) unconstitutional.  This decision will have implications for employee benefit plans and, specifically, benefit plans governed by the Employee Retirement Income Security Act of 1974 (“ERISA”).  The extent to which Texas employers and employees will be impacted is yet to be seen, but this article addresses what is currently known and outlines certain areas which we should all monitor for further developments.

While the ruling in Windsor v. United States will have a significant impact upon the administration of ERISA benefit plans in states that recognize same-sex marriages (there are currently twelve such states), it is unclear at this time what impact the ruling will have on states that do not recognize same-sex marriages.  Texas does not recognize same-sex marriages – the Texas Defense of Marriage Act, signed by Governor Perry in 2003, mirrors DOMA and stipulates that Texas does not recognize a marriage or civil union between persons of the same sex, regardless of the jurisdiction in which it is created.  Further, the Texas Constitution defines marriage as a union between a man and a woman.

In the twelve states that do currently recognize same-sex marriages, the Windsor decision requires employers to extend federal benefits and protections to same-sex spouses that were previously offered only to opposite-sex spouses.  Note, however, that we are only talking about “marriage” here – i.e., the decision does not apply to same-sex couples who have entered into civil unions or domestic partnerships.

Employers in states that recognize same-sex marriage will need to update their administrative procedures to address certain benefits issues that only previously arose in the context of opposite-sex marriages.  Here are a few of the issues that will likely arise:

  1. Tax treatment of health coverage:  the cost of a same-sex spouse’s benefits has heretofore been treated as imputed income for federal income tax purposes.  Now, in states that recognize same-sex marriages, employees will no longer be required to pay federal income taxes on the cost of same-sex spouse health coverage.
  2. Health insurance:  in states where same-sex marriages are recognized, group medical plans that offer spousal coverage will need to extend coverage availability to same-sex spouses.
  3. COBRA continuation practices:  the separation of an employee and his/her spouse is a qualifying event that entitles the former spouse to COBRA continuation rights.  Now, in states that recognize same-sex marriages, a same-sex spouse’s separation from an employee will entitle the former spouse to elect COBRA coverage.
  4. Section 125 Cafeteria Plans:  entering into or terminating a marriage is a qualifying event that entitles an employee to make a mid-year election change under the employer’s section 125 cafeteria plan (e.g., to add or drop the spouse/former spouse from benefits).  Now, in states that recognize same-sex marriages, entering into or terminating a same-sex marriage will create the same mid-year election rights for employees.
  5. Surviving spouse annuities and death benefits under retirement plans:  in states that recognize same-sex marriages, same-sex spouses will now be eligible to receive surviving spouse annuities or death benefits under retirement plans.
  6. Spousal consents to 401(k) plan beneficiary designations: many 401(k) plans require spousal consent to the designation of a beneficiary other than a spouse (e.g., if an employee wants to name a charity or his/her best friend as the beneficiary of his/her 401(k) benefits, the employee must first obtain the written consent of his/her spouse).  Now, in states that recognize same-sex marriages, this same spousal consent must be obtained from the same-sex spouse.

There are many unanswered questions that arise after the Windsor decision.  For Texas employers, a key question is what will happen if an employee enters into a same-sex marriage in a state that recognizes same-sex marriages and then moves to Texas to work.  Will that employee be afforded federal benefits and protections?  At this time, the answer is simply unknown.  But, Texas employers should bare the above listed issues in mind since they may become relevant in Texas, particularly with respect to workers who move to Texas from states that do recognize same-sex marriages.

Thanks to Looper Reed Associate Jason Luter for preparing this entry.

Employment Law 101: Explaining the Equal Pay Act

Posted in Handbook Articles

Who, What, Why . . .

Who does it apply to: Virtually all employers with employees of the opposite sex are subject to the Equal Pay Act (EPA).

What is the rule: Employers cannot pay one sex higher wages than the other for jobs that require equal work based on skill, effort, and responsibility that are performed under the same working conditions unless there is a legitimate exception to justify the difference.

What counts as “wages”: Almost anything you offer as an incentive to an employee is counted under the EPA. It includes pay, bonuses, expense accounts, allowances, lodging, use of a company car, etc. It also includes fringe benefits such as insurance, retirement benefits, leave, vacation or PTO, holidays, and regular days off.

What goes into equal work: Under the EPA, job titles don’t make much difference. The EPA looks across descriptions to make sure like work goes with like pay. To answer the question you set aside the common core duties between the jobs in question and focus on the differences in the following:

Skill: Consider the experience, training, education, and ability required to do the job (not of the person doing it).

Effort: Consider the level of physical and mental exertion required to do the job including factors that create or alleviate stress in performance of the work.

Responsibility: Consider the degree of accountability, creativity, supervisory responsibility, and individual judgment that go into performing the job.

Working conditions: Consider the surroundings and hazards of the position. Is it dangerous or distasteful? Is it unpleasantly hot or cold?

If these characteristics are the same or very similar, the jobs will be considered the same under the EPA and any differences specifically between the sexes will create liability – unless an exception applies.

Are there exceptions: The following exceptions may allow disparity over wages between the sexes:

Seniority: A male employee hired five years ago may make more than a female employee hired five minutes ago so long as the seniority system is formalized and has been followed closely in the past.

Merit: A female employee who has performed admirably in an orderly and systematically applied system may make more than a male counterpart for the same job. Merit systems should be formalized such that they are in writing or all of the employees are clear on the policy.

Quantity/Quality pay systems: Male and female employees paid based on the quantity of items they produce or the quality of the work they produce may be paid differently so long as there are no other extraneous discriminatory factors affecting their pay.

Factors “other than sex”: The black hole of distinctions. It could be anything, but it better be well thought out and documented. Examples that have been accepted in this category are experience, training provided without discrimination, financial crisis, differences in educational background of the employees, and actual economic benefit to the employer (one employee produces higher profits in the same job).

Common Situations:

Market force theory: General Electronics has discovered that women will historically and statistically work for less than men and rarely attempt to bargain a better wage at hiring. Upon suit by an employee, the company raises this as a defense. They pay women less because they are willing to work for less. Will this defense hold up? No, but it has been tried in several variations many times.

Red circle rates: Sarah has been with Bayou Bakery for 35 years and just can’t knead the dough like she used to. Without reducing her pay, Bayou moves Sarah to an inventory clerk position. Several males in the inventory clerk position file an equal pay claim because Sarah makes so much more. Will Bayou be sacked? No. Courts have found this to be an acceptable reason “other than sex” to have a different wage. And remember, the EPA goes against both sexes. Men can make claims, too.

Extra duties: John has the extra responsibility of turning on the lights and unlocking the doors each day at Steam Clean America. Amy, Mary, and Jane have the same job as John at Steam, without the extra task regarding lights and locks. John is paid more than the ladies and they file a claim. Will John’s extra duties justify his higher wage? Probably not. While extra duties can be a justification “other than sex” to pay more, they have to be more than just turning on the lights. Of course, if the difference in pay is very small, a court may consider and accept the difference. The size of the difference in pay between the sexes is a consideration in determining equal pay claims.

Successor liability: During the process of finding a replacement for his office manager, Suzy, Dr. Jose Cuervo discovers Stan. Stan has almost exactly the same qualifications Suzy did for the position, but Dr. Cuervo retains Stan for 10% more in salary. Suzy learns this from a close friend still working for Dr. Cuervo and makes a claim. Will she be successful? Probably. A former employee can reach in and get the difference in pay plus penalties going back up to three years against an employer in circumstances like this. Unless Dr. Cuervo can come up with additional job duties which Stan has agreed to or some other excuse, he will get bottled up on this one.

Not from around here: Joe’s Auto Parts has facilities and stores all over the U.S. All the locations have their own HR representatives that handle hiring, firing, promoting, and wages within nominal guidelines set at corporate. Natalie, who works in the Lubbock facility learns that male employees performing the same job in Harlingen make more for the same job. Joe’s is sunk right? Not likely. The EPA only applies to violations that occur within the same “establishment.” Offices and locations that are geographically and operationally distinct will not be treated together for violations.

What should I do:

Good: Pay all employees in the same position the same wage – including all forms of fringe benefits unless there is some reason to justify the difference.

Better: If you use a seniority or merit system, memorialize it in writing and follow it religiously. Set merit raise promotions for certain projects in motion with a writing to the employees involved. Prepare written notes for all discretionary bonuses awarded by position. Be careful that benefit packages for positions are offered to all persons in those positions. Be wary of changing benefit packages with new employees to avoid risk of accidental EPA claim.

Best: Create job descriptions and use them to identify positions with similar responsibilities and evaluate differences to make sure they justify the price difference in wage, if any. Memorialize in writing all reasons for paying the sexes differently in any position. Follow the exceptions or identify the duties that make the distinction in writing

EEOC Hit with Sanctions for Frivolous Claims

Posted in In the News

Last week the Associated Press reported that the EEOC was sanctioned by a US District Court judge for $4.7 million dollars.  The sanctions were awarded because the EEOC brought a number of frivolous and groundless claims against trucking company CRST.

According to the opinion, the EEOC filed a lawsuit in 2007 against CRST alleging sexual harassment of a number of female employees.  In litigation over the next three years, the EEOC could not prove its claims and CRST sought to recover its attorney fees for defending the suit.  The Court ruled that 153 claims of the total claims brought by the EEOC initially were without foundation and sanctioned the EEOC approximately $4.5 million dollars.

The EEOC appealed to the 8th Circuit Court of Appeals.  On a technicality the case was reversed and returned to the US District Court for further rulings.  Again CRST sought its fees and again the judge ruled in its favor, this time adding the fees CRST incurred on the appeal.

This is an important decision for employers.  It will hopefully cause the often overzealous EEOC to temper its approach.  It also provides the basis for other employers across the US and Texas to make the same request if they prevail in a claim against the EEOC.  With the real possibility of recovering their fees, hopefully more employers will stand up to EEOC abuses and further reign in the agency’s excesses.

Of course, the sadest part of the whole situation in my opinion is that we the tax payers to this already strapped government will bear the cost of paying CRST.  Someone should be held accountable for the consequence to us and I, for one, have asked my representatives in Congress to do so.

Big Red and Fried Chicken: Dallas Law Firm Sued for Discrimination

Posted in In the News

Even law firms get sued for discrimination once in a while, but you would expect lawyers to be smart enough not to serve Big Red and fried chicken to black employees in celebration of Juneteenth.  Talk about stereotyping!!

Sadly that is just what has happened to Dallas law firm Eberstein & Witherite (Better known as the 1-800-Carwreck firm).  The firm’s “all white” management allegedly made the decision to celebrate Juneteenth with Big Red and Fried Chicken after two employees asked to have the day off.

According to the petition, the firm’s HR manager replied to the request by saying:  “Y’all don’t need no day off. Ya’ll need to work.”  She then allegedly sought and obtained permission to serve Big Red and fried chicken to employees on that day instead.

For those who are not familiar, Juneteenth, or, Freedom Day, is an unofficial holiday on June 19 each year to commemorate the announcement of the abolition of slavery in Texas.  On June 18, 1865, during the civil war, Federal General Gordon Granger landed on Galveston Island.  The following day June 19th, General Granger proclaimed the slaves of Texas freed.  Over time, a celebration developed around the day each year.

The law firm’s racist traits do not appear to end with the Juneteenth incident, however.  The lawsuit alleges that the firm’s HR manager made other comments such as:

  • Complaining that she is “sick and tired of Black women bitching about being the victim” (interesting for a personal injury firm).
  • Quizzing black employees by saying “I don’t even know if you’re Black.”
  • Commenting “Oh no. You’re not going to have that mad, bitter Black attitude with me.”

Later, the firm is alleged to have terminated both black employees for being unhappy with their jobs.

Handling these types of cases for as many years as I have, you would think nothing surprises me anymore.  This one did.  Take a lesson from the claims made here:  Don’t try to be cute.  And, (no opinions cast here) be sure that your HR Manager is not a racist.

Employment Law 101: Your Guide to Workplace Investigations

Posted in Handbook Articles

Who, What, Why . . .

Who does it apply to: All employers – who have ever wondered whether an investigation of some sort should be made regarding an issue involving employees.

Should I investigate: Let’s face it, not every dispute will merit an investigation, and sometimes, the investigation merited will not require all of the steps below. Like so many issues in business, it comes down to an evaluation of risk, and in some cases that might mean intentionally not investigating. For example, it is tempting to always conduct a post-accident investigation, but what if your employee has injured a non-employee who might sue? It might be wise not to have a drug test as part of the investigation. Keep all of these considerations into mind.

Who should do it: This question may be more complicated than you think. Impartiality, professionalism, and credibility are the keys. How would a jury perceive your decision? Should it be someone of the same race, color, or religion (as an example) for a discrimination claim so a jury will find the investigator more credible? Should it be a team to double the potential credibility?  If the head of the company or an executive is under investigation, it may be better to choose an outside investigator. An outsider is also worth considering if the situation already seems headed toward litigation, i.e. a claimant has filed an EEOC charge or hired a lawyer. Should your investigator be your lawyer, or a lawyer? Attorney client privilege attaches to your discussions with a lawyer and that can be a powerful protection if you don’t want your investigator to be forced to discuss their private conversations with you about the investigation.

What is the plan: Take time to think before you act. It may be tempting to jump right in and start talking to folks, but Mom always said to think before you speak. What do you already know? What do you need to fill in the blanks? Who should you interview? What order should you interview? What should I ask? When should I start? Do I need outside help, i.e. should I involve the police in a theft or violence investigation or a forensic accountant in an embezzlement investigation? Does anyone need to be suspended until the investigation is concluded? This could be appropriate in a number of instances such as letting a thieving, drunk, or violent employee back into the office.

How should the interviews be conducted: If you are not going to use the assistance of a lawyer or experienced investigator, you should think about how you will ask questions of your interviewees. Things lawyers naturally take into account when interviewing or questioning a witness include: asking open ended questions; avoiding accusatory questions that put a witness on the defensive; repeating the story as you understand it to be sure it was understood initially; whether you have gotten the facts or just a string of opinions; and what contradictions in the story need to be ironed out. While interviewing keep your opinions, observations, and the results of your investigation to yourself. Finally, if you are in a union environment, be alert of the interviewee’s rights to representation.

What about recordings: It may seem convenient or the best possible evidence to record interviews. After all, no one can argue with a recording. That is true, but it means your words as questioner will be put under the microscope, too. Recording interviews also may stunt the interviewee’s responses. I personally prefer clients to take copious notes. That said, if an employee wants to record the interview you should allow it on condition that you receive an immediate copy. Because Texas allows a conversation to be recorded as long as one side knows it is being recorded, ask the interviewee if they are recording to be sure you know what you are up against.

Where else will there be evidence: Though the outcome of a lot of investigations will turn on the interviews, there are a myriad of other places that evidence may show up. Emails will often play a part, but consider these other additional sources of evidence: electronic documents, voicemails, texts, pictures, sales receipts, equipment logs, notes, expense reports, inventory records, payroll records, customer complaints, prior warnings, productivity reports, and any other place you might find something to support the final determination. Remember, from our prior EH edition on polygraphs that they can be used in appropriate circumstances, but strict procedures must be followed.

Are there privacy or confidentiality issues: As you know from the previous EH edition on privacy, there are few privacy rights in the workplace, but you have to be careful. Searches of areas where you have created an expectation of privacy are prohibited as is listening to telephone calls without consent. You should maintain confidentiality of your investigations and be careful who is in the loop to avoid rumors. Under the National Labor Relations Act, you can ask employees to maintain the confidentiality of their interviews or put a “gag-order” over discussion of the incident at issue only when you can demonstrate that such confidentiality is essential to the investigation. And, when the investigation is over, you must release employees from the confidentiality obligation unless it remains justified.

What should I do (the result): Only you can decide the right answer, but whatever the result may be, you must document it.  Prepare a final assessment commensurate with the severity of the investigation documenting your reasoning and final decision.  Depending on the circumstances, it is always good to consult with your employment lawyer about the legally correct result under the circumstances.

Common Situations:

Regimented mistake: The HR VP at Smiley Face, LLC decided to have the department manager where a discrimination claim arose conduct an investigation. Because the manager was not experienced in handling discrimination claims, the HR VP provided him very strict guidelines for the investigation and the questions to be asked. The manager followed the HR VP’s instructions to the letter interviewing the employees listed and collecting documents requested. Because Suzy was not on the list to be interviewed, the manager did not follow up on the observation she might have valuable information. In fact, Suzy knew specific facts to support the discrimination in an otherwise close case. Business owners have to guard against such a regimented approach. Go where the investigation takes you.

Be wary: Melvin has just taken ownership of Shady Pines Nursing home. The prior owners warned him that the residents often complain of mistreatment by the staff when nothing really happened. Mel takes this to heart and looks the other way when Sophia complains about the staff locking her in her room to keep her from riling up the other residents. Has Mel made a bad decision? Of course. He is required, by law, to investigate all claims of patient abuse even if Sophia is just making it up. Workplace investigations are not always optional. Know the legal requirements for your industry and conduct tests when they are necessary.

What should I do:

Good: When an issue arises, take a moment to determine whether an investigation is appropriate and the scale of the investigation. Let the right person handle it and record the result.  Investigate when legally required to do so in your business.

Better: All of the above, plus, preserve copies of all physical evidence and document the results and any interviews. Be sure to document delays in starting to be able to justify later.  Make sure your employee handbook provides for all manner of searches and surveillance to compliment your investigations.

Best: That is all. Good and Better get it done this month.

 

What Can Be Done About a Workplace Bully?

Posted in Quick Questions

With bullying in the news of late, I was recently asked how employers should deal with a star employee that bullies or berates co-workers.

Each August my wife begins a new school year with 22 bright shiny faces that all come from different home environments.  Some are very polite.  Some are sneaky.  Some are bullies.  Some are bully targets.  All of them are about to begin a new relationship with their teacher that will set the tone for the next 9 months.

In these crucial first days, the students will learn what they can and cannot get away with.  They will learn whether “Mrs. K” demands respect or is a push-over, etc.  Knowing this from years of experience, Mrs. K immediately provides the ground rules and delivers swift punishment for students who test the limits.  Separate and apart from what is on the white board, Mrs. K teaches the students how to treat her.

Over the years, I have developed the view that employees are not altogether different from my wife’s fourth graders.  Employers must teach the employees how to treat them and the other employees of the business.  The rules must be laid out in a way the employees can understand at the beginning and punishment must be carried out for employees who break the rules.  If the employer has no follow through on punishment, there will be pandemonium.  The employees, just like the students, will learn that the supposed consequences never happen and the rules mean little or nothing.

This does not mean the workplace can’t be a fun environment.  Most of Mrs. K’s students think she is the most fun teacher they’ve ever had.  She makes games of their desk work and grants prizes and breaks when the students perform well as a group.  In this same way the office does not have to be “all stick and no carrot.”  As long as employees follow the rules, employers should provide benefits.

A bully can ruin an office environment.  And, even if that bully is a star performer, the entire productivity of the office may be dragged down by his or her actions.  The profits the bully may generate are often muted by the decrease in productivity from other employees who perceive their employer will not stand up for them.  These other decent employees often look for another job and bolt when the opportunity arises.

Like it or not, the only way the problem gets better is if there are rules and those rules are enforced.  If the employer does not have the stomach to discipline the bully because they are afraid of losing him or her, there will be no way to curb the present conduct.  In that case, creating rules that are not carried out may actually be more harmful.

Once the rules are created, the employer should provide advance warning.  The employees – including the bully – are all operating on the assumption that the status quo will continue.  They need and deserve an opportunity to understand how things are changing.  From there, the employer must enforce the rules.  I know it is easier said than done, but nothing is going to change unless you teach the bully how to treat his or her co-workers.

So what kind of punishment should employers mete out?  Punishment that will actually cause a change in behavior.  With a bully in the office, employers need to act quickly to re-establish control.  Working through a few weeks of write ups to get to a point where punishment is finally given will likely be unacceptable.  In most cases, this means affecting compensation.  It is after all the biggest control the employer has and the biggest reason the employees come to work.

If the bully is an hourly employee or a salaried non-exempt from overtime, consider sending him or her home without pay on a day of your choosing (not a day that would seem like a vacation to the employee).  Let them know the punishment will be coming and then randomly send them home after they get to the office on a Tuesday or some other day where they will not be able to convert it into a vacation day.

If the bully is salaried and exempt from overtime, consider reducing the bully’s salary for a week by an amount that will hurt.  Provide advance warning that the reduction is coming.  It is not legal to do it after the fact.

If you provide bonuses, cut back on the bonus.  If you offer vacation days, start taking them away (but remember to establish this rule in writing before beginning to use it).

All the while, document the bully’s conduct.  This way, if nothing else works, you can take that final step to terminate the bully without risking some type of legal claim.

 

Can an Owner be Personally Liable for Wages?

Posted in Quick Questions

You’ve set up a your business as an LLC or a Corporation and followed all of the legal requirements to keep the business up under Texas law.  Your lawyer tells you the company will protect you from personal liability to your creditors as long as you follow all the required formalities.

After a few years of really making a go of it and going without a paycheck yourself for months, you suddenly discover that you will not be able to make payroll this week.  The big order you were counting on is not coming in and you have nothing to pay your 5 employees.

You call everyone into a conference room and let them know you are shutting down.  There will be no more company.  There will be no paychecks.  The only solace you have is that what is left of your personal savings is exempt from creditors.  Or is it?

The Federal Fair Labor Standards Act (FLSA) requires “employers” to pay their employees at least minimum wage.  The definition of “employer” includes “any person acting directly or indirectly in the interest of an employer in relation to an employee.”  Federal courts use what is known as the “economic reality” test to decide who meets the definition.  Did the person or company:

(1) possess the power to hire and fire the employees,

(2) supervise and control employee work schedules or conditions of employment,

(3) determine the rate and method of payment, and

(4) maintain employment records.

Since there can be more than one “employer” under the FLSA, the owner of the business often also meets this definition and Federal courts have regularly held these business owners personally liable for back wages due employees.

The same is true under Texas law which has the same definition of “employer” but no clear guidance of what is required to meet the standard.  That said, Texas did adopt the FLSA definition of employer and will be likely to follow the “economic reality” test, also.

What is worse, under the Texas labor code, “wages” has a much broader definition than under the FLSA.  It includes vacation pay, holiday pay, sick leave, and severance pay.  This means an owner who meets the definition of “employer” may be personally liable for these additional types of pay.

Be careful employers.  It may be better to stop while you are behind than bet on that next job to cover payroll.  Former employees have up to 180 days from the time the last wages were due to file a complaint with the TWC.

Equal Pay Act 50th Anniversary

Posted in In the News

Fifty years ago yesterday John F. Kennedy signed the Equal Pay Act into law.  Even with that much time to eradicate unfair pay between men and women, many still believe a gap exists.  Stories from the Huffington Post, the Washington Post, and NPR, all cite a 2010 Census Bureau Report that women earn just 77 cents for every dollar earned by men.  More specifically, the median salary earned by men was 23% higher than that earned by women.

According to a January 2009 Report prepared for the US Department of Labor, however, the difference is just 20.4% between the sexes and several factors account for most of that gap.  These include:

  • A greater percentage of women than men tend to work part-time.  Part-time work tends to pay less than full-time work.
  • A greater percentage of women than men tend to leave the labor force for child birth, child care and elder care.  Some of the wage gap is explained by the percentage of women who were not in the labor force during previous years, the age of women, and the number of children in the home.
  • Women, especially working mothers, tend to value “family friendly” workplace policies more than men.  Some of the wage gap is explained by industry and occupation, particularly,the percentage of women who work in the industry and occupation.

The research also suggests that differences not incorporated into the 2009 Report may account for part of the remaining gap.  The 2009 Report focuses on wages rather than total compensation. Other research indicates that women may value non-wage benefits more than men do, and as a result prefer to take a greater portion of their compensation in the form of health insurance and other fringe benefits.

Regardless of your point of view, several in Congress do not believe the Equal Pay Act has done enough.  They have been advocating for the passage of a Paycheck Fairness Act since 2005 when Hillary Clinton first offered the legislation for consideration.  Senator Kristen Gillibrand, D-NY appeared yesterday on CBS News to advocate for the 2013 version of the proposed law.

The proposed Paycheck Fairness Act modifies the existing language of the Equal Pay Act to curtail one of the exemptions for disparate pay between men and women.  Rather than having a reason “other than sex” which will be acceptable to a court, the new act proposes that employers must have a “bona fide reason other than sex such as education, training, or experience.”  This new language is perceived to be more stringent.

Additionally, the Paycheck Fairness Act proposes more significant penalties for employers who violate the law and training for women in how to negotiate wages better.  According to Senator Gillibrand in her CBS interview, just 7% of women will attempt to negotiate a higher salary when offered a new position as opposed to 55% of men.

It will be interesting to see if the 2013 version of the law is passed.  Each edition proposed since 2005 has died on the vine.

Employment Law 101: What Restaurants Need to Know About Tips

Posted in Handbook Articles

Who, What, Why . . . 

Who does it apply to: Employers who take the “tip credit” against wages of some or all of their employees.

What is the “tip credit”: Employees who earn tips may be paid a lower hourly rate than the standard minimum wage on the theory that they make it up in tips. Currently, employers may take a credit against minimum wage reducing the tipped employee’s pay to $2.13 per hour (as opposed to $7.25). As long as the tipped employee earns at least $5.12 per hour in tips, the employer has no further obligation. If the employee falls short of this mark during any week, however, the employer is obligated to make up the difference.

Who does the credit apply to: Well, “tipped employees,” of course. A tipped employee is a person who receives more than $20 per month from tips, retains all the tips (except for tips shared in a legitimate pool), and is employed in a job that customarily and regularly receives tips (not just holidays or special occasions). This includes employees like a busboy who may not receive the tip directly, but is awarded the tip as part of a legitimate “tip pool.” Tipped employees typically include: waiters, waitresses, bellhops, counter people who serve, busboys, service bartenders, and perhaps hostesses, seaters and greeters.

 What is a “tip:” A tip is a monetary payment by a customer that is totally discretionary. It does not include service charges, i.e a restaurant that automatically taps your bill for a certain amount on top of the food to pay for the service you receive. That said, the Department of Labor (“DOL”) does not consider the automatic gratuity charged by some restaurants for tables of 6 or more to be a service charge as long as the employee receives the tip.

How does prep time count: Prep time is dangerous for employers. Many restaurant owners, for example, have employees come in 30 minutes to an hour before their shift to set up tables and prep the restaurant. During this time they pay only the tip credit amount. Technically, this would be a violation because employees should only be paid the tip credit amount while they can be earning tips. The DOL has an informal rule that prep time is not an issue as long as it does not exceed 20% of the employee’s shift. Employers must be careful though, because any time during a shift may count toward this limit. It is very easy to run afoul of this rule.

Who has the burden of proof: Employers need to keep in mind that the burden to prove tips were handled properly is on them. Recordkeeping is, therefore, very important. After all, the consequence of losing the tip credit is to go back and make the employees whole at the full minimum wage rate.

What do I have to tell the tipped employees: Tipped employees must be placed on notice of their employer’s tip scheme, including the time and manner in which tips are paid. This notice does not have to be in writing, but it is recommended so that employers can prove to the DOL that the employee was on notice if it becomes an issue. Employees must also be placed on notice of any tip pool and its manner of tabulation.

How do tip pools work: A tip pool is simply the pooling of tips received from the service of a customer at a meal for the service staff. While the check is usually paid to the waiter or waitress and customers attribute the tip to their service, there are many employees involved in the process – including hostesses, busboys, and the like.

To be legal, the pool must pay out to only those who customarily and regularly receive tips (see above). The tip pool cannot include the portion of the server’s tips that are required to cover the tip credit or take away more than what is customary and reasonable in that locale. DOL takes the position that the customary and reasonable deduction cannot exceed 15%, but there may be special cases. If instituted by the staff itself, however, a tip pool taken can be any amount. All participating employees must have advance notice of a tip pool.

Who pays the credit card company on tips: Employers can charge credit card companies’ fees against the tip portion of a customer’s total bill by payroll reduction or direct reimbursement at the time the tip is earned. Larger employers will likely have software to handle this calculation and employees will be charged only the precise amount that each credit card company they exceed 5% of the tip on any transaction.

Common Situations:

But I thought I got the tips: The front of house manager at Romeo’s Restaurant is annoyed at how much his waitresses are earning from tips. In a stroke of brilliance, he decides that he will collect all of the tips, take the tip credit on the waitresses, and pay them back the difference to bring their wages up to minimum wage. Thus, all of the “profit” in the tips will go to him. Is this legal? No. An employer cannot take the tip credit and then give the employee back the tips they earn only to the point of minimum wage. That said, the manager could hire all of the wait staff at minimum wage to begin with and collect all the tips for the house – assuming anyone will take the job.

Tipping out the cooks: Bob’s Bar-B-Que decides that the food is truly the star of its restaurant and that customers are basing their tips, at least in part, on the skill of its cooks. To even things out, Bob institutes a tip pool and has the wait staff tip out the kitchen. The tip pool is handled correctly in all other respects. Is it legal? Nope. Tip pools may only include those employees who “customarily and regularly” receive tips. According to the DOL, this may include a busboy, but it does not include cooks, chefs, dish washers, laundry room attendants, or janitors.

Multi-tasking: Hotel Bizarre is just getting off the ground. Everybody that works there has more than one job. The day manager tends bar at night. The night doorman waits tables during the breakfast rush at the restaurant. How does the business handle the fact that these employees have one job for which they can take the tip credit and another for which they must earn at least minimum wage? The time must be segregated. When they work the tip credit position, they can be paid $2.13, with tips. When they are in their other job, they must be paid at least minimum wage. Now, there is likely to be a lot of overtime in this situation. Unfortunately, resolving that issue requires a slide rule and a ream of paper. Contact your attorney to help you determine overtime in that situation.

What Should I do:

Good: Determine which employees are entitled to receive tips and monitor their tips on a weekly basis to be sure that they are receiving at least minimum wage for each hour worked. Make sure the employees are at least orally on notice of the tip system you employ.

Better: Put your tip system in writing and have new employees sign to receive notice. If you have a tip pool, put that in writing as well. Collect and keep records of all tips received by employees on a weekly basis. Maintain a credit card fee deduction of less than 5%. Watch out for prep time. I recommend employers pay employees minimum wage for any pre or post shift prep time in excess of 15 minutes on each side to be protective of the limitation.

Best: Invest in software that keeps all records regarding tips for perfect evidence to show the DOL in an audit. Pay all employees minimum wage for all prep time before and after shifts to be certain there can be no argument. This is a common basis for suit by employees.

 

Governor Signs New Trade Secrets Law

Posted in In the News

On May 2, 2013, Governor Perry signed the Texas Uniform Trade Secrets Act into law.  So, let’s cut right to it.  What does it do different for employers?  The most notable feature is that the law allows the “prevailing party” to recover fees in certain circumstances.

This is a nice feature.  Trade secret litigation is expensive and it is often difficult to prove that the employer has really suffered loss due to their theft.  Employers can spend an arm and a leg trying to stop the employee who stole the secrets only to fall short when it comes to showing how much money they lost.  Damages from stolen trade secrets can sometimes be difficult to prove.  Perhaps (we won’t know until cases start interpreting the new law) the threat of paying the employer’s fees will become at least some kind of stick against the former employee under those circumstances.

Employers need to be careful though.  Because fees can be awarded to the “prevailing party” there is a chance that the employee can recover fees if the theft of trade secret claim is made in “bad faith.”

The act takes effect on September 1, 2013, and applies to misappropriations after that date.