The year 2010 saw the acceleration of a disturbing trend in employment law for dealers and employers. The increase in lawsuits challenging employers on wage and hour law compliance 
continued. The U.S. Labor Department has increased its budget for enforcement in this area. Even more alarming, entire law firms of plaintiffs’ lawyers now specialize in wage and hour law claims. The vast majority of employment lawsuits, including class action lawsuits, filed in 2010 resulted from wage and hour issues. Clearly, the emphasis on these issues will continue in 2011.
Here is a checklist of the hot button wage and hour issues in a dealership. How do your policies measure up?
Employee vs. Independent Contractor. We have written repeatedly concerning the emphasis of the Department of Labor on classification of personnel as employees rather than independent contractors. The government wants all personnel who work for you to be classified as employees unless it is clear that they fully meet the criteria as independent contractors. Employees have the right to minimum wage, to overtime for non-exempt individuals, to FICA, and to other contributions, while independent contractors do not. The IRS has issued a checklist of items to determine whether someone is an employee or an independent contractor. The dealership should carefully review that list for anyone it considers an independent contractor. The most significant issues for dealerships generally involve clean-up personnel who are paid on a piece work basis and part-time drivers.
Classification of Employees. Car dealerships enjoy exemptions from overtime greater than those for other employers. Salespeople, qualifying mechanics, and “partsmen” are exempt from overtime. However, there are limits for each of these categories. Not everyone in the sales department is a salesperson; generally only folks who turn wrenches qualify as mechanics; and some parts department employees such as drivers may not be “partsmen”. In addition, there are tests for general exemptions from overtime such as managerial personnel, etc. The end of the year is a good time to review your classifications of employees as exempt.
Minimum Wage. Even when dealership employees are exempt from overtime, don’t forget that employees must be paid minimum wage for all hours worked. This is sometimes problematic for sales people who may work more hours than the hours assumed for their draws. In difficult months where sales employees don’t earn enough to cover their draws, these employees may not receive sufficient compensation for minimum wage purposes. The general office should check every pay period to determine whether sales people are making the minimum wage for each hour worked. And how do you determine the number of hours worked? There is no substitute for a time clock.
Pay Plans that Protect the Dealership. A regular source of friction between a dealership and employees is their pay plans. Most dealerships use pay plans, but many do not use pay plans that protect the dealership. Here are some critical items for a pay plan:
- Is it written? An unwritten pay plan is worse than no pay plan at all because every employee has his or her own version of what the pay plan provides.
- Is there a contract disclaimer? Unless the pay plan states that it is not a contract, it is liable to be considered to be one. A pay plan is a description of the method by which employees will be paid. It is not a contract.
- Does it define the basis for pay? This may seem fundamental, but a pay plan that provides compensation based on a percentage of some base is not helpful unless the base is clearly defined. For example, for a salesperson’s pay plan, the percentage should be based on commissionable gross and that term should be clearly disclosed, including the dealership’s right to determine commissionable gross in its sole discretion. It should also define clearly when the deal is complete and when the employee is deemed to have earned the commission. For a manager pay plan that calls for a percentage of some account on the financial statement or some calculated base, define that clearly.
- Right to Change. Reserve the dealership’s right to change the pay plan at any time in its sole discretion.
- Right to Set Special Compensation. Reserve the right to establish and to withdraw special compensation programs at the dealership’s sole discretion.
Terminal Liability. No one is more likely to sue the dealership than an employee who quits or is fired. When one leaves, take special care to ensure that the employee is paid according to his or her plan. This is especially critical for sales employees who are to be paid on deals that may not be complete at the time he or she leaves. If the employee is eligible for payment once the deal clears, make sure that payment is processed post-termination.