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 By:  Rhonda Armstrong – 8/21/14

          On August 4, 2014, the U.S. Department of Labor (DOL) announced that LinkedIn agreed to settle a case, paying approximately $6 Million in unpaid overtime wages to hundreds of employees. See: http://www.dol.gov/opa/media/press/whd/whd20140940.htm. Many reports indicate that most of the workers were salespeople. The DOL charged LinkedIn with failing to record, account and pay for hours worked in a workweek as required by the Fair Labor Standards Act (FLSA). The FLSA requires “non-exempt” employees to be paid for all “hours worked” and to be paid overtime pay at a rate of time and one-half for hours worked beyond 40 hours in a workweek. The DOL’s news release indicates that the central focus of the investigation was LinkedIn’s failure to track and account for employees’ “off-the-clock” hours (e.g., work from home, taking telephone calls after hours, responding to emails after hours, etc.).

          So, what can we learn from LinkedIn’s misfortune? While FLSA compliance could be a subject for a full-day seminar, here are a few pointers:

  • Do not automatically assume that salespeople are not entitled to overtime. In order to be exempt from the overtime requirements of the FLSA, most salespeople must qualify as: (1) an outside salesperson (e.g., primarily makes sales/obtains orders outside of the office), (2) a commissioned retail salespersons (e.g., sells retail goods/services to the general public where more than 50% of earnings are commissions), or (3) an administrative employee (e.g., performs work directly-related to the business and exercises discretion and independent judgment on matters of importance). Otherwise, your salespeople most likely are eligible for overtime.
  • Ensure employees treated as exempt are appropriately categorized. Many employers assume simply because employees are paid a salary, they qualify for a “white collar” overtime exemption. This is NOT the case! Employees must meet a certain salary level ($455/week), be paid on a “salary basis,” and meet certain duties requirements. Generally, exempt professional, administrative, and executive employees must be paid a predetermined salary that is not adjusted due to the quality or quantity of work performed. Employers may not make deductions from an exempt employee’s salary except in certain DOL-approved circumstances. Also, employers must meet certain duties tests . Employers often get into trouble by failing to conduct a fact-specific evaluation of the employee’s job (the DOL repeatedly warns that job titles, alone, are not determinative) and making impermissible salary deductions (e.g., docking for partial-day absences, short-term suspensions, etc.).
  • Make sure you maintain an accurate record of all hours worked for non-exempt employees. It is important that employers accurately track when the employee starts working, when the employee stops working, and any time treated as unpaid throughout the day (e.g., lunch periods). Problems arise when employers:

o   Automatically deduct time for lunch periods with no accurate record – Employers that automatically deduct for unpaid lunch periods (without requiring employees to note their time out/in on their timecard or directing employees to notify the employer of variances) will be hard-pressed to refute employee claims that they worked through lunchtime.

o   Don’t pay for lunch or break periods when they should. In order to treat break-time as unpaid, a break/lunch period should be at least 30 minutes and employees must be completely relieved of their duties. So, having Jane sit and answer the phone while she’s eating lunch or requiring your employees to punch out for 15–minute morning and afternoon breaks will be indefensible.

o   Turn a blind eye. This was likely the case with LinkedIn. The fact that an employee fails to report time to an employer is NOT a defense to an FLSA claim. So long as an employer knows or suspects that an employee works, yet fails to pay him/her, the employer can be on the hook.

  • Publish written policies prohibiting working without authorization and/or requiring employees to appropriately account for such work. Most employers want their employees to take customer telephone calls, be responsive to customer emails, and take the extra steps do a great job. Yet, some of these same employers struggle with the right amount of “checks and balances” to make sure employee claims are supportable. For the most part, employers should have written policies in place prohibiting employees from working without authorization and requiring employees to accurately account for all hours worked in a timely fashion. Also, it is important that employers train their supervisors so they understand the importance of their role. Supervisors may have to discipline an employee for working without authorization, revoke an employee’s authorization, or even add time to a timecard that does not reflect known work during “off-hours.”

CONCLUSION: The FLSA is an extremely unforgiving law; maybe the most unforgiving of all the labor and employment laws. With stepped up enforcement efforts by the DOL, employers are wise to be proactive and audit their pay practices before the DOL comes calling.