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labor and employment law
- January 2004 -
Proposed changes to wage and hour regulations could dramatically alter
the eligibility of millions of employees for overtime pay. With
complaints from businesses mounting, the Bush Administration has
undertaken efforts to rewrite wage and hour regulations that date back
to the 1950s. Although the Administration’s first effort at revision
was thwarted by Congress, these efforts are certain to continue.
The Fair Labor Standards Act (FLSA) sets minimum wage, overtime,
recordkeeping, and child labor standards. According to estimates, the
FLSA applies to nearly 100 million full-time and part-time employees in
the private sector and in federal, state and local governments.
Enforcement of the FLSA, and the implementation of the wage and hour
regulations that define its enforcement, are the responsibility of the
Department of Labor.
Employers know that the FLSA is legislation enacted in 1938 that
requires employers to pay employees at the rate of time and a half for
every hour worked in excess of 40 hours per week. Overtime regulations
that have not been significantly overhauled in more than 50 years
classify employees as either exempt or non-exempt. Any employee
employed in a bona fide executive, administrative, or professional
capacity is considered exempt and cannot earn overtime.
Under current regulations, employees fall under the administrative
exemption if they “customarily and regularly exercise discretion and
independent judgment.” Proposed revisions would classify an
administrative employee as administrative if the employee “holds a
position of responsibility.” The revised exemption could be met merely
by showing that the position requires a “high level of skill or
training.” Although the proposal would eliminate current confusion
resulting from the requirement that the employee perform non-exempt
duties no more than 20 percent of the time, the proposed requirement of
a “high level of skill or training” is vague and open to interpretation.
The current executive exemption requires that the employee, among
other things, supervise two or more employees. Under newly proposed
regulations, employees holding “leadership” positions would be subject
to the exemption, and thus ineligible for overtime. By some estimates,
the revised exemption would include employees who work in rental car
booths or small check cashing businesses.
The current professional exemption precludes employees who
possess “advanced knowledge in a field of science or learning
customarily acquired by a prolonged or specialized intellectual
instruction” from receiving overtime pay. Under proposed regulations,
employees could be classified as professional employees if they obtain
their advanced knowledge by way of work experience, rather than
education, as is required under the current regulation. Thus, employees
who have obtained a significant amount of work experience, with no
educational background, would become ineligible for overtime.
Changes in the economy and in technology have resulted in a wide range
of jobs, creating difficulties in assigning employees to particular
categories. Numerous jobs in today’s workplace were never considered by
the drafters of the FLSA or the fifty year-old wage and hour
regulations. Team-based organizations, less hierarchical management,
and the passage of time have blurred the line that distinguishes exempt
from non-exempt employees.
The difficulties faced by employers in classifying employees has fueled
an increase in lawsuits brought under the FLSA. One common
misconception among employers is that “salaried” employees are exempt
under the FLSA. To the contrary, numerous cases have resulted from
employers’ failures to pay overtime to “salaried” employees ultimately
determined to be non-exempt.
Employers deemed liable under the FLSA are automatically subject to
liquidated damages at a rate of two times the amount of overtime wages
owed, plus the employee’s attorneys’ fees. Employers who willfully or
repeatedly violate the minimum wage or overtime pay requirements are
subject to civil penalties of up to $10,000.00 for each employee who was
the subject of a violation.
Regardless of whether the Bush Administration is ultimately successful
in revising FLSA regulations, employee classification will continue to
create difficulties for employers. Facing this real risk of exposure to
litigation, employers would be wise to seek legal counsel before placing
an employee in an “exempt” position and deciding not to pay overtime to
that employee. A wage and hour audit, complete with a review of each
employee classification, can also help employers avoid costly
litigation.
If you would like more information about this topic or any employment
issue, please contact an attorney in
this group.
Arbitration
Agreements Lose Their Luster:
Third Circuit Limits the Application of Arbitration Provisions in
Employment Agreements
In
recent years, more employers are negotiating employment agreements
requiring arbitration of any disputes arising out of the employment
relationship. Recent surveys have shown that as many as one in 12 U.S.
workers is covered by an arbitration clause. However, as the courts
have recognized, not all arbitration agreements are enforceable, nor is
arbitration the solution to every dispute.
Two recent decisions by the United States Court of Appeals for the Third
Circuit may significantly limit the enforceability of arbitration
agreements. In March 2003, in Spinetti v. Service Corporation
International, the Third Circuit affirmed the trial court’s decision
to void employment contract provisions that would have required the
employee to bear the costs of arbitration and her attorneys’ fees
incurred during the arbitration. Several months later, in Alexander
v. Anthony International, the Court determined that the parties’
arbitration agreement was unconscionable and voided the employment
contract in its entirety.
In
Spinetti, the Plaintiff, a sales counselor, was terminated on
allegations that she engaged in improper conduct. Following her
termination, she filed a lawsuit claiming that she had been terminated
as a result of her age and gender in violation of Title VII of the Civil
Rights Act of 1964 and the Age Discrimination in Employment Act (ADEA).
Her employer sought to dismiss her complaint and require the dispute to
be arbitrated as set forth in her employment contract. Although the
district court compelled the parties to proceed to arbitration, the
Court voided language in the contract that required each party to bear
its own attorneys’ fees and one-half of the arbitration costs, finding
that such language contradicted the statutory provisions under Title VII
and ADEA that provide for attorneys’ fees and costs to a prevailing
plaintiff. In affirming the district court, the Third Circuit noted
that arbitration must offer the “full scope of remedies available under
Title VII” and cannot be restricted by “private contractual language.”
In Alexander, the plaintiffs, heavy equipment operators with no
more than a seventh grade education, had signed employment contracts
containing agreements to arbitrate any employment disputes. Concluding
that the employees were given no opportunity to negotiate terms that
would have required the plaintiffs to pay arbitrator’s fees and costs if
unsuccessful, provided unreasonable time limitations for filing, and
precluded employees from recovering attorneys’ fees, the Third Circuit
voided the employment contracts in their entirety and ordered the
plaintiffs’ claims to be reinstated in the district court.
Both Spinetti and Alexander present the problem that an
employer can successfully negotiate for arbitration language in an
employment contract, only to be told in court that the agreement to
arbitrate is unenforceable. Additionally, and perhaps more importantly,
even if the dispute is permitted by the court to proceed to arbitration,
the Spinetti decision creates the potential for unwary employers
to be saddled not only with the prevailing plaintiff’s attorneys’ fees,
but also with the additional costs of the arbitration. Contrary to
popular belief, the costs of arbitration can escalate rapidly.
The cost of submitting a dispute to private arbitration will almost
certainly reach several thousand dollars, and Spinetti creates a
scenario in which such costs may be borne solely by the employer. In
both Spinetti and Alexander, the Third Circuit detailed
these costs. In Spinetti, which arose in Western Pennsylvania,
the cost of filing for arbitration was $4,250, plus $150 for each day of
the hearing, with arbitrator’s fees at a rate of approximately $250 per
hour, with a $2,000 per day minimum. Similarly, the arbitrator’s fees
recognized by the Alexander Court for a case arising in the
Virgin Islands, ranged from $800 to $1,000 per day. By comparison, the
cost of filing a lawsuit in state court and having it properly served,
on the other hand, may be accomplished for as little as $150, and the
judge and/or jury who decide the case will be paid by the taxpayers.
Despite its escalating costs, arbitration offers a quicker and more
efficient mechanism for resolving most employment-related disputes and a
much more flexible process than the courts. These benefits must be
weighed against the increasing costs of arbitration and questions of
enforceability any time arbitration clauses are contemplated in
employment contracts. In order to ensure a common sense approach to
dispute resolution that will limit distractions to your firm’s business,
it is best to address these issues with legal counsel during the
contract drafting process, and to consult with counsel about how to best
resolve employment-related disputes before they happen.
If you would like more information about this
topic or have questions about any employment issue, please contact
an attorney in this group.
No Ring. No License. No
Problem.
Common Law
Marriage Survives
By
Neil J. Gregorio, Esq.
Historically, some individuals claiming the status of common law
marriage have been successful in defrauding employers, insurance
companies, and pension and benefit plan administrators for spousal
healthcare and related benefits. Because of the lack of formalities
involved in a common law marriage, a third party can never be certain of
whether a common law marriage is “real,” or whether the couple is
committing fraud.
In Pennsylvania, two unmarried heterosexual adults can create a common
law marriage by exchanging marriage vows without a minister or judge
present. Although their exact words do not have to be: “I take you as
my husband/wife,” the words must express a present intention to marry
rather than an intention to marry in the future. As long as the couple
had the intention of forming a marriage when they exchanged vows, they
are married from the time they stated the words. Accordingly, each
individual is then entitled to all of the benefits of a married spouse.
As recently as 1998, in Staudenmayer v. Staudenmayer, the
Pennsylvania Supreme Court stated that it would not abolish the doctrine
of common law marriage and that such a decree should come from a
legislative act rather than a judicial decree. Since then, the Supreme
Court has not reversed its position, and the legislature has not amended
the Divorce Code and/or the Domestic Relations Act to abolish common law
marriage.
Nevertheless, in a decision that appears to contradict the high court’s
Staudenmayer decision, the Pennsylvania Commonwealth Court
rendered a decision that could, in effect, abolish the doctrine with
respect to common law marriages formed after September 17, 2003.
In PNC Bank Corp. v. Workers Compensation Appeal Board (Stamos),
a bank employee, Janet Stamos, died in an airplane crash in 1994 while
working for PNC.
The man with whom she had been living since 1989, John Kretz, sought to
collect Stamos’ pension and benefits as a surviving spouse. Kretz
successfully argued before a Workers’ Compensation Judge (WCJ) that he
was Stamos’ common law spouse and that he was entitled to her pension
and benefits from PNC. On appeal, the Workers’ Compensation Appeal
Board affirmed the WCJ’s decision, and PNC appealed to the Commonwealth
Court.
Although the judges of the Commonwealth Court unanimously agreed that
Kretz was the common law spouse of Stamos, four of the seven judges felt
it appropriate to make an “anticipatory overruling” of Staudenmayer
and prospectively abolish common law marriage based on the Supreme
Court’s expressed dislike for fraudulent claims that the common law
marriage doctrine can foster. Consequently, if this ruling is given
effect, all common law marriages formed after the date of September 17,
2003 are void.
Because the “abolishment” is “prospective,” Kretz will receive the
pension and benefits of his deceased spouse. As to future claims,
however, employers might not be obligated to pay spousal benefits to
individuals claiming to be in a common law marriage formed after
September 17, 2003. However, because the Commonwealth Court did not
cite to any authority for its “anticipatory overruling” of the
Pennsylvania Supreme Court’s statement in the Staudenmayer case,
the “prospective abolishment” of common law marriage is questionable at
best. Despite the Commonwealth Court’s expressed intent to abolish the
doctrine of common law marriage, the PNC Bank decision is
inconsistent with the high court’s Staudenmayer decision.
Therefore, employers, insurance companies, and pension and benefit plan
administrators should continue to recognize the doctrine of common law
marriage until the legislature or the Pennsylvania Supreme Court speaks
otherwise. In any case, decisions to deny coverage based on the
validity of an employee’s common law marriage, or the continuing
validity of the doctrine itself, should not be undertaken without
consulting legal counsel.
Neil Gregorio is an attorney in the firm’s Labor and Employment
Practice Group and represents employers and employee pension and benefit
plan administrators in benefit claims litigation arising under the
Employee Retirement Income Security Act of 1974 (“ERISA”). If you would
like more information about this topic, please contact Neil at
412.594.3911 or via e-mail at
ngregorio@tuckerlaw.com.
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