Dec 01, 2011

Beware the Perils of End-of-the-Year Bonuses and the Office Holiday Party

Bonuses

During the holidays, many employers provide non-exempt employees with prizes, awards, nondiscretionary bonuses and incentive payments dependent on the quality, quantity or efficiency of production or hours worked. The value of such a prize, award, nondiscretionary bonus and incentive payment must be allocated over the period during which it was earned to determine the resultant increase in the average hourly rate for each week. This means that any overtime worked in the pay period covered by the bonus would need to be recalculated to adjust for the value of the prize, award, nondiscretionary bonus and incentive payment. If the prize is merchandise, the amount that must be allocated is the actual cost to the employer. Exclusion of a bonus from the regular hourly rate depends on whether the bonus was discretionary. The bonus is excluded from the regular rate for purposes of calculating overtime if the allocation and amount of the bonus are left to the employer’s sole discretion, and the payment was not made pursuant to any prior contract, agreement or promise which would lead the employee to expect the payment.

Office Parties

It is also the time of the year when many businesses host a holiday gathering for their employees. While the number of parties has been severely reduced in recent years, the (somewhat) recovering economy will likely see an increase in seasonal celebrations. These get-togethers often create not only holiday cheer, but also litigation and office gossip. Although many of these events take place outside of regular business hours, they are considered to be within the scope of employment. Accordingly, it is important for business owners and human resources professionals to be prepared to address any of the following challenges that might arise:

Discrimination/Retaliation Concerns

Sexual harassment is likely the most significant risk that companies will face at a holiday party. The most obvious and effective measure to reduce the possibility of improper fraternization is to host an alcohol-free event, or at least to limit employees’ access to drinks. First, removing hard liquor from the menu goes a long way to reduce drunkenness. Second, drink tickets limit the number of beverages each employee may consume at the event (two is standard). Finally, a fairly effective solution is to charge attendees for their beverages, even if at a subsidized, reduced rate.

Supervisors and managers must be reminded to maintain professional standards and to serve as examples for their subordinates. Avoid any activities which may lead to physical contact or inappropriate conversation (“Twister” and “Win, Lose, or Draw” may be fun, but do not evoke grown-up behavior in a work environment). Finally, monitor behavior, alcohol consumption, the incorrigible flirt, and the dirty dancer, and remove offending individuals prior to them doing any real damage.

Employers must also comply with other Equal Employment Opportunity laws during company-sponsored functions. For example, the event or activity should be accessible to any employee with a disability. Religious themes should be avoided in order to respect the diverse beliefs of the attending individuals. Any gifts to employees should be appropriate and neutral – gift cards being the safest bet. Finally, in the event that any complaint or report of inappropriate behavior emerges, such concerns should be taken seriously, documented, investigated promptly, and remedial action taken, if necessary. Any employee who makes such a complaint must be treated fairly and protected against any action that could be viewed as retaliatory.

Independent Contractor Status

Many companies are increasingly utilizing the services of temporary agencies and hiring other types of independent contractors to supplement their employee base as business increases. These workers often will become part of the everyday workplace, and it is not uncommon for them to be invited and included in extracurricular activities such as holiday parties. To avoid creating evidence that the Department of Labor (“DOL”), Internal Revenue Service, or other agency might use to argue that an employer-employee relationship exists, there are several proactive measures that can be implemented. First, employers may exclude temporary employees and other independent contractors from holiday functions. If exclusion is too harsh a penalty for being a non-employee, a company may work with the independent staffing agency to have the agency provide some sort of involvement or benefit to the temporary workers in order to more firmly establish its role as the true employer. For example, a staffing agency should be required to pay a small fee to subsidize each temporary worker’s attendance, to send invitations through the agency and to have an agency’s representative on-site at the event.

Physical Injury

Recreational functions that serve alcohol always involve the possibility of accidental injury. Slip and falls, broken chairs, coffee burns and automobile accidents are all-too-common occurrences at and after holiday parties. These types of injuries can bring potential liability to the employer under workers’ compensation, negligence, premises liability statutes, and state laws targeted towards providers of alcohol.

Many states consider the typical office holiday party to be in the course and scope of employment, and would award workers’ compensation benefits to any employee who was injured. Such benefits are considered the “exclusive remedy” for the injury, thus preventing the employee from seeking any supplemental recovery from the employer. If the injury is considered to be outside of the scope of employment, employers would face potential liability if the act was caused by a dangerous condition that the company knew or should have known about, or if it was caused by the employer’s actual or imputed negligence. For example, many states have “dram shop” laws that create a duty to hosts to ensure that guests are not given an excessive amount of alcohol. In such states, damages caused by a drunk employee who is involved in a car accident after the office party could be imputed to the employer.

Therefore, keep the company function safe, inclusive, and in good taste, and be extremely cautious with the quantity of alcohol being served. Control any adversarial situation before it escalates, be sure managers and supervisors set a good example, and have a non-drinking human resources representative on patrol.

Wage and Hour

Attendance at a Company-Sponsored Party

Is employee attendance “required” at a company party, even if it is held after regular work hours? If so, hourly employees may be entitled to regular or even overtime compensation for the time spent attending the event. If the event is voluntary, be sure to advertise it as such in any e-mail or invitation to avoid potential liability under the Fair Labor Standards Act (“FLSA”) or the equivalent state law.

**Volunteers for Charitable Activities*

The holidays move many people to volunteer for benevolent activities. The FLSA permits people to donate their time as non-employees for humanitarian, religious, charitable or other public-service reasons. However, the individual must conduct such services on a genuinely voluntary basis and without expecting or receiving wages. The DOL has clearly indicated that its policy is to limit volunteer status to qualifying activities for non-profit entities. The DOL has determined that the FLSA does not allow employees to volunteer to their employer for unpaid services which are the same as, similar to, or related to their normal responsibilities. The DOL takes the same position if the employee provides different services for a charity that are done at the employer’s request, under its direction or control, or during the employee’s regular work hours.

If you have any questions about any of the items discussed in this alert, please contact your employment counsel at Smith, Gambrell & Russell, LLP.


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