FLSA Collective Action Litigation

Deductions

Deductions from non-exempt employees' pay are permissible so long as they: 1) are for a permissible purpose under state law; 2) satisfy any state law prerequisites (e.g., signed authorization); and 3) do not bring an employee's pay below the applicable minimum. With regard to this third obligation, the FLSA prohibits (with certain exceptions) deductions that bring a non-exempt employee's wages below the minimum wage for all hours worked up to 40 in a work week. In addition (again with certain exceptions), no deductions may be made from a non-exempt employee's overtime pay. Consequently, no deductions may be made from the pay of a minimum wage employee, regardless of whether such deductions would otherwise be permissible under state law.

The most unlikely trap for the unwary relates to employees who now earn above the applicable minimum but who, because of any minimum wage increase, will earn closer to the minimum. Deductions from pay which now may be permitted by state law (e.g., employer loan repayments in states like Pennsylvania and New Jersey) may reduce the employee's pay below the new minimum and, hence, violate the FLSA.

Regular Rate

Overtime for non-exempt employees is calculated based on the employee's regular rate for the work week in question. The regular rate ordinarily is a simple mathematical formula: total compensation for the work week divided by total hours worked during that week. Where a non-exempt employee receives payments in addition to his or her hourly pay, those additional payments must be included in calculating the employee's regular rate unless they are specifically excluded by the FLSA. In effect, the employer is paying overtime on the additional payments. The obligation to include additional payments in regular rate calculations applies even where the additional payments are made after the employee was paid for the work week in question and even where the additional payments relate to multiple work weeks ' e.g., a performance-based quarterly bonus paid after the end of the relevant quarter.

The situations in which additional payments may be excluded from regular rate calculations are limited. One that is frequently relied upon is the discretionary bonus. To take advantage of this exclusion, however, the bonus must be completely discretionary both as to whether it will be awarded and, if it is awarded, the amount of the award, with decisions as to both being made at or near the time the bonuses are awarded. The bonus also cannot be tied in any way to an employee's productivity or to the accuracy or quality of an employee's work. Other exclusions are described in ' 7(e) of the FLSA, as well as the regulations found at 29 C.F.R. ” 778.200, et. seq.

Many employers make additional nonexcludable payments to their non-exempt employees, but fail to pay overtime on these payments. In late January, for example, Wal-Mart entered into a $33 million settlement with the U.S. Department of Labor for FLSA violations, including the failure to include incentives and other premium payments in the calculation of employees' overtime pay. The obligation to include additional payments when calculating an employee's regular rate cannot be avoided by making the payment in kind ' e.g., a gift card. Rather, the cost to the employer of the in-kind payment must still be included in the regular rate calculation.

Out-of-Town Travel

The rules regarding out-of-town travel payments to non-exempt employees differ depending on whether the employee is on a day or overnight trip.

For a day trip, non-exempt employees must be compensated for all travel time, with two exceptions: 1) if the employee travels via public transportation, he or she does not have to be compensated for the time spent traveling from home to the portal (station, airport, etc.) and back even if it takes longer than regular home to work travel; and 2) if the employee drives, the employee may be compensated for his or her travel time minus the amount of time the employee regularly spends commuting to his or her work site.

For an overnight trip, an employee traveling as a passenger on a plane, train, boat, bus or car must be compensated only for travel that is done during his or her regular working hours, even if those hours fall on a day he or she normally would not work. If an employee must drive for an overnight trip, the time spent driving is compensable, even if the driving is outside of his or her regular working hours. Such time is also compensable if the employee is a passenger in an automobile and is required to assist the driver. The two exceptions described above for single-day travel do not apply to overnight travel.

The complexity of the travel time rules makes compliance difficult. For convenience, many employers pay their non-exempt employees more than the FLSA requires when they travel out-of-town ' e.g., paying for all travel time for single-day and overnight travel.

Training

Many non-exempt employees attend training and other programs outside of their regular work day. Non-exempt employees must be paid for their attendance at such programs unless all four of the following criteria are satisfied: 1) attendance is outside of the employee's regular working hours; 2) attendance is in fact voluntary; 3) the program or training is not directly related to the employee's job; and 4) the employee does not perform any productive work during such attendance.

If a company requires (or effectively requires) a non-exempt employee to attend a program, the employer must pay the non-exempt employee for his or her time. Likewise, a voluntary program designed to help an employee handle his or her job more effectively is also compensable. On the other hand, if an employee voluntarily attends a program to prepare for advancement to a better position, the time is not compensable, provided it is outside of the employee's regular work day and no productive work is done.

Preliminary/Postliminary Activities

An employee's workday generally can be broken down into three parts: 1) principal activities (i.e., an employee's productive work); 2) activities preliminary to (or before) the principal activities; and 3) activities postliminary to (or following) the principal activities. Where a preliminary or postliminary activity is integral and indispensable to an employee's principal activities ' i.e., it is required by the employer to enable the employee to perform his or her productive work ' it too is considered a principal activity and must be compensated. Preliminary and postliminary activities, which are integral and indispensable to an employee's principal duties (and therefore compensable) effectively bookend a non-exempt employee's compensable day, and all activities (except for breaks of 30 minutes or more) that take place in between are compensable as well.

Where an employer requires (or effectively requires) its non-exempt employees to change into (and out of) uniforms at work, the changing time becomes the employee's first (and last) compensable activity of the day and employees must be paid not only for the changing time but also for the time spent walking from (and to) the changing area to where the employees begin (and end) their productive work. On the other hand, if employees are encouraged to wear their uniforms to and from work and an employee decides for the employee's own convenience to change at work, the changing timing is not compensable.

The following preliminary and postliminary activities would also be compensable if employees are required (or effectively required) to do them: washing hands; showering; putting on or taking off protective gear; preparing, cleaning or attending to tools, equipment or vehicles; retrieving or storing tools, equipment or vehicles; and any other required (or effectively required) task. While manufacturing industry employers have seen the most litigation to date involving compensation for preliminary and postliminary activities, this is likely to change, with white collar, service employers likely to be the next target.

Conclusion

The FLSA's rules for compensating non-exempt employees are many and complex. Employers should take their cue from the minimum wage debate and take the time to evaluate their non-exempt payment practices for FLSA and state law compliance.

Jennifer Blum Feldman is an attorney in Wolf, Block, Schorr and Solis-Cohen's Employment Services Practice Group, Philadelphia, where she focuses her practice on preventive counseling and compliance. She also provides training to in-house counsel, managers and other employees and has significant experience as a litigator defending local, regional and national companies in single-plaintiff and class action employment litigation. This article should not be construed as legal advice or as pertaining to specific factual situations.

When the dust settles from the current round of discussions on increasing the federal minimum wage, the lowest paid of the country's non-exempt employees may or may not be earning an additional dollar or two per hour. Either way, the debate will have drawn the country's ' and the plaintiffs' bars' ' attention toward the lowest paid of our country's workers, and the climate will be right for those attorneys to begin focusing not only on how much non-exempt employees are being paid per hour, but also on whether these workers are being paid in a manner that is consistent with every intricate (and often contrary-to-common-sense) twist and turn of federal and state law.

There is an abundance of wage and hour claims waiting to be made against unsuspecting employers with regard to payment of non-exempt employees. Employers who take the time to evaluate their practices now will be well-positioned when the focus of non-exempt collective action litigation shifts from 'off-the-clock' claims to the next big thing.

The following describes five areas of likely focus for future Fair Labor Standards Act (FLSA) non-exempt employee litigation.

Deductions

Deductions from non-exempt employees' pay are permissible so long as they: 1) are for a permissible purpose under state law; 2) satisfy any state law prerequisites (e.g., signed authorization); and 3) do not bring an employee's pay below the applicable minimum. With regard to this third obligation, the FLSA prohibits (with certain exceptions) deductions that bring a non-exempt employee's wages below the minimum wage for all hours worked up to 40 in a work week. In addition (again with certain exceptions), no deductions may be made from a non-exempt employee's overtime pay. Consequently, no deductions may be made from the pay of a minimum wage employee, regardless of whether such deductions would otherwise be permissible under state law.

The most unlikely trap for the unwary relates to employees who now earn above the applicable minimum but who, because of any minimum wage increase, will earn closer to the minimum. Deductions from pay which now may be permitted by state law (e.g., employer loan repayments in states like Pennsylvania and New Jersey) may reduce the employee's pay below the new minimum and, hence, violate the FLSA.

Regular Rate

Overtime for non-exempt employees is calculated based on the employee's regular rate for the work week in question. The regular rate ordinarily is a simple mathematical formula: total compensation for the work week divided by total hours worked during that week. Where a non-exempt employee receives payments in addition to his or her hourly pay, those additional payments must be included in calculating the employee's regular rate unless they are specifically excluded by the FLSA. In effect, the employer is paying overtime on the additional payments. The obligation to include additional payments in regular rate calculations applies even where the additional payments are made after the employee was paid for the work week in question and even where the additional payments relate to multiple work weeks ' e.g., a performance-based quarterly bonus paid after the end of the relevant quarter.

The situations in which additional payments may be excluded from regular rate calculations are limited. One that is frequently relied upon is the discretionary bonus. To take advantage of this exclusion, however, the bonus must be completely discretionary both as to whether it will be awarded and, if it is awarded, the amount of the award, with decisions as to both being made at or near the time the bonuses are awarded. The bonus also cannot be tied in any way to an employee's productivity or to the accuracy or quality of an employee's work. Other exclusions are described in ' 7(e) of the FLSA, as well as the regulations found at 29 C.F.R. ” 778.200, et. seq.

Many employers make additional nonexcludable payments to their non-exempt employees, but fail to pay overtime on these payments. In late January, for example, Wal-Mart entered into a $33 million settlement with the U.S. Department of Labor for FLSA violations, including the failure to include incentives and other premium payments in the calculation of employees' overtime pay. The obligation to include additional payments when calculating an employee's regular rate cannot be avoided by making the payment in kind ' e.g., a gift card. Rather, the cost to the employer of the in-kind payment must still be included in the regular rate calculation.

Out-of-Town Travel

The rules regarding out-of-town travel payments to non-exempt employees differ depending on whether the employee is on a day or overnight trip.

For a day trip, non-exempt employees must be compensated for all travel time, with two exceptions: 1) if the employee travels via public transportation, he or she does not have to be compensated for the time spent traveling from home to the portal (station, airport, etc.) and back even if it takes longer than regular home to work travel; and 2) if the employee drives, the employee may be compensated for his or her travel time minus the amount of time the employee regularly spends commuting to his or her work site.

For an overnight trip, an employee traveling as a passenger on a plane, train, boat, bus or car must be compensated only for travel that is done during his or her regular working hours, even if those hours fall on a day he or she normally would not work. If an employee must drive for an overnight trip, the time spent driving is compensable, even if the driving is outside of his or her regular working hours. Such time is also compensable if the employee is a passenger in an automobile and is required to assist the driver. The two exceptions described above for single-day travel do not apply to overnight travel.

The complexity of the travel time rules makes compliance difficult. For convenience, many employers pay their non-exempt employees more than the FLSA requires when they travel out-of-town ' e.g., paying for all travel time for single-day and overnight travel.

Training

Many non-exempt employees attend training and other programs outside of their regular work day. Non-exempt employees must be paid for their attendance at such programs unless all four of the following criteria are satisfied: 1) attendance is outside of the employee's regular working hours; 2) attendance is in fact voluntary; 3) the program or training is not directly related to the employee's job; and 4) the employee does not perform any productive work during such attendance.

If a company requires (or effectively requires) a non-exempt employee to attend a program, the employer must pay the non-exempt employee for his or her time. Likewise, a voluntary program designed to help an employee handle his or her job more effectively is also compensable. On the other hand, if an employee voluntarily attends a program to prepare for advancement to a better position, the time is not compensable, provided it is outside of the employee's regular work day and no productive work is done.

Preliminary/Postliminary Activities

An employee's workday generally can be broken down into three parts: 1) principal activities (i.e., an employee's productive work); 2) activities preliminary to (or before) the principal activities; and 3) activities postliminary to (or following) the principal activities. Where a preliminary or postliminary activity is integral and indispensable to an employee's principal activities ' i.e., it is required by the employer to enable the employee to perform his or her productive work ' it too is considered a principal activity and must be compensated. Preliminary and postliminary activities, which are integral and indispensable to an employee's principal duties (and therefore compensable) effectively bookend a non-exempt employee's compensable day, and all activities (except for breaks of 30 minutes or more) that take place in between are compensable as well.

Where an employer requires (or effectively requires) its non-exempt employees to change into (and out of) uniforms at work, the changing time becomes the employee's first (and last) compensable activity of the day and employees must be paid not only for the changing time but also for the time spent walking from (and to) the changing area to where the employees begin (and end) their productive work. On the other hand, if employees are encouraged to wear their uniforms to and from work and an employee decides for the employee's own convenience to change at work, the changing timing is not compensable.

The following preliminary and postliminary activities would also be compensable if employees are required (or effectively required) to do them: washing hands; showering; putting on or taking off protective gear; preparing, cleaning or attending to tools, equipment or vehicles; retrieving or storing tools, equipment or vehicles; and any other required (or effectively required) task. While manufacturing industry employers have seen the most litigation to date involving compensation for preliminary and postliminary activities, this is likely to change, with white collar, service employers likely to be the next target.

Conclusion

The FLSA's rules for compensating non-exempt employees are many and complex. Employers should take their cue from the minimum wage debate and take the time to evaluate their non-exempt payment practices for FLSA and state law compliance.

Jennifer Blum Feldman is an attorney in Wolf, Block, Schorr and Solis-Cohen's Employment Services Practice Group, Philadelphia, where she focuses her practice on preventive counseling and compliance. She also provides training to in-house counsel, managers and other employees and has significant experience as a litigator defending local, regional and national companies in single-plaintiff and class action employment litigation. This article should not be construed as legal advice or as pertaining to specific factual situations.