Avoiding Lawsuits for Wage and Hour Violations

The Fair Labor Standards Act (FLSA) requires payment of minimum wage and overtime to covered employees. FLSA lawsuits and Department of Labor (DOL) investigations have become much more common in recent years, making FLSA compliance more important than ever. In fiscal year 2014, the Wage and Hour Division of the DOL found over $240 million in back wages for more than 270,000 workers.(1) Of that figure, more than $17.7 million was collected for wage and hour violations in the healthcare field alone. Significantly, unlike other employment claims, officers, managers, supervisors, and shareholders who exercise operational control over employees may be held personally liable for violations of the FLSA (29 U.S.C.A. § 203(d)). Given the potential liability under this Act, it is essential that employers become aware of their obligations to avoid facing lengthy, disruptive, and costly claims.

FLSA Coverage

There are two ways in which an employer is required to comply with the FLSA. First, an employee can be treated as covered by the FLSA when his or her employer is a “covered enterprise.” To qualify as a covered enterprise, a business must have an annual gross sales volume of at least $500,000 (unless the entity is a government agency or other public employer, hospital, nursing home, or school, in which case the dollar volume requirement need not be established) and meet the commerce test (29 U.S.C.A. §203(s)(1)). The commerce test is met if the business has two or more employees who are engaged in commerce, or the production of goods for commerce, or are handling, selling, or otherwise working on goods or materials that already have been moved in or produced for commerce (29 U.S.C.A. §203(s)(1)(A)(i)).

However, if a company is not a covered enterprise, an employee may nonetheless be covered by the FLSA pursuant to “individual coverage” if he or she deals with or handles goods that have moved in interstate commerce (Zorich v. Long Beach Fire Dep’t. & Ambulance Serv., Inc., 118 F.3d 682, 3 WH Cases2d 1799 (9th Cir. 1997)). This may be as simple as an employee’s use of long-distance telephone services, use of mail, or use of goods that were produced in another state and moved in interstate commerce. Thus it is easy to establish FLSA coverage for employees working in a healthcare setting.

Common Exemptions

When FLSA coverage exists, employers are obligated to compensate covered employees the federal minimum wage and overtime payment for all hours worked over 40 in a work week (29 U.S.C. §207(a)(1)). On the other hand, if an employee is properly classified as “exempt” from the FLSA requirements, he or she is not entitled to the payment of overtime. Although dozens of potential exemptions exist, the most common exemptions in a medical office are the executive, administrative, and learned professional exemptions. To qualify for these exemptions, employees must be paid a set amount of at least $455 a week (likely to be raised to $970 in 2016, if the DOL’s overtime pay revisions go into effect as proposed) and must meet certain tests regarding their duties (29 C.F.R. §541.600(a)).

Executive Exemption

Under the executive exemption, the employee’s primary duty must be the management of an enterprise or department. The employee must also regularly direct two or more employees, have the authority to hire or fire employees, or have substantial input into changing an employee’s status (29 C.F.R. §541.100(1)). Management duties are not limited solely to supervising employees. Functions such as interviewing, selecting and training employees, handling employee complaints and grievances, imposing discipline, and determining the type of supplies or tools to be used or purchased qualify as management responsibilities under this exemption (29 C.F.R. §541.102). Thus in a typical medical office setting, practice administrators will generally qualify for the executive exemption, assuming they are performing these types of management duties.

Administrative Exemption

The administrative exemption is a difficult white-collar exemption to understand and apply correctly. Typically, the administrative exemption applies to higher-level operational personnel who are involved in the development of policies and business strategies in their area of responsibility. The administrative exemption does not generally apply to employees engaged in manual, routine, and/or repetitive activities such as secretaries, data entry operators, and bookkeepers.

To be deemed exempt under the administrative exemption, the employee must have the primary duty of office or nonmanual work directly related to the management or general business operations of the employer or its customers (29 C.F.R. §541.200(a)). Such primary duty may include finance, auditing, quality control, purchasing, advertising, human resources, employee benefits, public relations, legal and regulatory compliance, and budgeting, as examples. The administrative employee’s primary duty must also include the exercise of discretion and independent judgment with regard to matters of significance (29 C.F.R. §541.202(a)).

Medical doctors fall within the learned professional exemption.

The distinction between exempt employees and nonexempt employees is sometimes determined by considering whether the employee is actually running the business, as opposed to engaging in the day-to-day carrying out of its affairs (Bratt v. County of Los Angeles, 912 F.2d 1066, 1070, 29 WH Cases 1578 (9th Cir. 1990), cert. denied, 498 U.S. 1086, 30 WH Cases 280 (1991)). The regulations suggest that the employee have the authority to make an independent choice that is free from immediate supervision. For example, human resources managers who formulate and interpret employment policies typically meet the duties requirement for the administrative exemption, whereas a personnel clerk who merely reviews applicants to obtain data regarding minimum qualifications would not generally meet the duties requirements (29 C.F.R. §541.203(e)).

Learned Professional Exemption

Medical doctors fall within the learned professional exemption. To qualify for the learned professional exemption, the employee’s primary duty must involve work requiring “advanced knowledge,” which is “predominantly intellectual in character, and which includes work requiring the consistent exercise of independent discretion and judgment.” The advanced knowledge must be “in a field of science or learning” which must be “customarily acquired by a prolonged course of specialized intellectual instruction” (29 C.F.R. §541.301).

The learned professional exemption does not apply to jobs that can be performed with general knowledge gained by an academic degree in any field; with any knowledge acquired through apprenticeship; or by training in the performance of routine mental, manual, mechanical, or physical processes. Likewise, the learned professional exemption will not apply where employees acquire skill by experience as opposed to advanced intellectual instruction (29 C.F.R. §541.301). A four-year college degree in any field, or a two-year degree from a community college, generally will not qualify an employee for the learned professional exemption. For example, the DOL has stated that although respiratory therapists “may be highly skilled as a result of their training, this level of intellectual instruction and academic training does not qualify the RT occupation as one requiring advanced knowledge ‘customarily acquired by a prolonged course of specialized intellectual instruction’” (WH Admin. Op. FLSA 2006-26 (July 24, 2006)).

The interpretative regulations state that registered or certified medical technologists who “have successfully completed three academic years of pre-professional study in an accredited college or university plus a fourth year of professional course work in a school of medical technology approved by the Council of Medical Education of the American Medical Association” generally meet the duties requirements for the learned professional exemption (29 C.F.R. §541.301). Registered nurses who are registered by the appropriate state examining board generally meet the duties requirements for the learned professional exemption. Similarly, physician assistants who have “successfully completed four academic years of pre-professional and professional study, including graduation from an accredited physician assistant program, and who are certified by the National Commission on Certification of Physician Assistants” fall under the learned professional exemption. However, licensed practical nurses generally do not qualify as exempt learned professionals.

Common Pitfalls

For nonexempt employees, who typically make up the majority of workers, an employer must be sure to comply with the minimum and overtime wage requirements of the FLSA, as well as any applicable state law. Although it is common knowledge that nonexempt employees must be compensated for all time worked, it is not always immediately clear what is considered compensable “time worked.”

Preparatory and Concluding Activities

Generally, any preparatory or concluding activities that are integral and indispensable to a “principal” job duty must be compensated. Conversely, “preliminary” and “postliminary” tasks that are incidental to a worker’s principal activities are not compensable (Steiner v. Mitchell, 350 U.S. 247, 256 (1956)). For example, activities such as walking or traveling to and from work are incidental activities and therefore not compensable. On the other hand, if an employee in a chemical plant cannot perform his principal activities without putting on certain clothes, changing clothes on the employer’s premises at the beginning and end of the workday would be an integral part of the employee’s principal activity, and all time should be compensated (29 C.F.R. §790.8). Employers often fail to identify this pitfall when employees use their computers to clock in or out to track their working hours. However, time spent logging into a computer, launching necessary programs, and shutting down a computer may need to be paid if the time spent doing so is integral and indispensable to that employee’s principal activities.

Breaks and Meal Breaks

Although the FLSA does not generally require employers to provide breaks, if they are granted, short periods of rest (usually 20 minutes or less) should be counted as hours worked and paid accordingly (29 C.F.R. §785.18). However, “bona fide meal periods” do not have to be compensated if they last at least 30 consecutive minutes and the employee is relieved from duty (29 C.F.R. §785.19). In some jurisdictions, the critical question is whether the time spent during the meal period was predominantly for the employer’s benefit or for the employee’s benefit. Using that test, if the meal period was predominantly for the employee’s benefit, the meal period need not be compensated. In other jurisdictions, the entire meal period must be paid if any of the time is spent for the benefit of the employer.

Under either standard, managers should be trained to be careful not to interrupt nonexempt employees’ meal periods with calls to duty, as it may render otherwise noncompensable time as compensable. Employers may also consider implementing a policy that prohibits employees from taking their work cell phone and/or pager with them during breaks, to help avoid situations where the employees answer calls or respond to messages when they should not be working. There are numerous examples where healthcare employers failed to do so, resulting in costly FLSA settlements. For example, a $3.5 million FLSA settlement was reached in an action filed against a Madison hospital on behalf of 1416 nurses who claimed that they were not properly compensated for on-duty meal periods (Order Granting Final Approval of Settlement, Fosbinder-Bittorf v. SSM Health Care of Wis., Inc., No. 3:11-cv-00592 (W.D. Wis. filed Oct. 23, 2013)).

Auditing Your Pay Practices

Auditing your pay practices will assist in determining whether you are compliant with FLSA statutory requirements and DOL regulations. Before proceeding with an audit, however, employers should be aware of the potential implications. If you discover violations of the federal or state wage and hour laws during the audit, you must correct the problems to avoid exposing your company to a willful violation finding in subsequent litigation. Also, if the audit is not protected by attorney–client privilege, the results may be discoverable in a future lawsuit. To protect the organization, you should contact an attorney before beginning the auditing process. Additionally, employers should keep in mind that while they must comply with the requirements of the FLSA, certain states have their own wage and hour obligations which may provide further employee protections, and all such laws should be heeded.

Conclusion

Due to the vast number of wage and hour claims made each year, every employer should examine its workplace rules, policies, and procedures to avoid running afoul of the FLSA. Failure to do so could lead to a costly lawsuit or DOL investigation.

Reference

1. United States Department of Labor. Wage and Hours Division. Working for a fair day’s pay. www.dol.gov/whd/statistics. Accessed December 1, 2015.