Texas Employment Law Update : Texas Employment Lawyer & Attorney : Russell D. Cawyer : Kelly Hart & Hallman Law Firm : Dallas TX Labor Updates

Last year I wrote about the risks associated with providing company issued cell-phones or PDA's to nonexempt employees.  Since that post, there continues to be lawsuits filed seeking unpaid overtime for the off-the-clock time nonexempt employees spend reading and responding to work-related e-mails.  The most recent example is that of a police sergeant for the City of Chicago who filed a collective action on behalf of all similarly-situated police officers who were provided PDA's by the City and who were required to review and respond to work-related e-mails after hours.  A copy of the complaint can be downloaded here.

Company's providing their non-exempt employees with PDA's should carefully review their policies and procedures to ensure that they have defensible positions in the event they are confronted with an overtime suit based on the time spent reading and responding to e-mails after hours.  Some considerations that I proposed last summer include:

• Do not provide nonexempt, hourly employees with company issued phones capable of reading or responding to e-mail (i.e., smart phones). 
• Purchase a technology solution that captures the amount of time the user spends reading and responding to e-mail and pay nonexempt employees for that time.
• If the employer does not intend to pay for this off-hours review of e-mails, it should clearly set out its expectations that employees should not read and review those messages outside regular work hours.  For example, implement policies that prohibit employees from reading and responding to e-mails outside of regular working hours; require employees to leave company issued smart-phones at work; require employees to program the smart phones to turn themselves off during non-working hours. 
• Limit the employees that are provided with company issued cellphones to those who have a legitimate business need to be routinely contacted outside of business hours and limit that outside contact for matters where it is necessary.
• Pay employees who submit time for the non-business hours review of e-mail and then discipline the employee for violating the employer's policy prohibiting business use of company cellphones outside working hours (if the employer has implemented such a policy).

Employers need to be proactive to ensure that the efficiencies provided by technology are not swallowed by the inconvenience and costs associated in the defense of overtime lawsuits

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Lawyers prosecuting and defending wage and hour misclassification cases (i.e., exempt/nonexempt and employee/contractor) will emphasize how fact intensive these inquiries can be.   The importance of factual distinctions in litigating misclassification cases is demonstrated by two cases recently decided by the Fifth Circuit.  In Cromwell v. Driftwood Electrical Contractors, a panel of the court of appeals held that workers performing cable splicing work in New Orleans were not independent contractors and were employees entitled to overtime.  Contrast Cromwell with Thibault v. BellSouth, where a different panel of the court concluded that a cable splicer performing the same work in the same geographic area under similar circumstances, was an independent contractor not entitled to overtime.  This table summarizes some of the relevant facts in Cromwell and Thibault. 

Despite the similarities of the work, subtle differences in the facts resulted in different outcomes.  In misclassification cases over overtime exemptions or employee/contractor status, facts matter.

Full copies of Cromwell and Thibault can be accessed here and here.

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In another cable splicer misclassification case arising in the aftermath of hurricane Katrina, the Fifth Circuit affirmed a trial court decision that Louis Thibault was an independent contractor rather than an employee. Therefore, he was not entitled to overtime under the FLSA.

Thibault owned a business in his home state of Delaware selling picnic tables, storage tables and golf carts. He also owned several rental properties and realized a small income from racing automobiles.  When hurricane Katrina seriously damaged the telephone infrastructure of BellSouth’s grid, Thibault and his friend Bill Peek, drove their RV to Louisiana to perform splicing work on behalf of BellSouth to rebuild the grid.  Peek was an experienced cable splicer but Thibault had never worked as a splicer.  He did have prior experience as a naval aircraft mechanic and according to him easily learned mechanical tasks if shown how to do the task.  Peek taught Thibault the basics of splicing in one evening and Thibault was able to learn the remainder of what he needed to know on the job.

Once in New Orleans, Thibault and Peek worked 14 days shifts (13 days on with 1 day off) 84 hours per week; received a fixed hourly wage ($68 per hour) and were required to provide their own trucks and tools.  BellSouth decided what jobs would be done daily and assigned BellSouth contractors to distribute the assignments. Thibault received his daily assignments from the BellSouth contractor. 

Thibault had intended to work 6-7 months and then return to his home in Delaware. After only three months; however, he was laid off. He earned $51,628 during the three month period. After he was released he sued BellSouth and its contractors for unpaid overtime claiming he was an employee rather than an independent contractor. The trial court concluded that Thibault was an independent contractor and granted summary judgment for the defendants.

A panel of the Fifth Circuit Court of Appeals affirmed the trial court decision. Applying the economic realities test, the panel found Thibault was not an employee. Significant to its decision was the fact that:

• Thibault owned his own business and therefore did not work exclusively for BellSouth and its contractors;
• Thibault intended to work on 7-8 months and then return to Delaware;
• Defendants considered him an independent contract and many other splicers also considered themselves contractors;
• Splicing required little skill and initiative as evidenced by the fact Thibault learned it in one evening;
• Thibault continued to oversee his primary business during the three months he performed splicing work.

In the panel’s opinion, there was insufficient evidence in the summary judgment record to create a genuine issue of material fact that Thibault was an employee. 

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The Department of Labor's Wage and Hour Division issued its second Administrator's Interpretation.   The Administrator Interpretations are issued by the Division in areas where it believes it is useful to clarify the law as it relates to an entire industry, a category of employees, or to all employees.

Administrator's Interpretation No. 2010-2 discusses the Fair Labor Standards Act's exclusion from work time for certain preliminary and postliminary activities like changing clothes.  The FLSA excludes from compensable time the time spent "changing clothes or washing at the beginning or end of each workday" if that time is excluded from compensable time pursuant to "the express terms or by custom or practice" under a collective bargaining agreement.  Interpretation 2010-2 provides that exclusion from compensable time "does not extend to protective equipment worn by employees that is required by law, by the employer, or due to the nature of the job."  Consequently, the Division takes the position that time spent changing into or out of protective equipment required by law, the employer, or the nature of the job is compensable under the FLSA.

Second, the Interpretation offers the Division's opinion on whether whether noncompensable clothes changing can be a principal activity under the Portal to Portal Act rendering all subsequent activity compensable.  The Portal to Portal Act clarifies what activities are intended to be compensable work time such as work occurring before and after the employee's regular work activities.  Any activity that occurs after the employee's first principal activity and before the last principal activity is compensable.  For example, once an employee performs the first principal activity of the work day, all subsequent activity (e.g., waiting time) is compensable until the last principal activity of the workday.  It is the opinion of the Administrator that changing clothes, even if noncompensable, may be a principal activity such that it can make subsequent activities such as walking and waiting compensable.

You can download the full Administrator's Interpretation here. 

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Since at least 1995 Texas law has provided that women has a right to breastfeed in public in any place in which they are legally authorized to be.  Last week, the health care reform signed by the President amended the Fair Labor Standards Act to require covered employers to provide reasonable break time for nursing mothers to express breast milk for nursing children.  The FLSA is the federal law that requires most employers to pay minimum wages and overtime for hours worked in excess of forty per week.

The new law provides that:

• Employers must provide reasonable break time for an employee to express breast milk for her nursing child for one year after the child's birth;
• Provide a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk;
• Break time is unpaid in Texas (unless of course the employee is an exempt employee entitled to full salary in workweeks where any work is performed).

The law does not apply to employers with 50 or fewer employees if "the requirements would impose an undue hardship by causing the employer significant difficulty or expense when considered in relation to the size, financial resources, nature or structure of the employer's business."

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As a light dusting of snow falls on much of North and West Texas, I thought it was a good time to review the rules regarding deductions from exempt employee salaries for weather-related absences.  Employees qualifying for the white collar exemptions (e.g., professional, administrative and executive exemptions) are generally entitled to receive their entire salary for any workweek where they perform work, regardless of the amount of work performed during the week (like most things, there are some exemptions not addressed here). 

When an employer closes its business for less than a full week due to weather-related conditions such as snow, the employer must pay the exempt employee the full salary for the week.  In this case, while the employer must pay the exempt employee the full salary for the workweek, nothing prohibits the employer from deducting that period of time from the exempt employee's PTO or vacation bank --so long as the employer's written policies do not prohibit it from doing so.  If an exempt employee has exhausted all available PTO or vacation, the employer should still pay the full salary for the workweek under this situation.

Conversely, where the workplace is open for business and the exempt employee elects not to report to work for a full day because road conditions are treacherous, the employer may reduce the exempt employee's salary for the workweek for the period of full day absences caused by weather.  An absence under these circumstances constitutes an absence for personal reasons.  An employer could also pay the employee and deduct the time from the employee's PTO or vacation balance.  An employer should not, however, deduct from the exempt employee's salary a partial day deduction (e.g., where the employee reports late for work due to road conditions).  Treating exempt employees' pay for absences occasioned by weather-related absences is important because failing to do so may jeopardize the employees' eligibility for exempt status.

DOL Opinion letters here and here.

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There has been a significant amount of litigation against employers over the compensability of work time for putting on and taking off safety-related clothing and equipment prior to the start of a shift but necessary for the work to be performed.  For example, Pilgrim's Pride Corporation recently agreed to pay $1 million in back wages to settle a donning and doffing case with the U.S. Department of Labor.  

The U.S. Court of Appeals for the Fifth Circuit (the federal appellate court hearing appeals from Texas, Mississippi and Louisiana) recently affirmed a trial court judgment in favor of McWane, Inc. (a cast iron pipe and fitting manufacturer) in a Fair Labor Standards Act collective action filed on behalf of 2,100 employees. The lawsuit sought unpaid wages for time spend putting on and taking off safety gear before and after employees' scheduled shift (i.e., hard hats, steel-toed boots, safety glasses and ear plugs). This is commonly referred to as donning and doffing pay. 

Employees at McWane worked at ten different plants. Three of the plants had collective bargaining agreements (CBA) that expressly excluded donning and doffing time from compensable time. The remaining seven plants had CBAs that were silent on the issue of donning and doffing pay. Employees were paid based on “line time,” which measures shift working time as starting when the first item hits the processing line and ends when the last item leaves the processing line. None of the plants had ever paid (in over 40 years) employees for pre-shift donning and doffing time and the issue had never been previously discussed at union meetings or during contact negotiations (and union officials and employees admitted that they never knew pre- and post-shift changing time was potentially compensable under the FLSA). 

The Fair Labor Standards Act generally requires that employees receive overtime pay for all hours worked in excess of 40 hours per week at one and one-half times the regular rate of pay. An exception exists for time spent changing clothes if it has been excluded by custom or practice under a bona fide collective-bargaining agreement. The McWane employees argued that donning and doffing was subject to exclusion as time worked only when it has been affirmatively bargained away in the labor contract, and therefore no waiver existed in this case because the union representatives did not have knowledge of the right to compensation for this changing time nor any knowledge of or agreement to a policy of nonpayment for that time.

The Fifth Circuit rejected these arguments and sided with other courts of appeals to hold that “even where negotiations never included the issue of non-compensation for changing time, a policy of non-compensation for changing time that has been in effect for a prolonged period of time, and that was in effect at the time the CBA was executed, satisfies the [FLSA’s] requirement of ‘ a custom or practice under a bona fide’ CBA.” The Court further held that burden of establishing the absence of a custom or practice under a CBA is on the plaintiff employees and is not an affirmative defense on which the employer bears the burden of proof.

Access the opinion here: Allen v. McWane, Inc., No. 08-41037 (5th Cir. 2010)

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Recently I wrote about the risks posed by misclassifying employees as independent contractors.   In an unpublished opinion, the U.S. Court of Appeals for the Fifth Circuit (the federal appellate court that hears appeals from Texas) reversed a summary judgment awarded in favor of a company that had classified two cable splicers who performed post-Katrina telecommunications repair work for an AT&T contractor as independent contractors.  In reversing the judgment for the company, the Court remanded the case to the trial court for a determination of the damages the "employees" are entitled to recover.  A copy of the opinion can be accessed here.

Two cable splicers brought an action under the Fair Labor Standards Act seeking unpaid overtime that they were not paid due to their classification as independent contractors rather than employees.  The individuals worked for the Driftwood Electrical Contractors for 11 months following Huricane Katrina.  Theyworked twelve days on and one day off.  Twelve-hour days were the norm.  They were paid a fixed hourly wage for their work.  Each day they reported to the BellSouth location to receive their assignments unless they had not completed their jobs from the prior work day. They were given prints describing the type of work needed and were instructed by BellSouth supervisors to follow certain general specifications.  Neither cable splicer was trained by BellSouth or Driftwood and the splicers controlled the details of how they performed their assignment.  During this 11 month period, the splicers worked exclusively for the Driftwood Electrical.

To emphasize how fact intensive the independent contractor/employee analysis is, consider the following:  the cable splicers provided their own trucks, testing equipment, connection equipment, insulation equipment and hand tools totaling $16,000 and $50,000 in value.  They were also responsible for their own vehicle liability insurance and employment taxes.  The company, on the other hand, provided workers' compensation insurance and liability insurance for the cable splicers' work.

It appears that the most significant aspect in the Court's determination that the individuals were employees rather than individual contractors was the fact that they worked exclusively for the company for 11 months rather than in a temporary, project-by-project, on-again-off-again relationship.  Consequently, the Court concluded that as a matter of economic reality, the cable splicers were economically dependent on the company they worked for and were not in business for themselves.  Therefore, they were employees rather than independent contractors and were entitled to be paid overtime for their work.   

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Employers have long been challenged by a variety of wage and hour litigation such as misclassification cases and off-the-clock overtime cases.  One of the latest trends in wage and hour litigation is attacking a company's classification of its workers as independent contractors instead of employees.  Because independent contractors are not entitled to certain aspects of benefits provided to employees, misclassification can result in liability in several forms., including:

• Potential tax exposure from federal and state taxing authorities (i.e., unemployment tax, FICA, FUTA);
• Claims that misclassified contractors should be entitled to participate in employer benefit plans covering employees (e.g., stock option plans, health and benefit plans);
• Claims that misclassified contractors are entitled to overtime compensation.

In Texas, the test for determining independent contractor status is a multifactor analysis that centers around the economic realty of the relationship.  The focus is on whether the worker is, as a matter of economic reality, dependent on the alleged employer in business for himself.   This inquiry includes whether the employer has the right to control the progress, details, and methods of operations of the work.  A nonexclusive list of factors that are usually considered in this analysis include: 

• the degree of control exercised by the alleged employer;
• the extent of the relative investments of the work and the alleged employer;
• the degree to which the worker's opportunity for profit or loss is determined by the alleged employer;
• the skill and initiative required in performing the job;
• the permanency of the relationship.

No one factor is determinative. If a court or taxing authority determines that the independent contractor was misclassified, the employer may be responsible for failing to provide the benefits the employee would have otherwise enjoyed had he been properly classified as an employee (e.g., participation in certain employee benefit plans and unpaid overtime).  Depending on the size of the workforce and the work it engages in, these sums can be significant.  Consequently, companies making extensive use of independent contractors should review these relationships carefully to ensure that the workers are properly classified and incorporate changes in the relationships that enhance the ability to defend that classification.

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Employees frequently stay connected with work through company issued smart phones.  Smart phones, like the iPhone, Blackberry, and Treo, allow employees to have access to their work e-mails, calenders and contacts --in addition to making and receiving calls.  In my practice, a smart phone is incredibly useful in staying in touch with my client's needs when I'm in court or out  of the office.  However, with every advance in technology, come employment law challenges.

As recently reported in the WSJ.com, several lawsuits have been filed seeking damages for unpaid work time spent reading and responding to e-mails and customer complaints outside of regular business hours.  For example,T-Mobile USA Inc. was sued in July 2009 by three current and former employees for unpaid working time claiming they were required to use their T-Mobile issued phones to read and respond to message outside of working hours. (View the Complaint here).  In March 2009, CB Richard Ellis Group, Inc. was sued by a maintenance worker for unpaid work time after hours that included reading and responding to e-mails on his company-issued smart phone.  (View the Complaint here). 

Jon Hyman at the Ohio Employer's Law Blog argues that even if employees use smart phones for isolated and sporadic short-term reading and responding to business e-mails, that time is not necessarily compensable time.   Hyman argues that:

Most messages can be read in a matter of seconds or, at most, a few short minutes.  The Fair Labor Standards Act calls such time de minimus, and does not required compensation for it.  "Insubstantial or insignificant periods of time beyond the scheduled working hours, which cannot as a practical administrative matter be precisely recorded for payroll purposes, may be disregarded."

Hyman's point is a good one; however, can this time be precisely recorded for payroll purposes?  Redwood Technologies, for example, has a smart phone application (Momentum) that allows the user to capture time spent reading and responding to e-mails and time spent on the telephone.  It allows the user to allocate that time to different client accounts.  Although this same technology could be used by employers to capture the time nonexempt, hourly employees spend reading and responding to e-mails.  This may not resolve the administrative impracticality of determining which e-mails are personal or business related, I suppose that there are applications out there which would allow an employer to capture this time if it was so inclined. 

While is remains to be seen whether the time spent reviewing and responding to e-mails outside of normal business hours will be recoverable in an FLSA lawsuit, some commentators have suggested implementing polices to either pay employees for this time or to prohibit (by policy) employees from using company issued smart phones outside of working hours.  The following is a menu of options employers may consider in deciding how to deal with the issue of providing company issued smart phones to nonexempt, hourly employees. 

• Do not provide nonexempt, hourly employees with company issued phones capable of reading or responding to e-mail (i.e., smart phones). 
• Purchase a technology solution that captures the amount of time the user spends reading and responding to e-mail and pay nonexempt employees for that time.
• If the employer does not intend to pay for this off-hours review of e-mails, it should clearly set out its expectations that employees should not read and review those messages outside regular work hours.  For example, implement policies that prohibit employees from reading and responding to e-mails outside of regular working hours; require employees to leave company issued smart-phones at work; require employees to program the smart phones to turn themselves off during non-working hours. 
• Limit the employees that are provided with company issued cellphones to those who have a legitimate business need to be routinely contacted outside of business hours and limit that outside contact for matters where it is necessary.
• Pay employees who submit time for the nonbusiness hours review of e-mail and then discipline the employee for violating the employer's policy prohibiting business use of company cellphones outside working hours (if the employer has implemented such a policy).

If the lawsuits referenced above conclude with successful results for the employees (or in class certification), employers can expect to see many more of these kinds of cases filed. 

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Most wage and hour lawsuits in Texas focus on an employer's alleged misclassification of an employee as exempt from overtime.  However, a recent jury verdict from a federal court in Houston teaches that even in a highly unregulated wage and hour state like Texas, there are other wage and hour provisions employers must comply with and that can lead to expensive and protracted litigation.

The Lawsuit

On March 25, a federal jury in Houston, Texas awarded 55 employees $270,000 plus interest and attorneys fees.  The employees in this collection action were current and former waiters and waitresses working for the Chili's food chain who were required to contribute a percentage of their tips into the restaurant tip pool.  That tip pool allocated one percent of the total pool to "food expediters."    Food expediters are employees that set up trays of food and condiments that servers take out to customers.  The expeditors could be paid a salary or paid a higher hourly wage than the Texas waiters who are paid $2.13 per hour.  This dispute centered primarily around whether food expeditors were tipped employees under the Fair Labor Standards Act and whether the Chili's tip pool requiring the tipping of expeditors was voluntary.

Tipped Employees and Tip Pooling Arrangements

Tipped employees are employees that customarily and regularly receive at least $30 a month in tips.  Tip pools requiring tipped employees to contribute a portion of their wages to a tip pool that is shared with other normally-tipped employees (e.g., bartenders and bus boys) are legal as long as a tipped employee is not required to contribute more than 15 percent of his or her wages to the pool and the pool is not shared with non-tipped employees.  Tip pooling with non-tipped employees must be completely voluntary and each tipped employee must determine for himself whether and how much to contribute to the pool.  If the tip pool includes non-tipped employees and is not voluntary it is an unlawful deduction from wages.

The Verdict

In the lawsuit, the employees alleged that Chili's mandatory tip pooling arrangement that included typically non-tipped employees (i.e., the expediters) was an illegal deduction from wages.   A Houston jury agreed and awarded the servers the damages that resulted from these alleged illegal deductions.  And while the employees will only obtain an average of approximately $4,900 each from a final judgment, the significant cost to the employer will be in the court awarded attorney's fees that have not yet been determined and will likely be high six figures or more.  According to Dave Faries at the Dallas Observer's Food Blog (City of Ate), Chili's parent company has announced that it will appeal the jury verdict.

Because the defendant in this case was a national restaurant chain I expect the verdict will prompt more lawsuits against restaurant chains challenging their tip pooling arrangements.

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