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

24 Hour Fitness operates health clubs and fitness facilities across the country.  As part of its operations, 24 Hour Fitness employs sales representatives.  As a condition of employment, employees are required to enter into arbitration agreements to arbitrate their employment disputes with their employer.  FLSA claims (i.e., overtime and minimum wage claims) are covered within the scope of the arbitration agreement.  John Carey was a sales representative for 24 Hour Fitness.  He signed a handbook acknowledgment containing the arbitration agreement.  Not only did the arbitration agreement require the arbitration of disputes, it further provided that disputes could not be brought as class actions or in representative capacities.  Unfortunately for the employer, the handbook also included a provision that permitted it to revise, delete or add to the handbook at any time and that it would communicate those changes to the employees through official written notices.  Nothing in the policy precluded the employer from applying changes to the arbitration agreement retroactively. 

After Carey's employment ended, he filed an FLSA collective action seeking unpaid overtime on behalf of all similarly-situated employees.  24 Hour Fitness moved the court to compel arbitration.  Carey, in response, argued that he agreement was illusory because the employer retained the right to unilaterally amend the agreement. 

The Fifth Circuit Court of Appeals found against the employer holding that its arbitration agreement was unenforceable.  The Court held that the arbitration agreement was illusory because: 1) 24 Hour Fitness retained the right to alter, amend or changes the policy at any time; 2) the policy did not foreclose the prospect of unilateral amendments to claims existing on or before the amendment; and 3) nothing in the policy precluded the employer from applying any of its changes retroactively.  As a result, 24 Hour Fitness will be left to defend Carey's lawsuit in Court, with a jury, and potentially as a collective action. 

The take-away form the opinion is that regardless of the type of ADR you use (e.g., arbitration, waiver of jury trial), if the agreement is contained in an employee handbook, ensure that the handbook's express contractual disclaimer contained in the handbook (You know, that provision that says nothing contained in this agreement is intended to create an express or implied contract) carves out those ADR procedures and specifically states that such provisions are intended to be contractual in nature; that the employer and employee are bound by such provisions and that neither party may alter or amend the contract unilaterally.  At a minimum, if the employer wants to retain the right to unilaterally amend the policy, it should state that the employer cannot amend it to apply retroactively to claims that existed prior to the amendment and notice to the employee. 

A full copy of Carey v. 24 Hour Fitness is available here. 

Follow me on Twitter @RussellCawyer.

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With many employers considering whether and when to pay end-of-year or holiday bonuses, I thought it was a good time to review the rules for when bonuses or other compensation must be included in the regular rate of pay for purposes of paying overtime.  This is one issue that still trips up Texas employers.

Nonexempt employees are entitled to overtime compensation at 1.5 times the regular rate of pay for most hours worked in excess of 40 per week.  In determining the regular rate of pay an employer is to include all compensation paid to an employee unless it falls into one of nine general statutory exclusions.  Many end-of-year holiday bonuses will  fall into a statutory exclusion.  However, where the bonus is dependent on hours worked, productivity or efficiency, the bonus should be included in the regular rate of pay for nonexempt employees. 

Assume an employee receives a $5,200 end-of-year bonus that should be included in the regular rate of pay.  Presumably, that bonus was earned in equal portions over the course of the year despite the fact that it is paid in one workweek at the end of the year.  One hundred dollars of the bonus will be attributed to each workweek in the year.  If an employee worked overtime in a workweek, $100 of the end of year bonus has not been included in the wages for that week for purposes of determining the proper overtime rate.  Consequently, the employer must go back and recalculate the overtime pay for the week to make-up the fractional underpayment.  These underpayments are usually small, but they provide an employer with potential overtime exposure and the costs of defending such a claim normally far exceed the unpaid overtime.  

The takeaway from this post is to remember that if an employer is making a bonus or other payment that is not specifically excluded from the regular rate of pay, the employer may need to go back and make overtime adjustment payments to nonexempt employees for the pay periods over which the overtime was earned and in which the employees worked overtime.  This can be complex to perform and is beyond the scope of this post but a labor and employment attorney Board Certified by the Texas Board of Legal Specialization can help you calculate this overtime adjustment.

Follow me on Twitter @RussellCawyer.

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In a recent case out of the U.S. District Court for the Northern District of Texas, a federal judge entered summary judgment for the City of Fort Worth in an FLSA overtime case filed by four former police officers.   

In Clark v. City of Fort Worth, Texas, four retired City of Fort Worth police officers filed a FLSA putative collective action seeking to represent a class of current and former officers for unpaid overtime they claimed they worked when they provided security services for third-parties leasing City properties (e.g., events at the City owned convention center).  According to the plaintiffs, these off-duty hours providing security for sporting events and concerts on City property (but for non-City events) should have been added to their regular official law enforcement hours with any work over forty hours per week being paid at overtime rates.  The City moved for summary judgment arguing that the special detail exemption excluded those hours worked for the separate employers and that no overtime was due and owing.  There are only six reported cases involving the special detail exemption so this opinion is important if for no other reason than to add to the scant case law on the issue.

The special detail exemption applies to law enforcement and fire fighter employees who voluntarily perform work for separate and independent employers.  Under the exemption, the hours voluntarily worked for the separate and independent employer are excluded from the officer's hours worked on behalf of the the primary employer for FLSA overtime purposes.  In a well-reasoned opinion, the federal judge presiding over the case, concluded that the City has established its affirmative defense that the hours sued on were exempt under the special detail exemption and entered a judgment in favor of the City. 

You can download a copy of the Court's opinion here.

Follow me on Twitter @RussellCawyer.

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Employers often consider asserting counterclaims against employees who file lawsuits against them.  Most lawyers representing employers counsel against filing counterclaims except in exceptional cases (e.g., an employee’s theft of trade secrets or breach of a covenant not to compete). However, where an employer pays an employee valuable severance benefits in return for a release or a covenant not to sue, the employer may consider avenues to recoup the benefits paid to a former employee who breaches that agreement and sues the employer.  A recent opinion from the Fifth Circuit explains an employer should not generally seek a set-off against damages in a claim seeking unpaid wages or overtime under the Fair Labor Standards Act (FLSA) in the FLSA action. 

In Martin v. Pepsi, Martin was an hourly route settlement clerk for Pepsi for approximately five years. During this time she was paid overtime for the hours she worked in excess of forty hours per week. She was promoted to route settlement supervisor and her manner of compensation was changed to a weekly salary. When Martin was laid off she was provided with nearly $23,000 in severance payments in return for a complete release of claims and a promise not to file any lawsuits or other claims against Pepsi arising from her employment or termination of employment.  After pocketing the severance money, Martin sued Pepsi for unpaid overtime under the FLSA and asserted state law claims for fraudulent misrepresentation and punitive damages under state law. Pepsi moved to dismiss Martin’s claims arguing that the trial court lacked jurisdiction. The crux of the argument was that because Pepsi was entitled to an off set for the severance payments made to Martin due to her broken promise not to sue Pepsi and the amount of the set-off exceeded the unpaid overtime and liquidated damages Martin could recover, there was no controversy for the court to decide. The trial court agreed and dismissed Martin’s case. 

In reversing the trial court’s dismissal, the Fifth Circuit held that counterclaims seeking damages or set offs against recovery in FLSA cases are not permitted unless the money being set-off can be considered wages that the employer pre-paid to the plaintiff-employee. In Martin, the money that was sought to be set-off against the FLSA overtime was the severance benefits paid in return for a release of claims.

Martin does not appear to foreclose an employer’s ability to maintain a state court lawsuit for breach of contract arising from an employee’s breach of a contract not to sue in return for severance payments. For example, the employer might sue for recession to have the plaintiff return any severance benefits paid to him or for the attorney’s fees and costs incurred in defending a lawsuit the plaintiff promised he would not file. What is clear is that a counterclaim in the FLSA suit or an affirmative defense seeking a set off against FLSA damages is not the proper way to seek a return of the severance benefits paid to a plaintiff who promised not to sue the employer.

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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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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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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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Following a GAO report that concluded that the Department of Labor inadequately investigated complaints from low-wage and minimum wage workers who claimed that their employers failed to pay the federal minimum wage, required overtime, and failed to pay employees their last paycheck the DOL has reacted. 

This week, Secretary of Labor Hilda Solis  announced that the DOL Wage and Hour Division would increase the number of investigators at its field offices by 150 to refocus the department on its enforcement responsibilities.  Since Texas has three field offices of the forty-five nationwide, on a prorata basis, Texas could see a net increase of ten investigators.

Additionally, Secretary Solis announced the intent to hire 100 new investigators to enforce the compliance of contractors receiving assistance under the American Recovery and Reinvestment Act. This renewed emphasis on enforcement efforts and an increased number of investigators will undoubtedly result in more frequent and active DOL investigations.  Texas employers should ensure that their classifications of employees as exempt are accurate and that their pay practices comply with the Fair Labor Standards Act to avoid being targeted by a more active DOL.

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