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

Before I get started, I would like to thank all of our Veterans and active service members, and their family members,  for their service to our country and the sacrifices they have made to make our country a better and safer place. 

You can now follow me on Twitter  @DanielBurnick.

FLSA Issues continue to plague employers.  Over the years, I have written about the problems associated with employers not properly paying their employees.  (October 18, 2011, May 10, 2011, August 17, 2010, July 2, 2010, June 3, 2010 and February 21, 2010).  Recently, the Mobile Press Register ran a story pointing out that wage and hour litigation was up 18% in 2010, and the upward trend is expected to continue during 2011 and into 2012.  The problems include misclassification of employees as exempt when they should be non-exempt, the misclassification of employees as independent contractors, and failure to pay overtime for any work performed in excess of 40 hours a week.  As pointed out in the Mobile Press Register's article, "review your compensation practices", "verify your record keeping", make sure your records are accurate, and make sure overtime is paid properly. 

Practice pointer.  As we head towards the end of another year, now is the time to do an audit of your policies and procedures to verify compliance with the FLSA, and train all your employees on these issues.

E-VERIFY and unintended consequences.  Recently, Bloomberg Businessweek ran an article entitled "A Verification System for New Hires Backfires".  In this article, a number of examples are given where employers who have enrolled in the E-Verify system have had trouble finding enough workers to do the work.  About 5% of the companies, around 300,000, use E-Verify.  This number will go up as states around the country implement the mandatory use of E-Verify for all employers.  In North Carolina, a local flower wholesaler implemented E-Verify, and the owner reports that he could not find enough workers:  "Those who want to work fail to pass E-Verify, and those who pass fail to work."  In Arizona, which made E-Verify mandatory in 2008, worker shortages have been reported in the construction industry and the food service industry.  One way employers are trying to avoid the mandatory use of E-Verify is to misclassify workers as independent contractors.  A Congressional Budget Office report from 2008 estimates that the mandatory use of E-Verify on a national basis would result in the loss of over $17 billion in federal tax revenue. 

Practice pointer.  Employers who attempt to avoid the mandatory use of E-Verify in Alabama are subjecting themselves to potential exposure under many different laws:  Alabama's Immigration law, which may result in the loss of business licenses, claims for overtime under the FLSA, and tax liability under both state and federal laws. 

Unusual excuses to take a sick day.  CBS Moneywatch had an interesting article discussing the most unusual excuses to take a sick day.  Some of them I have actually seen being used.  The article refers to a CareerBuilder survey showing that 29% of employees admitted to calling in sick when they were fine.  I expect the actual number to be higher.  The study also showed that 15% of employers have fired an employee for calling in sick when they were not, and 28% of employers admitted to checking up on employees who they thought may not have been sick.  Checking up included requiring a doctor's note (69%), calling the employee at home (52%), having another employee call (19%), and driving by the employee's house (16%).  Some of the unusual excuses listed included a deer bite during hunting season, the kidnapping of a relative in Mexico, drinking anti-freeze by mistake and going to the hospital, and an employee's 12 year old daughter stealing a car so the employee could not get to work.

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Since we have all been overloaded with immigration issues, I will be looking at 3 separate issues in this post.  First,  the Georgia Supreme Court adopted an opinion issued by the Georgia Bar Standing Committee on the Unlicensed Practice of Law (UPL) finding that responding to a garnishment by a corporation is a legal proceeding, and corporations must be represented by counsel in doing so.  Employers in Georgia have 30 days to serve and file an answer to a garnishment, and must respond every 30 days during the life of a continuing garnishment.  If a response is not timely filed, the employer may be found in default and may be liable for the entire debt of the employee.  In Georgia, as in Alabama, a corporation cannot represent itself in a judicial proceeding.  Georgia has an exception for cases involving claims of less than $15,000, which are filed in Magistrate Court, where any full time officer or employee of a corporation may represent the corporation. 

Practice pointer.  Using an attorney to respond to garnishments in Georgia will result in additional costs to corporations.  However, not using an attorney may result in civil and/or criminal charges for the unauthorized practice of law, and may result in a default being entered against the corporation for the entire amount of the employee's debt.

Effective January 1, 2012, the minimum wage in Florida will increase from $7.31 per hour to $7.67 per hour.  This increase is the result of 2004 constitutional amendment that requires a new wage calculation every year on September 30, based on the Consumer Price Index.

Practice pointer.  Effective January 1, it will cost more to pay employees in Florida, and I expect that there will be a roll-up, although slight, for workers who are making more than minimum wage as new employees are hired.

The IRS recently announced that is is offering a new "Voluntary Classification Settlement Program" (VCSP) allowing employers who agree to reclassify their improperly classified "independent contractors" as "employees" in exchange for paying significantly reduce penalties.  Aimed at small employers, but open to all, the VCSP allows employers to treat their misclassified independent contractors as employees going forward and the IRS will assess employment taxes, at a reduced rate, only for the tax year before the agreement was entered into, with no penalties, interest or audits.  There are some hidden pitfalls that employers must be aware of.  First, the IRS has entered into a Memorandum of Understanding with the Department of Labor concerning referrals and sharing of information in worker classification cases.  The DOL, or the employee, may come in seeking back benefits and wage and hour benefits (either minimum wage and/or overtime) against the employer.  This is after the employer admits to the IRS that it has misclassified it's employees as independent contractors.  The Office of Federal Contract Compliance Programs and the Occupational Safety and Health Administration will also be receiving and sharing this information.  There may also be potential ERISA violations, unemployment compensation issues, workers' compensation insurance issues and other hidden landmines for employers.

Practice pointer.  As I have written before, it is important for workers to be properly classified, either as employees or independent contractors.  Whether or not an employer decides to take part in the VCSP program, workers need to be properly classified.  The IRS's VCSP sounds good, but there are dangers involved in participating in it.  Before doing so, it would be wise to consult with legal counsel and/or an accountant. 

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PREGNANCY CLAIMS.  A study of EEOC statistics shows that the number of pregnancy discrimination claims are on the rise.  Since 2005, the number of pregnancy discrimination claims have risen 31%.  This pace is 7% higher then the 24% rise in all job-bias claims filed during this time.  For FYE 2009, there were 6,196 pregnancy claims filed, and a total of $16.8 million was paid to settle pregnancy claims during 2009.  The EEOCwebsite defines pregnancy discrimination as : "Pregnancy discrimination involves treating a woman (an applicant or employee) unfavorably because of pregnancy, childbirth, or a medical condition related to pregnancy or childbirth." 

Practice pointer.  Why is there an increase in pregnancy discrimination claims?  I believe there are a number of factors, including the fact that the depressed economy has resulted in more pregnant women working for fear of losing their jobs or because their spouse may have lost his job, there are more single mothers, and more women are willing to bring  a claim because they have nothing to lose.  I anticipate a continued rise in pregnancy discrimination claims for 2010.

EMPLOYEE MISCLASSIFICATION.  I have written before about the increased scrutiny the government is placing on the correct classification of employees: either as employees or independent contractors.  Congress has now gotten involved, with the proposed Employee Misclassification Prevention Act, introduced last week, that would amend the FLSA to specifically prohibit the misclassification of employees and place additional requirements on employers for record keeping purposes.  Some of the proposed requirements include providing written notice to employees of their particular status, and keeping records for each contractor hired that are similar to employee records.  The current proposal gives employers 6 months from the bill's effective date to notify existing employees/contractors of their classification.  There is a proposed civil penalty of $5,000 per violation if the employer does not comply with the record keeping requirements of the proposed law.  Treble damages would be available if there is a wilful violation of the proposed law.

Practice pointer.  The DOL has already hired numerous Wage and Hour Division investigators, and if this proposed legislation passes, there will be additional burdens placed on businesses to comply with the law.  Now is the time to review how your employees/contractors are classified to make sure that employers are in compliance with the law. Misclassificaiton of workers will continue to be a major focus of the DOL, and perhaps other governmental agencies, such as the IRS.  If the proposed law passes, the scrutiny will be even greater.  The best way to avoid adverse consequences is for employers to properly classify their workers, as either employees or contractors. 

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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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