Balbed v. Eden Park Guest House, LLC: Lodging as “Wages” under the FLSA

/in /by Balbed v. Eden Park Guest House, LLC: Lodging as “Wages” under the FLSA

At its most basic level, the Fair Labor Standards Act (“FLSA”) requires employers to pay their employees a minimum wage per hour worked.  When employers pay only cash, the analysis is, of course, relatively straight forward.  However, in-kind compensation can complicate the issue.  The U.S. Court of Appeals for the Fourth Circuit recently analyzed the issue in detail, at least with respect to one type of in-kind compensation, lodging.

In Balbed v. Eden Park Guest House, LLC, the employee worked as an innkeeper for Eden Park Guest House – a small, family-owned bed and breakfast located in Takoma Park, Maryland. Eden Park and Balbed signed a written employment contract in July, 2015.  Under the contract, Eden Park agreed to pay Balbed $800 per month in cash, and also to provide Balbed with other in-kind benefits, such as a room at the inn, laundry, utilities, and daily breakfast. Balbed, meanwhile, agreed to perform a list of tasks: answer phones, make reservations, serve guests breakfast, etc.  The contract set forth a daily schedule that compartmentalized some of these agreed upon tasks into three separate categories that spanned a 29 hour work week. However, this daily schedule presented two problems. First, two of the three categories of tasks specified the amount of time within which those tasks should be completed, but the third did not. Second, none of the three categories accounted for all of the additional duties that Balbed was contractually required to perform.

Six months after beginning employment, Balbed sued Eden Park for failure to pay the statutorily-mandated minimum wage and overtime, then quit her job. She claimed that she had worked more than 100 hours per week.  Eden Park argued that it paid Balbed more than the minimum wage because it not only paid $800 per month in cash, but also provided in-kind compensation, which it claimed was worth between $850 and $1800 per month.

The parties’ dispute thus turned on two factors: how much time Balbed had worked, and what she had been paid.  Federal law places the recordkeeping burden for both factors on the employer.  Eden Park had no records establishing either the time that Balbed actually worked while on their premises or the cost or value of the lodging that it provided her.

Because of the difficulties in determining how much time an employee actually spends working while living on an employer’s premises, Federal law will enforce any reasonable agreement between an employer and an employee for determining hours worked by the employee.  In this case, Eden Park claimed that the contract was a reasonable agreement, and that it had complied with the contract, so it could not be liable to Balbed.  Balbed, of course, disagreed.

The Federal appellate court could not resolve the matter, and instead sent it back to the trial court for a re-trial to determine (1) whether under all the facts and circumstances of the case, the employment contract was a reasonable agreement regarding the number of hours actually worked, and (2) whether Eden Park could prove the actual cost or fair value of the lodging and in-kind services that it provided to Balbed.

The case is significant to employers for at least two reasons.  First, it serves as an important reminder of the need to keep good records.  In the event of a dispute regarding hours worked, services provided, or the value of compensation paid, the recordkeeping burden falls on the employer.  Recordkeeping is especially important where compensation includes an in-kind component, or is otherwise non-traditional.  Maintaining records of hours worked, with employee verification if possible, is critically important in defending a case under the FLSA or similar state law.  The records should be backed up, stored, and maintained for at least a year beyond the applicable statute of limitations for any potential claim.

If an employee’s compensation will include some in-kind component, it is also critically important to be able to establish both the actual cost of that in-kind compensation to you the employer, and the fair value of that compensation.  Both must be established because Federal law only allows an employer to claim credit for the lower of the two.

Employers should also keep in mind that actual cost and fair value can both change, and so the determination should be re-visited from time to time, to ensure that total compensation meets the applicable minimum wage.  For example, where an employee’s compensation includes lodging, the cost of the lodging is arrived at by apportioning things like the mortgage payment, electric bill, and other expenses of owning the real estate.  As those costs change, so does the amount that is properly apportioned to the employee’s living quarters, and thus so does the actual cost of the in-kind compensation to the employer.

Second, Balbed demonstrates the importance of clear, complete, well-drafted agreements.  Many of the questions that caused the appellate court to send the case back for a re-trial could, and should, have been avoided in a well-drafted agreement.  Eden Park would have done well to expressly provide for, among other things, set time each week during which Balbed was free from duties of any kind, including the duty to be “on call” to check in guests or otherwise tend to guest needs.  Had the contract expressly set out the cost and fair value of the in-kind compensation, and demonstrated how each number was calculated the entire dispute likely would have been avoided.

Employee compensation is, even in straight forward cases, fraught with risk for employers who are not both careful and diligent.  Balbed confirms that the risks increase substantially when compensation includes non-cash or in-kind goods or services.

Maryland Passes the Healthy Working Families Act

/in /by Maryland Passes the Healthy Working Families Act

Maryland workers now enjoy greater access to “sick and safe” leave. Effective February 11, 2018, the Maryland Healthy Working Families Act (the “Act”) requires employers to allow employees to use earned sick and safe leave:

  • to care for or treat the employee’s mental or physical illness, injury, or condition;
  • to obtain preventive medical care for the employee or employee’s family member;
  • to care for a family member with a mental or physical illness, injury, or condition;
  • for maternity or paternity leave; and
  • for specified circumstances due to domestic violence, sexual assault, or stalking committed against the employee or the employee’s family member.

I. What Does the Act Require?

Originally introduced during the 2017 Legislative Session, the Act was passed in both houses of Maryland’s General Assembly, but was subsequently vetoed by Governor Hogan. The House of Delegates and the Senate overrode the veto in January 2018.

The Act requires employers to have a sick and safe leave policy under which covered employees earn at least one hour of sick and safe leave for every 30 hours worked (employees regularly working fewer than 12 hours per week will not accrue sick and safe leave.).  As discussed more fully below, whether the leave is paid or unpaid depends on the number of employees the employer employs.

Under the Act, leave began accruing on January 1, 2018, and leave hours are paid at the same rate that the employee normally earns (or for tipped employees, the relevant minimum wage).  Even though leave began accruing on January 1, 2018, the Act allows employers to prohibit employees from using their leave for the first 106 calendar days of employment.  Unused leave may be carried over from year to year, but employers may cap the amount of leave that can be carried over at 40 hours per calendar year.

Employers with 15 or more employees must allow employees to accrue one hour of paid leave for every 30 hours worked.  Employers with 14 or fewer employees must allow leave to accrue at the same rate, but the leave can be unpaid.  Importantly, to calculate the number of employees, the employer must look at the average number of employees per month over the previous calendar year. The calculation includes every employee, not merely those entitled to sick and safe leave.  So, an employee who regularly works ten hours per week is not entitled to accrue leave, but must be counted as an employee when determining whether the leave accrued by eligible employees under the company’s policy is paid or unpaid.

II. How Does the Act Impact You?

Right to Notice and Verification from Employee

Employers have the right to demand notice for leave taken under the Act. If the event requiring leave is foreseeable (for example, a scheduled surgical procedure), the employer may require seven days’ notice. If the leave is not foreseeable, the employee must provide notice “as soon as practicable.” “Practicable” is not defined in the Act. Courts will likely liberally construe this term in favor of the employee, given that employers generally lack first-hand knowledge of what an employee’s medical condition is or how “practicable” notice to his employer was at the time. Notably, though, if the employee fails to give the notice, the employer may deny the sick and safe leave request, if the employer can establish that the leave would “cause a disruption” to the employer’s business.

Additionally, if an employee will miss more than two consecutive shifts, the employer may require verification that the leave was taken in accordance with the Act. Further, an employer may ask for verification if a new employee is taking leave between days 107 and 120 of their employment. However, to ask for verification during this period, the employee and employer must have a written agreement that the employee will provide verification in that period. Therefore, it would be wise for employers going forward to add sections to new-hire packets and/or employee handbooks to ensure full compliance with the verification provisions. Note that where employee refuses to provide verification, the only consequence is that the employer may refuse a later request for the “same reason.” This indicates that the employer must still allow the leave that was already taken, but may refuse future leave requests.

Employer’s Notice and Recordkeeping Requirements

Under the Act, employers must notify employees of their right to earn safe and sick leave. Maryland’s Department of Labor, Licensing, and Regulation (“DLLR”) has provided an employee notice poster for places of business, as well as model policies for employee handbooks, all available on its website. See https://www.dllr.state.md.us/paidleave/. Employers must also provide a system for the employees to verify the balance of their accrued leave. One method of fulfilling this requirement is by ensuring the balance of all accrued leave is included on each pay stub.

Employers are required to keep records reflecting all safe and sick leave earned by each employee over the prior three-year period, and all safe and sick leave used by each employee during the same time. If an employer fails to do so, and DLLR initiates an investigation, the failure to keep accurate records will create a rebuttable presumption that the employer violated the provisions of the Act

The rebuttable presumption created by a failure of record-keeping is a major problem for alleged violations of the Act. An investigation is initiated when an employee reports a potential violation to DLLR. DLLR will then initiate a mediation session between the employer and employee. If that mediation is unsuccessful and DLLR finds the employer violated the Act, the Commission may order up to three times the amount of unpaid leave to the employee, and may also order the employer to pay up to a $1,000 civil penalty for each employee for which the employer is in violation. Accordingly, if one employee alleges a violation, but DLLR finds out that records are insufficient for all employees, the $1,000 civil penalty could grow exponentially.

Termination/Leave Use

 If an employee quits or is fired with accrued leave unused, employers are not required to compensate the employee for the unused leave. However, if the employee is thereafter rehired within 37 weeks, employers must reinstate the accrued leave.

Advance Leave

An employer may, by written agreement, allow employees to use leave that has not yet been earned, and reduce the employee’s wages accordingly if the employee quits or is fired before earning sufficient leave to “repay” the advance.  Employers are not required to provide advance leave, but must – as with any deduction from an employee’s wages – ensure that the deduction has been previously authorized in writing by the employee.  In addition, advance leave must be offered, if at all, on a non-discriminatory basis.  That is, it need not be offered to all employees, but it cannot be offered or withheld based on membership in any protected class.

Retaliation

 Employers may under no circumstances take any retaliatory action for using leave, or for an employee reporting (in good faith) an alleged violation of the Act.

New Case Law Aids Employers in Recognizing Title VII Retaliation

/in /by New Case Law Aids Employers in Recognizing Title VII Retaliation

As the Equal Employment Opportunity Commission regularly reminds us, retaliation is the most frequently alleged form of discrimination. A recent decision from the United States District Court for the District of Maryland, Stennis v. Bowie State University, provides an instructive interpretation of the law by addressing an alleged case of retaliation under Title VII.

Stennis, a former professor at Bowie State University, filed a complaint alleging that the University unlawfully retaliated against her after she voiced concerns that her supervisor was discriminating against certain students on the basis of their gender and sexual orientation. After raising her concerns, she alleged that her supervisor sent her “threatening and intimidating” emails and reduced her teaching duties and departmental roles. The supervisor was also part of the department’s faculty review committee, which voted against recommending Stennis for tenure.

Despite the non-recommendation, Stennis received tenure on June 1, 2014. She alleged that the hostilities from her supervisor continued, and she resigned on August 15, 2014. Stennis then filed a charge of discrimination on August 20, 2014, five days after she resigned, alleging retaliation and constructive discharge.

After Stennis filed her complaint in federal court, Bowie State filed a motion to dismiss her claim. As the court noted in addressing the motion to dismiss, an employee bringing a charge of retaliation must allege that: “(1) he engaged in a protected activity; (2) the employer took an adverse employment action against him; and (3) a causal connection existed between the protected activity and the asserted adverse action.”

As to the first element, the court reviewed the two types of protected activity: participation activities and opposition activities. Participation activities are those activities which arise from participating in an EEOC complaint, such as making a charge of discrimination or participating in the investigatory process. However, the EEOC process must have commenced in order for an employee to be protected under the participation clause. Since Stennis did not file her charge until after she resigned, she could not claim that Bowie State was “retaliating” against her, because the complaint process had not yet begun.

Opposition activities, generally, are activities which oppose an employer’s illegal discriminatory Franklin & Prokopik 3 A Professional Corporation employment practice. Among other things, opposition activities may include refusing to obey an order because of a reasonable belief that it is discriminatory, or complaining or protesting about an employer’s alleged employment discrimination. In this case, however, the activity that Stennis opposed was discrimination against students, not employees. Since Equal Employment Opportunity laws do not protect non-employee students, Stennis’ activities were not opposition activities and were not protected under Title VII.

As to the second element, the court noted that adverse employment actions are only those which cause significant injury or harm. Stennis alleged that her supervisor acted with hostility toward her and erected barriers to her tenure application. As the court noted, Stennis’ complaints included vague references to threatening and intimidating emails, allegedly unwarranted criticisms of her tenure dossier, and a non-recommendation for tenure. Under the circumstances, the court found that these allegations amounted to no more than unactionable “personal slights.”

While Stennis’ complaints of a reduction in duties and responsibilities could be actionable, she failed to show that these reductions caused her significant harm. Stennis alleged that her supervisor’s actions had the combined effect of reducing her professional standing and hindering her tenure capacity. However, she ultimately received tenure regardless, and remained in high enough professional standing to obtain another teaching position at Coppin State University. Likewise, the granting of tenure showed that the allegations did not rise to the level of constructive discharge, which “occurs when an employer deliberately makes an employee’s working conditions intolerable and thereby forces him to quit.”

As this case demonstrates, the line between an actionable claim and a non-actionable claim for discriminatory retaliation is not always clear, and in some cases may even depend on the stage of the complaint at the time of the alleged discrimination. As a practical matter, this case is an excellent reminder for employers that participation activities and opposition activities are protected under the law, and a reminder to recognize such activities when they arise and refrain from retaliation.

For more information about this article, please contact Matthew G. Kuspa at 410.230.3051 or mkuspa@fandpnet.com.

Washington, D.C. Adopts Paid Parental Leave Bill

/in /by Washington, D.C. Adopts Paid Parental Leave Bill

On December 20, 2016, the District of Columbia City Council passed the Universal Paid Leave Act (UPLA), one of the nation’s most expansive parental leave laws. The new legislation grants all full-time and part-time workers eight weeks of paid leave following childbirth, adoption or fostering of a new child. The law also provides for six weeks paid leave to assist ailing family members and two weeks paid leave for personal medical emergencies.

The law, which passed by a “veto-proof ” 9-4 vote, only includes private sector workers and excludes federal and city employees. There is no residency requirement for employees to qualify under this law; employees can reside in other cities and states and only need to be employed in the District of Columbia to be eligible. The leave program will be funded by a payroll tax increase of 0.62%. Eligible employees will receive 90% of their weekly wages with a cap at $1,000.00 per week. D.C. will begin collecting the increased payroll tax from employers in 2019 and will begin paying benefits under the UPLA to employees in 2020. The measure passed over opposition from the District of Columbia Chamber of Commerce and Mayor Muriel Bowser, who expressed concern regarding the taxation of D.C. businesses to benefit workers who largely live outside of the city and the logistics of the administration of the plan. Unless overridden by Congress, the act will become law.

The federal Family Medical Leave Act provides up to 12 weeks of unpaid leave during a 12 month period to care for a newborn, adopted or foster child, to care for a sick family member or for personal medical reasons. Data from the Bureau of Labor Statistics National Compensation Survey indicates that 12% of private sector workers in the U.S. have paid family leave

D.C.’s Universal Paid Leave Act represents one of the nation’s most generous paid parental leave laws and may signal a trend across the country. D.C. joins California, New Jersey and Rhode Island in offering paid family leave and New York’s 12-week paid parental leave law that becomes effective on January 1, 2018. The state of California and the city of San Francisco have also recently expanded parental leave laws. Additional paid leave legislation has been introduced or is being pursued in many other states throughout the country. Further, the national trend toward paid sick leave laws has also been gaining momentum at both the state and local levels. Whether the trend in paid sick leave will translate to increased passage of paid family leave legislation remains to be seen.

For more information about this article, please contact Sarah S. Lemmert at 410.230.3075 or slemmert@fandpnet.com.