Wilke Fleury is a proud Corporate Work-Study partner of Cristo Rey High School Sacramento. Four students from Cristo Rey work at the firm as a job-sharing team to cover one clerical position. The students learn valuable skills and marketable job experience, and also gain insight into various career possibilities. The firm is pleased to have the opportunity to help prepare some of our region’s students for the workplace and to participate in community outreach while doing so.
Cristo Rey High School Sacramento is part of the national Cristo Rey Network of more than 24 high schools throughout the United States. The school is dedicated to the advancement of the students both in terms of a quality college preparatory education and professional work experience. Cristo Rey Sacramento is co-sponsored by the Sisters of Mercy of the Americas, Auburn Regional Community, the California Province of the Sisters of Notre Dame de Namur, and the California Province of the Society of Jesus. The school was co-founded by Bishop William K. Weigand. Quality education is provided for youth from low income families. The unique Corporate Work-Study program provides each student an unprecedented opportunity to work in corporate America in an entry–level clerical job and to participate in paying for the cost of their education.
Craig Carnes, a Wilke Fleury associate, is set to begin an internship with the California Department of Parks and Recreation (“California State Parks”) in order to gain exposure to various areas of environmental and public agency law. California State Parks manages more than 270 park units and contains the largest and most diverse natural and cultural heritage holdings of any state agency in the nation. To learn more about California State Parks please visit http://www.parks.ca.gov/.
Obligations of “Employers” under the FLSA Under the federal Fair Labor Standards Act (FLSA), employers must pay a minimum wage to their employees. Employers who violate this requirement may be held liable not only for the unpaid wages, but also for an equal amount of liquidated damages. In a recent federal case, former employees of a bankrupt company sued the company’s managers for unpaid wages. The court decided that the managers could be sued for unpaid wages even though the company had filed for bankruptcy. Boucher v. Shaw (2009) 2009 DJDAR 11827.
The Facts of Boucher v. Shaw
Nevada employees were fired, and alleged they were still owed wages. The employees sued three managers: the Chairman and CEO of the company, who owned 70 percent of the company; the manager responsible for handling labor and employment matters, who owned 30 percent of the company; and the CFO, who did not have an ownership interest in the company. The plaintiffs brought suit under the FLSA. The court noted that the definition of “employer” under the FLSA is to be given an expansive interpretation in order to effectuate the FLSA’s broad remedial purposes. Thus, where an individual exercises control over the nature and structure of the employment relationship or economic control over the relationship, that individual is an employer within the meaning of the FLSA and is subject to liability. The court concluded that, because each of the individual defendants was alleged to have had control of the plaintiffs, their employment and their place of employment, the case could proceed against them. It is important to note that the court did not find that the individual managers were liable for the unpaid wages; only that the case against them could proceed. It would ultimately be up to the trier of fact, after hearing all the evidence, to determine whether the individual managers were employers and, thus, liable for the wages of the employees.
The Company’s Bankruptcy does not Bar the Employee’s Claims
The managers argued that their duty to pay unpaid wages ended when their company entered Chapter 7 liquidation. Normally, the debtor in bankruptcy proceedings has an automatic stay, which means that any actions filed after the bankruptcy may not proceed. The court in Boucher noted that the automatic stay only protects the debtor, his property and his estate. There, the company was the debtor, not the individual managers. Accordingly, the company’s automatic stay did not affect the mangers’ liability. As a result, neither the managers nor their property were protected by the company’s bankruptcy proceedings, and the managers faced personal liability for unpaid employee wages.
Why Federal Court?
As most California employers know, California employees typically bring employment cases in state, rather than federal, court. In general, California law is much more employee friendly than federal law. Manager liability for unpaid wages, however, is one of the very few instances where federal law is actually more favorable to employees than state law. The California Supreme Court has determined that officers, managers, and directors cannot be held personally liable for a corporation’s failure to pay its employees under California law. Reynolds v. Bement (2005) 36 Cal. 4th 1075, 1076.
Lessons from Boucher
Boucher is a reminder that employers must comply with both state and federal wage and hour laws. Whichever law provides greater protection for the employee will be applied. Until now, lawsuits brought under the FLSA have been extremely rare in California. Expect to see a rise in lawsuits brought under the FLSA as more companies declare bankruptcy and more employees seek their unpaid wages from upper managers.
You could be subject to the jurisdiction of the U.S. Department of Labor Office of Federal Contract Compliance Program (OFCCP) without knowing it. In a recent case, three hospitals were held liable for noncompliance with OFCCP regulations even though they were not government contractors and were not parties to any subcontract that referenced a federal contract.
In OFCCP v. UPMC Braddock, three hospitals had contracts with the University of Pittsburgh Medical Center Health Plan (Health Plan) to provide services to government employees covered by the Health Plan. The Health Plan in turn had contracted with the Federal Office of Personnel Management (OPM) to provide medical services to federal employees. The contract between the hospitals and the Health Plan did not contain any language notifying the hospitals that they were subcontractors subject to OFCCP jurisdiction. Moreover, the Health Plan contract with the OPM specifically excluded the member hospitals from its definition of “subcontractor.” The OFCCP sent letters to the hospitals requesting copies of their affirmative action plans and other documents demonstrating that they were in compliance with various federal regulations prohibiting discrimination. The hospitals refused to cooperate, arguing that they were not federal contractors or subcontractors. The OFCCP disagreed and filed an administrative complaint against the hospitals.
The Department of Labor found that the hospitals were federal subcontractors subject to OFCCP jurisdiction even though the hospitals did not agree to become federal subcontractors and even though they had no notice of the terms of the contract between the Health Plan and the OPM. The Department of Labor determined that the equal employment opportunity and affirmative action obligations imposed by the OFCCP were incorporated into the hospitals’ contracts by operation of law. The rationale behind the decision was that, because the hospitals had assumed part of the Health Plan’s obligations under the Health Plan’s contract with the government (i.e., the provision of health care services to government employees), the hospitals were subcontractors bound by the OFCCP regulations. The Department of Labor also rejected the argument that the hospitals’ contracts with the Health Plan specifically excluded them from the definition of “subcontractor,” finding that the parties could not contractually invalidate the equal opportunity provisions of federal laws.
What This Means For You.
Health care providers with 50 or more employees that provide medical care worth $50,000 or more to federal employees may be subject to OFCCP jurisdiction. Failure to comply with OFCCP requirements can result in serious consequences, including exclusion from all federal contracting and subcontracting for three years or more. Entities that are in violation of the OFCCP requirements can also be prohibited from participating in Medicare and Medicaid programs. To avoid these unwanted consequences, you should take some simple steps. First, review your contracts to determine if you are providing health care services worth more than $50,000 to federal employees. If so, consult with legal counsel to determine your potential responsibilities under the federal government’s EEO and affirmative action programs. Finally, if you receive a compliance review letter, consult with legal counsel before refusing to cooperate.
In these tough economic times, many employers are looking for ways to save money and streamline their business operations. One way employers are accomplishing this goal is by implementing furlough days for some employees. However, this raises some legal concerns regarding the impact of a furlough day for exempt employees. This question has been considered on both the state and federal levels, and the consensus is that a prospective, temporary reduction in the work schedule of exempt employees, coupled with a reduction in their salaries, is permissible under California and Federal law as an effort to reduce or limit the need for layoffs in difficult economic times.
Who is an Exempt Employee?
To qualify as exempt, an employee must meet both the salary basis test and the duties test. To satisfy the salary basis test, an employee must earn a monthly salary equivalent to no less than two (2) times the state minimum wage for full-time employment (i.e., 40 hours per week). The duties test requires the employee to be engaged in the capacity of an executive, administrative or professional employee and to regularly exercise discretion and independent judgment.
Furlough of Exempt Employees
The Division of Labor Standards Enforcement (DLSE) recently issued an Opinion Letter which laid out the conditions under which an employer could reduce the work schedules and salaries of exempt employees in order to avoid layoffs. Specifically, the DLSE concluded that an employer may reduce the number of its exempt employees’ scheduled work days and make a corresponding reduction in the employees’ salaries if the employer has experienced a significant economic downturn, the reduction is anticipated to be temporary and the employer intends to restore the employees’ work schedules and full salaries as soon as economic conditions permit. The DLSE pointed out that exempt employees whose work week and salary are reduced must still be paid at least two times the minimum wage so that they meet the salary basis test. Each employee must also continue to satisfy the duties test. The DLSE cautioned that the temporary reduction in hours and pay should be a one-time event. The DLSE noted that its opinion letter was in conformity with federal law, which also allows a prospective reduction of exempt employees’ hours so long as such reductions do not occur with such frequency that the employees’ status as salaried employees is a sham.
The DLSE’s new opinion is in notable contrast to a prior opinion issued by the DLSE, which concluded that an employer could not reduce the salary of an exempt employee during a period in which the company operated a shortened work week due to economic conditions. The DLSE stated that its prior opinion letter predated important federal cases and that it could no longer be considered persuasive.
Given the DLSE’s recent opinion letter, a California employer is not prohibited from implementing a one-time, temporary reduced workweek with a corresponding reduction of the salaries of exempt employees so long as the employees still meet the salary basis test by earning a monthly salary of at least twice the state minimum wage for full time employment. Such a reduction should only be made due to economic necessity and the employees’ hours and salaries should return to their pre-reduction status when the economic crisis has passed.
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