The Ninth Circuit Court of Appeals recently held that some work performed by employees at home, as well as time spent commuting, may have to be paid in certain circumstances.
The plaintiff in Rutti was a technician for Lojack, Inc. ("Lojack") who installed car alarms. In the morning, Rutti, as well as Lojack's other technicians, would receive their assignments for the day, map the route to their assignments, and prioritize the jobs. While traveling to the first job in the morning, as well as when traveling home at the end of the day, technicians were required to keep their cell phones on and drive directly between home and the job site without making any additional stops. After returning home, technicians were required to upload data received at the job sites from a portable data terminal ("PDT") to the company by hooking the PDT up to a modem.
The Ninth Circuit determined that the technicians' commute time was compensable under state law, but not federal law. The federal Portal-to-Portal Act, as amended by the Employment Commuter Flexibility Act, explicitly provides that employers need not compensate employees for time spent traveling to and from where they perform their job duties. The result under federal law was not changed by the fact that Lojack's technicians drove company cars, or that they were subject to certain employer-mandated restrictions while driving.
California, however, maintains stricter wage and hour laws. Under California law, the relevant question is whether the employee's time is "subject to the control" of the employer. The Ninth Circuit found that because technicians had to keep their cell phones on, and could not make additional stops while going to and from the job site (such as dropping children off at school), the time was subject to the employer's control and had to be paid under California law.
The Ninth Circuit went on to find that under federal law, the technicians' job tasks before the "start" of the work day were not compensable, but that time spent uploading data from the PDT "after work" might have to be paid. Under federal law, the question of whether these types of "preliminary and postliminary" activities must be paid depends on whether they are part of the "principal activities" that the employee is employed to perform. Even if these tasks are part of the employee's "principal activities," they need not be paid if they are de minimus. In deciding whether certain job tasks are de minimus under federal law, courts examine the practical administrative difficulty of recording the additional time, the aggregate amount of time at issue, and the regularity of the additional work.
Applying those factors, the Court held that even if the tasks performed by technicians prior to leaving home were part of their "primary activities," they were de minimus. These tasks took only a matter of minutes to complete, and it would be very difficult to record the time that technicians spent working on them. However, time spent uploading data from the PDT might be compensable. There was evidence that this task took anywhere from 5 to 15 minutes each night. While the Court acknowledged that there would likely be some administrative difficulty recording this time, it found that the time added up to over an hour per week, and was a regular part of the employees' job duties, and therefore might not be de minimus. Accordingly, the time might have to be paid, depending on the specific facts.
Still, even if this activity was found to be compensable under federal law, that did not mean that the technicians' travel time home had to be compensated, even under the "continuous workday doctrine." Under this doctrine, which the U.S. Department of Labor has adopted, an employee's workday generally lasts until he has completed all of his principal activities during the day. The Ninth Circuit found that the "continuous workday" rule did not apply in these circumstances because technicians were relieved of all duties upon returning home, and could input the data from the PDT at a time of their choosing. Federal regulations preclude application of the "continuous workday doctrine" where employees are relieved from all duty for a long enough period to be able to use that time for their own purposes. Still, this commute time generally has to be paid under California law. Here, the Ninth Circuit did not reach the issue of whether the "preliminary and postliminary" activities performed by the technicians had to be paid under California state law.
This case reminds employers that there can be significant differences between federal and state law in the wage and hour areas, and that they need to ensure that their practices comply with both sets of laws.
Rutti v. Lojack Corporation, Inc., March 2, 2010
Wednesday, March 10, 2010
Tuesday, March 9, 2010
IRS takes the initiative
Employers of all sizes and types should be aware of a major IRS audit initiative focusing on underpayment of employment taxes.
The IRS has launched a new employment tax National Research Program that it has been planning for at least a year. As part of the program―the first in the employment tax area since 1984―the IRS will randomly select 6,000 taxpayers (2,000 taxpayers in 2010 for the 2008 tax year and 2,000 taxpayers each in 2011 and 2012 for the 2009 and 2010 tax years, respectively) and conduct in-depth audits of those taxpayers’ employment tax issues, tracing them into federal income tax returns that report deductions of the payments as well as federal income tax returns that report the income from such payments. The IRS described the audits as “comprehensive in scope.” The IRS is using the program to accurately gauge the extent to which taxpayers and tax-exempt entities properly comply with employment tax laws.
The IRS has two main goals for the program:
• Securing statistically valid information for computing the “gap” between taxes that are accurately reported to the IRS and those actually owed; and
• Determining common compliance characteristics so that the IRS can concentrate on the most significant compliance issues.
The audits likely will begin with a review of IRS Forms 941 (federal employment tax returns) but will further involve detailed information requests by the IRS. In addition to identifying organizations that fail to file employment tax returns at all, the comprehensive audits will focus on at least four major employment tax issues:
• Classification of workers as employees or independent contractors;
• Reasonableness of executive compensation;
• Tax treatment and reporting of fringe benefits as tax-free or as taxable compensation; and
• Tax treatment and reporting of employee reimbursements.
The IRS also will review the taxpayer’s history of reporting payments other than wages or compensation (e.g., such as dividends reported on IRS Forms 1099) and backup withholding. Additionally, we expect that the IRS will focus on recently promulgated Treasury Regulations that require disregarded entities to withhold, report, and pay employment taxes in their own name. (See “Final Regulations Treat Disregarded Entities as Separate for Employment Tax and Related Reporting Requirements” (December 11, 2007) and “Disregarded Entities Are Now Responsible for Their Own Employment Taxes” (July 20, 2009))
Although the reasonableness of executive compensation is usually thought to involve the payment of excessive compensation, the program likely will focus on the underpayment of compensation to shareholder-employees of S corporations. Such shareholder-employees are perceived to avoid employment tax by receiving dividends and other corporate distributions in lieu of compensation for services.
To the extent that a taxpayer has consistently treated workers as independent contractors and the IRS properly determines that the workers should have been treated as employees, the audited taxpayer still may avoid owing back taxes, interest, and penalties if it satisfies the now notorious Section 530 of the Revenue Act of 1978. If certain requirements are satisfied, Section 530 prevents the IRS from retroactively reclassifying workers. Although we do not know how much support there is in Congress, in the Fiscal Year 2011 budget, the Obama Administration proposed eliminating Section 530 and believes that a crackdown on employment tax issues could yield as much as $7 billion over the next 10 years.
Finally, the in-depth nature of the audits will provide the IRS with an opportunity to review an employer’s executive compensation arrangements. In addition to confirming that such arrangements are compliant with the employment tax rules, employers should review the extent to which their executive compensation arrangements are compliant with other federal income tax rules, such as the section 162(m) and section 280G deduction limits and the section 409A deferred compensation restrictions. Employers who act quickly may be able to take advantage of recent IRS correction guidance for section 409A violations, which offers the possibility of reduced penalties. (See “IRS Releases Section 409A Correction Program for Nonqualified Plan Document Failures” (January 6, 2010))
The IRS has launched a new employment tax National Research Program that it has been planning for at least a year. As part of the program―the first in the employment tax area since 1984―the IRS will randomly select 6,000 taxpayers (2,000 taxpayers in 2010 for the 2008 tax year and 2,000 taxpayers each in 2011 and 2012 for the 2009 and 2010 tax years, respectively) and conduct in-depth audits of those taxpayers’ employment tax issues, tracing them into federal income tax returns that report deductions of the payments as well as federal income tax returns that report the income from such payments. The IRS described the audits as “comprehensive in scope.” The IRS is using the program to accurately gauge the extent to which taxpayers and tax-exempt entities properly comply with employment tax laws.
The IRS has two main goals for the program:
• Securing statistically valid information for computing the “gap” between taxes that are accurately reported to the IRS and those actually owed; and
• Determining common compliance characteristics so that the IRS can concentrate on the most significant compliance issues.
The audits likely will begin with a review of IRS Forms 941 (federal employment tax returns) but will further involve detailed information requests by the IRS. In addition to identifying organizations that fail to file employment tax returns at all, the comprehensive audits will focus on at least four major employment tax issues:
• Classification of workers as employees or independent contractors;
• Reasonableness of executive compensation;
• Tax treatment and reporting of fringe benefits as tax-free or as taxable compensation; and
• Tax treatment and reporting of employee reimbursements.
The IRS also will review the taxpayer’s history of reporting payments other than wages or compensation (e.g., such as dividends reported on IRS Forms 1099) and backup withholding. Additionally, we expect that the IRS will focus on recently promulgated Treasury Regulations that require disregarded entities to withhold, report, and pay employment taxes in their own name. (See “Final Regulations Treat Disregarded Entities as Separate for Employment Tax and Related Reporting Requirements” (December 11, 2007) and “Disregarded Entities Are Now Responsible for Their Own Employment Taxes” (July 20, 2009))
Although the reasonableness of executive compensation is usually thought to involve the payment of excessive compensation, the program likely will focus on the underpayment of compensation to shareholder-employees of S corporations. Such shareholder-employees are perceived to avoid employment tax by receiving dividends and other corporate distributions in lieu of compensation for services.
To the extent that a taxpayer has consistently treated workers as independent contractors and the IRS properly determines that the workers should have been treated as employees, the audited taxpayer still may avoid owing back taxes, interest, and penalties if it satisfies the now notorious Section 530 of the Revenue Act of 1978. If certain requirements are satisfied, Section 530 prevents the IRS from retroactively reclassifying workers. Although we do not know how much support there is in Congress, in the Fiscal Year 2011 budget, the Obama Administration proposed eliminating Section 530 and believes that a crackdown on employment tax issues could yield as much as $7 billion over the next 10 years.
Finally, the in-depth nature of the audits will provide the IRS with an opportunity to review an employer’s executive compensation arrangements. In addition to confirming that such arrangements are compliant with the employment tax rules, employers should review the extent to which their executive compensation arrangements are compliant with other federal income tax rules, such as the section 162(m) and section 280G deduction limits and the section 409A deferred compensation restrictions. Employers who act quickly may be able to take advantage of recent IRS correction guidance for section 409A violations, which offers the possibility of reduced penalties. (See “IRS Releases Section 409A Correction Program for Nonqualified Plan Document Failures” (January 6, 2010))
Friday, March 5, 2010
Drafting reminder
The Michigan Court of Appeals waves a red flag for employers who use employment agreements by ruling that a trial court erred by granting defendant's motion for summary disposition and dismissing the plaintiff's discrimination claim against him under the Michigan Civil Rights Act (CRA) based on an arbitration agreement in plaintiff's employment contract. It was clear from the terms of the agreement the only parties to the contract were the Ennis Center and plaintiff.
The employment contract defined the Ennis Center as "the Agency," and provided if the employee had "any dispute with the Agency" the dispute would be submitted to arbitration. Although defendant signed the employment contract, the contract specified he did so "For the Agency." The contract language specifying he signed it "For the Agency" clearly indicated he signed the contract solely as an agent for the Ennis Center. Plaintiff's claim against defendant implicated his potential personal liability under the CRA, not the Ennis Center's potential vicarious liability for his alleged discriminatory conduct.
The court rejected defendant's argument that the clause specifying the "agreement shall be binding on the heirs and representatives of parties hereto" allowed him or any other person, as Ennis Center's agent, to compel arbitration in an individual capacity. The phrase did nothing more than state what the law might presume in the absence of express language to bind heirs and representatives of a contracting party. The phrase also did not make defendant an intended third-party beneficiary of any contractual promise under MCL 600.1405. The court declined to apply the broad construction given to an arbitration provision in a stock purchase agreement in Arnold for purposes of holding that corporate agents had a right to compel arbitration of claims brought against them in an individual capacity. The fact that an individual is a corporate agent does not reveal an intent to protect the individual through arbitration. Unlike the broad language in Arnold found to reflect a basic intent to provide for a single arbitral forum to resolve any disputes arising out of a stock purchase agreement, plaintiff and the Ennis Center did not agree to arbitrate any dispute arising out of the employment relationship. The arbitration provision was confined to disputes with "the Agency," which was defined as the Ennis Center. Although plaintiff's claims against defendant might be interwoven with her claims against the Ennis Center, because plaintiff and the Ennis Center did not agree to give the Ennis Center's agents the protection of the arbitration provision in the employment contract with respect to their own potential individual liability, the court held defendant could not compel arbitration.
This case is a reminder for all those employers who use employment agreements with arbitration clauses to protect individual corporate agents as well as the corporation. A suit that proceeds against individual corporate agents could manifest issues that might be preclusive against the corporate entity. The goal of limiting discovery and other costs associated with a lawsuit that arbitration is intended to accomplish are also frustrated in this situation.
Riley v. Ennis, Michigan Court of Appeals (unpublished)
The employment contract defined the Ennis Center as "the Agency," and provided if the employee had "any dispute with the Agency" the dispute would be submitted to arbitration. Although defendant signed the employment contract, the contract specified he did so "For the Agency." The contract language specifying he signed it "For the Agency" clearly indicated he signed the contract solely as an agent for the Ennis Center. Plaintiff's claim against defendant implicated his potential personal liability under the CRA, not the Ennis Center's potential vicarious liability for his alleged discriminatory conduct.
The court rejected defendant's argument that the clause specifying the "agreement shall be binding on the heirs and representatives of parties hereto" allowed him or any other person, as Ennis Center's agent, to compel arbitration in an individual capacity. The phrase did nothing more than state what the law might presume in the absence of express language to bind heirs and representatives of a contracting party. The phrase also did not make defendant an intended third-party beneficiary of any contractual promise under MCL 600.1405. The court declined to apply the broad construction given to an arbitration provision in a stock purchase agreement in Arnold for purposes of holding that corporate agents had a right to compel arbitration of claims brought against them in an individual capacity. The fact that an individual is a corporate agent does not reveal an intent to protect the individual through arbitration. Unlike the broad language in Arnold found to reflect a basic intent to provide for a single arbitral forum to resolve any disputes arising out of a stock purchase agreement, plaintiff and the Ennis Center did not agree to arbitrate any dispute arising out of the employment relationship. The arbitration provision was confined to disputes with "the Agency," which was defined as the Ennis Center. Although plaintiff's claims against defendant might be interwoven with her claims against the Ennis Center, because plaintiff and the Ennis Center did not agree to give the Ennis Center's agents the protection of the arbitration provision in the employment contract with respect to their own potential individual liability, the court held defendant could not compel arbitration.
This case is a reminder for all those employers who use employment agreements with arbitration clauses to protect individual corporate agents as well as the corporation. A suit that proceeds against individual corporate agents could manifest issues that might be preclusive against the corporate entity. The goal of limiting discovery and other costs associated with a lawsuit that arbitration is intended to accomplish are also frustrated in this situation.
Riley v. Ennis, Michigan Court of Appeals (unpublished)
Thursday, March 4, 2010
COBRA extension extended
Last Tuesday night, President Obama signed into law legislation that provides a stopgap, 31-day extension of federal subsidies of COBRA health care premiums.
The measure was approved earlier Tuesday by the Senate on a 78-19 vote, while the House cleared it last week.
Under H.R. 4691, the 65%, 15-month premium subsidy for laid-off workers is extended to those involuntarily terminated from March 1 through March 31.
Without the extension, employees laid off after Feb. 28 would have been ineligible for the subsidy.
The measure also will allow employees to receive the subsidy if they first lost group coverage due to a reduction in hours and then were terminated after enactment of the legislation, if certain conditions are met.
Consideration of an extension of the premium subsidy to employees laid off through Dec. 31, 2010 continues.
The measure was approved earlier Tuesday by the Senate on a 78-19 vote, while the House cleared it last week.
Under H.R. 4691, the 65%, 15-month premium subsidy for laid-off workers is extended to those involuntarily terminated from March 1 through March 31.
Without the extension, employees laid off after Feb. 28 would have been ineligible for the subsidy.
The measure also will allow employees to receive the subsidy if they first lost group coverage due to a reduction in hours and then were terminated after enactment of the legislation, if certain conditions are met.
Consideration of an extension of the premium subsidy to employees laid off through Dec. 31, 2010 continues.
Wednesday, March 3, 2010
HR Professionals beware! Potential Emerging Split concerning individual liability
In a ruling that defines the scope of individual liability under the Family and Medical Leave Act (FMLA), a federal judge has refused to dismiss claims against individual human resources executives and a manager who allegedly set out to find a reason to fire a worker soon after learning that he needed to schedule a leave for a surgery.
In the suit, plaintiff, an industrial designer, claims that just a few days after he informed his bosses at Cardone Industries of his need for surgery, he was called in to a meeting and confronted with a pornographic e-mail found on his work computer. Plaintiff responded by filing a suit that named not only the company, but also the company president and four other individuals who, he claims, each played a role in orchestrating and carrying out a plan to violate his rights under the FMLA and the Employee Retirement Income Security Act (ERISA). Defendants filed answer to the suit for Cardone Industries that denied the allegations, but argued in a separate motion that the individual defendants should be dismissed from the case.
Plaintiff argued that each of the five named individuals qualifies as an "employer" under the FMLA, and that the allegations in the suit went beyond merely citing their job titles.
The District Court found that while "conclusory" allegations are insufficient, Plaintiff had gone further by alleging that each of the individual defendants "participated in the forensic search of his computer with the goal of finding a reason to justify his termination because he had requested FMLA leave." The Court concluded that all five of the individuals were properly named as defendants because each one is alleged to have had the power to fire and to have played a role in the decision to oust the plaintiff.
Similarly, the Court concluded that all five must answer ERISA claims of interfering with his plan benefits because the suit properly alleged that they were the "decisionmakers" who allegedly decided to conduct a forensic search of the plaintiff's computer within a few days of learning that he was planning to take a medical leave. Timing was the crucial issue for the Court.
The significance of the case is that the Court refused to follow a string of decisions from federal courts in Utah, Minnesota and Kansas that have said FMLA's individual liability provisions apply only to corporate officers.
This case represents a crack in the door for opening liability under FMLA to individuals who are not corporate officers.
Narodetsky v. Cardone Industries, No. 09-4734, February 24, 2010
In the suit, plaintiff, an industrial designer, claims that just a few days after he informed his bosses at Cardone Industries of his need for surgery, he was called in to a meeting and confronted with a pornographic e-mail found on his work computer. Plaintiff responded by filing a suit that named not only the company, but also the company president and four other individuals who, he claims, each played a role in orchestrating and carrying out a plan to violate his rights under the FMLA and the Employee Retirement Income Security Act (ERISA). Defendants filed answer to the suit for Cardone Industries that denied the allegations, but argued in a separate motion that the individual defendants should be dismissed from the case.
Plaintiff argued that each of the five named individuals qualifies as an "employer" under the FMLA, and that the allegations in the suit went beyond merely citing their job titles.
The District Court found that while "conclusory" allegations are insufficient, Plaintiff had gone further by alleging that each of the individual defendants "participated in the forensic search of his computer with the goal of finding a reason to justify his termination because he had requested FMLA leave." The Court concluded that all five of the individuals were properly named as defendants because each one is alleged to have had the power to fire and to have played a role in the decision to oust the plaintiff.
Similarly, the Court concluded that all five must answer ERISA claims of interfering with his plan benefits because the suit properly alleged that they were the "decisionmakers" who allegedly decided to conduct a forensic search of the plaintiff's computer within a few days of learning that he was planning to take a medical leave. Timing was the crucial issue for the Court.
The significance of the case is that the Court refused to follow a string of decisions from federal courts in Utah, Minnesota and Kansas that have said FMLA's individual liability provisions apply only to corporate officers.
This case represents a crack in the door for opening liability under FMLA to individuals who are not corporate officers.
Narodetsky v. Cardone Industries, No. 09-4734, February 24, 2010
Tuesday, March 2, 2010
Remember Goldilocks in filing your lawsuit
It's important for plaintiffs to be aware that, once you initiate litigation, you no longer retain the initiative in all instances.
A post from the Blog of Legal Times lays out the basics. Plaintiff sued in state court; the employer removed the case to federal court and filed an answer. Six months later the plaintiff decided that she wanted to dismiss the complaint voluntarily and filed a motion to do so. The court denied the motion, on the procedurally correct ground that that once an answer is filed a case cannot be dismissed unilaterally by the plaintiff. Thus, the order forced the action to continue.
But why would a defendant turn down a voluntary dismissal? One possibility is that, because an age discrimination case is a fee-shifting case, the defendant may think that it will prevail on the merits and can force the plaintiff to pay their attorney's fees. This would be rare. Another possibility is that the defendant wants further terms in the dismissal, like a "with prejudice" designation, or some other settlement details, like nondisclosure. This has been my experience when my plaintiff wanted to dismiss voluntarily.
In sum, for plaintiffs and their lawyers, while it's important to observe the time limitations in many employment actions and get to the courthouse on time, at the same time you want to look before you leap. That is, there is a "Goldilocks period" where filing your suit will be just right.
A post from the Blog of Legal Times lays out the basics. Plaintiff sued in state court; the employer removed the case to federal court and filed an answer. Six months later the plaintiff decided that she wanted to dismiss the complaint voluntarily and filed a motion to do so. The court denied the motion, on the procedurally correct ground that that once an answer is filed a case cannot be dismissed unilaterally by the plaintiff. Thus, the order forced the action to continue.
But why would a defendant turn down a voluntary dismissal? One possibility is that, because an age discrimination case is a fee-shifting case, the defendant may think that it will prevail on the merits and can force the plaintiff to pay their attorney's fees. This would be rare. Another possibility is that the defendant wants further terms in the dismissal, like a "with prejudice" designation, or some other settlement details, like nondisclosure. This has been my experience when my plaintiff wanted to dismiss voluntarily.
In sum, for plaintiffs and their lawyers, while it's important to observe the time limitations in many employment actions and get to the courthouse on time, at the same time you want to look before you leap. That is, there is a "Goldilocks period" where filing your suit will be just right.
Monday, March 1, 2010
Unintended Consequences
Paul Secunda recently posted an article on SSRN (Social Science Research Network): Addressing Political Captive Audience Workplace Meetings in the Post-Citizens United Environment. Here's the abstract:
Citizens United has wrought widespread changes in the election law landscape. Yet, a lesser-known impact of this watershed case might have a significant impact in the workplace: It may permit employers to hold political mandatory captive audience meetings with their employees.
To eliminate this danger, and consistent with the First Amendment framework for election law issues post-Citizen United, this Article urges Congress to consider language similar to that enacted by the Oregon Worker Freedom Act Law, SB 519 (effective Jan. 1, 2010). SB 519 prohibits termination of employees for refusing to attend mandatory political, labor, or religious meetings held by their employers.
Such a federal law would constitute permissible employment standards legislation and also would not run afoul of the First Amendment speech rights of employers under Citizens United. Employers would still able to communicate their views about political candidates and parties with their employees as the First Amendment now contemplates, but they will not be able to force them to listen to such speeches at the risk of losing their jobs or other benefits of employment.
This would be an intriguing issue for the NLRB to address at some point...by the time such an issue found its way to the Board, perhaps there might even be three members.
Citizens United has wrought widespread changes in the election law landscape. Yet, a lesser-known impact of this watershed case might have a significant impact in the workplace: It may permit employers to hold political mandatory captive audience meetings with their employees.
To eliminate this danger, and consistent with the First Amendment framework for election law issues post-Citizen United, this Article urges Congress to consider language similar to that enacted by the Oregon Worker Freedom Act Law, SB 519 (effective Jan. 1, 2010). SB 519 prohibits termination of employees for refusing to attend mandatory political, labor, or religious meetings held by their employers.
Such a federal law would constitute permissible employment standards legislation and also would not run afoul of the First Amendment speech rights of employers under Citizens United. Employers would still able to communicate their views about political candidates and parties with their employees as the First Amendment now contemplates, but they will not be able to force them to listen to such speeches at the risk of losing their jobs or other benefits of employment.
This would be an intriguing issue for the NLRB to address at some point...by the time such an issue found its way to the Board, perhaps there might even be three members.
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