Company and CEO Held Jointly Liable for Minimum Wage Violations

A federal district court in Pennsylvania has held American Future Systems, Inc., and its CEO jointly liable for Fair Labor Standards Act (“FLSA”) violations arising from the company’s break policy. That policy required employees to log off of their computers and forgo compensation for all breaks, even short ones lasting fewer than 20 minutes. The CEO, as a 98% owner of American Future Systems and the “final authority” for compensation and break policies, was found to be a joint employer and therefore personally on the hook for these FLSA violations.

The company’s written compensation policy, which had been in place since 2009, required employees to log off of their computers during all breaks, including short personal breaks to use the restroom or get a cup of coffee. Because the company only compensated employees for the time they spent logged into their computers, all breaks were rendered unpaid. Such a policy clearly contradicts the FLSA, which states that short breaks between 5 and 20 minutes are considered compensable work hours. As a result of failing to pay employees for their short personal breaks, American Future Systems allowed employee compensation to dip below minimum wage over the course of each pay period, prompting the lawsuit, which was brought by the U.S. Department of Labor.

While a company facing liability for violating FLSA minimum wage and recordkeeping requirements is nothing new, the fact that the CEO was held personally on the hook as a joint employer is an interesting wrinkle that business leaders should take note of. In this case, American Future Systems’s CEO was a principal owner of the company, had hiring and firing authority, controlled compensation and break policies, and was ultimately responsible for company strategy and the activities of its employees. By having that level of control over the day-to-day operations of American Future Systems, the CEO was liable, along with the company itself, as a joint employer. Complying with the FLSA is always imperative, but for owners who exercise a high degree of control over their businesses, this decision provides a new sense of urgency in the form of potential personal liability. It also highlights the importance of having employee handbooks and workplace policies reviewed from time to time, as seemingly innocuous policies such as “always log off from your computer before going on break” could result in significant consequences for the company as well as its owners.

Frank Gulino is an attorney with Berenzweig Leonard, LLP. He can be reached at FGulino@BerenzweigLaw.com.

Intern or Employee? Don’t Find Out the Hard Way

Unpaid internships have become a prevailing part of the corporate landscape.  They serve as a means for students and recent graduates to gain experience in their chosen fields and give businesses the opportunity to develop relationships with new talent.  What many do not realize, though, is that the intern-business relationship is governed by a network of state and federal laws that, if ignored, can lead to very expensive consequences.

Recently, Fox Searchlight Pictures, P. Diddy’s Bad Boy Entertainment, The Hearst Corporation, Condé Nast, and other businesses have been forced to grapple with the effects of such laws.  Each of these companies has been sued by former unpaid interns who contend that they are entitled to back wages and benefits because of the nature of the work performed.  NBCUniversal is one of the most recent high-profile targets, and recently filed a response in a class action suit that may end up costing the company a tremendous amount of money.

In their suit, former NBC interns Jesse Moore and Monet Eliastam claim that NBC violated portions of the Fair Labor Standards Act and several state regulations in failing to pay wages for kinds of work that must be compensated under the law.  The Department of Labor has stated that interns may only work without pay in certain situations, and the NBC interns argue that because their work at the company does not fall within the protected categories, they are entitled to back pay.

The NBC suit and others like it have touched off a firestorm in the business community, with some calling out for better treatment and fair compensation for under-advantaged interns, while others argue that businesses should jettison their intern programs altogether to avoid potential liability.  One thing is certain: the issues raised in the intern lawsuits are not going away ‒ Fox lost during the first stage of its lawsuit and now has an appeal pending, other companies have settled, and the trend in intern lawsuit filings shows no signs of slowing.  In the end, these stories highlight how important it is for business owners to understand the laws that govern the business-intern relationship; when it comes to interns, it is definitely better to be safe than sorry.

Ryen Rasmus is an associate attorney for the Washington, DC regional business law firm Berenzweig Leonard, LLP.  He can be reached at RRasmus@BerenzweigLaw.com.

House Bill if Passed Would Affirmatively Require Employers to Pay Employees for Jury Duty

On December 6, 2012, the Virginia House of Representatives introduced HB1368, which if passed will significantly change Virginia employment law. Currently, Virginia law does not require employers to pay employees for days missed due to jury duty, although employers are prohibited from requiring employees to use vacation or sick leave for jury duty, cannot take adverse employment action against employees for jury duty absences, and cannot require shift workers to start work within certain time periods following jury duty. Additionally, the Fair Labor Standards Act currently restricts employers’ ability to reduce certain salaried employees’ pay when they are serving on a jury.

The bill would require employers to pay employees their regular compensation and excuse employees from work for days that employees serve over 3 hours of jury duty. Also, employees must give notice to their immediate supervisor and provide a copy of the jury duty summons within one working day after receiving the summons. The bill prohibits employers from discharging or discriminating against employees for jury duty if the required notice was provided. Most importantly, employees who are discharged, demoted, or suspended in violation of the law may seek reinstatement and reimbursement for lost wages, benefits, attorneys’ fees and court costs.

Under current Virginia law and the proposed legislation, employers may deduct any compensation the employee receives for jury duty. The bill is currently before the House’s Commerce and Labor Committee.


Katie Lipp is an associate attorney for the Washington, DC regional business law firm Berenzweig Leonard, LLP. She can be reached at KLipp@BerenzweigLaw.com.

Trend Toward Enforcing FLSA Settlements

The general rule regarding out-of-court settlements for claims brought under the Fair Labor Standards Act (“FLSA”) is that in order to be enforceable, the settlement agreement must be approved by the Department of Labor or by a court. This rule has long posed a burden on employers because unlike many other employment-related claims that could be resolved through a private settlement agreement, settlement agreements in FLSA claims need to be filed in the public record for necessary court approval.

A recent ruling out of the Fifth Circuit Court of Appeals has provided a breath of fresh air for employers. In the case of  Martin v. Spring Break ’83 Productions, LLC, a group of film-industry technicians brought a claim under the FLSA for additional compensation for hours they allegedly worked. After an investigation, a union representative determined that it would be impossible to determine whether the technicians actually worked on the days they claimed.  Subsequently, the union and employer entered into a private settlement agreement regarding the disputed hours. Though the settlement agreement was entered, the technicians filed suit seeking unpaid wages under the FLSA. The employer moved to dismiss due to the previous settlement agreement. The Fifth Circuit ultimately ruled that there existed a bona fide dispute as to the number of hours allegedly worked. Because of this, the court held that the settlement payment was “an enforceable resolution of those FLSA claims predicated on a bona fide dispute about time worked and not as a compromise of guaranteed FLSA substantive rights.”

Importantly, the court allowed this private settlement because it “resolve[d] a bona fide dispute as to the number of hours worked – not the rate at which [the technicians] would be paid for those hours.” Employers must take note that nothing in this opinion allows for employees to privately waive or release substantive rights provided under the FLSA. For example, nothing in this opinion would allow an employer to enter into a settlement agreement whereby the employer would settle to pay half of an employee’s claimed overtime compensation or where the employer negotiated to pay a higher rate of pay than allowed for hours worked in excess of 40 per workweek.

Although the Fifth Circuit came to this conclusion, other jurisdictions may not necessarily reach a similar conclusion.  The Fifth Circuit is the appellate jurisdiction covering Louisiana, Mississippi, and Texas. The Fourth Circuit covering Virginia and Maryland has not yet permitted a private settlement waiver of FLSA overtime claims.  This decision calls into question the long standing principle that FLSA settlements must always be approved by a court or the Department of Labor to be valid. Employers should take note of this opinion and discuss with counsel its potential impact on any FLSA settlement.

Posted by Nick Johnson, Associate Attorney at Berenzweig Leonard, LLP, a business law firm in the DC region.  Nick can be reached at NJohnson@BerenzweigLaw.com.