Tag Archives: Department of Labor

construction worker

DOL cracks down on illegal practices in construction industry

For the last five years, the Department of Labor has investigated 16 companies in Utah and Arizona for misclassifying employees as contractors. It came to a close on April 23 with $700,000 owed in back wages, damages and penalties for more than 1,000 construction industry workers in the Southwest.

However, this is hardly the end of the DOL’s targeting of the construction industry for illegal labor and wage practices.

“Many employers are feeling the squeeze in the construction industry from the recession and they’re looking for answers and sometimes innocently stumble on the answer of making people independent contractors,” says John Doran, attorney at Sherman & Howard.

The aforementioned case, for instance, included a company that asked its employees to form LLCs. It went from having employees one day to having none.

Misclassification of employees and contractors is more often than not unintentional, experts say. The easier said than done solution is educating employers and employees.

“Arizona does present additional challenges as a border state,” says Jesús Olivares, community outreach specialist for the DOL’s wage and hour division. “A lot of migrant workers and transient employees work here and then move on to other states. It’s a culture in which employees think in order to keep a job, they can put up with these illegal practices. Migrants have no options and that creates an additional obstacle for us. I think here, locally, more than 60 percent of employees who have been misclassified are Hispanic.”

Even if employees seem happy, says Tracy Miller, attorney at Ogletree, Deakins, Nash, Smoak & Stewart, it only takes one person to set an investigation in motion. Sometimes that catalyst is a competitor who is getting underbid by a company that can afford to charge less for a project due to money being saved by misclassifying employees. On average, misclassifying workers can save a company 30 to 35 percent of worker overhead, Olivares says.

“We try to educate our members,” says Arizona Builders Alliance Executive Director Mark Minter. “Employment law attorneys come to our conventions … I hope, as a result of those efforts, people are more aware of potential pitfalls.”

Minter says most calls from members seeking advice concern issues of travel time and apprenticeship classifications, not about righting the misclassification of employees. Minter understands the consequences of misclassification, citing a personal friend who lost his business because he improperly reported sales tax and was audited by the Department of Revenue.

The solution, for Minter, is transparency from the DOL. He recalls that shortly after the American Recovery and Reinvestment Act was passed, a lot of government projects were swept into the pipeline and scooped up by contractors who may have not understood federal classification rules.

“We tried to get guidelines from the DOL, but we were told, ‘We’ll look at the situation and advise after the fact,’” Minter recalls. This led to expensive misinterpretations of federal guidelines, he said.

Olivares, in concert with industry leaders, such as Sacks Tierney lawyers Matt Meaker and Helen Holden, and organizations like the ABA, launched the Employee Misclassification Compliance Assistance Program about a year ago to further the educational mission.

The EMCAP program is a self-audit tool developed to help contractors assess their classification practices. The program also offers a good faith model in which the agency will waive money going to the federal government.

“Peer pressure is a powerful tool,” says Meaker. “If the right players are involved and the right players know what they’re looking for, we’re going to make the light shine forward and force the bad actors into the dark further.”

Cole Johnson appointed to Department of Labor pilot program council

Cole Johnson

Cole Johnson

Cole Johnson, president of Paul Johnson Drywall, was tapped to serve on the business advisory council for a new pilot program called the Employee Misclassification Compliance Assistance Program (EMCAP), which is being initiated by the Department of Labor’s Phoenix District Office of the Wage and Hour Division (DOL). Johnson was asked to serve as a representative of the construction industry. Other industries being targeted include hospitality, janitorial, food service and security.

EMCAP was developed by the DOL, in cooperation with the business advisory council, which is comprised of business leaders from various industries. The program is designed to address the growing issue of worker misclassification, which the DOL identified as a trend arising from the business practice of utilizing independent contractors and other contingent workers opposed to hiring employees, thus improperly classifying workers. To address issues arising from this business practice, the DOL launched a five-year Misclassification Initiative in 2011.

In order to provide a mechanism for companies that may have erred in their classification of workers that allows them to address the issue without creating the potential for further exposure with DOL, the group established the EMCAP pilot program in Arizona. EMCAP intends to increase compliance, while providing employers with an opportunity to conduct a self-audit. Employer requests to participate in this program will be accepted from October 1 until November 28, 2014.

In May 2014, Paul Johnson Drywall (PJD) president Cole Johnson began initial collaborations with the DOL by implementing its classification initiative. As a result of this effort, PJD reactivated 1,325 workers as W-2 employees and hiring 627 new employees, taking the firm to nearly 2,000 employees.

Nonexempt Vs. Exempt Employees

Arizona employers face an onslaught of wage and hour claims

For Shayna Balch, business is booming.

Since the start of 2012, the labor attorney at Fisher & Phillips in Phoenix is seeing — on average — one to three wage and hour cases filed each day. This is compared with one or two a month in previous years. Nationally, the number of new Fair Labor Standards Act suits lodged in federal courts between 2010 and 2011 jumped more than 15 percent, according to Federal Judicial Caseload Statistics.

Historically, Balch says wage and hour cases have not been an issue in Arizona. Because of that, employers are not prepared for the trend and she worries that this a ticking time bomb waiting to explode.

“There are multiple causes (for the increase)” says John Thompson, who handles wage-hour cases at Fisher & Phillips and is the editor of the firm’s Wage Hour Laws Blog.

“They include a greater familiarity of plaintiff’s lawyers with wage-hour laws and with the many areas in which non-compliance can occur; workers’ increasing awareness of wage-hour requirements — including via the Internet and the media; the growing number and complexity of the laws themselves;  and the stepped-up enforcement efforts of government officials.”

As the economy suffered and employers looked for ways to reduce labor costs, many of the cost-cutting measures conflicted with employment laws, according to Phoenix attorney John Doran of Sherman & Howard, and that has led to an avalanche of wage and hour claims. The number of collective actions has increased by more than 400 percent nationally in the last decade. In Arizona, the increase has been even more dramatic.

“In Arizona, there has been a sudden and dramatic increase in wage and hour collective and class actions,” Doran says. “This should be a source of serious concern for Arizona employers.”

It’s particularly stressful for employers desperately trying to recover from the recession.

“Employers have looked for every possible angle to reduce labor costs including overtime, and many of those angles simply do not jive with the wage and hour laws,” Doran says. “This has been especially true with employers trying to convert their employees into independent contractors, which is an extremely difficult, and often mishandled strategy that has the attention of the Department of Labor and the I.R.S.”

The Department of Labor has increased its strength thanks to a significant bump in funding under the Obama Administration, increasing both its enforcement and public awareness campaigns. More than 250 new investigators have been hired and the revitalized Wage & Hour Division launched its “We Can Help” campaign in 2010 to increase visibility and accessibility to workers.

“The DOL has also been more aggressive in pursuing employers, by expanding the scope of wage and hour investigations, issuing more administrative subpoenas, and imposing more penalties on employers,” says Phoenix attorney Tracy A. Miller, shareholder. Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

And the DOL is making it even easier for employees to build cases against their employers. Last year, the DOL developed a smartphone application that allowed employees to keep track of their own time and monitor employer compliance with certain wage and hour requirements. The DOL also created hard copy “exhibits” for employees to track their time. In taking these steps, the DOL has stated that employees must be paid for any work they do, regardless of where they do it.

Empowered with DOL-provided tools, “We are seeing more individuals who file suit on their own behalf,” says Stephanie Quincy, a partner in the labor and employment practice group for Steptoe & Johnson. “In Arizona, if wages are not paid when they are due or the wages are withheld without a good faith reason, the employee is entitled to three times the amount, as a punishment for the employer. We are seeing employees filing these suits themselves, without an attorney.”

So where are employers most susceptible?

“The biggest increase has been in lawsuits and investigations involving workers who claim to be misclassified as independent contractors,” Miller says. “Failing to pay workers for pre-shift and post-shift activities, such as computer boot-up and power-down, is also still a hot issue. Another common mistake that the DOL and private litigants are focusing on is the failure to include bonuses and commissions when calculating overtime. Wage payments during temporary company shut downs and furloughs has been a hot issue, although usually these issues are resolved without a lawsuit.  Cases involving the misuse of the tip credit or tip pools have also been on the rise.  Finally, we continue to see off-the-clock cases from employees who work remotely and/or routinely use smartphones.”

All of this is a conundrum for employers, considering the changing face of the economy and the workplace. The DOL is encouraging employers to comply with the Fair Labor Standards Act, which was enacted in 1938 when people worked at work. Now, thanks to technology, many of us can work anywhere and anytime.

To protect themselves, employers of all sizes should engage in serious introspection, Doran advises.

“An internal wage and hour audit, if not a must, is still the most valuable tool employers have to fend off such claims,” Doran says, “Annual or bi-annual audits would include analyzing job descriptions and comparing them with what is actually happening in the workplace day to day; examining timekeeper practices; ensuring that supervisors and managers are adequately and accurately carrying out otherwise compliant pay practices; and much, much more. These audits are best conducted through outside legal counsel in order to cloak them in attorney-client privilege.”

Quincy says employers should examine each employee and determine if the employee — not the position — is doing the type of work that is considered “exempt” or “non-exempt.” Non-exempt employees must be paid overtime. Employers should also carefully examine deductions from pay and time, including automatic deductions such as rest and meal breaks. Employers must train supervisors that any changes to hours worked must be explained to the employee and the employee must sign off on them.  The employer should hold supervisors accountable for encouraging — or pressuring — employees to work off the clock or not to accurately record their hours.

“Often businesses feel as though they must be in compliance because they have been paying workers in the same way for years without any problems,” Miller says. “Very few businesses are completely in compliance with the wage and hour laws, however, and an investigation or a lawsuit is an expensive way to learn about violations.  Businesses that proactively audit their pay practices end up saving a lot of money in the long run.”


Unpaid Internships A Possible Doorway to Trouble

Internships can provide many mutual benefits – the student gets to work and learn in a real-world environment, and the employer gets low-cost (or free) labor. But before you make the business decision to hire an intern, be aware of the legalities that are involved. Here are a few tips to help you and your business stay in-line with the Department of Labor.

Before you hire an intern, reach out to your local community college or university and speak with the career services department. They are a great resource for setting up internships and helping you make sure you comply with the rules related to interns. If they are unable to help you, then you need to do some homework before you start advertising your internship. First, you need to create the framework of the position that you will be hiring for, including qualifications required, anticipated duties and time frame of the internship. Once you have set these parameters, then you will want to create some documents that clearly spell out the details of the internship; be sure to allow a space for both you and the intern to sign the agreement. An attorney can help you and oversee the process of creating these documents, including the preparation of an internship manual. Proper legal documents will give you and the intern clear answers, direction and expectations during the internship period.

You may have been warned by others not to hire interns because it is illegal. It’s not. It just so happens that the Department of Labor has begun cracking down on businesses, both large and small, for their improper use of student interns.  The general rule is that a private, for-profit business cannot “employ” an unpaid intern. There are six distinct criteria (or “rules”) that the business and the intern must meet in order for the internship to be considered valid.

  1. The first and most often violated rule is that the intern does not displace regular employees, but works under close supervision of existing staff. For example, if you are a marketing company that is stretched thin and are debating whether to hire another account coordinator or to bring on an intern, it is probably best that you hire the account coordinator.
  2. Tied directly to this first rule is the second:The employer that is providing the training derives no immediate advantage from the activities of the intern; and on occasion its operation may actually be impeded. Unfortunately, this is as straightforward as it sounds.
  3. The internship experience is for the benefit of the intern. At this point, you are probably thinking there is no way that you can benefit from an unpaid intern and that all of the rules are overwhelming; don’t throw in the towel just yet. Here is an example of work that would follow the first three rules. We will use a marketing firm as our example company:

Amy is brought on as an intern and is assigned to work with Rebecca, the senior account executive. Rebecca gave Amy the information about one of her top accounts and explains that, together, they are going to prepare the marketing strategy for that account. In the past, Rebecca has always done these presentations by herself. This time she will guide Amy through the process, teaching her how and why she takes each step she does in preparing the presentation. During the process, Amy is allowed to come up with the great idea that could ultimately change the account forever, which doesn’t violate any of the first three rules.

  1. 4.     The intern understands that they are not entitled to wages for the time spent in the internship.
  2. 5.     The intern is not necessarily entitled to a job at the conclusion of the internship.

These rules are much easier to follow and state that you must be upfront with your intern. Explain to the intern that the internship is not a promise of future employment and that they are not getting paid for their work. Depending on their school’s policy, they may be able to receive credit, but there is no compensation. This leads to the final rule.

6.  The internship, even though it occurs in the facilities of the employer, needs to be similar to training that would be given in an educational environment. This states that the intern’s job cannot be getting coffee, making copies and filing; you must make their time with your company educational. The training you are providing should be training that the intern can take and apply to any other company within the same industry, and the broader the education and experience you provide, the better.

In summary, if you are not sure whether or not your company can properly administer an unpaid internship program, it is best to reach out to either a local university or an attorney that works in labor law. The attorney specializing in labor law can review your internship plans and ensure that you are following the Department of Labor guidelines to keep you, your company and the intern out of trouble.


Brent Kleinman, managing attorney at Kleinman Law Firm, is an active member of the Maricopa County Bar Association and American Bar Association. Kleinman Law Firm is a Valley-based business law firm that specializes in hospitality law, real estate law and criminal defense, including DUI expertise. For more information on Kleinman Law Firm, please visit http://kleinmanlawaz.com/ or call 602-354-4809.

In Invest We Trust- AZ Business Magazine Oct/Nov 2006

Pension Reform Act To Impact Your Investment

In Invest We Trust

Pension Reform Act to impact your investment

By David Bernard

A body at rest tends to stay at rest. A body in motion tends to stay in motion, unless acted upon by an outside force. This basic law of physics can be applied to most people’s retirement planning—risking too much or too little and seemingly too apathetic or uninformed to affect change.

In Invest We Trust, Arizona Business MagazineThe Employee Retirement Income Security Act of 1974 (ERISA law) obligates employers who offer a defined contribution plan, such as a 401(k), to act as that outside force, pushing or redirecting their employees’ retirement investments. Until recently, plan sponsors were pretty limited by the types of plans and guidance they could provide for their employees. The newly signed Pension Reform Act of 2006 creates some tools and opportunities to help both plan sponsors and participants.

The new legislation is focused on improving employee education, increasing participation and changing under-funded or poorly performing plans. If you offer or are considering offering your employees a defined contribution plan, it’s time to jump on this bandwagon and take advantage of the new opportunities.

Here are a few things to consider:

  • Work with a broker or agent you trust to fully disclose information and who benefits from ensuring that you have the right plan for you and your employees. It’s not in your best interest to work with someone who benefits financially based on specific investments or products you select. A fee-based advisor has a fiduciary responsibility to you and your employees and is not motivated by commissions. How people get paid often has a big impact on how they behave.
  • With the help of an experienced advisor, you can adhere to the Department of Labor guidelines for complying with 404(c) regulations. The keys are to know what the regulations mean and being able to document and defend what you have done. Having a compliance strategy with documentation is equally as important as being in compliance.
  • As a plan sponsor, you are responsible corporately and privately for safeguarding the assets of your company’s plan. This means choosing, monitoring and continuing to oversee your plan. Annual reviews and ongoing oversight will help ensure that your plan evolves to meet changing needs and legislation.
  • Finding the right plan involves selecting the right investment choices and the right education program. One size does not fit all when it comes to retirement investing, and there are new options available. Offer your employees a well-researched retirement plan from an unbiased provider.
  • Encourage your employees to participate through automatic enrollment and matching contributions. Employees tend to improve their savings rate when employers offer incentives. This can also serve as an effective way to attract and retain great employees.
  • The annual “educational” meeting to educate workers on investments and register new enrollees just doesn’t cut it any longer. Employees need help not only managing their retirement plan assets, but also with understanding how these investments fit into their other financial considerations. They need individualized, objective advice so that they can achieve their retirement goals.

AZ Business Magazine October / November 2006The burden is on plan sponsors to help employees realize that they can no longer be passive when it comes to their retirement—and Congress has just helped ease the burden. With these new tools and the increased forces, we should see a whole generation of active and engaged retirement investors—no more retirement planning by inertia. We’ll have workers who are well equipped and in top shape to reach their retirement goals tomorrow. David Bernard is the president of Wealthpoint.

At a Glance
The Pension Protection Act of 2006 could greatly raise the number of workers participating in company-sponsored savings accounts by allowing the automatic enrollment of new employees. The legislation also will make it easier for plan sponsors to offer investment advice to 401(k) savers. Over the last decade, personal saving as a percentage of disposable personal income has steadily fallen. In the second and third quarters of 2005, the saving rate, for the first time in the last 60 years, has fallen into negative territory—meaning that Americans are, as a whole, spending more than they save. In the third quarter of 2005, the personal saving rate was 1.5 percent, according to the U.S. Department of Commerce.


Arizona Business Magazine Oct/Nov 2006