Tag Archives: Fair Labor Standards Act

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.”

Intern Season: The Six Criteria To Allow Unpaid Internships

Intern Season: The Six Criteria To Allow Unpaid Internships

Here’s the six criteria a business must meet in order to allow unpaid internships.


It’s no secret that today’s economy is tough.

Students are working hard to learn needed skills in the career of their choice, while current members of our workforce are going back to school and training to learn a new trade.

The result?

Business vets are joining this year’s crop of students as fall interns. They will work away — often for free — in hopes of a future job, a resume builder and even to sample “the real world.”

There is just one problem; in many cases, this is illegal for both the business vets and students.

It’s true.

The Fair Labor Standards Act (FLSA), which is the federal law requiring the payment of minimum wages and overtime compensation, generally prohibits unpaid internships, especially in the private, for-profit sector, has long had spottily-enforced rules on just this issue.

And — things are getting serious.

In recent years, the Department of Labor issued a very specific crackdown regarding unpaid employees — a six-point checklist on just how far an internship can go before requiring a business to pay up by at least offering minimum wage.

The six criteria a business must meet in order to allow unpaid internships are:

1.     The internship, even though  it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

2.     The internship experience is for the benefit of the intern;

3.     The intern does not displace regular employees, but works under close supervision of existing staff;

4.     The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

5.     The intern is not necessarily entitled to a job at the conclusion of the internship; and,

6.     The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If an internship does not meet all of the above areas, the “intern” needs to be paid at least minimum wage as well as overtime as needed. In addition, a true internship should always be offered for a specific, defined time frame — and should never promise potential future work.

In the past, this hope for future work has kept interns from complaining of no pay — and kept employers safe from getting what amounts to free labor. This is not the case any longer. Since the release of the specified internship criteria, the Department of Labor has cracked down on what qualifies as an employee versus as internship in the strictest of senses.

So, what does the Department of Labor mean when it says “crackdown”?

What can really happen to a business not caught paying its interns?

Specifically, employers not in compliance with the Department of Labor regulations face legal exposure both from the government and a potential lawsuit. Penalties can include owing back pay, taxes not withheld, Social Security, unemployment benefits, interest, attorneys’ fees and liquidated damages (double the unpaid wages).

Some tips on offering — and taking — internships moving forward:

  • Work the internship through a local college or university — many will offer course credit and specifics tasks that relate back to educational training;
  • Keep written, reviewed records specifying that no internship will ever guarantee legal employment to set expectations upfront;
  • Encourage interns to shadow team members rather than actively participate in the workload;
  • Never offer training specific ONLY to your company — offer a broad education and experiences about the industry instead; and,
  • Offer hourly payment to all interns, trainees and other seasonal members of the team no matter what.

One final note – unpaid internships at nonprofit, charitable organizations, where the interns volunteer without the expectation of compensation, are usually permissible.

For more information about unpaid internships, please visit laborlawyers.com.