Foley & Lardner Labor and Employment Law Weekly Update (Week of October 24, 2011)

Employers Should Take a Hard Look at Arbitration
Written by: Mark Neuberger

As evidenced by some recent federal court decisions, employers should be carefully considering the benefits of implementing mandatory arbitration provisions, which include waivers of the right to bring a class action, for all employment-related claims. In Dauod v. Ameriprise Financial Services, Inc., Case No.: 8:10-cv-00302 (D.C. Cal. 10/12/11), employees sought to bring a class action alleging various wage hour violations. Relying on the U.S. Supreme Court's 2011 decision in AT&T Mobility LLC v. Concepcion, discussed in the May 10, 2011 edition of Legal News: Employment Law Update, the California federal court dismissed the class action and instead forced each plaintiff to arbitrate his or her claims individually.

Similarly, in Doe v. Princess Cruise Lines, Ltd. [an enhanced version of this opinion is available to lexis.com subscribers], an arbitration agreement between a bar server and the cruise ship on which she worked was enforced as to plaintiff's Jones Act (shipboard workers' compensation) and Seaman's Wage Act claims.

These cases reinforce the trend that courts are upholding well-drafted arbitration agreements between employers and employees, preventing employees from having a jury trial and also precluding them from bringing class actions. When such agreements are enforced, employees are relegated to having their cases heard on an individual basis in arbitration.

Employee rights advocates argue that such mandatory arbitration provisions and class action waivers unfairly deny employees their rights. Congress has taken notice and on October 13, 2011, the U.S. Senate Judiciary Committee held hearings entitled, "Arbitration: Is It Fair When Forced?" The hearing was chaired by Senator Al Franken, who introduced the Arbitration Fairness Act following the Supreme Court's decision in Concepcion. This law, if passed, would make it impossible to enforce any pre-dispute mandatory arbitration provision over employment and consumer disputes. The law would not, however, invalidate arbitration provisions contained in collective bargaining agreements.

All employers should be carefully analyzing the pros and cons of implementing mandatory arbitration provisions for all employment-related disputes. Given the veritable explosion of class action wage and hour litigation, waivers of the right to bring a class action law suit also should be examined. When mandatory agreements combine both, it can be a powerful weapon to limit claims. Like everything else in the law, careful planning, drafting, and implementation are the keys to successful enforcement of such agreements.

Is It Time to Audit and Update Your Payroll Practices?
Written by: Raymond J. Carey

Does your company use a time clock or other work-time recording system for nonexempt, hourly employees that "rounds" employee work time to conform to employee work schedules? For example, if a nonexempt, hourly employee arrives for work and clocks in before the employee's scheduled shift start time, does the system automatically round the employee's recorded work time to reflect the scheduled shift start time? Similarly, if a nonexempt, hourly employee clocks out after the employee's scheduled shift end time, does the system automatically round the employee's recorded work time to reflect the employee's scheduled shift end time? Does your company mandate that nonexempt, hourly employees don and doff work uniforms, other work-related attire, and safety and other equipment onsite but "off the clock"? Does your company require that nonexempt, hourly shift employees who relieve employees coming off shift report to work early so that they can meet with the employee being relieved to discuss what occurred during that employee's earlier shift (commonly called "shift turnover") off the clock?

If the answer to any one or more of these questions is "yes," your company could potentially be subject to costly enforcement action by the U.S. Department of Labor (DOL) or an analogous state or other local agency should it be audited by any of these administrative entities to determine whether it is in compliance with wage and hour and recordkeeping requirements of the Fair Labor Standards Act (FLSA) and analogous state or other local statutory enactments. The likelihood that your company will be audited and subjected to enforcement action by the DOL has increased during the past several months. The DOL has hired additional staff to audit employers and to determine if the wage and hour practices of employers are compliant with FLSA requirements. The DOL also is actively encouraging - through electronic and other means - the filing of wage and hour complaints by nonexempt, hourly employees. The DOL has developed and disseminated a smartphone application to facilitate this. Using the application, nonexempt, hourly employees can track their work time to support claims for violation of the FLSA.

Additionally, if you answered "yes" to any one or more of the questions, your company may be potentially subjected to expensive collective or class action litigation. Plaintiff lawyers are increasingly filing collective and class action lawsuits against employers challenging payroll practices of these types as violations of the FLSA and analogous state statutory and common law.

Permissible Rounding

The DOL has specified by regulation that employers can disregard early clocking in by any nonexempt, hourly employee who voluntarily arrives early for work and late clock out by any nonexempt, hourly employee who voluntarily remains after hours provided the employee does not perform any work during the applicable period. See 29 CFR § 785.48. In this regard, the rounding of an employee's shift start or shift end times to the nearest five minutes or to the nearest one-tenth or quarter of an hour is deemed by the DOL to be presumptively valid. See 29 CFR § 785.48(b).

However, the presumption of validity is premised on the DOL's assumption that such arrangements average out so that the employees are fully compensated for all the time they actually work. See 29 CFR § 785.48(b). An employer's practice of rounding is deemed by the DOL to be permissible only if it used in such a manner that it will not result in major discrepancies in recordkeeping or in a failure to compensate nonexempt, hourly employees for all time they actually work. See 29 CFR § 785.48.

Judicial decisions are to the same effect. These are premised on specific facts related to an employer's rounding practices and determinations regarding whether affected employees are fully compensated for work time.

Liability Avoidance

An employer will be able to avoid liability for back straight time and overtime wages in the event of an adverse DOL audit outcome or were litigation commenced against it either by federal or state DOLs or private attorneys if it can demonstrate through apposite records and other evidence that it fully compensates its nonexempt, hourly employees for all the time they actually work, i.e., that when the clock-in and clock-out times of employees are averaged, it is evident that employees are fully compensated for all time they actually work or that disputed time is de minimis. An employer that requires that nonexempt, hourly employees don and doff uniforms, other work-related attire, and safety and other equipment on site while off the clock (although there may be exceptions for nonexempt, hourly employees whose terms and conditions of employment are governed by a collective bargaining agreement depending on the applicable facts and circumstances, See 29 U.S.C. § 203(o), and/or that nonexempt, hourly employees engage in shift turnovers while off the clock may have difficulty demonstrating, if challenged, that it fully compensates its nonexempt, hourly employees for all the time they actually work or that any noncompensated work time is de minimis.

Recommendation

An employer that engages in rounding with the respect to the shift start and end times of nonexempt, hourly employees should, at a minimum, conform its rounding practices to what the DOL has recognized as presumptively permissible: nearest five minutes or nearest one-tenth or quarter of an hour. Nevertheless, the employer should still ensure that employees are fully compensated for all time they actually work when the clock-in and clock-out times of employees are averaged despite the presumption of validity applicable to rounding practices of this type.

An employer that engages in such rounding practices and that also requires that nonexempt, hourly employees don and doff uniforms, other work-related attire, and safety and other equipment on site (other than employees whose terms and conditions of employment are governed by a collective bargaining agreement for which the exception under 29 U.S.C. § 203(o) is applicable), and/or that they conduct shift turnover while off the clock should consider whether rounding practices or work schedules should be altered to factor in the time spent by employees who currently engage in these practices off the clock.

An employer that engages in rounding with the respect to the shift start and end times of nonexempt, hourly employees should ensure that apposite records and other evidence are retained and are available in the event of an audit to demonstrate its compliance with federal and state recordkeeping requirements and that it fully compensates nonexempt, hourly employees for all time they actually work.

Employers should implement, publish, and consistently enforce specific policies or rules that pertain to nonexempt, hourly employee timekeeping requirements that conform to applicable wage and hour laws. An employer should consider including polices and rules like those noted below in employee handbooks, posted on facility bulletin boards where employee notices are posted, and posted electronically to the extent this mode of employee communication is used by the employer:

• An employee shall not clock in more than five, 10, or 15 minutes (depending on rounding factor) before the start of an employee's shift without authorization from the employee's supervisor
• Each employee shall clock out at the end of the employee's work shift
• Each employee is prohibited from working at any time without clocking in before the employee starts work
• Each employee is prohibited from working at any time after the employee has clocked out from working
• Each employee is required to work all hours for which the employee is scheduled unless the employee's supervisor authorizes a change to the schedule
• Each employee must receive authorization from the employee's supervisor to work more or less than scheduled work hours
• An employee may not work overtime either before the start or after the conclusion of the employee's shift unless it is authorized by the employee's supervisor
• Each employee is required to accurately report the employee's work time on a daily basis for each day the employee works

2012 Cost-of-Living Adjustments Announced
Written by: Isaac J. Morris

The IRS has announced the cost-of-living adjustments applicable to dollar limitations for retirement plans and other amounts for 2012.

The table below shows the 2012 and 2011 amounts. Changes affecting 401(k) plans include: the individual annual dollar limitation increased to $17,000 from $16,500; and the annual compensation limit increased to $250,000 from $245,000. The age 50 catch-up limit remained at $5,500, meaning participants who are age 50 or older can contribute an annual maximum of $22,500 in 2012.

^* Current year classification is based on prior year compensation and limit. Nondiscrimination testing for 2012 will generally rely on the 2011 limitation of $110,000 for determining HCEs and the 2012 limitation of $115,000 will apply for 2013 nondiscrimination testing. Employers may, but are not required to, apply the top-paid 20 percent test in conjunction with this compensation limit.

^** For 2011, the OASDI tax rate was reduced by two percentage points for employees and for self-employed workers, resulting in a 4.2 percent effective tax rate for employees and a 10.4 percent effective tax rate for self-employed workers.

Labor and Employment Trivia

Last week's question: What is the name of the secret society of Irish-American coal miners involved in the labor movement and what are they alleged to have done?

Answer: The Molly Maguires was the name of an Irish-American secret society whose members consisted mainly of coal miners. Many historians believe the "Mollies" were present in the anthracite coal fields of Pennsylvania from approximately the time of the Civil War until a series of sensational arrests and trials in 1876 - 1878. The Molly Maguires were alleged to have used guerilla tactics to fight coal mine owners and the oppressive working conditions in the mines. They were criminally prosecuted largely based on the allegations of one powerful industrialist, Franklin Gowen, president of the Philadelphia and Reading Railroad, and the testimony of James McParland, a Pinkerton detective. The Molly Maguires' fictionalized story was told in a 1970 movie starring Sean Connery and Richard Harris. (Source: Wikipedia.org)

This week's question: Who was the first female ever appointed to the president's cabinet, and what agency of the federal government did she run? 

Please continue to send suggestions for trivia questions to mneuberger@foley.com.

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