Utah Supreme Court Will Issue Two Important Decisions Interpreting the Scope of Utah's Payment of Wages Act

In February and March the Utah Supreme Court heard oral arguments on two cases likely to have a significant impact on the scope and interpretation of the Utah Payment of Wages Act, Utah Code Ann. 34-28-1 to -19 ("UPWA").  

The first case, Heaps v. Nuriche, Case No. 20130132, addresses when and under what circumstances officers or employees may be held personally liable for wage claims under the UPWA. The case turns on the definition of "employer" in the UPWA, which defines employer to include "every person, firm, partnership, association, corporation, receiver or other officer of a court of this state, or any agent or officer of any of the above-mentioned classes, employing any person in this state." U.C.A. 34-28-2(c).  A plain reading of the language of this definition seems to clearly suggest that any agent or officer of an employer can be held personally liable, in the same way any person, firm, partnership, association, receiver or other officer of a court can. But, there is no express provision of personal liability in the UPWA and the reach of the language seems extremely over broad. Did the legislature really intent to hold every employee and every agent of an employer personally liable for unpaid wages when the corporation or other entity they work for does not pay wages? And, doesn't this defeat the entire purpose or corporate liability protections for employees of corporate entities?  Yet, what about those employees or officers of a company who continue employing employees despite knowing that the corporation they work for will not be able to pay wages to these employees? The Utah Labor Commission has taken the position that the UPWA does extend to certain officers and employees of corporations or other entities employing workers.   Whatever the Supreme Court ultimately decides, you can expect that this issue will be revisited by the Utah Legislature in the coming years.

The second case, Utley v. Mill Man Steel, Inc., Case No. 20130162, involves a claim brought by Stavros Law on behalf one of its clients, seeking to recover in excess of $100,000 in unpaid commissions that were earned. At trial, the District Court granted our client's motion for summary judgment, finding that Mr. Utley was owed all of his commissions, plus a statutory penalty, interest and attorney's fees. The District Court entered judgment in favor of Mr. Utley in excess of $200,000 and in doing so held that Mill Man's counterclaims against Mr. Utley for purported breaches of fiduciary duty, negligence and conversion did not allow it to withhold wages earned by Utley. Instead, the District Court ruled, as Stavros Law argued, that Mill Man was required to pay wages owed to Utley and then pursue any counterclaims it believed it had against him separately. On appeal, the Supreme Court will be required to interpret key provisions of the UPWA, including 34-28-3, 34-28-5, and 34-28-6, among others.  The case has significant importance to employees who have wage claims over $10,000 and who cannot file a wage claim through the Labor Commission.

The UPWA governs the method, timing and manner in which employers pay wages in Utah.  Among other things, it requires that “all wages shall be paid in full” to employees.  Utah Code Ann. § 34-28-3(1)(e).  The UPWA  applies to the vast majority of employers in Utah and requires employers to pay an employee’s wages within 24 hours of termination (or upon the next scheduled payroll when an employee quits).  Utah Code Ann. §§ 34-28-1 and 34-28-5(1) If 24 hours elapse without payment and the employee then makes a written demand for payment, the employee’s wages continue to accrue from the date of the demand to the date payment is made (but in no event to exceed 60 days).  Id.  The employee may recover his unpaid wages, the statutory penalty, and attorney’s fees by bringing a civil action against the employer within 60 days from the date of separation.  Id.; Utah Code Ann. § 34-27-1. 

Employers are expressly prohibited from withholding or diverting an employee’s wages unless: (1) the employer is required to do so pursuant to court order, state law, or federal law; (2) the employee expressly authorizes (in writing) the withholding; or (3) “the employer presents evidence that in the opinion of a hearing officer or an administrative law judge would warrant an offset.”  Utah Code Ann. § 34-28-3(5). If none of the exceptions exists, but the employer desires to pursue claims for damages, offsets, and recoupments, the UPWA expressly states that the employer may do so in a civil action against the employee.  Utah Code Ann. § 34-28-3(8).  

For claims less than $10,000 and employee can file a wage claim through the Utah Labor Commission. Through Utah Code Ann. § 34-28-9, the UPWA grants rulemaking authority to the Utah Labor Commission to investigate and determine the validity wage claims.  The Commission has exercised such authority through Utah Admin. Code R610-3-1 et seq.  R610-3-18 lists 13 “lawful deductions or offsets from wages due an employee.”  The list contains deductions and offsets for: municipal, state and federal taxes; employee benefit and deferred compensation plans; union dues; the employee’s written authorization; the purchase of goods from the employer; a valid garnishment or attachment; the employee’s negligence (provided the employer obtains a judgment against the employee in a judicial proceeding before withholding wages); repayment of a loan to the employer (if the loan occurred during the employment and the employee provided written acknowledgment of the loan); sums resulting from the property loss or damage caused the employee’s criminal conduct (provided the employee has been adjudged guilty in a judicial proceeding before the withholding of wages); and sums deducted for cash shortages (provided the employee acknowledges in writing that such shortages may be deducted from his/her wages).

For additional information about the UPWA, or for information about employee's rights under the UPWA, or employer's obligations under the UPWA, please contact our law firm.

United States Supreme Court Affirms DOL's Interpretation of Whistleblower Protections in SOX

On March 4, 2014 the U.S. Supreme Court, in Lawson et al. v. FMR, LLC, issued an important decision with respect to the whistleblower protections contained in the Sarbanes-Oxley Act of 2002 (SOX).

In a decision written by Justice Ginsberg, the Supreme Court held that the whistleblower provisions of SOX, 18 U. S. C. §1514A(a), extend to employees of a public company's private contractors and subcontractors. Th ruling is consistent with the U.S. Department of Labor's long-standing interpretation of the whistleblower provision and makes clear that scope of employees entitled to protections under SOX include not only those employed by the publicly traded company itself, but investment advisors, accounting firms and even law firms who perform work as contractors or subcontractors for the publicly traded company.

The SOX whistleblower provision provides that "[n]o [public] company . . . or any . . . contractor [or]subcontractor . . . of such company, may discharge, demote, suspend,threaten, harass, or . . . discriminate against an employee in the terms and conditions of employment because of [whistleblowing activity].”  18 U. S. C. §1514A(a). In Lawson, the Court found from the plain language of this Section, as well as other similar provisions enacted by Congress, an intent to extend whistleblower protections to employees and subcontractors. Specifically, in rendering its decision, the Supreme Court looked to the legislative history of SOX and, specifically, Congress' understanding that contractors have significant responsibility for reporting fraud by publicly traded companies with whom they contract, and that fear of retaliation was the primary deterrent to such reporting in the Enron’s scandal that preceded the enactment of SOX.

As noted above, the Court's ruling is consistent with the U.S. Department of Labor's interpretation of such whistleblower protections. While this decision is a victory for employees asserting whistleblower claims, it was not unexpected. Indeed, it would have been hard to imagine the U.S. Supreme Court reaching a different conclusion, given the language and legislative history related to this provision, Additionally, as Justice Ginsberg noted in her decision, the Court resisted "attributing to Congress a purpose to stop a contractor from retaliating against whistleblowers employed by the public company the contractor serves, while leaving the contractor free to retaliate against its own employees when they reveal corporate fraud."

Employees who believe they have been retaliated against for blowing the whistle must act quickly to protect their rights to bring a claim against their employer.  An employee can file a complaint with OSHA for, among other things, firing, laying off, blacklisting, demoting, adjusting compensation, disciplining, intimidation, threats and other forms of retaliation.  Complaints must be filed within 180 days after an alleged violation of SOX or after the date on which the employee became aware of the violation.

For additional information concerning SOX whistleblower claims, please contact our law firm.

Independent Contract / Employee Classification Issues

Avoiding Improper Worker Classification (Employee/Independent Contractor)

As I've noted in passing to many of our business clients, including those who are currently dealing with painful audits from federal or state agencies regarding worker classification issues, our law firm has experienced a significant increase in audits conducted by the Utah Department of Workforce Services, the Wage and Hour Division of the U.S. Department of Labor, the Utah State Tax Commission and the Internal Revenue Service. 

As noted in an earlier blog post, the IRS and DOL have entered into an agreement to improve their efforts to end employee misclassification. These agencies are now sharing information and coordinating enforcement with state agencies.  The IRS also launched the Voluntary Classification Settlement Program (VCSP), which encourages employers to voluntarily reclassify independent contractors as employees.  For more details about VCSP, please look here http://www.irs.gov/businesses/small/article/0,,id=246013,00.html. 

In light of these developments, I thought now would be a good time to go over some basic strategies to avoid misclassification issues.  So, what can employers do to avoid misclassification issues? Well, understand that there a number of different tests applied by different agencies to determine the classification of employees is a start. For example, the Department of Workforce Services uses its own test for purposes of unemployment insurance.  The Department of Labor uses a very broad test for determining if a person is an employee for purposes of the Fair Labor Standards Act (FLSA) and certain other laws. In addition, the Equal Employment Opportunity Commission (EEOC) uses yet another test to determine employee status for discrimination purposes under Title VII of the Civil Rights Act of 1964 and certain other discrimination laws. The IRS also has its own twenty factor test. Generally, however, here's what you need to know to avoid improper classification:

            1.         The more control your business has over the method and manner in which the individual performs his work, the more likely he is an employee. In other words, do you have the right to direct and control how the individual performs his work?  Things to think about include, for example, the extent of training provided to an individual, whether or not you require the individual to perform tasks in a certain way, and whether you evaluate the manner in which tasks are performed. You also want to look at where you require the individual to work, and when you require the individual to work.  Employees typically work exclusively for an employer, under set hours with set compensation.

            2.         You also want to look at financial control.  Or, in other words, does the individual have the freedom to provide work for other businesses in the same profession? Is the individual in business for himself, and does he have the risk of generating a profit or loss for himself?  Independent contracts are typically hired for a specific task, perform work for other companies like yours, determine their rates and use their own facilities, equipment and standards. You hire them to achieve a result. How they do it and whether they make money is up to them.

If you have independent contractors, consider examining your classifications.  You will want to look at each position that you have classified as a contractor, and examine their duties and functions in light of the above requirements.  You may want to start by looking at the test used by the IRS.  Remember also, that the VCSP is available to employers who want to voluntarily change the classification of their workers from independent contractors to employees. In some situations, this can be a very attractive way of dealing with misclassification issues.  The VCSP is available to employers who want to voluntarily change the classification of their workers form independent contractors to employees.  To be eligible, the employer must have treated workers in the past as independent contractors, filed all required 1099 forms for the workers for the prior three years, and not be under an audit by the IRS, DOL or a state agency concerning the classification of workers.  If the requirements are met, eligible employees can obtain relief from federal payroll taxes (10% of the tax liability that may have been due must be paid, no interest and penalties are assessed on that amount, and the employer will not be audited for the years in question).  Note, however, that the IRS classification program applies to federal employment taxes only. Employers that misclassify employees as independent contractors may have other obligations under other laws, including FLSA, unemployment, workers' compensation, and state wage payment statutes.

If you have questions about improper classification, is probably advisable to contact an attorney. The number of wage and hour claims, and audits by state and federal agencies, has increased significantly. Understand that you have options, but it's important to act quickly.

In my next post, we will talk about other misclassification issues under the Fair Labor Standards Act (FLSA).