On March 13, 2014, President Barack Obama issued a presidential memorandum directing the Secretary of Labor to “modernize and streamline the existing overtime regulations”.  The Department of Labor (DOL) took action and, in new rules set to become effective Dec. 1, 2016, raised the minimum salary threshold for exempt workers in many categories.  Since then, employers have been gearing up for the change — modifying pay rates, altering job responsibilities, switching formerly exempt employees to hourly and restructuring their workforce.

In response to the new regulations, 21 states and a coalition of business groups filed a federal lawsuit in Texas seeking to prevent the regulations from going into effect. On Tuesday, their wish was granted. The judge (an Obama appointee) issued a nationwide preliminary injunction halting the implementation of the new overtime regulations.

What Does This Mean for Business Owners and HR Professionals? 

It means you can hold off on implementing any changes you planned for compliance for the moment. Though the DOL could file an emergency appeal, the states were smart by suing in Texas. The appeal must go before the conservative judges of the 5th Circuit Court of Appeals who we expect will be unlikely to disturb the District Court’s ruling in the short run.

President-elect Trump is vehemently against these regulations and, with a Republican Congress that largely agrees, he has promised to repeal them. Assuming an emergency appeal is unsuccessful, the preliminary injunction then affords Congress and President-elect (then President) Trump a window of opportunity to stop the new regulations from ever taking effect.

Is This Outcome Guaranteed?

Not at all, but it is likely given the views expressed by the incoming administration. If for some reason the new administration does not act and the 5th Circuit chooses to reinstate the regulations they would only  go into effect after the decision is made. If the 5th Circuit does not take on the emergency appeal, the decision will be left to the District Court at a trial some time from now.

For more information on the now halted overtime regulations, click here.

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Businessman working late signing a document or contract in a dark office with a fountain pen by the light of a lamp, close up view of his hands.

For the last year, the U.S. Department of Labor (DOL) has been working on proposed rule changes related to overtime exemptions. These changes are designed to substantially decrease the number of employees who are exempt from overtime. Today, the Department of Labor released the final rule changes. Employers are required to be compliant with these changes by December 1, 2016.

Below are the key points to the changes in the law employers should know and address:

Higher Minimum Salary for Overtime Exemptions

In addition to the other requirements for an employee to be exempt from overtime, the minimum salary requirement is increasing. What used to be a minimum of $455 per week will now be $913 per week or $47,476 per year. This doubles the current salary threshold level, but is slightly lower than that proposed in the rule. This is the primary reason many currently exempt employees will lose their exemption.

Automatic Updates to Salary Levels Every 3 Years

In an effort to maintain a salary level that is equal to the 40th percentile of full-time salaried workers in the lowest-wage Census region, the minimum salary to be exempt will be increased every three years. This is better than what the DOL originally proposed which was annual increases. The first of these updates will go into effect on January 1, 2020.

Duties Test Unchanged

Though the DOL discussed changing the other specific requirements associated with exemptions from overtime, it decided not to make any changes to those requirements.

Change to Highly Compensated Employee Exemption

One of the exemptions from overtime relates to highly compensated employees. The threshold for this exemption was set at $100,000 per year. The new threshold is set at the 90th percentile of full-time salaried workers nationally, $134,004 per year.

If you have questions or concerns about complying with the new law, Gray Reed’s employment team will be glad to audit your present practices and ensure you are compliant before the December 1, 2016 deadline.

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Who, What, Why . . .

Who does it apply to: This one is pretty straight forward. It applies to all employers contemplating any type of holiday gathering for its staff.

What are the legal issues: Holiday parties potentially implicate a variety of employment laws: Discrimination, Fair Labor Standards Act (“FLSA”), Workers’ Compensation, and liability associated with providing alcohol.

How is discrimination an issue: Discrimination is probably the biggest concern for an employer planning a holiday party. The primary two issues employers need to watch out for are sex discrimination (in all its forms), and religious discrimination.

Sex discrimination can take the form of harassment or treating a male or female comparably unfair in comparison to her male or female counterparts. At holiday parties, it most often is the result of one employee touching another or propositioning another inappropriately. What might even appear to be consensual during a party could be described as an unwanted advance once the employee makes it home to a spouse in need of explanation. All incidences of inappropriate comments or conduct should be closely watched for and broken up.

Religious discrimination also rears its head during the holiday season. Christians commemorate the birth of Jesus. Muslims celebrate Eid al-Adha, or the Feast of Sacrifice. Some African-Americans celebrate Kwanzaa. Buddhists celebrate Buddha’s Enlightenment with Bodhi Day. The Jewish celebrate Hanukkah and the Festival of Lights. Some Seinfeld devotees celebrate Festivus, and there are many others. With so many different points of view, employers must be careful as they plan for a holiday party.

That said, employers should keep an eye out for portions of the holiday party plan that might affect the other protected classes: race or color, national origin, age, genetic information, pregnancy, military status, and disability. Drinking alcohol is not usually involved in the work environment, but it is often available at holiday parties and a surprising number of people do not keep personal control when alcohol is available. This can lead to improper comments that an employee would have been smart enough to avoid without alcohol.

How is the FLSA an issue: Holiday parties conducted during work hours or which have a mandatory attendance requirement may result in the time being considered compensable for non-exempt employees. If the employees are required to attend, or feel required to attend because of some event at the party, they should be paid for the time including any applicable overtime.

What is the issue with workers’ comp: Employees are covered for injuries sustained while in the “course and scope” of their employment, which means furthering or carrying on the business of their employer. If attendance at a holiday party is required, the employee can make a workers’ compensation claim for injuries sustained – as long as those injuries do not result from horseplay or intoxication. Avoiding a workers’ compensation claim, however, may not be the right ticket because employees may then have a claim for negligence, which will not be covered by your carrier.

How can I be liable for providing alcohol: Under Texas law, an employer is generally not responsible for injuries to an employee or anyone that employee might injure, as a result of providing alcohol to that employee. One exception to this rule is providing alcohol to a person under the age of 18.

Common Situations

Office staff only: Jimmy, decides to have a “Holiday Party” for his office staff at Jimmy’s Janitorial Service. Jimmy decides that the actual crews would be too cumbersome to invite so he does not include them. Has Jimmy screwed up? Yes. It wasn’t religious discrimination and there was no sexual harassment, but Jimmy failed to take into consideration the fact that 98% of his office staff is white or black and 98% of his cleaning crews are Hispanic. While sexual harassment and religious discrimination are most likely to create a problem with a holiday party, employers must be mindful of unanticipated consequences.

But you assumed responsibility: Arnie, owner of Arnie’s Beer Goggles, decides to host a Christmas party for his staff at his home. Because he knows the dangers of sending inebriated employees home after a party, he decides that everyone must stay at his home overnight to avoid leaving drunk. After a fun filled evening, Arnie calls it a night about 2 a.m. and goes to bed leaving his employees apparently asleep in the living room. Around 3 a.m., one of the most heavy drinkers, Saul, decides to head home with his wife. On the way home, Saul hits a tree and is grievously injured. Does he have a case against Arnie or the company? Maybe, but not for providing the alcohol. Setting aside the fact that Arnie should not have called it a “Christmas party,” he made the mistake of taking responsibility for the safety of his employees. By making them stay at his home, but doing nothing to ensure they would do so – such as taking away their keys, Arnie may have engaged in a “negligent undertaking.”

What should I do

Instead of good, better, and best, this month, consider these remedies for the particular concern:

Sexual Harassment: Remind all employees of anti-harassment policies and applicability at a company party. Designate a hall monitor and put all supervisors on watch duty for any issues. React to complaints and politely break up any potentially dangerous decisions right away.
Religious Discrimination: Avoid decorations and themes associated with a particular religion. Make the focus of decorations wintery.

FLSA: To avoid the risk of paying employees to attend the party, have it during regular business hours you would have paid them for even without the party, or make attendance strictly voluntary. And, if you use voluntary attendance, be sure not to include any activities an employee might feel a need to be present for – such as handing out bonuses.

Worker’s Compensation: Minimize activity at the party. Dancing and drinking can make for accidents.
Social Host Liability: Setting aside the fact that skipping alcoholic beverages will lessen the risk, consider the following. Hire a bartender and instruct them who the minors are, if any, and to warn you if anyone appears to be over-served. Consider using the dreaded drink tickets to limit consumption or closing the bar early. Serve starchy food that will soak up alcohol more quickly. Offer to reimburse for taxi service.

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.

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.


Who, What, Why . . .

Who does it apply to: Every employer who has or intends to hire unpaid interns.

When must an intern be paid: All “employees” of a business must be paid at least minimum wage unless they are a “trainee” under the law, regardless of whether they are called an “intern.”  So, what makes a trainee? The United States Department of Labor (DOL) has established a six-factor test couched in terms of – you guessed it – training – to determine whether an unpaid intern should be considered an employee or trainee under the Fair Labor Standards Act (FLSA):

  • the training is similar to that which would be given in a vocational school (even though it includes actual operation of the facilities of the employer);
  • the training is for the benefit of the trainees;
  • the trainees do not displace regular employees, but work under their close observation;
  • the employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion operations may actually be impeded;
  • the trainees are not necessarily entitled to a job at the conclusion of the training period; and
  • the employer and the trainees understand that the trainees are not entitled to wages for the time spent training.

When can I hire an unpaid intern or volunteer: The six-factor test is primarily used in the, “for profit,” private sector. State and local government agencies and non-profit organizations can generally utilize interns or volunteers without an obligation to pay them under the FLSA. It is important, though, that the volunteers understand they are not to be paid for their time. Volunteer work at non-profit, religious, charitable, and civic organizations have specifically been cleared by the Texas Workforce Commission.

What about true student interns: Student interns are not evaluated differently by the DOL. They should easily meet the trainee test. That said, there are special rules for individuals who have completed a professional degree like physicians, attorneys, and therapists, generally allowing them to volunteer their time as they choose.

What do these factors really mean: The more an internship program can be structured around a classroom or academic type experience the better. It is better if the employer can provide the individuals with skills applicable to various employment settings, not just skills particular to the employer’s business. Essentially, the employer needs to provide the intern or volunteer with valuable training. Ideally, the training would make them more marketable in the open job market. The employer must pay any intern or volunteer that is used as a replacement for a regular employee or to reduce their workload. The intern or volunteer should receive more supervision than a regular employee.  If the employer would have to hire additional employees if the intern or volunteer were not performing certain work, the intern or volunteer would be considered an employee. Don’t rely on unpaid interns to do work of any real significance to your business. The work done by an unpaid intern should be secondary to their training. An intern that is hired by an employer on a trial basis with the expectation that they will eventually be hired full time will likely be considered an employee under the FLSA. Employers should indicate prior to the start of the internship that there is no guarantee or expectation of hiring the interns upon completing the internship. A written agreement indicating this is advisable. Employers should indicate prior to the start of the internship that there is no intention to pay the intern. A written agreement indicating that the intern will not be paid and does not expect to be paid is advisable.

What happens if I don’t follow the test: An employer violating the rule is subject to the same damages available to an employee who is not paid all of the wages they are owed. This may include minimum wage and overtime for all hours worked, plus an equal amount in liquidated damages for all interns over the past two or three years.

What about discrimination laws: It depends on whether the person in question receives “significant remuneration” for their efforts. The EEOC has stated that things like a pension, group life insurance, workers’ compensation, or access to professional certifications constitute significant remuneration. However, Courts have determined that things like academic credit, practical experience, and scholarly research do not constitute significant remuneration. Because this point is subject to interpretation, however it is best to treat all interns and volunteers as though they are employees with respect to discrimination laws.

Common Situations:

Required training: Safety First is ready to hire a new class of security guards.  The company requires that security guard trainees receive 40 hours of training prior to performing any regular work under their service contract.  According to their contract, the training is focused on “company practices, policies, and rules.” Does Safety First have to pay the trainee security guards even though they are not yet performing regular work?  Yes. These trainees would be considered employees because: (1) the employer is directly benefiting from their training, (2) the training is given to security guards who will work on contract, and (3) Safety First can only employ specifically trained guards.

Homegrown hiring: Maverick Finance hires interns each summer.  Maverick’s intern program is structured much like an academic program.  The interns do not do the work of regular employees and are heavily supervised.  The interns are not paid and are aware there is no guaranty of employment.  However, Maverick hires its first year analysts almost exclusively from the unpaid interns it has each summer. Does the FLSA require Maverick to pay these interns at least minimum wage? Probably.  Although Maverick substantially satisfies the six factor test, its practice of hiring analysts from the intern pool is likely enough to tip the balance against the company in the face of a DOL audit.

What should I do:

Good: Paying minimum wage to all interns probably is the safest bet. You avoid the risk of an audit of all your employment practices because of one dissatisfied intern that calls the DOL.  If you go the trainee route, be sure to meet all the factors.

Better: If you have true “trainees” taking into consideration all the factors, it makes sense to put that understanding in writing in a short half-page agreement outlining the factors. If you use volunteers, it makes sense to have them sign a one-paragraph agreement acknowledging their status as a volunteer without expectation of pay or other “significant remuneration” to avoid the possibility of an EEOC complaint.

Best: In addition to the items above, require that the trainees keep track of their hours so you have a record of how much they might be entitled to if the DOL audits and rules them employees. Be sure they do not work more than 40 hours to avoid increasing the risk to include overtime. Have the trainees and their supervisors keep a log of their activities so that there is no confusion regarding the type of work they did.

Over the last several years virtually every drug company has been hit with a lawsuit about whether its drug representatives or “drug reps” are exempt from overtime.  In case you have missed them on TV or in the doctor’s offices, drug reps are the folks who visit your doctor hawking drugs from all of the drug companies to get physicians to prescribe them.  Coincidentally, that is where those samples your physician may have given you at one time come from.   These drug reps don’t actually sell directly to the doctors because the doctors are actually the folks who “sell” the product to their customers.  Rather, drug reps just try their best to get doctors to choose to prescribe the medications.

The argument in all of the lawsuits goes something like this:  Everyone is entitled to receive overtime if they work more than 40 hours a week, unless they are “exempt” from the overtime requirement under one of several permitted exemptions (see my previous posts on Overtime and Exemptions from Overtime).  “Outside sales” are one of the groups that may be exempt from overtime.  For many years drug reps have been considered by drug companies as outside sales people, and in virtually every respect they meet the requirements of the exemption that were originally laid out by the Department of Labor.

Recently, however, the Department of Labor decided to take the position that drug reps do not meet the requirements of the exemption because they don’t actually “sell” anything.  As noted above, they just push physicians to choose to use their products and “sell” the drugs.  The Department of Labor then encouraged drug reps to bring suit against drug companies by publishing this narrow view as an interpretation of its own original regulations that should be followed by businesses.

Some of the courts where suit was filed accepted the Department of Labor’s interpretation of its original requirements, giving deference to the agency that originally wrote the rules.  Other courts found that the new interpretation was a self-serving attempt to narrow the outside sales exemption to produce more overtime earning employees.  In an effort to deal with the differing opinions among the courts of appeal, the issue was put to the US Supreme Court to decide.  Last week the Supreme Court handed down its final pronouncement on the subject.  In a 5-4 decision, the Court found that drug reps are properly “outside sales” and exempt from overtime.

The Supreme Court felt that the Department of Labor was being overly technical about what constitutes a sale and found that the Department’s interpretation did not deserve deference even though it originally wrote the requirements for the exemption.

I think this is the right result.  The drug industry is a unique environment that requires special consideration.  Drug companies would be happy to sell their products directly to patients, but they can’t.  Physicians have to be the one to decide when a drug is needed and should do so based on patient need and not to line drug companies pockets.  In this system, drug reps are the closest thing to a salesman that the drug companies could have to get their product to market.  Without them, physicians might not know about or choose to prescribe a particular medicine.  The Department of Labor overstepped its bounds and even tried to cheat by redefining its own rules and the Supreme Court was looking.

Besides, drug reps are exceptionally well paid.  Many make over $100,000 per year without any special additional compensation for working overtime.  They don’t need the extra compensation.

So, what does this mean for your business?  If you are a drug company, you should be very happy.  If, more likely, you have a different business, you should know that the outside sales exemption is alive and well and if you have similarly situated sales representatives, they should be well protected.  Otherwise, it probably has limited application for you because the drug rep environment is so unique.

With unemployment for people 20 – 24 hovering around 13.2%, college students are flocking to unpaid internships to gain some experience, stay busy, and better position themselves for jobs afterward.  As recently reported by Josh Sanburn at Time MoneyLand and Steven Greenhouse in the NYT, however, these unpaid internships have serious legal problems.

Businesses are taking advantage, offering “internships” that are supposed to put the grads on the path to a super career.  Instead, interns are working 12 hour days in some cases cleaning out closets, getting coffee, and running errands.  They are no more learning the business than the man in the moon, unless they are studying for a runner job they could have gotten – with pay – before college.

A few of these interns have gotten smart though, and are filing lawsuits for minimum wage and overtime and employers should be concerned.  In addition to collecting these back wages, the interns can collect liquidated damages of an equal amount, and attorney fees.

So, how do the employers that are using internship programs for the right reasons know they won’t get in trouble?  Well, to properly be an unpaid internship, the intern must not be an employee within the meaning of the Fair Labor Standards Act (FLSA).  Of course, as you might imagine, the congress painted with a pretty broad brush when they defined “employ” under the FLSA because the wanted to prevent just this type of conduct.

Though not having the force of law, the Department of Labor came up with a six factor test that it will use to decide if an internship must be paid.  And, since the Department of Labor is the organization who enforces the FLSA, employers should sit up and listen.  To properly be an unpaid internship:

1.  The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

2.  The internship experience is for the benefit of the intern;

3.  The intern does not displace regular employees, but works under close supervision of existing staff;

4.  The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

5.  The intern is not necessarily entitled to a job at the conclusion of the internship; and

6.  The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Of course, after reading the criteria, employers with anything less than the purest motives will want to drop the idea of an internship program all together.  C’est la vie!


Who, What, Why . . .

Who does it apply to:  Every employer, but especially those subject to discrimination laws or who have employees classified as exempt from overtime.

Why should I have any:  If done right, a job description can help avoid discrimination claims, make job listings and interviews a snap, provide the analysis for classifying employees as exempt or non-exempt, and set the standard for performance appraisals.

How does a description help with exemptions from overtime:  As you know from my previous pieces on Overtime and Exemptions from Overtime, all employees are eligible for overtime – unless they meet one of certain limited exemptions.  Job descriptions can be written with exemptions in mind.  Then, when the Department of Labor arrives for an audit, you have the ammunition you will need to defend your decision to exempt those employees, and you will be less likely to have made a costly mistake in your initial determination of exempt status.

How does a description help with interviews and performance appraisals:  A job description makes writing an ad for an employee very easy because you’ve already defined what you want and can easily transcribe it. Descriptions make interviewing more objective by setting the standard by which all applicants are evaluated.  Finally, descriptions can be converted to evaluation points to objectively determine whether the employee has measured up to the job you’ve given them.

How does a description help avoid discrimination claims:  As noted above, they can help make interviews and performance appraisals objective, avoiding arguments that you made subjective determinations based on race, sex, or some other protected characteristic.  When written to include the essential functions of the position, including physical requirements like lifting, or reading and writing English, they will help avoid claims under the Americans with Disabilities Act (ADA), or discrimination claims based on national origin.

What problems might arise with old or inaccurate descriptions:  Job descriptions pulled off the internet from or a form book are like employee handbooks from the same sources.  They do not really reflect your practices or requirements.  If the Department of Labor arrives and questions employees about job descriptions and they don’t match up, the work in creating them will be for naught.  What is more, the position you designated as exempt based on an inaccurate description may be lost, and you could be responsible to the employee for overtime going back two or three years.   Worse still, since you did not have the employee clock in or out, you have nothing to defend with when the employee suddenly remembers working 5 hours of overtime every week!

What should be in a job description: Job descriptions need to separately describe both the essential functions of the job and those additional requirements that might be added or occasionally fall within the responsibilities for the position.  Essential functions should include not just the basic job duties, but employers must take consideration of what specific characteristics make up those functions.  You shouldn’t just assume that employees must read and write English. To protect you, even functions of this type need to be in the description in advance. Similarly, to protect against claims under the ADA, descriptions need to explain the physical requirements of the job such as lifting, carrying, and typing.  Finally, employers should consider whether the position should be exempt from overtime and under which exception so that the description can be written consistently with the exception requirements.

What should not be in a job description:  Employers should be careful not to write job descriptions that suggest discrimination.  A policy that all employees read and write English might be alright for the hotel front desk clerk, but not for the housekeeping department and thus create discrimination based on national origin.  Requiring a college degree for a job that does not need it might unnecessarily exclude certain protected classes.  And, a policy that specifically calls for a protected characteristic such as sex or religion is only appropriate if it is a “bona fide occupational qualification” or “BFOQ.”

When are BFOQs appropriate:  Sometimes it is appropriate to intentionally discriminate against a protected class in hiring an employee.  If you are hiring a new priest for your church, it is probably good that they have the right religion.  If you are hiring an attendant for the women’s restroom in your gym, it probably is best not to hire a man.  That said, it is not appropriate to hire all men because you are a men’s clothing company.  This is a dangerous area.  Courts are very particular about what is allowed under this exception.  You should probably consult with a lawyer before characterizing a protected class as a BFOQ.

Common Situations:

Job description after the fact:  Often, employers get caught with a Department of Labor audit and try to write job descriptions to justify exemptions after the fact.  The DOL is wise to this idea and gives the after-thought job descriptions little weight.  The same issue arises with job descriptions written after a discrimination claim is made.  The description often is used by the claimant to their advantage to make it look like the employer is trying to cover up to avoid liability.

Some jobs just require a guy:  BFOQs are dangerous, but having a requirement that you hire all men for your female-oriented shirtless hunk restaurant without writing down the requirement and explaining it in advance is a recipe for being sued.  In a reverse circumstance, a little company called Hooters™ got sued because it wouldn’t hire any men for its wait staff.  If you are going to have a BFOQ, put it in writing in advance and include an explanation that a jury would believe because that is who will ultimately evaluate it.  If a jury wouldn’t buy it, you probably shouldn’t be doing it.

Criminal background checks all around: If your job description says “no criminal history,” it better be needed.  Pepsi™ recently discovered that requiring no criminal history or even arrests for all positions can be considered discriminatory.  According to the Equal Employment Opportunity Commission, who just took Pepsi™ for a $3.1 million dollar settlement, not all jobs require a spotless criminal history.  I don’t necessarily agree with this position, but it makes a point.  If you make a job description that unnecessarily has an adverse effect on a particular protected class, even if it isn’t facially discriminatory, you could find yourself in a bad spot.

What should I do:

Good: Prepare job descriptions for all exempt employee positions and positions that require strenuous or specialized physical activity to protect against overtime claims and violations of the ADA.  Remember to be careful with job descriptions in a union environment, there may be additional requirements under the collective bargaining agreement you should consider.

Better: Prepare job descriptions for all positions and use those job descriptions as the basis for your interviews of prospective employees and as a checklist for performance evaluations of existing employees.  Be careful not to use sexist terms in your job descriptions like salesman or waitress.

Best:  In addition to the items above, get employee buy-in for job descriptions.  Have the employees presently in the position agree with the job description and what is included such that you could show the Department of Labor that the employee agreed to what is required.

My favorite tipster over at LexBlog sent me a couple of links this week to an employment related issue in San Francisco. A popular vegan restaurant chain called Cafe Gratitude is closing eight locations over a series of employment lawsuits. Sparing you the gritty details, one lawsuit involves the café’s tipping policy which is a common trouble spot for restaurants. Another involved a salary employee who was not paid overtime which is also very common mistake. The last involves the company’s requirement that employees attend some sort of spiritual healing workshops on their own dime which the owners firmly believed in.

Citing the last lawsuit, you could write off the owners as crazy people with some kind of bizarre cult interwoven into their company business. I would probably be right there with you, but there is a very important lesson to be learned here. In their “fairwell note”, the company owners wrote:

A series of aggressive lawsuits has brought us to this unfortunate choice. Although we believe that we have done nothing wrong and our policies are completely legal, it will cost us too much money to defend them in court. Despite telling the attorneys that brought the lawsuits that the current structure and resources of Café Gratitude are insufficient to sustain and defend our community, they have refused to give up and are forcing us to close.

We appreciate the loyalty of our employees and customers over these past 8 years and are grateful for having had the opportunity to serve each of you. We were happy to tolerate low margins and sustain ourselves on the transformation and personal growth of our people, while providing local organic vegan food to our community in an atmosphere of unconditional love. That commitment is under attack and we are not able to weather this storm . . .

I highlighted the portions that are particularly relevant. Restaurants operate on very low margins and in tight economic times even more profitable businesses are operating on the edge of sustainability. I have seen time and time again, small business totally caught off guard by the cost of defending even a small wage and hour lawsuit or a Department of Labor audit. For a simple overtime claim, employees can recover the overtime wages for up to three years, plus an equal amount in penalties and their legal fees. On top of this, the sued company gets the pleasure of paying its own lawyer to defend the suit. So, even a small suit by one former employee can cost a lot of money. I routinely see clients incur $20,000 or more in cost over one little overtime claim between the settlement and defense fees.

For Café Gratitude, the cost was just too much. And the sad part is, most of these issues could easily (and cheaply) be avoided if the café consulted with a labor lawyer to make sure it was handling everything right.