Alabama Employment Law Report : Alabama Employment Lawyer & Attorney : Daniel J. Burnick : Sirote & Permutt Law Firm

The President.  The Department of Labor.  The IRS.  There is a great deal of pressure being exerted on employers to properly classify workers as either employees or independent contractors.  According to Inc.  President Obama's 2011 budget includes funding for an additional 100 IRS employees to help crack down on the misclassification of workers as independent contractors.  It is estimated that this will add an additional $7 billion in revenue over the next 10 years for the government.  The IRS is also beginning a 3 year audit of 6,000 companies chosen by random, rather than issues with the company's returns.  The use of independent contractors can save companies as much as 30% in costs since they don't have to pay for social security and medicare taxes, workers' compensation, unemployment compensation, health insurance, vacation or sick leave.  Last week, USA Today ran an article entitled IRS, States crack down on independent worker status abuse.

The New York Times published an article on February 18 entitled "U.S. Cracks Down on 'Contractors' as a Tax Dodge".  The story referred to a federal study that concluded that 3.4 million workers were illegally misclassified as independent contractors instead of employees.  The attorney general from Ohio believes that there are 92,500 misclassified workers in Ohio alone, costing the state over $363 million in lost unemployment insurance taxes, workers' compensation premiums and income tax revenue.  The article notes that the most frequently misclassified workers are "truck drivers, construction workers, home health aides and high-tech engineers."   Misclassification of workers as independent contractors also prevents those contractors from receiving overtime if they would have been entitled to it if they were properly classified as non-exempt employees. 

Finally, closer to home, a study in Tennessee found that 20% of construction workers in Tennessee were either misclassified as independent contractors or paid under the table. 

Practice pointer.  I routinely am involved in representing clients who misclassify employees, usually unintentionally.  With the looming crackdown in misclassification by the federal government, now is a good time to review the classification of workers to make sure that they are being properly identified as either employees or independent contractors.  Companies that are caught misclassifying employees as independent contractors face enormous financial penalties, including income tax, medicare and social security with holdings, and claims for overtime.

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The case of Ricci v. Destafano continues to make the news.  I have reported on this case in several blog entries, and the most recent activity involves the white and Hispanic firefighters filing papers to pursue their claim for back pay, interest and attorney fees.  This case started in 2003 when the city refused to promote the 14 white and Hispanic firefighters: even though the test they took was race neutral, the city felt the results discriminated against black firefighters since none of the black firefighters who took the test scored high enough to get promoted.  The Supreme Court, in June, ruled in favor of the white and Hispanic plaintiffs, finding that New Haven violated their civil rights by disregarding the test results.  Recently, the plaintiffs received their promotions, and the black firefighters filed suit claiming they were discriminated against.  Now, the attorney for the plaintiffs is pursuing claims for back pay, interest and attorney fees.  According to theAP, Karen Torre, the attorney for the plaintiffs, they were subject to "the humiliation and economic hardship of prolonged career stagnancy in a rancorous atmosphere fostered by raw racial divides."  I will continue to keep you posted as this case progresses. 

Also in the news, President Obama signed into law the 2009-2010 spending bill for the Department of Defense, which includes a provision prohibiting most military contractors from enforcing mandatory arbitration provisions in their employment contracts.  The provision prohibiting arbitration came about as the result of a female employer of a defense contractor, working in Iraq, who claimed she had been raped by co-workers, and the employer attempted to enforce the arbitration provision in her employment contract.  In 6 months, this restriction will also apply to subcontractors. 

Finally, on the overtime front, the New York Times  reported this week that a lawsuit filed on behalf of 27 Mexican farm workers in Mississippi for overtime has been settled.  The employees were working under the federal H-2 Visa program, and claimed they were not paid for hours worked in excess of 40 hours a week.  The amount of the settlement was not disclosed.

I hope all of you have a Joyous Holiday Season and a Happy New Year. 

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A number of issues continue to arise in the employment context.  I expect you will be seeing more of these in 2010.  They include the following:

Overtime.  A California court preliminarily approved a $12.8 million settlement involving 650 potential class members claiming overtime.  According to Law.com, Lynn Farris ""who is lead counsel in a similar case against FedEx Ground in the Northern District of Indiana, said companies considering whether to classify people as independent contractors "are likely to take this settlement as further indication that that's a risky business choice."" 

City of New Haven.  I have previously written about the City of New Haven fire department case, Ricci v. Destafano.  The City of New Haven has promoted the 10 firefighters (white and Hispanic)based on a 2003 test and the Supreme Court's decision.  Now, an attorney for New Haven's black firefighters is quoted by the AP  as saying that "the fight is not over because the black firefighters were not heard."  I cannot even imagine the amount of legal fees incurred in taking the case to the Supreme Court and now it will have to be fought all over again by the city.

Jury Duty.  Since I just received my own notice to appear for jury service the first week in January, I found the following case interesting.  In Florida, a supervisor for a security guard company was awarded $150,000 by a jury who found that she was wrongfully terminated after serving on a jury, not being paid $400 for the first 3 days she missed from work(pursuant to county law) and the judge gave the plaintiff a copy of the law protecting jurors and a letter vouching for her jury service.  The jury awarded $30,000 for lost wages emotional distress and $120,000 in punitive damages.

Cool website.  Ebosswatch.com has published it's Worst Bosses of 2009 list.  Included on the list is Mike Swindle, who, while working at Hyundai Motor Manufacturing Company in Montgomery, was found to have harassed a female subordinate, resulting in a verdict in excess of $5 million.  I wrote about this case in my blog on May 4, 2009.

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Wal-Mart agreed to settle a class action suit by as many as 87,000 current and former associates in Massachusetts for $40 million.  The suit, filed in 2001, alleged that Wal-Mart refused to pay overtime, denied rest and meal breaks, and changed time cards.  Each class member will receive between $400 and $2,500.  This settlement comes on the heels of Wal-Mart agreeing to settle 63 other state and federal class actions suits for up to $640 million. 

Practice pointer.  As the world's largest retailer, Wal-Mart's settlement numbers are extremely large.  However, as I have discussed before, there are numerous lawsuits being filed weekly in Alabama against much smaller companies claiming overtime is due to employees.  I am involved in a number of these cases, and they are worrisome to small business's because of the time it takes to gather information, the potential for liquidated damages, and the fact that plaintiff's are entitled to attorney's fees if they are successful.  I would strongly urge all companies to audit how they classify their employees to make sure they are in compliance with wage and hour laws.

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Many of us have read or heard about a number of the big box stores, such as Wal-Mart and Dollar General, that have been sued for overtime by managers and assistant managers.  These suits have resulted in judgments or settlements in the millions of dollars.  Recently, I have noticed a great deal of FLSA overtime lawsuits being filed in Alabama against "mom and pop" stores: such as small or medium size restaurants, many of which are franchisees of larger chains.  Several plaintiff's law firms are specializing in filing these suits.  In fact, during this week alone, I have seen at least 10 such suits that have been filed this week against such businesses as Flying J, Tire Engineers, Hambo Inc. dba Hamburger Heaven and Stough Convenience Store, Inc..  In these businesses, many managers, and especially assistant managers, are misclassified as exempt and are not being paid overtime when they work more than 40 hours a week.  These cases can be crippling for small businesses: liability is often fairly easy to prove, it takes a great deal of time to review payroll records for several years, attorney's fees can be assessed if the case is tried and lost, and there is the possibility of liquidated damages.  For a small business in these economic times, it is difficult to come up with several thousand dollars just to attempt to settle the case, let alone litigate and incur a great deal more in attorney's fees and expenses just to get the case to trial.

Practice pointer.  As we reach the end of the year, now is a good time to review the classification of employees to make sure that they are properly classified as exempt or non-exempt.  Merely calling a person a manager or assistant manager does not, in and of itself, make that employee exempt.  This can be a very complicated area of the law, and legal counsel is recommended when classifying employees for FLSA purposes.

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According to Roy Williams of the Birmingham News, the Supreme Court today let stand a $35.6 million judgment against Family Dollar for not paying overtime to more than 1,400 employees who routinely worked 60-70 hours a week.  The jury found that Family Dollar mis-classified the workers as exempt managers, rather then non-exempt hourly employees entitled to overtime, and awarded overtime pay over an 8 year period of time.

Practice Pointer.  Misclassification of employees, under the FLSA, resulting in claims for overtime, is one of the most common employment claims being filed by employees or ex-employees.  Employers must be sure that their employees are properly classified to avoid damages if the FLSA is violated, which include back pay, liquidated damages and attorneys fees.

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On Monday, August 10, Michael Sanserino wrote an article for the Wall Street Journal entitled: "Lawsuits question after-hour demands of email and cellphones".  In it, Mr. Sanserino examines the T-Mobile case that I addressed on my July 20th blog entry. He also reports on a second case, out of California, where the appellate court recently reinstated a case involving an employee of Lincare who is claiming he is owed compensation for responding to customer's telephone inquiries while on call.  The Lincare case is just another example of how technology has outpaced the law in this area.  Ashby Jones also addressed the T-Mobile case for the Wall Street Journal Law Blog on August 10th.  Although the courts have not yet reached a final decision on whether employees such as those working for T-Mobile and Lincare are entitled to overtime for working with their cellphones, blackberries, I-phones, personal computers, etc., employers must be prepared to address these issues now.  I anticipate that it will be many more months, and maybe even years, before these questions are resolved by the courts.  In the meantime, employers must make the decision to compensate non-exempt employees for time spent on after hour conduct beneficial to the employer, or face the risk of a lawsuit seeking overtime compensation. 

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Last month, on June 24th, I wrote about possible unintended consequences of social networking, and the possible claim for overtime.  Now, a recent proposed class action is being pursued against T-Mobile in New York.  According to Law.com, non-exempt sales associates and supervisors  of T-Mobile were issued  smartphones and "were required to review and respond to numerous T-Mobile-related e-mails and text messages both day and night, whether or not they were logged into T-Mobile's computer based timekeeping system."  The complaint, filed in federal court in the Eastern District of New York, also alleges that these employees were required to participate in various employment related activities, such as participate in conference calls and receive and make work related telephone calls without getting paid.  It is also alleged that employees were required to work off the clock during scheduled meal breaks. Once again, it appears as if technology is moving faster than the law.

Practice Pointers.  Employers should have clear policies and guidelines to ensure that all work related time is captured, even if working at home with  smartphones or personal computers.  The workforce should be trained as to what is and what is not acceptable to the employer in regards to working away from the office: is it permissible?  Does overtime need to be approved in advance by supervisors? Who owns the information? Is it confidential?  Supervisors should be trained to never instruct non-exempt employees to work off the clock.

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The third and final increase in minimum wage over the past three years will become effective on Friday, July 24, 2009.  Yes, only the government can implement such a major change to become effective on a Friday.  The minimum wage is going from $6.55 to $7.25 an hour for non-exempt workers.  This will result in an annual increase of nearly $1,500 per minimum wage worker, if there is no overtime.  As the country continues to work its way through these tough economic times, I believe that the $.70 an hour increase will put an additional financial strain on many small, medium and even large businesses. 

Practice pointer.  Now is a good time for employers to review the classification of their employees  for FLSA purposes.  One of the most frequent problems I see, and one of the most frequent type of lawsuits being filed, involve claims for overtime. 

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On May 1, I published an entry addressing social networking in the workplace.  Subsequent to that time,  I had the opportunity to give another presentation on social networking.  Some interesting questions were asked by attendees that raised additional issues that need to be considered by employers when their employees are using social networking sites for business purposes.  One company permits its workers to use social networking sites to communicate for business purposes after regular business hours.  This raises questions concerning the FLSA and overtime: if non-exempt employees are conducting company business from their personal computers/PDAs, after regular business hours, are they entitled to compensation, including overtime if they work more than 40 hours a week?  Are the employees "on call", thus entitling them to compensation?

Another issue is the ownership of the information exchanged between an employer and an employee on personal computers/PDAs: should someone leave their employment, can they use information on their personal computers/PDAs when they start working for someone else who is a competitor?  Is the information confidential if no steps are taken to make it confidential?

One question that was asked had ADA implications:  a supervisor learned from a social networking site that one of the employees was suffering from depression.  Did the supervisor have an obligation to report this to HR?  If so, did HR have an obligation to go through the interactive process with the employee to determine if the depression was impacting his ability to work?  If so, were there any reasonable accommodations that could be made?

Practice Pointer.  Technology is moving too fast for the courts to keep pace.  Answers to these questions, and many others, will take years to wind their way through the courts.  In the meantime, it is recommended that employers adopt appropriate policies and procedures concerning the use of social networking sites for company business, and confidentiality and ownership of information that may be on personal computers/PDAs. 

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The National Council of EEOC Locals, the union representing EEOC employees, filed a grievance against the EEOC in 2006 regarding overtime disputes that dated back to 2003.  This week, an arbitrator found that the EEOC's practice of not paying overtime, and paying compensatory time instead, was a willful violation of the FLSA.  Steve Vogel, with the Washington Post, reports that the EEOC, which is "responsible for ensuring that the nation's workers are treated fairly, has itself willfully violated the Fair labor Standard Act on a nationwide basis with its own employees..."  The arbitrator's ruling held that the EEOC, which offered compensatory time off instead of paying for overtime, was "forced volunteering" and "demonstrates action that went beyond mere negligence."  The arbitrator further found that the EEOC pressured it's employees to work extra hours, but did not offer extra pay.  According to an attorney for the union, "The unfortunate reality is that EEOC continues its deplorable overtime violations to this day". 

As I anticipate that the case load for the EEOC will continue to rise from previous years (it was up over 15% from 2007 to 2008),  this ruling will extend the time it takes the EEOC to investigate charges filed by workers.  This will delay the resolution of many cases already filed as well as those that will be filed in the near future.

Practice Pointer.  The use of compensatory time in lieu of overtime, with a few exceptions, is prohibited by the FLSA.  For example, employers cannot require workers to work 60 hours one week, and then 20 the next, and not pay overtime for the 20 extra hours worked during the first week.  As a general rule, if a non-exempt worker works more than 40 hours in a week, overtime should be paid for the extra hours. 

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Over the last several weeks, both the Alabama Court of Civil Appeals and the 11th Circuit Court of Appeals have issued a number of cases that impact the employment arena.  In my opinion, the most important ones are the following:

1.  Duran v. Goff Group:  Silva was working in Alabama for Jarman Construction when he died as the result of an on the job accident in 2003.  He was survived by a wife and two minor children, both of whom resided in Mexico at the time of his death.  The workers' compensation carrier, Goff Group, filed for a declaratory judgment that death benefits were not payable to Silva's dependents because they were nonresident aliens.  The Court of Civil Appeals found that since the dependents were neither citizens nor resident aliens in the United States, they were not afforded Constitutional guaranties to equal protection and due process.  The Court further found that the rights of dependents are separate and distinct from the rights of the deceased employee rather than derivative of the employee's rights.  As such, the non-resident alien dependents were not entitled to death benefits under Alabama's workers' compensation statute. 

2.  Allmond v. Akal Security Inc.:  Allmond applied for a job with Akal Security Inc. which, among other things, provided security officers at federal courthouses under contract with the U.S. Marshals Service.  Allmond was employed as a security officer in Columbus, Georgia.  One of the prerequisites of holding this job was to pass a hearing test, without the use of a hearing aid since the security officers must "be able to clearly understand directions in time of crisis....must be able to hear communication at a level of sound that does not inform persons causing an incident of the [officers'] response plans...[and] must be able to discern the direction of a disturbance or detect an approaching threat".  The hearing aid ban ensures that the officers can perform their job duties in the event the hearing aid fails or becomes dislodged.  Allmond failed the hearing test, and filed his lawsuit under the ADA and Rehabilitation Act.  The 11th Circuit, upholding the trial court's granting of summary judgment against Allmond, found that the hearing aid ban was job related and was consistent with a business necessity.  "When considered in the light of the tremendous harm that could result if a security officer could not perform the essential hearing functions of his job at a given moment, we accept this justification as legitimate and wholly consistent with business necessity".

3.  Gregory v. First Title of America Inc.:  Gregory worked as marketing representative for First Title, a title insurance company.  After she left her employment, she sued for overtime pay under the FLSA, seeking $10,000 in unpaid overtime compensation.  Her allegations included the fact that she never consummated a sale, that she was employed only to promote the company's services and to stimulate sales.  At her deposition, she testified that she did in fact obtain orders for title insurance and was paid a commission on her successful sales.  The 11th Circuit found that she was exempt under the FLSA as an oustside sales employee:  she was customarily and regularly performing her duties away from her employer's place of business, free from direct supervision,  that her primary duty was to obtain orders for title insurance, and her income was directed related to the number of orders she brought in or obtained. 

Seminar Update.  Due to an overwhelming response, my firm, Sirote & Permutt will conduct a second seminar addressing actual and anticipated changes in employment law on March 11, 2009 at Vulcan Park in Birmingham.  If you are interested in attending please contact ewilbourne@sirote.com or call 205.930.5494 to RSVP.

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Last week, Wal-Mart announced that it is going to pay approximately $640 million  to settle the majority of the 76 FLSA lawsuits pending against it the Wall Street Journal reported.  The allegations included forcing employees to work off the clock, prohibiting employees from taking breaks and changing time records.  Some commentators believe that the settlements may have an ulterior motive: to help prevent the unionization of Wal-Mart employees and to help Wal-Mart's fight against the Employee Free Choice Act.

Interestingly, last week, I received a letter from an Alabama law firm entitled "New Favorable Rulings Under FLSA".  The letter mentioned three particular types of claims under the FLSA, misclassification of employees as exempt when they are not,  classifying employees as independent contractors when they should be classified as employees, and forcing workers to work "off the clock".  The firm is interested in looking at cases involving these issues.  FLSA cases are alive and well in Alabama, and with more attorney's pursuing these cases, I anticipate the number of FLSA cases that are filed will continue to rise.

Practice Pointer.

As we enter 2009, now is a good time to review your classifications for FLSA purposes to make sure that your employees are properly classified, either as exempt or non-exempt.  It is also a good time to review with your managers and supervisors the importance of proper time keeping for non-exempt employees, and that they must be paid overtime if they work over 40 hours a week.

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