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The SESCO Report – October 2009

SESCO Wage and Hour Case Management

Wage and Hour now poses the greatest employment litigation threat to American businesses today. Employees are more educated and litigators have found a "pot of gold at the end of the rainbow." Subsequently, Wage and Hour class and collective actions have increased more than 5000 percent since 2000, far surpassing any employment discrimination actions. Settlements and verdicts have reached into tens of millions of dollars or more.

The following SESCO cases provide valuable lessons:

Case 1 Beer Distributor

A prominent beer distributor client received notice from the Department of Labor, Wage and Hour Division (Richmond District) claiming that warehouse employees (both day and night), delivery drivers and merchandisers were not being compensated appropriately — overtime was not being paid correctly. As the investigator had already started her investigation prior to the client contacting SESCO, we simply allowed the investigator to complete her audit. Subsequent her audit, SESCO and the client met with the investigator. During this meeting, the investigator was extremely bureaucratic and defensive and basically demanded that the client pay immediately select warehouse employees, drivers and merchandisers a sum total of $80,000. Representing the client, we rejected the payment requesting that we review her determinations and subsequent calculations and conduct our own investigation. The investigator became extremely agitated and stated that she would be contacting Richmond with a "refusal to pay."

SESCO contacted the District Director stating that we reserve the right to conduct an audit to simply validate the investigator's findings. The District Director extended SESCO the courtesy of conducting our own internal assessment.

SESCO subsequently conducted a thorough review to include employee interviews. We received employee statements regarding their activities, pay plans and hours of work. Subsequent this thorough audit and advice provided to the client, we determined that warehouse employees and transport drivers were, in fact, properly classified as partially exempt under the Motor Carrier exemption. We also found that several merchandisers also worked part-time as drivers and subsequently were properly classified as partially exempt under the Motor Carrier exemption. Furthermore, we determined that the organization owed less than $14,000 in back wages to merchandisers (who were non-exempt/non-sales persons).

SESCO presented our findings to the District Director onsite in Richmond. Subsequently, the case file was closed. The client ended up paying a little over $14,000 vs. $80,000.

What can we learn from this case?

When a client receives notification from the Department of Labor that there is an investigation, contact SESCO immediately. We will help manage and guide the investigation (as we know most investigators personally). We also prefer to conduct our own internal audit as well as interviews with employees prior to the investigator's onsite work.

Never negotiate or be strong-armed into paying back wages based upon an investigator's review. Please know that investigators are not always right.

Always have a professional review the work of an investigator.

Case 2 Tire Dealer/Retreader

A SESCO client who is one of the largest retreader and tire retailers on the East Coast received a lawsuit claiming that an employee had not been compensated properly. The employee had contacted a lawyer after seeing a Johnny Cochran commercial on TV. The lawsuit claimed the employee, an assistant manager, was not exempt from overtime and must be paid overtime. Given the size of the retailer, the threat was to expand the case to all assistant managers via class action. The client was facing significant fees in defending the case and potentially class action back wages.

SESCO received the call from the client stating that their attorneys (three (3) attorneys on the case) had been contacted. Following a brief discussion with the client, SESCO determined that the pay plan (Fluctuating Workweek Method of Payment) was, in fact, a non-exempt pay plan and, in fact, that the client was properly calculating overtime payments.

SESCO was onsite the next day with the client meeting and educating their three (3) attorneys on the Fluctuating Workweek Method of Payment. We subsequently conducted an audit, forwarded the audit to the attorneys so that the attorneys could request summary dismissal of the case.

What can clients learn from this case?

Just because an attorney is licensed does not mean that they understand Wage and Hour compliance. Clients should contact a specialist such as SESCO who understands and has practical hands-on experience with Wage and Hour accounting and various types of pay plans.

Even though there is a lawsuit or threat thereof doesn't mean that attorneys have to be contacted immediately. Additionally, don't allow attorneys to "grind" cases.

* * * *

These are very common cases; cases that we are seeing more often. Much can be learned from these cases but most importantly, clients need to reduce their Wage and Hour risk exposure. Compliance is attainable and affordable given the proper understanding and implementation of compliant pay plans such as the Fluctuating Workweek Method of Payment. As the number of collective and class action grows, so does the level of complexity and sophistication attorneys utilize through federal multi-district litigation.

Some of the more visible cases include:

Royal Flush
Cingular Wireless
Safe Way

And the list goes on.

Organizations do not intentionally break the law. The laws are complicated both on a federal and state basis and sadly, litigators identify technicalities and then these technicalities are expanded into class action suits, even if the company is in compliance, the process is extremely costly.

SESCO Staff Recommendations

Ensure exempt employees (employees being paid on a salary without overtime) are, in fact, exempt. Even though the Department of Labor issues "fact sheets" summarizing the exemption classifications, case law and interpretive bulletins have greatly clouded many of the exemptions particularly to include the Administrative and Professional exemptions.

Manage deductions. Do not take or allow improper deductions such as recouping lost or damaged equipment, recouping employee-caused errors or losses or docking the employees for disciplinary action.

Ensure that employees maintain accurate records of time and pay for all minutes and hours worked appropriately. Issues include travel time, working before and after clocking in and out, time spent in changing clothes, working at home, on-call time, training, etc.

Calculate overtime properly. Overtime must be calculated on all monies earned to include non-discretionary bonuses. Most payroll processors and software do not allow for the proper calculation of overtime on non-discretionary bonuses (incentives, commissions and bonuses paid to employees for achieving certain results or meeting certain standards). These include attendance, safety, on-call, shift differentials, sales and other types of bonuses. These are all overtime eligible and must be included in the calculation of overtime.

Monitor short clocks. Meal periods or break periods that are less than 30 minutes or that are interrupted by work are compensable. For any period of time to be unpaid, it must be at least 30 minutes and no work can be performed whatsoever.

Understand and implement the Fluctuating Workweek properly. An agreement must be signed and half-time (.5) must be computed by dividing the salary by total hours worked — not just 40 hours.

Tipped employees must be properly informed if the employer uses tip credit when computing regular and overtime rates of pay.

Rounding of time. Employers must round time properly using the 7/8 minutes rule or to the nearest fifth or tenth of an hour at the beginning of the shift, at the end of the shift and also for any meal or break periods that are not paid.

Understand state laws, particularly regarding payment of vacation, jury duty, meal periods.

Know when and how to process final paychecks and what must be included in the final paycheck.

Compensate employees for initial orientation and training time.

These are some of the more common issues and concerns for employers. When SESCO signs up a new client and conducts our initial Human Resource Management Compliance Assessment, we normally (in fact, most of the time) find Wage and Hour compliance issues. And as stated, if investigated by the U.S. Department of Labor, this liability is calculated back two (2) years. If an employee or ex-employee turns to a litigator, this liability expands to four (4) years back wage liability plus attorney fees for both plaintiff and in defense.

SESCO clients receive a free annual Human Resource Management Compliance Assessment. We focus not only on Wage and Hour compliance, but compliance to all federal and state employment regulations. You owe it to yourself, your employees and those you serve to have a compliance audit conducted at least annually. We welcome your call to discuss scheduling a compliance audit.

Social Media Sites In The Workplace

Facebook? Twitter? LinkedIn? All for the teenagers, right? Wrong! Facebook now has over 125 million users. Twitter has 23 million users (a 16% increase this past month). LinkedIn is an online community used to develop business relationships.

We find that users of these social media tools are often high-income professionals; 68% are 35 years of age or older; 66% make $60,000 a year and more; and 72% are college grads. Furthermore, 54% of Fortune 100 companies use some form of social media to communicate to employees and customers.

What is social media?

"Online communications in which individuals shift fluidly and flexibly between the role of audience and author and which encourages interaction."

One point to understand is that social media is neither good nor bad. Like any form of communication, it is the message it conveys that determines its value or liability.

Unlike broadcast media, social media tools allow many people to share information simultaneously with many other people — some of which they know and possibly with many others they don't know. One way to look at social media is to imagine a huge billboard that is visible to everyone in the world, or at least everyone who takes the time to look at it. And the message on the billboard isn't controlled by the billboard company. Anyone coming and going can read messages, pictures, movies or music.

Implications of Social Media for Employers

There are several important considerations for employers and social media including:

How do we address employees' use of social media for personal marketing, promotion or communication about their job? Recently, SESCO addressed two (2) client case issues including social media. One case involved employees complaining about a supervisor to the point that the issue played out in the community and created significant conflict. The second involved union organizing and concerted activity as unions have learned to use social media to their advantage to include video clips and anti-organization messaging. How does a company properly respond and manage this type of communication? Implement policy, educate employees and professionally and immediately respond to inappropriate or negative blogging.

Use of social media in employee screening. Though case law is limited and conflicting, a general rule for employers is to refrain from using social networking sites to obtain information for use in employment decisions. Don't go to an applicant's Facebook or Twitter account to learn about their history and character. A key point to remember is that the information on these sites may or may not be correct.

How to address potential harassment issues that stem from social networking posts. Believe it or not, employers have been held liable for harassing behavior that occurred on personal social networking sites, not company sponsored sites. Though it is unclear how this can be monitored, complaints about alleged harassing behavior should be investigated like any other complaint with the response being in accordance with company policy and disciplinary procedures.

These are real issues employers must be concerned. For example, 17% of organizations report having issues concerning social media and 8% report having dismissed employees for inappropriate social media use. The following are SESCO recommendations as social media appears to be here and growing:

Carefully consider how social media policies are crafted and implemented.

Debate whether or not your organization wants to develop an organizational social media program and thus monitor and control it.

Employers should require express authorization before employees blog or post as company representatives.

Employers should develop clear rules regarding hiring procedures with a plan to use personal blogs and social networking sites for screening information purposes.

As with internet or PDA use, employers can restrict use of social media sites, should monitor use and carefully educate and counsel employees. Employers must focus on poor performance as "playing" online or on PDA's as these are major work efficiency issues affecting most employers.

SESCO Client Feedback

Richmond OFCCP Officer

A Richmond OFCCP officer contacted SESCO stating that, "Everyone in the OFCCP office/ Richmond was very impressed with SESCO's Affirmative Action Plan (under desk review) to include the layout and charts and found it very easy to understand and follow. They especially were pleased with the data for Adverse Impact Chart which allows an analysis based on a summary of all the data at a glance."

Needless to say, this plan submitted on behalf of a client passed with flying colors — no SESCO plan has ever been found in non-compliance.

A Special Thanks to New SESCO Clients

CMAC, LLC Houston, Texas
Royal Oak Nursing Center Dade City, Florida
Davidson Funeral Home Lexington, North Carolina
Drum Funeral Home Conover, North Carolina
J.J. Hartenstein New Freedom, Pennsylvania
Independent Hardee's Franchise Association St. Louis, Missouri
Neal and Associates Montcalm, West Virginia
Powles Funeral Home Rockwell, North Carolina
U.S. Solutions Group Abingdon, Virginia
United Church Homes and Services Newton, North Carolina
Wytheville Redevelopment and Housing Authority Wytheville, Virginia
Virginia Tire and Automotive McLean, Virginia
Westminster-Canterbury of the Blue Ridge Charlottesville, Virginia
Arnett & Steele Funeral Home Pineville, Kentucky

SESCO's Fall Seminar Series 2009

Effective Leader/Manager
October 21-22, 2009
The Centre at Millennium Park
Johnson City, TN

Human Resources The Basic Course
November 4-5, 2009
Brown Distributing
Richmond, VA
(SESCO has partnered with one of our valued clients, Brown Distributing,
to host our Richmond Seminar Series)

Human Resources The Basic Course
November 11-12, 2009
The Centre at Millennium Park
Johnson City, TN

2 days $350/person 2 or more $300/person

In depth participant manuals included.

Retainer clients receive a 15% discount when one (1) person attends a seminar.

Johnson City, Tennessee Location:

The Centre at Millennium Park
2001 Millennium Place
Johnson City, TN 37604

Please contact Lori Metcalf by phone at 423-764-4127, e-mail: to register or you can print our registration form by clicking here and clicking on the Fall 2009 Registration Form.