Do you know? Unpaid internships

Do you know? There are specific standards that govern whether an unpaid internship passes muster under the Fair Labor Standards Act. If you business uses unpaid interns or externs, these rules are worth paying attention to.

The Department of Labor’s Wage and Hour Division uses a six-factor test to determine whether a trainee, intern, extern, apprentice, graduate assistant, or similar individual is an employee. If even one of these factors fails, then the individual is an employee and all of the regular minimum wage and overtime rules apply. The six factors are:

1. The training is similar to what would be given in a vocational school or academic educational instruction;

2. The training is for the benefit of the trainees or students;

3. The trainees or students do not displace regular employees, but work under their close observation;

4. The employer that provides the training derives no immediate advantage from the activities of the trainees or students, and on occasion the employer’s operations may actually be impeded;

5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and

6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

In the typical internship or externship program (i.e., where the work is simply an extension of an academic program), these factors are usually met, an employer-employee relationship does not exist, and the business does not have to worry about minimum wage or overtime laws for the interns or externs. If you use interns and are concerned about whether they are considered employees that must be paid minimum wage and overtime, consult an employment attorney.

‘Tis better to have learned and lost

Brown v. Nutrition Management Services Co., from the Eastern District of Pennsylvania, is a good reminder that ignorance of the law is never an excuse. It also underscores the importance of training.

In Brown v. Nutrition Management Services Co., a jury awarded plaintiff Melissa Brown $74,000 in back pay. The federal judge doubled that award under the FMLA’s liquidated damages provision after deciding that an in-house lawyer’s failure to research whether a pregnant worker was covered by the FMLA showed a lack of good faith.

Under the FMLA a prevailing party is entitled to liquidated damages equal to the amount of damages awarded for lost compensation plus interest unless the employer proves that the violation was in good faith and it had reasonable grounds to believe that it was not violating the FMLA. Reasonable good faith requires an employer to take affirmative steps to determine the requirements of the law. The Court found Nutrition Management’s in-house counsel’s action in determining Brown’s FMLA coverage lacking:

Nutrition Management argues it had a reasonable belief that Brown’s termination would not violate the law because it believed Brown’s probationary status rendered her ineligible for FMLA benefits. Nutrition Management’s alleged good faith belief would only be reasonable if it took affirmative steps to determine the legal effect of Brown’s probationary status; it did not….

Scott Murray, an attorney with general knowledge about employment law and Nutrition Management’s director of human resources, testified at trial that he determined it was “okay” to terminate Brown because she was a “brand new employee.” … Nutrition Management’s reliance on Mr. Murray’s cursory determination was inadequate…. Nutrition Management presented no evidence that it researched or had an attorney research the requirements of the FMLA, or was otherwise aware of the factors governing whether the FMLA would apply to Brown’s request for leave. Nutrition Management, having made no legal inquiry into the requirements of the FMLA, had no reasonable ground to believe Brown’s termination was not a violation.

It didn’t help Nutrition Management’s good faith argument that when asked for a reason to document for Brown’s termination, its CEO said, “he wanted the fat bitch out of there.”

The new FMLA regulations drastically alter the landscape of how companies handle and process employee’s FMLA claims. If for no other reason than to avoid double damages when an employee’s FMLA claim gets botched, organizations should be educating themselves on how to implement these new rules.

WIRTW #65

This week’s review starts with a couple of follow ups on early posts. Wage and Hour Counsel reports on an 11th Circuit decision discussing the FLSA’s outside sales exemption (see Do you know? The FLSA’s exemptions for salespeople), and KnowHR provides some tips on drafting a snow day policy (see A primer on inclement weather policies)

The Delaware Employment Law Blog posts a very useful PowerPoint from a recent FMLA presentation.

The Workplace Prof Blog [courtesy of Slate] reports on what may be the world’s worst HR department.

Human Rights in the Workplace gives some more tips on the use of social networking tools in hiring.

Evil HR Lady offers some information on how to deal with ill employees who are being laid off.

The Business of Management provides advice on handling employees and confidential information.

The Connecticut Employment Law Blog uses Joe Torre’s book as a springboard to talk about non-disparagement clauses.

Ohio Practical Business Law writes a primer on tortious interference.

The ChamberPost reports on a new academic study which that makes the case against the Employee Free Choice Act.

Employee Free Choice Act officially kicks off, but does anyone care?

Yesterday, the AFL-CIO delivered to Capitol Hill a petition of a claimed 1.5 million signature in support of the Employee Free Choice Act. The union also held a rally on the Hill in support of its cause that drew a crowd of thousands. The rally is meant officially to kick off the unions’ efforts to have the EFCA enacted.

The open question, however, is whether anyone really wants unions in the first place. According to the results of two different polls released yesterday, support for the EFCA may be waning, if it ever really existed at all.

The Coalition for a Democratic Workplace surveyed 1,000 likely general election voters, including 477 who voted for President Obama last November. The poll’s key findings are as follows:

• 73% of Obama voters are opposed to EFCA.

• 86% of Obama voters believe that a worker’s vote should be kept private in a union organizing election.

• 81% of Obama voters believe that secret ballot elections are the best way to protect the individual rights of workers.

• 81% of Obama voters believe that Congress should focus on other issues like jobs and health care before dealing with EFCA.

• 68% of Obama voters believe the binding arbitration provisions in EFCA are risky and unwise.

• 61% of Obama voters would be less likely to vote for a Member of Congress who voted to take away the secret ballot from workers.

The conclusion, by Brian Worth of the Coalition for a Democratic Workplace:

Obama voters did not go to the polls last November to eliminate the secret ballot, and Congress should think twice about taking it away from millions of American workers. This bill is opposed by Democrats, Republicans, Independents, rank and file union workers, and President Obama’s voters by roughly the same margins. The only support card check has is among the leaders of Big Labor who are willing to sacrifice worker privacy and put our economy at further risk to boost their membership roles.

Meanwhile, the Center for Union Facts released the findings from another poll, which found that 82% of non-unionized American workers do not want their jobs to be unionized. The poll of more than 3,000 people reported the following results:

1. Are you or someone in your immediate family in a labor union?
     YES 20%
     NO 79%

2. Would you like your job to be unionized?
     YES 13%
     NO 82%

Regardless of petitions, signature, or rallies, or polling data, businesses should be preparing themselves as if the EFCA is going to become law. Employers should foster open communication between employees and management, train managers and supervisors on how to effectively deal with employee issues, create an environment of inclusion of employees in corporate decision making, and implement or update non-solicitation policies.

Companies should strive to be workplaces of choice for employees and not workplaces of opportunity for labor unions.

3rd Circuit decision illustrates need for the Civil Rights Tax Relief Act

Damages in discrimination cases come is several shapes – economic damages for lost wages (back pay and front pay), compensatory damages, emotional distress damages, punitive damages, and attorneys’ fees. Because back pay and front pay represents lost wages, no one disputes whether the government should receive its fair share via income tax on those amounts.

There are two major sources of other taxes that apply in these cases:  taxation of damages for noneconomic harm; and taxation of lump-sum settlements or awards in one year. Critics argue that the former should not be taxed because it does not represent “wages.” Moreover, if the IRS does not tax noneconomic damages received on account of physical injury, why does it differentiate noneconomic damages received in discrimination cases. The latter greatly increases one’s tax liability by placing the employee in a higher-than-normal tax bracket based on the lump sum.

For employers, this tax treatment makes the settlement of discrimination disputes significantly more difficult. Because employees take tax liability into account when settling cases, the anticipated amount of tax to be paid drives up the cost of settlement. Often, this added cost is a serious impediment to the resolution of cases. Settlements that fall apart costs employers even more, through additional defense costs and the payments of judgments or even higher settlements down the road.

Eshelman v. Agere Systems (3d Cir. Jan. 30, 2009) illustrates this problem in action. In Eshelman, the Third Circuit grossed-up an employee’s back pay award to ensure that the employee did not face any added tax liability as a result of the lump sum award:

We hold that a district court may, pursuant to its broad equitable powers granted by the ADA, award a prevailing employee an additional sum of money to compensate for the increased tax burden a back pay award may create. Our conclusion is driven by the “make whole” remedial purpose of the antidiscrimination statutes. Without this type of equitable relief in appropriate cases, it would not be possible “to restore the employee to the economic status quo that would exist but for the employer’s conduct.” …

[A]n award to compensate a prevailing employee for her increased tax burden as a result of a lump sum award will, in the appropriate case, help to make a victim whole. This type of an award … represents a recognition that the harm to a prevailing employee’s pecuniary interest may be broader in scope than just a loss of back pay.

The Civil Rights Tax Relief Act, which had been introduced in both the House and Senate in 2007 but went nowhere, goes a long way to curing the problem of the IRS’s current treatment of discrimination awards, which Eshelman partly illustrates. The CRTRA would amend the Internal Revenue Code to:

1. exclude from gross income non-economic damages in discrimination cases (back pay, front pay, and punitive damages would still be taxable); and

2. allow income averaging for back pay and front pay received from such claims, limiting an employee’s tax liability for the year in which the money is received to the total amount received divided by the number of years it represents.

There has been lots of talk by lots of people about lots of different pieces of employment legislation that will be passed in the coming years. The Civil Rights Tax Relief Act is one change that makes sense for employees and businesses. By lowering employee’s potential tax liability, it decreases settlement values of discrimination cases. It makes cases easier for employers to settle. If Congress is going to focus on passing pro-employee legislation during these trying times for businesses, it should focus on pro-employee legislation that makes some sense for employers as well.

[Hat tip: Daily Developments in EEO Law]

Do you know? The FLSA’s Computer Employee Exemption

Do you know? One of the FLSA’s lesser-known exemptions is the Computer Employee Exemption.

For an employee to qualify for the computer employee exemption, the employee must either be paid a salary of at least $455 per week or an hourly rate of at least $27.63. The employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field.

Additionally, the employee’s primary duty must fall into one of the following four categories:

1. The application of systems analysis techniques and procedures, including consulting with users, to  determine hardware, software or system functional specifications;

2. The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;

3. The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or

4. A combination of the aforementioned duties, the performance of which requires the same level of skills.

This exemption does not include:

• Employees engaged in the manufacture or repair of computer hardware and related equipment.

• Employees whose work is highly dependent upon, or facilitated by, the use of computers and computer software programs (such as engineers, drafters, and others skilled in computer-aided design software), but who are not primarily engaged in computer systems analysis and programming.

As with the FLSA’s other exemptions, determining whether an employee or group of employees falls under this classification is very fact-specific, and it is often worth obtaining a professional opinion.

For information on some of the FLSA’s other exempt classifications, see:

• Do you know? The FLSA’s exemptions for salespeople

• Do you know? The FLSA’s Administrative Exemption

• Do you know? The FLSA’s Executive Exemption

  
  

Layoffs = lawsuits

This headline from the New York Times says it all: “Layoffs Herald a Heyday for Employee Lawsuits.”

More workers are being let go as corporate layoffs that began in earnest last year have accelerated in recent weeks. And more often, people are looking around and complaining that they have been unfairly or improperly dismissed.

Potential lawsuits from layoffs come in all shapes and sizes: WARN Act violations for lack of notice, discriminatory selection for the layoff, or the use of selection criteria that discriminatorily impacts one group over another. According to the New York Times article one plaintiffs firm in New York has started its own WARN Act practice group that has filed two dozen different cases against employers in the last 18 months.

In all layoffs, companies should consider paying some amount of severance to affected employees in exchange for a release of claims. It’s painful for some businesses to consider paying severance to a group of employees being let go because the company can no longer keep them as employees. And, the higher up the corporate ladder the layoff reaches the greater amount of severance pay will be necessary to buy an employee’s release. The alternative, however, is potentially exponentially more expensive – years of protracted litigation brought by employees or groups of employees.

If a company is going to offer severance, it should insist on receiving a signed release in return. Just make sure that the release complies with the Older Workers Benefit Protection Act (OWBPA). Otherwise, at least as far as far as a federal age discrimination claim, the release will not be worth the paper on which it is written.

For more on releases under the OWBPA, see:

• Refresher on age discrimination waivers

• Defining the proper "decisional unit" is key in legitimacy of RIFs

[Hat tip: Minding the Workplace]