Today, we’re gonna be taking a deep dive into Five Wage and Hour lawsuits that we’re seeing from actions employers took related to COVID-19. We just want to go through these, hit the highlights, see if there’s a place you can fix this now before people start contacting lawyers. Before we go too deep, I want to ask you please subscribe to our podcast. You can find us on iTunes, Google podcast, Spotify, Stitcher, pretty much any podcatcher of your choice. You can also subscribe at peopleprocesses.com which will give you exclusive subscriber-only content. I look forward to seeing you there.
Now, let’s dive in. Employers are forced to make tough decisions often at really fast speeds as they operate during the pandemic and resulting economic shutdown that we’ve had by making tough decisions without consulting legal counsel. Well, people can get involved in very expensive lawsuits specifically Wage and hour suits. Particularly, class actions are the most common and expensive for employers. There was a great webinar by Seyfarth Shaw LLP, called Litigation Trends in the Post COVID-19 World. Lynn A. Kappelman is a partner with the firm in their Boston office. She discussed these Wage and Hour issues that arise as employers look to control payroll costs while maintaining operations. And also, as they look ahead to reopening as the crisis is, Kappelman followed up with labor and employment law daily about common Wage and Hour traps that can befall employers during this unprecedented crisis and I’m stealing a lot of info from her. Not stealing but she had a great webinar. So I’m trying to make sure we plug her but man, some good stuff.
So Kappelman just basically put out there over and over, that plaintiffs attorneys are already focused on these issues. They’re already publishing on their website, FAQs, guidelines for potential plaintiffs, marketing for potential claim plaintiffs who may have experienced any of these traps. So it’s out there and we’ll talk about which states are most at risk, but it’s the ones you think about when you think about this stuff. So we’ll go over those at the end. But basically, it’s up and running and they are looking.
The most common wage-hour risk.
This is Number 1. It’s going to be with respect to exempt employees who are losing that exempt classification. This can have a long-term consequence for your liability, including having to pay overtime going forward, pretty much forever to these formally exempt salaried employees. Many companies have reduced employees’ pay across the board to spread the pain of a forced bell typing. Cool. An employer that imposes a salary cut, though, must be careful not to reduce exempt employees’ pay below the minimum salary level. Now, the Federal FLSA salary threshold is $35,568 per year, but many states have a higher floor, you got to check that. So if you’ve cut your salaries across the board, and you’ve cut below that exempt level, you now have non-exempt employees. You got to track their hours. Make sure you’re paying overtime. Make sure you’re paying minimum wage out.
Most employers, maybe they’ve imposed a 20% pay cut. A lot of them want to also reduce work hours. So maybe you’ve said, “All right, we’re going to take Fridays off”. Monday through Friday cut everybody’s pay 20%. However, to do so for exempt employees runs afoul of the FLSA salary basis test. It’s okay to reduce someone’s pay by 20%, but you can’t reduce their duties by a commensurate level because you’ll undermine the salary basis and lose the exemption, explained Kappelman.
So here’s what’s come up the most. You furloughed exempt employee, so that’s I think, one primary issue. You don’t want to cut, you’re gonna have to think about the salary level but you also got to think about the duties test. A kind of flip on that and this is probably the most common issue I see at our level, not like a giant, you know, 100,000 man companies at the smaller level. What we see a lot is furloughing an exempt employee. So when you let somebody go or temporarily let them go, even if an employee works one hour during that week, they must get paid for the entire week. That’s a key thing to understand, exempt people are paid by the week. Furloughing exempt employees for anything less than a full week carries a huge risk of violating that salary basis test. So if an employer furloughs an exempt employee on a Wednesday, it must pay for the full week or the employee will lose her exempt status. You may very well see a class action for all those hours you didn’t pay folks during their workweek, said Kappelman.
So another piece of that which is quite common I’m seeing is, you furlough and exempt an employee but you’re still constantly reaching out to them or heck, even doing it once a week, asking to respond to emails. “Jack, can you tell me where we kept those files? What’s our usual practice of doing this thing?” In effect, Jack is on furlough. But if he’s answering emails, then he’s working. And therefore, again, even one hour, they are entitled to pay for the entire week, even if they only answered an hour’s worth of emails and calls and that kind of stuff. That may not be a lot of money for one person. But if that’s happening with a bunch of company employees, these class actions can add up quickly. So part of that, those are the primary issues around exempt.
The third error that we’re seeing around exempt is happening primarily at retail and service establishments. It’s called duties dilution. If you’ve been forced to furlough part of their workforce, and then you’re asking your managerial staff to take on the additional tasks, let me give you an example. Let’s say that you have a retail establishment and your managers are now stacking shelves, working the register, sanitizing the workplace. You have to be careful. If an exempt employee performs more non-exempt work than management work more than half, there’s a danger that the employee’s primary duty is no longer managerial. And that would remove the exempt status. They’re an hourly worker. So you’ve got to keep a close eye on that. Okay.
I only called that issue one, it’s all-around losing the exempt status. So losing exempt status, let’s recap it. You underpaid, you go under that salary floor, you reduce someone’s hours by 20%. And then because of that, you’re saying that they have hours, right? And that’s gonna run afoul of the salary basis test as well. Or you furlough partially through a week, and you don’t pay for that whole week, or you furlough and then have the employee work an hour while they’re on furlough. You can’t do that. That will also invalidate the week. So those are the key pieces around your exempt employees. Okay.
Now, for non-exempt employees. There’s a lot of different things that could be a problem here, but I think one of the key ones is off the clock claims. Let me go back to this Kappelman. The largest issue for non-exempt employees is that it will take them longer to prepare to work cleaning and sanitizing the workspace, getting temperature scanned, and donning PPE. Employers may make the mistake of not paying for that time, she said. But employers employees generally must be paid for that time it takes to don and doffs protective gear or work clothes and again, unrecorded time for one person isn’t too costly. But the unrecorded time for 100 or thousand can be quite a costly class-action lawsuit. So just to recap, their time to prepare the workplace cleaning them, donning protective equipment must be paid to your hourly workers.
If you’re going to have employees line-up and you’re going to do temperature checks before you open, it may take only two minutes but if they had to stand in line and wait You need to compensate them for that time, they may need to spend more time sanitizing their workplace putting on face masks, cleaning the face mask, it’s compensable. You must also pay non-exempt employees for the time spent getting up to speed with post COVID changes in the workplace, you’re gonna wind up having training, a lot of times on this, you’re gonna talk, you’re gonna have a staff meeting, when they come back, that’s paid time. If they need to learn new software, new equipment, that’s all conferences, so that’s going to be your primary issue for your non-exempt people. Little less burdensome than the exempt but a lot of companies will run afoul of that. Okay.
Now let’s talk about what’s called State Law Requirements. So this is the third thing that we’re seeing a good bit here. There are a lot of state-specific problems. The most common is the meal and rest breaks. Most states, like California, are going to have a meal and rest breaks impacted by the need for social distance. Imagine you have an employee, and she says she can’t take her break because she doesn’t want to go into the break room and be sitting around a bunch of other people she wants to remain socially distance. Or maybe she says. “You didn’t provide a place that was safe for me to eat lunch. So I’m eating my lunch at my desk. But I keep getting interrupted because people think I’m on the clock.” You have to provide uninterrupted meal breaks, in many states. So if you’re in California, for example, you need the employee to a test that their break was uninterrupted that kind of thing. So that’s going to be a bigger problem, right? So if you have a meal and rest period requirements in your state and uninterrupted one, in particular, you need to take a close look at how you’re going to comply with those even though they’re going be heading out.
Another state-specific thing is that there are new laws governing expense reimbursement. Well, new and old. But if your state focuses on expense reimbursement, that would require an employer to reimburse anything purchased by the employees that are attended to remote work, cell phone, computer monitors, printers. For on-site employees, the cost of employees supplied at PPE would also have to be reimbursed, almost definitely. Failure to pay these previously, unanticipated expenses will invite lawsuits. So, if you’re sending people to work from home and they need the stuff to work from home, most states not all states. But this is gonna check your laws, require that if you have employees work from home, you have to provide the equipment. So check that out, you may need to reimburse. Okay.
The final kind of state-level one is, many states have laws governing when commission agreements can be changed. So you need to take look at your commission plan and make sure that you didn’t unilaterally make a change without enough notice under those state laws. So say you used to pay people when an order came in, and then under this COVID thing, like 60,70,80,90% of your orders are canceling. So you decide to tell your commission employees. “Look, we’re still gonna pay commissions,” but it’s gonna be when they pay, right? Rather than upfront of you the money. That’s a cool idea, except some states say, you got to give 60 days’ notice in writing before changing a commission plan. So if you just rapidly change that plan, you could get super screwed. So keep an eye on your commission plan, review it and comply with it, Kappelman caution. Those are the key things that are state level. Again, it’s not gonna apply to everybody but you need to research your state that’s gonna be meals and brakes, rent expense, reimbursement, and commission policies. Alright.
Next up is Wage Non-Payment. This is straightforward, but I just want to throw it out there because people are messing it up. Do not pay your people if you decide you’re not going to pay somebody going forward, you can do that in terms of, you’re fired today, whatever today’s date is. But that doesn’t mean you can’t give them their next paycheck, right? It’s all about the pay period. What days are you compensated for? This is an obvious violation, and there is little opportunity to avoid liability. And many states have, I mean, like treble damages on this stuff, especially if it’s willful, which a lot of these would be hard not to say you didn’t know. So highly recommend, just make sure if you’re in a cash flow situation, I understand there’s a lot of problems but you got to pay your people what you already promised to pay them. Very important. All right.
The final one is what we call Class Action Risks. COVID-19 in the adjustments that employers have made in response to the pandemic are rife with opportunity for the plaintiff’s bar, eager to bring class claims. Those are faster, they’re easy to pursue and result in quick settlements. Every industry is at risk capital and even law firms can run afoul of the exempt salary basis and duties dilation issues. And non-exempt workers in every industry will need to deal with time recording issues involved with necessary changes to meal breaks, rest breaks, and donning and doffing PPE. I expect to see retail and hospitality hit the hardest since their workforces, so public-facing and visible, Kappelman said. And the return to work issues will be very similar for these groups of employees, which will put employers at greater risk of class-wide liability.
So another place that she’s expecting problems is independent contractor misclassification class actions. Many COVID related state and federal government orders were grouped independent contractors and employees in the same world in terms of benefits, unemployment notices, leave payments, all that many employers followed suit. They said, “Alright. Independent contractors are like employees, we’re going to keep paying them even though they’re not supposed to, they’re not doing any work or we’re going to provide them with FFCRA levy when they’re not supposed to do that, or we’re gonna put them on the benefits because they need insurance.” If you did that, that’s gonna be a problem because there’s a case to be made there. One of the tests is what’s called commonality. If you treat your independent contractors the same as employees, you’re likely to require that they all become employees, right? So it’s called Rule 23 Certification.
So since everyone was affected the same time by many of the same issues surrounding COVID, and many employers issued company-wide policies to address the virus to both employees and independent contractors, it could be an issue there. I haven’t seen any of those suits pop up. Kappelman was highly concerned about them. There may be some good defense, arguments that come out of that, but that’s the other thing we’re kind of keeping an eye on, are these independent contractor reclassifications. So let me recap for you. Losing your exempt status for falling under the salary threshold, running afoul of the salary basis test, i.e. the duties assessment. Furloughing an exempt employee mid-week or working them even a little bit when they’re on furlough requires full week payment. For your non-exempt employees, you got to make sure you’re not screwing up their timekeeping, you got to pay him for donning and doffing time, cleaning time, training time. So that’s a big change. You got to think about depending on your state expense reimbursement, you got to think about meal and rest requirements. And you’ve got to think about commission plan changes. And then pay your employees what you promised them. You can always make changes, but don’t make them retroactively. And then just keep a close eye, especially if you’re in those restaurant and hospitality areas because those can be the most likely to get hit by broad class-action suits. The wage and hour class actions are primarily going to be in my states, I would think that you can assume in California, Massachusetts, New York, New Jersey, because those are easy to bring on a personal basis. It’s not like the state has to act. They can just be sued by anybody for those things like in Tennessee. For example, it would have to be the Tennessee Department of Labor that enforces action but in California, anybody can do it. And there are tons of attorneys trolling for it right now. So they also allow for very lucrative penalties. So if you think about it, in a lot of these states, it’s like you owe that guy $10,000. Well, you’re going to owe $16,006, I was going to go to the attorney now. So there’s a lot of pieces to that. So those states, you just got to look very closely about how you’re going to handle these.
I hope this was helpful to you. I know it was a lot of information on our website and People Processes. We have a great layout of this, we do a transcript of the recording. We have downloadables that can help you do checklists against this stuff. If you need anything, please let us know. We’re happy to help. I hope that you guys are all doing well, staying safe, doing the best you can to keep your businesses up and running and getting prepped for the return. I can’t wait until we’re all back to rockin’ away and growing our companies. And we’ll talk about scaling and growth that way. Thank you for tuning in. My name is Rhamy Alejeal, I’m the CEO of People Processes. Now it is time for you to go out there. Get your work done and have a great day.