Archive for the ‘Wages, Overtime, Commissions and Pay Issues’ Category

Who would think that something as basic as a snow day policy could land you in trouble with the feds.   But having the wrong inclement weather policy could cause your company to underpay exempt employees, which would be a violation of the Federal Labor Standards Act (“FLSA”).  Generally, a truly exempt employee (a topic for another day), must be paid her weekly salary, even if you send her home early, or close the office for a day due to bad weather.

Massachusetts state law is also implicated for salaried and hourly employees.  If an hourly employee shows up to work, they have to be paid for at least three hours of work.  Even if you decide to close the office, you still must pay the minimum.

The above is obviously just a quick overview of how wage and hour laws can interact with inclement weather policies.  If you need to review this situation for your business, give me a call.  As always, this blog contains general information, not legal advice.

By Adam P. Whitney, 617.338.7000

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Some employers are too smart for their own good.  Employers know that if they get an employee to sign a well-drafted release, the employee can’t sue later.  While that is true, employment law is rarely that simple.  And taking a release that you found on the internet may not cut it.  Releases and settlement agreements are not always one-size fits all documents.

Employers sometimes try to get an employee to sign a release when they fire the employee, but don’t offer anything in return.  This usually will not work.  Releases, like any contract, must be supported by consideration.  Also, some statutes will overrule your contract in some circumstances, such as the Massachusetts payment of wages statute.

Also, sticking a release in front of an employee, who is emotional about being fired can backfire in several ways.  One, the employee will think that he must have a good claim if you are willing to pay some severance in exchange for the employee giving up that claim.  The employee’s attorney may think the same way.  In reality, the employee may have just been sub-par, but you wanted to avoid any future problems.  Instead of preventing a claim, you caused one.

Two, believe it or not, in some situations the offer of a release and payment of a severance or a settlement can be used against you in court.  The employee will spin the story about how your fired them for some illegal reason, and you were so concerned about it that you were trying to pay them off and buy their silence.  Although offers to compromise disputes are normally not admissible, if you unilaterally offer to pay money in exchange for release, this could be admissible against you (this is probably surprising even to some attorneys).

Finally, there are some specific laws with respect to releasing claims.  Under the Age Discrimination in Employment Act, you have to give “older” (over 40 according to the Feds) employees 21 days to review a settlement agreement (45 days in some cases), or your release won’t be effective.  As stated above, there is also the Massachusetts Payment of Wages statute to consider.

There are some tricks of the trade to terminating problem workers and maximizing your chances of getting an effective release.  Contact me if you need to terminate an employee and you need to get a release because there is some issue, or you know the employee is litigious.  Releases and settlement agreements can be a great way to have peace of mind, for relatively short money, but only if done correctly.  The $500 or $1,000 or so that you pay a lawyer to help you avoid a lawsuit is better than the $50,000 to $100,000 or more you will pay to defend the suit.

By, Adam P. Whitney. 617.338.7000.

Your commission policy or agreement will be construed against your company, and it could cost you a fortune. Commissions and similar earned bonuses are initially a matter of contract in Massachusetts. However, once commissions are earned in Massachusetts, they become the equivalent of ordinary wages. This is important because the failure to pay wages that are due and payable can result in a lawsuit to recover automatic triple damages and attorneys’ fees and costs of collection.

There is a very pro-employee statute allowing such recovery. A $100,000 thousand dollar commission claim can easily turn into a $500,000 liability when one considers that interest accrues at 12% per year, $100,000 turns into $300,000, and the employer ends up paying the legal fees and costs on both sides. I’ve litigating these issues on both sides, and it seems that juries are inclined to believe that employers play games with commissions, so you will have an uphill battle in court unless your commission policy is rock solid.

You need to be very clear on how a commission is earned and on what sales it is earned, and how it is calculated. Ambiguous commission agreements are frequent subjects of lawsuits. The majority of employers do not seem to be good at drafting a commission agreement. For the reasons above, this can be big trouble. They may think that they know what it means, but a plaintiff’s lawyer can probably poke holes in it.

You want to be very clear on how a commission can be earned, and how it is calculated. You don’t want two employees claiming the right to the same commission. You may not want an employee earning commissions well beyond your expectations because of an overlooked aspect of the commission plan.

You also want to guard against having to pay commissions that come due long after an employee has left, and perhaps is even working for a competitor. This requires careful thought and wording of the agreement. One option is to make commissions wholly discretionary (you would want to call it a “bonus,” but the word “bonus” by itself is not enough). This is preferable to company, but may be unacceptable to employee.

Generally, you want to be sure that commissions are paid on actual numbers, after the company is paid and the profit is calculated. In no event should a company be in the business of paying commissions on expected earnings, because those earnings may never come to fruition. There may be an exception of paying a reduced amount to a departing employee, but this has to be carefully planned. You also have to be careful to not terminate an employee solely because commissions are about to become due, or you will be liable under a theory known as breach of the covenant of good faith and fair dealing.

If your commission agreements need a tune up, or you are facing a claim from present or former employees, give me a call. We cannot change commissions that have already been earned, but most commission plans can be changed at any time by the employer.

By Adam P. Whitney, 617.338.7000.

The Salem Franchisee of the Upper Crust Pizza Chain was recently ordered to pay $80,000 for violating federal overtime and record keeping logs, according to the attached Boston Globe report. This follows $341,000 in payments ordered against the corporate office in 2009 (a separate legal entity from the franchisee).

State and federal regulators are deadly serious about enforcing overtime and other wage regulations. There are also public interest groups and private attorneys who are actively looking for businesses who flout the laws. Keep in mind that the statutes at issue are strict liability statutes, so it is not going to matter if you are willfully blind to the wage laws, or are making an honest mistake.

Wage and hour laws can be very complex, and a complete discussion is beyond the scope of this article. One basic issue that employers should know is that they cannot simply make an employee a salaried employee by putting the employee on salary. There are very specific requirements regarding who can be considered salaried and “exempt” from overtime requirements.

Also, the employer is obligated to keep track of an employee’s hours of work. If the employer does not keep good time records, the employer will not only face fines, but will find itself handcuffed in a suit by the employee because the employee may be able to “estimate” the amount of hours worked, but the employer may not be able to even provide rebuttal testimony.

By: Adam Whitney 617.338.7000.

Much of what you may think you know about employment contractual issues could be wrong. Is your company exposing itself to liability because of misinformation or a lack of information about contracts? Employment law creates traps for unwary employers. For example, you could be damned by a poorly drafted commission plan, which could subject you to triple damages, costs and attorneys’ fees even where you think an employee is owed nothing. You could be damned by your own personnel manual, which inadvertently creates contractual rights in employees. You could be damned by firing a minority owner of your business (stockholder, partner or LLC Member) without legal advice. Here is a brief guide, which just scratches the surface of these complex issues.

Does a Contract Have to Be in Writing?

Yes and no. Ideally, every employment agreement should be in writing to clarify the rights and obligations of both parties. Sometimes, a simple offer letter will do. To some extent, oral contracts can be enforceable if they can be performed within one year. If the contract cannot be performed within one year, then it must be in writing to satisfy the statute of frauds. Like many things in the law, there are exceptions to these rules. For example, if an employee relied on an oral promise of a contract for a term of years, the employee might be able to enforce the oral promise using the court’s equitable powers? Also, a promise of employment for life can be performed within one year because anyone can die within a year. Thus, an oral promise of employment for life can be enforceable.

Does a Partner in a Partnership, a Shareholder in a Small Corporation, or a Member of an LLC Have Rights Against Being Terminated by the Majority Owners?

Yes, to an extent. This is a very complicated area of the law and depends on the specific facts of each case. In general, if the owner-employee has a reasonable expectation of continued employment, he cannot be fired unless there is a business purpose for the firing and no less harmful alternative. This is because the majority owners owe the minority owner the utmost duty of good faith and fair dealing. Thus, majority owners should seek sound legal advice before terminating or taking other action against a minority owner employee.

Can Other Employees Be Fired Without Cause?

The general rule is that, if an employee is “at-will,” which means that the employment is not for a specified period of time and there is no contractual protection to employment, the employer can fire the employee for any reason or for no reason. If an employee has a specific contract (or if a personnel policy creates rights against termination, as set forth below), usually the employer can terminate the employee only if there is “cause” to do so. Well-drafted contracts define the specific “for cause” reasons for termination.

Also, there are dozens of statutory and common law protections which protect employees from discrimination and other matters. Thus, if the employer terminates the employee without cause, the employee may believe that there is a discriminatory or other reason for the termination.

Does the Employee Manual or Personnel Manual Create an Employment Contract Giving Rights to the Employee?

Yes, no, maybe. Typical lawyer answer, I know, but it is the right answer. A well drafted manual usually will not create contractual rights in favor of employees. However, there are reported cases where a poorly drafted manual inadvertently gives rights to employees that prevent their termination without cause. Employers should have their manual reviewed by a qualified employment lawyer to protect themselves from suit.

Can an Offer Letter Create an Employment Contract for a Term?

Yes. Employers can unintentionally create an implied contract for a term by the wording in an offer letter. Employers should have their offer letters reviewed by a qualified employment attorney before sending them.

Should Employees Be Told of the Reason for Termination?

Probably, but it depends on the situation. What employers should not do is lie or tell a half-truth, even to save the employee’s feelings. This does not mean that the employer has to be harsh or intentionally hurt an employee’s feelings, but if you do not tell the truth at termination and you are then sued, it’s hard to change your story later. The employee’s lawyer will accuse you of changing your story and that your real reasons were discriminatory. Also, you should document the reason for the firing. Employment lawyers have a saying – if it is not in writing, it didn’t happen.

Additionally, there are new statutory requirements about what employers must put in an employee’s personnel file and how the employer must inform the employee of any negative information. All employers should review these new requirements with a competent employment attorney.

Can an Employment Contract Control over Statutes and Common Law?

Generally, no. Although parties are free to set forth the terms of the employment in writing, there are limitations. For example, employees must be paid minimum wages and must be paid either weekly or bi-weekly. These rights cannot be contracted away. An employer also could not have an employee waive an employee’s rights under anti-discrimination or other protective statutes, such as the Family and Medical Leave Act. However, unless there is some statutory or public policy prohibition, parties are free to tailor their agreement as they see fit.

Are Contracts Requiring Arbitration Enforceable?

To some extent, yes, if the contract is well-drafted, fair and reasonable. An employee is always allowed to challenge whether there is a valid arbitration provision, which is an issue for a court, not an arbitrator. Arbitration can also be waived by the party seeking to enforce it. Also, arbitration clauses cannot prohibit employees from filing with the Massachusetts Commission Against Discrimination, or from filing wage claims or other claims with the Attorney General or other governmental entities. Arbitration issues are complex, so if you are an employer who seeks to enforce an arbitration clause, make sure you have it reviewed by a competent employment attorney.

Can an Employer Make Sure that a Worker Is Not Classified as an Employee by Entering Into an Independent Contractor Agreement?

No. In Massachusetts, there is a strict three-part test for determining whether someone providing services for your company is an employee or independent contractor. This is a complex legal and factual question, but in general, if the individual is providing services within your line of business, or you have some control over the individual’s work, or if the employee does not have his own business or profession, the individual will likely be deemed to be an employee. There can be severe penalties and liabilities for misclassifying a worker as an independent contractor, so have a competent employment lawyer review this issue for you.

Does an Employee Have any Rights and Remedies if a Contract Has Been Breached?

Usually, but it depends on the wording of the contract and whether the employee has suffered damages. Employees will normally have a duty to mitigate damages. Thus, an employee must seek another comparable job after termination. The normal damages would be the loss of earnings during the contract term, minus amounts earned or which could have been earned in mitigation. There could be other damages, depending on the wording of the contract and the situation.

Does an Employer Have to Provide Severance Pay?

Generally, no, unless there is a contractual right or a specific, enforceable policy to do so. There may be exceptions to this general rule, but the exceptions do not apply to most employers and employees.

Does an Employee Have a Contractual Right to Bonuses and Commissions?

Yes, no, maybe. Commissions and bonuses are creatures of contract, but can potentially be enforced through payment of wages statutes. One must first look at the specific wording of any written contract or compensation plan, and also examine the course of dealing of the parties and the standards in the industry. If an employer has a vague commission plan or one that favors the employee, the employee may have a contractual right to commissions, even after termination. Worse yet, the employee could be entitled to triple damages and attorney’s fees, litigation costs and interest. Thus, any commission or bonus plan must be very carefully crafted by a competent employment attorney. A “bonus” is usually thought of as being wholly discretionary and, thus, not subject to contractual or statutory rights. However, “bonus,” is just a word used and the word itself does not control. Employers can inadvertently create employee rights to a “bonus” by a poorly worded compensation plan or a course of dealing.

Can an Employer Make any Employee a Salaried Employ by Putting that in the Contract?

No. There are specific guidelines under federal and state law regarding who is an “exempt employee” and who is a “non-exempt employee” for overtime purposes. Contrary to the belief of some employers, you cannot simply pay any employee a salary and not expect to keep track of their hours and pay overtime. You must first determine whether the employee meets the exempt guidelines, which can be very complicated. For example, lawyers and doctors are professionals and can be paid on a salaried basis, as can some (but not all) executives, managers and computer programmers.

The above is not meant to be legal advice, but merely general information. Employment law is extremely complex, and legal advice cannot be given without a full review of the facts and the law. The above may or may not apply to any particular employer or employee.

By Adam P. Whitney 617.338.7000.

If you are a for-profit business, you generally cannot have volunteer workers who work for no pay, whether you call them interns, clerks, angels or unicorns. In most cases, they are really employees, in spite of what you call them. Companies make this mistake all of the time. Surprisingly, even law firms make this mistake. They think that they can get away with having a student or new graduate work for free for the summer or for some other time period. And sometimes they might get away with it, but if your “intern” decides to sue, you could be liable for at least minimum wage for all hours worked, time and half for any overtime, and possibly triple damages and attorneys’ fees under Massachusetts law and other damages, such as benefits not provided. Your quest for cheap labor could backfire. In spades.

A genuine internship for a for-profit might actually exist, but so might Bigfoot. Both are, at best, rare, elusive, and hard to prove. The U.S. Dept. of Labor has put out a bulletin with specific factors, which can be found here:

http://www.dol.gov/whd/regs/compliance/whdfs71.htm

As provided by the DOL, “[t]he following six criteria must be applied when making this determination:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

2. The internship experience is for the benefit of the intern;

3. The intern does not displace regular employees, but works under close supervision of existing staff;

4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;

5. The intern is not necessarily entitled to a job at the conclusion of the internship; and

6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.”

Any company being honest with itself will find these standards extremely hard to meet. The factors describe something that is burdensome to the company, not a benefit. Which begs the question, why the company would want to do this in the first place. Sure, some large corporations may have some legitimate intern programs. But your smaller or mid-size employer or law firm, not so much. And don’t think that paying a “stipend” will make things okay, unless the stipend happens to be at least minimum wage and paid weekly or biweekly.

Many employers may think that they have the right to charge employees for things such as broken products, lost uniforms, fines for safety violations, loans, lost money, alleged theft, etc. In Massachusetts at least, an employer will face exposure for deducting such amounts from wages. Massachusetts General Law Chapter 149, Section 148 requires full and prompt payments of wages due to employees. Employers cannot contract their way out of this requirement.

There is a provision of the statute that appears to allow a “valid set-off.” A valid set-off is a little like sasquatch. Such a creature may exist, but no one can prove it. The Attorney General of Massachusetts has taken a very strict reading of what could constitute a valid set-off. And the Courts have followed the Attorney General’s lead.

The Supreme Judicial Court recently endorsed this line of thinking in the case of Camara v. Attorney General, 458 Mass. 756 (2011). In this case, a disposal service company enacted a policy whereby an employee found at fault for an accident involving a company truck could either to discipline or a fine deducted from wages earned. The policy had the laudable goal of reducing accidents. The company’s statistics showed that the policy worked.

The company argued that the fines were a valid set-off, but the Attorney General and the Supreme Judicial Court disagreed. The Court ruled that there must at least be some form of due process through the court system for such a set-off. However, the company cannot play judge, jury and executioner, as it did in this case. As fair as the company may have intended to be, there is obviously the potential for abuse by unscrupulous employers.

As a result of the ruling, the company had to reimburse the employees for the monies deducted. Additionally, it had to pay fines of $9,410. The result could have been worse. The employees could have sued for automatic triple damages and recovery of their attorneys’ fees and costs of litigation.

This is one of many examples of how employers should be very careful to not violate laws regarding wages paid to employers. There are lawyers whose entire practice area involves finding employers who have committed technical violations of wage statutes and then suing them for triple damages and attorneys fees. These claims often are brought as class actions to maximize the damages recoverable against the employer. The Attorney General also has independent enforcement power, which she uses in certain cases, such as the Camara case. If you are any employer who has any questions about any wages, salary, overtime, vacation time, independent contractor misclassification, etc., call me at 617.338.7000.

By Adam P. Whitney.