If the Paycheck Fairness Act is passed as currently written, the result would be large-scale changes to the Equal Pay Act (“EPA”), which was added in 1963 as an amendment to the Fair Labor Standards Act. The provisions would apply to all employers who are covered by the Fair Labor Standards Act (FLSA). Here are some of the most notable changes proposed in the Paycheck Fairness Act:

Greater Potential Damages. The Amendment would allow unlimited compensatory and punitive damages for employees who can prove gender pay discrimination. This is a significant expansion beyond the liquidated damages and back pay currently authorized by the EPA.

Narrowing Employers’ Defenses. Under the EPA, an employer may be able to justify a difference in pay between male and female employees if the employer can show that the disparity is due to some factor other than sex. The Act would require that this other factor rise to the level of a “bona fide factor” in order to work in the employer’s defense. Factors such as the negotiating skill of the employee may no longer justify disparities in pay between male and female employees. In addition, the Act sets forth certain ways that the employee can defeat defenses raised by the employer.

Expanded Retaliation Provisions. Under the Paycheck Fairness Act, the protection from retaliation applies to any employee who inquires about, discusses, or discloses the wages of the employee or another employee in response to a complaint or charge, or in furtherance of a sex discrimination investigation, proceeding, hearing, or action, or an investigation conducted by the employer.

The bill also would trigger other activities:  It establishes the National Award for Pay Equity in the Workplace, grants for negotiation training for women, and extra funds for education and research about pay disparity due to sex. In addition, it requires the Equal Employment Opportunity Commission (EEOC) to issue regulations within eighteen months of the passage of the bill that provide for the collection of pay information from employers relating to the sex, race, and national origin of employees.

If this Act becomes law, it could require fundamental changes in employer practices with regard to hiring and compensation. Stay tuned as we watch for the Senate’s reaction to President Obama’s message.

More than most, this Congress has enacted numerous and substantial changes to the federal employment laws. As an employer, if you haven’t done a thorough review of your employee policy manual in the past year, you would be wise to do so to make sure you are in compliance with the recent changes.  Here are examples of two of the many changes that you’ll want to be certain you’ve implemented:

• The Nursing Mother Amendment, which modified the Fair Labor Standards Act (FLSA) and requires covered employers to provide break time to nursing mothers for at least the first year of their babies’ lives. The Amendment took effect in March 2010 and requires employers to provide private space, among other accommodations, to nursing mothers. Read more here.
• The National Defense Authorization Act, which amended the Family Medical Leave Act to provide two new types of unpaid military family leave for FMLA-eligible employees: qualifying exigency leaveand military caregiver leave. The new types of leave, while part of 2008 legislation, took effect in January 2009. Read more here.

Other Congressional action to take note of includes:

• The Employee Misclassification Prevention Act, which targets errors, intentional or not, in classifying workers as independent contractors rather than as employees. The proposed law continues to wind its way through the legislative process. On June 17, Seth Harris, Deputy Secretary of the U.S. Department of Labor provided testimony in support of the legislation before a Senate subcommittee. If passed into law, this amendment to the Fair Labor Standards Act would (1) subject employers to potential penalties of up to $5,000 for each employee that is incorrectly classified as an independent contractor; (2) imposes additional record-keeping and notice requirements on employers; and (3) make misclassification of employees a federal labor law violation. Read more here.
• The HIRE Act (Hiring Incentives to Restore Employment Act), which provides a payroll tax exemption and tax breaks for certain employees hired from February 3, 2010 through January 2, 2011. One of the requirements is that the employee had been unemployed for at least 60 days prior to the date of hire. Read more here.

If your company policies haven’t kept pace with the flurry of employment law activity during these past two years, consider contacting Garlo Ward to discuss a customized employee policy manual that will bring you up to date.

The Wage and Hour Safe Harbor

One important safeguard for employers involves the Fair Labor Standards Act (FLSA), which governs federal overtime and minimum wage requirements. Employers often make deductions or other changes to exempt employees’ paychecks, inadvertently jeopardizing the right to categorize these employees as exempt from minimum wage and overtime requirements. For example, an employer may have a practice of deducting wages when an exempt employee misses half a day of work due to illness or when the workplace is closed due to bad weather. These deductions are improper for an exempt employee and may lead to a claim by the employee, or by the Department of Labor, that the employee is actually a non-exempt, hourly employee and is entitled to overtime payments.

 According to Department of Labor rules, employers can enjoy a “safe harbor” under the Fair Labor Standards Act that may preserve an employee’s exempt status, even if impermissible deductions are made from the employee’s pay. The rules state that the employee’s exempt status is supported if the employer:

1. has a policy prohibiting improper deductions and has “clearly communicated” that policy to its employees;
2. has established a complaint mechanism for employees who believe their wages have been improperly deducted;
3. reimburses employees for any improper deductions; and
4. makes a good faith commitment to comply in the future.

This safe harbor doesn’t excuse willful violations of the FLSA, but it can be an effective tool in showing the Department of Labor that you intended to comply with the wage and hour laws and that you communicated that intent to your employees. This Safe Harbor provision should be one part of a comprehensive wage and hour policy.

Now that we know that increased enforcement is on the horizon, it’s an excellent time to assure that you’ve achieved a wage and hour safe harbor for your company. Talk to a Garlo Ward attorney if your policies need an update to put you in the strongest possible position. The firm offers a complete policy handbook customized for your needs and including this safe harbor protection.

Quon was a SWAT team police officer who was issued a pager capable of sending and receiving text messages. The police department’s computer-use policy stated that e-mails would not be considered private and were subject to audit; however, the written policy didn’t mention anything about text messages. During a staff meeting, police officers were told that their texting would be subject to the same treatment as e-mail, meaning that the messages could be subject to auditing by the police department. However, department management also later told employees that the department had no intent of auditing messages to see whether text messages were work-related or not. So the police officers received, at best, mixed signals about the department’s policy regarding text messaging. When police management changed course and decided to review the transcripts of the text messaging to determine whether they were worked-related, Quon and others sued. They claimed that the review was an illegal search and seizure, in part because the department policy did not inform them that texts should not be considered private.

The Court did not make a clear decision on whether Quon should have expected privacy, and it stated that all such decisions would be highly fact-specific and case-by-case. Instead, the Court’s decision was that the department’s search of the transcripts was reasonable and, even if the employees should have expected privacy, the search did not violate the Fourth Amendment prohibition against unreasonable search and seizure.

The decision emphasizes the importance of having comprehensive written policies in place and especially, the need to clearly communicate those policies to all employees. The justices also cautioned that this area would continue to change as technology further develops. Employers should consider whether their own policies have kept pace with changing times. This applies to technology usage policies, but also every other area in which your current procedures aren’t clearly reflected in your policies.

Garlo Ward offers a thorough, customized employee policy manual that addresses these evolving issues. If your policies have fallen behind the times, then contact our office for a consultation on how we can implement a policy manual that’s relevant for your workforce today.

In Gagnon v. United Technisource, Inc., an employee claimed that his employer paid him a “per diem” as a scheme to lower his regular rate of pay for overtime purposes. The employee was highly skilled at painting the interior and exterior of aircraft. He was paid an hourly rate of $5.50 (slightly above minimum wage at the time of his hiring), and in addition, was paid an additional $20 per hour, which was designated as a “per diem.” When calculating overtime, the employer didn’t include per diem payments in the employee’s regular rate of pay, meaning that he was paid time and a half based on $5.50 per hour, rather than based on $25.50 per hour. This resulted in a significant pay difference in any week in which the employee worked more than 40 hours.

The Fair Labor Standards Act (FLSA) requires that covered employers use the regular rate of pay to calculate the amount of overtime due for any hours worked over forty per week. And, the FLSA broadly defines “regular rate” as the hourly rate actually paid to the employee for “all remuneration for employment.” But sometimes it’s tricky to determine just what to include in this regular rate. Businesses that pay bonuses, commissions, premium or shift differential pay, non-monetary wages such as meals or lodging, or other non-typical compensation must be especially cautious when figuring which of these items to include.

In Gagnon, the court stated that the employer tried to avoid paying Gagnon a higher regular rate by artificially designating a portion of his wages as per diem pay. The court was suspicious of the employer’s motives because the hourly rate of $5.50 per hour was so far below typical wages for aircraft painting, which often ran $20-$24 per hour. The court also found it troublesome that the employer based the “per diem” payment on the number of hours work, rather than the number of days worked. These facts led the court to affirm a lower court ruling awarding Gagnon more than $8,000 in wages, including double damages for a willful violation of the law by the employer, and more than $55,000 for Gagnon’s attorney fees.

In many instances, per diem payments can be excluded from regular rate, along with certain other payments such as discretionary bonuses. However, employers should only exclude payments from the calculation of regular rate after a full and careful examination of FLSA requirements.

This is important because these new laws usually cover smaller employers that might not otherwise be subject to the requirements of the federal Fair Labor Standards Act (FLSA). In addition, these state and local laws often impose wage and hour requirements that are more stringent than federal law. For example, Miami-Dade County (Florida), enacted an ordinance in February 2010 that requires employers to pay wages due no later than 14 calendar days from the date the work is performed, unless modified by an express agreement with the employee.

As an employer, you should carefully review your pay practices and be sure that your classification of workers meets current legal requirements. Increased wage and hour enforcement from the federal government is already underway, and state and local governments are joining in by enacting their own wage theft laws.

Maryland, Iowa, New Mexico, and Delaware enacted wage theft laws in 2009, followed by Washington in 2010. Miami-Dade County, San Francisco, Los Angeles, and New Orleans have or are considering local ordinances dealing with wage and hour provisions.

This issue has gained some attention in Texas. In November 2009, advocates in Austin, Houston, and El Paso planned educational or protest events as part of a National Day of Action called by the Wage Theft Online Resource Center.

A 2009 study, “Broken Laws, Unprotected Workers,” concluded that approximately 68% of the workers surveyed were denied overtime pay and were often paid less than minimum wage on a routine basis. In addition, the researchers estimated that wage and hour violations cost the average low-wage worker more than 15% of yearly earnings. The study was conducted by researchers from the University of California-Los Angeles, University of Illinois-Chicago, Cornell University, Rutgers University, and the National Employment Law Project (NELP).

Recent announcements from the IRS and Department of Labor indicate that these agencies also see wage and hour compliance as a significant problem. Both agencies are stepping-up enforcement of federal laws designed to protect workers, specifically those who may be misclassified as exempt from overtime pay and workers who are treated as independent contractors rather than employees. The Department of Labor’s “Plan, Prevent, Protect” and the “We Can Help” campaigns, both announced in April, are clear indications that employers should be prepared for increased scrutiny of pay practices.

Deputy Labor Secretary Seth Harris announced on April 29, 2010, that the Department of Labor‘s new strategy will place the burden of compliance with labor laws on the employer. With the “Plan, Prevent, Protect” strategy, employers may be required to (i) have written plans to comply with specific labor laws such as wage and hour statutes; (ii) prevent violations of the laws by executing the plan and performing an analysis on its effectiveness; and (iii) protect workers by disclosing the plan to both their workforce and the government.

The misclassification of employees as independent contractors was one area of compliance that Harris mentioned repeatedly when describing the new strategy. In one example of what the Department of Labor might pursue, Harris said companies that classify workers as independent contractors would have to prepare written explanations, given to the workers, explaining why the company is lawfully considering them contractors rather than employees.

It’s not clear how the Department of Labor will fully implement the “Plan, Prevent, Protect” strategy, so watch here to see what new requirements or regulations may be proposed in the coming months.

On April 22, the Employee Misclassification Prevention Act (EMPA) was introduced in the United States Congress as an amendment to the Fair Labor Standards Act (FLSA). If it becomes law, the EMPA will impose federal criminal penalties upon employers who categorize workers as independent contractors when they should be treated as employees.

The bill (1) subjects employers to potential penalties of up to $5,000 per employee; (2) imposes additional record-keeping and notice requirements on employers; and (3) makes misclassification of employees a federal labor law violation.

An earlier version of the EMPA was presented in 2008 but never made it to debate in Congress. This time, the bill is expected to receive greater attention and support, given that President Obama was a co-sponsor of the earlier version, and Obama’s administration has significantly increased funding for investigation and enforcement of worker misclassification. For example, in November 2009, the IRS announced the Employment Tax National Research Project designed to audit 6,000 businesses, including a focus on worker misclassification.

The EMPA does not prohibit the use of independent contractors when those workers are properly classified as such. It is focused on stopping those situations in which workers who should be treated as employees are instead classified as independent contractors.

The government’s interest in stopping misclassification rests on the fact that employers do not withhold payroll taxes, pay unemployment or workers compensation premiums, or make Social Security and Medicare contributions, which diverts funds that would otherwise be collected by the employer and forwarded to governmental authorities.

Whether an individual is an employee or an independent contractor depends on many factors set forth in tests by the IRS, the U.S. Department of Labor, and the courts.

For a more in-depth discussion of the factors that must be considered when classifying your workers, see Garlo Ward’s video link to Managing Employees During Economic Recovery, Parts 1 and 2, available at the firm’s website.

First, employers who hire certain unemployed workers after February 3, 2010, and before January 1, 2011, may be eligible for a payroll tax exemption of 6.2 percent. The IRS now has issued Form W-11, which employers must complete in conjunction with claiming the tax exemption.

Eligibility for the exemption depends on whether the new hire was previously unemployed for at least 60 days and did not exceed a Social Security wage base of $106,800. The employee also must sign an affidavit containing his or her name, Social Security number, first date of employment with the new employer, and the name of the employer. The purpose of the affidavit is to confirm that the hiring of the employee qualifies the employer for the tax incentive. Both the affidavit and the Form W-11 should be retained by the employer and not sent to the IRS.

Employers then claim the payroll tax exemption on their regularly filed Form 941, Employer’s Quarterly Federal Tax Return.

Second, the HIRE Act also provides that employers may be eligible for a $1,000 tax credit for each qualified previously unemployed employee who is hired and is retained for at least a year. That credit would be claimed by businesses on their 2011 income tax returns.

The IRS has posted Frequently Asked Questions and the final Form W-11 on its website.

This case serves as a reminder to all companies to take precautions with electronic communications and the corporate policies that surround them: 1) Be certain to have a corporate policy in place that clearly addresses use of e-mail, text messaging, voicemails, Internet chat, and other communications. If the company will monitor or reserves the right to monitor these communications, then say so. 2) Be consistent with what the electronic communications policy states as far as employees’ expectations of privacy and whether the employer reserves the right to monitor content. If a company is committing a policy to writing, then do what it says, or change the written policy.

Read below for details on how inconsistent policy and practice landed an employer in a dispute before the U.S. Supreme Court.

In City of Ontario v. Quon, a SWAT team police officer was issued a city-owned pager capable of sending and receiving text messages. The formal policy of the police department prohibited personal use of e-mail and the Internet at work and stated that the communications could be monitored. However, the policy didn’t address the use of text messaging. Employees were later told, verbally, in a department meeting that texts would be treated the same as e-mail and that employees should not consider their messages to be private. Employees were also told that they would be responsible for any overage charges related to texting. Eventually, both sides settled into the routine that supervisors would not monitor the text messages as long as the employees paid for any overage charges related to texting.

Sergeant Jeff Quon used his pager to send text messages, some of them sexually explicit, to his wife and to a co-worker with whom he was having an affair. He always paid the overage charges that were incurred. However, at some point the police department decided it didn’t want the trouble of collecting payments for overages from its employees and asked the wireless service provider for a transcript of the messages of employees who were going over the texting limit. Quon, his wife (who was not a department employee), and others sued the police department, claiming a violation of the Fourth Amendment to the U.S. Constitution, which protects people against unreasonable search and seizure by the government. The federal district court hearing the original case found in favor of the police department; but on appeal, the Ninth Circuit sided with Quon and the other plaintiffs. Now, the U.S. Supreme Court will hear the case, for the first time considering how the Constitution affects electronic workplace communications.

When the Supreme Court issues its decision (likely in June), it will probably be narrowly tailored to address the Fourth Amendment situation in which a government employer is involved. However, all employers, public and private, would be wise to have policies that are clear and accurately reflect the company’s intent with regard to electronic messaging.