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Necessary Medicine: Solving Eight of the Most Common Pandemic-Related Wage and Hour Traps for the Unwary

AHLA thanks the leaders of the Labor and Employment Practice Group for contributing this feature article.
  • November 01, 2020
  • Kristin McGurn , Seyfarth Shaw LLP
  • Catherine Dacre , Seyfarth Shaw LLP
  • Christina Jaremus , Seyfarth Shaw LLP

Despite legislative efforts to provide loans, grants, and other sources of funding to health care organizations and hospitals that continue to carry Americans through surges of COVID-19 cases, many health care providers are hemorrhaging cash. These organizations were forced to forego lucrative elective and non-life-threatening procedures, they await clarity on the parameters of a post-pandemic payers’ reimbursement landscape, and the boundaries of insurance coverage for business interruption remain untested in many corners. Simultaneously, many providers must defend or settle increasing legal claims. For the third decade in a row, collective and class claims dominate the wage and hour landscape. These claims are attractive to plaintiffs’ counsel because certain pay practices tend to be uniform within organizations, which eases the path to class certification, the threshold for which is not typically onerous. Payouts and penalties in these representative actions can be vast. Unbudgeted litigation defense costs are expenses that health care organizations can scarcely afford. Recognizing and planning for the risks of employee wage-related challenges is a critical prophylactic measure.

COVID-19 has shocked the economy, overburdened health care organizations, and created new ways of working for which existing wage and hour laws lack clear and consistent answers. In the inevitable march toward widely anticipated additional waves of COVID-19, the tips below will help health care organizations flatten the curve of pandemic-related wage and hour litigation.

1. Reducing the Workweek Without Running Afoul of the Salary Basis Test

In lieu of outright layoffs, many health care organizations have opted to cut costs by reducing the length of their already-exhausted medical staff’s workweek, with a proportional cut in compensation. Curtailing of hours does not create a problem for employees who are not exempt from overtime and minimum wage under the Fair Labor Standards Act (FLSA) and any equivalent state law.1 Plaintiffs’ counsel may argue, however, that this practice jeopardizes an employee’s status as exempt from overtime because exempt, salaried employees generally must receive their full salary in any week in which they perform any work, subject to certain limited exceptions.

Under recent case law and the Department of Labor (DOL) Wage and Hour Division’s COVID-19-specific FLSA guidance,2 employers can reduce an exempt employee’s workweek for economic reasons related to COVID-19, or a related economic slowdown, and prospectively reduce the employee’s salary commensurate with the reduced workload so long as:

  • The employee’s new salary is implemented on a long-term basis;
  • The employee’s new salary does not vary based on the hours the employee works; and
  • The employee still receives at least $684 per week on a salary basis (or higher applicable state salary threshold).

Any such reduction must be predetermined rather than an after-the-fact deduction from the employee’s salary based on the employer’s day-to-day or week-to-week needs. Moreover, any such salary change must also be bona fide, meaning the change is not an attempt to evade the salary basis requirements and is demonstrably due to COVID-19 or a related economic slowdown. A fluctuation in salary based on the quantity or quality of the employee’s work performance is impermissible. For health care organizations seeking a short-term salary reduction to meet immediate cost-cutting needs, a safer approach is to incorporate a reduced schedule and salary, while requiring employees to use their already-accrued paid time off for the period of time during which their salary is reduced. The net effect is that the employee is paid their existing salary and thus their status as exempt is not even arguably jeopardized on salary-basis grounds, while accrued paid time off banks are simultaneously diminished.

2. Exempt Employees Can Perform Nonexempt Duties, Within Limits

Health care organizations that have laid off hourly workers may require essential salaried exempt staff to fill their shoes. Many organizations will rightfully be concerned about whether staff members performing nonexempt job duties may still be categorized as exempt from minimum wage and overtime under the FLSA and any applicable state law.

The DOL has clarified that during the period of a public health emergency declared by a federal, state, or local authority for COVID-19, otherwise-exempt employees may temporarily perform nonexempt duties that are required by the emergency, without losing the exemption.3 Wage and Hour Division regulations permit an employee who otherwise qualifies for an exemption increased latitude to perform nonexempt duties during emergencies that “threaten the safety of employees, a cessation of operations or serious damage to the employer’s property” and that are beyond the employer’s control and could not reasonably be anticipated.4 This is true even if the performance of those nonexempt duties is at a level, during the temporary emergency, that might otherwise threaten the exemption in ordinary circumstances.

Significantly, the regulations do not define “emergency.”5 As the months pass and the pandemic arguably is viewed as a “new normal” that global workers are now expected to endure, questions arise about the temporal component of the DOL’s proclamation. Even after the declaration of public emergency passes, however, exempt employees may still perform some nonexempt work without losing the exemption. Exempt employees will not become entitled to overtime pay so long as their “primary duty” consists of nonexempt work. Under federal law and some state laws, such as California’s, ensuring that an employee spends at least 50% of their time on exempt job duties is a good rule of thumb. Under federal law, an employee’s “primary duty” is viewed holistically, not on a week-to-week basis. As health care organizations continue to adapt and pivot redeployments and job duties during the ongoing pandemic, they should recognize increased risk to the extent that exempt employees’ duties persistently include more nonexempt tasks for prolonged periods of time.

3. Certain Pay Incentives Are Part of an Employee’s Regular Rate When Calculating Overtime

To incent and reward employees who continue to work onsite amid the pandemic, especially in health care settings where the risk of exposure to the virus is particularly high, many organizations have provided employees (and many more unions and local legislatures are advocating for) so-called “hazard” pay or incentive bonuses. The FLSA does not address the subject of hazard pay, except to require that it be included as part of a federal employee’s regular rate of pay in computing the employee’s overtime pay.6 The potentially overlooked effect of this requirement is that nonexempt employees end up with an unexpected “bonus” if they work overtime. An employer’s failure to count “hazard” pay as part of the employee’s regular rate in calculating overtime could quickly yield exposure for class or collective claims for unpaid overtime under the FLSA and any applicable state law.

A limited exception applies to bonuses that are a percentage of total earnings. For example, an organization may enter into a contract with a worker prior to the performance of services that provides for the payment of additional compensation in the form of a bonus at the rate of 10% of the employee’s straight-time earnings and 10% of his overtime earnings. Such contractual arrangements may apply, for example, in settings where health care organizations engage traveling clinical providers. In such instances, payments according to the contract will satisfy in full the overtime provisions of the FLSA. The exception will not hold up, however, where this form of payment is used as a device to evade the overtime requirements of the FLSA rather than to provide actual overtime compensation.

4. Update Expense-Reimbursement Policies for Telework-Related Expenses

Pre-pandemic, many health care organizations did not have large (or any) portions of their workforces working remotely. For that reason, many providers’ expense reimbursement policies were geared toward employee business travel expenses. The pandemic forced clinical providers to offer, and health plans to cover, telehealth services that span areas such as mental health and all manner of therapy and health care services that previously were not regulated for telemedicine. Video conference treatment platforms continue to gain more widespread acceptance for making a diagnosis, prescribing treatment, adjusting medication, or otherwise delivering care safely while assisting to slow and stop the spread of COVID-19. As companies announce long-term teleworking programs (high-profile employers recently announced plans to keep workforces remote until Summer 20217 and health care employers followed suit for non-clinical staff), the path is paved for telemedicine services to expand, thereby multiplying opportunities for clinical workers to work from home.

Many states’ expense reimbursement laws apply to costs associated with working from home implicating personal cell phone and home internet expenses. Under California and Illinois law, for example, these expenses generally must be reimbursed.8 In Illinois, “necessary” expenses incurred for telework are reimbursable,9 so if an organization mandates work from home, it is well advised to reimburse for expenses necessarily incurred, such as for business use of personal devices. In California, employers must reimburse employees for expenses even when an employee chooses, but is not mandated, to work from home.10 However, if an employee chooses and is not mandated to work from home (and the employer’s offices are open for business and available to the employee), the employer likely need not reimburse for expenses outside of those provided for in any pre-pandemic teleworking policy. In such states, consider setting a policy providing for a stipend that represents a reasonable portion of employees’ cell phone and internet bills that will be used for business purposes. In the age of unlimited cell phone data and set high-speed internet plans, estimating how much data and Wi-Fi will be used for business versus personal use is not an exact science. Any such policy should place the onus on the employee to request, seek approval for, and provide documentation of additional compensation if the employee believes the stipend does not accurately represent business-related expenses.

5. The Continuous Workday Is Now a Flexible Concept

Under the Wage and Hour Division’s broadly applicable regulation and its continuous workday guidance,11 all time except a meal period between the performance of the first and last principal activities of a workday generally has been considered compensable work time for nonexempt employees. Employers have been rightfully hesitant to allow for extended and/or random breaks during a nonexempt employee’s workday in light of this rule. In the recently issued guidance, DOJ recognized “that applying this guidance to teleworking arrangements would discourage needed flexibility during the COVID-19 emergency.”12 As a result, an employer who allows employees to telework with flexible hours during the COVID-19 emergency need not count as hours worked all the time between an employee’s first and last principal activities in a workday.

The DOL’s guidance leaves a lot of room for litigation theories if employees later claim they were not compensated for on-the-clock time during their flexible workday. A best practice is to establish an agreed-upon schedule, even if it requires odd hours and breaks to account for childcare or home schooling. Employers with online-based timekeeping software can instruct employees to clock in and out using timekeeping software as they begin and end work throughout daily sessions. Alternatively, employers may require employees to self-report their own hours each day or week. Employers can also monitor employee’s productivity as a check and balance to ensure they are not reporting their time improperly based on demonstrated productivity.

6. Is Time Spent Undergoing Temperature Checks and Putting on Personal Protective Equipment (PPE) Compensable Time?

Those who have left their house since March 2020 likely have experienced a thermal forehead scan at some point, if not on a daily basis. Health care organizations have been particularly vigilant in this regard in an attempt to control and monitor the spread of the virus to staff and patients requiring treatment for non-COVID related injuries and illnesses. Some temperature checks require an employee to stand in line for a few minutes while others can be accomplished with the same speed as driving under an automatic tollway portal.

It is an open question whether the time an employee spends undergoing a temperature check constitutes compensable time under state and federal law. State law often departs from federal law on this issue and leaves room for debate. Temperature checks may be interpreted akin to bag checks and security screens. For example, compare Busk v. Integrity Staffing Solutions,13 which found time spent undergoing bag checks non-compensable under the FLSA, with Frlekin v. Apple, Inc.,14 which found the time to be compensable under California law.

Particularly in the health care setting where workers routinely confront patients who may have been exposed to or currently have COVID-19, mandatory use of PPE is the norm to assure safety at work. The extent to which compensable time includes putting such equipment on and taking it off is a murky area of law. A good FLSA rule of thumb is that the more onerous the equipment (e.g., a hazmat suit rather than a face covering), and the longer it takes to put on (particularly if the specific equipment is required by the employer and must be put on and taken off in the workplace), the more likely the time spent applying and removing it will be deemed compensable. As illustrated by Frlekin,15 employers must not overlook state law, which may apply a stricter standard than the FLSA. Adopt pay practices that meet the stricter applicable standard.

7. Claims Spurred by Cafeteria Closures

Many health care organizations have shuttered their employee cafeterias to help control the spread of the virus and discourage groups of people from congregating. Depending on the surrounding area and work site rules for entering and exiting the workplace during the pandemic, employees may find that their easiest or only option is to eat lunch in areas on the unit (out of the way of patient care). It is naturally more difficult to differentiate between work and break time when an employee eats at or directly adjacent to their workstation where interruptions may occur more easily or temptations to continue working while eating may overtake the need for rest.

Some states account for this by requiring employees to have the option to leave the workplace for their meal period (and even rest breaks) for the break to be considered bona fide. In California, for example, if the nature of the employee’s job prevents her from taking a break from all duties, the employer may provide an on-duty meal period.16 This time must be paid, however, and the employee must agree to the on-duty break, in writing.17 Similarly, under Wisconsin law, employers must pay employees for “on-duty” meal periods; one in which the employee is not provided at least 30 consecutive minutes free from work or is not free to leave the employer’s premises.18 The expectation that employees receive an unrestricted meal break on shifts lasting a certain number of hours, or payment for missed or interrupted breaks, are similar in Massachusetts and several other jurisdictions.19 If an organization currently requires employees to remain on the premises for meal periods, it should examine whether to simultaneously adjust its pay practices consistent with state law.

8. Reporting Pay

Although there is no requirement to offer reporting pay under federal law, many states’ laws guarantee pay for a certain number of hours of pay when an employee reports for a scheduled shift, even if the employee is then immediately sent home or instructed to depart early. During the pandemic, employers may prevent employees who cannot pass a temperature check from entering the workplace, as a fever is a known symptom of COVID-19. Similarly, COVID-19 exposure has and will continue to result in last minute partial or full workplace closures that may not be communicated to employees until immediately before a shift or when they arrive at the worksite. Under certain states’ laws, these situations may require payment of reporting time pay.

For example, under California law, if an employee reports for her regularly scheduled shift but is required to work fewer than the regularly scheduled hours or is sent home immediately, generally that employee must be compensated for at least two hours, but no more than four hours, of reporting time pay.20 Reporting time pay does not apply when operations cannot commence or continue due to recommendations of civil authorities. Reporting time pay may still be required, therefore, despite a declared a state of emergency, unless the state of emergency includes a recommendation to cease operations. Exceptions also vary by state. Some states do not require employers to provide reporting pay if the employer makes a good faith effort to notify the employee not to come to work and others (such as Massachusetts’ requirement) are not triggered unless the employee was scheduled to work a minimum number of hours.21 Given that last-minute closures and send-homes will be more frequent in a post-pandemic world, health care organizations are well advised to have a firm grasp of the specific reporting pay laws in the states in which they operate.

As surges ebb and flow throughout the nation and health care employers continue to lead Americans toward public health and disease prevention, they must also maintain their rightful place as prominent and well-respected employers in their communities. Compliant pay practices are a meaningful tool to eliminate unneeded risk, exposure, and expense, while attracting and retaining talent and rewarding those who continue to work hard during long and trying times to keep us all well.

Endnotes

1 29 U.S.C. §§ 201–219.

2 U.S. Dep’t of Labor, Wage & Hour Div., COVID-19 and the Fair Labor Standards Act Questions and Answers, https://www.dol.gov/agencies/whd/flsa/pandemic#q19.

3 U.S. Dep’t of Labor, Wage & Hour Div., Covid-19 and the Fair Labor Standards Act Questions and Answers, https://www.dol.gov/agencies/whd/flsa/pandemic#q16.

4 Id.

5 See id.

6 The amount of overtime pay due to an employee is based on the employee’s regular rate of pay (meaning all forms of remuneration not subject to exclusion) and the number of hours worked in a workweek.

7 Rob Copeland and Peter Grant, Google to Keep Employees Home Until Summer 2021 Amid Coronavirus Pandemic, Wall St. J., July 27, 2020, https://www.wsj.com/articles/google-to-keep-employees-home-until-summer-2021-amid-coronavirus-pandemic-11595854201 (subscription required).

8 Cal. Lab. Code § 2802; 820 Ill. Comp. Stat. § 115/9.5.

9 820 Ill. Comp. Stat. § 115/9.5.

10 Cal. Lab. Code § 2802.

11 U.S. Dep’t of Labor, Wage & Hour Div., Wage and Hour Advisory Memorandum No. 2006-2 (May 31, 2006), https://www.dol.gov/agencies/whd/field-assistance-bulletins/2006-2.

12 U.S. Dep’t of Labor, Wage & Hour Div., COVID-19 and the Fair Labor Standards Act Questions and Answers, https://www.dol.gov/agencies/whd/flsa/pandemic#q16.

13 574 U.S. 27 (2014).

14 No. S243805 (Cal. Sup. Ct. Feb. 13, 2020).

15 Id.

16 Cal. Lab. Code § 226.7(c).

17 IWC Wage Order No. 1-2001, subd. 11(C).

18 Wis. Dep’t of Workforce Development, Breaks and Meal Periods, https://dwd.wisconsin.gov/er/laborstandards/breaks.htm#:~:text=An%20%22on%20duty%22%20meal%20period,to%20leave%20the%20employer’s%20premises.&text=No%2C%20if%20the%20break%20is,the%20employee%20is%20off%20duty.

19 Mass. Office of the Attorney General, Guide, Breaks and Time Off, https://www.mass.gov/guides/breaks-and-time-off.

20 Cal. Dep’t of Industrial Relations, Reporting Time Pay (Dec. 2016), https://www.dir.ca.gov/dlse/FAQ_ReportingTimePay.htm.

21 454 Mass. Code Reg. § 27.04(1)


Kristin McGurn is a Partner with Seyfarth Shaw LLP and is co-chair of the firm’s Health Care practice group. In this role, she leads an interdisciplinary team of industry-focused experts from all departments of the firm who provide complete strategic solutions to health care clients. Kristin is also co-Office Managing Partner in the firm’s Boston office and a vice-chair of the Labor & Employment Practice Group for the American Health Lawyers Association. Kristin is entrusted to guide national experts on the forefront of industry trends and thought leadership. Kristin is an experienced litigator, whose practice spans federal employment law, analogous state common law, and statutory claims, including Title VII, ADEA, FMLA, ADA, FLSA, civil and equal rights, fair employment practices, and wage payment claims.

Catherine Dacre, a Partner with Seyfarth Shaw LLP, has 30 years of experience in litigation representing clients in the health care retail, personal services, pharmaceutical, technology, hospitality, security services, restaurant, insurance, financial services, food production, transportation, publishing, and entertainment industries, through trial and appeal. She has successfully defended employers in wage and hour class actions, as well as discrimination, harassment, wrongful termination, retaliation, whistleblower, and other matters in state and federal court.

Christina Jaremus is an Associate with Seyfarth Shaw LLP. Christina’s experience as a litigator and counselor defending employer-side discrimination claims and certificate in labor and employment provide her with a wide-range of skills useful to help prevent claims or how to respond to mitigate liability when a lawsuit is filed. Christina uses her litigation and persuasion skills to achieve her client’s goals. Whether those skills entail a speedy settlement or persuasive advocacy favoring her client, she puts her client’s needs first.

AHLA thanks the leaders of the Labor and Employment Practice Group for contributing this feature article: Elissa Taub, Siskind Susser PC (Chair); Dee Anna Hays, Ogletree Deakins (Vice Chair—Educational Programming); Martine Wells, Brownstein Hyatt Farber Schreck LLP (Vice Chair—Educational Programming); David Lindsay, K & L Gates LLP (Vice Chair—Member Engagement); Kristin McGurn, Seyfarth Shaw LLP (Vice Chair—Publishing); and Thomas O’Day, Husch Blackwell LLP (Vice Chair—Publishing).