essentials of wage and hour law for dealerships

– KPA CONFIDENTIAL –

Essentials of Wage and Hour Law for Dealerships

February 11, 2010

QuestionsQuestions

• If you have questions during the presentation, please submit them using the “Questions” feature

• Questions will be answered at the end of the webinar

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•Investigation vs. Lawsuit•Employee Classification•Wage Calculations•Accurate Recordkeeping

Said One Plaintiff’s Wage & Hour Lawyer:Said One Plaintiff’s

Wage & Hour Lawyer: “I’m confident that I

will be fully employed for the rest of my life, unless they just get rid of the wage/hour laws altogether.”

Why the litigation explosion?Why the litigation explosion?

• Employers misunderstanding the law

• Plaintiff’s lawyers - Plaintiff’s lawyers - Plaintiff’s lawyers - Plaintiff’s lawyers-

• Liquidated damages and attorney’s fees

• Almost every employee is a potential plaintiff

Recent Settlements or AwardsRecent Settlements or Awards

• Wal-Mart Stores $172 Million• Smith Barney $98 Million• USB Financial $87 Million• Starbucks $18 Million• Your Dealership $???

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Investigation vs. LawsuitInvestigation vs. Lawsuit

Federal Investigation• Complaint• Audit D.O.L. vs. Self• Wages Due• Statute of Limitations

(2 years)• No attorney fee

Employee Lawsuit• Find an attorney• Lawsuit• Wages Due• Statute of Limitations

(3 years)• Liquidated Damages• Attorney fees


Main Types of Wage and Hour Class and Collective Actions

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 plans

Impact of State Wage and Hour LawsImpact 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 ExemptionsFederal Exemptions

MINIMUM WAGE/ OVERTIME/ RECORDS

• Executive• Administrative• Professional• Outside Sales• Highly Compensated

OVERTIME ONLY

• Salesman• Partsman• Mechanic• Commission-paid• Motor Carrier

Complete ExemptionsComplete Exemptions

1. Executive

2. Administrative

3. Professional

4. Outside sales

5. Highly Compensated Employees

Minimum Wage, Overtime and Records

• 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 $425/wk

Executive ExemptionExecutive Exemption

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

CAUTION!CAUTION!

Executive ExemptionExecutive Exemption

EXEMPT

DealerDep’t Manager

NOT EXEMPT

Ass’t ManagerCSI ManagerLot ManagerInventory ManagerFinance Manager

• 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 $425/wk

Administrative ExemptionAdministrative Exemption

Administrative ExemptionAdministrative Exemption

EXEMPT

Used Car Buyer Human Resources

Manager Office Manager

NOT EXEMPT

Office employeesWarranty Admin.Accounts PayableRental clerkBookerDispatcher

Outside Sales Outside Sales

EXEMPT

Wholesale parts sales

NOT EXEMPT

• Performs office or non-manual work, and

• Is guaranteed total annual compensation of at least $100,000 per year, and

• Performs any one of the exempt duties of an executive, administrative or professional employees

Highly-Compensated Employees Highly-Compensated Employees

Partial Exemptions(OVERTIME only)

Partial Exemptions(OVERTIME only)

• Salesman• Partsman• Mechanic• Commission-paid• Motor Carrier ???

SalesmanSalesman

EXEMPT

Sales person

Sales associate

Internet sales person

Service Writer

NOT EXEMPT

After market sales

Greeter

Finance Manager

Motorcycle salesman

BDC worker

Primary duty: selling cars or trucks to the consumer

Service WritersService Writers

The Department of Labor will no longer deny the OT exemption for (service writers) FOH 24L04(k)

PartsmanPartsman

EXEMPT

Parts counter

Shipping/receiving

Mechanics’ counter

Telephone sales

NOT EXEMPT

Parts driver

Parts inventory (computer)

Primary duty: stocking, issuing, requisitioning or selling parts

EXEMPT

TechnicianTechnician traineeApprenticeBody manAfter-market

installer

NOT EXEMPT

Quick lube mechanic

DetailerNew car get readyPDI technician

MechanicMechanic

Primary duty: performing mechanical or body repair work on a vehicle

Commission-Paid Exemption 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 ($12.00) for all hours worked in an overtime week

Commission-PaidCommission-Paid

EXEMPT

Finance ManagerPainterDispatcherService Foreman“Flat rate” detailerOther managers

NOT EXEMPT

Warranty clerk Office employees“Piece rate”

detailer

Finance ManagersFinance Managers

• 9th CIRCUIT OPINION – 2005

F & I Managers ARE Exempt!

Changes to Motor Carrier Act ExemptionChanges to Motor Carrier Act Exemption

• Before 2005, the FLSA’s motor carrier exemption applied to all employees who drove a motor vehicle in interstate commerce regardless of the size of the motor vehicle or the number of passengers transported in the vehicle.

• As of August 10, 2005, the motor carrier exemption only applies to drivers of vehicles that weigh in excess of 10,001 pounds.

Bottom LineEmployees who deliver non-hazardous materials in vehicles weighing less than 10,001 pounds (which includes cars and most light trucks) are no longer exempt because they do not drive commercial motor vehicles.

“Are they exempt from overtime?”“Are they exempt from overtime?”

• What does the employee spend the majority of his time doing?

• How is employee’s pay plan structured?

• Does employee fit exactly into one of the nine exemptions?

Irrelevant FactorsIrrelevant Factors

• Employee is paid a salary

• We consider employee a “manager”

• Employee makes $45,000

• Employee could supervise someone

• When employee was hired, we agreed no overtime would be due

Common Classification MistakesCommon 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

Wage Calculation Issue:

Failing to pay all the overtime that is due to an employee

If an employee is not exempt from overtime…

If an employee is not exempt from overtime…

The employer must pay overtime premium on all compensation the employee receives

$ Hourly wages$ Salary$ Commissions$ Bonuses$ Spiffs$ Payments from the manufacturer

ExampleExample

Warranty Administrator is paid salary of $600/wk. plus monthly bonus of about $700/mo

She works 50 hours a week

But she’s NOT EXEMPT!!!

DOL’s calculationDOL’s calculation

2 years overtime on salary: $6,240

2 years overtime on commission: $1,680

TOTAL DUE: $7,920

Private Lawsuit CalculationPrivate Lawsuit Calculation

3 years overtime on salary: $9,360

3 years overtime on commission: $2,520

Liquidated damages: $11,880

Attorneys fees: $25,000

TOTAL DUE: $48,760

Calculating OvertimeCalculating Overtime

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


Using a poorly-drafted pay plan

Sales Pay PlansSales Pay Plans

1. Wage and hour aspects

2. Contract aspects

Wage and Hour AspectsWage 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.


• Put the pay plan in writing and reissue it whenever you make a change

• 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

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

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

Contract AspectsContract 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…What is…

? “25% gross profit”? “Commissionable gross”? “Pack” ? “Market Adjustment”? “Wholesale reserve”? “Over/under trade allowance”? “Inventory adjustment”

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• 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 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”


Promising an employee a “guarantee”

What is a “guarantee” ?What is a “guarantee” ?

A. A guarantee of a certain amount of pay?

B. A guarantee of employment for the entire period of the guarantee?


Treating employees as “independent contractors”

Who is an “independent contractor”?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

– 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

Who is an “independent contractor”?Who is an “independent contractor”?

• Factors to Consider:– The degree of independent business organization and

operation by the individual– The degree and nature of control of the individual by the

principal

– The degree of independent judgment exercised 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

• 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

Your Potential LiabilityYour Potential Liability

Time RecordsTime 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

• There is no fine for failing to require employees to keep accurate records

• However, without good time records, you are at your employees’ mercy

• Most accurate: Punched time card

Federal versus State LawFederal versus State Law

• Federal law does not preempt state employment laws

• Employees are entitled to the provision most favorable to them

State Wage Law ConcernsState Wage Law Concerns

1. Higher minimum wages

2. Different or non-existent exemptions

3. Wage payment laws

4. Wage deduction laws

5. “Living wage” laws

Some Exemption ExamplesSome 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 1½ times the NY minimum wage

• NV and CA require OT after 8 hours in a day

Payroll Practices: Red FlagsPayroll Practices: Red Flags

Watch out for “red flags” regarding payroll practices:– Improper deductions from salaried employees

– Improper calculation 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

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Questions and AnswersQuestions and Answers


QUESTIONS?

James F. Hendricks Jr.Partner, Chicago Office

[email protected]

Contact InformationContact Information

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essentials of wage and hour law for dealerships

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