By:  Barry Guryan and Jeff Ruzal

In a highly publicized March 23, 2010 decision, Awuah v. Coverall N. Am., Inc., 707 F.Supp.2d 80 (D. Mass. 2010), U.S. District Judge William Young for the District of Massachusetts rocked the Massachusetts business community by ruling that a group of janitorial franchisees were improperly classified as independent contractors, and that they were instead “employees” of commercial cleaning franchisor Coverall who are entitled to statutory protection under Massachusetts’ Wage laws including, among others, minimum wage, overtime pay, meal breaks and workers’ compensation.

Massachusetts law is known to have one of the most stringent employment classification tests in the country. Commonly referred to as the “ABC Test,” G.L. c. 149, § 148B(a), putative employers must satisfy the following three conditions to establish an independent relationship with individuals who perform services for them: (a) the individual is free from control and direction in connection with the performance of service; (b) the service is performed “outside the usual course of the business of the employer,” and (c) the individual is customarily engaged in an independently established business of the same nature as that involved in the service performed.  Id.  Prong B is by far the most challenging part of the Test because, in most instances, the services to be performed fall within the employer’s usual course of business.  This requirement does not exist under most state law classification tests.     

Seizing on prong B of the Test, Judge Young rejected Coverall’s argument that its franchising business is separate and distinct from the franchisee’s individual businesses in commercial cleaning.  Judge Young instead found that:

franchising is not itself a business[;] rather a company is in the business of selling goods or services and uses the franchise model as a means of distributing the goods or services to the final end user without acquiring significant distribution costs.  Describing franchising as a business in itself, as Coverall seeks to do, sounds vaguely like a description for a modified Ponzi scheme—a company that does not earn money from the sale of goods and services, but from taking in more money from unwitting franchisees to make payments to previous franchisees.

Awuah, 707 F.Supp.2d at 84 (emphasis added).  Concluding that Coverall franchisees did not perform services outside the course of Coverall’s business, the Court held that the franchisees were not independent contractors but Coverall’s employees.  Coverall thereafter filed its notice of appeal of this decision to the First Circuit Court of Appeals.   

On February 3, 2014, Coverall filed its brief to the First Circuit, arguing, among other points, that its regular activities and the services it performs are entirely different from the activities and services performed by franchise owners.  As Coverall explained, its regular activities are selling franchises, promoting the Coverall® brand, soliciting customer contracts, and providing billing and collections services to franchise owners.  By contrast, Coverall argued, franchise owners independently operate commercial cleaning businesses, which include scheduling cleaning services, staffing cleaners, purchasing cleaning equipment and supplies, and supervising their own employees. 

Echoing Coverall’s argument, the International Franchise Association (“IFA”), the largest trade association in the world, argued as amicus curiae in its April 17, 2014 brief to the First Circuit that the District Court failed to recognize the significant differences between Coverall’s and the franchise owners’ regular activities and services, and instead incorrectly focused on the irrelevant fact that they both ultimately depend on the sale of commercial cleaning services. 

The IFA further argued that Judge Young’s decision will severely damage the Massachusetts franchising business, referencing staggering statistics that highlight the importance franchising has on Massachusetts’ economy.  According to the Economic Impact of Franchised Businesses, in 2007, the most recent year for which comprehensive data is available, 13,676 Massachusetts franchise establishments produced 149,600 Massachusetts jobs totaling $6.4 billion in payroll.  www.buildingopportunity.com/download/Part1.pdf.  What is more, those 13,676 Massachusetts franchise establishments helped create 323,900 additional independent Massachusetts jobs supporting, but not directly tied to, the franchised businesses.  The IFA argued that Judge Young’s decision puts Massachusetts’ robust franchising business in jeopardy by, among other things, disincentivizing franchisees from supplying their own financial capital into new and existing franchises because as salaried or hourly “employees” they will not be entitled under the law to the profits they produce.  

Whether the First Circuit will agree with the IFA and thus look to narrow Judge Young’s expansive reading of prong B is an open question.  In any event, franchisors operating in Massachusetts must be mindful of the stringent ABC Test, and should consult with an attorney on compliance and best practices in the franchising business.  Franchisors outside of Massachusetts must likewise be aware of the classification laws unique to the states in which they operate to ensure utmost compliance.                  

By Michael Kun

Several years ago, employees in California began filing class action lawsuits against their employers alleging violations of the “suitable seating” provision buried in the state’s Wage Orders.  The unique provision requires some employers to provide “suitable seating” to some employees when the “nature of their work” would “reasonably permit it.” 

The use of multiple sets of quotation marks in the previous sentence should give readers a good idea just how little guidance employers have about the obscure law.  

The California Supreme Court is now poised to explain what that obscure law means for those employers who do business in California.  And the Court’s ruling could mean that restaurants in California will have to provide seats to hosts, hostesses and line cooks, or that hotels and other institutions will have to provide seats to their front desk staffs.

A little history: The “suitable seating” provision was written to cover employees who normally worked in a seated position with equipment, machinery or other tools.  For decades, it had been the subject of little litigation and even less discussion.  But after a court of appeal decision brought the obscure law to the attention of plaintiffs’ lawyers in California, employers in a wide variety of industries have been hit with class actions alleging that they have not provided seats to their employees.  Like many class actions, those cases have typically been brought by a single plaintiff who was well aware that the employer expected him or her to be standing while performing the job at the time he or she applied for a job.  Just as typically, those employees have not even requested a seat before filing suit and seek recovery of millions of dollars.

To date, the parties and courts dealing with these lawsuits have done so largely in the dark.  Simply put, there is little case law or legislative history explaining what the provision’s various terms mean or how they are to be applied or analyze.  Which employees are covered by the law?  What is a “suitable seat”?  What does the “nature of their work” mean?  What does “reasonably permit” mean?  What should be considered?  What should not be considered?

Earlier this year, the Ninth Circuit Court of Appeals threw up its hands and asked the California Supreme Court to clarify the law.  It asked the California Supreme Court whether the term “nature of the work” refers to individual tasks that an employee performs during the day, or whether it should be read “holistically” to cover a full range of duties.  It also asked the California Supreme Court to clarify whether an employer’s business judgment should be considered in determining whether the nature of the work “reasonably permits” the use of a seat, as well as the physical layout of the workplace and the employee’s physical characteristics.  Finally, it asked the California Supreme Court to clarify whether the employee must prove what would constitute a “suitable seat” to prevail.

After some speculation that the California Supreme Court might decline to answer these questions, it agreed to do so.  While the process will take time, employers in California should finally have much-needed guidance on this obscure law, allowing them to alter their practices as necessary and avoid these class actions.

Depending on what the California Supreme Court says, its opinion could have a great impact upon the hospitality industry. 

A few examples:

Hosts and hostesses at restaurants and clubs often stand behind a desk or podium when greeting customers.  Such employees (or their lawyers) might argue that they could perform their jobs just as effectively from a high stool or a half-seat. 

What about line cooks?  The thought of line cooks working while seated is an unusual one.  But, again, such employees (or their lawyers) might argue that they could do their jobs while seated.  Can an employer consider the layout of the kitchen?  Can it consider whether seats would block the often-tight passageways in the kitchen?  Can it consider the safety and health implications?  How about whether placing seats in the kitchen would violate local fire ordinances?

Like hosts and hostesses in restaurants, the staffs at the reception desks at hotels, spas and other institutions typically are standing while greeting and assisting customers.  Could they do their jobs while seated on a high stool or a half-seat?  Can a hotel take the position that the physical layout of the reception area would not allow chairs at the reception desk?

While the California Supreme Court’s decision is unlikely to address any of these hospitality-based questions specifically – the cases before it do not involve the hospitality industry – hospitality employers will need to review the decision carefully to determine whether the Court’s opinion suggests that some of its employees must be provided with seats.

 

By Kara Maciel

Our national hospitality practice frequently advises restaurant owners and operators on whether it is legal for employers to pass credit card swipe fees onto employees or even to guests, and the short answer is, yes, in most states. But whether an employer wants to actually pass along this charge and risk alienating their staff or their customers is another question.

With respect to consumers, in the majority of states, passing credit card swipe fees along in a customer surcharge became lawful in 2013. Only ten states prohibit it: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, Oklahoma, Texas and Utah. If a restaurant decides to add a surcharge to the bill to recoup the credit card swipe fee, it is important the that the fee not exceed the percentage charged by the credit card company, the fee is posted clearly on the guest check prior to paying the bill, and it cannot be used for debit card purchases.

With respect to employees, the credit card swipe fee may only be passed along to servers and applied to the tipped portion of the bill. For example, if a bill is $100 plus a $20 tip, the swipe fee on the $100 (e.g., 3 percent or $3) must be paid by the restaurant. However, when paying out the server, you can allocate $19.40 since you can charge the server 3 percent or 60 cents to recover the swipe fee on the gratuity. As with guests, an employer may not charge the server more than credit card swipe fee, and the reduced amount in tips cannot cause the employee to earn less than the minimum wage. And again, you must always check state and local law as some states prohibit deductions from credit card tips for processing fees, such as California, Colorado, Nevada, New Mexico, Oregon, and Washington, among others.

But even if legal, is it practical or good business sense to pass along processing fees to employees and customers? Is it industry practice in your market to pass along these fees, or do you risk angering an important stakeholder in your profit margin – your employees and customers? Surcharges could be perceived as owners taking more money out of the pockets of employees and customers and companies could risk losing the business to another restaurant down the street. Unless the practice becomes an industry standard, it is likely that adding a surcharge or deducting the swipe fee from tips could do more harm than good.

By:  Kara Maciel, Adam Solander and Lindsay Smith

As the Employer Mandate compliance deadline looms for employers under the Affordable Care Act (“ACA”) and employers are closely monitoring employee hours, it is critical that employers take appropriate and lawful steps to record all hours worked by an employee.  If employers try to play games and manipulate how time records are maintained, they could find themselves in hot water under both the ACA and the Fair Labor Standards Act (“FLSA”). 

In what appears to be one of the first lawsuits challenging how hours are recorded under the ACA, an employee filed a putative collective action against Sun Holdings, LLC, a fast food franchisee.  The employee, a busboy at a Golden Corral restaurant, alleged that his managers required him to work under his real name and an alter ego to avoid paying him for all hours worked.  This set-up allegedly was designed to avoid having to pay overtime compensation under the FLSA and to count him as a full-time employee eligible to receive health benefits under the ACA.   

Accurate calculation and recording of the total number of hours worked by an employee is essential to compliance with the provisions of both the FLSA and the ACA.  Under the FLSA, an employer must pay an employee at least the minimum wage for all hours worked.  An employer must also provide overtime compensation at one and a half times the employee’s regular rate of pay for any hours worked in excess of 40 hours per week, unless that employee is classified as exempt.  Therefore, if an employer attributes some amount of time worked by one employee to an alter ego through which the employee cannot claim his time, the employee may be deprived of the overtime compensation he has earned.

Additionally, the ACA only provides benefits to employees who reach a certain amount of hours and binds employers with a certain amount of employees meeting that hour threshold.  The ACA applies to employers with 50 or more employees working 30 or more hours per week.  Only those employees working 30 hours or more per week are entitled to the health care coverage required by the ACA.  Therefore, an employee may lose the benefits to which he would otherwise be entitled if a portion of his hours worked is attributed to someone else, causing him to fall below the 30-hour minimum.  Furthermore, an employer may avoid the obligations of the ACA if it records 30 hours or more of work time for less than 50 of its employees. Although the Employer Mandate, which puts the employer-provided coverage into effect, does not kick in for large employers until January 1, 2015, applicability of the ACA depends upon the size of the affected workforce during the prior calendar year.      

A claim of this kind could be very costly for an employer because, as is the case here, such claims are often brought as collective actions.  In this case, the employee filed his claim on behalf of himself and all others similarly situated.  Although the amount of unpaid wages and liquidated damages he seeks only amounts to approximately $15,000.00, the franchisee owns roughly 400 restaurants in Texas and Florida.  Thus, a court award, or even a settlement, could be quite significant.

These allegations demonstrate the importance of correctly tracking employee hours and ensuring that an employee receives compensation and benefits in accordance with the total amount of hours worked.  Often times, this may mean training your managers as to the correct protocol for recording and compensating hours worked and monitoring to ensure managers are following that protocol. 

Importantly, this case forecasts what could be an emerging and growing area of litigation under the ACA, so employers must be ever vigilant about putting into practice protocols that ensure they are complying with the ACA and not manipulating hours to avoid the Employer Mandate’s requirements.  Considering that an analysis under the Employer Mandate’s look-back methodologies should be done this year, any changes to employees’ hours should be closely reviewed with legal counsel.  Although overtime compensation and benefits coverage can create increased financial burdens on employers, the cost of not complying can be even greater. 

Continue Reading Playing with Employees’ Hours Could Get You in Hot Water under the ACA and FLSA

By: Jordan Schwartz
As the calendar moves into spring, it is once again time for recreational golfers to start dusting off their clubs and begin to prepare for the golfing season. Unlike recreational golfers, however, owners and operators of golf courses have hopefully spent the off-season ensuring that their golf courses are compliant with the accessibility standards of the Americans with Disabilities Act (“ADA”).

Many resort owners and operators mistakenly believe that golf courses are exempt from the requirements of the ADA. While this may have been true in the past, new ADA regulations were promulgated in March 2012 mandating that golf courses comply with the ADA. Pursuant to these regulations, golf courses must have accessible routes that serve teeing grounds, practice teeing grounds, putting greens, practice putting greens, teeing stations at driving ranges, course weather shelters, golf cart rental areas, bag drop areas, and course toilet rooms. The new ADA regulations also require at least one 48-inch pathway providing an accessible entrance to at least one tee box on each hole. Additionally, each putting green must be designed and constructed so that a golf cart can enter and exit.

A common question I receive from golf course owners and operators is whether these new ADA provisions prevent a golf course from instituting a “cart path only” policy, which prevents golf carts from driving on fairways. Like many aspects of the ADA, there is not one simple answer to this question. As an initial matter, it certainly is permissible for a golf course to institute rules to alleviate dangerous situations. Therefore, a decision to designate a particular day as a “cart path only” day due to slippery and muddy conditions from heavy rain the prior night likely would not run afoul of the ADA, as there clearly are legitimate safety reasons for such a rule. It is less clear, however, whether a course’s decision to impose a permanent “cart-path only” rule solely so that it could better preserve and maintain its grounds and fairways would violate the ADA.

The ADA provides that accommodations are not required if they are not “readily achievable,” meaning that they are not accomplishable without much difficulty or expense. If a plaintiff were to claim that a permanent “cart path only” rule violated the ADA, a golf course could assert that allowing golf cars on the course was not “readily achievable.” But, the “readily achievable” defense can be difficult to prove and will likely delve into a golf course’s particular facts and circumstances.  While it may be relatively easy for a course to demonstrate that its fairways would be virtually destroyed by having many carts drive on them, it may not be as easy for a course to show that its fairways would be similarly destroyed by permitting carts near the tee boxes and greens only for disabled golfers, which are likely a very small percentage of the total number of golfers. If a course can show that even one or two carts a day would destroy its fairways, then the “readily achievable” defense would likely hold. However, if, for example, up to 20 cars a day would not destroy the fairways, the “readily achievable” defense may not hold up in court. Ultimately, it is a balancing question between the actual damage to the fairways and the risks the owners and operators of a golf course is willing to take with regards to a potential violation of the ADA.

At a minimum, owners, operators, and managers of facilities with golf courses must be aware of the new ADA regulations and their potential far reaching impact. Moreover, golf course owners and operators should be proactive in remedying any potential barriers to access. Taking these simply steps would help reduce legal exposure to potential ADA claims, which would be particularly welcome news with the heart of the golf season rapidly approaching.

 

 

 

 

 

 

 By Aaron Olsen

President Obama’s announcement last week that he was ordering the Labor Department to revise the regulations concerning who can be classified as “executive or professional” employees has created a buzz about what this will mean for both employers and employees.  The fact that the President specifically identified concerns about managers in the fast-food industry suggests that the Department of Labor will be looking for ways to change how employees in the hospitality industry are classified. 

However, there have been very few details about what any of this will actually mean for employers.  The President trumpeted the request to review the regulations as a way to help make sure “millions of workers are paid a fair wage for a hard day’s work.” But, the President’s memorandum simply instructed the Department of Labor “to update regulations regarding who qualifies for overtime protection. In so doing, the Secretary shall consider how the regulations could be revised to:

• Update existing protections in keeping with the intention of the Fair Labor Standards Act.

•Address the changing nature of the American workplace.

•Simplify the overtime rules to make them easier for both workers and businesses to understand and apply.”

Not much detail there.  

The Secretary of Labor’s press release referred generally to the low salary threshold of $455 per week, but did not give any other specific details as what to expect other than to say that it “will give millions more people a fair shot at getting ahead.”

Whether the President’s directive will lead to any real changes is anyone’s guess. (For a discussion by our colleague, Mike Kun, suggesting that there may be no real impact, see his blog entry.)  However, the rhetoric surrounding the announcement suggests that the new regulations could impact “millions” of employees.  If that is the case, employers must be very careful to stay informed of those changes and make the necessary adjustments.  Plaintiffs’ lawyers will undoubtedly be studying the changes carefully to look for a way to bring claims on behalf of the “millions” of employees who will supposedly be affected. 

By: Barry Guryan

As widely reported, employers of all sizes are challenged in complying with the myriad of complex regulatory and compliance obligations under the Affordable Care Act (“ACA”). As our blog readers are well aware, certain large employers, as defined in the ACA, must provide “essential health benefits” that meet the law’s standards to full time employees under the Employer Mandate by 2015 or face penalties. Companies have spent time and money on consultants and lawyers to understand how the ACA impacts their business and their bottom line.

In response, some restaurants are finding unique ways to pay for the costs of compliance required by the ACA. According to a recent CNN article, many restaurants, primarily in Florida, have added an “ACA Surcharge” (typically 1%) to the food and beverage purchases in the bill to cover these costs. Even though the “pay or play” provisions of the ACA do not take effect until 2015, or 2016 for small employers, these restaurants are starting to create a fund which will continue annually. According to the report, customers have been paying the surcharge without protest.

If restaurant owners decide to implement this surcharge, it is best to let patrons know about it either on a sign or verbally by their servers, rather than having them discover the surcharge when they get the bill. Other restaurants may decide it’s better to increase food costs in order to recoup the increase in compliance costs. Even more just may consider it to be the cost of doing business.

By Kara Maciel and Adam Solander

On February 10, 2014, the Treasury Department and the Internal Revenue Service issued highly anticipated final regulations implementing the employer shared responsibility provisions of the Affordable Care Act, also known as the “employer mandate.” The employer mandate requires that large employers offer health coverage to full-time employees or pay a penalty.

 

The rules make several changes in response to comments on the original proposed regulations issued in December 2012, as well as provide significant transition relief.  Most notably, under the new regulations:

 

·         An employer with 50 to 99 full-time employees does not have to comply until 2016 provided that it does not reduce the size of its workforce or overall hours of service in order to gain this transition relief. Such employers must also maintain any health coverage offered as of February 9, 2014.

·         Employers with 100 or more full-time employees will have to comply starting in 2015.

·         For 2015 only, employers do not need to offer coverage to dependents of full-time employees, defined as children up to the age of 26. This requirement applies in 2016 and beyond.

While much of the media attention has focused on the delays in the employer mandate, it is important for hospitality employers that have seasonal employees or fluctuating work weeks to be aware of other notable provisions.  In particular:

 

·           The final regulations provide a bright-line definition for “seasonal employee,” clarifying that seasonal employees are those who work six months or less annually. Therefore, employees who work six months or less in a year generally will not be considered full-time employees.

·         The final regulations create a “weekly rule,” under which full-time employee status for certain calendar months is based on hours of service over four-week periods and for certain other calendar months on hours of service over five-week periods.

Shortly, the Treasury Department and Internal Revenue Service are also expected to issue final regulations addressing the employer reporting requirements needed to enforce the employer mandate.

By Brian W. Steinbach

Since 2008, the District of Columbia’s Accrued Sick and Safe Leave Act (“ASSLA”) has required D.C. employers to provide employees with paid leave (i) to care for themselves or their family members, and (ii) for work absences associated with domestic violence or abuse. Specifically, ASSLA provides covered workers with the ability to earn and take from up to three to up to seven days of covered paid leave each year, depending on the size of the employer.

On January 2, 2014, Mayor Vincent C. Gray signed the Earned Sick and Safe Leave Amendment Act of 2013 (“Amendment”), which significantly amends ASSLA. Among other things, the Amendment eliminates the prior exclusion of tipped restaurant wait staff and bartenders and adds a new provision requiring that restaurant and bar employees, for whom the tip credit is claimed, be provided with at least one hour of covered paid leave for every 43 hours worked, up to a maximum of five days per calendar year, regardless of the size of the employer. (This is the same level as is currently required for employers with 25-99 employees.) However, these employees need only be paid the regular District minimum wage while on leave, without taking into consideration the amount of tips that they may have received if working.

For a more detailed description of the Amendment, please review our recent client alert

February 1st is an important annual OSHA Injury and Illness Recordkeeping deadline. Specifically, by February 1st every year, certain employers are required by OSHA’s Recordkeeping regulations to:
 1.Review their OSHA 300 Log;
 2.Verify that the entries are complete and accurate;
 3.Correct any deficiencies on the 300 Log;
 4.Use the injury data from the 300 Log to develop an 300A Annual Summary Form; and
 5.Certify the accuracy of the 300 Log and the 300A Summary Form
For a more detailed explanation of the requirements and which companies are exempt, we encourage you to read the recent OSHA Law Update published by Amanda R. Strainis-Walker and Eric J. Conn