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July 2002
Legislative and Regulatory Highlights for Area Employers

The Employers Association is a nonprofit Charlotte organization that serves as a comprehensive source for human resources and training services targeted to keeping area member business owners, managers and executives abreast of current developments and concerns in the human resources arena.  Founded in 1958, the Association maintains a broad-based membership of over 700 companies from all industries in the greater Charlotte region.

            As one of over 70 nonprofit HR associations nationally providing HR services to regional memberships, The Employers Association solicits information from its own members and engages in a national information exchange among all Employer Association Group members under the auspices of the National Association of Manufacturers.


• Perdue Pays $10 Million in Back Wages

            Perdue Farms, one of the nation's largest poultry companies, has voluntarily agreed to pay $10 million in back wages to 25,000 former and current employees concerning "clothes changing time." The U.S. Department of Labor had filed suit against the company saying that employees in certain jobs should be paid while changing into work clothes and protective equipment that are specific to their job. Perdue agreed to pay its employees an additional eight minutes per day for time spent changing clothes. The agreement goes back two years, which is the normal limitation period under the law.

            The Labor Department has been in discussions with Perdue for three years concerning this matter. Perdue, like most other companies in this line of work, has not paid their employees for time spent changing into work clothes. The Fair Labor Standards Act (commonly called the Wage/Hour Law), is a bit confusing in this area. In general, Section 785.24 requires that employers must pay employees for changing clothes time, if such clothing is required as an integral part of an employee’s "principal activity" (such as where special clothing is required in a chemical plant). Yet if changing clothes is merely for the convenience of the employee, it is considered "preliminary" or "postliminary" activity and is not working time. However, Section 785.26 and Section 3 (o) allow for a potential exception to the rule, when the express terms of custom or practice under a collective-bargaining agreement exclude the changing clothes from working time. Perdue and other employers in the poultry industry have relied on this exception, and for years the DOL did not raise the issue. In the wake of the Perdue settlement, the Labor Department is now setting their sights on Tyson Foods, the nation's largest poultry producer, for the same issue. Tyson has withdrawn from voluntary discussions with the Labor Department in this matter, thus a suit was filed. (Wall Street Journal)


• Supreme Court Rules on Reasonable Accommodation and Seniority Systems

            The United States Supreme Court has ruled that an employee’s request for a reasonable accommodation under the Americans With Disabilities Act (ADA) will not necessarily override an employer’s valid seniority system. The ruling stemmed from a case involving an injured US Airways baggage handler who invoked his seniority rights and was temporarily assigned to a less physically taxing job in the mailroom. When he learned that two other more senior employees intended to bid on his mailroom job, the employee asked US Airways to accommodate his disability by making an exception to the seniority system so that he could remain on the job. Ultimately, the company refused his request.

            In a 5-4 decision, the Court held that in most cases, a valid seniority system will carry greater weight than a request for reasonable accommodation. However, the ruling stopped short of saying that seniority systems will always prevail. A seniority system in which the employer makes frequent, unilateral changes, leaving employees with reduced expectations that the system will be followed would be judged differently from a system that already contains so many exceptions that "one further exception is unlikely to matter."

            Employers should take care in ensuring that policies, such as seniority, are followed fairly and consistently and requests for reasonable accommodation are reviewed on a case-by-case basis. (The New York Times, The Wall Street Journal)


• Workers' Comp/Health Insurance Fraud

            Employers currently using Employee Leasing Companies (ELCs) and Professional Employer Organizations (PEOs) should be aware of an alert recently issued by the North Carolina Department of Insurance (NCDOI). According to the NCDOI, certain ELCs and PEOs have offered nonexistent workers’ compensation and/or health insurance coverage to employees of client companies.

            One scam involves PEOs and ELCs pretending to self-fund workers’ compensation coverage without setting aside adequate reserves to pay claims and without obtaining appropriate state licensure. Another scam involves false statements that work comp coverage or health insurance is being underwritten or reinsured by a licensed insurer when there is no such underwriting or reinsurance. Often employers do not detect the scams before they are saddled with unpaid workers’ comp or health benefit claims.

            Employers who have questions or concerns about the insurance coverage being offered in connection with ELC or PEO contracts are urged to contact the NCDOI Consumer Services Division or the North Carolina Industrial Commission. (CAI Management Newsletter)


• Lawsuits Stemming from Overtime Issues On the Rise

            The Fair Labor Standards Act was passed in 1938 and remains in much the same form as when it originally became law. Most employers are familiar with at least two of the requirements of the law, minimum wage and overtime compensation. It is the latter, however, that has most often been the source of confusion, misclassification, abuse, complaints and now, significant lawsuit settlements.

            Last year, the so-called "collective actions" brought under the Fair Labor Standards Act (FLSA) exceeded the number of class actions alleging employment discrimination. Tens of thousands of employees around the country have claimed in lawsuits that their employers have cheated them out of overtime pay. The settlements in some of the suits have been large, ranging from $20 million to $90 million dollars.

            The overtime rules that have been a part of the FLSA since its inception generally require the payment of time-and-a-half to employees who work more than 40 hours in a payroll workweek. The federal law, however, carves out numerous exemptions for certain employees, including those deemed "managerial," "administrative," or "professional."

            According to plaintiffs’ attorneys, companies improperly classify employees to reduce labor costs. Employers argue that confusion arises over how to define who is actually carrying out managerial duties, who is a professional and what constitutes "outside sales." Positions that are often incorrectly classed as "exempt" from the overtime provision are insurance claims adjusters, administrative assistants, inside sales/customer service representatives, computer employees and route sales staff. The FLSA does make it clear that it is the duties that the employee actually carries out, not his or her title, which must be considered in determining the exempt status.

            The other common overtime complaint is that companies require employees to work off the clock. A suit filed against Wal-Mart in New York state court, which is similar to many filed against the chain around the country, alleges that store employees were routinely told to punch out when the store closed and then required to keep working. In a suit against Minolta Business Solutions, the company is alleged to have not paid copy-machine technicians for work performed after 5:00 p.m., during unpaid lunch hours and for time spent on weekends purchasing work-related supplies.

            Many of the class-action cases began in California where state laws are particularly employee-friendly. In order to be classified as a manager, California wage and hour laws require that employers document that an individual spends more than 50% of his/her time engaged in managerial functions. Federal law applies a more flexible standard.

            The FLSA is decades old, and some employment lawyers say the law isn’t always easy to apply to new job arrangements such as flex-time. Calls to overhaul the statute haven’t produced much progress. Congress has occasionally "tinkered" with the FLSA. In 1996, certain high-earning computer employees were added to the list of employees who could be considered exempt from the overtime requirement. Other employees who may be exempt from overtime laws under the FLSA include:  beekeepers, holly wreath weavers, truck drivers who cross state lines, seasonal amusement park workers, and all agricultural workers. (The Wall Street Journal)


• EEOC Settles $1.8 Million Racial Harassment Suit

            A racial harassment lawsuit was settled recently for $1.825 million, according to the Equal Employment Opportunity Commission (EEOC). The lawsuit was filed against Scientific Colors, Inc. (dba Apollo Colors), a manufacturer of pigments used in printing inks, after failed attempts to reach a voluntary settlement. Violations involved racist graffiti, the display of hangman’s nooses and racial epithets at the Rockdale, IL facility. In addition to the financial payment and injunction prohibiting future racial harassment, the settlement requires that Apollo Colors adopt and implement preventative discrimination measures. The company must develop a policy against racial harassment, provide training for managers and employees and periodically report to the EEOC regarding any complaints of persisting racial harassment. An EEOC attorney stated that this case was of particular importance as it addressed a problem that persists in many manufacturing and production settings –harassment in the form of graffiti.

            This case is a reminder for employers

of the importance of maintaining a harassment-free work environment. The courts have repeatedly stated that it is the employer’s responsibility to know what is going on in their workplace. Employers must also have a process in place that allows for any inappropriate activity to be quickly investigated and addressed. (EA Facts, Bulletin 5, Volume 46)


• Smoking Costs $150 Billion Annually

            The Center for Disease Control and Prevention (CDC) estimates that, in terms of medical costs and lost productivity, smoking costs the country in excess of $150 billion annually. Smoking remains the leading cause of preventable deaths in the U.S., contributing to 440,000 deaths each year.

            Current research from the CDC reinforces the value of workplace smoking cessation programs. According to the latest research from the Society for Human Resource Management (SHRM), 29 percent of employers offer smoking cessation programs. The Employers Association 2001 Policies, Practices & Benefits survey indicates that of the companies surveyed, approximately 14 percent offer some type of smoking cessation benefit.

            On average, adult men and women smokers lost 13.2 and 14.5 years, respectively, due to smoking. In a separate study released by RAND, it was found that smokers generate medical service costs 21 percent higher and drug costs 30 percent higher than non-smokers. For employers looking to manage rising health care coverage costs, smoking cessation and other wellness plans may provide opportunities to better manage costs. (


Each month The Employers Association offers its members various services: a monthly newsletter, The Management Report, informing members on new legislation and trends affecting human resources; a comprehensive Web site; human resource and computer training; payroll services; and a human resources advice hotline.  For more information on the above excerpts from The Management Report or for membership information in The Employers Association, please call Laura Hampton at 704-522-8011 or visit their Web site at

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