An Example of Administrative Exemption Error

A few posts below, we discussed employer's periodic over-reliance on the overtime exemption for administrative employees under the Fair Labor Standards Act. As noted, among the four primary exemptions under that act, we have found that employers most frequently misapply this exemption.

A recent federal appeals court decision highlights this point. In Whalen v. J.P. Morgan Chase & Co., the U.S. Court of Appeals for the Second Circuit held that a loan underwriter at J. P. Morgan Chase was not exempt from overtime entitlement under the administrative exemption.

J.P. Morgan Chase maintained that its loan underwriters were covered by this exemption because they met the minimum salary requirement, performed office work directly related to the general business operations, and exercised the requisite discretion and independent judgement. The trial court agreed, but the appeals court reversed that decision.

Central to the appeals court's decision, the loan underwriter performed his duties according to detailed guidelines provided by the employer. He had no meaningful discretion to depart from those guidelines on his own. Thus, the appeals court said that the loan underwriter exercised no real independent judgment and discretion, which are key components of the exemption. Instead, the appeals court concluded that he was primarily involved in the "production" of the employer.

An employee primarily involved in the employer's production of goods or its provision of the services it offers, in most cases, will not meet the requirements of the administrative exemption.

Posted by Thamer E. "Chip" Temple III

COBRA Subsidy Extended

On December 19, 2009, president Obama signed into law the Fiscal Year 2010 Department of Defense (DOD) Appropriations Act. The 2010 DOD Act, among many other things, extended and expanded the COBRA subsidy program originally begun under the American Recovery and Reinvestment Act of 2009 (also known as the "Stimulus Bill").

Under the 2010 DOD Act, the Stimulus Bill's original COBRA premium subsidy period was expanded from nine to fifteen months - six additional months of subsidized coverage. The eligibility cutoff date for the subsidy also was extended from December 31, 2009 to February 28, 2010. (It is certainly possible that additional extensions may follow before this new deadline passes.)

The 2010 DOD Act also put in place a new sixty day retroactive period for payment of premiums for eligible employees and dependents whose subsidy period expired on November 30, 2009.

Lastly, the new law requires yet another special notice outlining these changes to all eligible individuals either on COBRA as of October 31, 2009, or who are terminated from employment with health insurance benefits after that date and up to February 28, 2010. We anticipate that the Department of Labor will issue a form notice in the coming weeks.

Posted by Thamer E. "Chip" Temple III

On-Call Time

It used to be that only emergency personnel (i.e., police, fire and emergency healthcare) were concerned about on-call time. Now, with technology such as BlackBerries, cell phones, Smart Phones, lap top computers and the like, the practical effect of having employees on-call is becoming widespread and crossing most industries. So, what constitutes compensable on-call time?

Supreme Court Standard

The United States Supreme Court has adopted a two-pronged test for determining what qualifies as compensable work activity. Under this test, time is compensable work activity if it is: (i) controlled or required by the employer, and (ii) pursued primarily for the benefit of the employer. Thus, waiting time, at least in some circumstances, is compensable work time. As the Supreme Court put it, if the employee is "engaged to wait," the time must be compensated, but if the employee is merely "waiting to be engaged," compensation is not required.

A Question of Control

In simple terms the issue of compensable on-call time is resolved by a determination of who primarily controls the time in question, the employer or the employee. Thinking about it is these simple terms comports with general principles of wage and hour law. For instance, an employee may be free to leave the work site and yet still be on working time (such as when the employee is running an errand or making a delivery for the employer) and the employee may remain on the work site and yet be off the clock (such as when an employee takes a meal break). In the former instance, the employer still controls the time in question. In the latter instance, the employee controls the time. The same concepts apply to on-call time.

DOL Regulation

The Department of Labor has provided basic parameters within which to analyze on-call time. Under 29 C.F.R. Section 785.17:

"An employee who is required to remain on call on the employer's premises or so close thereto that he cannot use the time effectively for his own purposes is working while 'on call'. An employee who is not required to remain on the employer's premises but merely required to leave work at his home or with company officials where he may be reached is not working on call."

Factors Considered

The DOL regulation provides some guidance but does not provide a bright-line test. There is no such test. Rather, on-call issues are resolved based on the particular facts in each case. A review of various cases and agency letter opinions reflects the following factors most frequently considered:

Frequency of Calls: While no particular factor is outcome determinative, courts and the DOL regularly look closely at the frequency of calls handled by an employee during the period of on-call time. The greater the frequency the more likely the time will be deemed controlled by the employer and there for compensable. It follows that infrequent calls during on-call time will tilt the balance toward non-compensable time.

Length of Duty: Is the on-call duty periodic and limited in length, long-term, or continuous? Generally, longer periods of on-call time impose more restriction on the employee, even in instances where there are fewer calls during the time in question.

Geographic Restrictions: An employee who is restricted to a very limited area, in many instance, does not control his or her own time. A tight geographic restriction suggests compensable time. Directly related to this, required response time of very short durations likewise restricts the employee substantially. A response time of less than thirty minutes is scrutinized closely. A response time of more than thirty minutes suggests the employee is substantially free in his or her own activities.

Pager/Cell Phone: An employee's use of a pager or cell phone during on-call time is a "two-edged sword." On the one hand, if the pager or cell phone is used frequently to contact the employee about work matters, the time is more likely deemed controlled by the employer and compensable. On the other hand, the use of a pager or cell phone gives the employee freedom to not be tied to a landline, which in turn allows the employee much more free use of his or her time. Employers should maintain records of such electronic activities for at least 2 years after the time in question.

Agreement/Policy: Is on-call time addressed in either an employment agreement or in company policies? It is always better to specify that on-call time is not compensable if the employer does not intend to compensate the employee for it instead of leaving the question solely for lawyers, courts, and government agencies.

Trading Call Time: The freedom to trade on-call time among responsible employees shows the employees retain another degree of control over the time. Significantly, however, whether an employee has volunteered for an on-call assignment does not appear to have had any impact in reported cases and opinion letters.

Limits on Activities: Lastly, the DOL and the courts will look at the overall extent to which employees' personal activities actually are limited. Reported decisions reflect considerations about whether the employee is free to leave their house or designated location, go to movies or shop, go to restaurants, exercise, sleep, do yard work, and entertain guests. Notably, in many cases, an employee's need to report to work for a call unimpaired leads to the argument that the employee is not free to consume alcohol. This limited restriction, however, has not changed the outcome of any decision found.

Posted by Thamer E. "Chip" Temple III

Over-Reliance on the Administrative Exemption

Section 13(a)(1) of the Fair Labor Standards Act exempts certain administrative employees from the Act's overtime pay requirements. Of the four primary exemptions under Section 13(a)(1), employers most frequently misapply, and thus over-rely upon, the administrative exemption test.

The Administrative Exemption Test

To qualify for the administrative employee exemption, all of the following must be satisfied:

• The employee must be compensated on a salary or fee basis at a rate of not less than $455 per week;
• The employee's primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers; and
• The employee's primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.

According to the Supreme Court of the United States, this exemption must be "narrowly construed against employers" seeking to apply it, and its application must be "plain and unmistakable." Also, the burden of proving application of the exemption is on the employer, and the employer must establish the propriety of the application by clear and convincing evidence. Collectively, these standards mean that the employer will lose any dispute that involves a close call of either the facts or the law.

Areas of Over-Reliance

Employers frequently over-rely on the administrative exemption for office, clerical and non-production staff in one or more of four areas: primary duty, direct relationship to management, discretion and judgement, and significance.

Primary Duty

The primary duty of the employee in question must satisfy all aspects of the test. This means qualifying work with qualifying exercise of discretion and independent judgment must be the principal, main, major or most important duty that the employee performs. All too often, employers rely upon the administrative exemption if the employee performs any qualifying work. The performance of qualifying administrative work on occasion is insufficient.

Directly Related to Management

The primary duty in question must directly relate to management or general business operations. Tnis means those duties involved in running or servicing the business establishment as distingquised, for example, from those involved in production or selling the products or providng the services of the establishment.

Applying the administrative-production dichotomy can be more difficult in service-providing settings as compared to manufacturing. The key is that non-manufacturing employees should be considered "production" employees in those instances where their job is to create or to provide (or assist in this effort) the very services that the establishment offers to the public.

Employers frequently misapply the administrative exemption test when they focus on the indispensability or relative importance of the job in question. Someone with whom the business believes it "cannot do without" is often improperly deemed an administrative-exempt employee. This is the wrong focus. Application of the test depends upon the nature of the work involved, not the consequences of performance.

Qualifying work often is performed in the areas of finance and accounting, insurance, purchasing and procurement, advertising and marketing, human resources, information technology and legal compliance. However, this does not mean that all positions in these fields qualify or that other fields do not. A good rule of thumb is to identify people who have substantively helped develop, implement or conduct compliance with general business policies and objectives.

Discretion and Judgment

The routine application or enforcement of employer policies and procedures does not qualify as exempt administrative work. The employee must regularly exercise discretion and independent judgement. This involves the comparison and evaluation of possible courses of action or making a decision based on those courses of action. "Independence" requires that the employee be free from immediate direction or supervision. However, the employee need not have ultimate authority in all respects. Indeed, the fact that an employee's discretionary decisions may be revised or reversed after subsequent review does not mean that the employee is not exercising the requisite discretion and judgement. Factors to consider are:

• Whether the employee has the authority to formulate, affect, interpret or implement management policies;
• Whether the employee carries out major assignments in business operations;
• Whether the employee has the authority to commit the employer in matters that have a significant impact on operations; and
• Whether the employee has the authority to waive or deviate from established policies or procedures without prior approval.

Significance

The employee's exercise of discretion must be on matters of significance to the employer. Again, this focuses on the nature of teh matter, not the cvonsequences of the employer's failure to perform properly. For example, an employee responsible for formulating and implementing new benefits policies would be handling a matter of significance. An employee operating a piece of equipment with a $200,000 replacement cost on an improtant job would not be handling a matter of significance for purposes of this test.

Posted by Thamer E. "Chip" Temple III

National Defense Authorization Act: FMLA Leave Expanded for Military Families

On October 28, 2009, President Obama signed the National Defense Authorization Act ("NDAA"). The NDAA expands the rights of military service members and their families under the Family and Medical Leave Act ("FMLA"). These changes take effect immediately, so employers who are covered by the FMLA should revise their leave policies to reflect these changes.

First, the NDAA extends coverage for "exigency leave" of up to 12 weeks to the families of all active-duty members of the military who are deployed to a foreign country. Under the military leave provisions adopted in 2008, such "exigency leave" was available only to family members of National Guard members and military reservists.

Second, the NDAA extends the coverage of "service member caregiver leave" available under the FMLA. Such leave now includes caring for a child, spouse, parent, or next of kin who is a veteran undergoing medical treatment, recuperation, or therapy for a serious illness or injury and who was a member of the Armed Forces (including the National Guard or Reserves) at any time during the five years preceding the date on which the veteran undergoes the treatment. The medical treatment the veteran receives must be related to a serious injury or illness suffered while in the line of duty, or which existed before the beginning of the veteran's military service. Under this provision, a caregiver may take up to 26 weeks of leave to care for such an injured or ill veteran.

Employers may contact Bill Norris at (804) 783-6819 or Chip Temple at (804) 783-6814 to learn more about the National Defense Authorization Act or the Family and Medical Leave Act.

Posted by G. William "Bill" Norris, Jr.

The Duty of Dialogue

The Concern About Inquiries

Under the ADAAA and likely new regulations, employers will be forced in many instances to shift their thinking from questioning whether an employee is disabled to whether and what type of accommodation is warranted. However, often employers become paralyzed by fear of the ADA's implications. Moreover, many employers have been drilled extensively on actual and imagined restrictions imposed on inquiries about potential disabilities. They fear doing something impermissible or something that will be used to prove that they "regarded" the employee as disabled - either way inviting ADA challenges and liability.

Job-Related Inquiries Are Permissible

Once an employee brings a potential disability to the employer's attention, or an impairment is having an obvious effect on his or her performance thus putting the employer on notice, the restrictions on inquiries are more relaxed. The employer can make job-related inquiries consistent with business necessity. A legitimate purpose of such inquiries is to determine the extent of the employee's limitations. This, in turn, largely will provide the basis to determine whether the employee is covered by the ADA and, if so, what reasonable accommodations are available and appropriate.

Individualized Inquiries Are Required

The ADA, and now the ADAAA, requires individualized inquiries to determine whether an employee is protected. Courts at all levels have recognized this. The EEOC's implementing regulations further recognize that "it may be necessary" for an employee to determine appropriate reasonable accommodations. Some courts have held that a dialogue with the employee is mandatory. Other courts recognize that the effort is unnecessary in instances where it is readily apparent that the employee cannot perform the job duties with or without reasonable accommodation. But virtually all courts deem this interaction necessary in cases where the employee's capabilities and limitations are not obvious.

In short, the employer very often must talk with an employee specifically about his or her condition and limitations in order to make an educated assessment of the employee's rights and the employer's obligations under the ADA. In this context, the discussion is job related and a matter of business necessity, and therefore permissible. Indeed, an employer's failure to have such discussions, in most instances, erodes the employer's ability to conduct the required individual assessment. Thus, it often is a legal as well as practical requirement.

Opening a dialogue to learn more about an employee's limitations is not the same as regarding the employee as disabled. Rather, it is a matter of satisfying the employer's legal obligation to determine the necessity and nature of any reasonable accommodations. At most, the employer regards the employee as limited in some way. This is what starts the process and necessitates the dialogue to begin with, and it is not illegal.



Posted by Thamer E. "Chip" Temple III

A Modified EFCA Proposal

At the September AFL-CIO convention, Sen. Arlen Specter (D-Pa.) announced that he and a small group of others in the Senate had drafted a modified Employee Free Choice Act proposal. In making the announcement, Senator Specter said that he was confident his draft would enjoy the support of the sixty senators necessary to break a filibuster. He predicts the bill will pass before the end of the calendar year.

Senator Specter's proposal would abandon the highly controversial "card check" provision, which would allow the certification of unions based on a sufficient number of signed authorization cards. Indeed, Senator Specter acknowledged that no bill eliminating a secret ballot election foreseeably could be passed. The modified proposal instead would mandate fast union representation elections. Senator specter did not specify how quickly the elections would take place under the proposal, but often repeated speculations pegs the timeframe at five to ten days after a union files a certification petition. (Currently, NLRB supervised elections typically are held some forty days after the petition is filed.)

The proposal would allow outside union organizers greater access to meet with employees at work during the election period. This is an opportunity that, in virtually all cases at the moment, unions do not currently enjoy.

The proposal retains from earlier EFCA proposals the requirement for binding interest arbitration if the employer and union fail to reach an agreement on a first contract. Specifically, Senator Specter said the bill would require so-called "baseball style" arbitration, which would require arbitrators to select either the employer's or union's last, best contract offer - essentially, an all or nothing hammer over the heads of the parties.

Lastly, the proposal also would retain from the current version of the EFCA the enhanced sanctions against employers for unfair labor practices committed during the organizing and negotiating periods. This would include triple back pay awards and fines.

Notably, following Senator Specter's announcement, incoming AFL-CIO President Richard Trumka said that the long-desired "card check" proposal remained an important part of the labor federation's legislative goals, and that the AFL-CIO had not agreed to any compromise on this point. At this juncture the success of any EFCA proposal remains virtually dependent upon whether supporters can muster the sixty votes needed to end a Senate filibuster and pass the bill.

Posted by Thamer E. "Chip" Temple III