Compliance effort targeting hotel and motel industry nets two more settlements

By Pamela Wolf, J.D.

The DOL’s Wage and Hour Division (WHD) this week announced separate settlements with hotels in Denver and Ohio after investigations found FLSA minimum wage and overtime violations, in one case as a result of worker misclassification as independent contractors.

The hotel and motel industry employs many low-wage workers who, due to a lack of knowledge of the law or an unwillingness to exercise their rights, are vulnerable to disparate treatment and labor violations, according to the WHD. The agency has expressed concern over the severity of noncompliance in this industry and is concentrating its resources on identifying and remedying violations, informing workers of their rights and providing compliance assistance to employers.

The WHD also has found that staffing agencies frequently provide workers for a variety of jobs in the hotel and motel industry, including housekeeping, food service, and janitorial services, and sometimes misclassify these employees as independent contractors. The agency is documenting the structure and complexity of these employment relationships to determine which of these structures is most likely to enable violations so that it can target enforcement efforts accordingly.

Grand Hyatt Denver. In a release on August 13, the WHD said that 1750 Welton Street Investors LLC, dba Grand Hyatt Denver, and Xclusive Staffing of Denver, have paid a combined total of $55,691 in minimum wage and overtime back wages to 52 employees after an investigation found FLSA minimum wage, overtime, and recordkeeping violations. Xclusive Staffing provided temporary employees to work as room attendants at the Grand Hyatt Denver. In addition to the back wages due, the WHD also assessed civil money penalties totaling $7,920 for the Grand Hyatt and $3,520 for Xclusive Staffing.

Investigators found that the employers failed to pay employees for time spent working prior to and after their scheduled shifts. Housekeeping staff arrived early to prepare their carts and stayed late to finish cleaning a required number of rooms, without the extra time recorded or paid, the WHD said. These unpaid work hours resulted in both minimum wage and overtime violations. The employers also failed to pay employees for working through meal breaks and automatically deducted break time, regardless of whether breaks were taken, according to the agency. Recordkeeping violations were also cited for the employers’ failure to keep accurate records of hours worked by employees.

1750 Welton Street Investors LLC is a subsidiary of UBS Realty Investors LLC; their Grand Hyatt Denver property is managed by Chicago-based Hyatt Corp., which manages, owns, franchises and develops Hyatt-brand hotels and vacation properties worldwide.

Xclusive Staffing Inc. was also recently found in violation of the FLSA during an investigation of the Gaylord Texan Resort and Convention Center in Grapevine, Texas, the WHD said.

In this case, both companies have agreed to comply with the FLSA in the future. The back wages and penalties have been paid in full, according to the WHD.

Midwest Lodging LLC. In a separate development, Midwest Lodging LLC will pay 67 workers a total of $47,654 in back wages following a WHD investigation that found the company used temporary staffing agencies to obtain workers for its hotel facilities, who were then misclassified as independent contractors. The workers were thus denied proper compensation for all hours worked in violation of FLSA minimum wage, overtime, and recordkeeping provisions.

Midwest Lodging used Luxor Services Inc., Bahor Inc., and BA Cobalt Cleaning Inc., to obtain temporary workers. The WHD analyzed the employment relationship between the companies and determined that the affected employees, who worked as housekeepers, laundry workers, and front desk clerks at various Midwest Lodging-operated area hotels under the supervision of its managers, were jointly employed by Midwest Lodging and the temporary staffing agencies. The employers are therefore considered jointly responsible for FLSA compliance. The WHD also found that Midwest Lodging LLC failed to pay overtime to workers directly employed by the company at its hotels.

Specifically, the agency’s investigation found that the employees of the staffing agencies were misclassified as independent contractors and were denied proper compensation under the FLSA. Many of these employees were not paid overtime premiums at time and one-half their regular rates of pay for hours worked beyond 40 in a workweek; they were also not paid for short breaks as required by the FLSA. Additionally, some hourly staffing agency workers who were employed in housekeeping and guest services did not receive minimum wage and were paid as little as $7 per hour, the WHD said. The staffing company also failed to keep accurate records of hours worked, employees’ names, and contact information.

Midwest Lodging LLC operates the following Ohio hotels: Holiday Inn Express and Suites, Mason; Holiday Inn Express, Sharonville; Holiday Inn and Suites, Blue Ash; and Holiday Inn Hotel and Suites in Lima. The hotels are franchise establishments of InterContinental Hotels Group.

According to the WHD, the hotel operator has signed an enhanced compliance agreement that includes paying back wages to the employees of the staffing agencies that have ceased operation, creating an employee handbook that details wage-specific information, maintaining accurate payroll records, issuing payroll checks with detailed wage statements, and ensuring that any workers supplied by a contracting agency are paid in accordance with the FLSA.

Companies: 1750 Welton Street Investors LLC; Grand Hyatt Denver; Xclusive Staffing of Denver; Midwest Lodging LLC; Luxor Services Inc.; Bahor Inc.; BA Cobalt Cleaning Inc.

By Pamela Wolf, J.D.

Two Oregon blueberry growers have filed a lawsuit against the U.S. Department of Labor asserting that the federal agency, via a “hot goods objection” for purported FLSA violations, coerced them into consent judgments so that hundreds of thousands of pounds of highly perishable picked blueberries would not rot in storage while the dispute with the agency was being resolved.

Coercive demands to enter consent judgments. At Pan-American Berry Growers, LLC, the DOL conducted an investigation and reportedly found that two piece rate pickers were using the same ticket, according to a complaint filed on August 15. Without providing more detail of the alleged violation or a summary of its investigation, the DOL District Director allegedly notified both the grower and the purchaser that it was lodging an FLSA “hot goods objection” that would prevent shipment of the berries until the cited violation was resolved.

At the time, Pan-American allegedly had 400,000 pounds of picked blueberries in storage and under contract for sale. To avoid the risk that further harvest would rot, the grower suspended picking operations that would have harvested 30,000 to 50,000 pounds of berries per day, according to the complaint.

The DOL allegedly refused to permit shipment of the berries until Pan-American agreed to sign a consent to judgment under which it would pay nearly $50,000 in damages and penalties, despite the grower’s assurances regarding the corrective measures it was implementing. The DOL also purportedly refused to negotiate the substantive terms of the judgment other than as to two minor modifications.

Ultimately, because the harvested berries were already in storage and in the chain of distribution, Pan-American signed the consent to judgment that, in addition to requiring that it pay the monetary amount, also included injunctive relief, and waived service of process, an answer and any defense to the complaint, further findings of fact and conclusions of law, and the grower’s right to a hearing before an administrative law judge on the assessed civil money penalties.

B&G Ditchen, LLC, suffered a similar scenario, according to the complaint, when investigators arrived unannounced for an FLSA compliance check. Without telling the B&G Ditchen’s owners what violations were found, the DOL District Director placed a verbal “hot goods objection” and even in his written notice only cited “apparent violations,” the complaint said. The grower’s customers were contacted, and the growers were barred from shipping harvested blueberries until they signed a consent to judgment.

At the time, B&G Ditchen had a million pounds of picked berries in storage that could perish. The estimated value of berries in storage and halted in the distribution chain was $1.5 million, the complaint asserts. The DOL purportedly told the grower’s attorney that there were suspected violations of multiple pickers using the same ticket. Although a spreadsheet was provided with a brief description of penalties assessed, the DOL allegedly declined to provide a written explanation regarding the calculation of penalties.

Even though B&G Ditchen tendered a check for the assessed penalties, which amounted to almost $170,000, the DOL refused to lift the “hot goods objection” despite purported prior assurances to the contrary. Like Pan-American, B&G Ditchen was required to enter into a consent to judgment under which it admitted to FLSA violations, consented to penalties, and waived all rights to contest the DOL’s findings or pursue an appeal, all before the “hot goods objection” was removed. They did so because it was the only way to save their highly perishable harvest before it rotted, the complaint asserts.

Relief sought. Both growers are seeking rescission of the consents to judgment and reimbursement of the amounts paid under them, declaratory judgment that the DOL’s application of the FLSA “hot goods objection” provision to growers of perishable goods is unconstitutional, a declaratory judgment that the consent to judgment provided to the growers was unconstitutional because it deprived them of due process, and reasonable attorneys’ fees.

Companies: Pan-American Berry Growers, LLC; B&G Ditchen, LLC

Attorneys: Timothy J. Bernasek (Dunn Carney Allen Higgins & Tongue LLP) for Pan-American Berry Growers, LLC and B&G Ditchen, LLC.

Florida electrical contractor to pay back wages to 59 workers for FLSA overtime violations

The DOL’s Wage and Hour Division (WHD) announced on August 20 that C&B Electrical Contractors of Florida Inc. has agreed to pay $124,638 in back wages to 59 workers after an agency investigation found FLSA overtime and record-keeping provisions.

Investigators from the Jacksonville District Office determined that the company failed to pay overtime to employees working more than 40 hours in a workweek. The firm paid employees on a piece rate, which the WHD said is permissible under the FLSA, but one and one-half times their regular rate of pay for all hours worked over 40 is nonetheless still required. The employer also failed to maintain accurate records of hours worked and payments made to its employees, according to the investigation.

In addition to paying the back wages, C&B Electrical Contractors, which provides residential, new construction, warranty and service electrical work throughout Central Florida, also agreed to comply with FLSA overtime requirements, and to keep accurate time and payroll records. The employer also decided to simplify its pay practices by setting an hourly rate for all employees.

The DOL announced on August 21 that it has filed a lawsuit against Grossnickle Farms in Manistee County, Michigan and its two owners, following an investigation by agency’s Wage and Hour Division (WHD). The complaint asserts violations of the Migrant and Seasonal Agricultural Worker Protection Act (MSPA) and the FLSA’s minimum wage and recordkeeping provisions.

WHD investigators concluded that since at least May 1, 2012, Grossnickle Farms has failed to maintain its migrant agricultural housing facilities in accordance with the MSPA. Inspections of the housing facilities revealed evidence of several safety and health standards violations, including failing to maintain toilets in a sanitary condition and to clean them daily, not providing an adequate supply of hot water for bathing and laundry, and failing to ensure all camp shelters provided protection from the elements and that all exterior openings were effectively screened with mesh material. Additionally, floors in the laundry and shower facilities were purportedly not constructed of nonslip material, and leaking water caused rotting wood and a slipping hazard.

The farming operator also violated the FLSA by paying many employees’ wages at rates less than $7.25 per hour, the DOL asserts. The violations were the result, in part, of defendants misclassifying employees as independent contractors and paying employees on a piece rate basis which, in some workweeks, was less than the minimum wage per hour. Investigators also found that the employers failed to maintain required records of employees’ names, wages and work hours, as required by the FLSA.

Grossnickle Farms, which grows strawberries, asparagus and cucumbers, utilized 49 migrant and seasonal farm workers during the 2012 cucumber harvest, according to the DOL. The migrant agricultural workers were mainly from Texas and Florida. The agency’s lawsuit seeks to recover unpaid minimum wages owed to the affected employees and requests the court to permanently enjoin the defendants from violating the FLSA and MSPA in the future.

“Allowing migrant workers to live in unsanitary facilities without sufficient hot water for bathing and laundry signals a lack of regard for the workers and puts their health and safety at risk,” said WHD District Director Mary O’Rourke. “The department will use every enforcement tool available to ensure compliance with safety and health standards.”

Edison, New Jersey-based QSR Management LLC, the operator of 55 Dunkin Donuts franchise locations throughout New Jersey and Staten Island, New York, will pay $197,787 in back wages owed to 64 employees after a DOL Wage and Hour Division (WHD) investigation found FLSA minimum wage and overtime violation.

Investigators from the WHD’s Southern New Jersey district office found the company did not pay overtime to store managers as required by the FLSA. QSR incorrectly claimed that their managers at all 55 locations were exempt from overtime; as a result of these violations, 56 non-exempt store managers will be paid a total of $197,550 in back wages, according to the WHD. Management at two locations also took tips from customer service workers to cover register shortages, which resulted in minimum wage violations of $237 for eight employees.

Specifically, WHD investigators found that QSR treated store managers as exempt from the overtime requirements and argued that these managers were salaried. But the company actually treated them as hourly employees, reducing their pay when they worked less than 60 hours in a week. Although the FLSA allows an overtime exemption for management employees who perform certain job duties, the exemption only applies if they receive a guaranteed weekly salary of at least $455. Though these managers performed the duties required for the exemption, the company did not pay them a guaranteed weekly salary in all workweeks; thus, store managers were entitled to overtime pay for hours worked in excess of 40 in a workweek.

QSR has assured compliance with the FLSA and has agreed to pay all back wages, according to the WHD. As part of its commitment to future compliance, the company has changed its employee handbook to reflect its intent to properly apply any valid exemptions, and to no longer allow management to take tips from employees.

Suit asserts mechanics, parts department staff were improperly classified as overtime exempt

The DOL filed a lawsuit in federal court against Phil’s Sales and Service LLC and two shareholders after an investigation by its Wage and Hour Division (WHD) found evidence of FLSA overtime violations. The federal agency is looking to recover unpaid overtime compensation and an equal amount in liquidated damages for nine employees, as well as a permanent injunction against future FLSA violations.

Investigators from WHD’s Columbus district office determined that the defendants failed to compensate nine employees working as mechanics and/or parts department staff at time and one-half their regular rates for hours worked more than 40 in a work week as required by the FLSA. To date, the company has paid one employee, an administrative assistant, the back wages due.

Phil’s Sales and Service, which sells and services lawn and yard equipment such as mowers, tractors and chain saws, contends that the employees are exempt from overtime under a FLSA exemption for sales and servicing of farm implements. This exemption, however, does not apply when the establishment is primarily engaged in the sales of lawn and garden equipment used by homeowners and similar consumers, the WHD said.

The DOL filed its lawsuit in the Northern District of Ohio; the case number is 4:13-cv-01876-BYP.

S.D. Ohio judge finds cable installers misclassified as independent contractors, awards $1,474,266 in back wages, damages

According to a Department of Labor news release August 29, 2013, a federal district court in Ohio has found approximately 250 cable installers who worked for Cascom Inc. to be employees covered by the FLSA, rather than independent contractors. Accordingly, the Fairfield, Ohio, company was found liable for $737,133 in back wages and an equal amount in liquidated damages, which can be collected both from the company and its owner. The company has ceased operations, said the DOL, so the department will seek to collect from the owner as well.

The findings of fact were issued following a damages hearing in a lawsuit filed by the agency in 2009, after an investigation conducted by the department’s Wage and Hour Division. The court had ruled in September 2011 that Cascom Inc. and its owner violated the FLSA by failing to compensate employees for hours worked in excess of 40 per work week because they were misclassified as independent contractors.

“The findings in this case bring justice to workers and their families by providing them with their rightfully earned wages,” said Secretary of Labor Thomas E. Perez. “Cascom’s business model also hurt law-abiding employers, who were undercut by this illegal practice. The Labor Department is committed to ensuring compliance to protect middle-class workers and to level the playing field for responsible employers.”

The agency’s suit (Solis v. Cascom Inc.) was heard in the U.S. District Court, Southern District of Ohio; the case number is 3:09-cv-00257.

San Francisco Giants pay $544,715 in back wages, liquidated damages for FLSA violations

The DOL announced on Thursday, August 29, that the San Francisco Giants baseball team has paid $544,715 in back wages and liquidated damages to 74 employees following an agency investigation that determined the Major League Baseball club had failed to properly pay the workers over a three-year period. The DOL and MLB are now working to ensure that all teams are aware of and adhere to FLSA requirements.

Investigators from the DOL’s Wage and Hour Division (WHD) found FLSA minimum wage, overtime pay, and recordkeeping violations that affected a range of employees in the organization at the major and minor league levels, including clubhouse assistants and managers, the DOL said. San Francisco Baseball Associates LLC, the club’s ownership group, has entered into an agreement with the Labor Department to ensure continued and future FLSA compliance.

During the investigation, WHD determined that clubhouse employees were working more hours than were recorded under an employment agreement required by the club, which established a flat rate of pay of $55 for working 5.5 hours per day. However, the employees actually worked an average of 12 to 15 hours daily and received less than the hourly federal minimum wage of $7.25, the WHD found; they were also not paid overtime for hours exceeding 40 in a workweek.

Moreover, the club had improperly classified a number of employees as exempt from overtime pay, including clubhouse managers at the major and minor league levels, and video operators at the team’s major and minor league affiliates, the WHD said. The non-exempt employees were paid a straight salary and no overtime premium, as required based on their job duties. The investigation also revealed that the club had failed to pay overtime or incorrectly calculated overtime pay for administrative staff participating in the Giants’ bonus program.

“We are pleased that the Giants addressed this matter, and it is our hope that other Major League Baseball teams will take a close look at their pay practices to ensure they are in compliance with the law,” said Laura Fortman, principal deputy administrator of the Wage and Hour Division. “MLB has agreed to work collaboratively with the department to ensure all MLB teams are in compliance with the FLSA.”

According to Susana Blanco, director of the San Francisco WHD’s District Office, the case underscores the importance of wage protections: “I am encouraged that the Giants acted to resolve this issue, but it was disappointing to learn that clubhouse workers providing services to high-paid sports stars weren’t making enough to meet the basic requirements of minimum-wage law.”

Effective date of 2011 H-2B Wage Rule indefinitely delayed

By Pamela Wolf, J.D.

The DOL’s Employment and Training Administration (ETA) has issued a final rule indefinitely delaying the effective date of the embattled Wage Methodology for the Temporary Non-agricultural Employment H-2B Program final rule (2011 Wage Rule), according to a notice slated for publication in the Federal Register on August 30.

The for the indefinite delay is to comply with recurrent legislation barring the DOL from using any funds to implement it and to allow the agency to consider further comments sought in conjunction with an interim final rule published April 24, 2013 (78 FR 24047).

The 2011 Wage Rule revised the methodology by which the DOL calculates the prevailing wages to be paid to H-2B workers and U.S. workers recruited in connection with a temporary labor certification for use in petitioning the Department of Homeland Security to employ a nonimmigrant worker in H-2B status. The 2011 Wage Rule was originally scheduled to become effective on January 1, 2012, and the effective date has been extended a number of times, most recently to October 1, 2013. If the 2011 Wage Rule is later implemented, the DOL will publish a document in the Federal Register establishing a new date.

The April 24 interim final rule was issued in response to a March 21 order by a federal district court in Pennsylvania in Comité de Apoyo a los Trabajadores Agricolas v Soli, which vacated portions of DOL’s current prevailing wage rate regulation, and to ensure there is no question that the rule is effective nationwide in light of other outstanding litigation. The rule also contains revisions to DHS’ H-2B rule to clarify that DHS is the Executive Branch agency charged with making determinations regarding eligibility for H-2B classification after consulting with DOL for its advice about matters with which DOL has expertise, particularly, in this case, questions about the methodology for setting the prevailing wage in the H-2B program.