All Rise: Court, Legal Cases Reveal Nuances in Wage-Hour Laws

Lawsuits and case studies offer plenty of lessons for employers trying to comply with state and federal wage-hour laws, an employment attorney said May 17.

Although all court cases are fact specific, employers can review legal decisions to identify specific wage-hour issues and pitfalls that might impact them, said James Reid, an employment attorney at Honigman LLP.

“Legal cases are all very fact specific,” he said. “The goal here is to get employers to see the issues rather than being a legal expert on specific cases.” Reid was speaking at PayrollOrg’s 41st Payroll Congress, in Denver.

Some of the cases Reid covered relate to exemptions under the federal Fair Labor Standards Act, compensable time, and worker classification.

Fair Labor Standards Act Exemptions

The Supreme Court recently determined that a former oil rig worker earning more than $200,000 annually was covered under the FLSA and entitled to overtime pay because the company paid the worker a day rate instead of a guaranteed weekly salary, Reid said.

This case demonstrates the need for employers to make sure that their FLSA-exempt employees are paid a guaranteed salary and not an hourly rate, he advised.

“If there’s a vendor paying a daily rate, that’s great,” he said. “But, make sure there’s a guaranteed weekly salary for those workers that employers want to be exempt from overtime.”

Another federal case that Reid discussed relates to the outside sales exemption under the FLSA. In this case, the court determined that certain brand representatives can qualify as outside salespeople under the FLSA even though they did not receive purchase commitments from customers.

“The court said that, even though these workers were not engaging in sales, their work was sufficient enough to persuade customers to make purchases and that’s the same thing as outside sales,” he said.

In light of this case, employers should review the job descriptions for their employees and tailor them to provide the best argument for an FLSA exemption should a challenge arise, he suggested.

Compensable Time

Court decisions relating to compensable time can vary due to the number of state and federal laws that might apply, Reid warned.

“In Michigan, you have to compensate time in increments of one-tenth of an hour, so every six minutes” he said. “But under federal law, you can round to the nearest quarter of an hour.”

Consequently, employers should avoid treating an out-of-state case decision as guidance, he advised. The cases might be persuasive to a court but are not considered precedent.

“If it’s the Supreme Court, it applies to all employers in the US,” he said. “If it’s a local or state decision, it is only binding on that state or locality. If you are anywhere else, it is persuasive but not necessarily binding. And, going even further, some of these decision can be unpublished decisions, which means that the court did not want to use the case as precedent.”

That said, a court decided in one case that oil rig workers were not entitled to compensable time for time spent donning and doffing personal protective equipment because it was not essential to their necessary job functions, he said.

Although most employers do not need to worry about personal protective equipment, employers should beware of potential compensable time liability for the time employees spend turning on their computers, Reid said. Many cases have held that employees are entitled to pay for that time.

If employees come into work before their shifts begin, employers can avoid owing compensable time by making them wait away from their work stations until their shifts begin, he suggested. By doing so, employers can ensure that employees are not performing small tasks and activities at their desks that might entitle them to compensable time.

Worker Classification

Classifying workers can be difficult because multiple tests exist for classifying workers as either employees or independent contractors, Reid said.

“There’s the IRS 20-factor test, the economic realities six-factor test, and the ABC test,” he said. “All of these tests can be a nightmare because it’s a weighted balancing scale. And in court, it’s a weighted balancing scale depending on how the judge interprets those facts.”

Employers that want to use independent contractors should create a separate entity to handle issues related to the independent contractors, he advised. Additionally, employers should not call independent contractors employees and should not give them employee handbooks. Doing otherwise might become evidence in court that an employer misclassified an employee as an independent contractor.

“Employers should respect the formality of the independent contractor arrangement,” he said.