PAID Program Provides a Way to Resolve Overtime and Minimum Wage Violations

Q.  I suspect that our company may have inadvertently committed overtime and minimum wage violations. Is there a way I can make this right without incurring substantial legal liability?

A.  Possibly. Earlier this year, the United States Department of Labor (DOL) Wage and Hour Division announced the creation of a new nationwide pilot program called the Payroll Audit Independent Determination (PAID) program. In short, the PAID program encourages employers to conduct payroll self-audits and, if they discover overtime or minimum wage violations, self-report those violations to the DOL and work with the DOL to rectify the problem and ensure employees are paid any wages owed.

Before reaching out to DOL in an effort to resolve any pay issues under PAID, employers must certify that they have read certain compliance materials about the federal Fair Labor Standards Act (FLSA). After reviewing the compliance materials, employers can self-audit their payroll practices by themselves. While the materials on the DOL website about the PAID program do not address attorney involvement, a company may consider conducting a payroll audit under the direction of an attorney. One benefit of auditing payroll practices under the supervision of an attorney is the potential to keep confidential the legal analysis and conclusions from such an audit under the attorney-client privilege. However, if an employer chooses to resolve any wage and hour issues with the DOL through the PAID program, information collected in a payroll audit inevitably will need to be disclosed to the federal government.

The PAID program is not available to employers to resolve claims that are already being investigated or litigated. Further, if either DOL or a court has determined in the past five years that the employer has violated the FLSA by engaging in the same compensation practices at issue in the proposed PAID self-audit, an employer will be prohibited from participating in PAID.

The benefit of this program? After evaluating information provided to it, DOL can accept a company into the PAID program and then facilitate the payment of wages to employees in exchange for employees agreeing to release claims with regard to the particular FLSA violation at issue—all while the company avoids the payment of liquidated damages and attorneys’ fees. Companies typically cannot require employees to waive wage claims unless the process is supervised by a court or the DOL.

The major downside? Neither the employer nor the DOL can force an employee to sign a waiver and release of claims. Employees may opt to accept payment and sign a release of claims or they can decline to accept payment and then file a private lawsuit with the knowledge that its employer believes it may have violated the law. However, an employee may be reluctant to file a private lawsuit because of the likelihood that it would take many years and require the employee to incur the cost of both attorneys’ fees and litigation.

In addition, it is possible but not certain that the DOL may share this information with other agencies, resulting in further liability.   It also appears unclear whether the DOL will apply a two year or three year statute of limitations to employers who participate in the PAID program.

The PAID program’s impact on employee claims under state wage and hour laws is uncertain. According to the DOL website, DOL “may not supervise payments or provide releases for state law violations.”  Thus, even if an employee signs a release of claims while participating in the PAID program, the employee may not release claims under state law. As such, a state labor department or private plaintiff may still try to recover unpaid wages, liquidated damages, and attorneys’ fees if available under state or local law.

As a pilot program, much remains to be seen about how the PAID program will actually be implemented. There are perhaps just as many risks as there are benefits for an employee participating in the PAID program. If your company is interested in conducting an audit of its payroll practices, or exploring the possibility of participating in the PAID program, please contact any member of the Pepper Hamilton Labor & Employment group.

Lee Tankle

Portion of Philadelphia Salary History Ban Ruled Unconstitutional

Q.  Am I permitted to ask about an applicant’s salary history in Philadelphia?

A.  In a ruling that could provide a roadmap for challenging salary history bans in other jurisdictions, a Philadelphia federal judge issued an opinion on April 30 invalidating a major element of the Philadelphia salary history ordinance enacted by the city in January 2017. Judge Mitchell S. Goldberg held that the portion of the ordinance prohibiting an employer from inquiring about a prospective employee’s wage history is unconstitutional because it violates the First Amendment’s free speech clause. However, Judge Goldberg also held that the portion of the law prohibiting employers from relying on wage history to determine a salary for an employee did not implicate constitutional concerns. Philadelphia employers now find themselves in a difficult position: They are permitted to ask about an applicant’s salary history but cannot rely on that information.

For more information, please click here.

Tracey E. Diamond and Lee E. Tankle

 

Got Employees in Massachusetts and New Jersey? What You Need to Know as MA and NJ Employers are Mandated to Break the Glass Ceiling

Q.  Are there any Equal Pay Acts that apply specifically to employers in Massachusetts and New Jersey?

A.  On July 1, 2018, an updated equal pay law becomes effective in Massachusetts, referred to as “MEPA” (Massachusetts Equal Pay Act). MEPA covers nearly all Massachusetts employers, irrespective of size, and most employees, including full-time, part-time, seasonal, per-diem, and temporary employees. Employees who telecommute to a primary place of work in Massachusetts also are covered.

The Massachusetts law provides that “[n]o employer shall discriminate in any way on the basis of gender in the payment of wages, or pay any person in its employ a salary or wage rate less than the rates paid to its employees of a different gender for comparable work.” “Comparable work” is not defined by an employee’s job title; rather, “comparable work” is work that requires substantially similar skill, effort, and responsibility, and is performed under similar working conditions. For multistate employers, employees in the same “geographic location” within Massachusetts are to be paid equally for comparable work.  The statute does not define the term “geographic location.”

Employers can rely on one of the six permissible variations in pay for comparable work: (1) a system that rewards seniority with the employer; (2) a merit system; (3) a system which measures earnings by quantity or quality of production, sales, or revenue; (4) the geographic location in which a job is performed; (5) education, training or experience to the extent such factors are reasonably related to the particular job in question; or (6) travel, if the travel is a regular and necessary condition of the particular job.

The State of New Jersey enacted legislation similar to the MEPA.  The Act, prohibits New Jersey employers from paying different salaries to employees based on any protected category, including sex, where the employees are engaged in “substantially similar” work.  Like Massachusetts, the effective date of the New Jersey statute also is July 1, 2018.

The phrase “substantially similar” work is not defined, other than a statement that it is to be viewed as a “composite of skill, effort and responsibility.” An employer in New Jersey may pay a different rate of compensation only if the employer demonstrates that the differential is made pursuant to a seniority system, a merit system, or the employer demonstrates that: (1) the differential is based on one or more legitimate factors other than sex (or any other protected category), such as training, education or experience, or the quantity or quality of production; (2) the factors are not based on, and do not perpetuate a sex-based or other protected-category based differential in compensation; (3) each of the factors is applied reasonably; (4) one or more of the factors account for the entire wage differential; and (5) the factors are job-related with respect to the position in question and based on a legitimate business necessity. A factor based on business necessity shall not apply if it is demonstrated that there are alternative business practices that would serve the same business purpose without producing the wage differential.

Both statutes significantly expand the reach of the concept of equal pay, by broadening the net of jobs used for comparison purposes to “comparable” (MEPA) or “substantially similar” (NJ). Both standards are somewhat vague and will need to be interpreted by the courts.  Employers in Massachusetts and New Jersey will have to evaluate their pay  structures carefully to comply with the law and to assess risks of actions under these statutes.

When MEPA becomes effective, employers with employees in Massachusetts not only will be unable to justify pay differential based on salary history, but also will not be permitted to ask for an applicant’s salary history prior to an employment offer, or seek such information through a recruiter. By contrast, the New Jersey ban on salary history questions, which was put in place by Executive Order effective February 1, 2018, applies only to employer that are state agencies.

Employers who violate either the Massachusetts or New Jersey laws will be liable for back pay and liquidated damages.

Rebecca Alperin and Tracey E. Diamond

 

 

 

 

Ninth Circuit Finds That Employers May Not Use Salary History to Justify Differences in Pay

Q.  Can my Company use an applicant’s salary history to set their current pay rate?

A.  Not for employees in the Ninth Circuit Court of Appeals (covering California, Alaska, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon and Washington).  In a case decided the day before Equal Pay Day, the Ninth Circuit Court of Appeals ruled that, in a claim for violation of the Equal Pay Act, salary history is not a defense to a claim of gender discrimination when a female employee complains that her salary is lower than that of  her male counterpart.

For more details about this case, click here.

Hope A. Comisky and Tracey E. Diamond

 

UberBLACK Drivers Are Properly Classified as Independent Contractors

Q.  Have there been any new legal developments on whether gig economy workers can be classified as independent contractors?

A.  On April 11, Judge Michael Baylson of the U.S. District Court for the Eastern District of Pennsylvania became the first judge to grant summary judgment on the issue of whether UberBLACK drivers are employees or independent contractors under the Fair Labor Standards Act (FLSA). Judge Baylson concluded that Uber correctly classified the plaintiffs — drivers who provided “black car” limousine services for Uber — as independent contractors. Razak v. Uber Techs., Inc., No. 16-573 (E.D. Pa. 2018). The plaintiffs intend to appeal. Although the analysis of independent contractor classification is fact-intensive and varies depending on the type of claim asserted by the plaintiffs, gig economy employers will find the Razak opinion helpful in structuring their independent contractor relationships.

For the full article, click here.

Susan K. Lessack