Court illustrates how HR pros can be personally liable for FMLA blunders

Heads up: The stakes have been raised on FMLA compliance for human resources professionals.  

That’s because an appeals court not only ruled that HR pros could be personally liable for FMLA violations, it also offered employees a simple blueprint for disgruntled workers to make such claims.

Took aim at HR director

Understanding why the court ruled the way it did will go a long way toward helping you and your company avoid falling victim to a similar fate.

The case was Graziado v. Culinary Institute of America, Garrioch. Garrioch was the HR director.

Here’s some background: When Cathleen Graziado, a payroll worker for Culinary Institute of America (CIA), took FMLA leave to care for her sons, the company questioned the validity of that leave.

In the communication that followed, the director of HR, Shaynan Garrioch, said Graziado’s documentation wasn’t sufficient. The company then set a deadline for Graziado to submit the proper documentation but, when she failed to do so, she was fired.

Following her termination, Graziado filed an FMLA interference and retaliation suit against CIA as well as Garrioch.

In its attempt to get the suit dismissed, CIA’s attorneys argued that Garrioch wasn’t an employer under the FMLA and couldn’t be held individually liable in the suit.

This argument seemed like a no-brainer, and a lower court agreed and dismissed this and the rest of Graziado’s claims.

FLSA tie-in

But on appeal, a court disagreed and sent the case to trial. What the appeals court said about the definition of employer is especially worrisome for HR and benefits pros.

In regards to the HR director’s individual liability, the court ruled the FMLA’s definition of “employer” – defined in the law as one who “acts, directly or indirectly, in the interest of an employer to any of the employees of such employer” – basically mirrors the definition under the FLSA.

In fact, the FMLA was initially adopted as an amendment to the FLSA. Because of these factors, the court said the test used to evaluate employers under the FLSA should be applied to FMLA cases, too.

So the court applied the FLSA’s control or “economic reality” test to the claim CIA’s director of HR was an employer and found two key reasons to support that claim:

  1. The director of HR controlled Graziado’s schedule and conditions of employment, and
  2. She had the power to fire Graziado.

Result: There was plenty of evidence the director of HR controlled Graziado’s FMLA rights from an employer capacity. Therefore, she could be personally liable for FMLA violations.

Doublecheck everything

The idea of HR and benefits pros being personally liable for FMLA issues is particularly alarming when you consider how often courts hand down pro-employee FMLA verdicts.

This ruling is yet another reason to doublecheck all FMLA decisions to ensure compliance – especially those involving termination – and always try to err on the side of caution.

In addition, employers may want to consider ramping up their FMLA training to stay safe.

11 remarkable overtime rule tips from DOL insider

Turns out there’s more to the FLSA’s overtime exemption rule changes (and salary threshold) than meets the eye. A former DOL administrator recently opened a lot of employers’ eyes with what she had to say about the new rule. 

In front of a packed room filled with more than 1,000 HR professionals at the SHRM16 Annual Conference & Exposition, the former administrator of the DOL’s Wage and Hour Division, Tammy McCutchen, surprised a lot of attendees with her insights on the rule changes.

McCutchen was the main architect behind the 2004 changes to the FLSA’s overtime exemption rules. So she has a unique handle and perspective on how the new overtime rule will be enforced and how employers can go about complying with it. She’s now an employment law attorney with the firm Littler Mendelson, P.C. and counsels businesses on how they can comply with the FLSA.

In her presentation, she shared 11 critical tips about the law every employer should see:

1. Think $913, not $47,476

McCutchen said many employers are focusing on the $47,476 annual threshold under the FLSA’s salary basis test. But she warned not to do that.

Why? It’s a week-by-week test. Therefore, employers need to focus on making sure exempt employees are paid $913 per week.

If there are weeks that employees don’t make at least $913, the DOL will consider them non-exempt (or, rather, the DOL’s new favorite term: “overtime-eligible”) for those weeks.

2. Think $821.70 when adding in bonuses

There is an exception to the $913-per-week rule: it’s when employers will count nondiscretionary bonuses toward up to 10% of the threshold.

In that case, exempt employees must be paid at least $821.70 per week. Then, when a bonus is paid out (and they must be paid out at least quarterly), the employees’ pay for that quarter must average out to at least $913 per week.

3. Nearly every bonus is nondiscretionary

McCutchen said the DOL’s definition of nondiscretionary bonus is very, very broad.

As a result, she said just about every bonus employees receive will be nondiscretionary.

4. The bonus method is risky

McCutchen said she’s hesitant to advise employers to go with a strategy in which they’ll attempt make up any shortfall between the $821 figure and the $913 figure with a bonus.

Why? Because if an employee fails to earn the bonus, or the company makes a calculation or payroll error that results in an employee making less than $913 in any week within a quarter, the employee must be classified as OT-eligible for that entire quarter — and that can get very expensive very quickly.

As a result, she suggests just rolling bonus pay into an employees’ base salaries to get, and keep, them above the $913 threshold. Or, at the very least, she says employers must consult with outside legal counsel and present that counsel with a plan as to how they plan to make the bonus calculations/payments. Then, she implores employers to audit their bonus processes frequently.

Plus, she said, there’s the whole issue of what happens when an employee leaves in the middle of the quarter. In those causes, she said to play it safe and pay the person any bonus amount necessary to get them over $913 per week worked.

5. With highly compensated employees, don’t forget the last “4”

McCutchen said if an employee makes more than the new highly compensated employee salary threshold — $134,004 — chances are they’ll pass the minimal duties test thrown at them. But employers can’t forget the last “4” on that number.

She said she’s hearing the number “$134,000” tossed around a lot, and she warned that setting someone’s salary at $134K won’t make them a highly compensated employee under the rule.

6. Expect a big increase in three years

As you’ve likely heard, the salary basis threshold will be reset every three years.

Currently, it was set at the 40th percentile of earnings in the lowest wage census region — the South — and it will be reset to that figure every three years.

But McCutchen said the data set the DOL will be looking at three years from now will be much different than the data set it used to establish the $913 figure. Due to this year’s change to the FLSA, she said she expects a lot of the lower salaries to drop out of the data set over the next three years and to see a lot of the higher salaries climb.

As a result, she said the threshold will likely be much higher when the FLSA is updated again in January 2020.

She also reminded employers that they’ll get 150 days’ notice before the 2020 salary threshold kicks in.

7. Make the switch over Thanksgiving

As you know, the new salary threshold kicks in Dec. 1, 2016. Do you know what day that is?

It’s a Thursday, and because of that McCutchen said you don’t want to have employees’ new salaries or classifications kick in on that day.

Why? It’ll result in an administrative nightmare in which some employees will be exempt for half of the week and non-exempt the second half.

A better way: Make the change the week of Thanksgiving. She said due to the holiday, it’s unlikely newly OT-eligible employees will have to work overtime that week, which can make the transition a lot easier (without making it more expensive).

8. Remember state notice requirements

Some states require employers to provide workers with advance notice of changes in their pay, and employers can’t forget to abide by them.

McCutchen said such laws tend to require a one pay period heads up — and typically just for reductions in pay. Meanwhile, Missouri requires employers to give workers 30 days’ notice for pay reductions.

9. Meet the most stringent duties test

McCutchen pointed out that 18 states have duties requirements that differ from federal regulations.

Which ones are employers required to follow? Answer: An employer must follow the more difficult of either its state’s duties test or the federal duties test.

10. The rule changes aren’t going away

McCutchen said the chances are “slim to none” that the new exemption rule gets nixed or delayed prior to the effective date of Dec. 1.

11. There is a cost-neutral salary formula

One option employers are considering for affected employees who work 40-plus hours per week is dropping those employees’ base pay rates and then allowing those folks to make up for the shortfall by receiving overtime pay.

But some employers are struggling to determine what to reduce those employees’ base wages to.

So McCutchen shared a DOL-recommended formula for determining what an employee’s pay rate should be, so that when the person works overtime their total compensation isn’t more than what he or she’s currently taking home.

In other words, it’s a cost-neutral formula. But it’s really only cost-neutral if you have a good estimate of the person’s expected weekly hours (including overtime).

Here’s the formula: Weekly Salary/(40+(OT Hours x 1.5))

Here’s how it would work: Say you have an employee who works 45 hours every week with a weekly salary of $800. His hourly pay rate for the purposes of calculating overtime is $20 per hour ($800/40), so his OT-rate would be $30 per hour ($20 x 1.5). Now if this employee worked 45 hours per week, he’d make $950 per week ($800 + $30 x 5).

Now let’s use the cost-neutral formula for this same person working 45 hours per week. His base weekly pay rate would be dropped to $16.84 ($800/40+(5 x 1.5)). That would mean his OT-rate would be $25.26 ($16.84 x 1.5). So his weekly take-home pay for 45 hours’ worth of work is $800 ($16.84 x 40 + $25.26 x 5).

But McCutchen did admit this is a hard sell for this employee because it basically means a pay cut if he doesn’t get five hours of overtime each week.