Fred Lorenz
Washington
Employers
A
federal court of appeals recently handed down a decision involving an
employee�s claim for overtime compensation from his employer for often
extensive travel required to go from his home to one of over 50 different work
sites owned by the company.
In
Kavanagh v. Grand Union Company, Inc.
(No. 98-7696, 9/28/99), the United States Court of Appeals for the 2nd
Circuit affirmed a summary judgment ruling of a federal district court in favor
of the company that no violation of the Fair Labor Standards Act had occurred
in the way David Kavanagh was compensated for his daily travel time.� The company owned some 56 stores that
periodically required the services of Kavanagh, as a refrigerator and utility
mechanic, to travel from his home to any one or more of the sites.
Grand
Union compensated Kavanagh for the time he spent during the day traveling
between job sites, but not for his travel time between his home and the first
job of the day, nor between the last job of the day and his home.� Kavanagh alleged that he traveled an average
of 7 or 8 hours a day, including travel to and from his home, depending on the
work locations.� He was claiming over
$37,000 in overtime compensation covering a period of approximately two years.
The
Court of Appeals referred to the Portal-to-Portal Act�s implementing regulation
which specifically provides that ordinary commuting is not compensable under
the FLSA:
�An employee who travels from home
before his regular workday and returns to his home at the end of the workday is
engaged in ordinary home to work travel which is a normal incident of
employment.� This is true whether he
works at a fixed location or at different job sites.� Normal travel from home to work is not work time.�
Kavanagh
conceded that the company had neither a contract with him nor a policy of
compensating travel time that might entitle him to the compensation he was
seeking, under the exceptions provision (29 C.F.R. 785.35) of the
Portal-to-Portal Act.�
The
Court concluded:
�In sum, the regulations as currently written do not permit a construction that would require Grand Union to compensate Kavanagh for his time spent traveling to the first job of the day and from the last job of the day, regardless of the length of that distance or the benefit to the company of having only one employee cover such a large geographic area.� Because this extensive travel was a contemplated, normal occurrence under the employment agreement entered into between Kavanagh and Grand Union, 29 C.F.R. 785.35 forecloses his entitlement to compensation under the FLSA.�
Update on Unemployment
Dale Tuvey
Washington Hospital Services
The
second law passed in the 2000 Legislative session was very significant to
employers, but much of the reason it is important has not been well
publicized.� SHB3077 was advertised as a
bill to cut for-profit unemployment taxes due to the system's burgeoning
reserve fund balance.� While SHB 3077
did do that, it also contained many other provisions, which were very important
to reimbursable employers, like almost all hospitals, who do not pay
taxes.� This article will cover those
"other" provisions.
In
the most widely applicable change, the disqualification provision for people
who quit their job without good cause or are discharged for misconduct was
increased from five calendar weeks and earnings of at least five times the
claimant's weekly benefit amount to seven weeks and seven times the weekly
benefit amount.� In addition the
work used to purge a disqualification now must be in employment covered under
unemployment law.� That means no more
under the table casual labor for which no records exist, no casual labor
"working" for a friend, or similar charades.
The
statutory provision that allowed a claimant good cause for quitting a job to
relocate to follow a spouse who took a job outside the claimant's existing
labor market was changed to restrict good cause to those situations where the
relocation was due to an employer initiated mandatory transfer of the
spouse.�
That
means if the relocation us due to the spouse taking a new job, or requesting a
transfer to a new location with the same employer, the claimant does not have
good cause to quit.� They would most
likely, however, to be disqualified under the more lenient "marital or
domestic responsibility" provisions of RCW 50.20.050(4), where they would
be disqualified for ten calendar weeks and then be eligible.
A
new training program is established that in some ways resembles the old
"Timber Retraining Benefits" that were subsequently extended to many
many more employers in economically challenged areas and which was very costly
to many hospitals.� However this new
program is significantly better in many ways and will not cost hospital nearly
as much.� There are safeguards built in
to 1) limit training to those who really need it, those whose current skills
are no longer� in demand, 2) limit
training to preparation for occupations where openings actually exist, 3) put a
cap on the total amount of training that can be approved, and 4) collect data
to help evaluate whether or not the training was effective.� In addition the Department has issued
regulations to implement this training program which are relatively employer
friendly and they will be centralizing the training eligibility decision making
process for greater consistency and adherence to policy - both great for
employers.�
And
lastly, a legislative task force was created to "review and make
recommendations regarding the changes deemed necessary to ensure that the
unemployment insurance system meets the needs of employers and workers in the
twenty-first century."� The employer
community hopes to use the task force as a vehicle to study and highlight the
reasons Washington's unemployment costs are consistently among the four or five
highest in the nation.� We believe labor
will try to highlight the assertion that too many potentially eligible people
are not now receiving benefits and should somehow be "brought into the
system."� Also "baby UI",
or allowing unemployment eligibility to parents taking leave to care for newly
born or adopted children while not being available or seeking work, will
undoubtedly be on their agenda.� Traditionally
the recommendations of task forces and commissions similar to this have not
been favorable to the employer community.�
We will have to watch this very carefully.� If you have input you would like to give to this task force
please call me and we can discuss how best to do it.
Everything
considered SHB3077 was a good bill for employers.� It was the best bill to emerge from the legislature on
unemployment benefits in four or five years.�
However, you need to pay close attention to the election results in
Novembers to see whether some of the good things in this bill will be repealed
and perhaps even more damage done or whether we can hold on to these gains and
even make some more progress in making unemployment benefits truly available
only to those who are unemployed through no fault of their own.
Payment on a Salary Basis
Bob Sebris & Jeff James, Attorneys������������������������
SEBRIS
BUSTO, P.S.
What is the
salary basis test?� To be exempt from
overtime requirements under state and federal law, an employee must pass the �duties test� and the �salary basis� test.� The duties test varies depending on
the particular exemption (, e.g.,
executive, administrative, professional) but generally requires that the
employee exercise a significant amount of discretion and independent
judgment.� The salary basis test
requires just that - the employee�s compensation must be paid on a salary, as
opposed to hourly, basis.� This
seemingly simple requirement has confounded some courts and regulators alike
since the FLSA was first enacted in 1938.�
The confusion lies in the requirement to pay on a salary basis.�
Can an employer pay workers a salary but still treat them as hourly
employees, or does the employer have to treat salaried workers differently in
order to retain exempt status?
Serious
Employer Practice Problems .� In Drinkwitz,
the employer paid its professional employees a weekly salary.� However, it imposed weekly work quotas
that it enforced through mandatory deductions in accrued
compensatory time, vacation, and even pay.�
It imposed discipline on persons who failed to meet weekly work
quotas.� It set employee work
schedules (including lunch and break times), required employees to fill out
time sheets, and computed pay using hourly pay rates.�
It
made hundreds of pay deductions when employees failed to meet hourly
work quotas, which it then tried to reimburse after it was sued.� It claimed that all of its compensation
practices were arguably permissible under the FLSA and thus should be
automatically acceptable under the MWA, too.�
In summary judgment, the trial court disagreed, concluding that the
employer was treating the employees as hourly workers and thus could not claim
they were exempt salaried professionals.�
The case proceeded directly to the Washington State Supreme Court to
decide what it means to be paid on a salary basis under the MWA.
Salary Basis
Test Under the MWA.� The Court began its decision by noting the
similarities between the FLSA and the MWA, as well as the absence of any
definition of �salary basis� under the MWA.�
In the absence of guidance from the Legislature, the Court looked to the
FLSA�s definition � at least a portion of it - as follows:
An employee will be considered to be
paid �on a salary basis� . . . if . . . he regularly receives each pay period .
. . a predetermined amount constituting all or part of his compensation, which
amount is not subject to reduction because of variations in the quality or
quantity of the work performed. . . . [T]he employee must receive his full
salary for any week in which he performs any work without regard to the number
of days or hours worked.� This policy is
also subject to the general rule that an employee need not be paid for any
workweek in which he performs no work.
29
C.F.R. � 541.118(a).� The Court
concluded that �narrowly applying this definition� would be consistent with
Washington�s historical protection of employee rights.�
Differences
from the FLSA Test.� The portion of federal regulation not
quoted by the State Supreme Court contains six exceptions to the general
rule.� This portion of federal
regulations was not made part of the MWA�s salary basis test.� In addition, the Court made clear in its
opinion that it was only adopting the narrow definition quoted above.� By implication, that means that federal
interpretations (e.g., court rulings,
administrative opinion letters) should not be relied on in interpreting
obligations under the MWA.� Indeed, the
Court stated that docking of vacation is akin to docking pay and can destroy
exempt status.� Federal interpretations
have held that the term �salary� does not include benefits, and thus docking
vacation is permissible.� Most notably,
the Court rejected the notion that a �Window of Corrections� defense is
available under the MWA.� This FLSA
defense allows employers to reimburse employees for pay deductions and thus
retain exempt status.� The Washington
Supreme Court left it to the Legislature to decide whether to adopt a �Window
of Corrections� defense in the future.
What Can/Can�t
an Employer Do?� The Court addressed
seven �admitted practices� of the employer and explained how they impacted
exempt status.� Some of these practices,
e.g., docking compensation, will be determinative.� Others are merely factors to be considered under a �totality of
the circumstances� test to determine whether an exempt employee is paid on a
salary basis.
1.� Time
Reporting Requirements.� An employer
can require exempt staff to record time without violating the MWA�s salary
basis requirement.
2.
Set Workday
Schedule Requirements.� An employer may
establish reasonable work
hour
expectations (e.g., �we expect you to be here during normal business
hours).� �Nonetheless, requiring work by
salaried employees during certain hours of operation, which conveniently add up
to 40 hours, could simply be a subterfuge for hourly employment.�� Thus, requiring set work hours will not
violate the MWA per se, �but may be
considered as a factor in determining the true nature of the employment
relationship, whether salaried or hourly.�
3.
Calculating
�Exempt Employees� Pay by Hourly Rates.�
An employer may translate salaries into hourly rates for client billing,
financial information analysis, benefit calculations, etc., without violating
the MWA�s salary basis requirement.
4.
Weekly Hourly
Quotas.� �Requiring employees to work a weekly quota
of 40 or more hours is generally inconsistent with salaried employment.�� The Court said it is reasonable to expect
employees to work a normal workweek, but it is not permissible to impose rigid
hourly requirements that are enforced through deductions in compensation or
other forms of discipline.
5.
Requiring
Employees to �Make Up� for Deficiencies in Hourly Quotas.� �Requiring employees to �make up� the
difference between the time worked and the expected workweek is inconsistent
with salaried employment.�� Whether this
factor contributes to the loss of exempt status, depends, in part, on the
method of �make up�:
a.
Requiring
employees to work additional hours �may be repugnant to salaried
employment, depending on the expectations of the employer.�� In other words, if the expectation is to
have employees meet an hourly quota, then exempt status may be lost.
b.
Making
deductions from accrued compensatory time banks is
permissible.� This is because the MWA
expressly precludes consideration of compensatory time as a factor in
determining exempt status.
c.
Making
deductions from vacation time �is inconsistent with salaried
employment.� The Court analogized
docking of vacation to docking of pay
6.
Discipline
Plan Calling for Less Than a Full-Week Suspension.� �Regardless of the number of days or hours
worked, any discipline plan which sanctions an exempt employee with an unpaid
suspension of less than a week violates the �salary basis test�[.]�
7.
Pay Deductions
in Less Than Full-Day Increments for Partial Day Absences.� It is impermissible to dock exempt
employees� pay when they fail to meet hourly work quotas.� The Court adopted the deduction test articulated
by the U.S. Supreme Court in Auer v.
Robbins.� Thus, an employee�s pay is
improperly �subject to reduction� when there is (1) an employment policy that
creates a �significant likelihood� of making partial day deductions, or (2) an
actual practice of making deductions.
Impact
on Washington Employers.� For most
employers, the Drinkwitz decision will have very little impact.� For example, Boeing�s spokesperson was
quoted in a recent Wall Street Journal article as saying the decision would
have no impact on Boeing, as its practices are already in line with the Court�s
decision.� Employers who have relied on
overly aggressive FLSA interpretations in formulating pay practices under our
MWA probably should reassess their approach, since the Court rejected a
wholesale adoption of the federal regulations and interpretive memoranda.� Any policy or practice that results (or
could result) in the mandatory docking of pay or vacation for a partial day
absence should be eliminated.� If
improper deductions have been made, the employer should consider making
reimbursement.� While this may not be
enough to eliminate all exposure to overtime liability, reimbursing deductions
and changing practices will at least minimize potential exposure to overtime
claims going forward, and may help reduce potential damages.�
Simply
put:� If you treat your exempt salaried
staff like hourly personnel, you risk MWA liability and loss of exempt status
protections.� Don�t do it.
APCs� It's Time To Start Paying
Attention�
Lisa McDaniel
Whidbey General Hospital
If
you haven't already heard about the new payment system for outpatients, you
might want to ask your Business Office Colleagues.� Fortunately or unfortunately (depending on one's perspective) I
attended an educational session at our hospital to assist our staff in
understanding this dramatic change. A synopsis of the session is as follows:
1)
APCs (Ambulatory Payment Classification) are the DRG
equivalent for outpatient services.
2)
There will be a SIGNIFICANT reduction in payments from
Medicare as a result of this new payment system.
3)
Of the 451 APCs there are four categories: Significant
Procedures, Surgical Procedures, Medical Visits, and Ancillary (X-ray,
Pulmonary Function).
4)
Services not covered under APCs and are subject to separate
fee schedules are: Lab, PT, OT, Ambulance, Durable Medical, Renal Dialysis and
Non-implantable
5)
The APC system is intended to: 1) cut costs; 2) create
groupings based on clinical comparability and comparability with respect to
resource use; 3) weight payments based on the median of hospital costs (as
determined by Medicare); and adjust payments based on geographic wage index,
outliers, and transitional corridors.�
6)
Medicare does allow special consideration for hospitals
under 101 beds by creating what is referred to as a "hold harmless
provision".�� The hold harmless
provision stipulates those hospitals with 100 beds or less will be held
harmless from payment reductions until January 1, 2004.� However, Medicare defines hold harmless as
paying the greater of the APC amount or 100% of the hospital's pre-PPS
(Prospective Payment System) Medicare payments.� The pre-PPS payments are based on the 1996 payment to cost ratio
(data from the 1996 cost reports).
7)
Medicare hopes to reduce costs with the APC system by: 1)
Discounting Significant Procedures by reducing the reimbursement by 50% for
additional procedures, and reducing reimbursement by 50% for surgeries
terminated before anesthesia; 2) Packaging: Significant Procedures and Surgery
(drugs, surgery, recovery, observation, anesthesia, supplies, dressings), and
Medical and Ancillary (drugs, supplies and observation).�
Why
as Human Resource Professionals do we need to be educated about APCs?� Financial pressures on hospitals affect all
job classes and levels in the organization.�
It is important for
us to understand our business and understand these pressures.� We cannot stick our heads in the sand and
hope these will all go away!� It is
important to remember that with challenges there are often opportunities, and
we will need to look for those opportunities to remain successful.� Good luck in finding those opportunities.
Don't Forget About Membership Dues�
For
those of you who received a final reminder letter about 2000 Membership Dues,
the time is running out.� If you do not
contact Lisa McDaniel at 360-678-7656 Ext. 3248 to make arrangements your name
will be removed from the list and you will no longer receive this wonderful
newsletter, receive information about upcoming Conferences, or have the ability
to stay connected!!� Don't let this
opportunity pass you by!