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HOTEL BUSINESS REVIEW

OCTOBER FOCUS: New Developments and Best Practices on Maximizing Revenue Management

 

Are Your Exempt Employees Really Exempt?

No Problem - They're Salaried!

By John E. Thompson Partner, Atlanta office of Fisher & Phillips LLP | October 2014

*This article was co-authored by Ted Boehm, Associate in the Atlanta Office of Fisher & Phillips LLP* A leading source of employment law liability today flows from failing to comply with the federal Fair Labor Standards Act, the wage-hour law of broadest application. The number of FLSA lawsuits and U.S. Labor Department investigations has skyrocketed. Court complaints alone total in the tens of thousands over the last decade, and the most-recent reporting year's tally of more than 8,000 new FLSA lawsuits – nearly a 5 percent increase – has continued this trend. Furthermore, since at least 2010, the Labor Department has viewed hotels, resorts and other lodging establishments as presenting a high risk for FLSA violations. It is therefore more likely than ever that an industry employer will face wage-hour claims. The FLSA requires that the non-exempt employees it covers be paid a minimum wage of at least $7.25 an hour (for now) for all of their hours worked. These employees also must be paid overtime at a rate of at least 1.5 times their "regular rates" of pay for all hours worked over 40 in a single workweek. Employers also must keep accurate records of each such employee's hours worked each workday and each workweek. But the FLSA does provide for some exemptions from these requirements. Those most commonly relied upon, and the ones typically involved in FLSA exemption disputes, are those applying to executive, administrative, professional or outside sales employees as those terms are defined in regulations issued by the U.S. Labor Department (which also deal with certain computer employees and some "highly compensated" employees). These are often called the "white collar" exemptions. Many of today's FLSA claims and investigations have to do with whether employees have been correctly classified as being exempt under one or more of these provisions. Consequently, one thing industry employers should ensure is that they have made the right decision when they decide to compensate an individual on the basis that he or she is an exempt white collar employee. **Exemption Principles and Common Misconceptions** Whether one of these exemptions applies depends in part on the nature of each individual's work as evaluated under the Labor Department's specific and detailed criteria published at Title 29, Part 541, of the Code of Federal Regulations. In any Labor Department investigation or in a lawsuit, the burden of establishing that a person is exempt rests with the employer, who must prove that each exemption requirement was met as to the individuals whose exempt status has been challenged. The answer ultimately depends on what the employee actually did in his or her daily work under the circumstances in which he or she actually performed that work. So when management is determining whether to classify an employee as falling within one or more of these exemptions to begin with, having detailed, accurate, current information about the person's duties and responsibilities is essential. And while the first impulse of many employers is to base their conclusions on job descriptions, normally these documents standing alone are not sufficient. Too often, job descriptions are inaccurate, vague, ambiguous, jargonized, out-of-date and/or designed to boost employees' egos or to accomplish some other purpose unrelated to exemption evaluations. While a job description does not in itself "make" an employee exempt, this is not to say that these documents are irrelevant where exemptions are concerned. Current, accurate, well-done ones can help management make a good decision, and they also can play a helpful role in defending exempt status. But unrealistic, inaccurate, out-of-date, puffed-up or poorly-written job descriptions can lead management to make an incorrect decision and can later undercut defense efforts. Employers should also resist the temptation to draw conclusions based on considerations other than the exemptions' actual legal requirements. For example, treating employees as being exempt because they "want to be" or "agreed to be" is perilous. It also is unwise to conclude that employees may be classified as exempt because "everybody" supposedly "treats these jobs that way," or because "everybody" knows that "salaried" employees need not be paid FLSA overtime. Some employers take comfort in the misconception that no one is really going to challenge management's exemption decisions as a practical matter. Of course, the data on current FLSA claims show that any such belief is ill-founded. Moreover, exemption disputes can arise in different ways, only one of which involves a current or former employee's own lawsuit or complaint to the Labor Department about his or her exemption status. As illustrations, challenges sometimes arise as the result of a random Labor Department compliance audit, or they might grow out of a Labor Department investigation sparked by an employee's FLSA complaint that had nothing to do with exemptions. **Are Checklists the Solution?** An Internet search will quickly turn up online checklists that are said to determine whether employees satisfy the Labor Department's duties-related requirements for one of the white collar exemptions. The truth is that these tools (including the exemption-related portion of the U.S. Wage and Hour Division's "Overtime Security Advisor") are typically of only very limited usefulness, at best. Ordinarily, these materials simply break down the regulations into their component pieces and ask the employer to indicate whether the requirement is satisfied by clicking "yes" or "no" or some other short answer. But no such process can substitute for the kinds of in-depth evaluations and judgments that are almost always necessary to determine whether an exemption applies. For one thing, many of the exemptions' requirements and concepts do not lend themselves to such quick-and-easy analysis. In addition, most of the controlling principles have been defined, explained, elaborated on, expanded or curtailed in nuanced ways and/or applied to specific facts in innumerable court decisions and Labor Department interpretations and opinions. An employer with the knowledge and expertise called for in applying the exemption rules and interpretations at the requisite depth probably does not need a checklist to begin with. Furthermore, while these checklists often conclude with what might seem to be definitive and reliable results, employers should take these statements with a grain of salt. For instance, after tabulating a series of exemption-favoring responses, even the U.S. Wage and Hour Division's checklist says no more than that an employee "appears" to meet the requirements. For a variety of reasons, employers should anticipate that this would likely be of little (if any) use in any later exemption challenge. **There's Also a Compensation Requirement** While "salaried" employees are not necessarily exempt, in most cases management also must pay an employee for whom it asserts an FLSA white collar exemption on a "salary basis" at a rate of at least $455 per week. This generally means that the employee regularly receives each pay period a pre-determined amount of compensation that is not subject to reduction because of how much work the employee does or how well he or she performs it. The employee must generally receive the full salary for every workweek in which he or she performs any work, except that: - Proportional salary deductions may be made for whole-day absences due to personal reasons other than sickness or disability; - Proportional deductions also may be made for whole-day absences due to sickness or disability (including work-related accidents) if this is done in accordance with a bona fide plan, policy or practice providing compensation for salary loss due to the sickness or disability (such as a paid sick day or PTO plan); - Offsets may be made against the salary for any amounts received by the employee as jury fees, witness fees or military pay for the particular workweek; - Salary deductions are permitted for penalties imposed in good faith for infractions of safety rules of major significance; - Salary deductions are allowed for unpaid disciplinary suspensions of one or more full days imposed in good faith for serious workplace misconduct that violates written rules applicable to all employees; - The employer may pay a proportionate part of the employee's full salary for the time actually worked in the first workweek of employment or in the last workweek of employment; and - The employer also may pay a proportionate part of the employee's full salary for the time actually worked in the workweek when the employee takes unpaid leave covered by the federal Family and Medical Leave Act. Unless a specific regulatory salary-basis exception or alternative applies, an employee who is not paid in this way is ineligible for exemption as a white collar employee under the FLSA. The consequences of having made improper deductions from the salary might be avoided in some situations, such as if the employer has in place a proper "safe harbor" policy. But the better approach is to avoid endangering the salary basis of pay in the first place. **Some Potential "Hot Spots"** The individualized circumstances of the industry's numerous establishments, and the myriad kinds of work performed by the industry's thousands of employees, make it impossible to compile any list of jobs calling for particular attention. And, again, exemptions ultimately apply to individuals and not to positions. Even so, there are some areas that tend to crop up in FLSA disputes. One illustration involves the proliferation of "managers" or "supervisors" of various kinds and descriptions. Generically speaking, these are exemplified by titles like front desk managers, night audit managers, guest services supervisors, restaurant managers, pool supervisors, convention services managers, reservations managers, banquet supervisors, banquet captains, beverage managers, catering managers, and so on. Moreover, some such jobs are associated with subordinate "assistant managers" or "assistant supervisors" of similar descriptions. This is not to say that employees performing work in jobs such as these necessarily do not or cannot meet a white collar exemption's criteria – some might, some might not. But attaching the title "manager" or "assistant manager" or "supervisor" to a position is not in itself enough to achieve an employer's exemption goals. Another recurring area of possible scrutiny is the status of chefs and cooks of various sorts (who do not also have managerial and supervisory duties or other responsibilities sufficient to meet the executive or administrative exemptions). For instance, the Labor Department says that even highly paid, very skilled chefs, bakers and cooks are not exempt under the professional exemption, except for a relative few. A chef with a four-year specialized academic degree in a culinary arts program might meet the professional exemption's duties requirements if his or her principal duty consists of predominantly intellectual work requiring the kind of knowledge gained through such a program, and if that work includes the consistent exercise of discretion and judgment. This is unlikely to be the case as to a chef whose main work is routine food preparation or some other largely manual or physical work not calling for the degreed level of culinary knowledge, even if he or she has such a degree. It is conceivable that a chef also might be an exempt FLSA professional of a different kind if his or her principal duty is work requiring invention, imagination, originality or talent in innovative forms of the culinary arts. The Labor Department has acknowledged that "some" chefs might meet this description, such as those whose primary work involves duties such as regularly creating or designing unique, distinctive dishes and menu items. However, the Labor Department also has said that a chef's status under this alternative must be evaluated on a case-by-case basis, and that it would include only "truly" original chefs of the sort typically found at five-star or gourmet restaurants. Further examples of often scrutinized exemption claims have to do with "back of the house" employees such as executive assistants, payroll managers, accounts payable or accounts receivable supervisors, staff accountants, night auditors, office managers or office supervisors, and so on. As we have said, it might be that some such employees do or can meet the requirements for exempt status, but management should by no means assume that they do. **It's About to Get Tougher** This past March, President Obama instructed the Labor Department to "modernize and streamline" the white collar exemption regulations. While there are as yet no details (at least none released to the public) indicating what will be done, many expect that these changes will, at a minimum, include: - Substantially increasing the minimum salary amount, perhaps even to something in the neighborhood of $1,000 per week; and - Changing the duties-related criteria in ways designed to make them harder to satisfy. The Labor Department's most recent timetable indicates the agency expects to publish proposed changes in November. Industry employers should expect the release to be accompanied by a media fanfare to the effect that a host of employees across the spectrum are now entitled to overtime pay. This could lead many workers to begin to question their status and compensation. Management would be well advised for this reason and many others to start now to evaluate the current status of those who it treats as exempt. For one thing, any "close calls" about exempt status might no longer even be debatable once the Labor Department's anticipated changes become final. Finally, any such review also should take into account exemption rules under the applicable wage-hour laws of other jurisdictions. Those laws might not recognize all of the FLSA's white collar exemptions or might provide for similar ones but on different or more limited terms. Consequently, an exemption evaluation that is limited only to FLSA considerations risks not addressing whether an employee is also exempt from independent wage-hour obligations. ![alt text][1]*Ted Boehm co-authored this article. Mr. Boehm is an associate in the Atlanta office of Fisher & Phillips. He represents management in all aspects of labor and employment law in state and federal courts, as well as before state and federal agencies, including the Department of Labor and the Equal Employment Opportunity Commission. A significant portion of Mr. Boehm's practice focuses on the defense of wage and hour claims arising under the Fair Labor Standards Act (“FLSA”). He also represents employers in discrimination and harassment claims arising under Title VII. Additionally, Mr. Boehm counsels clients on a wide variety of day-to-day employment issues, providing practical and proactive advice to clients aimed at minimizing the risk of litigation and improving employee relations. He is a member of the firm’s Healthcare Practice Group. Mr. Boehm can be contacted at 404-240-4286 or tboehm@laborlawyers.com.* [1]: http://www.hotelexecutive.com/images/business_review/Ted_Boehm,_co-author.jpg

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Notwithstanding the foregoing, any and all disputes, which the parties cannot informally resolve, regarding the scope of issues or matter with the jurisdiction of the arbitrator, shall be resolved by a separate dispute resolution process whereby HotelExecutive, in its sole discretion shall elect the dispute to be resolved by either (1) a court of competent jurisdiction in the State of California or (2) a panel of three new arbitrators.

This Agreement shall be governed by and construed in accordance with the laws of the State of California notwithstanding any conflict of laws provisions. You and HotelExecutive agree that the venue for all legal disputes, controversies, actions of any kind arising under or related to this Agreement shall be San Francisco, California. You and HotelExecutive further agree that in case of any litigation regarding this Agreement, you irrevocably and unconditionally (i) consent to submit to the exclusive jurisdiction of the state and federal courts in the County of San Francisco, California for any litigation or dispute arising out of or relating to this Agreement, (ii) agree not to commence any litigation arising out of or relating to this Agreement except in the California Courts, (iii) agree not to plead or claim that such litigation brought therein has been brought in an inconvenient forum, and (iv) agree the California Courts represent the exclusive jurisdiction for all litigation relating to this Agreement.

11. MEMBERSHIP FEES

Hotel Business Review Subscriptions

If you choose to purchase a subscription, member subscription payments can be made in U.S. Dollars, as well as a variety of international currencies. Membership terms are Annual Recurring, and Monthly Recurring. The Annual Recurring subscription is an annual commitment and subscribers will be charged each consecutive billing cycle. Annual Recurring subscriptions can be cancelled after the first billing cycle and within 30-days of the billing date for a full refund. Monthly Recurring subscriptions are ongoing and subscribers will be charged each consecutive monthly billing cycle. Monthly Recurring subscriptions can be cancelled after the first month and within 7 days of the monthly billing cycle for a full refund.

12. PAYMENT AUTHORIZATION

Payment for the services provided to you in, at, through or in association with HotelExecutive may be made by automatic credit card, debit card, direct debit, bankwire or Paypal and other approved payment means offered in, at, through or in association with HotelExecutive, and you hereby authorize HotelExecutive and its agents to transact such payments on your behalf.

You hereby authorize HotelExecutive's Internet Payment Service Provider to charge your credit card to pay for your membership to HotelExecutive. You further authorize HotelExecutive's Internet Payment Service Provider to charge your credit card for any and all purchases of products, services in association with HotelExecutive. You agree to be personally liable for all charges incurred by you in association with your access or other use of any content provided by HotelExecutive or any third party in association with HotelExecutive. You acknowledge and agree that your liability for all such charges shall continue after termination of your access or any type of membership arrangement with HotelExecutive.

In the event that you have chosen to have your membership automatically rebilled, unless and until you notify HotelExecutive that you wish to cancel or terminate your membership to HotelExecutive, you hereby agree and authorize HotelExecutive's Internet Payment Service Provider to automatically renew your membership to HotelExecutive on a continuing basis and to charge your credit card (or other payment means you have selected) to pay for the ongoing cost of your membership. You hereby further authorize HotelExecutive's Internet Payment Service Provider to charge your credit card (or other approved payment means you have selected) for any and all purchases of products, services and entertainment provided to in, at, through or in association with HotelExecutive.

13. PRIVACY POLICY

The following is the Privacy Policy for HotelExecutive

We can be reached via telephone, email, or online at our contact page. When you visit our site we do not log any information regarding your domain or email address. Information Sharing: We do not share user information with any third parties other than via press release distribution as described below.

Hotel Newswire is a newswire service that distributes press releases on behalf of our users. If you decide to submit a press release for distribution through our system we will transmit your entire press release including any personal information therein contained to our media contacts and online distribution points including search engines. This is the only redistribution of your information that we engage in. Your submission of press releases through our system indicates consent with this policy. The information we collect during your registration process is used to notify users about updates to our service and inform users of any special events hosted by Hotel Newswire. This information is not shared with other organizations for commercial or non-commercial purposes.

Cookies: Our system requires the use of cookies to enable the user to log back into our website to access information from the newswire, without having to log in each time using the required username and password.

If you do not want to receive email from us in the future, please let us know by following instructions included in our communication with you. Users who supply us with telephone numbers online may receive telephone contact from us regarding their account, or informing them of new products and services available on the HotelExecutive website. If you do not wish to receive such telephone calls, please edit your account and remove your phone number from your account profile. This can be done from your user account menu.

Ad Servers: We do not partner with or have any relationship with any ad server companies. From time to time, we may use customer information for new uses not previously disclosed in our privacy notice. If our information practices change at any time, we will post the policy changes to our website to notify you of these changes and provide you with the ability to opt out of these new uses. If you are concerned about how your information is used, you should check back at our website periodically.

Upon request we provide site visitors with access to all information (including proprietary information) that we maintain about them. Users can access this information by logging in to their account.

Security: We always use industry-standard encryption technologies while transferring and receiving user data exchanged with our site. We have appropriate security measures in place in our physical facilities to protect against the loss, misuse, or alteration of information that we have collected from you on our site. We do not store credit card information in our systems.

If you feel that this site is not following its stated information policy, you may contact us.

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