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Compliance 101: Wage & Hour Risk

Reese Darragh | November 29, 2011

Yes, yes—your company might some day be caught up in a sweeping regulatory enforcement case, some nine-figure settlement over the Foreign Corrupt Practices Act or off-label marketing of drugs or lord knows what. It happens.

But so do the basic, block-and-tackle compliance threats far more likely to leave a company fighting a rear-guard action against regulators and plaintiff lawyers. Like, say, wage-and-hour violations.

One recent case highlighted by the Labor Department underlines the risk businesses face. The company in question was Texas-based Hilton Reservations and Customer Care, which operates the call center for Hilton Hotels worldwide. According to an investigation from the Labor Department, employees weren't compensated for time spent starting their computers, opening software programs to assist customers, and reading important e-mails before beginning their shift. That led to incorrect calculations of employees' overtime pay—and ultimately to a judgment that Hilton failed to maintain proper records, and an order to pay more than $715,000 to 2,645 employees.

Along similar lines, meat-packing giant Tyson Foods last year settled a case involving the time employees need to put on proper clothing for work on the plant floor. Tyson agreed to provide an average of 8 to 12 minutes additional pay per shift to covered employees, and to modify its pay practices permanently by December 2012 to compensate employees for “donning and doffing” requirements.

Employment lawyers say cases such as these aren't setting new precedent for how the Labor Department treats wage-and-hour violations—but they do spotlight the subtle risks companies face from workplace procedures not carefully thought through. Indeed, many employees may even want to put more time into the job, and they may not know the litigation risks they're introducing.

“If employees perform their duties before they clocked in and you do not account for it in their paychecks, that will pose a litigation risk,” says William Pokorny, a partner at law firm Franczek Radelet.

The biggest threat to companies is that most of these complaints are brought by plaintiff lawyers, seeking compensation for legal fees should they prevail in disputed cases, says Keith Reinfeld, an associate at law firm Fox Rothschild. “You have lots of cases where litigation attorneys are seeking cases like these. In most cases, even though the monetary award for employees are small, the attorneys will receive their legal fees in full,” he says.

Evaluation Criteria

First, employers should evaluate the type of activities that warrant compensation—even if performed by non-exempt hourly wage workers outside of work hours, lawyers say.

“If employees perform their duties before they clocked in and you do not account for it in their paychecks, that will pose a litigation risk.”

—William Pokorny,
Franczek Radelet

Employers must be able to define whether activities outside of scheduled work hours are integral and indispensable to the actual duties of employees, Pokorny says. “Employers need to understand that if those activities are an integral part of workers' duties, you have to pay them,” he says.

The question to ask: Can workers still perform their jobs without going through those off-hour processes? (For example, could Tyson's employees still work on the shop floor without protective clothing, or Hilton's workers answer calls without turning on their computers? No.) “If there is a requirement, and if it is related to work, it is compensable,” says Reinfeld.

Employers practicing “the rounding policy”—rounding a worker's start or end times to the nearest 5 or 15—are considered by the Labor Department to be presumptively valid in most cases, says Raymond Carey, a partner at law firm Foley Lardner. Employers should be aware, however, that the practice is only considered valid if it averages out so that employees are fully compensated for all the time they actually work. “When rounding practices are in play, employers must make sure that employees are fully paid for all their work time,” he says.


Below is the Labor Dept. announcement of Tyson Foods' violation of the Fair Labor Standards Act:

Tyson Foods Inc., one of the nation's largest poultry producers, has been found in violation of the Fair Labor Standards Act (FLSA) at its Blountsville, Ala., facility. The jury's verdict in federal court in Birmingham resulted from a lawsuit filed by the U.S. Department of Labor against the company.

“We are very pleased that the jury in Birmingham has vindicated our position that employers must pay their workers for the time that they are required to work,” said Secretary of Labor Hilda L. Solis. “This is a victory for workers, and the result of years of dedicated efforts to protecting the rights of working Americans on the part of attorneys, investigators and others within the Labor Department.”

“The addition of 250 new wage and hour field investigators — a staff increase of more than a third — along with additional new staff in the department's Office of the Solicitor, makes clear our commitment to ensuring compliance with federal labor laws for the benefit of America's working families,” added Secretary Solis.

The Department of Labor's lawsuit was filed in the U.S. District Court for the Northern District of Alabama. The federal department alleged that Tyson Foods did not keep accurate records and failed to pay production line employees for the time they spend donning and doffing safety and sanitary gear, and performing other related work activities. The violations cover the period from the year 2000 to the present and affect approximately 3,000 current and former workers at the plant.

The initial investigation began in April 2000 as part of the department's Wage and Hour Division's poultry enforcement initiative. The Labor Department filed the district court complaint in May 2002 following the company's failure to comply with the law and to pay back wages. The first jury trial, which began in February 2009, ended in a mistrial. The Labor Department chose to pursue a second trial in August 2009 to secure a ruling that Tyson was failing to compensate its employees lawfully.

The Labor Department was represented by attorneys from the agency's Office of the Solicitor in Atlanta and Washington, D.C. Today's decision is a critical achievement in the department's longstanding efforts to ensure that employers in the meat and poultry industries pay employees for all time worked.

Source: Department of Labor.

Reinfeld says that even when employers rely on the de minimis exception permissible by the Labor Department, employers should still watch how they record the employees' time worked. “De minimis only applies if it is less than 5 minutes per day, then it will not be considered as working time. Once it exceeds 7 minutes, it's classified as an integral part of the work,” he says.

Carey warns employers to be cautious when adopting the de minimis policy. “Plaintiff lawyers are challenging that. As it is still a judicial determination and not a statute, it is a moving target,” he says.

Lawyers agree that as a rule of thumb, the more those off-shift activities resemble work, the more likely a worker should be paid for doing them. Plus, if those off-shift tasks are mandated by employers, they will be compensable. “If employers mandate what and where, potentially they are incurring compensable event,” Carey says.

Reducing the Risks

To avoid litigation altogether, employers should have policies in place to identify potential risks. Pokorny recommends that companies require workers to record their work hours accurately, remind supervisors that they must understand the policy and implement good time-keeping practices, and always follow up with employees on their own recordkeeping practices. “Have policies in place and make sure employees understand them,” he says.

Reinfeld adds that employers should be mindful of certain routine tasks that employees have to do prior to the beginning of their work shifts. Those routines can potentially turn into compensable activities. “Look at all the preparatory work they have to do,” he says.

Carey suggests that companies update their recordkeeping procedures and audit their payroll practices. One wise practice is to have a policy and mechanism in place for employees to report the events or duties where they believe they've been under-compensated. Taking the risk minimization process further, he says employers can consider adopting strict policies such as mandating that employees first obtain authorization from their supervisors to work more time than scheduled, or a policy that bars workers from doing additional work before the start or after the conclusion of their shifts without prior authorization.