How to Avoid Disney’s Not-So-Fairy Tale $3.8 Million Payment of Employee Back Wages

On Friday, March 17, 2017, the U.S. Department of Labor (“DOL”) and two subsidiaries of The Walt Disney Co. (“Disney”), the Disney Vacation Club Management Corp., and the Walt Disney Parks and Resorts U.S. Inc., reached an agreement to resolve claims under the Fair Labor Standards Act (“FLSA”), requiring the payment of back wages of over $3.8 million to more than 16,000 employees of the two Florida-based Disney companies.

According to the DOL, Disney deducted a uniform (or “costume”) expense from employee pay, which lead some employees’ hourly rate to fall below the federal minimum wage rate of $7.25 per hour. The subsidiaries also did not compensate the employees for performing pre- and post-shift duties while additionally failing to maintain required time and payroll records.

As part of the agreement, Disney agreed to start training all Florida-based managers, supervisors, and non-exempt employees on what constitutes compensable worktime and emphasizing the need to record all records pertaining to time accurately.

There are certain steps that employers can do to avoid the significant damages Disney incurred including:

  • Maintain accurate payroll, time, and schedule related records. This is particularly important to our hospitality and restaurant clients where record keeping can be especially difficult.  Also, remember that under the FLSA, the records must be  maintained for a minimum of three years for payroll records and six years under New Jersey and New York law.
  • Deductions are an easy target for the plaintiffs’ bar. Employers must make sure that any deductions are legal under state law and that the deductions if permissible do not bring the affected employee below the state or federal minimum wage;
  • Perform a wage and hour self-audit every two years to avoid misclassification issues and to ensure your recordkeeping and pay practices are consistent with the law;
  • To avoid donning and duffing claims (claims involving changing into and out of uniforms, costumes, and protective equipment for example), employers must take care to distinguish between non-compensable time when changing into and out of the uniform is merely for the employees’ convenience as opposed to compensable time when the job cannot be accomplished without wearing the designated uniform or costume or safety equipment and it is impractical to arrive at work wearing same.

If you have any questions or would like to discuss best practices in complying with federal wage regulations, please contact John R. Vreeland, Esq., Partner & Chair of the  Wage and Hour Compliance Practice Group at jvreeland@nullgenovaburns.com or call 973-533-0777 or Harris S. Freier, Esq., a Partner in the Employment Law and Appellate practice groups, at hfreier@nullgenovaburns.com, or call 973-533-0777.  Mr. Vreeland and Mr. Freier routinely work together in defending wage and hour class actions.  Please visit our free Labor & Employment Blog at www.labor-law-blog.com to stay up-to-date on the latest news and legal developments affecting your workforce.

Of Employees and Independent Contractors: The Ninth Circuit to Consider Where Truck Drivers Fall

On February 24, 2017, Senior U.S. District Judge John W. Sedwick in the district of Arizona stayed a proposed class action in Virginia Van Dusen et al v. Swift Transportation Co., Inc. et al, No.: 2:10-cv-00899, against Swift Transportation Co., Inc. (“Swift Transportation”). The proposed class is comprised of about 600 members but could have implications for thousands of drivers for the company. This long-running case centers around claims that the trucking company incorrectly classifies its drivers as independent contractors. February’s ruling prevents any advancement until the Ninth Circuit hears the company’s challenge to the district court’s January 2017 ruling that its drivers’ contractor agreements were actually contracts of employment.

In the initial complaint, plaintiffs alleged that Swift Transportation incorrectly classified them as independent contractors as opposed to employees and failed to pay them proper wages under the Fair Labor Standards Act (FLSA) and under various provisions of the New York Labor Law and the California Labor Code. Plaintiffs sought relief from the court, requesting it enter an order declaring that Swift Transportation violated the FLSA, certifying the class, and awarding damages for unpaid wages, reimbursement for illegal deductions from wages, and an equal amount in liquidated damages and interest as well as attorneys’ fees. Illegal deductions, such as fuel costs, maintenance and repairs, and insurance, can be substantial in a trucking case, which makes trucking companies popular targets of class actions.

According to documents initially submitted to the court, twenty-five percent of Swift Transportation’s drivers worked in the company’s “owner operator division” and were considered independent contractors. Three-quarters of the trucks were driven by employees. The plaintiffs maintained that a majority of the “owner operators” did not own anything at all, but were instead selected by Swift to lease trucks from an affiliated company. They further argued that they should be considered employees because much of their day-to-day operations were within Swift Transportation’s control and oversight.

In determining whether the contractor agreements were exempt from arbitration under the Federal Arbitration Act (“FAA”) and the Arizona Arbitration Act (“AAA”), the court noted that § 1 of the FAA excludes “contracts of employment”. In assessing whether the Swift Transportation’s contractor agreements were exempt from the FAA, the federal district court looked to the four corners of the agreements. The agreements specified the type of work performed by the drivers, clearly showing that Swift Transportation’s “central mission” is delivering freight to customers across the country. The district court noted that the fact that its employees were doing the work of transporting on the company’s behalf suggested an employment relationship. Swift Transportation maintained, however, that the drivers were giving substantial autonomy and were free to do as much or as little as they wanted in order to profit as an independent driver. Other factors contained within the agreements bolstered the employment relationship, according to the court, including provisions regarding Swift’s control of its drivers’ schedules, load-determination and assignment, and per-mile rates paid to drivers. Moreover, these agreements were automatically extended on a year-to-year basis, a feature of employee status where the relationship is of possibly infinite duration. Thus, the court found that, within the four corners of the agreements, the contracts were those of employment and were exempt from arbitration under both the FAA and the AAA.

The federal district court also looked to other evidence to determine whether the independent drivers were employees. It noted that the plaintiffs had limited autonomy when it came to load assignments and payment structures. The fact that the plaintiffs were paid on a per-mile basis as opposed to time spent at work did not, in the court’s view, make the compensation project-based. Also, Plaintiffs were not paid after completion of a specific job but rather received settlement payments on a weekly basis similar to the regular paydays of Swift Transportation’s employee drivers. Even though Swift Transportation argued that plaintiffs were free to do as much or as few miles for the company as needed to profit as an independent driver, the combination of agreements and leases dictated a minimum amount plaintiffs needed to drive in order to pay for weekly rentals of leased trucks. As a result, the amount independent drivers had to drive for the company was the same as the employee drivers. It was also impractical for plaintiffs to “moonlight” or to turn down cargo loads in hopes of larger ones as there was no guarantee there would be one, which undermined the alleged freedom available to the independent drivers.

The lower court’s review of the agreements and of the additional factors is in line with the approach taken by the Ninth Circuit generally. In 2014, the Ninth Circuit held that the most important factor in determining a worker’s status is the amount of control exercised by the putative employer over the worker’s position. However, the Ninth Circuit also reviews the “totality of the circumstances,” similar to the test used by the U.S. Department of Labor when evaluating independent contractor status under the FLSA.

What is troubling for companies operating in multiple states is there is no complete consistency amongst the circuits as to how to assess the issue of employee versus independent contractor status. Even within the circuits themselves different tests are often used depending on from which state the case originated. Within Third Circuit, for example, there are several approaches. New Jersey expressly rejects the common law right to control test and instead courts apply the ABC test under N.J.S.A. 43:21-19(i)(6)(A)-(C):

  1. Such individual has been and will continue to be free from control or direction over the performance of such service, both under his contract of service and in fact; and
  2. Such service is either outside the usual course of the business for which such service is performed, or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and
  3. Such individual is customarily engaged in an independently established trade, occupation, profession or business.

Delaware, on the other hand, uses the common law right to control test and courts focus on the amount of control “retained or exercised by the owner.” Delaware courts also look to the element of continuous subjection to the will of the principal, which is a defining factor in the worker-owner relationship.

In Pennsylvania, courts look to the common law factors which mirror those considered in the four corners assessment by the Ninth Circuit: control of manner work is to be done; responsibility for result only; terms of agreement between the parties; the nature of the work or occupation; skill required for performance; whether one employed is engaged in a distinct occupation or business; which party supplies the tools; whether payment is by time or by the job; whether the work is part of the regular business of the employer, and also the right to terminate the employment at any time.

While the Swift Transportation case will be instructive in determining whether truckers can be treated as independent contractors as opposed to employees, the lack of consistency among the circuits means that independent truckers will continue to be subject to challenge. Employers, therefore, need to be very careful in classifying their drivers as independent contractors, especially if their job duties and responsibilities are not materially different from those of its employee-drivers and if company maintains control over how the drivers perform their work.

For questions about independent contractors or trucking and logistics, please contact John Vreeland, Esq., Chair of the Transportation, Trucking & Logistics Group and a Partner in the Labor Law Practice Group at jvreeland@nullgenovaburns.com or (973) 535-7118, or, Harris S. Freier, Esq., a Partner in the Firm’s Employment Law and Appellate Practice Groups, at hfreier@nullgenovaburns.com or (973) 533-0777. Please also sign-up our free Labor & Employment Blog at www.labor-law-blog.com to keep up-to-date on the latest news and legal developments effecting your workforce.

Philadelphia Becomes First U.S. City to Prohibit Inquiries into Applicants’ Wage Histories

On January 23, 2017, Philadelphia Mayor Jim Kenney signed into law the “Wage History Ordinance,” which bans all employers doing business in Philadelphia from asking job applicants about their wage histories, subject to a few exceptions. The Ordinance, unanimously passed by the Philadelphia City Council on December 8, 2016, amends Chapter 9-1100 of the Philadelphia Code, the “Fair Practices Ordinance.” The new law, the first for a U.S. city, will take effect on Tuesday, May 23, 2017.

The Wage History Ordinance specifically prohibits employers from the following:

  • To inquire about, require disclosure of, or condition employment or consideration for an interview on the disclosure of a potential employee’s wage history, unless done pursuant to a “federal, state or local law that specifically authorizes the disclosure or verification of wage history for employment purposes;”
  • Determine a potential employee’s wages based upon his/her wage history provided by his/her current or former employer, unless the potential employee “knowingly and willingly” disclosed such information to the prospective employer; and/or
  • Take any adverse action against a potential employee who does not comply with a wage history inquiry (anti-retaliation provision).

For purposes of this Section 9-1131, “to inquire” shall mean to “ask a job applicant in writing or otherwise,” and “wages” shall mean “all earnings of an employee, regardless of whether determined on time, task, piece, commission or other method of calculation and including fringe benefits, wage supplements, or other compensation whether payable by the employer from employer funds or from amounts withheld from the employee’s pay by the employer.”

Notably, the exception allowing wage history inquiries where a law “specifically authorizes” such applies not only when the inquiry is required by law, but when it is merely permitted by law.

The new law also requires a prospective employee who alleges a violation of the Ordinance to file a complaint with the Philadelphia Commission on Human Relations within 300 days of the alleged discriminatory act before he/she may file a civil action in court. Violations of the Ordinance can result in an award of injunctive or other equitable relief, compensatory damages, punitive damages (not to exceed $2,000 per violation), reasonable attorneys’ fees and hearing costs.

Advocates of the legislation, like Philadelphia Councilman Bill Greenlee, have suggested that the Ordinance is aimed at reducing the gender wage gap.  According to the “Findings” section of the Ordinance, women in Pennsylvania are paid 79 cents for every dollar that a man earns.  Amongst minorities, it claims that African-American women are paid 68 cents, Latinas are paid 56 cents, and Asian women are paid 81 cents for every dollar paid to men.  The belief is that, since women have historically been paid less than men, an employer’s knowledge of applicants’ wage histories can perpetuate a cycle of lower salaries.  Advocates profess that the Ordinance forces prospective employers to, instead, set salaries based on an applicant’s experience and the value of the position to the company.

Opponents of the Ordinance, like Rob Wonderling, CEO of the Chamber of Commerce for Greater Philadelphia, denounce it as an unnecessary “hassle” driving businesses away from Philadelphia.  Corporations like Comcast have also threatened costly lawsuits contesting the legality of the Ordinance.

It is recommended that employers review their hiring practices and applications for employment in advance of the Wage History Ordinance’s effective date of May 23, 2017.  Moreover, anyone involved in the hiring and interview process must be trained to ensure compliance with the new law prohibiting inquiries into an applicant’s salary history.

For more information on the Wage History Ordinance, how it may affect your business, or ways to ensure that your company’s hiring documents and policies comply with the Ordinance, please contact John C. Petrella, Esq., Chair of the firm’s Employment Litigation Practice Group, at jpetrella@nullgenovaburns.com, or Dina M. Mastellone, Esq., Chair of the firm’s Human Resources Practice Group, at dmastellone@nullgenovaburns.com, or 973-533-0777.

Morristown Becomes New Jersey’s 13th Municipality to Mandate Paid Sick Leave

On January 11, 2017, Morristown will join the growing list of municipalities in New Jersey requiring private sector employers to provide paid sick leave to employees.  The Morristown ordinance, initially passed by a 6-1 vote in September 2016 and opposed only by Councilwoman Alison Deeb, is anticipated to impact approximately 4,600 workers. Morristown Mayor Timothy P. Dougherty issued an Executive Order on September 27, 2016 delaying implantation until January 11, 2017 explaining that more time was needed to prepare the required posters and for employers to prepare for compliance. The new law does not replace more generous sick time policies offered by employers.

Amount of Required Paid Sick Time – Covered employees will be entitled to 1 hour of paid sick time for every 30 hours worked.  Employers with 10 or more employees need only give employees 40 hours (5 days) of paid sick time per year, and those with less than 10 employees need only give employees 24 hours (3 days) of paid sick time per year.   All child care workers, home health care workers and food service workers are entitled to earn up to 40 hours (5 days) per year regardless of the size of the workforce, for public health reasons.

Who is Covered – The ordinance applies to all full-time, part-time and temporary employees of private employers in Morristown.  However, it does not apply to employees currently covered by a collective bargaining agreement until that CBA expires, unless the paid sick leave terms of the expired CBA are more generous than the town ordinance, in which case the expired CBA’s paid sick leave terms will apply.

Accrual of Paid Sick Time – Under the new ordinance, paid sick time begins accruing on an employee’s first day of the job.  Unused, accrued leave time may be carried over to the next year, but an employer will not be required to provide more than 40 hours of paid leave time in one calendar year.  Moreover, an employee will not be entitled to payment for any accrued, unused sick time at the time of his/her separation from employment.

Use of Paid Sick Time – An employee will be able to use the accrued time beginning on the 90th calendar day of his/her employment.  Qualifying reasons include personal health reasons or to care for sick children, spouse (including domestic partners and civil union partners), siblings, parents, grandparents, or grandchildren.

Anti-Retaliation – An employee may not be retaliated against for requesting to use paid sick time. Retaliation may include threats, discharge, discipline, demotion, hour reduction, demotion, or related adverse action.

Notice & Recordkeeping Requirements – Employers may require that employees provide advance notice of the intention to use sick time, but may not require that a requesting employee find a replacement before taking the sick time.  Employers will be required to provide written notice to all employees of the new mandatory paid sick time. Employer must also display a poster (in English and in any language that at least 10 percent of the workforce speaks) containing sick leave entitlement in a conspicuous place. Posters will be provided by Morristown’s Department of Administration.

Employers must ensure adequate maintenance of records as failure to do so creates a presumption that they have violated the ordinance.  The Department of Administration will be free to assert its rights to access records in order to ensure compliance.  There is no distinction amongst exempt and non-exempt employees under the ordinance in terms of record-keeping requirements.

Consequences for Non-Compliance – Employers who violate the Morristown ordinance will be subject to a fine of up to $2,000.00 per violation, plus payment of the value of sick time that was unlawfully withheld.

How Morristown Compares to Other NJ Municipalities – Though Morristown is the first town in Morris County to mandate paid sick days for private-sector employees, it is New Jersey’s thirteenth municipality to enact such a law.  The idea of federally-mandated paid sick leave backed by the Obama administration did not gain much momentum, and there are only a handful of states, often limited to a few cities, that require employers to provide paid sick leave.  New Jersey does not have a statewide mandate, but it has the highest number of local paid leave laws (including now Morristown).  The following provides a glimpse of the states and cities with similar laws:

  • Arizona
  • California (statewide & the following municipalities: Berkeley, Emeryville, Long Beach, Los Angeles, Oakland, San Diego, San Francisco, Santa Monica)
  • Connecticut
  • Washington D.C.
  • Illinois (statewide & local laws in Chicago and Cook County)
  • Louisiana (statewide & local law in New Orleans)
  • Montgomery County, Maryland
  • Massachusetts
  • Minneapolis, Minnesota
  • Paul, Minnesota
  • Bloomfield, New Jersey
  • East Orange, New Jersey
  • Elizabeth, New Jersey
  • Irvington, New Jersey
  • Jersey City, New Jersey
  • Montclair, New Jersey
  • Morristown, New Jersey
  • Newark, New Jersey
  • New Brunswick, New Jersey
  • Passaic, New Jersey
  • Paterson, New Jersey
  • Plainfield, New Jersey
  • Trenton, New Jersey
  • New York City, New York
  • Oregon
  • Philadelphia, Pennsylvania
  • Pittsburgh, Pennsylvania
  • Puerto Rico
  • Vermont
  • Washington (statewide & the following municipalities: SeaTac, Seattle, Spokane, Tacoma)

There is a counter-trend across the nation aiming to eliminate the hodgepodge of local laws and foster statewide uniformity in mandatory paid sick leave.  Some states have passed laws affirmatively banning local governments from mandating paid sick leave for private employers, including Alabama, Florida, Georgia, Indiana, Kansas, Louisiana, Michigan, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, Oregon, Tennessee, and Wisconsin.  Similar legislation prohibiting local laws has been introduced in Pennsylvania and New Jersey.

Advocates of mandatory paid sick leave laws told the Morristown Town Council that providing paid sick time is good for businesses, as it will create a happier, healthier and more productive workforce, resulting in less worker turnover and leading to reduced costs incurred for potential new hiring.  However, opponents of the new law argue that small business owners will face cost-issues in order to remain in compliance.  Morristown Councilwoman Deeb, who provided the lone dissenting vote, believes the law will drive small businesses out of Morristown.

For more information on the ordinance and how the new sick leave requirements will affect your business, please contact John C. Petrella, Esq., Chair of the firm’s Employment Litigation Practice Group at jpetrella@nullgenovaburns.com, or Dina M. Mastellone, Esq., Chair of the firm’s Human Resources Practice Group, at dmastellone@nullgenovaburns.com, or 973-533-0777.

NYC Joins the Pre-Trump Push for Employee Work Schedule Protections

New York City has joined several other cities, including San Francisco and Seattle, introducing legislation that offers more predictable, stable work schedules for employees in low-wage occupations. The legislation generally offers employees more notice of schedules, more access to extra hours, additional pay for last-minute schedule changes, and a mandated period of rest between certain back-to-back shifts. If passed, the legislation would take effect 180 days after being signed into law by Mayor Bill de Blasio.

More specifically, New York City has proposed a package of five bills that would offer the following protections related to employee work schedules:

  • Employees would have the right to request a change in their work arrangements (e.g., schedule changes, location reassignments) without fear of retaliation and employers would be required to engage in an “interactive process” and provide a good faith response within two weeks of the request.
  • Employees would be afforded a right to receive certain changes to work arrangements in emergency situations, like a childcare emergency or personal health emergency.
  • Employers would be prohibited from engaging in on-call scheduling of retail employees.
  • Employers would be prohibited from providing a retail employee with less than 20 hours of work during any 14-day period.
  • Employers of fast food restaurants would be required to provide employees with an estimate of their work schedule upon hire and notice of work schedules 14 days in advance, subject to penalties for untimely notice.
  • Employers would be prohibited from making fast food employees work consecutive shifts when the first shift closes the establishment and the second shift opens it the next day (nicknamed “cloepening” shifts). Employers would be required to give fast food workers at least eleven hours off between such shifts and would pay a $100 premium to an employee every time he or she was made to work such consecutive cloepening shifts.
  • Employers of fast-food establishments would be required to offer available hours to existing employees up until the point that they would have to pay those existing employees overtime, or until all current employees have rejected such available hours, before they could hire new employees.

New York City’s efforts appear to be an attempt to prevent what many fear will be backlash against workers’ rights from the incoming Trump administration. The goal of these legislative measures is to lessen the wage gap in big cities, where the cost of living is typically higher, by offering low-wage workers the opportunity to budget in advance, plan for education or family care, and secure a second job, among other things. Those who oppose the initiatives raise several concerns. According to many business officials, the implementation of scheduling mandates on employers would result in rising costs and decreased efficiency because scheduling changes are typically initiated by employees. Another critic accused the New York City Council of acting as labor organizers, particularly in light of the penalties imposed, which are similar to collective bargaining provisions.

For more information on the pending New York City legislation and how the new requirements will affect your business, please contact John Vreeland, Esq., Chair of the firm’s Wage and Hour Compliance Group, at (973) 535-7118 or jvreeland@nullgenovaburns.com, or Dina M. Mastellone, Esq., Chair of the firm’s Human Resources Practices Group, at dmastellone@nullgenovaburns.com, or 973-533-0777.