• Wage Issues and the Aftermath of Hurricane Katrina
  • September 21, 2005
  • Law Firm: Waller Lansden Dortch & Davis, LLP - Nashville Office
  • Our thoughts and concerns are with all of those on the Gulf Coast as they struggle to recover from Hurricane Katrina. The devastation wrought by the hurricane will keep many businesses closed for lengthy periods of time resulting in an uncertain future for the businesses and their employees. Many employers voluntarily may continue to pay wages for some period during the clean-up effort. Whether or not the employer undertakes such voluntary payments, it is especially important that employers continue to follow wage and hour laws during this difficult time. The Department of Labor vigilantly enforces employee's rights, especially during situations like this one.

    Employers that require employees to remain at the business around the clock during recovery and cleanup periods face a host of overtime obligations which, if not followed, can result in significant liability. In anticipation of and in the wake of Hurricane Charlie in 2004, one hospital in Florida required employees to report to the hospital and remain there 24 hours per day. The hospital ultimately reached a nearly $2 million settlement with the Department of Labor for not properly paying overtime. The wage and hour regulations specifically address the wait time, on-call time and sleep time. For example, sleep time is compensable time for an employee with a tour of duty that is less than 24 hours if the employee is on duty and must work when required. But where employees have a tour of duty lasting 24 hours or more, up to eight hours of sleep can be excluded from compensable time if specific factors apply. Similarly, all time spent by employees waiting while on duty must be counted as hours worked unless certain factors are present that indicate a fixed wait time; the employee is relieved from duty and is allowed to leave the job; or the period is long enough for the employee to use the time as he/she chooses. Any plan requiring employees to be present 24/7 during recovery efforts must be carefully structured with the regulations in mind.

    Another issue surfacing for some employers in Hurricane Katrina's wake is how they are to compensate their overtime exempt employees when the workplace is inaccessible or otherwise not open for business due to the storm and its aftermath. For example, if an employee cannot physically get to the workplace, or a work site is unsafe to operate, what are the employer's options regarding payment to exempt employees?

    Fortunately the options here are not too daunting. First, an employer may simply elect to continue paying the exempt (and non-exempt employees, for that matter) as if they were in fact continuing to work. Some employers have announced that they intend to follow this model for a specified period of time.

    A second option is to permit exempt employees to use their accrued vacation or other paid time off in order to ensure that they will receive a paycheck for a predictable amount of time. There is no prohibition under the Fair Labor Standards Act, or the wage payment laws in the states directly affected by Katrina's devastation - Louisiana, Alabama, and Mississippi - that in any way prohibits an employer paying out earned time off during the period when the employer is not open for business. When considering this option, it is particularly important that the option is applied consistently so as to avoid discrimination claims by individuals or groups who claim that they were denied the opportunity on the basis of race, gender, etc. If the option is not offered to all employee groups - whether by job title or department - employers should document the legitimate business reasons for limiting the option to specific groups.

    In addition, if exempt employees do not have any accrued paid time off but have worked some of the pay period, then the employer must pay the employee for the full pay period. That is, if an employer's work week is Sunday through Saturday, and the lay off occurs on Wednesday, the exempt employee is entitled to payment for the entire workweek - including Thursday, Friday, and Saturday - even though the employee did not perform services on those days. Deductions for working less than the full work week, where caused by business shutdown, risk loss of the overtime exemption for a certain period of time.

    Be aware as well that even though the company may be open for business, some employees may not be able to report to work due to a myriad of personal circumstances, health conditions or simply the inability to get to the workplace safely. Whether such absences affect an employee's wages or leave time will typically be governed by the company's leave policy, including the Family Medical Leave Act and state law where applicable. While the FLSA permits employers to make deductions from exempt employee's salaries for such absences under certain circumstances, employers may elect not to do so.

    Employers may also be faced with the difficult and unpleasant situation of being forced to layoff employees because the business will not be open for the foreseeable future. In such circumstances, employers should be mindful that if layoffs occur during the middle of the pay period, the employer is obligated to pay the exempt employees for the full pay period as described above. This is the result because the general rule is that if the employee is ready, willing, and able to work but the employer is unable to operate or actually utilize those individuals due to a natural disaster such as Katrina, the exempt employees are entitled to a full work week's pay rather than a partial week deduction.

    Finally, given the gravity of the circumstances and difficulties facing so many workers, it is conceivable that the Federal government, as well as the governments of the affected states, may enact temporary legislation to protect the jobs and wages of displaced employees. Such potential job protection laws could be retroactive in application, so employers affected by Katrina should be particularly watchful when considering layoffs or terminations.

    Other wage payment issues may surface as affected employers work to get their businesses up and running. Employers are urged to check with state and Federal laws before implementing wage deductions, on-call policies, requiring non-exempt clean up-related duties and the like.