DOL Reissues FLSA Administrator Opinion Letters That Had Been Withdrawn in March 2009

Back in the day, the Administrator of the Wage and Hour Division of the Department of Labor entertained requests for legal opinions from real-life employers about real-life FLSA problems and the Administrator would publish these letter opinions – with detailed factual situations --  for the edification of all.   These official pronouncements were entitled to some legal deference (albeit not as much as a formal regulation or rule) and fostered stability in national compensation practices and material for legal blogs like this one.  As previously reported here, in the waning days of the Bush administration, the DOL attempted to publish 36 such letters, but failed to get 18 of them postmarked before President Obama was inaugurated.  The DOL published them anyway in early March (but noted that the 18 were special and were being withdrawn in order to be reviewed, reversed or clarified).  Later that month, the DOL announced that it would not issue any more detailed letter opinions, and would instead, issue broad and non-specific Administrative Interpretations that did not address particular situations of real-life employers with real world questions.  In June 2017, the Trump DOL announced that it would return to issuing letter opinions and on January 5, 2018, it published 15 such letter opinions.  All of these merely formally re-stated the opinion letters from January 2009 that had been withdrawn by the Obama Administration in March 2009 (except for maybe one that has a faulty hyperlink).  Not all were in favor of the employer.  These letters addressed questions from the healthcare, staff placement, construction, public safety and other industries.

These letter opinions were signed by the Acting/Deputy Administrator.  They include:

◦          Two letters involved the healthcare industry.  Employers may make full-day deductions from the salaries of exempt employees in the amount of the hours that they employee was scheduled to work.  So, if a RN called off sick on Friday, when she had been scheduled to work 9.5 hours and had exhausted her PTO, then the employer may deduct 9.5 hours from her weekly salary.  (Similar result if she had only been scheduled to work 6 hours).

◦          This deduction may be from both the PTO bank and, once exhausted, the remainder from salary.

◦          When calculating year-end non-discretionary bonuses that are based on a percentage of straight and overtime hours, the employer need not also include amounts which are not required to be included in the employees’ regular rate (such as travel expense reimbursement and discretionary bonuses).

◦          Certain business development, coordinator and consultant employees of medical temporary placement firm were exempt administrative employees.

◦          Certain project supervisors for home construction businesses are exempt when their duties involve more than mere inspection of work performed by subcontractors and include dealing with home owners, personnel management, budgeting, etc.

 NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

DOL Finally Endorses Primary Beneficiary Test for Unpaid Interns Six Years After the Sixth Circuit

On Friday, the Department of Labor finally abandoned its rigid six-factor test for determining  whether unpaid student interns were employees covered by the FLSA.  It announced that it would be clarifying and updating its enforcement policies to conform to recent federal court rulings.   The Sixth Circuit rejected the DOL’s test Solis v. Laurelbrook Sanitarium and School, Inc., 642 F.3d 518  (6^th Cir. 2011) in favor of the primary beneficiary test.  In that case, a school required its students to engage in “practical” education, which the DOL had alleged violated the FLSA’s child labor prohibitions.  Instead, the DOL required employees to meet all six factors of the DOL’s test.   

More recently, the Second Circuit (in New York) rejected the DOL’s strict test in favor of examining the economic realities of the primary beneficiary test when holding that interns on the movie Black Swan were students instead of employees.  Glatt v. Fox Searchlight Pictures, Inc., 791 F.3d 376 (2^nd Cir. 2015), amended and superseded by 811 F.3d 528 (2d Cir. 2016).  This was followed by the Eleventh Circuit (in Atlanta) in Schumann v. Collier Anesthesia, P.A., 803 F.3d 1199 (11th Cir. 2015).  Just last month, the Ninth Circuit in California– hardly a fortress of conservative thinking – also rejected the DOL test in favor of the primary beneficiary test.  Benjamin v. B & H Education, Inc., No. 15-17147 (9^th Cir. 12/19/17). 

Under the primary beneficiary test explained in Laurelbrook,

the proper approach for determining whether an employment relationship exists in the context of a training or learning situation is to ascertain which party derives the primary benefit from the relationship. Factors such as whether the relationship displaces paid employees and whether there is educational value derived from the relationship are relevant considerations that can guide the inquiry. Additional factors that bear on the inquiry should also be considered insofar as they shed light on which party primarily benefits from the relationship.

The Glatt court suggested the following factors be considered in evaluating whether the student or the employer are the primary beneficiaries of the relationship:

1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee--and vice versa.

2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.

3. The extent to which the internship is tied to the intern's formal education program by integrated coursework or the receipt of academic credit.

4. The extent to which the internship accommodates the intern's academic commitments by corresponding to the academic calendar.

5. The extent to which the internship's duration is limited to the period in which the internship provides the intern with beneficial learning.

6. The extent to which the intern's work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.

7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The DOL has not formally adopted the federal court test as stated, but it is unlikely to stray very far under the circumstances.  The best thing about this decision is that it comes in plenty of time for employers to structure their summer internships.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

New Year; New Penalties

 It seems to have become fashionable for government to automate its operations.  Generally, efficiency is a good thing, but some of us depend on governmental inertia to survive Big Brother.   Back in 1990, Congress required executive agencies (like NASA and the Department of Labor) to increase their financial penalties (some of which had been established before the Beatles invaded America) to reflect inflation.  Congress took that a step further in 2015 to require annual adjustments based on inflation.  Specifically, the Federal Civil Penalties Inflation Adjustment Act of 1990 as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 requires the DOL to increase penalties for inflation on an annual basis.    On January 2, 2018, the DOL published the new list of fines.  They include (but are not limited to):

◦         FMLA: “An employer that willfully violates the posting requirement may be assessed a civil money penalty by the Wage and Hour Division not to exceed $169 for each separate offense.

◦          ERISA: If any person who is required, under subsection (a), to furnish information or maintain records for any plan year fails to comply with such requirement, he shall pay to the Secretary a civil penalty of $28 for each employee with respect to whom such failure occurs, unless it is shown that such failure is due to reasonable cause.

◦          ERISA: The Secretary may assess a civil penalty against any plan administrator of up to $2,097 a day from the date of such plan administrator’s failure or refusal to file the annual report required to be filed with the Secretary under section 1021(b)(1) of this title.

◦          ERISA: The Secretary may assess a civil penalty against any employer of up to $112 a day from the date of the employer’s failure to meet the notice requirement of section 1181(f)(3)(B)(i)(I) of this title [re: CHIP]. For purposes of this subparagraph, each violation with respect to any single employee shall be treated as a separate violation.

◦          OSHA:  Serious and Other-than-Serious Violations increased to $12,675 and willful and repeated increased to $126,749

◦          FLSA: A penalty of up to $1,925 per violation may be assessed against any person who repeatedly or willfully violates section 6 (minimum wage) or section 7 (overtime) of the Act. The amount of the penalty will be determined by applying the criteria in § 578.4.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

New Year and New Ohio Minimum Wage Poster

For those of you who took an extra long holiday weekend, the new year also brings an adjustment in your payroll systems to reflect a 15 cent increase in Ohio’s minimum wage to $8.30/hour and (probably in February) to reflect reduced payroll withholdings at the federal level.  The New Year also brings the requirement to update your Ohio minimum wage posters in your break rooms and electronic handbooks.   I’m always surprised at how many employers remember to adjust their wages but not their posters.   So, finish your cup of coffee and print out the poster from this link:  http://www.com.ohio.gov/documents/dico_2018MinimumWageposter.pdf

And we’ll see if (or how long) I can stick with my New Year’s resolution to blog a couple times each week like in my youth.  (Yes, I’m a luddite that still prefers the web and emails to Facebook, Instagram, Texting or Twitter . . . . . .)

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Finds FCRA Liability Which Affected Mis-Identified Employee

Last week, the Sixth Circuit partially reversed a defense judgment in a Fair Credit Reporting Act case where the consumer reporting agency mistakenly mis-identified the plaintiff as having a criminal fraud record when it should have realized based on his credit check that he did not.   Smith v. LexisNexis Screening  Solutions, Inc., No. 15-2329 (6^th Cir. Sept 13, 2016).  The plaintiff lost six weeks of wages while straightening out the mistake.  A jury awarded him $75,000 in compensatory damages and $300,000 in punitive damages. The Court found that while there may have been negligence, the defendant’s actions were not sufficiently willful to support punitive damages.  While this is not an employee-employer case, employers and employees should both be interested in how the FCRA works in this case. 

According to the Court's opinion, the plaintiff has a common name, David Alan Smith.  A company bought his employer and required all of the employees to re-apply for jobs with the new company.  The plaintiff was offered a lower paying job than his former position, subject to passing a background check.  He authorized the release of his full name, social security number, birth date, address, phone number, driver’s license number and sex, but the employer did not provide his middle name or initial.   The credit check came back clean under David A.  Smith, but a criminal conviction for David O. Smith came up under his first and last name and birthdate.  No one apparently noticed the discrepancy.  The plaintiff’s employment application was then revoked on December 12 and he was directed to address any correction issue to the defendant company, which corrected its mistake and notified the employer and him on January 11. The defendant showed that it runs over 10 million checks each year and 98.8% of them are never disputed.  The plaintiff was then rehired on January 29.   Needless to say, he had a joyless holiday that year and had become very depressed.  He ultimately sued the consumer reporting agency.

The jury found that the defendant’s failure to require the plaintiff’s middle initial when running the check and failing to notice the discrepancy between its own criminal and credit checks could be negligent and willful violations of the Act.   The court also found sufficient evidence of economic and emotional harm.  The jury initially returned punitive damages of $300,000, but the trial court reduced those to $150,000.

The Sixth Circuit agreed that there was sufficient evidence of negligence in this case.  The Fair Credit Reporting Act at “15 U.S.C. § 1681e(b) mandates that CRAs “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.”  In this case, the evidence showed that David Smith is an extremely common name, with over 125,000 such individuals living in the U.S. alone.   A prudent agency when confronted with an extremely common name should have required a middle name to improve the accuracy of its results.  Indeed, the defendant had a field to insert a middle name, but did not make it mandatory.

There was also some evidence of negligence from the fact that the Equifax credit report identified David A. Smith and the criminal record referred to David Oscar Smith.  

A failure to cross-reference such information, standing alone, might not have any bearing on whether a CRA’s actions were reasonable.  . . . In this case, however, the fact that Lexis possessed a report with Smith’s middle initial serves as additional evidence supporting the jury’s finding as to negligence.

Although the defendant may have been negligent, it does not follow that it was also willful.  “In order to willfully violate the FCRA, a CRA’s action must entail “an unjustifiably high risk of harm that is either known or so obvious that it should be known.”  The defendant obviously had taken steps (such as requiring birth dates, social security numbers, etc.)  to ensure a high degree of accuracy and could point to the fact that less than 1% of its checks were ever disputed. “Furthermore, a single inaccuracy, without more, does not constitute a willful violation of the FCRA. . . . Although this inaccuracy might have resulted from Lexis’s carelessness, it did not result from Lexis’s disregarding a high risk of harm of which it should have known.”  Accordingly, the Court ruled that punitive damages were inappropriate.

The Court affirmed the compensatory damages award of $75,000 from the defendant’s negligent error: “This situation, and particularly the financial hardships involved in it, is one with which reasonable jurors could identify and infer that a reasonable person in the same situation would suffer emotional distress.”  It rejected the defendant’s efforts to limit the amount of the judgment based on the short time (i.e., six weeks) that the plaintiff was unemployed or the four weeks that it took the defendant to correct the mistake.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can be changed or amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.