In the Fall, 1998 edition of the Stein Sperling Employment Law Digest, some of the more common pitfalls associated with the Fair Labor Standards Act ("FLSA") were explored. As you may recall, the FLSA is the federal law that mandates the payment of minimum wage and overtime compensation to "nonexempt" employees. Many employers are surprised with the depth and complexity of the FLSA - which goes well beyond the mandates of paying minimum wage and overtime compensation. Previously, we discussed the threshold, but critical, importance of properly classifying employees as "exempt" or "nonexempt." The dangers associated with "docking" the pay of exempt workers and utilizing compensatory "time-off" programs to avoid payment of overtime compensation were also detailed. Judging by the inquiries of our clients, a further look at some other subtle, but just as important, restrictions imposed by the FLSA are warranted.
Many employers prefer to utilize the services of independent contractors to perform certain discrete functions that the employer either is not equipped to handle, or cannot accomplish efficiently. Where there is a bona fide independent contractor relationship, employers are not generally required to comply with the requirements of the FLSA relating to minimum wage and overtime. Unfortunately, employers often mistakenly designate employees as "independent contractors" in their zeal to avoid the mandates of the FLSA (and to escape withholding and other obligations). As with the determination of whether an employee is "exempt" under the FLSA, the determination of whether a worker is an employee or an independent contractor hinges upon a case-by-case factual inquiry. Generally, if the employer retains the right to control and direct both the performance of work and the manner in which it is accomplished, the worker will be deemed an employee for FLSA purposes. In contrast, an independent contractor generally performs work according to his own means, manner and method, free from the control of the employer.
Another common point of confusion exists with respect to the status of sales employees. With few exceptions, only outside sales employees are considered exempt from the overtime requirements imposed by the FLSA. An outside sales employee is one who is employed for the purpose of making sales or obtaining orders at the customer's place of business. Generally, "inside" sales people, such as telesales employees, are considered non-exempt and must receive overtime for all hours worked over forty (40) in any week.
The concept of calculating "working time" for non-exempt employees, while seemingly straightforward, often results in legal difficulties for the employer. For instance, is travel or "on-call" time compensable? Is an employer required to compensate employees when they arrive for work early or depart late? Is time spent changing clothes at the employer's site prior to working to be counted as hours worked? Employers may be surprised to learn that the time spent in these activities is in many circumstances to be counted as "hours worked." While it is not possible to provide a fail-safe rule, if the activity at issue involves any work at the employer's behest or for the employer's benefit, the time is likely to be compensable. For instance, time spent engaging in the following activities will be deemed "hours worked" in many cases:
- Caring for or cleaning the employer's tools used on the job
- Changing clothes at the job site if required by the nature of the work
- Meal periods if employees are not free to leave, or if the time is too short to be useful to the employee
- On-call time where the employee's liberty is restricted in a material manner
- Preparatory work
- Rest periods of 20 minutes or less
- "Show up" time of 10-15 minutes
- Required training programs
- Travel between work sites and travel during normal working hours
While the time involved in many of these activities may seem trivial, a company in Colorado was recently fined $1.3 million dollars for failing to pay its employees for the 10 minutes per day spent changing clothes and cleaning tools.