Originally published July 2004
Like most of the business world, the hospitality industry relies heavily on employees ranging from top-level managers to minimum wage hourly workers. It has been said that the hospitality industry has more employees per square foot than any other. Avoiding unnecessary legal problems with those numerous employees is a must. Many such problems result from employees who lose their jobs and complain to the Department of Labor that they were incorrectly paid as exempt employees when they were actually non-exempt. On August 23, 2004, the new white collar exemption rules to the Fair Labor Standards Act (FLSA) go into effect. While these rules apply only to white collar positions and do not change the way of computing overtime pay, they do clarify the federal exemptions, or those positions that do not require overtime pay. Blue collar employees remain non-exempt. The new rules also provide a "safe harbor" for those employers who implement certain written policies and procedures. Many states have laws even more protective than the FLSA, and must also be followed.
What does the hospitality industry need to do between now and August 23 to take advantage of the safe harbor provision?
The safe harbor provision adds a new level to the "window of correction" that is already in the FLSA regulations. An employer will not lose an otherwise valid white collar exemption for improper salary deductions if the employer does not violate the regulations repeatedly or willfully, or continue to make deductions after receiving a complaint, and if the employer implements and enforces a written policy prohibiting improper deductions. If there is no such policy, the exemption can be lost during the time period in which improper deductions were made and for all employees in the same job classification who worked for the manager responsible for improper deductions. Thus, loss of an exemption can be an expensive problem. An investigation by the Department of Labor isn’t necessarily limited to the specific complaint made and can lead to liquidated damages and penalties.
What should an employer do when an employee complains and it is not clear whether or not the complaint is valid?
The best strategy is to investigate the complaint promptly, review the investigation results with legal counsel and then make a good faith determination about whether or not to continue the challenged practice. The employer’s good faith in the evaluation is critical.
Employers in the hospitality industry need to take this policy as seriously as they take their anti-harassment policies. It should include an explanation of the salary program for exempt employees. The policy must provide that deductions from the salary of an exempt employee are generally prohibited and describe any exceptions to that rule:
- Deductions may be made for one or more full day absences for personal reasons, other than sickness and disability.
- Deductions may be made for one or more full day absences because of sickness or disability if such deductions are made under a bona fide plan, practice or policy of providing wage replacement benefits for these types of absences.
- Deductions may be made for Family and Medical Leave Act (FMLA) leave, including intermittent or partial day leave.
- Deductions may be made to offset payment amounts for jury duty, witness fees and military pay (but not for travel and parking).
- Deductions may be made for penalties or suspensions made in good faith for violations of written safety rules of "major significance." This provision is new.
- Deductions may be made for good faith full day disciplinary suspensions for violations of written work place conduct rules, but not for performance or attendance problems. This provision is also new.
- Deductions may be made for whatever day(s) of the first and last weeks of employment the employee does not work.
- An exempt employee need not be paid for any work week in which he or she does no work at all.
The policy must also define improper deductions:
- Deductions are not permitted for partial day absences (except FMLA leave).
- Deductions are not permitted for variations in the quality of work.
- Deductions are not permitted for variations in the quantity of work.
- Deductions are not permitted for absences created or caused by the employer or by the operating requirements of the business.
Along with the definitions of proper and improper deductions, the policy must specifically prohibit improper deductions and state that improper deductions are a serious violation of company policy. It must contain a complaint mechanism for employees to report possible violations. Those complaints should, when possible, be made or referred to human resources and should be investigated promptly. The Fair Labor Standards Act, like Title VII, prohibits retaliation against an employee for making a complaint, and the wise employer will so state in the policy.
The policy must be clearly communicated to all employees. The best way to do this, and to provide proof of doing so if a Department of Labor investigation or a lawsuit should arise, is to distribute two copies to each employee before August 23 and have the employees sign one copy to be placed in their personnel files. It will then be impossible for any employee to claim that he or she is not aware of the policy. Employers with large numbers of workers who do not speak English as their first language or do not read English should have the policy translated into Spanish and any other commonly used language within their work force.
The same procedure should be used with each new hire. The policy should be included in the employee handbook or manual and explained during new employee orientation. Each employee should be strongly encouraged, orally and in writing, to report promptly any problems with pay as soon as he or she becomes aware of the problem. Reminders during employee or shift meetings and other appropriate times (newsletters, inserts in pay checks, for example) are helpful tools to communicate the policy clearly.
Every employer in the hospitality industry should develop such a policy, implement it and explain it to all employees before August 23, so that the safe harbor provisions will be available when the new rules go into effect. While doing so, it would be wise to review anti-harassment policies to make sure they include prohibitions against harassment because of race, religion, national origin, age and disability as well as because of gender. The courts are now holding that the same affirmative defenses and the same criteria must be applied to these other forms of work place harassment as well as sexual harassment. Having employees sign an extra copy of the anti-harassment policy to go into personnel files is more important than ever. Equally important is having employees sign attendance sheets for all training sessions and meetings when these topics are discussed. Extra paper work now can provide a stronger defense to any claim that arises in the future.
In addition to creating and implementing policies, employers must determine if any employees who are now considered exempt are earning less than $455 per week. Those employees must be reclassified as non-exempt or receive sufficient pay increases to qualify as exempt, provided that they meet one of the exemption tests. Every employer must also review the duties of each position classified as exempt to be certain that employees meet one of the exemption tests as those tests have been clarified by the new rules. Although it is permissible to classify an exempt employee as non-exempt (for example, to pay overtime wages as a hiring incentive), it is not permissible to classify a non-exempt employee as exempt. The task is not easy, and it can be expensive, but it is necessary.
When the Department of Labor agents arrive at your hotel, you can be sure that they are not there to help you! Once again, an ounce of prevention is far superior to that pound of cure. Keep that in mind as August 23 approaches.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.
