H A S Y O U R D E A L E R S H I P B U D G E T E DF O R W A G E A N D H O U R L I T I G A T I O N

W H O I S / I S N ’ T E X E M P T I N P A Y P L A N SA N D O T H E R S C A R Y S T U F F !

RVDA

Presenter

James F. Hendricks, Jr.Partner, Chicago Office

Litchfield Cavo, LLP312-781-6288

hendricks@litchfieldcavo.com

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 & HOURINVESTIGATION

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. Executive2. Administrative3. Professional4. Outside Sales5. 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!

EXEMPTonly means that these employees generally

Meet all the criteria and are generallyExempt from overtime

NOT EXEMPTonly means that these employees generallyDo not meet the criteria for this exemption

And generally are not exempt

WARNING! Job titles are not controlling

Executive

EXEMPT

DealerDept. Manager

NOT EXEMPT

Ass’t 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

Used Vehicle BuyerHumanResources

ManagerOfficer Manager

NOT EXEMPT

Office employeesWarranty Admin.Accounts PayableRental ClerkBookerDispatcher

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

AttorneyAccountant

NOT EXEMPT

BookkeeperWarranty clerk or

administratorAccounts 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

EXEMPT Sales person Sales Associate Internet Sales person Service Writer

* Circuits Split

NOT EXEMPTAfter Market SalesGreeter Finance ManagerMotorcycle SalesmanBDC Worker

Primary duty: Selling cars or trucks to the consumer

Service Writers

The Department of Labor will no longerDeny the OT exemption for (service writers)

FOH 24L04(k)

WATCH OUT!

6. Partsman

EXEMPT Parts Counter Shipping/ReceivingMechanics’ Counter Telephone Sales

NOT EXEMPT Parts driver Parts inventory

(computer)

Primary duty: Stocking, issuing, requisitioningor selling parts

7. Mechanic

EXEMPT Technician Technician TraineeApprenticeBody manAfter-market installer

NOT EXEMPTQuick Lube MechanicDetailerNew Vehicle get ready PDI Technician 5th Wheels/Travel Trailers

Primary duty: Performing mechanical or bodyRepair work on a vehicle

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 PainterDispatcher Service Foreman “Flat Rate” DetailerOther Managers

NOT EXEMPTWarranty ClerkOffice Employees “Piece Rate” Detailer

Finance Managers

9th CIRCUITOPINION – 2005

F&I ManagersARE 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 overtimePremium on all compensation the

Employee receives

ISSUE:Failing to pay all theOvertime that is due.

If an employee is not exemptFrom overtime …

The employer must pay overtimepremium 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 $6,2402 years overtime on commission $1,680

TOTAL DUE$7,920

Private Lawsuit Calculation:

3 years overtime on salary: $9,3603 years overtime on commission: $2,520Liquidated damages: $11,880Attorneys Fees $25,000

TOTAL DUE: $48,760BUT: Ohio = $97,520

Calculating Overtime on Salary, Bonuses, Commissions, Etc.

1. 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.

ISSUE:

Using a poorly-drafted pay plan

Sales Pay Plans

1. Wage and hour aspects2. 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

CONTRACTABC Motors hereby contracts

With XYZ Company to have XYZDo 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 “guaranteeddraw” ???

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. $25.00 per flat rate hour2. A guarantee of 4300.00 per month3. Whichever is greater4. 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 ofcompensation only. It is not a

guarantee of employment. Like all ofour 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 accurateTime 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 stateAnd 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. Higher minimum wages2. Different or non-existent exemptions3. Wage payment laws4. Wage deduction laws5. “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 OpinionsRe: 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 taxesHealth insuranceGarnishments Child support Cash advances

Cash shortagesDamage to vehiclesUnreturned uniforms Parts and service 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