Maureen Knight, James Coleman, James Napoli
Adapted from a July 2014 article that appeared in HR Magazine

For many employers, the wage-hour lawsuit alleging off-the-clock work is their worst fear and their worst nightmare. The reasons are well known. The exposure is very difficult to quantify given that, by definition, there are generally no records of the alleged violations. Rock solid, well-written corporate policies prohibiting off-the-clock work make little or no headway in the defense. And the federal judiciary seems to be playing limbo with the standard for certifying a wage-hour collective action (i.e., how low can they go?). These factors and others add up to lawsuits that often have no good exit options. Well, just when you thought these suits couldn’t be a bigger headache, the looming Patient Protection and Affordable Care Act (PPACA) mandates may prove to make these headaches both more frequent and more painful.

Off-the-Clock Work

Almost universally, plaintiffs argue that the source of alleged off-the-clock work is a company’s (understandable, legal and legitimate–our words, not theirs) desire to limit or avoid overtime hours. Never mind that Congress’s primary goal for the overtime requirement—creating a premium for overtime pay so that employers would be less likely to have employees work overtime and more likely to hire additional employees to perform the work at non-overtime rates—is entirely consistent with employers’ policies of restricting or limiting overtime work. (The federal wage-hour law, the Fair Labor Standards Act, requires employers to pay time-and-a-half of an employee’s regular rate for weekly hours worked in excess of 40.) Any written policy that hints at a practice of restricting or limiting overtime hours will be categorized as somehow encouraging and leading to off-clock work and will show-up as Exhibit 1 to a plaintiff’s motion to certify a wage-hour collective action. As the argument from plaintiffs goes, managers fear punishment if their employees work overtime and therefore require or allow employees to clock-out but continue to work to finish their duties or begin working before they have clocked-in.

Enter the PPACA and its requirement that employees who average 30 hours or more be offered affordable health care coverage by their employers. Not surprisingly, many employers grappling with the economics of this Affordable Care Act mandate will be drawing a line in their workforce in order to keep a certain portion below that 30-hour threshold. Along with those decisions comes the requirement to control the hours worked by the employees in this group, which generally falls to the line managers.

With the PPACA, plaintiffs will now have two company policies restricting or limiting hours to which to point as the (albeit legitimate) companywide policy they will argue should form the basis for companywide certification of a class or collective action. As they already do with regard to the overtime requirement, they will argue that unethical managers will satisfy these internal policies by requiring employees to clock-out when the applicable mark approaches (30 hours for PPACA coverage, 40 hours for overtime pay) but keep working in order to complete their duties.

In addition to an increased potential for allegations of off-clock work, the PPACA also invites the potential for additional damages. Employees who argue that they were forced to work off the clock and whose improperly reduced hours averaged fewer than 30 hours will now add remedies under the PPACA to their backwage claims.

Interference with ERISA Plan

For example, Employee Retirement Income Security Act (ERISA) Section 510 prohibits an employer from interfering with an employee’s right to participate in an ERISA-governed plan, such as an employer-sponsored health plan. To the extent an employee loses coverage under the employer-sponsored health plan due to his or her hours being reduced to part-time, the employee will likely claim that the employer interfered with his or her right to benefits under the plan. Significantly, the employee whose hours are being under counted will use that fact as proof positive of the ERISA § 510 claim inasmuch as it will be argued that the employer is withholding coverage that is otherwise due the employee based on actual hours worked. Reinstatement and lost benefits are common remedies under an ERISA § 510.

Whistle-blower Provisions

In addition to ERISA § 510 claims, Plaintiffs may also attempt to creatively argue that they are entitled to relief under PPACA itself, although this second potential claim will not be limited to instances in which there are allegations of off-clock work. Specifically, before the employer seeks to argue in defense of the ERISA § 510 claim that it did not limit the employee’s hours in an effort to avoid providing coverage under the employer’s health plan, but, rather, the action was taken for the legitimate business purpose of avoiding a penalty or additional cost under PPACA, the employer must consider the federal whistle-blower protections extended to employees via PPACA.

Specifically, PPACA prohibits an employer from taking an adverse employment action against an employee (e.g., reduce the employee’s hours) because the employee received a subsidy through a public health insurance exchange. It should be noted here that a penalty under the employer mandate is generally triggered by an employee receiving a federal subsidy through a public health insurance exchange. The theory that courts may eventually have to rule on is whether the reduction of an employee’s hours to avoid a penalty under PPACA’s employer mandate – again, a penalty that is only triggered if an employee receives a subsidy through a public health insurance exchange – violates the aforementioned whistle-blower protection.

Stated another way, the courts may be asked whether an alleged adverse action taken by an employer that precedes the employee actually receiving a subsidy is actionable under the PPACA’s whistle-blower provisions. Should the courts accept the employee’s potential argument on this issue, then the employer would be subject to damages, including reinstatement, lost wages, lost benefits, and “special damages” (e.g., emotional pain and suffering). These remedies would be in addition to any other remedy available to the employee under federal law (e.g., FLSA and ERISA) and state law, and these remedies cannot be waived.

Risk-Reducing Practices

The bad news is that the PPACA may compound the woes to employers of the off-clock claims or lawsuits. But the good news is that the same best practices used to lessen your exposure to overtime-related off-clock claims will also be effective to reduce the risk of PPACA-related off-clock claims.

First, companies should have a written policy that makes it clear that regardless of the hours that employees are scheduled or expected to work, they are required to record all hours that are worked.

Second, companies should create hotlines and other well-publicized complaint mechanisms that provide employees with an avenue to raise, without fear of retaliation, complaints of being required or allowed to work off the clock.

Third, companies should conduct periodic audits to review time records for suspicious adjustments from managers (such as ones that regularly reduce hours worked to just at or below whatever threshold is at issue—30 hours for PPACA purposes or 40 hours for overtime purposes).

Fourth, in industries where managers need to have access to employees’ time punches when employees forget to clock-in or clock-out, consider instituting an employee acknowledgment process whereby employees must sign-off on the changes made by managers, in order to certify their accuracy. Such acknowledgment process can also be used at the end of a workday or pay period, so that employees can be again given an opportunity to certify the accuracy of the hours reported.

Fifth, incorporate wage-hour-related inquiries in other types of employee relations investigations or audits. Employees should regularly be asked if they have ever been required or allowed to work off the clock or if they have ever suspected that their hours have been inaccurately adjusted.

Sixth, institute a zero-tolerance practice for violations of wage-hour policies, in order to create a culture of compliance.

The procedural mechanisms of the FLSA and the current state of the case law mean that the cards are most certainly stacked against employers. There is usually no good outcome to a wage-hour collective action for employers. As a result, companies must be very serious about avoiding them in the first place. With the PPACA providing another hammer, it’s time to redouble your efforts.

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