RVDA
HAS YOUR DEALERSHIP BUDGETED
FOR WAGE AND HOUR LITIGATION
WHO IS/ISN’T EXEMPT IN PAY PLANS
AND OTHER SCARY STUFF!
Presenter
James F. Hendricks, Jr.
Partner, Chicago Office
Litchfield Cavo, LLP
312-781-6288
[email protected]
Why the Litigation Explosion?
 Employers misunderstanding the law
 Plaintiff’s lawyers – Plaintiff’s lawyers – Plaintiff’s
Lawyers
 Liquidated damages and attorney’s fees
 Almost every employee is a potential plaintiff
 Watch out for the NLRB!
FEDERAL WAGE & HOUR
INVESTIGATION
VS.
EMPLOYEE LAWSUIT
Federal Investigation:
 Complaint
 Audit D.O.L. vs. Self
 Wages Due
 Statute of Limitations (2
yrs)
 No Attorney Fees






Employee Lawsuit:
Find an attorney
Lawsuit
Wages Due
Statute of Limitations (3
yrs*)
Liquidated Damages
Attorney Fees
Main Types of Wage and Hour Class and
Collective Actions
 Misclassification of nonexempt employees
 Improper salary deductions
 Requiring or permitting “off the clock” work
 Miscalculating regular rate for overtime purposes
 Failure to comply with more stringent state laws
 Poorly drafted pay plan
Impact of State Wage and Hour Laws
 State law claims may be brought as class actions as opposed
to FLSA collective actions
 Class vs. collective actions:
 A class member must affirmatively “opt in” to an FLSA
collective action in order to participate and be bound by
the judgment
 Under traditional class actions, each class member is
bound by the judgment and notified of award or
settlement unless he or she affirmatively “opts out”
 Thus, class actions under state law may have very large
classes
Federal Exemptions
MINIMUM WAGE,
OVERTIME, RECORDS
 Executive
 Administrative
 Professional
 Outside Sales
 Highly Compensated




OVERTIME ONLY
Salesman
Partsman*
Mechanic*
Commission-paid
*Not 5th Wheels or Travel Trailers
Complete Exemptions (Minimum Wage,
Overtime and Records)
1.
2.
3.
4.
5.
Executive
Administrative
Professional
Outside Sales
Highly Compensated Employees
1. Executive Exemption
 Is in charge of a department or sub-department, and
 Supervises the work of two or more full time
employees, and
 Receives a salary or guarantee of at least 455/wk
(*$921/week or $47,892/yr
CAUTION!
EXEMPT
only means that these employees generally
Meet all the criteria and are generally
Exempt from overtime
NOT EXEMPT
only means that these employees generally
Do not meet the criteria for this exemption
And generally are not exempt
WARNING! Job titles are not controlling
Executive
EXEMPT
NOT EXEMPT
 Dealer
 Ass’t Manager
 Dept. Manager
 CSI Manager
 Lot Manager
 Inventory Manager
 Finance Manager
2. Administrative Exemption
 Primary duty is performing non-manual work
related to management policies or general business
operations, and
 Exercises discretion and independent judgment with
little or no supervision, (holds a position of
responsibility) and
 Receives a salary or guarantee of at least $455/wk
(*$921/wk)
Administrative
EXEMPT
NOT EXEMPT
 Used Vehicle Buyer
 Office employees
 HumanResources
 Warranty Admin.
Manager
 Officer Manager
 Accounts Payable
 Rental Clerk
 Booker
 Dispatcher
3. Professional Exemption
 Performs duties requiring advanced knowledge in a
field of science or learning requiring specialized
instruction, and
 Consistently exercises discretion and independent
judgment, and
 Receives a salary or guarantee of at least $455/wk
(*$921/wk)
Professional
EXEMPT
NOT EXEMPT
 Attorney
 Bookkeeper
 Accountant
 Warranty clerk or
administrator
 Accounts Payable
 Computer systems
administrator
4. Outside Sales
 Makes sales and takes orders away from the
employer’s place of business, and
 Spends less than 20% of work hours at the
employer’s place of business doing work unrelated to
sales duties
Outside Sales
EXEMPT
 Wholesale parts sales
NOT EXEMPT
Highly-Compensated Employees
 Performs office or non-manual work, AND
 Is guaranteed total annual compensation of at least
$100,000 per year (*$122,148), and
 Performs any one of the exempt duties of an
executive, administrative or professional employees
Partial Exemptions
(Overtime Only)
 Salesman – RV’s/Trailers
 Partsman*
 Mechanic*
 Commission-paid
*Not 5th Wheels or Travel Trailers
5. Salesman
Primary duty: Selling cars or trucks to the
consumer
EXEMPT
 Sales person
 Sales Associate
 Internet Sales person
 Service Writer
* Circuits Split
NOT EXEMPT
 After Market Sales
 Greeter
 Finance Manager
 Motorcycle Salesman
 BDC Worker
Service Writers
The Department of Labor will no longer
Deny the OT exemption for (service writers)
FOH 24L04(k)
WATCH OUT!
6. Partsman
Primary duty: Stocking, issuing, requisitioning
or selling parts
EXEMPT
 Parts Counter
 Shipping/Receiving
 Mechanics’ Counter
 Telephone Sales
NOT EXEMPT
 Parts driver
 Parts inventory
(computer)
7. Mechanic
Primary duty: Performing mechanical or body
Repair work on a vehicle
EXEMPT
 Technician
 Technician Trainee
 Apprentice
 Body man
 After-market installer
NOT EXEMPT
 Quick Lube Mechanic
 Detailer
 New Vehicle get ready
 PDI Technician
 5th Wheels/Travel Trailers
8. Commission-Paid Exemption
 Employed at a “retail” dealership, and
 Receives the majority of his/her compensation from
“commissions”, and
 Receives at least time and one-half minimum wage
for all hours worked in an overtime week.
(State/Municipal Minimum Wage)
Commission-Paid
EXEMPT
 Finance Manager
 Painter
 Dispatcher
 Service Foreman
 “Flat Rate” Detailer
 Other Managers
NOT EXEMPT
 Warranty Clerk
 Office Employees
 “Piece Rate” Detailer
Finance Managers
9th CIRCUIT
OPINION – 2005
F&I Managers
ARE Exempt!
“Is he exempt from overtime?”
 What does he spend the majority of his time doing?
 How is his pay plan structured?
 Does he fit exactly into one of the nine exemptions?
Irrelevant Factors
 He is paid a salary.
 We consider him a “manager”.
 He makes $45,000.
 He could supervise someone.
 When he was hired, we agreed no overtime would be
due.
If an employee is not exempt from overtime …
The employer must pay overtime
Premium on all compensation the
Employee receives
ISSUE:
Failing to pay all the
Overtime that is due.
If an employee is not exempt
From overtime …
The employer must pay overtime
premium on all compensation the
Employee receives.
“Compensation” includes:
$
$
$
$
$
$
Hourly wages
Salary
Commissions
Bonuses
Spiffs
Payments from the manufacturer
Example:
Warranty Administrator is paid salary of
$600/wk. plus monthly bonus of about
$700/mo. She works 50 hours a week
BUT SHE IS NOT EXEMPT!!!
DOL’s Calculation:
2 years overtime on salary
2 years overtime on commission
TOTAL DUE
$7,920
$6,240
$1,680
Private Lawsuit Calculation:
3 years overtime on salary:
3 years overtime on commission:
Liquidated damages:
Attorneys Fees
$9,360
$2,520
$11,880
$25,000
TOTAL DUE:
BUT: Ohio = $97,520
$48,760
Calculating Overtime on Salary, Bonuses,
Commissions, Etc.
Divide amount of salary, bonus, commission, etc.
received in a week by the hours worked in the
week.
2. Then take ½ of that figure times the number of
overtime hours.
3. That gives you the additional overtime due.
1.
ISSUE:
Using a poorly-drafted pay plan
Sales Pay Plans
1. Wage and hour aspects
2. Contract aspects
Wage and Hour Aspects
 You can pay commissions weekly, bi-weekly, semi-
monthly or monthly.
 You must satisfy minimum wage on the same basis:
weekly, bi-weekly, semi-monthly or monthly.
 You can “loan” or advance a sales person money to
cover the minimum wage and then recoup it in
subsequent weeks or months.
 You must pay for all hours worked: sales meetings,
off day deliveries, prospecting, etc.
 All sales people should punch a time clock.
 If they punch in but not out, make an estimate of the
hours actually worked and calculate pay on that
basis.
 Put the pay plan in writing and re-issue it whenever
you make a change.
B. Contract Aspects
CONTRACT
ABC Motors hereby contracts
With XYZ Company to have XYZ
Do some work for it and agrees
To pay XYZ about $50,000.
_____________
For ABC Motors
B. Contract Aspects
 A pay plan, whether written or oral, is a legally
binding contract
 A court will normally construe a contract against the
party who drafted it (you!)
What is …
?
?
?
?
?
?
?
“25% gross profit”
“Commissionable gross”
“Pack”
“Market adjustment”
“Wholesale reserve”
“Over/under trade allowance”
“Inventory adjustment”
 Be sure that you define every important term so that
a jury will understand exactly what you mean.
 Use examples of how the commissions will be
calculated (show the math).
 Cover all the common problems:
 Split deals

Commission payments after the employee leaves

Right to see how commissions are calculated
Drafting Managers’ Pay Plans
 Do not use “short hand” terms or dealership industry
jargon.
 “Salary” or “draw” or “advance” or “guaranteed
draw” ???
 Refer to lines on the financial statement.
 Explain in detail how compensation will be
calculated for first and last month of employment
 Provide for inventory and accounting adjustments
 Watch out for “guarantees”
ISSUE:
Promising an employee a “guarantee”
A.
A guarantee of a certain amount of
pay?
B.
A guarantee of employment for the
entire period of the guarantee?
ABC Motor Company
1.
2.
3.
4.
$25.00 per flat rate hour
A guarantee of 4300.00 per month
Whichever is greater
Effect Jan. 1, 2011
This pay plan is good for 6 mos.,
at that time it will be evaluated
by both parties
Never use the word “guarantee”
unless you say:
“This guarantee is a guarantee of
compensation only. It is not a
guarantee of employment. Like all of
our employees, you will be employed
on an “at will” basis.
ISSUE:
Treating employees as
“independent contractors”
Who is an “independent contractor”?
 No clear line
 Depends on the forum you are in
 Factors to consider:
 The extent to which services rendered by an individual are an
integral part of the principal’s business
 The permanency of the relationship between the individual
and the principal
Who is an “independent contractor”?
 Factors to Consider (cont’d):
 The amount of investment in facilities and equipment by the
individual
 The opportunities for profit or loss by the individual, and the
method of compensation
 The degree of independent business organization and
operation by the individual
 The degree of nature of control of the individual by the
principal
Who is an “independent contractor”?
 Factors to Consider (cont’d):
 The degree of independent judgment exercises by the
individual who performs the services
 Performance of the same or similar services by the individual
for third parties in addition to the principal
 Employment of the individual by the principal in any other
capacity
 A comparison of the relationship to other independent
contractor operations of a similar nature in the industry
 The right of either party to terminate the relationship on short
notice without penalty
“The Usual Suspects”
 Dent repair
 Stripers
 New Vehicle prep employees
 Grounds keepers
 Janitor/maintenance
 Dealer trade drivers
 Security guards
 New managers
Potential Liability:
 Unpaid wages
 Pension contributions
 Insurance benefits
 Liquidated damages for non-payment of wages
 Attorney’s fees
Your Potential Liability
 Wage and Hour: Failure to pay wages due
 IRS: Penalties for failure to withhold taxes
 Unemployment: Failure to make proper




contributions
Negligent hiring / retention
Unemployment compensation
Workers compensation
Negligence toward third party
ISSUE:
Failing to keep accurate
Time records
Time Records
 The employer shall maintain an accurate record of
the hours worked by each non-exempt employee
each day and each week.
 The employer can delegate this duty to employees,
but it remains responsible for compliance.
 No required format: Punched time cards,
handwritten time sheets, computer log, etc., so long
as they are accurate.
 Most accurate: Punched time card.
 There is no fine for failing to require employees to
keep accurate record.
 However, without good time records, you are at your
employees’ mercy.
ISSUE: COMP TIME
There is no such thing as
“comp time” for private
Sector employees
 Overtime is calculated on a weekly basis
 You cannot offset overtime hours with straight time
hours in another week
 You may have to pay comp time under state wage
laws even though you do not get credit under federal
law
 Do not allow comp time.
 If you have given comp time in the past, pay it off or
phase it out.
ISSUE:
Child Labor Violations
“Hazardous Occupations”
 Roofing work
 Excavation work
 Working with power-drive saws
 Construction work
 Driving a car
Civil Money Penalties
 Up to $11,000 per violation
 Possible injunction
ISSUE:
Not paying attention to state
And local wage laws
Federal Versus State Law
 Federal law does not preempt state employment laws
 Employees are entitled to the provision most
favorable to them
State Wage Law Concerns:
1.
2.
3.
4.
5.
Higher minimum wages
Different or non-existent exemptions
Wage payment laws
Wage deduction laws
“Living wage” laws
Some Exemption Examples
 IL and NV do not recognize “partsman”
 MA does not recognize “s,p,m”, but has an
exemption for “garageman”
 NY recognizes “s,p,m” only if they receive 1 ½ times
the NY minimum wage
 NV and CA require OT after 8 hours in a day
Wage Payment Laws
 Federal: Employer must pay wages “promptly” after
they are earned
 Ohio: Employees must be paid by the first day of the
month for any work done in the first half of the
preceding month, and by the 15th day of the month
for any work done in the last half of the preceding
month. Employers may pay on a less frequent basis
only by written contract or when the practice is
customary
Wage Deduction Laws
 Federal: Employer may deduct from an employee’s
wages so long as it does not cut into minimum wage
or overtime
 States: Possible criminal sanctions
Improper Salary Deductions
 Many states have strict laws about what deductions
may be made from pay
 Employer may try to recoup losses or expenses
caused by the employee:





Lost or returned merchandise, assistants
Compensation to sales assistants
Deductions for employee errors
Deductions for business expenses (e.g., license, trade journals)
Deductions for broken equipment
New DOL Opinions
Re: Salary Deductions
 An employer may make deductions for absences of one
or more full days because of sickness or disability before
an employee has qualified under such a plan and once
the employee has exhausted his or her leave allowance.
See Wage & Hour Opinion Letter No. 32 (September 14,
2006)
 An employer may not make full day deductions from the
salary of a fluctuating work week employee when the
employee has exhausted his sick leave bank or has not
yet earned enough leave to cover the absence. See Wage
and Hour Opinion Letter No. 15 (May 12, 2006)
Wage Deductions
 State and federal taxes
 Cash shortages
 Health insurance
 Damage to vehicles
 Garnishments
 Unreturned uniforms
 Child support
 Parts and service
 Cash advances
 Fines or penalties
“Living Wage”
 Municipalities rather than states
Common Classification Mistakes
 Not considering differences in state and federal




salary and duties tests
Treating trainees as exempt before they fully qualify
as exempt
Failing to guarantee the proper minimum salary
Prorating the salary of a part-time exempt employee
to less than $455/week
Making improper deductions from salaries of exempt
employees
Payroll Practices: Red Flags
 Watch out for “red flags” regarding payroll practices:
 Improper deductions from salaries employees
 Improper calculations of “regular rate” Job descriptions for
exempt employees that do not reflect exempt duties
 Nonexempt employees working through meal breaks
 Nonexempt employees performing work before or after they
punch or log in/out
 Employees who routinely stay late but have no overtime
 Not complying with employer’s own written policies
Mandatory Arbitration Agreements
 FLSA claims are arbitratable
 To ensure arbitration agreement is valid, consult
counsel
Regular Audits of Exempt Positions
 ID all exempt and non-exempt employees
 Analyze the current definitions for each exemption
 Update and maintain accurate job descriptions
 Alter job duties to ensure compliance with
exemption
Questions and Answers
QUESTIONS?
Litchfield Cavo, LLP