Employment Law Monitor : Employment Lawyer & Attorney : Cole Schotz Meisel Forman & Leonard Law Firm : NJ, Mid-Atlantic Wage & Hour, Wrongful Termination

On June 22, 2010, the United States Department of Labor (“USDOL”) Wage and Hour Division issued Administrator’s Interpretation No. 2010-3 (the “Interpretation”), which clarifies the definition of “son or daughter” under the Family and Medical Leave Act (“FMLA”), as it applies to employees standing “in loco parentis,” or “in the place of a parent,” to a child. A copy of the Interpretation can be found here.

The FMLA entitles an eligible employee to take up to twelve (12) weeks of job-protected leave upon the birth of a son or daughter, the placement of a son or daughter with the employee for adoption or foster care, or to care for a son or daughter with a serious health condition. See 29 U.S.C. § 2612(a)(1)(A)-(C); 29 C.F.R. § 825.200. The FMLA defines son or daughter as including a child of a person standing in loco parentis who is either under 18 years old or older than 18, but incapable of self-care due to a disability. In this Interpretation, the USDOL noted that the FMLA regulations define “in loco parentis” as including those with day-to-day responsibilities to care for and financially support a child. See C.F.R. § 825.122(c)(3). However, the Administrator announced in its interpretation of the regulation that either day-to-day care or financial support may establish an in loco parentis relationship, so long as the individual intends to assume the responsibilities of a parent with regard to a child; it is not necessary for an employee to establish both in order to be found to stand in loco parentis. The Administrator further acknowledged that a determination of in loco parentis status to a child is to be made on a case-by-case basis.

Employers should consult counsel with any questions regarding the proper application of FMLA guidelines and/or regulations in order to ensure appropriate action is taken with respect to each unique familial circumstance.

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High school and college students often are willing to work for little or no pay during the summer months to bolster their resumes. Businesses see this as a good opportunity to get some extra help around the office. However, private sector, "for-profit" employers need to be aware that they are required to pay at least minimum wage and overtime to summer help unless these internships or training programs meet the following criteria:

1. The internship is similar to training which would be given in an educational environment;
2. The internship is for the benefit of the trainees;
3. The interns do not displace regular employees, and work under close supervision of existing staff;
4. The employer derives no immediate advantage from the activities and, on occasion, its operations may actually be impeded;
5. The interns are not guaranteed permanent positions at the conclusion of the internship; and
6. The employer and interns understand beforehand that the internship is unpaid.

See U.S. Dept. of Labor, Wage and Hour Division, Fact Sheet #71.

The determination whether an internship or training program meets all six requirements depends upon all the facts and circumstances of each program. In addition to owing unpaid wages and potentially hefty fines, unpaid programs that do not meet all of the Department of Labor's criteria could lead to legal problems involving workers' compensation, employee benefits, unemployment insurance and federal and state taxes.

Employers should structure unpaid internships to meet the above criteria. Also consider having a written agreement with the interns outlining the nature of the work and that the program is being operated to provide a learning experience for the interns. If in doubt about compliance, employers should pay at least minimum wage and overtime to avoid legal problems because the Fair Labor Standards Act, the federal statute that covers minimum wages and overtime, as well as state wage and hour laws, define “employ” very broadly.

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The New York Department of Labor (NY DOL) recently issued substantial revisions to the regulations governing the New York Worker Adjustment and Retraining Notification Act (NY WARN). NY WARN, like the federal WARN Act, requires employers, in certain circumstances, to give employees advanced written notice of a mass layoff or plant closing. The NY WARN is, however, broader in scope than the similar federal WARN Act. For example, while the federal act applies to employers with 100 or more employees, the NY Warn Act covers employers with only 50 or more employees. Similarly, NY WARN can be triggered by a layoff affecting 25 or more employees, as compared to 50 employees under the federal WARN Act. The notification period is also greater under NY WARN, requiring 90 days notice, instead of the 60 days required by the federal WARN Act.

Some of the revisions to the regulations include new requirements as to what information must be provided to employees affected by a qualifying mass layoff or plant closing, as well as to the Commissioner of Labor and other individuals or entities required to receive notice. The revised regulations also clarify the definitions of certain terms in the Act, such as “affected employee,” “employment loss,” “hours of work,” “mass layoff,” “relocation,” and other terms.

Of note is the definition of “date of layoff”, which now means “the last day an employee is eligible or permitted to work for his/her employer." This change is significant in that the closing of a plant sometimes occurs due to events that do not allow an employer to give the required advanced notice. In such circumstances, employers often close the plant, but retain the employees on the payroll for the required notice period in order to avoid the notice obligations. This practice now appears to be prohibited, but an employer who is unable to give the required notice can still avoid liability under NY WARN by paying its employees all wages and benefits due under the Act within three weeks of the employees’ last day of work.

Any New York-based employer contemplating a mass layoff or plant closing should be familiar with these new regulations and consult legal counsel for guidance in navigating the requirements of NY WARN and the federal WARN Act.

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The New Jersey Supreme Court recently ruled in Best v. C&M Door Controls, Inc., _N.J._ (Oct. 14, 2009) that defendants can never be awarded counsel fees under the offer-of judgment rule in any case in which plaintiffs benefit from a statutory fee-shifting provision, including the Prevailing Wage Act (“PWA”).

The offer of judgment rule, New Jersey Court Rule 4:58, provides that any party may, at any time more than 20 days before the actual trial date, serve on any adverse party, without prejudice, and file with the court, an offer to take a momentary judgment in the offeror’s favor, or as the case may be, to allow judgment to be taken against the offeror, for a sum stated therein (including costs). Historically, the offer-of-judgment rule permits an award of counsel fees and costs to a prevailing party whose offer of judgment had been rejected by the other side. The recent decision in Best attempts to reconcile the offer of judgment rule, which uses fee awards to penalize parties who do not accept reasonable settlements, with laws that allow fee shifting for plaintiffs in workplace rights cases.

In Best, the plaintiff, a window installer, claimed that his employer violated the PWA and the Conscientious Employee Protection Act (“CEPA”). The defense made an offer of judgment of $25,000 which was rejected by the plaintiff. The jury then returned a no-cause verdict on the CEPA claim and a verdict below the defense offer on the PWA claim. The defense, thereafter, sought legal fees as provided by the offer-of-judgment rule. The defense, however, was faced with a obstacle because the rule was amended in 2006 to bar fee awards to the defense if such an allowance would conflict with the policies underlying a fee-shifting statute or rule of court. The Appeals Court in Best held that while the amendment covered CEPA, it did not apply to the PWA because that law was intended to benefit both employees and employers. The New Jersey Supreme Court, however, held that whether the law intended to benefit both employees and employers did not matter and only employees can win fees in suits under the PWA.

Despite the holding in Best, there still remains incentive for defense counsel to consider making an offer of judgment in a fee-shifting case. The Court noted that in awarding reasonable attorneys’ fees to prevailing plaintiffs in such cases, judges should consider whether the defendant’s offer of judgment was reasonable and whether plaintiff’s fee award for time spent after the offer was warranted.
 

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After much news coverage of the salaries and bonuses being received by top executives at financial institutions requiring bailout by the Federal Government, through taxpayer money, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (“ARRA”). ARRA was signed into law on February 17, 2009 and places strict limits on executive compensation for financial institutions receiving federal assistance under the Troubled Assets Relief Program (“TARP”). 

The restrictions, the major ones of which are outlined below, apply to all institutions that have already received or will receive governmental financial assistance under TARP (“TARP Recipients”). The executive compensation restrictions apply to TARP Recipients for as long as the Treasury holds preferred stock in the institution. ARRA allows TARP Recipients to avoid the executive compensation restrictions by repaying any government assistance.

Severance Payments

TARP Recipients are prohibited from making severance payments (i.e., a “golden parachute”) to a top five senior executives officers (“SEOs”) or any of the next five most highly-compensated employees.

Salaries

ARRA does not contain a cap on salaries, however, the original TARP tax deductibility cap of $500,000 remains in place for the SEOs.

ARRA prohibits the payment of bonuses by TARP Recipients depending on the amount of government assistance the institution received.

• For institutions receiving $500 million or more, the prohibition applies to the SEOs and the next 20 most highly compensated employees.
   
• For institutions receiving between $250 million and $500 million, the prohibition applies to the SEOs and the next ten most highly compensated employees.
   
• For institutions receiving between $25 million and $250 million, the prohibition applies to the SEOs.
   
• For institutions receiving under $25 million, the prohibition applies only to the most highly compensated employee.

The prohibition does not apply to grants of restricted stock under certain situations. Also, the Treasury is authorized to increase the scope of the bonus prohibition to cover more individuals.

Bonus Clawback

TARP Recipients must recover any bonus, retention award or incentive compensation paid to the SEOs and the next 20 most highly compensated employees based on statements of earnings, revenues, gains or other criteria that are later found to be materially inaccurate.

Luxury Expenditures

TARP Recipients must establish company wide policies regarding excessive or luxury expenditures (as identified by the Treasury), which may include (i) entertainment or events; (ii) office and facility renovations; (iii) aviation or transportation services; and (iv) other activities or events that are not reasonable expenditures for staff development or performance.

Say on Pay

Public companies must permit nonbinding shareholder votes on executive compensation (i.e., “say on pay”). ARRA directs the Securities and Exchange Commission (“SEC”) to promulgate proxy rules for “say on pay” within one year.

Review of Prior Payments

ARRA authorizes the Treasury to review bonuses, retention awards and other pre-ARRA compensation paid to SEOs and the next 20 most highly compensated employees of TARP Recipients to determine whether any payments were excessive or inconsistent with the purposes of ARRA or otherwise contrary to the public interest. If the Treasury determines any payments to be improper, the Treasury will enter into negotiations for appropriate reimbursement to the Federal Government.

Compensation Committees

TARP Recipients are required to establish independent compensation committees to review compensation plans semi-annually in relation to any risk posed to the company as a result of its compensation plans.

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