RVDA HAS YOUR DEALERSHIP BUDGETED FOR WAGE AND HOUR LITIGATION WHO IS/ISN T EXEMPT IN PAY PLANS AND OTHER SCARY STUFF!
Presenter James F. Hendricks, Jr. Partner, Chicago Office Litchfield Cavo, LLP 312-781-6288 hendricks@litchfieldcavo.com
Why the Litigation Explosion? Employers misunderstanding the law Plaintiff s lawyers Plaintiff s lawyers Plaintiff s Lawyers Liquidated damages and attorney s fees Almost every employee is a potential plaintiff Watch out for the NLRB!
FEDERAL WAGE & HOUR INVESTIGATION VS. EMPLOYEE LAWSUIT
Federal Investigation: Complaint Audit D.O.L. vs. Self Wages Due Statute of Limitations (2 yrs) No Attorney Fees Employee Lawsuit: Find an attorney Lawsuit Wages Due Statute of Limitations (3 yrs*) Liquidated Damages Attorney Fees
Main Types of Wage and Hour Class and Collective Actions Misclassification of nonexempt employees Improper salary deductions Requiring or permitting off the clock work Miscalculating regular rate for overtime purposes Failure to comply with more stringent state laws Poorly drafted pay plan
Impact of State Wage and Hour Laws State law claims may be brought as class actions as opposed to FLSA collective actions Class vs. collective actions: A class member must affirmatively opt in to an FLSA collective action in order to participate and be bound by the judgment Under traditional class actions, each class member is bound by the judgment and notified of award or settlement unless he or she affirmatively opts out Thus, class actions under state law may have very large classes
Federal Exemptions MINIMUM WAGE, OVERTIME, RECORDS Executive Administrative Professional Outside Sales Highly Compensated OVERTIME ONLY Salesman Partsman* Mechanic* Commission-paid *Not 5 th Wheels or Travel Trailers
Complete Exemptions (Minimum Wage, Overtime and Records) 1. Executive 2. Administrative 3. Professional 4. Outside Sales 5. Highly Compensated Employees
1. Executive Exemption Is in charge of a department or sub-department, and Supervises the work of two or more full time employees, and Receives a salary or guarantee of at least 455/wk (*$921/week or $47,892/yr
CAUTION! EXEMPT only means that these employees generally Meet all the criteria and are generally Exempt from overtime NOT EXEMPT only means that these employees generally Do not meet the criteria for this exemption And generally are not exempt WARNING! Job titles are not controlling
Executive EXEMPT NOT EXEMPT Dealer Dept. Manager Ass t Manager CSI Manager Lot Manager Inventory Manager Finance Manager
2. Administrative Exemption Primary duty is performing non-manual work related to management policies or general business operations, and Exercises discretion and independent judgment with little or no supervision, (holds a position of responsibility) and Receives a salary or guarantee of at least $455/wk (*$921/wk)
Administrative EXEMPT NOT EXEMPT Used Vehicle Buyer HumanResources Manager Officer Manager Office employees Warranty Admin. Accounts Payable Rental Clerk Booker Dispatcher
3. Professional Exemption Performs duties requiring advanced knowledge in a field of science or learning requiring specialized instruction, and Consistently exercises discretion and independent judgment, and Receives a salary or guarantee of at least $455/wk (*$921/wk)
Professional EXEMPT NOT EXEMPT Attorney Accountant Bookkeeper Warranty clerk or administrator Accounts Payable Computer systems administrator
4. Outside Sales Makes sales and takes orders away from the employer s place of business, and Spends less than 20% of work hours at the employer s place of business doing work unrelated to sales duties
Outside Sales EXEMPT NOT EXEMPT Wholesale parts sales
Highly-Compensated Employees Performs office or non-manual work, AND Is guaranteed total annual compensation of at least $100,000 per year (*$122,148), and Performs any one of the exempt duties of an executive, administrative or professional employees
Partial Exemptions (Overtime Only) Salesman RV s/trailers Partsman* Mechanic* Commission-paid *Not 5 th Wheels or Travel Trailers
5. Salesman Primary duty: Selling cars or trucks to the consumer EXEMPT NOT EXEMPT Sales person After Market Sales Sales Associate Greeter Internet Sales person Finance Manager Service Writer Motorcycle Salesman * Circuits Split BDC Worker
Service Writers The Department of Labor will no longer Deny the OT exemption for (service writers) FOH 24L04(k) WATCH OUT!
6. Partsman Primary duty: Stocking, issuing, requisitioning or selling parts EXEMPT NOT EXEMPT Parts Counter Parts driver Shipping/Receiving Parts inventory Mechanics Counter (computer) Telephone Sales
7. Mechanic Primary duty: Performing mechanical or body Repair work on a vehicle EXEMPT NOT EXEMPT Technician Quick Lube Mechanic Technician Trainee Detailer Apprentice New Vehicle get ready Body man PDI Technician After-market installer 5 th Wheels/Travel Trailers
8. Commission-Paid Exemption Employed at a retail dealership, and Receives the majority of his/her compensation from commissions, and Receives at least time and one-half minimum wage for all hours worked in an overtime week. (State/Municipal Minimum Wage)
Commission-Paid EXEMPT Finance Manager Painter Dispatcher Service Foreman Flat Rate Detailer Other Managers NOT EXEMPT Warranty Clerk Office Employees Piece Rate Detailer
Finance Managers 9 th CIRCUIT OPINION 2005 F&I Managers ARE Exempt!
Is he exempt from overtime? What does he spend the majority of his time doing? How is his pay plan structured? Does he fit exactly into one of the nine exemptions?
Irrelevant Factors He is paid a salary. We consider him a manager. He makes $45,000. He could supervise someone. When he was hired, we agreed no overtime would be due.
If an employee is not exempt from overtime The employer must pay overtime Premium on all compensation the Employee receives
ISSUE: Failing to pay all the Overtime that is due.
If an employee is not exempt From overtime The employer must pay overtime premium on all compensation the Employee receives.
Compensation includes: $ Hourly wages $ Salary $ Commissions $ Bonuses $ Spiffs $ Payments from the manufacturer
Example: Warranty Administrator is paid salary of $600/wk. plus monthly bonus of about $700/mo. She works 50 hours a week BUT SHE IS NOT EXEMPT!!!
DOL s Calculation: 2 years overtime on salary $6,240 2 years overtime on commission $1,680 TOTAL DUE $7,920
Private Lawsuit Calculation: 3 years overtime on salary: $9,360 3 years overtime on commission: $2,520 Liquidated damages: $11,880 Attorneys Fees $25,000 TOTAL DUE: $48,760 BUT: Ohio = $97,520
Calculating Overtime on Salary, Bonuses, Commissions, Etc. 1. Divide amount of salary, bonus, commission, etc. received in a week by the hours worked in the week. 2. Then take ½ of that figure times the number of overtime hours. 3. That gives you the additional overtime due.
ISSUE: Using a poorly-drafted pay plan
Sales Pay Plans 1. Wage and hour aspects 2. Contract aspects
Wage and Hour Aspects You can pay commissions weekly, bi-weekly, semimonthly or monthly. You must satisfy minimum wage on the same basis: weekly, bi-weekly, semi-monthly or monthly.
You can loan or advance a sales person money to cover the minimum wage and then recoup it in subsequent weeks or months. You must pay for all hours worked: sales meetings, off day deliveries, prospecting, etc.
All sales people should punch a time clock. If they punch in but not out, make an estimate of the hours actually worked and calculate pay on that basis. Put the pay plan in writing and re-issue it whenever you make a change.
B. Contract Aspects CONTRACT ABC Motors hereby contracts With XYZ Company to have XYZ Do some work for it and agrees To pay XYZ about $50,000. For ABC Motors
B. Contract Aspects A pay plan, whether written or oral, is a legally binding contract A court will normally construe a contract against the party who drafted it (you!)
What is? 25% gross profit? Commissionable gross? Pack? Market adjustment? Wholesale reserve? Over/under trade allowance? Inventory adjustment
Be sure that you define every important term so that a jury will understand exactly what you mean. Use examples of how the commissions will be calculated (show the math).
Cover all the common problems: Split deals Commission payments after the employee leaves Right to see how commissions are calculated
Drafting Managers Pay Plans Do not use short hand terms or dealership industry jargon. Salary or draw or advance or guaranteed draw??? Refer to lines on the financial statement.
Explain in detail how compensation will be calculated for first and last month of employment Provide for inventory and accounting adjustments Watch out for guarantees
ISSUE: Promising an employee a guarantee
A. A guarantee of a certain amount of pay? B. A guarantee of employment for the entire period of the guarantee?
ABC Motor Company 1. $25.00 per flat rate hour 2. A guarantee of 4300.00 per month 3. Whichever is greater 4. Effect Jan. 1, 2011 This pay plan is good for 6 mos., at that time it will be evaluated by both parties
Never use the word guarantee unless you say: This guarantee is a guarantee of compensation only. It is not a guarantee of employment. Like all of our employees, you will be employed on an at will basis.
ISSUE: Treating employees as independent contractors
Who is an independent contractor? No clear line Depends on the forum you are in Factors to consider: The extent to which services rendered by an individual are an integral part of the principal s business The permanency of the relationship between the individual and the principal
Who is an independent contractor? Factors to Consider (cont d): The amount of investment in facilities and equipment by the individual The opportunities for profit or loss by the individual, and the method of compensation The degree of independent business organization and operation by the individual The degree of nature of control of the individual by the principal
Who is an independent contractor? Factors to Consider (cont d): The degree of independent judgment exercises by the individual who performs the services Performance of the same or similar services by the individual for third parties in addition to the principal Employment of the individual by the principal in any other capacity A comparison of the relationship to other independent contractor operations of a similar nature in the industry The right of either party to terminate the relationship on short notice without penalty
The Usual Suspects Dent repair Stripers New Vehicle prep employees Grounds keepers Janitor/maintenance Dealer trade drivers Security guards New managers
Potential Liability: Unpaid wages Pension contributions Insurance benefits Liquidated damages for non-payment of wages Attorney s fees
Your Potential Liability Wage and Hour: Failure to pay wages due IRS: Penalties for failure to withhold taxes Unemployment: Failure to make proper contributions Negligent hiring / retention Unemployment compensation Workers compensation Negligence toward third party
ISSUE: Failing to keep accurate Time records
Time Records The employer shall maintain an accurate record of the hours worked by each non-exempt employee each day and each week. The employer can delegate this duty to employees, but it remains responsible for compliance.
No required format: Punched time cards, handwritten time sheets, computer log, etc., so long as they are accurate. Most accurate: Punched time card.
There is no fine for failing to require employees to keep accurate record. However, without good time records, you are at your employees mercy.
ISSUE: COMP TIME There is no such thing as comp time for private Sector employees
Overtime is calculated on a weekly basis You cannot offset overtime hours with straight time hours in another week You may have to pay comp time under state wage laws even though you do not get credit under federal law
Do not allow comp time. If you have given comp time in the past, pay it off or phase it out.
ISSUE: Child Labor Violations
Hazardous Occupations Roofing work Excavation work Working with power-drive saws Construction work Driving a car
Civil Money Penalties Up to $11,000 per violation Possible injunction
ISSUE: Not paying attention to state And local wage laws
Federal Versus State Law Federal law does not preempt state employment laws Employees are entitled to the provision most favorable to them
State Wage Law Concerns: 1. Higher minimum wages 2. Different or non-existent exemptions 3. Wage payment laws 4. Wage deduction laws 5. Living wage laws
Some Exemption Examples IL and NV do not recognize partsman MA does not recognize s,p,m, but has an exemption for garageman NY recognizes s,p,m only if they receive 1 ½ times the NY minimum wage NV and CA require OT after 8 hours in a day
Wage Payment Laws Federal: Employer must pay wages promptly after they are earned Ohio: Employees must be paid by the first day of the month for any work done in the first half of the preceding month, and by the 15 th day of the month for any work done in the last half of the preceding month. Employers may pay on a less frequent basis only by written contract or when the practice is customary
Wage Deduction Laws Federal: Employer may deduct from an employee s wages so long as it does not cut into minimum wage or overtime States: Possible criminal sanctions
Improper Salary Deductions Many states have strict laws about what deductions may be made from pay Employer may try to recoup losses or expenses caused by the employee: Lost or returned merchandise, assistants Compensation to sales assistants Deductions for employee errors Deductions for business expenses (e.g., license, trade journals) Deductions for broken equipment
New DOL Opinions Re: Salary Deductions An employer may make deductions for absences of one or more full days because of sickness or disability before an employee has qualified under such a plan and once the employee has exhausted his or her leave allowance. See Wage & Hour Opinion Letter No. 32 (September 14, 2006) An employer may not make full day deductions from the salary of a fluctuating work week employee when the employee has exhausted his sick leave bank or has not yet earned enough leave to cover the absence. See Wage and Hour Opinion Letter No. 15 (May 12, 2006)
Wage Deductions State and federal taxes Health insurance Garnishments Child support Cash advances Cash shortages Damage to vehicles Unreturned uniforms Parts and service Fines or penalties
Living Wage Municipalities rather than states
Common Classification Mistakes Not considering differences in state and federal salary and duties tests Treating trainees as exempt before they fully qualify as exempt Failing to guarantee the proper minimum salary Prorating the salary of a part-time exempt employee to less than $455/week Making improper deductions from salaries of exempt employees
Payroll Practices: Red Flags Watch out for red flags regarding payroll practices: Improper deductions from salaries employees Improper calculations of regular rate Job descriptions for exempt employees that do not reflect exempt duties Nonexempt employees working through meal breaks Nonexempt employees performing work before or after they punch or log in/out Employees who routinely stay late but have no overtime Not complying with employer s own written policies
Mandatory Arbitration Agreements FLSA claims are arbitratable To ensure arbitration agreement is valid, consult counsel
Regular Audits of Exempt Positions ID all exempt and non-exempt employees Analyze the current definitions for each exemption Update and maintain accurate job descriptions Alter job duties to ensure compliance with exemption
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