Leadership & Management

What Club Owners Need to Know about the Fair Labor Standards Act

By Sarah Protzman Howlett - contributing writer Dec 15, 2014 3:40pm

In the fitness industry, knowing the ins and outs of the Fair Labor Standards Act can mean the difference between a workplace marked by organization and clearly defined employee roles, or a week in court fighting a wage-and-hour case brought by a disgruntled worker.

The Fair Labor Standards Act (FLSA) covers many facets of employment in the United States, but of particular concern to the health club industry are issues of minimum wage, overtime pay and recordkeeping for its full- and part-time workers.

Misclassification—meaning putting employees in the wrong box, so to speak, regarding whether they are entitled to overtime—is the biggest issue facing the club industry, says Jeffrey Ruzal, senior counsel in the labor and employment practice of New York City-based law firm Epstein Becker Green.

Who Is Exempt and Nonexempt?

Workers exempt from FLSA stipulations are those paid on salary. In the club industry, these employees often fall under the so-called administrative exemption, commonly white-collar jobs at a gym's corporate headquarters. Another exemption often seen in the club industry is the executive exemption, reserved for managers and higher-level supervisors acting at a higher level, using judgment with regard to independent operations. Ruzal notes that such definitions still leave room for interpretation.

"This one is murky, and sometimes employers get it very wrong," he says. "Executive exemption employees have to interview, hire and fire, promote and discipline—the host of managerial decision-making. This is not for someone who is a team lead or runs a shift or something."

On the other hand, nonexempt positions in the health club industry may include front desk, child care and custodial—and maybe even some sales positions in which someone is cold-calling prospective members, says Kara Maciel, an attorney with Conn Maciel Carey in Washington, DC. (Maciel presented on the tips and traps of the FLSA at the IHRSA show in March 2014.)

"Owners need to know that this is a very fact-specific analysis," she says. "I hear club owners say, 'Well, the gym across the street does it that way, so it must be OK,' but that may not be how the law works. Classification is done on an individualized basis."

Club owners can avoid misclassification—and, by extension, potential lawsuits—by starting with a thorough, accurate job description, known in FLSA terms as the primary duty test—in other words, what duties someone is performing more often than not.

"Employers have to be very careful that adding a couple of managerial responsibilities onto someone mostly doing hourly type duties is not going to save them from having to pay overtime," Ruzal says.

For an added layer of protection, he adds, all signed offer letters should include the same in-depth job description.

Personal Trainers: Employees or Independent Contractors?

Yet another sticky FLSA issue for health club owners involves personal trainers.

"This is an interesting question for the club industry," Ruzal says. "So many trainers are so entrepreneurial and view themselves as their own businesses, but it doesn't mean that they should be a contractor per the letter of the law."

Club owners can determine how to classify personal trainers in a few ways. First, there's a six-factor test (though some states just have five) called the Economic Realities Test. The six factors: nature and degree of control, profit and loss, worker skill and initiative, permanency of the worker relationship (how often he or she trains in a club), equipment investments and the integrality to the employer's business.

If you cut out the legal speak, this test rests on one main question: whether the worker is in business for himself or herself.

"If you can say that he or she is, more often than not, you can say this person is an independent contractor," Ruzal says. "But if you have a trainer or instructor working for one gym or family of gyms, that exclusivity will likely show he or she works for that club." And yes, he adds, "There has been litigation filed on this."

Another barometer: the Internal Revenue Service's 20-factor test for contractors. Much like the six-factor test, it comes down to the method and manner an individual is working for a club.

Maciel offers another example: "If an instructor teaches one class at one club, then has her own practice, that may look a little more like an independent contractor. Whereas if a club has a nail salon or massage therapist, and that person doesn't work anywhere else, that person is probably an employee."

Working Off the Clock—or Not

Whether a club owner has to pay employees for responding to emails or taking phone calls at home is such a big topic in the club industry that it has a name: BYOD, or Bring Your Own Device.

Maciel explains: "If someone is salaried and exempt, they can be on their Blackberry at any time. But if it's someone in charge of the club's social media presence, for example, that is all compensable time that has to be paid—and that person is probably nonexempt."

Hourly employees nonexempt from FLSA (again, that's your hourly employees) should legally be paid for that time, Ruzal says—but there's a rub.

"It's just so difficult to monitor and track it," says Ruzal, who advises club owners not to give hourly employees work-issued smartphones. "Employers should also maintain written policies stating that hourly workers should not be communicating after hours for work-related purposes."

SIDEBAR: How to Be Prepared for a Department of Labor Audit

Before joining Epstein Becker Green, Jeffrey Ruzal handled civil prosecution for the U.S. Department of Labor. He offers these tips for preparing for the possibility of an audit by the Department of Labor.

Keep copious records. "It is by far the most important thing to keep in mind," he says. "Employers need to keep accurate and contemporaneous records of all hours worked by all nonexempt employees. These records will be the first thing the Department of Labor asks for when they come in the door. If a club doesn't keep those records, they are exposing themselves to liability. The duty to maintain records is on the employer. If this is absent, the employee can come forward with their own records and testimony and can potentially enhance the number of hours they claim to have worked."

Maintain a time clock. "This, as opposed to just pencil and paper, is critical," he says. "Employees punching in and punching out is the best way to maximize accuracy."

Prohibit off-the-clock work. "Make sure employees are not hanging around the club or otherwise appearing to do work when they are socializing, waiting for a fellow coworker to finish his or her shift, or something similar," Ruzal says. "The club industry lends itself to a social environment, so I can see where trainers might want to hang around talking to members or coworkers."

Maintain a comprehensive handbook. "This will help club owners avoid claims of discrimination, unfair treatment or lawsuits," he says.

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