2.2 CLASSIFYING EMPLOYEES UNDER THE FAIR LABOR STANDARDS ACT
2.201 In General. Most employees are covered by the Fair Labor Standards Act of 1938 (FLSA or the Act), 38 which requires that employees be paid at least minimum wage and overtime at a rate of one and one-half times the employee's regular rate of pay for all hours worked in excess of 40 in a week. Some employees, however, by virtue of their job duties, are "exempt" from these requirements. 39 Conversely, those employees who are covered by the FLSA are known as "non-exempt" employees. All employees, at the time of hire, must be identified as belonging to either the "exempt" or "non-exempt" category.
2.202 What the FLSA Regulates. On its face, the FLSA is fairly straightforward in the areas it covers, which include the following topics:
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| 1. | Payment of minimum wage; | |
| 2. | Overtime pay for all work in excess of 40 hours in a week; | |
| 3. | Child labor laws; | |
| 4. | Equal Pay Act; 40 | |
| 5. | Payroll/timecard recordkeeping requirements; and | |
| 6. | Lactation breaks. 41 |
2.203 What the FLSA Does Not Regulate.
A. Issues Not Subject to the FLSA. Among the many aspects of the employer-employee relationship that are not addressed by the FLSA are:
| 1. | The allowable number of hours worked; | |
| 2. | Severance pay; | |
| 3. | Discharge notice or time for payment after termination; | |
| 4. | Holiday pay or holidays; | |
| 5. | Required time off from work; | |
| 6. | Vacation pay; | |
| 7. | Rest periods; 42 and | |
| 8. | Work performed on Saturdays and Sundays. |
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B. Virginia Regulations.
1. In General. Virginia law regulates some of the issues listed above that are not covered by the FLSA. The Virginia regulations contain relatively few mandates but instead establish guidelines within which employers may formulate their own personnel policies.
2. Allowable Number of Hours Worked. Virginia law does not impose upon employers any limitation on the maximum number of hours of work that a business can require of its employees. The only exception is made for children under the age of sixteen. 43
3. Severance Pay. Virginia law does not require a company to pay severance when an employee is terminated, but if an employer's personnel policies or prior practice are viewed as establishing a promise of severance pay or other fringe benefits, the Virginia Department of Labor and Industry (DOLI) considers those benefits part of the wages due on termination. 44
4. Notice of Discharge. For a discussion of notice of discharge, see paragraph 5.2 of Chapter 5.
5. Time for Payment After Termination. For a discussion of time for payment after termination, see paragraph 2.404 of this chapter.
6. Holiday Pay or Holidays. Virginia law does not require a private employer to provide holiday leave as part of a personnel policy or to pay holiday pay if the business closes on a holiday.
7. Required Time Off From Work. Before July 1, 2005, Virginia law required that employees be given one day off from work each week 45 and further granted employees the right to take that day of rest on Saturday or Sunday. Given questions regarding the constitutionality of this statute and other issues, the General Assembly repealed the "day of rest" statute effective July 1, 2005. Thus, Virginia law does not require any employer to give employees a "day of rest."
8. Vacation Pay. Virginia law also does not require employers to provide vacation pay or leave with pay as part of an employer's personnel
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policies. As with severance pay, an employee's right to be paid for unused vacation is a matter of contract to be negotiated with the employer.
9. Rest Periods. With the exception of child labor (employees under the age of 16 in Virginia), Virginia law does not require that employers provide employees with rest periods or lunch breaks, nor does it require that employers pay employees for lunch breaks. 46 Although federal law also does not mandate rest breaks, regulations under the FLSA address whether rest breaks must be considered as compensable time (hours worked) for purposes of calculating overtime. 47
10. Work Performed on Saturdays and Sundays. Under Virginia law there is no restriction on an employer's right to require an employee to work on Saturday and Sunday. 48 As noted above, in 2005 the General Assembly revoked the "Day of Rest" statute, and in doing so it also revoked a separate statute that allowed employees to designate either Sunday or Saturday as their day off.
2.204 Covered Employees.
A. In General. An employee can be covered under the Act either because his or her employer is a covered "enterprise" or because the employee is engaged in interstate commerce (which, as noted below, now means just about everyone).
B. "Enterprise." An "enterprise" includes individuals, corporations, government agencies, and healthcare institutions engaged in interstate commerce that directly or indirectly employ workers and that have gross volume of sales or business done of not less than $500,000. 49
C. "Engaged in Interstate Commerce." The Act gives expansive interpretation to "interstate commerce" as including any enterprise that "has employees engaged in commerce or in the production of goods for commerce, or that has employees handling, selling, or otherwise working on goods that have been moved in or produced for commerce by any person." 50 An enterprise
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satisfies the requisite connection to interstate commerce where just one employee regularly orders, receives, and handles goods originating outside the state. 51
2.205 Who Is an "Employee"?
A. General Rule. The concept of "employee" is broadly defined under the FLSA. 52 Generally, any individual who performs work for another is an employee. Because of the flexibility of the modern workplace, it is necessary for employers to determine whether a worker is an employee or an independent contractor. 53
B. Economic Realities Test. The Department of Labor (DOL) and the courts determine whether the worker is an employee or an independent contractor by looking at the "economic realities" of the arrangement, applying the following principles:
| 1. | The determination is not dependent simply on whether the work performed provides the worker with his or her primary source of income; | |
| 2. | The issue is whether the individual is dependent on the employer's business as a means of livelihood or as a matter of "economic reality"; | |
| 3. | No single factor is determinative: courts consider the entire circumstances of the work relationship. |
C. Factors Considered. In making this determination, the courts and the DOL generally examine the following factors:
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1. Right to Control. The degree to which the employer controls or directs the manner in which work is performed is an important consideration, although it is not conclusive in determining whether an employer-employee relationship exists.
2. Opportunity for Profit and Risk of Loss. Another consideration is whether the individual has an opportunity for profit or risk of loss and whether the opportunity is determined by the individual's business skill or by the employer. For example, dancers at a topless nightclub were considered employees because the club was found to have a high degree of control over the dancers' opportunity for profits given its control over advertising, location, business hours, maintenance of facilities, and food and beverages.
3. Length of Employment. The more substantially long-term the relationship and the less the ability of the individual to perform services for other employers during the time period, the more likely the worker will be considered an employee.
4. Services as Integral Part of Employer's Business. If the services the individual performs are essential for or an integral part of the operation of that particular business, the courts are more likely to find the individual to be an employee rather than an independent contractor.
5. Level of Skill and Independent Judgment Required. When an enterprise requires a high degree of initiative, skill, independent judgment, or foresight to succeed, the worker is likely to be considered an independent contractor. But if the worker performs routine matters exercising little judgment, he or she will most likely be regarded as an employee.
6. Substantial Investment or Cost by Person Performing Service. An individual with a large investment in equipment and tools is often found to be an independent contractor. On the other hand, if the person engaging the services provides the tools and equipment, it is likely (though not conclusively so) that an employer-employee relationship exists. 54
2.206 Employer's Individual Liability. The FLSA defines "employer" as including "any person acting directly or indirectly in the interest of an employer in relation to an employee." 55 Thus, in certain circumstances, individuals may be subjected to liability under the FLSA for unpaid wages. For
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example, in Brock v. Hamad, 56 the Fourth Circuit imposed liability against the owner of a business because he "clearly was the employer; it is not disputed that he hired and directed the employees who worked for the enterprise. Even if the businesses were within a corporate structure, [the individual defendant] would still be the employer who would be liable for violations of the FLSA." 57
In Irizarry v. Catsimatidis, 58 the Second Circuit appeared to expand individual liability under the FLSA when it held that an individual who was chairman, president, and CEO of a supermarket chain could be considered an employer and personally liable for FLSA violations, even though he was not personally responsible for the violations. An individual is not personally liable just for being an owner or officer but, rather, must have control over the company's actual operations in a matter which relates to the plaintiff's employment. In Irizarry, the CEO's "active exercise of overall control over the...
