The number of filings for wage and hour lawsuits in federal court has risen more than 300 percent over the past 15 years to a record of 8,871 filings in Fiscal Year 2015. In 2000, there were less than 2,000 of these lawsuits filed in federal court.
Near our office in Center City Philadelphia today, workers met to protest the low wages paid by their employers and urge city and state government officials to adopt a minimum wage of $15 an hour. The demonstration was part of a coordinated, nationwide rally led by fast food workers in 270 cities and supported by many politicians and other workers’ organizations.
Oil and gas giant Halliburton has agreed to pay $18.3 million to more than 1,000 workers improperly classified as exempt from overtime pay in a settlement with the U.S. Department of Labor. It is one of the largest overtime settlements with the U.S. Government in recent years.
According to the Labor Department, all salaried workers at Halliburton were automatically exempted from overtime. The law instead requires employers to pay overtime even to employees receiving salaries if their job duties or income do not qualify them for the FLSA exemption.
This is one of many developments happening in the fight against wage theft across the country. In California, lawmakers this month approved a bill that would allow the labor commissioner in California to put a lien on an employer’s property for unpaid wages.
The California law would also prevent owners from closing down a business and reopening it under a new name. At the beginning of the month, a Los Angeles Times story cited this as an example of one of the many ways that businesses were circumventing the requirement that they pay wages pursuant to the law.
The L.A. Times article also suggested that the California Legislature was considering making companies jointly liable for the payment of workers providing services for them. We haven’t yet reviewed the law to see if this made it into the final approved version but this would be a huge step forward in the fight against wage theft. Other states should consider such a law.
In other news, Wisconsin Democrats have proposed a bill to strengthen enforcement against employers stealing wages, allowing fines of up to $1,000 per violation and imposing interest on the money owed. Unfortunately, the legislature is controlled by Republicans so the measure probably stands a slim chance of passing as written.
President Obama has issued an executive order establishing paid sick leave for federal contractors. Upon implementation, government agencies will place a requirement in U.S. government contracts that contractors and subcontractors must allow employees to earn up to 7 days or more of paid sick leave annually, including for family care.
The order does not mention it but there will be implications for whistleblowers because of it. If federal contractors and subcontractors do not abide by the policy when it becomes a part of their government contracts, they will be subject to liability under the False Claims Act. As provided by the law, there will be potential penalties for each false claim submitted to the government as well as treble damages. The law provides for rewards to eligible whistleblowers reporting violations of the law like this one in a range of 15 to 30 percent of the monetary recovery by the U.S. Government.
The regulation requires implementation on contracts entered into after January 1, 2017. However, it is possible that individual government agencies will begin adding it to their contracts earlier than the date set forth in the order.
The new policy was announced on Labor Day. It provides for one hour of leave for every 30 hours of work for up to seven paid sick days a year. It is expected to impact employer policies affecting around 300,000 workers. Several states and even more municipalities have previously passed laws requiring businesses to offer their employees paid sick leave.
The use of the government’s purse strings on contracts to encourage implementation by businesses has been an increasingly popular way to effect change. For example, the Congressional Budget for FY2015 required that no federal funds be provided to entities requiring employees to sign confidentiality agreements prohibiting or restricting reporting waste or fraud to the U.S. Government.
Popular startups that rely on freelancers to perform on-demand services in a two-sided marketplace are having to re-examine whether their workers are in fact employees amid lawsuits across the country challenging their practices. The contractors, on the other hand, are simply standing up for the wages that they should have been paid all along under the Fair Labor Standards Act and have to this point been denied at the hands of those exploiting their need for a job.
Many startups have paid these workers via 1099s, the IRS form that companies report taxable income on their independent contractors. If a worker is a contractor, then businesses do not have to pay minimum wage, overtime or benefits to them. The company also does not have to pay employment taxes to the IRS based on their income.
The Department of Labor recently issued an interpretive memorandum that expressed the opinion that most workers are actually employees under the FLSA. The Wall Street Journal article published today essentially suggested that every startup paying workers on 1099s should expect to get sued. According to the article, many are already planning to make their freelancers into employees following the lawsuits and DOL guidance.
Venture Capitalists quoted in the WSJ article suggested that it might be tough for many of these startups to continue operating if they have to absorb increased labor costs. Housecleaning service Homejoy shut down after they were unable to raise additional funds from investors under the cloud of threatened wage and hour lawsuits. Transportation app Uber has some 200,000 contract drivers and has already been the subject of both protests and lawsuits.
These aren’t the only startups that have run afoul of the nation’s employment laws. LinkedIn paid $6 million in back overtime and damages last year following a Labor Department investigation into. According to news reports, the company’s sales force, who are non-exempt workers under the law, were working off-the-clock and the company was not paying them for that time.
A report published by Temple Law School this week detailed the pervasive problem of wage theft here in Pennsylvania and, specifically, Philadelphia. The executive summary details the grim facts for workers in the state in any given workweek:
- Almost 400,000 Pennsylvanians experience a minimum wage violation.
- Over 300,000 Pennsylvanians experience an overtime violation.
- Pennsylvania workers lose a total of $19 million to $32 million in wages.
In the Philadelphia metropolitan region alone, more than 100,000 workers can be expected to have a minimum wage or overtime violation each week with 75,000 employees working off-the-clock without pay from area businesses.
The statistics are extrapolated from a 2009 investigation of thousands of workers in low-wage industries in Los Angeles, New York and Chicago and then applied to Pennsylvania using Bureau of Labor Statistics employment data.
Here in Philadelphia, the occupations most likely to experience these problems are in the restaurant industry: waiters, bartenders, cafeteria workers, cooks, dishwashers and food preparers. Other jobs seeing a significant problem were office clerks, retail salespersons, home health aides and cashiers. In the metropolitan region, the list of occupations where wage theft is experienced also includes individuals working in factory and packaging; general construction; building services and grounds workers; and drivers, parking lot attendants and car wash workers.
The report recommends Pennsylvania impose criminal penalties against employers, increase monetary penalties, create a wage lien law and impose other non-monetary penalties. It also suggests additional outreach and education, a confidential or anonymous process for complaints and internal adjudication of claims within the Department of Labor and Industry.
Over the course of the past month, there have been two important developments in labor law. The first involves the classification of independent contractors, the other involves when an unpaid intern is not an employee that must be paid the minimum wage. I wanted to take a minute to cover them today.
Department of Labor Independent Contractor Classification
The Department of Labor has issued new guidance on how to distinguish between employees and independent contractors. This issue is one of importance to both employees (who miss out on employer paid taxes and benefits) and whistleblowers (who can report unpaid taxes from misclassified workers to the IRS). The sx factor test places renewed emphasis on the economic realities test. This means that a worker who is economically dependent on an employer is an employee. If the individual can be said to truly be in business for him or herself, then they can be an independent contractor. Changing the label that is applied to these individuals (such as calling them “owners” or “members of a limited liability company” does not change the analysis.
The list of factors includes:
– whether the work is an integral part of the employer’s business.
– whether the worker’s managerial skill affects the worker’s opportunity for profit or loss.
– whether the worker is making an investment in the business compared relatively to the investment made by the employer to allow the individual to do their work
– whether the work preformed requires special skill and initiative.
– whether the relationship between the worker and the employer is permanent or indefinite.
– the nature and degree of the employer’s control.
Second Circuit on Unpaid Interns
At the beginning of the month, the Second Circuit ruled in Glatt et al. v. Fox Searchlight Pictures, Inc. et al.
The three plaintiffs were hired as unpaid interns at Fox Searchlight and have asserted a claim for compensation as employees under the Fair Labor Standards Act (FLSA) and New York Labor Law. The district court granted a partial motion for summary judgment concluding that two of the plaintiffs were improperly classified as unpaid interns rather than employees.
The FLSA requires that employees be paid a specified minimum wage and time and one-half for the hours worked in excess of forty per week (non-exempt employees). The issue of when an unpaid intern was an employee under the FLSA and entitled to compensation was one of first impression in the Second Circuit.
Both parties agreed that there are cases where an unpaid intern is an employee and should be paid under the law. Both sides also agreed that some unpaid interns are not employees under the FLSA. The court noted that some employers are looking to exploit their unpaid workers while others have developed a program that greatly benefits the interns. The Department of Labor, as amicus curiae, argued that each of the six factors in its Intern Fact Sheet were a requirement for interns to be legally unpaid.
The Court agreed with the Defendants that the question is whether the intern or the employer is the primary beneficiary of the relationship. The court proposed a non-exhaustive list of factors to aid in judicial analysis of the question. No factor is to be considered dispositive and every factor need not point in the same direction for the court to conclude an intern is not entitled to the minimum wage. The factors specified included:
1. The extent of the understanding that there is no compensation.
2. The extent to which the internship provides training similar to that provided in an educational environment.
3. The extent the internship is tied to a school’s educational program by integrated coursework or academic credit receipt.
4. The extent of accommodation to academic commitments by corresponding to the academic calendar.
5. The extent the internship is limited to a period providing beneficial learning.
6. The extent to which the intern’s work complements, rather than displaces, paid employees while providing significant educational benefit to the intern.
7. The extent to which the intern and the employer understand that there is no entitlement to a paid job at the conclusion of the internship.
President Obama announced changes to federal overtime regulations this week, extending overtime benefits to an additional $5 million people by doubling the minimum exempt salary for workers to $970 a week in 2016. Workers making less than $50,440 a year will automatically qualify for overtime pay under the proposed rule changes.
Previously, a worker that made more than $455 a week did not automatically qualify for overtime under the federal rules. The amount was last updated in 2004, and the Obama proposal reflects inflation over the last 10+ years. The proposal further covers adjustments based on median wage levels in the future.
This proposal has been expected for some time as President Obama announced his intention to change the nation’s overtime rules more than a year ago. Forty percent of full-time salaried workers would be eligible for overtime pay after the rule changes go into effect.
Under the current rules, employers do not need to pay employees making more than $23,660 a year if they are performing mostly executive, administrative or professional duties. Only 8% of the full time salaried workforce is currently covered by the salary threshold, whereas 60% of salaried workers were overtime eligible when the rules were put in place in 1975.
The President talked about the need for the policy change on the Huffington Post last night, and then followed that editorial up with a Fact Sheet today on Rewarding Hard Work by Restoring Overtime Pay.
Independent contractors may wish to have an employment lawyer examine the appropriateness of their company’s claim that they are not an employee in light of two recent events in California.
The California Labor Commission has ruled that a San Francisco driver for the popular on demand taxi-alternative app Uber is an employee and not an independent contractor. The company now owes the individual unpaid expenses during her two months as a driver. A state agency in Florida has previously ruled that Uber drivers are employees as well. There are lawsuits (as well as protests) over on this issue in other states.
FedEx has also settled a longstanding California lawsuit brought by its Ground and Home Delivery drivers about their misclassification as independent contractors for $228 million. The court must still approve the settlement. The settlement only deals with drivers in California, and it is still too early to say whether FedEx will settle or continue to defend that lawsuits in other states on this issue.
By labeling their work force as independent contractors, companies can shift expenses such as Social Security and tax withholding on to their workforce. This has proven especially popular among early technology startups, such as Uber, as they try to create a marketplace of on-demand service fulfillment.
This area could also be one for whistleblowers to report to the federal government as well, since misclassification can result in unpaid taxes to the Internal Revenue Service.
The Supreme Court reversed the Tenth Circuit decision in E.E.O.C. v. Abercrombie & Fitch Stores, Inc. this week and allowed the employment discrimination action against Abercrombie to proceed.
The case involved a claim of intentional discrimination under Title VII. Abercrombie was accused of failing to hire an applicant because of her religion. During the applicant’s interview, she wore a headscarf. Abercrombie has a policy that “caps” are not permitted to be worn by its employees. Because of this policy, Abercrombie did not hire the applicant.
Justice Alito’s opinion focuses largely on the words “because of” in Title VII. His analysis separates the defendant’s motive and knowledge, concluding that certain motives for employment decisions are prohibited “regardless of the state of the actor’s knowledge.” “[Title VII’s] disparate-treatment provision prohibits actions taken with the motive of avoiding the need for accommodating a religious practice. A request for accommodation, or the employer’s certainty that the practice exists, may make it easier to infer motive, but is not a necessary condition of liability.”
The False Claims Act has similar “because of” language in its anti-retaliation protections. It prohibits certain adverse employment actions “because of lawful acts done … in furtherance of an action under this section ….” 15 U.S.C. 3730(h)(1). This section has generally been interpreted to require the employer’s knowledge of protected activity by an employee. See, e.g., Eberhardt v. Integrated Design & Const., Inc., 167 F.3d 861, 868 (4th Cir. 1999); U.S. ex rel. Yesudian v. Howard Univ., 153 F.3d 731, 736 (D.C. Cir. 1998).
The knowledge requirement can pose problems for a whistleblower that has not explicitly told their employer that they have engaged in protected activity. If proof of employer knowledge was not required, the law might protect an employee from actions taken against potential or suspected whistleblowers where there was not otherwise enough evidence to meet the current law’s test for improper conduct.
Of course, because the Supreme Court’s decision was interpreting Title VII, it may ultimately have no effect on whistleblower retaliation law. It will be up to federal judges to decide the extent of the impact of this decision in the coming years.