Internal Audits: The Antidote to the Wage and Hour Class Action Epidemic

1. Internal Audits: The Antidote to the Wage and Hour Class Action Epidemic July 15, 2008 Washington, DC Speakers: Frank C. Morris, Jr. (202) 861-1880 fmorris@ebglaw.com Douglas Weiner (212) 351-4770 dweiner@ebglaw.com DC1467324.1ppt

2. Michael Abate, et al. v. District of Columbia Government CLASS ACTION Valerio Lopez, et al. v. NTI, LLC, MTXCELL, LCC, XTEL Construction Group, et al. CLASS ACTION Local 3614 AFGE v. EEOC CLASS ARBITRATION Yelondo Williams v. Euromarket Debbie Hurley v. Pop Sodas, Inc. CLASS ACTION Mark Moore v. Taylor Graphics CLASS ACTION Rebecca Caar v. World Wide Completion CLASS ACTION Raul Martinez v. LMF Motors CLASS ACTION Wage-hour class actions and collective actions are being filed more frequently than ever before.

3. Jane Smith v. ABC Refrigeration CLASS ACTION They are attractive to plaintiffs’ counsel because: • There generally is no need to prove the employer intended to violate the law. • Employers generally bearthe burden of proof. • Potentially large classes.

4. Jane Smith v. ABC Refrigeration CLASS ACTION • Potentially large recoveries. • Few wage-hour class actions are tried. • Most wage-hour class actions settle. • Plaintiffs’ counsel frequently receive 40% or more of the settlement proceeds, even if little work is performed on the case.

5. Large Recoveries Plague Employers • Baristas Win $105 Million • Former college student barista in 2003-4 filed wage hour suit • Later certified as class of 100,00 baristas • Claim supervisors wrongfully shared employees’ tips • Supervisors responsible for setting work schedules and managing employees – but they also make coffee and serve customers • Legal question – was it lawful for supervisors to share in the tips? • CA judge said no and on March 20th, awarded the class $105 million in unpaid tips • Starbucks has indicated it is appealing the decision as “fundamentally unfair and beyond all common sense and reason”

6. For Plaintiffs’ Counsel: LOW RISK + HIGH REWARD Can recover millions of dollarsfor minimal work

7. For Employers: HIGH RISK + LITTLE REWARD Millions of dollars at stake

8. Wage-hour class actions normally build toward the class certification hearing. That can be a multi-million dollar hearing.

9. If a class is certified, an employer must defend against a large group of quasi-plaintiffs and may face millions in exposure. But if class certification is denied, all that may remain is a single-plaintiff case with minimal exposure.

10. Jane Smith v. ABC Refrigeration CLASS ACTION Bob Ruth v. Miracle Telephones CLASS ACTION Debbie Conroy v. Toby’s Restaurants CLASS ACTION Plaintiffs’ counsel frequently file boilerplate complaints.

11. Jane Smith v. ABC Refrigeration OPPOSITION TO CLASS CERTIFICATION Bob Ruth v. Miracle Telephones OPPOSITION TO CLASS CERTIFICATION Debbie Conroy v. Toby’s Restaurants OPPOSITION TO CLASS CERTIFICATION The fact that plaintiffs’ counsel use boilerplate complaints does NOT mean that employers should use boilerplate approaches to defending against wage-hour class actions.

12. A “cookie cutter” approach to defending your class action is easy for your attorneys. But is it the best way to defend your class action?

13. The complaints may look identical, but: • Every employer is different. • Every employee is different. • Every work environment is different. • Every proposed class representative is different.

14. Those differences can be the difference in whether a class is certified or not. Those differences can mean millions of dollars.

15. What may have worked for a company in a different industry with a different judge may not work for your company. What did not work for another company may be best approach for you. You may have entirely unique arguments that have not been made before.

16. Why Is FLSA Litigation So Hot? • Publicity – Employees know their rights. • FLSA collective actions now outnumber discrimination class actions in federal court. • Attorneys fees, double damages, and 2 or 3 years of back pay under FLSA.

17. How Would Your Employee React to This? • Unite Here union website publicizing an FLSA class action brought against accounting/consulting firm PricewaterhouseCoopers (“PWC”) • Overworkedatpwc.info • Site invites current and former PWC associates who believe they were improperly classified as exempt to contact the union for more information • Certified class of all employees in PWC’s Attest division who worked in California between October 27, 2002 to date • Unite Here says plaintiffs’ court documents describe alleged atmosphere for unlicensed accountants as a “white-collar sweatshop” • Alleges associates were expected to work 50-70 hours/week and on weekends and holidays without overtime pay

18. How Would Your Employees React to This?

19. Hot Topics For Class Action Overtime Pay Due To: • Misclassification of Exempt/Non-exempt • Misclassification of Independent Contractors • Definition of Comparable Time Travel Time On-Call Time Telecommuting “Suffer or Permit” Donning and Doffing Training Time Rest/Meal Periods

20. Hot Topics, Cont’d Triggers Exposure in Related Areas: Record Keeping Payroll Practices Benefit Eligibility

21. How A Collective Action Works • An individual plaintiff files a lawsuit. • Plaintiff requests court to certify collective action because other employees are “similarly situated.” • Court usually certifies a class and orders a notice to be sent to all similarly situated employees. • Other employees can “opt in” to the lawsuit. • Defendant can later decertify class, but still has multiple plaintiffs to defend.

22. Wage/Hour Audits

23. While no two audits are identical, typically the following areas are analyzed: • Coverage • White collar and other exemptions • Working time • Recordkeeping • Posting • Compliance with state wage laws

24. Initial Audit inquiry: Who is an employee? The relationship with “independent contractors” must be examined. The controversy continues…

25. Economic Realties/Right to Control • The nature and degree of control the alleged employer exercises over the worker • The alleged employee’s opportunity for Profit or Loss • The alleged employee’s investment in equipment or materials • The degree of skill required to perform the work • The degree of permanence of the relationship • Whether the service is an integral part of the employer’s business • No single factor controls: based on the totality of the circumstances

26. Salary Level and Salary Basis Salary Level: Over $23,660 per year, or Over $455 per week

27. Salary Level and Salary Basis Salary Basis Test Requirements: • Predetermined salary each pay period • Cannot be reduced for quality or quantity of work • Paid full salary any week where performs work

28. Salary Level and Salary Basis Lawful Salary Deductions: • Full day suspension for violation of written workplace rules • Full day absence for personal reasons • Full day absence for sickness if company plan Cannot deduct for jury duty or serving as witness, but can offset any pay.

29. Sick Leave Example Sally, an exempt employee, has the flu and is out for a few days. She has one sick day left to use. Sally works Monday, goes home early on Tuesday, is absent on Wednesday and Thursday, and comes in for a few hours on Friday to check email and answer messages.

30. Sick Leave Example 1. How should Sally be paid? 2. What if she had worked from home on Friday? 3. What if she had spent 20 minutes each day checking emails instead of doing it all on Friday?

31. Salary Level and Salary Basis Safe Harbor for Impermissible Deductions • Clearly communicated policy prohibiting improper deductions • Complaint mechanism • Reimburse employee for deduction

32. EXEMPTIONS OVERVIEW • Job Descriptions • Red Light/Green Light/Yellow Light • Interviewing Managers

33. Duties Tests – Executive Three elements to duties test for executive employees

34. Duties Test – Executive First Element: Primary Duty is management of the enterprise or a customarily recognized department or subdivision thereof. Includes: Shift, Dept, Work Group, Branch, Office, or Facility. Does Not Include: Project, Task, or Product.

35. Duties Test – Executive Primary Duty means: “the principal, main, major or most important duty that the employee performs”

36. Duties Test – Executive Second Element: Must customarily and regularly direct the work of at least two or more full time employees. Can mix and match full and part time employees. Part time = half employee

37. Duties Test – Executive Third Element: Authority to hire or fire, or make recommendations that are given particular weight “You Can’t Always Get What You Want”

38. Duties Test – Executive What does particular weight mean? Whether making recommendation is part of employee’s duties How frequently they are made Whether recommendations are followed

39. Duties Test – Executive Tips for the Exempt Working Supervisor: • Must have discretion over when to perform non-exempt tasks versus managing. • Should be involved in hiring for group, even if only some hires. • Include in termination decisions; keep documentation of recommendation.

40. Executive Exemption Mims v. Starbucks(2007) – Primary Duty Test Found in favor of exemption where: • Managers were highest ranking employee in location and responsible for day-to-day operations • Earned twice the compensation of highest paid shift supervisors – earned bonuses not available to others • Interviewed, hired, trained, and fired employees

41. Duties Tests – Administrative Two elements to duties test for administrative employees

42. Duties Tests – Administrative First Element: Primary duty must be the performance of office or non manual work directly related to the management or general business operations of the employer, or customers.

43. Duties Tests – Administrative Second Element: Primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

44. Duties Tests – Administrative Examples of Exempt Employees: • Tax, finance, or accounting • Purchasing • Research and development • Quality control • Employee benefits / Human resources • Computer network administrator • Public relations/marketing • Safety

45. Duties Tests – Administrative When Are Administrative Assistants Exempt? • If assistant to business owner or senior executive. • Delegated authority regarding matters of significance, i.e. drafting policies or letters from executive, or communicates with outsiders on behalf of executive. • Meets discretion requirement vs. simply following instructions or procedures.

46. Duties Tests – Outside Sales Two elements to duties test for outside sales exemption

47. Duties Test – Outside Sales First Element: Primary Duty must be making sales or obtaining orders or contracts for services.

48. Duties Test – Outside Sales Second Element: The employee must be customarily and regularly engaged away from the employer’s place or places of business. Not sales over telephone, mail or internet

49. Duties Tests – Professional Four Different Types: • Learned Professional • Creative or Artistic Professional • Teacher • Computer Professional

50. Duties Test – Professional Learned Professional: Work requiring advanced knowledge (degree) Predominantly intellectual in character Consistent exercise of discretion and judgment