General Practice, Solo & Small Firm DivisionMagazine

Volume 17, Number 5
July/August 2000


BY Christopher J. Carney

Christopher J. Carney is a shareholder with Brouse McDowell, L.P.A., in Cleveland, Ohio. He is a member of the firm's labor & employment and litigation practice groups. Prior to entering private practice, he was a trial attorney with the U.S. Department of Labor, Office of the Solicitor, where his clients included OSHA and the Wage & Hour Division.

A myriad of federal employment and labor laws impact business. Two laws in particular, the Occupational Safety and Health Act of 1970 (OSH Act) and the Fair Labor Standards Act of 1938 (FLSA), while not the "sexiest" laws on the books, can be especially punitive to smaller businesses. Unlike Title VII of the Civil Rights Act of 1964 or the Family Medical Leave Act of 1990, there is no threshold number of employees an employer must employ in order to be within the reach of the OSH Act or the FLSA-one employee is enough.1

Nonetheless, compliance with safety and health and proper payment practices are two areas that smaller business owners all too often consider only as afterthoughts or overlook altogether. In effect, many small businesses play "Russian roulette" with these laws.

This is not to suggest that smaller employers care less about the safety and health of their employees than larger employers or that smaller employers do not want to pay their employees a fair wage. Three reasons come to mind when looking at why many smaller businesses give less consideration to these laws. First, the fact is that sexual harassment is in the news, not safety and health or improper payment practices. The adage "out of sight, out of mind" fits particularly well with the OSH Act and the FLSA. Second, with federal government cutbacks, Department of Labor (DOL) enforcement in both areas is spotty. As a result of these enforcement cutbacks, some employers, rightly or wrongly, believe they will not get caught. Finally, smaller businesses simply have less time and money. They are less likely to have the resources to keep up with compliance and current developments in these areas.

However, the failure to consider and comply with the safety and health regulations applicable to your business can result in significant penalties, as well as costs associated with coming into compliance. Similarly, the failure to consider and comply with proper payment practices, particularly federal overtime requirements, can lead to large backpay awards. Therefore, lawyers who represent smaller businesses should be aware of some of the nuts and bolts of both laws, if for no other reason than to identify potential pitfalls that can affect your clients.

The Occupational Safety and Health Act

The goal of the OSH Act is "to assure so far as possible every working man and woman in the Nation safe and healthful working conditions...."2 In the majority of states, the federal Occupational Safety and Health Administration (OSHA) effectuates this goal through the enforcement of safety and health regulations that have been promulgated pursuant to the OSH Act.3 Specific safety and health standards for general industry are found at 29 C.F.R. part 1910, and specific construction industry safety and health standards are found at 29 C.F.R. part 1926.4

There are literally hundreds of specific safety and health standards for general industry and construction, the violation of which can form the basis for an OSHA citation. Even though there are hundreds of different specific safety and health standards, they do not begin to address all of the safety and health hazards that can be present in any particular workplace. As a result, when there is no specific standard to address a particular hazardous condition, OSHA is empowered to issue what is known as a "general duty clause" citation, as long as the alleged violation is a recognized hazard within the employer's industry and the hazard is likely to cause serious injury or death.5

Given the hundreds of different safety and health regulations and the hundreds of thousands of different workplaces throughout the country, it would be pointless to discuss in this article specific safety and health regulations. Rather, the thrust of this portion of the article is to discuss some practical tips to employ during three discrete stages of dealing with OSHA and OSHA citations: the inspection stage; the citation issuance and informal conference stage; and the post-contest stage.

The Inspection Stage

The thrust of OSHA's enforcement policies is accomplished through workplace inspections. An inspection can arise through a number of different avenues, which can be roughly broken down into three categories: general scheduled inspections; employee complaint or referral inspections; and workplace fatality (or accidents involving the hospitalization of three or more employees) inspections. In light of federal budgetary cutbacks, the vast majority of OSHA inspections are the result of employee complaints.

In the event your client is inspected, a tricky question is, "What should the company lawyer's role be?" There really is no right or wrong answer-it depends on your client and it depends on the circumstances. As a practical matter, since there is no advance warning of OSHA inspections, it is unlikely that counsel will be in a position to actively participate in a workplace inspection unless the inspection is the result of a workplace fatality or serious injury.

If, however, there is a fatality or serious injury at your client's place of business, then counsel should be involved in the inspection process early on, if for no other reason than for damage control. There are a couple of reasons for this advice. First, scrutiny by OSHA is always heightened when there is a fatality or serious injury. This heightened scrutiny often results in higher penalties and willful citations. Second, workplace fatalities and injuries commonly spawn litigation between the employer and the employee. Therefore, early involvement by counsel under these circumstances is essential.

If your client calls you to tell you there is an OSHA inspector at the door (or if, as counsel, you are in a position to actively participate in the inspection), the following "rules of thumb" should be useful during the inspection stage:
  • In the event the inspection is the result of a fatality or serious physical injury, instruct the client not to proceed with the inspection unless you are present. As long as the time period is reasonable, OSHA will more likely than not delay the inspection. If the inspector is unreasonable, you can request that he or she obtain a warrant. Obtaining a warrant can delay an inspection by days or weeks. Therefore, the threat of a warrant can be a useful tool in controlling when the inspection will proceed; OSHA will likely be more agreeable to delay an inspection by a few hours or a day, as opposed to days or weeks.
  • Find out the purpose of the inspection. For example, if it is a complaint inspection and the complaint area is a discrete location of the workplace, take the inspector to the area in the most direct route possible. This is important because any hazardous condition in the workplace can be the subject of a citation, so you want to minimize the inspector's exposure to other areas of the workplace.
  • An OSHA inspector is permitted to take photographs and videotapes. It is important to photograph or videotape those areas the inspector photographs or videotapes. Furthermore, if the inspector uses a video, determine in advance whether he or she will be using the audio capabilities.
  • Take notes of where the investigator goes, the time spent at each location, the items discussed, and the employees interviewed.
  • An OSHA inspector is permitted to privately interview nonmanagement employees, but the interviews should not disrupt work.
  • Debrief employees interviewed during the inspection. Also, advise nonmanagement employees that they are entitled to copies of their statements. OSHA inspectors often fail to mention this point to nonmanagement employees.
  • A company management representative or counsel should be present at all management interviews, including front line foremen, because such statements can bind the employer.
  • All policies, programs, and requests for information should be directed to and funneled through a single management official or counsel.
  • Although it is important to be courteous through the inspection, it is equally important not to engage in idle conversation with the inspector.
  • Correct obvious hazards that are pointed out during the inspection.
  • Citation Issuance and Contest Stage

In the event your client is cited by OSHA, it will have 15 working days to contest. During this 15-day period, your client is afforded the opportunity to have an informal conference with the area office that issued the citations. An informal conference is a mechanism for quick resolution of OSHA citations. Typically, OSHA will reduce the proposed penalties accompanying the citations at the informal conference. In most instances, an informal conference is beneficial, even if the citations are ultimately contested.

One important point to remember is that the 15-day period within which to contest citations is engraved in stone. Failure to contest in a timely manner will result in the citations, proposed penalties, and proposed abatement dates (date by which the hazard must be corrected) becoming final orders. This will result in your client's having to pay the proposed penalties and having to correct the alleged violations by the dates set forth in the citations. Your client will also be subject to immediate re-inspection to determine if the violations have been corrected. If they have not been corrected, your client may be exposed to repeat or willful violations and correspondingly higher penalties.

The decision to contest an OSHA violation depends on a number of factors, including: the classification of the citation; the proposed penalty; the specific means and time period to correct the violation; and whether the citation was issued as the result of a fatality or serious injury. OSHA citations can be classified as: de minimis, other than serious, serious, repeat, or willful. The penalties for other than serious and serious citations can be as high as $7,000 per violation. The penalties for repeat and willful violations can be as high as $70,000 per violation.

The natural inclination is to focus on the penalty when analyzing whether to contest or settle OSHA citations. Often, however, the classification of the alleged violations and the abatement dates are more important considerations. With regard to classification, the vast majority of citations are issued as serious, unless OSHA has developed specific evidence to substantiate a willful or repeat violation. If your client is assessed a willful violation, it must be thoroughly evaluated to determine whether the classification is reasonable, particularly where a workplace fatality or serious injury gave rise to the inspection. This evaluation typically cannot be accomplished during the 15-day contest period. Therefore, it is not advisable to settle OSHA violations at the informal conference stage when your client is assessed willful violations or if a fatality or serious injury gave rise to the inspection. It is always better to slow down the process under these circumstances.

Similarly, citation abatement is stayed when a notice of contest is filed. In other words, during the contest period, the employer is not obligated to correct the alleged violations. If the means or time period to abate a citation are unreasonable, then it is prudent to contest the citations in order to negotiate more time or more favorable abatement methods.

Post-Contest Stage

Once citations are contested, jurisdiction lies with the Occupational Safety and Health Review Commission (Review Commission), a separate governmental agency whose only function is to decide contested OSHA citations. At this point OSHA is represented by DOL attorneys. Typically, Review Commission proceedings are governed by the Federal Rules of Civil Procedure, but they proceed on a fast track. During this stage of the proceeding, all aspects of the citations are subject to further negotiation and potential settlement.

A case that is not settled is heard before a Review Commission administrative law judge at a location near the employer's place of business. Make no mistake-OSHA hearings are not informal. The Federal Rules of Evidence are strictly adhered to in OSHA hearings. Depending on the circumstances, ALJ decisions can be appealed to either the three-member Occupational Safety and Health Review Commission in Washington, D.C., or to the federal appellate court located in the jurisdiction where the employer resides.

The Fair Labor Standards Act

The FLSA establishes federal standards for minimum wage and overtime compensation.6 Although the FLSA was passed into law during the Great Depression, except for periodic changes, including amendments to the federal minimum wage,7 it has remained virtually intact despite drastic changes in the composition of America's workforce.

The FLSA is a complicated law that is confusing to even the most seasoned labor lawyer, let alone small business owners. In light of the scope of the FLSA, this portion of the article will focus on "white-collar" exemptions, an area of the law that can wreak havoc on businesses because of its many stumbling blocks.

The White-Collar Exemptions

From the standpoint of a business owner, one of the more daunting tasks is to classify an employee as "exempt" or "non-exempt." This task is all the more daunting for small business owners. The significance of this classification is important-an employer is not required to pay overtime compensation to exempt employees. Under the FLSA, there are exemptions for professional, executive, and administrative employees and outside sales persons. These exemptions are commonly referred to as white-collar exemptions.

Any person employed in a "bona fide" executive, administrative, or professional capacity does not need to be paid overtime compensation, provided the employee meets both a duties and salary test. From the standpoint of a business owner, the natural inclination is to squeeze as many employees as possible into the white-collar exemptions; however, this is easier said than done. A common problem in this area occurs when employers attempt to claim an exemption for employees with glorified job titles or inflated job descriptions. Keep in mind that an employee's job duties are the key to properly classifying an employee as exempt. Job titles and job descriptions are merely window dressing.

The regulations codifying the white-collar exemptions are found at 29 C.F.R. part 541. The regulations are broken down into two subparts: subpart A, General Regulations, and subpart B, Interpretations. The general regulations are legislative regulations and are given the full force and effect of law.8 The interpretations, as the name suggests, provide guidance and are given substantial weight by courts interpreting the regulations.9

Duties Test

There is both a long and short duties test for the executive, professional, and administrative exemptions. The short test kicks in when an employee is paid a salary of at least $250 per week. As a practical matter, a $250-per-week salary is low; therefore, this article addresses only the streamlined duties test for each white-collar exemption.

Executive exemption. Employees are exempt as executives if they are paid at least $250 weekly and if their primary duties consist of managing the enterprise in which they are employed or a customarily recognized department or subdivision of the enterprise. The employee's duties must also include the customary and regular direction of the work of two or more employees in the department or establishment. "Managing" includes duties such as interviewing, selecting, and training employees; setting pay and hours of work; and evaluating work performance. These and similar duties must occupy at least 50 percent of the employee's time for the exemption to apply. The executive exemption is codified at 29 C.F.R. § 541.1.

Administrative exemption. Em-ployees are exempt under the administrative exemption if they are paid at least $250 per week and if their primary duties are the performance of office or nonmanual work directly related to management policies or general business operations. Such primary duties include work requiring the exercise of discretion or independent judgment. The administrative exemption is codified at 29 C.F.R. § 541.2.

This exemption is the one most often used by employers trying to categorize an employee as exempt. For example, bookkeepers, secretaries, and telephone sales employees are often miscategorized as exempt under the administrative exemption. Litigation is most prevalent under this exemption. The recent focus of litigation under the administrative exemption turns on whether the employee is performing "production work" as opposed to administrative tasks that are of substantial importance to the management or operation of the business.

Professional exemption. Employ-ees are exempt as professionals if they are paid at least $250 per week and if they meet either of the following requirements: (1) their primary duties consist of the performance of work either requiring knowledge of an advanced type in a field of science or learning or teaching, including work that requires the consistent exercise of discretion and judgment; or (2) their primary duties consist of work in a recognized field of artistic endeavor, including work that requires invention, imagination, or talent. The professional exemption is the most restrictive and the easiest white-collar exemption to apply. It is codified at 29 C.F.R. § 541.3.

The "duties test" for each white-collar exemption is highly subjective. As such, the focus of the inquiry must be on substance rather than form. In other words, the focus should not be on an employee's job title or job description, but rather on what tasks the employee actually performs. However, when counseling clients in this area one must always remember that "close calls" favor the employee and the wrong advice can expose your client to potentially significant backpay awards.

Salary Test

While the duties test for each white-collar exemption is subjective, the salary test is objective. A common myth among employers is that if the employer pays an employee a salary, then the employer is not required to pay overtime. This is simply wrong. Under the FLSA, being paid a "salary" is a term of art and does not mean that an employer can circumvent its overtime requirements merely by paying an employee a salary. Several guidelines, codified in 29 C.F.R. § 541.118, must be adhered to when applying the salary test.

The salary test is met if the employee regularly receives each pay period a predetermined amount constituting all or part of the employee's compensation. The amount cannot be subject to reduction because of variations in the quality or quantity of the work performed. In other words, subject to certain limited exceptions, the employee must receive his or her full salary for any workweek in which he or she performs any work, without regard to the number of days or hours worked. Otherwise, the salary test is not met and the exemption will be defeated.

The salary test is not met if deductions from salary are made for absences occasioned by the employer or the operating requirements of the business. In other words, if any employee is ready and able to work, any deductions that are made from the employee's salary when work is unavailable will destroy the exemption.

The salary test is not met if deductions from predetermined compensation are made for absences of less than a day caused by sickness or accident.

The salary test is not met if deductions from predetermined compensation are made for absences caused by jury duty, attendance as a witness, or temporary military leave.

The following deductions do not affect salary status:
  • Non-payment for any workweek in which no work is performed.
  • Deductions made when the employee misses work for a day or more for personal reasons, other than sickness or accident.
  • Deductions for absences of a day or more due to sickness or disability, if the deduction is made in accordance with a bona fide sickness or disability plan.
  • Pay docking imposed in good faith for major safety infractions.

The FLSA has carved out an exception to the act's minimum wage and overtime requirements for commissioned outside sales personnel. This exception is codified at 29 C.F.R. § 541.5. The exemption is no doubt in recognition of the fact that it is difficult to control the hours of outside sales personnel who call on customers at all hours of the day. Employees are exempt as outside sales personnel if they are customarily and regularly engaged away from the employer's business in making sales or obtaining orders or contracts. Time spent in work other than outside sales cannot exceed 20 percent. It is significant to note that the interpretive regulations at 29 C.F.R. § 541.502(a) specifically provide that inside sales personnel are not exempt.

Computer Professional Exemption

In 1996, the FLSA was amended to provide that computer professionals paid at least $27.63 per hour are exempt from being paid overtime compensation if their primary duties involve the design, creation, or modification of systems or programs.

When counseling business clients in this area, remember that as a general rule, given the remedial purposes of the FLSA, the white-collar exemptions are narrowly construed against employers. Further, the employer always bears the burden of establishing that an exemption applies. Therefore, it is essential for businesses, and in particular smaller businesses, to properly categorize employees as exempt or nonexempt. There is no secret formula to properly classify employees as exempt or nonexempt and thereby eliminate exposure in this area, but conducting periodic workforce audits can minimize exposure. It is not enough to review job titles or descriptions. Rather, the focus must be on the employee's actual duties.

The penalties for failing to properly apply these exemptions can be severe. First, your client may expose itself to significant backpay liability for uncompensated overtime. In addition, the FLSA provides a private cause of action for individuals that permits the recovery of attorney fees and liquidated damages to prevailing employees.

  • For example, Title VII of the Civil Rights Act of 1964 applies to employers with 15 or more employees and the Family Medical Leave Act of 1990 applies to employers with 50 or more employees for each working day during each of 20 or more calendar workweeks in the current or preceding calendar year.
  • See OSH Act§ 2(b).
  • See OSH Act § 18(b), which permits states to remain active in safety and health enforcement through federally approved state plans. Almost half of the states retain jurisdiction over safety and health enforcement and are commonly referred to as "State Plan" states. However, any reference to OSHA in this article will be to the federal enforcement agency, unless otherwise indicated.
  • Maritime safety and health standards are found at 29 C.F.R. part 1915.
  • See OSH Act § 5(a)(1).
  • The FLSA also has equal-pay and child-labor provisions as well as recordkeeping requirements for those employers covered by its provisions.
  • The current federal minimum wage is $5.15 per hour.
  • Subpart A is found at 29 C.F.R § 541.0-541.52.
  • Subpart B is found at 29 C.F.R. § 541.99-541.602.

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