WHISARD Compliance Action Report U.S. Department of Labor Wage and Hour Division Case ID: 1624195 Originating District: Manchester NH District Office Local Filing Number: 2011-245-00339 Investigating. District: Manchester NH District Office WHMIS Case Number: Lead Investigator: Q7 Registration Date: 07/08/2011 Assignment Date: 08/31/201 1 Emplover Information Trade Name: Rome Snowboards Corporation Address: 1 Derby Lane P. O. Box 150 Waterbury, VT056 76 Legal Name: EIN: County: NAICS Code: Rome Snowboards Corporation Vi Washington 54149 No. Of Employees: Investigation Information Period Investigated From: 10/10/2009 BNPI: 0: 10/09/201 1 Reinvestigation: El Investigation Type: Recurring Violation: [1 Investigation Tool: Full Investigation Future Compliance Agreed: IZI Compliance Status: Agree to Comply Involved in AG: Recommended Action: I BWFS: IZI Review: CMP: El Follow Up Investigation: El Litigation: Other Action: Civil Action: Denial of Future Certificate: Criminal Action: Cl BW Payment Deadline: 01/30/2012 Submit For Opinion: El Trailer forms attached: El CL Violation Compliance Status ViOlafiOnsEEs Computed BWs Agreed iLDs Computec LDs Agreed No Violation found for this $0.00 $0.00 $0.00 act Agree to Comply CL Totals: 0 $0.00 $0.00 $0.00 $0.00 Case ID: 1624195 Page 1 Date: 08/28/2013 2:52:51 PM WHISARD Compliance Action Report Violation Compliance Status Violations EEs ATP Ws Computed BWs Agreed LDs Computed LDs Agreed Failure to pay Minimum 38 38 $37,673.25 $37,673.25 $0.00 $0.00 $0.00 Wage Agree to Comply Failure to pay proper 4 4 $3,601.80 $3,601.80 $0.00 $0.00 $0.00 overtime Agree to Comply . Failure to keep accurate 1 0 $0.00 $0.00 $0.00 $0.00 $0.00 records Agree to Comply FLSA Totals: 5 41 41 $41,275.05 $41,275.05 $0.00 $0.00 Total Violations Under FLSA 43 CMPs computed do not necessarily indicate CMPs assessed. Unduplicated Employees Found: 41 Unduplicated Employees Agreed: 41 Total Amount BWS Computed: $41,275. 05 Total Amount BWS Agreed: $41,275.05 Total Amount LDs Computed: $0.00 LDS Agreed? 30-00 Conclusions Recommendations: 141.5 hrs. Ent. Cov. Full inv. 41 EEs owed BWs. 38 MW Viol: unpaid interns; 4 OT viols. misclassfied RK Viol. fail. record HW, OT HW, intern names/address. FC: on 11/30/2011 w/ER's atty. "7 Cw" again on 12/02/2011 w/Josh Reid, ER sec./treas. ER A TC and ATP $41,275.05 by 1/30/2012. he was exempt creative pro. Pubs. HRG, Parts 516, 541; WH: 1325 OT, 1330 CL, 1297 Employ. Relation., Fact Sheet 71 Internships under FLSA. Rec. admin. close upon POP, outreach, follow-up possible leads. 12/05/201 1 WHI Signature: Date: Reviewed By: Date: Page 2 Date: 08/28/2013 2:52:51 PM Case ID: 1624195 Rome Snowboards Corporation Case ID: 1624195 Rome Snowboards Corporation Case ID: 1624195 P.O. Box 150 Local File: 2011-245-00339 Waterbury, VT 05676 BIN: 802.244.1758 FLSA NARRATIVE REPORT Full Investigation COVERAGE Nature of Business: Subject enterprise, Rome Snowboards Corporation, is a snowboard company headquartered in Waterbury, VT, which designs, manufactures, and sells snowboards and snowboard-related equipment and apparel worldwide. The company, which has an overseas branch in Munich, Germany, was incorporated in Delaware on 12/03/2001 (C-1). Mr. Paul Maravetz is president of the corporation; Mr. Josh Reid is its secretary/treasurer and registered agent (C-1). Section 3(d) Employer: Mr. Maravetz and Mr. Reid both meet the definition of a Section 3(d) employer. Enterprise Coverage: The firm has approximately ifemployees (See A-0: profile pay period 9/5/2011 -- During the initial conference Mr. Mara etz told WHI that the firm's ADV is approximately . Sec. enterprise coverage applies and all employees were covered by the FLSA in allxweeks of the investigative period (10/10/2009 to 10/9/2011). History: None. Reason for Investigation: Page 1 Rome Snowboards Corporation Case ID: 1624195 EXEMPTIONS Section The l3(a)(1) exemption was found applicable to: "Administrative Employees" 541.200: "Creative Professionals" 541.302: Page 2 Rome Snowboards Corporation Case ID: 1624195 No other exemptions were claimed or tested. STATUS OF. COMPLIANCE Section 6 - Minimum Wage (MW): The investigation disclosed thirty--eight Section 6 violations stemming from the firm's employment and misclassification of unpaid college whose activities the firm derived "immediate advantage" (see interns-interview statements: B-1, B-3, B-10, B-12, B-15, examples of ER's intern evaluations sent to schools: D-1, D-2, examples of ER's intern-recruitment postings/ads: E-2, E-3, E-4). Upon WHI's request early in the investigation, the firm provided WHI a list of its interns since the fall semester of 2009; the list detailed intern names, approximate dates and total hours worked (HW) per internship, and, where applicable/known, the name of the intern's school (D-4). Some of the internships were post-college internships. Moreover, a Search of social media, as well as follow--up of intern interviews, disclosed additional interns not on the original list, and hours worked for such interns were reconstructed based on intern interviews. Upon investigation, 38 interns were found owed a total of $37,673.25 in back wages. Pursuant to OH 30b07, ER was given credit for stipends paid to 4 interns for their work (A-17-b A-17-c, A-19-b, A-23-b, A-26-b). ER's request for credit (towards its MW deficiency) for snowboards and other equipment given to interns during their internships was immediately and categorically denied. Section 7 -- Overtime (OT): 4 OT violations were disclosed resulting from the firm's misclassification of the aforementioned salaried nonexempt employees. Interview statements disclosed that four of the five misclassified salaried employees worked overtime hours during the investigative period, and the firm failed to pay these employees additional half--time for their overtime hours. Based on interviews, and after accounting for company holidays and each employee's recorded vacation days, WHI reconstructed the four employees' overtime hours worked, to arrive at a weekly--oVertime-hours average Page 3 Rome Snowboards Corporation Case ID: 1624195 for each employee. The regular rate (RR) for these employees was computed by dividing their weekly-equivalent salary by their weekly-OT-HW average. Additional due these employees was computed by multiplying their weekly RR by their total OT HW (for applicable workweeks) and then multiplying the resulting figure by .5 Changes to employee salaries were accounted for in calculating the regular rate. I In sum, 41 employees were found owed a total of $41,275.05 in back wages, which the firm agreed to pay by January 30, 2012 signed by Mr. Josh Reid). Section 11 -- Recordkeeping (RK): RK violations were disclosed. ER failed to record its nonexempt employees' hours worked, including OT hours worked, and failed to record names and addresses for the interns who worked at the establishment. Section 12 - Child Labor (CL): No CL violations were disclosed. DISPOSITION A final conference was held telephone on November 30, 2011. Attorney 7 represented the firm; WHI .. represented WHD. Coverage and the provisions of the FLSA were explained, and the application of these provisions to the operations of the ER was discussed. The two--year period of investigation was discussed as well as the fact that the investigation had disclosed record-keeping, Section 6, and Section 7 violations involving a mix of 41 current and former employees. WHI explained the rules and regulations pertaining to ER's practices that resulted in the RK, MW, and OT violation findings. Page 4 Rome Snowboards Corporation Case ID: 1624195 RK - Failure to Record Names, Addresses, HW, and OT HW: WHI explained that ER's misclassification of its employee-interns resulted in a violation for failure to record intern names, addresses, and hours worked. WHI explained that ER's misclassification of its salaried nonexempt employees, and resultant failure to record their HW and OT HW, constituted RK violations in the first instance and led to OT violations in the second. stated she understood this, and that she had explained to her client the importance of properly classifying employees and recording weekly HW for purposes of recording OT HW and computing additional due for such OT HW. 7 further explained that the firm had come into compliance by requiring all employees--nonexempt and exempt alike--to keep a weekly record of their HW, and to report their weekly HW to the 4firm's accounting manager, who handles ER's payroll. WHI later confirmed this with 75-? MW - Unpaid Interns: WHI explained to that because the interns provided services of "immediate benefit" to the firm, an employment relationship legally existed under the FLSA and, therefore, the firm was legally required to treat the interns as employees and pay them at least the MW per hour for their HW. Prior to finally agreeing to pay the back wages found due, it had been ER's somewhat half--hearted contention that the interns' work did not provide "immediate benefit" to the firm. Alternatively, Josh Reid, upon being informed by WHI that the firm's interns had to be paid at least the minimum Wage for their hours worked, asked WHI rhetorically, "What ever happened to the idea of free enterprise?" For her part, '2 as the firm's legal representative, had argued during the investigation that DOL's 6-part test is obsolete and unproven in modern-day courts; that DOL's test might not withstand judicial scrutiny in the Second Circuit; and that an easier, "mutual-benefit" test, apparently favored in at least one federal circuit court, might well result from litigation. Indeed, on several occasions during discussions with WHI, 7,0' 1 claimed that there were "risks to both parties" if the matter went to trial. Eventually, after interviewing interns and current employees (some of Whom were former interns); reading ER's performance evaluations for several interns; checking former interns' social-media based Linkedln) descriptions of their Rome internships; and researching the unpaid-internship legal issue thoroughly, WHI was able to convince 7 that both the facts (overwhelmingly) and the law (strongly) supported WHD's case; that there was no "risk" to the Department in going to trial, but, rather, there was only an upside given that the matter could set a modern-day precedent for a modern-day problem; and that the best course of action available to her client was to agree to pay the back wages found due by WHI, Page 5 Rome Snowboards Corporation Case ID: 1624195 rather than face the potential for a drawn-out legal battle involving additional discovery and the possibility of liquidated damages. During the final conference, '2,Cz explained that the firm had been unaware that interns receiving college credit for intemships at for-profit firms almost always have to be paid (at least the minimum wage), and that only as a result of WHD's investigation did the firm now understand the requirements of the FLSA. Earlier in the investigation, iwfiy i noted that her client, Mr. Reid, had expressed his frustration with the interns' colleges, whom he believed were complicit in the firrn's noncompliance involving the interns. During the final conference, I explained that the establishment had come into compliance by letting the interns go after first explaining the situation to them. further stated that, in future, interns either will not be hired at all or will be deemed employees and paid in compliance with the FLSA. The firm's accounting manager later explained to WHI that the firm has no plans to hire interns in future. OT -- Misclassified Nonexempt Employees: As noted above, five salaried employees were misclassified as exempt; four of them were found due additional for OT HW. During the final conference, after briefly reiterating the requirements of Part 541 to E-ow" WHI stated the reasons why the five employees did not qualify for exempt status. stated that the firm had mistakenly believed all of its employees were exempt as salaried employees. She stated that all HW, including OT HW, will be recorded for all nonexempt employees, and that they will be paid additional for all their OT HW. (On 12/ 1/201 1, by e--mail, WHI reminded '2 that the FLSA prohibits the use of compensatory time off in lieu of overtime pay in private-sector establishments in addition, WHI explained the same thing, but in greater detail, to the firm's secretary/treasurer and co-owner, Mr. Josh Reid, during a telephone conversation--essentially, a second final conference--on 12/2/2011.) ER Pledged Future Compliance: During the final conference, Attorney 7 0' pledged ER's future compliance by ensuring that all employees will be correctly classified and their names and addresses will be recorded; that all nonexempt employees' HW will be recorded and all employees will be paid at least Page 6 Rome Snowboards Corporation Case ID: 1624195 the and that all nonexempt employees' OT HW will be accurately recorded, computed, and paid at On 12/02/2011, during a telephone conversation with WHI, Mr. Reid pledged the same. ER Agreed to Pay All BWs: On November 23, 2011, through attorney the firm agreed to pay all BWS. Mr. Josh Reid signed the WH-56, and 1 returned it by e--mail attachment to WHI on 11/30/2011 (WH-56). WH-58s will be used, and the firm agreed to pay all BWs by January 30, 2012. WHI explained WHD's proof-of-payment procedures to . (and, later, to Mr. Reid) and advised her of the possibility of CMP assessment in the event of future violations. WHI explained to that WHD will assist ER in obtaining addresses for the interns (see D-8), and that if additional interns come forward, WHD will direct any such interns to contact her in her capacity as Rome's legal representative (see D-9). WHI made it clear to 7 . that WHD requests and expects that she will ensure her client's FLSA compliance with respect to any such interns, and, in this regard, stated that she understood and accepted WHD's request. Finally, WHI asked contact WHD with any questions or concerns in future. On 12/2/2011, WHI also asked Mr. 'Reid to contact WHD. with any questions or concerns. Publications Provided: Part 516 (RK), 541 (Exemptions); WH-I325 (OT), WH-1330 WH-1297 (Employment Relationship); Fact Sheet #71: "Internship Programs under the Fair Labor Standards Act." Recommendation: In view of ER's pledge of future compliance and agreement to pay all back wages found due, it is recommended that this case be administratively closed upon receipt of proof of payment in the New Hampshire area office. Outreach: The investigation disclosed that unpaid internships at for-profit establishments appear to be prevalent in the area (see school-related materials in Case File Part 2), and that area schools are either unaware of or turning a blind-eye to the requirements of the FLSA. WHD outreach to involved colleges in Page 7 Rome Snowboards Corporation Case ID: 1624195 particular and area schools in general is therefore recommended. During the course of the investigation, in order to obtain more complete information about ER's former interns, WHI contacted /2 A lawyer for Champlain College and Saint Michael's College, and 7 WT, a former US DOL attorney, who is the University of Vermont's vice president and general counsel (see their contact information below). Within the parameters of the legal requirements of the Family Educational Rights and Privacy Act (FERPA) (see Case File Part 2, Exhibit C), 19' and UVM Chief Compliance Officer, Anna Drummond, agreed to provide WHD "directory" information related to the student interns (See D--5, D-6). WHI requested mailing addresses of student--interns whose addresses WHI did not already have, so ER can mail the interns their BWs. Disclosure of additional information, such as intern performance evaluations or individual records of student hours per internship, would have required a judicial order or lawfully issued subpoena. In sum, WHI asked the schools to provide no more than what was needed, and no more than what the schools reasonably could have been expected to provide WHD in the absence of a court order or subpoena. 9 I Future correspondence should be sent to: Mr. Josh Reid Rome Snowboards Corporation P.O. Box 150 1 Derby Lane Waterbury, VT 05676 "2 ex Page 8 Rome Snowboards Corporation Case ID: 1624195 Date: December 5, 2011 Contact Information for School Legal Representatives: University of Vermont: Champlain College Saint Michael's College: Vermont State Colleges: Francine T. Bazluke, Esq. University of Vermont Office of General Counsel 357 Waterman Bldg. Burlington, VT 05405-0160 7 Jeffrey J. Nolan, Esq. Dinse, Knapp McAndrew, P.C. P.O. Box 988 Burlington, VT 05402-0988 M2. - William J. Reedy, Esq. General Counsel, Vermont State Colleges P.0. Box 359 Waterbmy, VT 05676-3372 Page 9