WAGE & HOUR ISSUES - HOME CARE AND OTHER DOMESTIC …

WAGE & HOUR ISSUES - HOME CARE AND OTHER DOMESTIC WORKERS

Submitted By:

Philip K. Davidoff , Esq. Ford and Harrison LLP

New York, NY

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PHILIP K. DAVIDOFF 212-453-5915

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NEW YORK STATE BAR ASSOCIATION LABOR & EMPLOYMENT LAW SECTION ANNUAL MEETING

January 27, 2017

WAGE & HOUR ISSUES - HOME CARE AND OTHER DOMESTIC WORKERS

By: Philip Davidoff

Wage and hour claims by domestic household workers, including home care workers (e.g. home attendants, home health and personal aides, etc.), are on the rise. Among the practices giving rise to such claims involves paying “sleep-in” or “live-in” home care workers for less than 24 hours of work when they are assigned 24-hour shifts. Currently, whether this practice is permissible or runs afoul of applicable wage and hour laws is unsettled.

I. The Legal Landscape

The two principal laws governing the wages and hours of home care workers -- the

federal Fair Labor Standards Act (FLSA) and the New York State Labor Law – while similar in content in this context, are not identical, and the differences can result in costly missteps for employers, whether they are third-party agencies or the families directly employing such workers.

As most employers understand, “non-exempt” employees are generally entitled to be paid at least the applicable minimum wage (currently as much as $11.00 per hour in New York), plus at least one and one-half times their regular wage rate for all hours worked in excess of 40 hours in a work week. Most employers also understand that Congress and state legislatures have created various exemptions from FLSA and State minimum wage and overtime requirements.

For example, for many years it had been generally accepted that home care workers fell within the “Companionship Services” exemption of the FLSA, including those working for third–party agency employers. Although, as discussed in greater detail below, efforts to change this exemption have now come to fruition, the Companionship Services exemption had been defined to include “an employee employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves.” In addition to providing “fellowship, care and protection” to such individuals, such services had been interpreted to include household work related to the care of the individual (e.g., meal preparation, bed making, laundry, etc.) and other “general household work” related to the personal care of the patient, provided such “general household work” is “incidental” to caring for the individual (i.e., does not exceed 20% of their total weekly hours worked). 29 C.F.R. § 552.6. Employees falling within this exemption have been exempt from both the minimum wage


and overtime requirements of the FLSA. Courts have regularly found that home care workers fall within this exemption. While the scope of the FLSA’s Companionship Services exemption law has changed, until the applicable statutes of limitations have run, the previous regime remains a source of both potential causes of action and defenses.

Apart from the FLSA’s rules, the minimum wage provisions of the New York Labor Law

(“NYLL”) provide, with few exceptions, that employers must pay at least the State’s minimum wage rate to all “employees.” Thus, even employees exempt from the FLSA’s minimum wage requirements are (and have been) entitled to at least the State’s minimum wage unless they are expressly excluded from coverage under the NYLL. Notably, the NYLL had, prior to November 2010, excluded from the definition of “employee” “someone who lives in the home of an employer for the purpose of serving as a companion to a sick, convalescing or elderly person and whose principal duties do not include housekeeping.” ((former) NYLL § 651 [5] [a].)

While the language of this former exclusion resembles the federal Companionship

Services exemption, it was not the same. Among other things, unlike the federal exemption, as interpreted by the Courts and New York State Department of Labor (“NYSDOL”), home care workers employed by third-party agencies by definition fell outside of the NYLL exclusion. Accordingly, such federally-exempt workers were “employees” under the NYLL entitled to be paid at least the minimum wage for all hours worked.

What about overtime compensation? Recall that federally-exempt employees were not entitled either to minimum wage or overtime compensation under the FLSA. However, New York’s Minimum Wage Order for Miscellaneous Industries and Occupations (“Miscellaneous Wage Order”), which governs overtime compensation in New York for many workers, provides:

“An employer shall pay an employee for overtime at a wage rate of 1-1/2 times the employees regular rate in the manner and methods provided in and subject to the exemptions of sections 7 and 13 [of the FLSA] . . . . In addition, an employer shall pay employees subject to the exemptions of Section 13 [of the FLSA] . . . overtime at a rate of 1-1/2 times the basic minimum hourly rate. (Emphasis added.)

In short, the Miscellaneous Wage Order incorporates by reference the FLSA’s exemptions for purposes of establishing an overtime rate of pay for employees exempt under the FLSA – that is, 1-1/2 times the minimum wage rate. This interplay between the FLSA and NYLL respective “companionship” provisions had been found by the Courts to mean that home care workers, including those employed by third-party agencies -- by virtue of the FLSA’s Companionship Services exemption -- were entitled under the Miscellaneous Wage Order to receive at least the State’s minimum wage rate, as well as overtime compensation at a rate of 1-1/2 times the minimum wage rate. See Ballard v. Community Home Care Referral Servs., Inc. 264 A.D.2d 747 (1999).

II. Claims Advanced By Employees Within this framework, employees bringing claims have often utilized two distinct, but

not mutually exclusive, approaches to recover alleged underpayments of minimum wage and overtime compensation. First, in order to overcome the general applicability of the FLSA’s


Companionship Services exemption, employees (and their attorneys) have, with mixed success, claimed that they performed “general household work” in excess of the threshold permitted under the exemption (i.e., 20%). If true, the employee would have fallen outside of the scope of the exemption and be in line to recover damages for unpaid minimum wage and overtime compensation (at 1-1/2 the employee’s regular rate of pay). Such claims often are highly fact-specific, precluding summary dismissal of the claims and ensuring that costly litigation will ensue. This, in turn, increases settlement pressure on employers. Moreover, insofar as the NYLL overtime compensation requirement incorporates by reference the FLSA exemption into the determination of the overtime rate, a finding that the FLSA exemption did not apply will result not only in a higher overtime rate, but also increases the statutory limitations period to as long as six years (NYLL = up to 6 years; FLSA = up to 3 years).

The second approach utilized by employees involves allegations that they have not been

paid for all hours worked, particularly with regard to workers assigned 24-hour shifts – commonly referred to as “sleep-in” or “live-in” workers. In a number of recent cases, home care workers have brought class action lawsuits against third-party agency employers in which they have attacked the industry-wide practice of paying “sleep-in” workers for 12 hours of work and providing an additional “per diem” payment of $16.95 for the remainder of the 24-hour shift. This method of compensating sleep-in workers is ostensibly based on “hours worked” principles adopted by both the United States Department of Labor (“USDOL”) and the New York State Department of Labor (“NYSDOL”) allowing employers of 24-hour shift workers generally to exclude from hours worked 8 hours of sleep time and 3 hours of meal time.

For instance, a March 11, 2010 NYSDOL Opinion Letter (the “NYSDOL Opinion Letter”) interpreting NYLL regulations as they pertain to “live-in companions” states:

[I]t is the opinion and policy of this Department that live-in employees must be paid not less than for thirteen hours per twenty-four hour period provided that they are afforded at least eight hours of sleep and actually receive five hours of uninterrupted sleep, and that they are afforded three hours for meals. If an aide does not receive five hours of uninterrupted sleep, the eight-hour sleep exclusion is not applicable and the employee must be paid for all eight hours. Similarly, if the aide is not actually afforded three work-free hours for meals, the three hour meal period exclusion is not applicable.

Counsel Opinion Letter, N.Y. Dep’t of Labor, RO-09-00169 Live-In Companions.

At least three Courts – one a federal district court and the other two State trial courts - have addressed the interplay of the FLSA and NYLL in the context of 24-hour “live-in” or “sleep-in” workers and have come to different conclusions on essentially the same questions concerning “hours worked” and overtime compensation. Both decisions arose in the context of determining whether class action treatment was appropriate to address the employees’ claims. If a court allows such claims to proceed on a class-wide basis, the stakes clearly are raised considerably for employers in terms of both damages exposure and litigation costs.

a. Severin v. Project OHR


In the first decision, Severin v. Project OHR, 10 Civ. 9696 (S.D.N.Y. June 20, 2012), plaintiffs brought class-wide/collective claims for minimum wage and overtime violations under both the FLSA and the NYLL. Presumably, Plaintiffs sought to avoid application of the FLSA exemption in order to take advantage of a higher overtime rate (1-1/2 times the employees’ regular rate of pay vs. 1-1/2 times the minimum wage). When addressing whether Plaintiffs’ NYLL claims were appropriate for class-wide treatment, the Court observed that in relation to their claims the FLSA and the NYLL did not operate independently of one another. Rather, the Court found that the Plaintiff’s case involved the threshold question under the NYLL of whether the workers fell within the FLSA’s “Companionship Services” exemption. The answer to that question, the Court noted, governed the applicable overtime rate of pay (1-1/2 times the regular rate of pay vs. 1-1/2 times the minimum wage). On this question, the Court found that the Plaintiffs’ invocation of the “20% exception” to the FLSA’s Companionship Services exemption required that each individual plaintiff’s employment circumstances be scrutinized. For this reason, the Court found that class-wide treatment was inappropriate.

In addition, the Court considered whether Plaintiffs’ minimum wage claims under the

NYLL were appropriate for class treatment. This claim was based on the employers’ practice of paying its 24-hour “sleep-in” workers for 12 hours of work plus a “per diem” of $16.95. The Court determined, after considering and approving application of the rules outlined in the NYSDOL March 2010 Opinion Letter, that class-wide treatment of these claims also was inappropriate because whether a worker was afforded eight hours of sleep (at least five hours uninterrupted) and three hours of work free meal times also required that each individual plaintiff’s employment circumstances be scrutinized. In applying the principles outlined in the NYSDOL Letter, the Court expressly noted that the NYSDOL applied these rules irrespective of whether the employee was a “residential” or “non-residential” employee under the NYLL; that is, they applied to such workers irrespective of whether the worker resided in the employer’s home or worked for a third-party agency.1

b. Andryeyeva v. New York Health Care Inc. In the first of the two State Court decisions, Andryeyeva v. New York Health Care Inc.

d/b/a/ New York Home Attendant Agency et al., 2014 WL 4650233 (N.Y. Sup. Ct., Kings Cty. Sept. 16, 2014), the Court expressly declined to follow the reasoning employed by the Court in the Project OHR case, particularly as it concerned the NYSDOL Opinion Letter. Instead, the Court permitted the Plaintiff’s minimum wage and overtime claims under the NYLL to proceed on a class-wide basis, finding that third-party home care agency employers were required to pay workers for all 24 hours in a “sleep in” or “live in” shift.

In this case, unlike in the Project OHR case, Plaintiffs, who were represented by the same

attorneys that brought the Project OHR case, did not assert overtime claims under the FLSA, but

1 The Court also noted that the NYSDOL Opinion Letter’s interpretation of New York’s minimum wage regulation in the context of home care employees working 24-hour shifts is based on an FLSA “live-in” regulation. See 29 C.F.R. § 785.22 (eight hour sleeping period during 24-hour shift may be excluded, and interruptions of sleep do not vitiate exclusion unless employee cannot attain five actual hours of sleep). The FLSA “live-in” regulation has been interpreted to apply to individuals who do not reside in their employers’ homes.


asserted only NYLL claims, essentially conceding that the employees were exempt under the FLSA and thus entitled only to overtime at 1-1/2 time the minimum wage rate. This resulted in Plaintiff’s avoiding the individualized inquiries that prevented class/collective treatment in the Project OHR case. With respect to the NYSDOL’s March 2010 Opinion Letter, the Court rejected the notion that employers can exclude from “hours worked” eight hours for sleep and three hours for meal time in cases involving home care workers who did not “reside” in the home of their employers, but who instead maintained their own residences, and rejected the contention that the NYSDOL’s Opinion Letter could be read to apply at all to “non-residential” employees.

According to the Court, because the plaintiffs “did not ‘reside’ in the home of their clients [or their employer] . . . the issue of the hours afforded for sleep or meals is irrelevant.” In sum, the Court concluded that “non-residential” home care workers (e.g. all third-party agency workers) must be paid for all 24 hours of a 24-hour shift. Accordingly, the Court found no need to engage in any individualized inquiries into the work circumstances of the employees to determine whether they were afforded eight hours of sleep time (five hours uninterrupted) or duty-free meal times, thereby clearing the way for the case to proceed on a class-wide basis, and ensuring that all employees were entitled to damages for unpaid minimum wage and overtime premiums.

It should also be noted that, unlike the Court in Project OHR, the Andryeyeva Court did

not specifically address or otherwise account for the NYSDOL Opinion Letter’s statement that “[w]hile the distinction between ‘residential’ and ‘non-residential employees’ is important for the purposes of determining the number of hours at which overtime is owed (44 hours for residential employees vs. 40 hours for non-residential employees), the Department applies the same test for determining the number of hours worked by all live-in employees.” Clearly, by stating that “live-in” workers could be either residential or non-residential employees, the NYSDOL equated “live-in” employees with “sleep-in” employees.

The Andryeyeva decision, which has sent shockwaves throughout the home care industry

in New York, is presently being appealed. Until such time as a decision is rendered by the appellate court, there remains considerable uncertainty as to whether the NYSDOL’s rules concerning the exclusion of sleep and meal time are applicable to employees who do not “reside” in the homes of the persons for whom they are providing care, as well as whether class treatment of sleep-in/live-in employees’ claims is appropriate or overwhelmed by individualized factual issues.2

c. Lai Chan v. Chinese-American Planning Council Home Attendant Program

Subsequently, in Lai Chan v. Chinese-American Planning Council Home Attendant Program, N.Y. Misc. LEXIS 3278 (N.Y. County Sup. Ct., Sep. 9, 2015), a Manhattan Supreme Court Justice denied a motion to dismiss a class action lawsuit brought for unpaid minimum

2 It should be noted that on January 9, 2017, the Appellate Division, Second Department heard oral argument in the Andryeyeva case and a companion case, Moreno v. Future Care Health Svcs. Inc., 2015 N.Y. Slip Op. 31752(U) (Kings Cty. May 14, 2015). In Moreno, the Court disagreed with the conclusions reached in Andryeyeva and, in the context of denying class certification, deferred to the NYSDOL’s Opinion Letter and its position that the “13-hour rule” applies to residential and non-residential “sleep-in” or “live-in” workers.


wages, overtime, and failing to pay workers properly under the Wage Parity Act, among other alleged violations.

Similar to the Court in Andryeyeva, but for somewhat different reasons, this Court also found that Agency-employed home care workers were entitled to be paid for all 24 hours of a “sleep-in” shift. First, the Court stated that the Miscellaneous Wage Order itself differentiates between 24 hour shift residential employees (who have no other home other than the client’s) and non-residential employees (who have their own home, in addition to the client’s), allowing an employer to deduct sleep-time and duty-free meal time only for residential employees. Quoting from the Miscellaneous Wage Order, the court found significant the omission of non-residential employees from the following exception:

(A) residential employee – one who lives on the premises of the employer –shall not be deemed to be permitted to work or required to be available to work: (1) during his or her normal sleeping hours solely because such employee is required to be on call during such hours; or (2) at any other time when he or she is free to leave the place of employment.

Significantly, the court pointedly added that no deference was due to the NYSDOL’s March 2010 Opinion Letter, which the Court expressly recognized that the NYSDOL treats residential and non-residential employees the same for purposes of these deductions from hours worked, because “courts are not required to embrace a regulatory construction that conflicts with the plain meaning of the promulgated language,” Further quoting from the Miscellaneous Wage Order, the Court also added that “Employees who are ‘on call’ are considered to be working during all hours that they are confined to the workplace including those hours in which they do not actually perform their duties.”3 This reasoning is especially significant because it is broader even that that applied under the federal rules concerning “hours worked.”4

While these issues are being sorted out in the Courts, it has been reported that the NYSDOL has announced that it will continue to it will enforce its 13-hour workday pay practice in accordance with its March 2010 Opinion Letter unless the employee has specific records showing that he/she was not afforded eight hours for sleep (five hours uninterrupted) and three uninterrupted hours for meals as outlined in its Opinion Letter until such time as a final decision has been rendered in the Andryeyeva appeal(s).

III. Final Rule on the Application of the Fair Labor Standards Act to Domestic Service

As if the foregoing discussion were not daunting enough for home care agencies, the

rules applicable to such agencies changed markedly with the adoption of the United States Department of Labor’s (“USDOL”) Final Rule on the Application of the Fair Labor Standards Act to Domestic Service (“Final Rule”). Several significant, impactful changes have occurred 3 The Chan case shortly thereafter was removed to federal court (and then moved into arbitration). For this reason, it appears that no appeal was taken from this decision. 4 In this regard, while the federal rules differentiate between workers who live in a client’s home (which it terms “live-ins”) and those 24-hour shift workers who do not meet the requirements for a live-in, it does not limit the deduction of sleep time or duty free time to live-ins alone. If the New York justices’ interpretation of New York law stands, it will supersede the federal rule on this issue.


that must now also be considered. First, and most significantly, in its Final Rule, the USDOL effectively eliminated

application of the FLSA’s Companionship Services exemption (and “live in” domestic service workers exemption) for third-party agency employers.

Moreover, for “direct hire” employers – for example, families employing home care

workers – while there remains a Companionship Services exemption, the Final Rule substantially altered its scope. The “Final Rule” redefines, and narrows considerably, the exemption to encompass only workers who provide “fellowship” and “protection” for an elderly person or person with an illness, injury or disability who requires assistance in caring for himself or herself. Notably, under the Final Rule, the worker may provide “care” in conjunction with the provision of fellowship and protection if such care does not exceed 20% of the total hours worked per work week. Despite the apparent similarity in terminology with the 20% exception discussed earlier, this new 20% exception bears little, if any, relationship to the former 20% exception. Further, under the Final Rule, the worker cannot engage in any household work and still fall within the FLSA’s Companionship Services exemption. Thus, activities that had constituted the bulk of a home care worker’s daily tasks – providing “care” to the patient (e.g., bathing, feeding, grooming, dressing, etc.) and “household work” (related to the care of the patient) that once fell squarely within the “Companionship Services” exemption and could be provided in unlimited quantities – now may not exceed 20% of the workers total hours in a workweek without loss of the exemption.

a. Issues Concerning the “Effective Date” of the Final Rule Adding to the already difficult environment now facing employers under the Final Rule is

the burgeoning dispute over its effective date. The Final Rule, adopted in October 2013, initially was slated to become effective on January 1, 2015. However, prior to its effective date its implementation was blocked nationally by the United States District Court for the District of Columbia. The District Court determined that the USDOL had exceeded its authority by adopting a Final Rule that improperly precluded application of the “Companionship Services” exemption to an entire class of employers -- third-party agencies, employing as much as 90% of America’s home care workers -- as well as by narrowing the scope of the exemption to effectively “write out of the exemption the very ‘care’ the elderly and disabled need, unless it were drastically limited in the quantity provided [i.e., less than 20%] to be of little practical use.”

Ultimately, however, in August 2015, the Court of Appeals for the District of Columbia reversed the District Court’s vacatur of the Final Rule. The Court of Appeals issued a mandate effectuating its reversal, as of October 13, 2015. Accordingly, many home care agencies around the Country changed its overtime policies as of October 13, 2015.

Shortly thereafter, in December 2015, a decision from the United States District Court for the Southern District of Ohio, held that, when the District of Columbia district court vacated the Final Rule, the rule, as well as its effective date, became “a nullity and unenforceable.” See Bangoy v. Total Homecare Solutions, LLC., 2015 WL 12672727 (S.D. Ohio Dec. 21, 2015). Accordingly, the Court found the Final Rule to have become effective on October 13, 2015.


Subsequently, however, two federal district courts determined that, despite the District of Columbia’s initial decision enjoining and vacating the Final Rule and subsequent appeal, the Final Rule’s effective date remained January 1, 2015. See Cummings v. Bost, Inc., --- F.Supp.3d ---, 2016 WL 651403, at (W.D. Arkansas Nov. 1, 2016); Kinkead v. Humana Inc., --- F.Supp.3d ---, 2016 WL 3950737 (D. Conn. July 19, 2016).

No New York courts have addressed the effective date of the Final Rule, although such a ruling is likely to occur at some point in 2017. Given the fact that few agencies are likely to have paid overtime compensation to their home care workers between January 1, 2015 and October 13, 2015, or to have set aside monies for such payments, this issue undoubtedly is of great import and, until it is finally resolved, cause for significant concern.

b. Impact of Final Rule Suffice it to say the impact on the home care industry of the Final Rule has been

profound in New York and throughout the Country. An additional consequence of losing the FLSA exemption is that it simultaneously affects the overtime rules and other rules under NYLL. Under the Miscellaneous Wage Order (and New York Domestic Worker Bill of Rights), third-party agencies are now also required to pay overtime compensation at 1-1/2 times the employee’s regular rate of pay, as opposed to 1-1/2 time the minimum wage. While this may appear at first blush to be of little consequence, going forward it results in the application of the NYLL’s six-year statute of limitations, as opposed to the FLSA’s three-year maximum statutory period.

Though it is beyond the scope of this paper, it should be noted that this now places third-

party agency employers of home care workers on the same footing as “direct hire” employers, who previously lost the protection of the federal “Companionship Services” exemption when New York’s Domestic Workers’ Bill of Rights (DWBR) became effective on November 29, 2010. (N.Y. Lab. Law §170; effective November 29, 2010). Under the DWBR, employers of domestic workers may not require any domestic worker “to work more than forty hours in a week, or forty-four hours in a week for domestic workers who resides in the home of their employer; unless they receive compensation for overtime work at a rate which is at least one and one-half times the worker's normal wage rate.” (Emphasis added.)

Importantly, the DWBR defines a “Domestic Worker” to mean “a person employed in a

home or residence for the purpose of caring for a child, serving as a companion for a sick, convalescing or elderly person, housekeeping, or for any other domestic service purpose,” but expressly does not include any individual “who is engaged in providing companionship services, as defined in paragraph fifteen of subdivision (a) of section 213 of the Fair Labor Standards Act of 1938, and who is employed by an employer or agency other than the family or household using his or her services. (N.Y. Lab. Law, § 2(16).)

In other words, domestic workers who were covered by the federal Companionship

Services exemption” and were employed by a third-party agency (i.e. an employer other than the family or household using his or her services) were not covered by the DWBR until the Final


Rule became effective. This exclusion allowed third-party agencies in New York to continue to pay overtime compensation under the Miscellaneous Wage Order at a rate of 1-1/2 times the minimum wage until the effective date of the Final Rule. On the other hand, home care workers and other domestic workers exempt under the FLSA’s Companionship Services exemption hired directly by a family or household were not excluded from DWBR coverage and, since its effective date on November 29, 2010, have been entitled to overtime pay for all overtime hours worked at a rate of 1-1/2 times the employees regular rate of pay, subject only to a different threshold depending on whether the worker is a “residential” or “non-residential” employee (44 hours vs. 40 hours, respectively), as well as other benefits accorded under the DWBR.

Interestingly, this is the converse of what the USDOL’s Final Rule sought to accomplish

by making the Final Rule’s revised Companionship Services exemption, such as it is, available only to the individuals, families, or households employing such workers. Under the DWBR, the Final Rule’s approach is moot insofar as the DWBR requires now overtime compensation be paid even for federally exempt employees. In any event, under the Final Rule, both third-party agencies and “direct hire” home care employers now find themselves in essentially the same posture; that is, obligated to pay their employees overtime for all overtime hours worked at a rate of 1-1/2 times the employees’ regular or normal rate of pay.

Clearly, given the adoption of the Final Rule, and application of the DWBR to all

employers of home care workers, the most significant unresolved issue for home care agencies and direct care employers of workers working 24-hour shifts concerns the “hours worked” concepts addressed in the NYSDOL Opinion Letter, and Project OHR, Andryeyeva, and Chan decisions, about which many questions remain to be answered. Specifically, will the approach taken in NYSDOL’s Opinion Letter, and cited approvingly in the Project OHR case, prevail; thus permitting employers to satisfy applicable law if they pay the worker not less than for thirteen hours per twenty-four hour period, provided that they are afforded at least eight hours of sleep and actually receive five hours of uninterrupted sleep, and that they are afforded three hours for meals? If so, it will be more important than ever for employers, both agencies and “direct hires” alike, to effectively manage and record their employees’ hours of work, particularly for 24-hour “sleep-in” workers.

Effective management includes the design and implementation of policies addressing

working time, sleep and meal time, and reporting and recordkeeping obligations. Additionally, employers should enter into written agreements with such employees, setting forth their compensation terms and specifically addressing sleep and meal time in a manner that permits the employer from excluding such time from “hours worked.”

On the other hand, should the Andryeyeva approach to the sleep and meal time questions

ultimately prevail, home care employers in New York will be required to compensate their home care workers assigned to 24-hour sleep-in/live-in shifts for all 24-hours, irrespective of whether the individual is an agency employee or a “direct hire,” provided the employee is not a “residential” employee as that term is defined under NYLL.

Because the risk posed by Andryeyeva with regard to excluding sleep and meal time, and

to potential class action lawsuits for backpay generally, is potentially overwhelming, New York


home care employers should also strongly consider implementing mandatory arbitration programs that include class action waiver provisions. While the law is still developing in this area, such waiver provisions have recently proven effective in avoiding the risks, costs and expenses of class action lawsuits. IV. Miscellaneous Wage and Hour Developments in the Home Care Industry

a. Retroactivity of 1199 SEIU’s Arbitration Requirement

In December 2015, 1199 SEIU United Healthcare Workers East (“1199”) entered into a memorandum of agreement (“2015 MOA”) with unionized employers in the New York Home Care Industry that required 1199’s members to, among other things, arbitrate “all claims” under the Fair Labor Standards Act (“FLSA”), New York Home Care Worker Wage Parity Law and New York Labor Law. In addition, the 2015 MOA precluded class and/or collective treatment of any member’s claims.

In Chan v. Chinese-American Planning Council Home Attendant Program, 180

F.Supp.3d 236 (S.D.N.Y. 2016), the issue before the court was whether the wage and hour claims of home care workers that accrued prior to the execution of the 2015 MOA were subject to its arbitration mandate. In an April 2016 opinion, the court concluded that because the arbitration provision did not contain any temporal limitation and otherwise contained no limiting language, the arbitration provision was enforceable and applied retroactively.

Three months later, the same court in a different case involving the same home care

agency, held that the 2015 MOA would not apply, however, to employees who ceased working for the defendant agency prior to adoption the 2015 MOA. See Chu v. Chinese-American Planning Council Home Attendant Program, Inc., --- F.3d ---, 2016 WL 3753098 16-CV-3569 (KBF) (S.D.N.Y. July 11, 2016).5

The issues addressed in the Chan and Chu cases are likely to be revisited by the courts in

various contexts in the foreseeable future. b. 20% Exception - Home Health Aides Claims Not Subject to Collective Action In Cowell v. Utopia Home Care, Inc., 2016 WL 4186976 (E.D.N.Y. Aug. 8, 2016), a

home health aide brought an FLSA collective action on behalf of herself and other similarly situated individuals to recover unpaid overtime for work performed prior to the Final Rule’s effective date. The defendant agency asserted the Companionship Services exemption as a defense. In her complaint, the plaintiff alleged that she spent more than 20 percent of her time performing “general household work,” such as vacuuming, making beds, and washing clothes, and, therefore, argued Utopia was not entitled to claim the exemption. In the context of Plaintiff’s motion for conditional certification of the FLSA collective action, Utopia asserted that any tasks Plaintiff completed were necessarily related to the patient’s care and thus could not be considered “general household work.” Utopia further asserted that litigation surrounding this 5 Notwithstanding the Chu holding, in October 2016, the arbitrator appointed under the 2015 MOA issued an opinion wherein he determined that the claims in both the Chan and Chu cases were subject to arbitration.


question was necessarily highly individualized and fact dependent. Accordingly, the case was unsuitable for collective/class treatment.

In August 2016, a federal magistrate judge determined that Plaintiff had failed to

establish that she was similarly situated to other home health aides. Agreeing with Defendant, the court held that, by virtue of each patient’s individualized plan of care, any inquiry into whether or not a certain household task was related to the care of the patient would require a highly individualized fact-intensive analysis. The court determined this type of analysis was not suitable for conditional certification. The judge further emphasized that granting conditional certification in this instance would fail to promote judicial efficiency and result in “thousands of mini-trials.”

c. Sick and Vacation Time of Home Care Workers Employed in New York City

For home care workers employed in New York City, sick and vacation leave or paid time

off (PTO), which combines the two, are subject to several overlapping and sometimes inconsistent laws, including the NYS Domestic Worker Bill of Rights, and the NYC Earned Sick Time Act (“ESTA”). The NYC Department of Consumer Affairs, which enforces ESTA, issued FAQs on January 6, 2016 addressing these issues.

i. Effective Dates

The New York City Earned Sick Time Act (ESTA) became effective April 1, 2014. The New York State Domestic Workers Bill of Rights (DWBR) became effective November 29, 2010, but only for home care workers directly employed by individual households. Agency-employed home care workers became covered by the DWBR on January 1, 2015 or October 13, 2015, when the United States Department of Labor (USDOL) eliminated the companionship exemption for their home care workers. (Note: Unlike the ESTA, which does not become effective for unionized workers covered by a collective bargaining agreement until that agreement expires, the DWBR became effective for unionized agency-employed home care workers when the Final Rule became effective, regardless of any existing collective bargaining agreement.)

ii. Sick Time

Under ESTA’s rules, employers of 5 or more workers who work more than 80 hours a calendar year must provide up to 40 hours “sick time” per calendar year at an accrual rate of 1 hour for every 30 hours worked. For this purpose a calendar year is any consecutive 12 month period chosen by the employer.

In contrast, the DWBR covers employers of even one home care worker who has worked

for the employer for at least a year and works more than 80 hours a year. The DWBR provides that covered full-time employees are entitled to 24 hours of paid “rest time” per year and part-time employees to proportionately less paid rest time. Specifically, those employees working 20 to 29 hours per week accrue 16 hours of paid rest time annually and those employees working under 20 hours per week accrue 8 hours of rest time annually.


In order to harmonize its provisions with the DWBR, the ESTA provides that full-time home care workers are only entitled to accrue up to 16 hours “sick time” annually (for a combined DWBR and ESTA total of 40 hours) and those employees working, on average, only 20-29 hours per week are entitled to accrue only 11 sick leave hours a year, and those working, on average, less than 20 hours per week are entitled to accrue only 5.5 hours a year.

Under both the ESTA and the DWBR, a home care worker accrues sick time during any

probationary or introductory period, but the ESTA only allows workers to begin using their accruing sick leave after 120 days of employment, while the DWBR requires employers to allow home care workers to begin using their sick leave upon accrual.

Under the ESTA, the employer can decide whether to allow workers to carry over

accrued and unused sick leave, to a maximum of 40 hours, from one calendar year to another or the employer can choose to pay for unused sick leave at the end of a calendar year and frontload 40 hours of sick leave at the beginning of the next year. For this purpose, to “frontload” means to provide the worker, without any accrual schedule, with 40 hours sick leave to use as of the first day of the new year. An employer can shift to this method only if it calculated workers’ use and accruals in the prior year and pays the worker for unused accrued sick leave before the frontload year begins. Though the DWBR is silent on this rule under the ESTA, it would appear that this rule as well as others, including those allowing 4 hours as the minimum increment for using sick time, accruing sick time during overtime hours, not allowing an employer to agree with an employee to pay out sick leave on an as-accrued basis instead of only at the end of the year, and forfeiting sick time on a resignation, retirement, or other termination of employment also apply to sick time under the DWBR

Under both the ESTA and DWBR, an agency that “jointly employs” a worker

with an individual household, is individually and jointly responsible for the obligations under the ESTA and DWPA.

iii. Vacation Time

The ESTA does not address vacation time, but as noted earlier the DWBR entitles a full-time home care worker to accrue up to 24 hours of paid “rest time” in each calendar year. Together with 16 hours accrued ESTA “sick time,” a full-time home care worker is thus entitled to accrue the same number of hours, 40, as under the ESTA, although the hours are differentiated. As under the ESTA, part-time home care workers accrue proportionately lower amounts of rest time hours at lesser accrual rates. For example, those working, on average, only 20-29 hours per week are entitled to accrue 16 “rest time” hours a year and 11 ESTA “sick time” hours, and those working, on average less than 20 hours per week are entitled to accrue only 8 “rest time” hours a year and 5.3 ESTA “sick time” hours. Here also, although the DWBR is silent on rules applicable to rest time hours, it would appear that many of the rules under ESTA, as stated above, would apply to rest time hours under the DWBR and employers can proceed accordingly.

Under the ESTA, a home care agency can combine sick and vacation time into paid time


off and, as long as the accrual rate is no less than required under the ESTA and DWBR, satisfy its obligations for both.

A COMPLIANCE MANUAL FOR THE EMPLOYMENT OF NANNIES, HOUSEKEEPERS,

CHAUFFEURS, AND OTHER DOMESTIC WORKERS IN NEW YORK STATE

Submitted By:

Dennis A. Lalli, Esq. Bond Schoeneck & King, PLLC

New York, NY

BOND&KjOGNECK600 Third Avenue, 22nd Floor ~ New York, NY 10016-1915 ~ bsk.com

DENNIS A. [email protected]' 646.253.2312F: 646.253.2379

NEW YORK STATE BAR ASSOCIATION

LABOR &EMPLOYMENT LAW SECTION ANNUAL MEETING

January 27, 2017

A COMPLIANCE MANUAL FOR THE EMPLOYMENT

OF NANNIES, HOUSEKEEPERS, CHAUFFEURS,

AND OTHER DOMESTIC WORKERS IN NEW YORK STATE

By Dennis A. Lalli

Congratulations! You've just had a baby! If you're like many professionals,

managers, business owners, and others in New York State, you're going to need child

care.

Condolences! If you hire ananny — or a housekeeper, or if you're fortunate

enough to need and be able to afford a chauffeur, a gardener, or any other kind of

domestic worker to provide services in your household —you're also about to become

an employer. Whether you know it or not, whether you like it or not. And you don't

have a human resources department.

Moreover, since you're an employer, after your nanny or housekeeper has worked

in your household for many years and either your children are old enough no longer to

need a nanny or you're about to move and have to let your housekeeper go, this person

is not just the family friend that she may have become over the years. She's your

employee, too, soon to become your ex-employee. And she has, and all along has had,

certain rights. If you've not afforded those rights to your "family friend," you can be hit

with a claim that easily runs into six figures if, when the relationship ends, your domestic

worker suddenly becomes aware of those rights and asserts valid claims that neither you

nor she was aware she had during the wonderful years when she seemed like part of the

family.

This presentation is aimed at alerting members of the L&E Section to the myriad

issues that anyone who hires a domestic worker has to address in order to avoid the

significant liability that attaches to failure to comply with the many laws that apply to

household employment. This applies to your clients who employ household workers, as

well as to we ourselves —members of our Section who need household help to enable

us to maintain our law practices.

97778.1

Attorneys At Law ~ A Professional Limited Liability Company

YOU'RE AN EMPLOYER NOW: IT'S NO LONGERENOUGH TO GIVE YOUR NANNY A GENEROUS AMOUNT

OF CASH EACH FRIDAY AND THINK YOU'VE DONE ENOUGH.

A. Pay by the Hour.

The most common misconception among those who, in all well-meaning good

faith, intend to treat their nanny/housekeeper properly and respectfully is the belief that

if they pay a generous cash salary, they're treating their new employee well and don't

have to worry about anything else. However, even those who pay a salary of more than

$1,000 per week may be in violation of the law. In the eyes of the law as well as the

press, they can be labeled a "wage thief" for paying a salary rather than an hourly rate

of pay.

1. Pay not less than the appropriate hourly minimum wage and overtime

compensation and keep track of the hours the domestic employee works. This is

because domestic workers are covered by the minimum wage and overtime pay

provisions of the federal Fair Labor Standards Act, 29 U.S.C. §§ 206(fl, 200(n, and as

well as those of the New York Labor Law, NYLL §§ 2(16), 170. Accordingly, the

cardinal rule of employing domestic workers is to keep a record of all hours

worked, and pay by the hour.

Domestic workers are entitled to be paid not less than the minimum wage

(presently $10.50 per hour for those employed in New York City by families who employ

fewer than 11 employees, $10 per hour for those employed in Westchester County or

Long Island, and $9.70 per hour in the rest of the State). They may, of course, be paid

a regular hourly rate that exceeds the minimum. If they work more than 40 hours in a

week (more than 44 hours if they live in at the employer's home), they are entitled to 1.5

times their regular rate of pay for all hours worked in excess of those 40 (or 44)

"straight-time" hours. It is required that they be paid on a weekly basis —not bi-weekly,

not semi-monthly, not monthly. Weekly.

2. On call time is compensable. Note that especially in the case of residential

employees, you have to take "on call" time into account, and pay appropriate wages for

time the worker is required to be available to serve whenever needed. If the employer

requires a domestic worker to be "on call" and available to work during times in addition

to regular duty hours, the worker is entitled to be paid for all hours when he or she is not

allowed to leave the premises and use the on-call time for personal purposes. As long

as the employer is in control of the time, the worker is supposed to be "on the clock" and

is supposed to be paid for that time.

However, the Department of Labor's Wage Order for Miscellaneous Industries

and Occupations, 12 N.Y.C.R.R. § 142-1.1 et seq. (the "Wage Order"), which governs

the employment of domestic workers, provides at § 142-2.1(b) that "a residential

employee —one who lives on the premises of the employer —shall not be deemed to be

permitted to work or required to be available for work: (1) during his or her normal

2

sleeping hours solely because he is required to be on call during such hours; or (2) at

any other time when he or she is free to leave the place of employment." The

Department construes this as meaning that even live-in workers who are not free to

come and go as they please "must be paid not less than for thirteen hours per twenty-

four hour period provided that they are afforded at least eight hours for sleep and

actually receive five hours of uninterrupted sleep, and that they are afforded three hours

for meals." See DOL Opinion Letter on Live-In Companions dated March 11, 2010.

3. "Spread of Hours" pay is required when a shift ends more than 10

hours after it began. Section 142-2.4 of the Wage Order, as interpreted by the courts

and the Department of Labor, provides that when a minimum wage worker, including a

domestic worker, stops work more than 10 hours after the beginning of the shift (or if the

employee works a split shift), the employer is obligated to pay an extra hour's wage at

the basic minimum wage rate.

However, if the worker's regular wage rate exceeds the minimum wage, then in

effect, the employer is given a credit against the spread of hours premium that

otherwise would be payable. The credit is equal to the difference between the wage

paid and the minimum wage for the first 40 hours of straight time worked. For example,

if a domestic worker in New York City is paid $12.00 per hour, she is paid $1.50 per

hour over the applicable minimum wage. If she works five days of 10.5 hours each, she

would be entitled to five "spreads" which, since the minimum wage is $10.50 per hour,

would be $52.50. But since she was paid $1.50 per hour over the minimum, she would

not be owed any spread because $1.50 times the 40 straight time hours she worked

equals $60, which is more than the spread of hours premium that she would be owed if

she were paid at the minimum wage.

The spread of hours premium does not count toward calculation of overtime pay

when the worker works more than 40 hours (44 for a residential employee) in a week.

4. Call-in pay. If a worker is sent home less than four hours after the start of a

shift, the employer is obligated to pay at least four hours at the basic minimum wage

rate, even if the employee worked fewer than four hours. Wage Order, § 142-2.3. Note

that the required pay, like spread of hours pay, is at the applicable minimum wage —not

the employee's regular rate. Even if the employee's regular wage rate exceeds the

minimum, the greater of four hours' pay at the minimum rate or the employee's regular

rate for the hours actually worked is all that's required. And hours for which call-in pay

is required but which are not actually worked do not count as "hours worked" in

calculating the number of overtime hours the employee worked. Nor is call-in pay

required if it is the employee who chooses to leave early.

5. The employer may take "allowances" against the worker's minimum

wages. For domestic workers who are employed at the minimum wage rate to whom

the employer provides meals or lodging, the employer is entitled to take "allowances"

3

against the worker's minimum wages.' The amount of these allowances is presently

$3.60 per meal and $4.45 per day of lodging for most domestic workers in New York

City; this amount varies according to the location of the worker's place of employment

and changes from year to year, so it is advisable to consult Section 142-2.5(ii)(a) of the

Wage Order to determine the amount of the allowance applicable to any particular

domestic employment.

These allowances are taken not as a subtraction from the worker's hourly rate,

but rather as a subtraction from the worker's gross wages before taking allowances into

account. Note that if the worker is paid in excess of the applicable minimum wage,

these allowances generally may not be taken.

6. Lunch breaks. Lunch and other meal breaks may, but need not, be paid.

7. Don't take impermissible deductions. Employers may not make

employees pay for, take deductions from employees' pay, or assess monetary penalties

for broken or spoiled items, cash shortages, lateness (the worker need not be paid for

time not worked because of lateness, but may not be assessed a monetary penalty,

either), or misconduct. Wage Order § 142-2.10. The worker may be disciplined or even

fired for any of these reasons. But all wages earned still have to be paid.

B. Make and Keep All the Records That Employers Are Required to Keep.

1. Keep track of all hours worked. As noted above, the cardinal rule of

employing domestic workers is to keep a record of all hours worked, and pay by

the hour. Most people who hire a domestic worker regard this as a foreign concept.

Punching a timeclock is for the workplace, not for the home. That's a critical mistake.

For the employer, the home may not be the workplace, but for the domestic worker, it is.

The employer has to be aware of this.

We have attached a sample timesheet as exhibit A that can be used for this

purpose. The employer should print 55 or so copies each year, tell the employee where

they are kept, and require the employee to fill one out daily and provide it to the

employer at the end of each week. If the employee's primary language is not English, it

is advisable to have the timesheet translated into the applicable primary language.

As noted above, lunch and other meal breaks need not be paid. However, since

domestic workers are entitled to a lunch break of at least ahalf-hour each day, it is wise

to record the time the morning part of the shift ends and the time the afternoon part of

the shift begins; the time in between, of course, is the worker's lunch break time. If the

lunch break is to be paid, the "paid time" can either begin at the start of the day and end

at the end, or else the time between the morning and afternoon parts of the shift can be

added to the totals. Paid lunch breaks that are not worked need not be counted as

Section 142-2.19 provides that the "meal" for which employer may take an allowance must consist

of at least one item from each of the following food groups for each meal: (1) fruits or vegetables, (2)

cereals, bread, or potatoes, (3) eggs, meat, fish, or poultry, and (4) milk, tea, or coffee.

0

"time worked" for purposes of determining whether a worker is entitled to overtime pay,

and if overtime pay is warranted, need not be paid at overtime rates.

Note: If the employer has kept proper records of hours worked, those records

are presumed to be accurate, although the employee may rebut that presumption with

proper evidence. If the employer fails to keep proper time records, the testimony of the

employee as to the hours worked is presumed to be accurate, although the employer

may rebut that presumption with proper evidence. The employer's failure to keep

proper records of time worked gives the employee a tremendous advantage in dispute

resolution proceedings. Keeping accurate time records is essential to ascertaining that

the employee is paid properly and fairly.

2. Keep a personnel file. Section 2.6 of the Wage Order requires employers,

including employers of domestic workers, to keep a weekly record that, for all practical

matters, amounts to a personnel file. While there is no specific penalty for failure to

keep such a file, and the civil penalty that the DOL may assess for recordkeeping

violations is fairly small as compared to the remedies available in private lawsuits for

other violations of the NYLL and the Wage Order, keeping the records required will go a

long way toward assuring compliance, which in turn will go a long way toward avoiding

violations of the law, and hence toward avoiding claims and lawsuits.

The documents that § 142-2.6 requires be maintained are

(a) name and address;(b) Social Security number;(c) wage rate;(d) number of hours worked daily and weekly, including the time the employee

starts and ends work (in other words, keep the time sheets the employee

completes);(e) the amount of gross wages;(f) deductions from gross wages;(g) allowances, if any, claimed as part of the minimum wage; and

(h) net wages paid.

3. Provide and keep a copy of the required wage notice. Section 195(1)(a)

of the NYLL requires all employers, including employers of domestic workers, to provide

so-called "time of hire" notice within ten days of when an employee is hired. The notice

provides the employee with certain information that can be used to determine whether

the employee has been paid lawfully, such as regular rate of pay, overtime rate of pay,

any allowances the employer takes, and employer identification information. A copy of

the "Notice and Acknowledgement" form that the DOL issued to provide a means for

employers to comply with this requirement is attached as exhibit B, in both English and

Spanish. The employer should complete the form, make two copies (if the worker

speaks Spanish, the employer should provide two copies of each of the English and

Spanish versions; non-English versions of the notice are available on the DOL's

website), and present them to the worker within ten days after the first day of work. (If

5

the worker is already working for the employer, the form should be given anyway.) Theemployee should sign and date both (or all four) and return one to the employer (or one

copy of each of the English and Spanish versions). The employer should retaining onesigned copy and put it in the personnel folder described above.

Note — there's a penalty for failure to provide this notice — $50 for "each work daythat the violations occurred or continue to occur," subject to a cap of $5,000. See NYLL

§ 198[1-b]. The worker is entitled to an award of attorneys' fees incurred in asserting a

claim for this penalty.

4. Provide a "wage statement," or as they're known more commonly, a "pay

stub." Section 195(3)(a) of the NYLL also requires all employers, including employers of

domestic workers, to provide a "wage statement" to with each payment of wages to an

hourly-paid employee. The statement is to include, among other things, (a) the dates of

work covered by the payment, (b) the employer's name, address, and telephone number,

(c) the straight time rate of pay, (d) number of regular hours worked, (e) the overtime rate

of pay, (~ number of overtime hours worked,(g) allowances, if any, taken as part of the

worker's minimum wages, (h) gross pay, (i) deductions, and (j) net pay.

This is not easy for the typical employer of domestic workers to do alone. In fact,

a quick review of the requirements for paying employees by the hour, as well as the tax

laws addressed in Section I(D) below, reveals that it is difficult for the typical family

know how to calculate the amount a domestic worker should be paid each week.

For these reason, most employers of domestic workers should engage the

services of a reputable payroll service to process paychecks for their

employees) and issue compliant paystubs. If there is a second cardinal rule for

employment of domestic workers after the rule that says they should be paid on an

hourly basis, this is it. The law permits employers to pay employees in cash, but makes

it all but impossible to do so without falling into one of the many "gotcha" traps that the

law sets for employers. Using a payroll company minimizes the risk of exposure to what

easily be a very substantial liability.

Note — there's a penalty for failure to provide pay stubs with weekly wage

payments — $250 for "each work day that the violations occurred or continue to occur,"

subject to a cap of $5,000. See NYLL § 198[1-d]. The worker is entitled to an award of

attorneys' fees incurred in asserting a claim for this penalty.

5. Comply with the notice posting requirements. Notice posting

requirements, you say? In someone's home?

Yes! Section 142-2.8 of the Wager Order requires posting a DOL-issued notice

that summarizes minimum wage provisions. A copy of that notice is attached as exhibit

C. It has to be posted, but may be posted someplace discreet in the residence, as long

as the employee will be able to see it. If there is a bulletin board, that's a perfect place

for it. The attached copy is a permitted reduction in size, as it may be small enough not

C

to be an intrusion. But, as silly as it may seem, the law says it's a required posting,

there's no point in an employer's trying to find out what happens if it is not posted.

I n addition, NYLL § 195[5] requires all employers, including employers of domestic

employees, to post or notify their employees in writing about "the employer's policy on sick

leave, vacation, personal leave, holidays, and hours." As discussed in Part V below (at

pp. 11-12), it is recommended that this information be provided in writing as part of an

agreement.

II. BENEFITS —PAID TIME OFF.

Another element of the employment of domestic workers that most people are

not aware of is that they are entitled to paid time off.

A. Paid Vacation

NYLL § 161[1) provides, "[A]fter one year of work with the same employer a

domestic worker shall be entitled to at least three days of rest in each calendar year at

the regular rate of compensation." Each day of this paid vacation is to be paid at the

worker's regular rate of pay times the number of hours in the worker's average shift.

Exactly when these paid days off may be taken is at the employer's discretion.

The Department of Labor takes the position that if by the end of the year the worker has

not used all three paid days of leave, the employer is required to provide pay in lieu of

days not used.

B. Day of Rest.

I n addition to paid days of rest, NYLL § 161[1] provides that domestic workers are

entitled to one day of rest every seven days. This means that if the employer wants the

employer to work on the seventh day of the week, the employee may work or not work, at

the employee's discretion. If the choice is to work, the employer has to pay at the worker's

overtime rate. The statute says that the day of rest "should, whenever possible, coincide

with the traditional day reserved by the domestic worker for religious worship."

C. Paid Sick Leave (in New York Ci

Domestic workers employed within the City of New York are entitled to another

benefit —paid sick leave. Under the New York Paid Sick Leave Law, domestic workers

who have worked for the same employer for at least one year and who work more than

80 hours a calendar year are entitled to two days of paid sick leave. This is in addition to

the three days of paid rest to which they are entitled under domestic workers are

entitled under NYLL § 161 [1 ].

The employer is required to give the employee, at the time of hire, a notice

promulgated by the New York City Department of Consumer Affairs entitled, "Notice of

Employee Rights," a copy of which is attached as exhibit D. If the employee's primary

7

language is not English, and if the DCA's website has a copy of the notice that is in the

employee's primary language, the employer is required to provide the notice in thatlanguage. The employer is required to keep a copy of the notice that bears theemployee's dated signature to acknowledge that the notice was provided, so when the

notice is given, the employer should provide two copies and have the worker sign and

date one with the words "I received a copy of this notice today."

III. DON'T FORGET ABOUT THE TAX MAN. OR THE WORKERSCOMPENSATION SYSTEM. OR UNEMPLOYMENT INSURANCE.

A. Pay Withholding Taxes and Unemployment Insurance Taxes.

Most people who were aware of the news back in the 1990's will recall

"Nannygate," which involved Bill Clinton's nomination of Zoe Baird to become the first

female Attorney General of the United States. Her nomination foundered when it was

discovered that she had failed to pay income taxes and Social Security contributions on

the wages of her illegal immigrant nannies. The requirements that apply to the taxation

of the wages of domestic workers apply equally to those of us who have not been

nominated to become the Attorney General of the United States.

Employers of domestic workers in New York are required to register as a new

employer with the New York State Department of Taxation and Finance, withhold and

pay required income taxes, and pay unemployment insurance taxes. See generally,

Hiring Household Help, Tax Bulletin MU-350 (TB-MU-350), a copy of which is attached

as exhibit E.

In addition, employers of domestic workers are required to file quarterly payroll

tax returns with New York State (Form NYS-45) and with the Internal Revenue Service

(IRS Form 940).

These requirements and their complexity are another reason why employment of

domestic workers is not a DIY endeavor, and why the use of a payroll service is

practically, if not as a matter of law, mandatory.

The employer's failure to have paid the required taxes often surfaces when the

domestic worker's employment ends and he or she applies for unemployment

insurance. The Unemployment Insurance Division will find that the worker is eligible for

benefits and then dun the employer for unpaid taxes. The matter then may migrate to

the Workers Compensation Board for additional investigation.

B. Workers Compensation.

Employers of domestic workers in New York also are required to obtain workers

compensation insurance for those workers, as well as New York State disability

insurance if the employee works 40 hours per week or more. Many families, including

families that intend to comply fully with the tax laws that apply to domestic workers,

sometimes on the advice of their accountants, believe that the workers compensation

rider on their homeowners' insurance policy provides the required coverage. However,

those policies cover casual employees (e. g., people called in to do repairs on an as-

needed basis) or part-time workers. They do not cover full-time domestic workers, for

whom the purchase of a separate workers compensation policy is required.

If a full-time domestic worker is injured while employed in the family's home, the

worker may sue the family for all damages the worker suffered if there is no workers

compensation policy in effect. Moreover, if the worker files a claim for workers

compensation (which often happens after a trip to the unemployment insurance office),

the employer may be subject to substantial penalties for employing an uninsured

worker; this also can be a criminal misdemeanor. (The civil penalties can be as much

as $2,000 per each ten days of employment without coverage, although this is a

discretionary penalty and the Workers Compensation Board usually will negotiate that

penalty to a smaller amount.)

IV. WHY DOES THIS MATTER —WHAT RECOVERIES ARE AVAILABLE

TO DOMESTIC WORKERS WHO HAVE NOT BEEN PAID PROPERLY?

The remedies available to a domestic worker who was paid "off the books" in

cash can be very substantial, and easily can reach into six figures in the case of a long-

term worker. They include:

Unpaid minimum wages. If the weekly salary that the employee was

(improperly) paid divided by the number of hours worked is less than the

minimum wage, then the employer owes the difference between the straight time

rate that was derived by this calculation and the statutory minimum wage for all

hours worked.

• Unpaid overtime compensation. There are two ways that unpaid overtime pay

may be calculated. The first, and most familiar, method is to divide the

(improper) weekly salary by 40 to get the straight time rate, and then to multiply

that amount by 1.5 to get the overtime rate. That rate is multiplied by the number

of hours worked in excess of 40. For example, if the employee was paid $600

per week and worked 50-hour weeks, you would divide $600 by 40 to derive a

straight-time rate of $15 per hour. Then you would multiply $15 by 1.5 to get an

overtime rate of $22.50, and you would multiply $22.50 by the 10 hours worked

in excess of 40, which would result in a weekly unpaid overtime amount of $225.

The employer would owe $225 for each week the employee worked 50 hours.

That would be $11,700 fora 52-week year. (Note that the limitations period is six

years.)

If the employer and the employee had an agreement that the weekly salary

would be compensation for all hours worked, or if the employee's work hours

fluctuated from week to week but by agreement with the employee the employer

paid the same salary irrespective of the number of hours actually worked, then a

F!7

different method of calculation would apply. You would divide the salary by the

number of hours worked to get the straight time hourly rate of pay for each hour

worked. Then, since the worker will have received the "time" portion of the "time

and a half" formula for all hours worked, including the hours worked in excess of

40, the underpayment would be only the "half' time portion of the "time and a

half" formula. For example, if the employee was paid $600 per week and by

agreement that amount was to pay for all hours worked, and if the employee

worked 50 hours in a particular week, you would divide $600 by 50, not 40, to get

the regular straight time hourly rate, which would be $12 per hour. The overtime

rate thus would be $18 per overtime hour. ($12 x 1.5 = $18.) But since the

worker would be deemed to have received $12 for each of the ten overtime hours

as part of the salary, the underpayment would be only the difference between the

$18 per hour overtime rate and the $12 already received, or $6 per hour. $6 for

each of the 10 overtime hours worked in that week would come to $60 per week.

That would be $3,120 fora 52-week year.

Liquidated damages. Unless the employer can demonstrate that it acted in

good faith in failing to pay the required minimum wages or overtime

compensation (by, for example, relying on advice of counsel in believing that

overtime pay was not required or that it was to be calculated in a manner that

turned out to be erroneous), the employer is required to pay liquidated damages

in an amount equal to 100% of the unpaid minimum wages and overtime pay, as

well as any spread of hours premiums owed.

• Prejudgment interest. The employer is required to pay prejudgment interest on

unpaid wages, overtime pay, and spread of hours premiums at the rate of 9%.

• Penalties. As noted above, a penalty of up to $5,000 per employee is payable

for failure to provide the time-of-hire notice, as well as a separate penalty of

$5,000 for failure to provide wage statements (pay stubs) with the worker's

weekly pay.

• Attorneys' fees. If the worker brings a lawsuit to recover any of the damages or

penalties enumerated above, the employer ordinarily will be required to pay the

reasonable attorneys' fees the worker incurs in prosecuting the action.

• More penalties. There are also substantial penalties payable to the Workers'

Compensation Board for failure to provide workers compensation insurance. The

Board has the statutory authority to assess penalties of $2,000 for every ten days

in which a violation remains uncured. (This penalty is often reduced to a multiple

of the premium that would have been charged for the workers compensation

insurance had it been purchased, but this is at the discretion of the Workers

Compensation Board.) And as noted above, it is a criminal misdemeanor to

employ an uninsured worker.

~[~7

Tax penalties. Moreover, if the state or federal taxation authorities becomeinvolved, the employer is exposed to additional penalties for failure to makedeductions for federal, state, and local income taxes, Social Securitycontributions, and for failure to pay unemployment insurance and State Disability

Law premiums.

V. PRACTICAL ISSUES.

A. There Should Be an Employment Agreement

In addition to providing the required wage notice within ten days of a newly-hired

domestic worker's date of hire, it is a best practice for the employer and the worker to

sign an employment agreement. This is not required by law, but preparing and

providing an agreement is a good way to make sure that the worker —and the employer

— understand "what the deal is," that the "deal" complies with the law, and that the

worker is protected from unlawfully being underpaid and the employer is protected from

violating the law and incurring the risk of substantial liability.

The agreement is, of course, in addition to the employer's other time-of-hire

obligations and best practices. The personnel file must be prepared and the documents

that go into it have to be obtained from the worker or prepared by the employer, as

appropriate. The proper notices must be given, and the employer has to get copies

signed by the worker to assure that they have been received. The New York State

domestic workers notice has to be posted. The employer should have lined up a payroll

company to prepare the worker's paychecks and should have reached an

understanding as to what information needs to be provided to the payroll company and

when. The employer should be sure that the employee will have workers compensation

coverage and New York State Disability Law coverage if those coverages are not going

to be provided through the payroll company.

But even if all of these obligations are fulfilled, the agreement can provide well-

needed clarity that will avoid disputes and liability. Indeed, for this reason, it would be

wise, if the worker's primary language is not English, to have the agreement translated

for the worker into the primary language.

We have attached as exhibit F a sample employment agreement that can be

adapted to any particular employment situation. Here are some issues to be considered

in putting it to use:

Section 1 describes the worker's job duties. Its purpose is to clarify the worker's

responsibilities, not to provide an excuse for someone to say, "That's not my job!"

That's why it's important to include a catchall phrase such as "and such other

chores as we may ask you to do." At the same time, if your nanny is going to be

responsible for household chores in addition to child care duties, it's a good idea

to delineate what those responsibilities are.

1 1

Section 2 identifies the employees hours of work. In this example, the worker'sresponsibilities include cooking dinners on Friday evenings, so the hours of workhave to take that into account. If there are regular hours of work, there will be

something like a regular paycheck, which provides reliability for the worker and

predictability for the employer. That is one reason for including the "on call"

sentence in the example. This is not required, and many households may not

want to use it. This section also clarifies the employee's entitlement to a lunch

break, and whether that break will or will not be paid and whether it will or will not

count as "time worked" for purposes of determining the worker's entitlement to

overtime pay.

• Section 3 obviously states the parties' agreement as to what the worker's wages

are. It also, less obviously, illustrates how overtime pay is calculated and how

the lunch break figures into calculation of hours worked. This clarity is helpful for

both parties.

Section 4 is not required for many domestic employments. However, it is an

issue that should be considered, and if the family expects the worker to

accompany them on vacations, that fact should be addressed in the beginning,

when the parties are setting down the terms of employment.

Sections 5 through 8 do not require explanation except to note that they set forth

minimum legal requirements, and that the first paragraph of section 5, which

addresses paid sick leave, is not required outside New York City. Some

employers may choose to provide more than two days' paid sick leave, or three

days' vacation. Some may wish to address the day of rest issue differently. But

these are all issues that should be addressed up front, when the employment

relationship is beginning, and the best way to address them is in the employment

agreement.

Section 9 addresses holidays. Employees may be required to work on holidays,

but the employer may choose not to require them to do so and may require them

to work on some holidays but not others, or on an ad hoc basis. Similarly,

unworked holidays do not have to be paid, but if the parties agree, all or some

unworked holidays may be paid. These issues are best addressed when the

employment relationship begins, and the best way to address them is in the

employment agreement.

This example has no termination provision. Some employers of domestic

workers may choose to say that the employment may be terminated by either

party at will, and/or subject to notice requirements. Some may choose to say

that the agreement may be terminated and replaced by a new one if the parties

agree to change the terms of their agreement.

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B. Resist Entreaties to Pav Wages in Cash

It is entirely common (all too common) for domestic workers to insist on being

paid in cash, "off the books." Paying in cash, as has been emphasized, puts the

employer in an exceedingly vulnerable position not just in relation to the claims the

worker may make when the employment relationship ends, but also in relation to

various governmental agencies, such as the Workers Compensation Board, the

Department of Labor, and the taxation authorities. There are only two responses that

make sense in the face of a domestic worker's request to work "off the books."

1. The employer may insist that the worker produce papers that show she's

authorized to work in the United States or else you can't hire her. You would be

surprised at the ability of people to produce documentation of their authorization to work

in the United States on pain of losing a job. (There are immigrant advocacy community

groups that help them in this regard.) As the employer, you're less concerned with

whether the documents are genuine than with whether they look OK; as long as the

documents appear to be valid and you're not turning a blind eye with knowledge that the

worker is undocumented, you have no duty to inquire into the bona fides of the

documents provided. Once you have the worker "on the books" this way, you can allay

her concern about being paid by check by arranging with someone at your bank or

some other business to cash her checks.

2. Or the employer may decline to hire this worker and instead continue to look

for someone who will work "on the books."

One thing the employer should not do is pay a flat amount of salary each week,

in cash or even by personal check, without keeping track of the hours the employee

works and without regard for the number of hours actually worked.

C. Know What You're Doing —Learn the Rules

Someone who hires a domestic worker, as noted throughout this paper, is an

employer, not just a parent or householder taking care of a family or maintaining a

home. And a domestic worker is not just a nice person who helps the family take care

of the children and maintain the household; he or she is first and foremost an employee.

As such, the employer is fully responsible for all of the many obligations an employer

has toward domestic employees, and the worker has all of the many rights that the law

provides.

Since the employer has these obligations but not the human resources

department that many employers have in other contexts, it is necessary for the

employer to know the rules. Most people won't do their taxes without an accountant,

and most of us recognize that it's foolhardy to try to do taxes without expert assistance.

Given what's at stake when someone hires a domestic worker, it's equally foolhardy to

employ a domestic worker without, at the very least, learning what the rules are and

asking question where the rules don't seem clear.

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The purpose of this paper is to provide that information, and we hope that it

fulfills that job. In order to round out that function, we have attached the following

documents from the Department of Labor's website:

Exhibit G is the Department's "Facts for Domestic Workers," which explains

for domestic workers the various rights they have under the law in regard to

domestic employment.

2. Exhibit H is the Department's "Facts for Employers," which explains for

employers of domestic workers the various obligations they have under the

law in regard to domestic employment.

3. Exhibit I is the Department's "Domestic Workers Legislation: Frequently

Asked Questions (FAQs)."

Anyone who employs a domestic worker, as well as domestic workers

themselves and attorneys who represent or counsel them or employers of domestic

workers, should review these items and be sure to get answers to any questions they

have.

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