Recent U.S. Labor Department enforcement activities, along with its collaborations with other governments and agencies, demonstrate its continued emphasis upon rooting-out the erroneous classification of workers as independent contractors.  And if U.S. Labor Secretary nominee Thomas Perez is eventually confirmed, officials can be expected to pursue the matter at least as aggressively as they have up to now.

Our Forbes.com article summarizes some important points to keep in mind with respect to the federal Fair Labor Standards Act status of "contract laborers", "freelancers", "casual workers", "contract employees", or independent contractors by any other name.

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As we have been reporting, March 12 was the deadline for submitting comments regarding the U.S. Labor Department's proposal "to collect information about employment experiences and workers' knowledge of basic employment laws and rules so as to better understand employees' experience with worker misclassification."  Despite our having asked for a copy of the proposed survey in a letter to USDOL dated January 14, we never received one.  Those who responded to our February 20 straw poll said that neither had they received a copy.

We have now submitted a comment (link to reproduction below) taking the position that the proposed collection of information should not be cleared, approved, or undertaken.  As we said to USDOL:

[the] circumstances strongly suggest that the Labor Department has failed to provide an adequate opportunity for public comment on this proposed information collection.  The Labor Department has clearly failed to do so with respect to members of the public who have expressed their interest in commenting by requesting copies but to whom it has provided none.  This state of affairs does not comport with the requirements and purposes of the Paperwork Reduction Act of 1995.

If USDOL nevertheless proceeds with its proposal at this point, the design and content of the survey, as well as the results produced by it and the use to which that outcome is put, might well be tainted and subject to challenge in light of the inadequate opportunity afforded for public comment on the proposal.

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Worker Classification Survey Comment 03 12 13 .pdf (47.81 kb)

We have warned for some time now that businesses and other organizations should think carefully if they are considering the possibility of permitting unpaid internships.  What might be described as the internship "season" is fast-approaching, so the time to consider whether and under what circumstances to get involved in these relationships is now.

The Current Landscape

The latest big-splash lawsuit surfaced last week.  A former unpaid intern filed a collective-action/class-action complaint for "at least $50 million" against Elite Model Management Corporation under the federal Fair Labor Standards Act and similar New York state laws.

This comes in the wake of an agreement by Charlie Rose and his show's production company to pay around $250,000 to settle an internship-related lawsuit brought last March.  A developing cottage-industry among lawyers is now on the lookout for opportunities to assert claims on behalf of unpaid interns, "even if [the intern] received school credit for the internship . . .."

Those who are in a position to provide unpaid internships should also recall the thinking exemplified in last year's advice given by "The Ethicist" at the New York Times in response to a reader who asked, "Is there anything I can demand of this company in exchange for my slave labor?"  This "ethicist" saw it as being laudable to "take the internship and then call the Labor Department — something you or your colleagues can do confidentially."

And indeed there are signs that educational institutions, vocational-training organizations, and similar entities are finding it harder to place their enrollees in unpaid internships.  This is hardly surprising, because word is spreading that making these opportunities available entails vulnerability to wage-hour claims.

It Is Wise To Be Cautious

There is neither a simple checklist nor any concise, all-encompassing legal test for reliably knowing whether a particular unpaid internship is consistent with the FLSA.  Nevertheless, prudence suggests keeping in mind our prior observations.  Whether an unpaid internship would occur under the auspices of an educational institution or otherwise, ask yourself this:  If there is a later FLSA claim, will the circumstances clearly, provably, and readily show (i) that the relationship was for the purpose of providing education, instruction, and training that imparted significant, substantive, transferrable knowledge of a broadly-applicable kind; and (ii) that what actually occurred was consistent with and carried out this purpose?

If the intern's activities establish instead that the idea and/or the outcome was to have the person perform work, then the risks of FLSA liability are likely to be substantial.  For example, if management's motivation is along the lines of, "We could sure use a summer intern," this does not bode well for successfully defending against an unpaid intern's later FLSA claim.

UPDATE 05/08/13:   The lawsuit parade continues.  A former photography intern for the "Pittsburgh Power" Arena Football League team has now sued the team and two owners, claiming that he was not paid for his internship activities (link to complaint below).  He is alleging among other things that there was "a corporate policy or practice of minimizing labor costs by knowingly misclassifying certain employees as unpaid interns in order to deny them compensation in violation of the FLSA and the [Pennsylvania] Minimum Wage Act."  He is also raising his claims as collective-action and class-action ones on behalf of, he contends, "more than 60" interns.

Boyle v. Swann, Inc.pdf (198.28 kb)

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Readers will recall our January post concerning the U.S. Labor Department's announced intention to "to collect information about employment experiences and workers' knowledge of basic employment laws and rules so as to better understand employees' experience with worker misclassification."  As we said then, this is likely to be a precursor to a renewed "Right to Know" initiative.

USDOL did not publish the actual proposed survey along with its January 11 Federal Register entry.  On January 14, we requested a copy from the official to whom USDOL directed that these requests be sent (link to reproduction below).  As of this writing, 38 days later, and after appreciably more than half of the comment period has elapsed, we have received neither a copy nor any other response.

The end of the comment period is March 12, 2013, 21 days from now.  As matters stand, one may reasonably conclude that the public has had no adequate, fully-informed opportunity to evaluate the proposed survey or to formulate and submit substantive comments.

We are led to wonder whether our experience is representative of the public's at-large.  If you requested a copy of the proposed information collection also, please respond to our poll to let us know whether you received one.

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Request For Proposed Information Collection.pdf (62.35 kb)

As we speculated in November, the U.S. Labor Department apparently does intend to reinvigorate its so-called "Right to Know" initiative.  This vague and ambiguous proposal first surfaced in 2010 but was eventually shelved.  USDOL has now announced its intention to conduct a survey "to collect information about employment experiences and workers' knowledge of basic employment laws and rules so as to better understand employees' experience with worker misclassification."

"Right to Know" About What?

In 2010, USDOL said that such a rule would require among other things the "notification of workers' status as employees or some other status such as independent contractors, and whether that worker is entitled to the protections of the [federal Fair Labor Standards Act]."  Many wondered at the time whether the provision would extend to disclosures about management's decisions as to which employees are considered to be exempt from the FLSA's pay requirements, and Wage and Hour Division officials seemed to be avoiding the question.  USDOL's recent announcement says, "Worker misclassification can be understood as the practice, intended or unintended, of improperly treating a worker who is an employee under the applicable law as in a work status other than an employee (i.e., an independent contractor)."  For the moment, then, the focus appears to be upon erroneously deeming workers to be independent contractors or incorrectly considering them to be functioning in some other non-employee capacity.

The announcement also provides at least some hint of what a "Right to Know" regulation will entail.  USDOL notes that "federal labor laws" do not require an employer to:

♦   Inform workers of their status as employees or non-employees;

♦   Provide the basis for these status determinations; or

♦   Notify the workers of their hours worked, pay rates, and wages paid.

Presumably, any "Right to Know" rules will obligate employers to provide this information, although to whom, when, in what form, to what extent, and at what level of detail remain unknown.

What Happens Next?

USDOL seeks comments on its proposed information collection by March 12, 2013.  However, it did not publish the actual information request.  Instead, a copy of this document must be obtained separately, raising the question of whether USDOL's announcement complies with the notice requirements of the Paperwork Reduction Act.  In any event, we have asked for a copy and will post the document when we receive it.

The notice specifies 30 months as the evaluation timeframe but then says in the same sentence that the period ends in March 2014.  Perhaps USDOL will later clarify which of these is its intention.

Businesses and other organizations (particularly those whose operational models include the use of non-employee workers) would be wise to take the opportunity to weigh-in on this proposed survey, to participate in the survey when it occurs, and otherwise to follow these developments closely.  It is foreseeable that the actual information collection might be orchestrated so as to provide a predicate for unprecedented new requirements.

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Volunteerism is again on the upswing as the holiday season enters its most-intense period.  Businesses and other organizations should reacquaint themselves with the principles summarized in our November 2011 post cautioning that some "volunteers" or "volunteer" activities might be subject to the requirements of the FLSA.

*     *     *

The holiday spirit moves many to volunteer for activities of a benevolent nature.  An organization to which such individuals donate services should consider the possibility that they might be "employees" under the federal Fair Labor Standards Act.  Getting this wrong could result in liability for back-wages, child-labor penalties, and other remedies.

General Principles

The U.S. Labor Department says that, under certain circumstances, the FLSA permits people to donate their time as non-employees for humanitarian, religious, charitable, or other public-service reasons.  However, the person must do this on a genuinely voluntary basis and without expecting or receiving wages.  USDOL has also said that, in all but "rare" situations, its policy is to limit volunteer status to qualifying activities for non-profit entities.

Relevant factors can include things like whether the person's services:

♦   Are truly done for altruistic motives;

♦   Are of a kind typically associated with volunteer work;

♦   Are less than a full-time occupation for the person;

♦   Do not displace employees or impair employment opportunities;

♦   Involve only "nominal" or "minimal" control by the recipient of the services; and/or

♦   Typically occur at times convenient to the person.

USDOL maintains that the FLSA does not allow employees to volunteer to their employer unpaid services which are the same as, similar to, or related to their normal duties.  With limited exceptions, USDOL takes the same position even when an employee provides different services of a public-service or charitable nature that are done at the employer's request, under its direction or control, or during the employee's normal working hours.

Holiday Activities As FLSA "Employment"

A U.S. Wage and Hour Division opinion letter (reproduction linked below) illustrates that unpaid efforts donated even by people who are not otherwise employees can sometimes run afoul of the FLSA.  A company planned to offer gift-wrapping services to customers during the weeks leading up to Christmas.  This was to be done on the company's premises.

The services had previously been provided by temporary employees.  However, non-profit community and church groups said that their members would volunteer to wrap gifts in the hope that the company would donate money to the groups.  The company would not control the members' hours; would not supervise them directly; would maintain only general conduct rules; and would permit the volunteers to use its restrooms and breakrooms.

The Division concluded that the members would be FLSA employees rather than volunteers.  The Administrator observed that the individuals' efforts would be rendered to a profit-seeking entity, rather than to any community or religious program.  In her view, the members intended to contribute money to their organizations and were simply selling their services to the company in order to earn those sums.

As this shows, it can be unclear whether a relationship is one of volunteerism rather than FLSA employment.  Practically speaking, the organization receiving a person's services bears the risk of being incorrect in viewing activities as noncompensable volunteerism.  This might seem to be unfair, but it reflects a philosophy that the FLSA does not allow the risk to fall upon individuals whom the law is intended to protect.

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Holiday Volunteer Opinion 07 18 96.pdf (24.11 kb)

In thinking-through and implementing their recovery plans in the wake of Hurricane Sandy, employers will want to review our August post summarizing a number of federal Fair Labor Standards Act issues that typically arise following a natural disaster.

Readers will recall our typical reminder that the requirements and limitations of other laws must also be taken into account.  This is especially important where Sandy's impact is concerned, because the laws and regulations of some jurisdictions in the hardest-hit areas are often different and/or much tougher on employers than the FLSA is.

As just one example, New Jersey law provides, "No employer shall terminate, dismiss or suspend an employee who fails to report for work at his or her place of employment because he or she is serving as a volunteer emergency responder during a state of emergency declared by the President of the United States or the Governor of this state or is actively engaged in responding to an emergency alarm . . .," subject to certain notices and verifications.  This law does not require an employer to pay for the time missed (although treating some such time as unpaid might create problems under other requirements, such as the "salary basis" principles applying to certain exemptions under the FLSA), but it does say that "a volunteer emergency responder may charge his or her absence as a vacation day or a sick day, if the volunteer has such days available."  N.J. Stat. Ann. § 40A:14-214 (link to reproduction below).

The important take-away is that employers should be sure to consider all of the relevant directives and prohibitions as they decide how to proceed.  Haste and conventional wisdom could lead to trouble down the road.

 N.J. Volunteer Responder Statute.pdf (17.01 kb)

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For at least three years now, the U.S. Labor Department and the U.S. Internal Revenue Service (along with a host of analogous state and local agencies) have been on the alert for instances in which workers are erroneously considered to be independent contractors rather than employees.  The popular euphemism for these situations is "misclassification" (although this term is also used to describe the different problem of incorrectly treating employees as being exempt from minimum-wage and/or overtime requirements).

What's The Big Deal?

In significant part, this increased attention began with a straightforward motivation:  Government revenue collections have steadily declined in the sluggish economy, so officials at all levels are keenly interested in plugging any leaks.  As USDOL recently put it in a press release, "misclassification generates substantial losses to the U.S. Treasury and the Social Security and Medicare funds, as well as to state Unemployment Insurance and workers' compensation funds."

For its own part, USDOL has been hard at work ferreting-out "misclassification" under the Fair Labor Standards Act and the similar federal wage laws it enforces.  In just the last few weeks, for example, it has announced:

♦   A $105,000 overtime assessment against a Texas employer that had considered workers to be independent contractors for their first 90 days with the company; and

♦   A $101,000 demand against a Virginia employer that had considered individuals performing work on a government-funded construction contract to be independent contractors or to be subcontractors.

Numerous other USDOL "misclassification" investigations, and many private FLSA lawsuits challenging independent-contractor status, are underway across the country.

As we have also highlighted, some states have joined forces with USDOL.  And while North Carolina has not yet signed-on as far as we know, Gov. Beverly Perdue's August 22 Executive Order creating a "Task Force on Employee Misclassification" suggests that it might soon do so.  Among other things, the Task Force is responsible for:

♦   Identifying sectors of the economy where this occurs most frequently,

♦   Encouraging communication and cooperation between relevant state agencies,

♦   Considering regulatory changes likely to enhance legal enforcement efforts, and (perhaps most significantly),

♦   Identifying "ways to increase the filing of complaints by employees and other members of the public against noncompliant employers . . .."  [Emphasis added].

It's Smart To Think Ahead

All of this demonstrates yet again that organizations whose operating models are built even in part upon "contract labor", "freelancers", the oxymoronic term "contract employees", or independent contractors by any other name simply cannot afford to ignore the current enforcement climate.  The wise course is to evaluate without delay what the prospects are that such workers can be shown to be true independent contractors under each legal test that might be applied.

Perhaps the very first question should be whether the circumstances of the arrangement lend themselves to independent-contractorship at all.  In some situations, it will be unlikely that this status could be successfully defended, taking into account such things as the organization's need to control the worker's activities and all the other operational and managerial considerations involved in meeting the organization's objectives.

Even if the chances seem more favorable, management will want to be sure that is has done everything it can to strengthen its position.

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Recurring wage-hour issues tend to arise during the recovery from a natural disaster.  We posted the following item last year in connection with Hurricane Irene, and the points are equally relevant this time around:

*     *     *

Affected employers will no doubt have a variety of wage-hour questions in the aftermath of Hurricane Irene.  The number and scope of the issues raised might well be practically endless.  In this post, we address in very general ways the federal Fair Labor Standards Act topics that experience suggests will be among the most-pressing.

◊   What do we do about lost time records for work already performed but not yet paid?

If the only records of hours worked are lost or unusable, then there is no perfect solution.  Re-create the most accurate accounting you can under the circumstances.  Perhaps the preferred approach is to ask each employee to make the best-possible estimate of his or her hours worked. You should obtain the employee's written acknowledgement of his or her best recollection and should include the employee's authorization allowing later corrections in worktime and pay should more accurate hours-worked information become available.

◊   How do we track employees' worktime without our electronic/computerized time clocks?

Employees may record all hours worked by using handwritten timesheets.  To ensure accuracy, each employee should enter his or her own time and should record the actual times when the employee's work starts and stops each workday.

◊   As we recover, must we keep paying overtime on top of our other burdens?

At this time, there is no FLSA "emergency" exception that relieves the obligation to pay FLSA-required wages.  Employees subject to the FLSA's overtime provision must receive overtime premium at a rate of at least 1.5 times their regular rates of pay for all hours worked over 40 in the designated seven-day workweek.

If employees are covered by a collective bargaining agreement, it might contain additional overtime provisions requiring more than the FLSA does.  Perhaps the terms of the agreement relax those requirements in emergencies.  However, a collective bargaining agreement cannot override the FLSA's requirements.

◊   Can an employee volunteer to perform recovery services for us without pay?

The FLSA does not permit employees to "volunteer" unpaid time to the employer under any but the narrowest of circumstances.  For example, if a manufacturing facility sets up a hotline or makes other arrangements to provide a clearinghouse for information about the status of the workplace and employee reporting times, non-exempt employees volunteering to perform such services are engaged in compensable hours worked for FLSA purposes.  Employers considering any kind of unpaid "volunteer" services by their employees should evaluate the legality of doing this carefully and in advance.

◊   Must we keep paying employees who are not working?

Under the FLSA, for the most part the answer is "no".  FLSA minimum-wage and overtime requirements attach to hours worked, so employees who are not working are typically not entitled to the wages the FLSA requires.

One possible FLSA-related exception is for employees treated as FLSA-exempt whose exempt status requires that they be paid on a "salary basis".  Generally speaking, if such an employee performs at least some work in the designated seven-day workweek, the "salary basis" rules require that he or she be paid the entire salary for that particular workweek.  There can be exceptions here, too, such as might sometimes be the case where the employer is open for business but the employee decides to stay home for the day.

Also, non-exempt employees paid on a "fluctuating-workweek" basis under the FLSA normally must be paid their full fluctuating-workweek salaries for every workweek in which they perform any work.  There are a few exceptions, but these are even more-limited than the ones for exempt "salary basis" employees.

Of course, an employer might have a legal obligation to keep paying employees because of, for instance, an employment contract, a collective bargaining contract, or some policy or practice that is enforceable as a contract or under a state wage law.

◊   What can we do about charging missed time to vacation and leave balances?

The FLSA generally does not regulate the accumulation and use of vacation and leave.  The "salary basis" requirements for certain FLSA-exempt employees can implicate time-off allotments under various circumstances, some guidance on which the U.S. Labor Department has provided in opinion letters accessible here and here.

Again, however, what an employer may, must, or cannot do where paid leave is concerned might be affected by an employment contract, a collective bargaining contract, or some policy or practice that is enforceable as a contract or under a state wage law.

◊   When is travel time "hours worked" for purposes of computing FLSA wages due?

FLSA travel-time "rules" are not seamless, up-to-date, or necessarily logical or consistent with common sense.  The best-known ones are that:

•   Normal commuting between home and work typically is not considered to be hours worked, and

•   Travel between one assignment and another during a workday typically is hours worked.

However, even these principles are subject to exceptions and elaboration.  The best starting point is to consider each scenario an employer faces under the U.S. Labor Department's basic interpretations on travel time.  They are compiled at 29 C.F.R. §§ 785.33-785.41 and may be accessed here.

Remember that other requirements, such as those applying to government contractors or subcontractors and those of states or other jurisdictions, can also be relevant to these questions.

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As we reported earlier, a former Harper's Bazaar unpaid intern is pursuing a lawsuit against publisher The Hearst Corporation in which she claims (among other things) to have been an "employee" under the federal Fair Labor Standards Act who was not compensated in compliance with that law.

A New York federal judge has now conditionally approved the case as a "collective action".  This means that the lawsuit will proceed as the FLSA's version of a class action, including that court-authorized notice of the complaint will be sent to potential class members to let them know that they may join the lawsuit if they choose to do so.

The court ruled that Xuedan Wang had presented enough evidence to justify allowing the case to move forward on this basis for the time being.  Among the allegations of which the court took note are that Hearst decided that all interns working at 19 magazines were non-employees but used them to complete tasks necessary to its operations, such as answering telephones, making deliveries, and organizing clothing and accessories.  Wang also asserts that Hearst required interns to submit "credit letters" from colleges, some of which, she says, required the intern to make a payment to his or her college in order to receive the credit.  She contends that she and other interns were essentially entry-level employees who performed commensurate work with little supervision.

Of course, these are simply Wang's claims.  And after further factual development, Hearst can try to convince the court that treating the case as a collective action is not warranted after all.  Nevertheless, this litigation bears watching, because it might well serve as a template for similar FLSA lawsuits across the nation.

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