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Although salary increase budgets in the U.S. have shown some recovery and stabilizing over the past two years with average increases coming in at a little below 3%, they have only increased slightly from declines witnessed during the Great Recession (timeframe: Dec. 2007 – June 2009). And while the general forecast for 2012 is for a slight increase from 2011 levels, this only amount to tenths of a percent increase.

For a broader picture of what is occurring and what is expected for salary increases, let’s take a look at salary increases over the past several decades. Prior to the Great Recession, we should remember that average salary increases had been hovering between a low of somewhere above 3.5% and a high of just under 4.0%. This range remained fairly constant between the period of time after 9/11 and up until 2008. If you go back in time before 9/11, there was a lengthy period of time in the 1990s where average salary increases remained above 4.0%. In general, however, if you look back over past decades you can see a steady downward slide. Except for a period of very high inflation in the late 70s/early 80s, average salary increases have slowly decreased. The chart below is provided by WorldatWork and depicts the gradual decline of average salary increases in the U.S. for several groups of workers.


With the Lehman financial shock in September 2008, average salary increases collapsed to approximately 2.0% in 2009 due to the large volume of companies freezing salaries. Although there has been some recovery in 2010 and 2011, employers are more bearish than bullish regarding the economy and are therefore being extremely cautious with spending. In addition, considering we’ve had a number of economic shocks in 2011 (i.e., Great East Japan Earthquake disaster, Arab Spring, U.S. & European debt crises), if economic conditions change, any projections for 2012 could slide.

With average salary increases stabilizing at somewhere under 3.0% for the past few years, it’s highly likely that 3.0% given a few tenths of a percent either below or above it will be the new norm for the foreseeable future.

The following chart provides highlights of the largest annual salary budget surveys.

Projected Pay Budgets – 2012

Actual Pay Budgets – 2011

Survey Source # of Companies Surveyed Executive Exempt Non-Exempt Executive Exempt Non-Exempt








Hay Group








Aon Hewitt
















Towers Watson








Conference Board

















With all of this in mind, however, let’s finish the discussion with the biggest factor affecting all of this and that is variable pay.

Variable pay, or performance-based incentives have been a growing phenomenon over the past few decades. Every year, it is reported that more and more companies are using variable pay schemes. In fact, Aon Hewitt reported that 92% of companies they surveyed are using variable pay programs in 2011. This has increased from 78% in 2005. Overall, it could be strongly assumed that employers are putting more emphasis on variable pay and less on base salary increases. The same Aon Hewitt 2011 survey reports that employers are budgeting in excess of 11% of payroll for variable pay.

Thus, the growing use of variable pay, along with lower salary increases is most likely a strong trend to continue. Any employer not using or considering some form of variable is most likely to be at a competitive disadvantage.

Granting a petition filed by pharmaceutical sales representatives seeking overtime pay, the U.S. Supreme Court on November 28, 2011 agreed to consider whether the Fair Labor Standards Act’s (FLSA) outside sales exemption covers drug sales representatives who visit doctors to encourage them to prescribe theiremployer’s prescription drugs (Christopher v. SmithKlineBeecham Corp. d/b/a GlaxoSmithKline, U.S., No. 11-204, cert. granted 11/28/11).

The court will review a February 2011 decision by the U.S. Court of Appeals for the Ninth Circuit, which held that the FLSA’s outside sales exemption barred the statutory claims of a proposed class of drug sales representatives for GlaxoSmithKline (635 F.3d 383, 17 WH Cases2d 353 (9th Cir. 2011).

The appeals court declined to defer to the Labor Department’s position, stated in an amicus brief, that the exemption did not cover the drug sales representatives because their job was to promote their company’s drugs, not to make final sales.

The Second Circuit in July 2010 had reached the opposite conclusion, holding that drug sales representatives for Novartis Pharmaceuticals Corp. and Schering Corp. were not FLSA-exempt and could pursue overtime claims under the federal wage and hour law (611 F.3d 141, 16 WH Cases2d 481 (2d Cir. 2010)).

The Supreme Court earlier this year denied Novartis’s and Schering’s petitions to review the Second Circuit decision.

In their petition for review, two GlaxoSmithKline sales representatives urged the Supreme Court to resolve the circuit split on the scope of the FLSA’s outside sales exemption. They also urged the justices to address what deference federal courts owe to the secretary of labor’s interpretations of the FLSA.

SmithKline did not oppose review, but rather agreed with the petitioners that the Supreme Court should clear up the “confusion and uncertainty” among the lower federal courts on whether the FLSA exemption applies to pharmaceutical sales representatives.

FLSA Section 13(a)(1), which is codified as 29 U.S.C. § 213(a)(1), exempts from the law’s overtime requirements any employee who works “in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the [labor] secretary).”

FLSA Section 3(k), codified as 29 U.S.C. § 203(k), provides that “sale” or “sell” under the statute “includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.”

The Labor Department has issued regulations defining the outside sales exemption, codified as 29 C.F.R. § 541.501(b), stating that “sales” within the meaning of the FLSA include “the transfer of title to tangible property, and in certain cases, of intangible … property.” The regulations also repeat the text of Section 3(k) of the act.

In another FLSA regulation discussing “promotion work,” codified as 29 C.F.R. § 541.503(a), the Labor Department stated that “promotional work that is incidental to sales made, or to be made, by someone else is not exempt outside sales work.”

In its amicus brief submitted both to the Second and Ninth circuits, the Labor Department said the FLSA and its own regulations support a holding that drug firm sales representatives, who promote their firm’s products and encourage physicians to prescribe them, are not covered by the outside sales exemption because they never in any sense make a sale.

The Second Circuit decided in Novartis it should defer to DOL’s “reasonable” interpretation of its own regulations, but the Ninth Circuit in SmithKline rejected deference, characterizing the secretary’s amicus brief as a “reinterpretation” of the FLSA and as “plainly erroneous and inconsistent” with the FLSA regulations.

The Ninth Circuit then interpreted the FLSA exemption on its own and concluded the drug firm sales reps are “outside salesmen” because their in-person promotional efforts are intended to culminate in sales of the prescription drugs they present to physicians.

The petitioners said they are among “approximately 90,000” drug firm sales reps employed within the United States subject to a common industry practice of not paying overtime to sales reps who often work 10 to 20 hours beyond a 40-hour workweek. 11.20.2011

In case you’re wondering how detailed you should be regarding your company policy on the use of a cellular phone while driving and whether checking email at a red light is okay, a recent California Court of Appeals has answered that question for you.

A California Vehicle Code provision that forbids using a cell phone while driving applies to the use of a phone while the driver is stopped at a red light, the California Court of Appeal,
First District, held Nov. 14. (People v. Nelson, Cal. Ct. App., No. A131301, 11/14/11)

The provision, Cal. Veh. Code § 23123(a), makes it a traffic infraction to “drive a motor vehicle while using a wireless telephone” unless the phone is designed to be and is being used

The defendant claimed that although he used a standard cell phone while in his car, he was not “driving” within the meaning of the law because he was stopped at a red light at the time he began using the phone to check e-mail and he put the phone away when the light changed. He cited the state supreme court’s decision in Mercer v. Department of Motor Vehicles, 809 P.2d 404 (Cal. 1991), which said the crime of driving under the influence of alcohol or drugs requires proof of “volitional movement.”

The court of appeal was not convinced. In an opinion by Justice James R. Lambden, it distinguished Mercer on the ground that it involved an interpretation designed to encourage drunken drivers to pull over with the assurance they will not be punished if they stop driving and are found by police.

Adoption of the defendant’s narrow interpretation of “drive” in the cell phone provision would lead to “millions of people across our state repeatedly picking up their phones … whenever they are paused momentarily in traffic, their car in gear and held still only by their foot on the brake, however short the pause in the vehicle’s movement,” the court said. Not only would such driving pose the sort of hazard the law is designed to avoid, but it could also worsen traffic problems if drivers were slow to notice such things as the clearing of a traffic jam, it observed.

Justice James A. Richman, concurring, said the majority needlessly looked at the legislative history when all that matters is “to put it bluntly, that ‘driving’ includes ‘stopping.’ 11.29.2011

Drivers of commercial motor vehicles, including buses and trucks on interstate routes, will be banned from using hand-held mobile telephones while driving, under a final rule announced on November 23, 2011 by the Department of Transportation (DOT)

The final rule addresses two proposed rules, issued separately by DOT’s Federal Motor Carrier Safety Administration in December 2010 and its Pipeline and Hazardous Materials Safety
Administration in April 2011 that both were designed to restrict cell phone use by commercial drivers.

Although the rule specifies that it will take effect 30 days after publication in the Federal Register, it was not immediately clear when that would occur.

The rule addresses the use of “hand-held mobile telephones” by drivers of commercial motor vehicles (CMVs), including “using at least one hand to hold a mobile telephone” for a phone
call, the final rule said. Drivers, however, may use “a compliant mobile telephone,” such as a hands-free model, while driving.

Specifically, the rule “restricts a CMV driver from holding a mobile telephone to conduct a voice communication, dialing a mobile telephone by pressing more than a single button, or reaching for a mobile phone in an unacceptable and unsafe manner,” such as “reaching for any mobile telephone on the passenger seat, under the driver’s seat, or into the sleeper berth.”

Drivers may use “a compliant mobile telephone (such as hands-free) located in close proximity to the driver that can be operated in compliance with this rule,” DOT said.

In addition, the rule provides that “interstate CMV drivers convicted of using a hand-held mobile telephone” and “[commercial driver’s license] holders convicted of two or more serious traffic violations of State or local laws or ordinances on motor vehicle traffic control, including using a hand-held mobile telephone,” will be disqualified from operating commercial motor vehicles.

Employers of commercial drivers also will be banned under the final rule from requiring drivers to use their cell phones while driving.

Drivers can be fined $2,750 per violation, and carriers may be fined $11,000, the rule said.

The final rule cited various studies finding that the safety risks of using a hand-held phone may be greater than those using a hands-free phone. One study, DOT said, found that “talking or listening to a hands-free phone” and “talking or listening to a hand-held phone” were “relatively low-risk activities that involved only brief periods of eyes off the forward roadway.”

However, the final rule said, other studies showed that “the use of a cell phone … involves a variety of sub-tasks, some increasing and some decreasing the odds of involvement in a
safety-critical event,” including reaching for the phone, dialing, or reaching for an earpiece.

Based on the various studies, the department said, “FMCSA and PHMSA determine that it is the action of taking one’s eyes off the forward roadway to reach for and dial a hand-held mobile telephone … that has the greatest risk. The Agencies address those risky behaviors by restricting holding mobile telephones while driving a CMV.” 11.29.2011.

With the month-long Christmas/New Year holiday season just getting underway, it’s time to review a few guidelines to keep the holiday a happy one and avoid any related HR problems. Although the most typical and certainly biggest topic you may hear about concerning holiday practices involves the company-sponsored holiday party and serving alcohol, there are several other areas, in addition to holiday parties, that we want to cover with this article.

THE HOLIDAY PARTY. Given the poor economic times as well as increased liability stemming from court cases over the past several years, one would think most companies would stop having holiday parties altogether. Although the popularity of holding holiday parties has indeed gone down from a pre-recession level (2007) of 90%, today there still remains a healthy 70% of employers holding them according to a recent survey by Challenger, Gray & Christmas. And of this number, only 30% will hold them on-site. Since the 30% of on-site events are pretty much assumed to be without alcohol, we’re still talking a healthy 40% of employers who are holding off-site holiday parties with alcohol being served. Thus, this is the biggest issue to discuss.

Most of the potential liability dealing with serving alcohol at company parties has grown out of such legal theories as respondeat superior, which holds employers responsible for the acts of employees undertaken in the course of their employment; and social host liability, which holds the provider of alcoholic beverages who served alcohol to visibly intoxicated individuals liable for injuries those individuals may cause while intoxicated.

The basic rule to remember with these liabilities is that employers aren’t responsible in the event where alcohol is served for purely social reasons. However, if business activities are involved, an employer may be implicated and possibly held responsible. There are several factors that courts look at to determine an employer’s liability which includes where the event is held; whether employees are required to attend; whether spouses, customers or clients are invited; whether speeches were given or company business discussed; and whether the event was organized and sponsored by the company or employees independently arranged it. Thus, the best practices to consider include:

  1. To Serve or Not Serve Alcohol. Since this is the biggest issue, if you don’t serve alcohol, you reduce your liability risk down to almost nothing. However, not serving alcohol at an off-site company party isn’t very realistic unless you’re prepared to deal with a great deal of complaining about your event.
  2. Limit Alcohol Consumption. Thus, if you are going to serve alcohol, the best practice is to limit the amount people drink by doing such things as having a cash bar, providing limited drink tickets, and operating the bar for only a set period of time.
  3. Hold the Party Off-Site & Not During Regular Business Hours. It’s best to hold the event after regular business hours at a restaurant or off-site venue not owned or operated by the employer and where there are professional bartenders, not employees, to dispense the drinks.
  4. Make the Party Voluntary. Make attendance voluntary. Don’t keep any records of who attends or doesn’t attend.
  5. Keep the Party Social. Do invite spouses but don’t invite customers. In addition, don’t make business-related speeches or hand out awards or bonuses. Simply put, don’t conduct anything that even looks vaguely like business.
  6. Remind Employees of Certain Policies.  Remind employees of your policies related alcohol use, sexual harassment and dress codes by sending out a memo prior to the party.
  7. Designate a Monitor & Have Transportation Alternatives.  Appoint a designated monitor to make sure that intoxicated or impaired employees do not drive themselves home. In addition, make taxi vouchers available as an option as there will be a high chance that a few employees will need alternative transportation to get home.

HARASSMENT CLAIMS. The next biggest problem for employers after personal injury claims is that of harassment claims when intoxicated employees make inappropriate advances toward co-workers. The combination of lowered inhibitions, impaired judgment, and a festive atmosphere can lead to harassment claims. At this point in time, there are countless lawsuits involving sexual harassment at office parties. Although we won’t go into the sordid details of some of the example lawsuits, if you care to look up a few, they include: EEOC v. Lenscrafter, Civil Action No. 1:09 CV-12694, MI, 2011; Whited v. Tennessee, 781 F. Supp. 2d 621, 623, M.D. Tenn. 2011; EEOC v. Rose Casual Dining, L.P. (dba Applebee’s), E.D. PA 2004; and Russ v. Van Scoyoc Assoc., Inc., 122 F. Supp. 2d 29, 31, D.D.C. 2000. They are all solid evidence that mixing employees and alcohol can definitely lead to disaster. Best practices to consider, in addition to those already explained above, include:

  1.  Distribute the Company’s Harassment Policy.  Prior to the company holiday party, redistribute the company’s harassment policy, making sure that employee’s read it and submit notification of having done so.
  2. Manager Training. Managers and supervisors should be trained on proper conduct for the holiday party and should provide a visible and positive presence as well as set a professional example. In addition, management should be instructed to not invite employees to an “after party” at their house or local pubs. After parties have also been known to create harassment incidents.
  3. Dress Code.  Suggest a dress code for the holiday party that keeps things professional. Avoiding provocative dress can help reduce some forms of harassment.
  4. Release for Company-Sponsored Extracurricular Activities.  Consider having employees sign a release that limits the company’s liability for employee participation in a company-sponsored extracurricular activity. While such a release doesn’t provide absolute protection to an employer, it can provide some limited liability as well as provide a reminder to employees to conduct themselves appropriately.

WAGE/HOUR ISSUES. Another problem that has begun to surface in the last several years is that of non-exempt employees working off the time clock to help with an event preparation. For example, if you send a non-exempt employee out to buy party supplies during their unpaid lunch hour, by law you should be paying them. As a matter of wage and hour law, if employees are engaged in work, then they should be paid. Although this may seem like a small issue, it’s not as wage and hour lawsuits have exploded throughout the U.S. over the past few years.

HOLIDAY DECORATIONS. It’s important to remember that an employer cannot treat persons of different religions differently. This shouldn’t be forgotten when dealing with holiday decorations. In general, most employers prefer to decorate the office with non-religious decorations that include winter/snow scenes, candy canes and strings of lights and steer clear
of anything religious such as the manger scene. Also, the EEOC has acknowledged the U.S. Supreme Court’s determination (County of Allegheny v. ACLU Greater Pittsburgh Chapter, 492 U.S. 573, 1989) that wreaths and Christmas trees are considered “secular” symbols. Thus, an employer can hang wreaths around the office or have a tree in the building lobby, even if an employee objects to such decorations.

RELIGIOUS OBSERVANCE ACCOMMODATION. Title VII of the Civil Rights Act states that employers may not discriminate against employees on the basis of
religion in hiring, firing, or other conditions of employment.  Specifically, the law states that employers must “reasonably accommodate” an employee’s religious beliefs and rights as
long as such accommodation does not cause the employer to sustain severe or undue hardship. However, the law does place a burden on the employer to prove such a hardship. The following are some points to consider:

  1. An employer should make every possible effort to allow an employee with a sincerely held religious belief to take the time off for proper observance for a religious holiday.
  2. “Reasonable” accommodation examples including allowing employees to switch shifts, take vacation or unpaid time off, or offer a floating holiday to use.

HRM Partners, Inc.

– Los Angeles, New York, & San Francisco

While the economic recovery failed to make great strides in 2011 and, in fact, appeared to stall in the second half of the year, nearly 70% of companies still plan to hold holiday
parties in the coming weeks, according to an annual survey of human resources executives conducted by global outplacement firm Challenger, Gray & Christmas, Inc.

The percentage of companies hosting parties is about the same as a year ago, but remains well short of a pre-recession 2007, when about 90% of companies surveyed held holiday

The non-scientific survey of approximately 100 human resources professionals found that the overwhelming majority of companies holding parties (95%) are budgeting about the same amount for their events as a year ago.

Only about 30% of companies surveyed are holding their parties on company premises. That is down from 53% of companies that did so a year ago. Sixty percent of companies are limiting attendance to employees only, perhaps excluding spouses or significant others in an attempt to save on cost. More than half (55 percent) are holding the party during the workday or near the end of the day. 11.22.2011

The National Labor Relation Board (NLRB) continues to be a top HR topic this year. The NLRB’s only Republic member, Brian Hayes has threatened to resign from the board to deny it
the quorum it needs to make any decisions.

The NLRB had announced last week that it would hold a public session on Nov. 30 to vote on rules for speedier elections. The regulations, which were first announced this past June, aim to ensure that unionization elections are held within 21 days of workers petitioning to have a union, down from what the agency says is a median of 38 days.

Mr. Hayes, the sole Republican member, reacted angrily to the proposed vote, and he suggested that he might seek to short-circuit it — perhaps by not attending the session, which some experts say would deprive the board of a quorum to vote on the rules.

The NLRB’s role is to enforce the National Labor Relations Act (NLRA) a law enacted in 1935 to establish and oversee rules for unionization efforts and collective bargaining in the private sector. The board was placed in hold position from early 2008, when three of its five seats became vacant. Because the board cannot legally make decisions with just two members, almost nothing was accomplished for 26 months as Democrats and Republicans blocked appointed nominees. In March 2010, President Obama appointed two union lawyers to the board using recess appointments, which circumvent the Senate’s authority to confirm nominees. Labor unions argued that the appointments restored some balance after the board favored business under President George W. Bush. After the appointments, there were three Democrats and one Republican on the board.

During 2011, political fighting increased dramatically between both the Democrats and Republicans over a number of issues starting with the NLRB’s acting general counsel filing a
complaint against Boeing’s new aircraft production plant in South Carolina, asserting that Boeing had illegally retaliated against union members in the Seattle area. Furthermore, the complaint wants the aircraft production in South Carolina stopped and moved to Washington.

The current fight is about changing the rules for union elections. After the failure to secure the passage of the Employee Free Choice Act, the NLRB proposed new operating procedures that, if implemented, could improve the chances for successful union organizing. Although the Democratic side is largely praising the new election rules and state that the current slow system gives employers too much time to intimidate workers to vote against unionizing, the Republican side as well as a large number of American employers are saying that employers need to have more time to educate their workers since union members often overpromise and fail to fully disclose disadvantages to joining a union during their campaigns. 11.23.2011.

On November 9, 2011 a California state judge preliminarily approved a $35 million settlement in a lawsuit alleging that Oracle Corp. denied overtime to more than 1,725 San Francisco Bay area employees (In re Oracle Wage & Hour Cases, Cal. Super. Ct., No. JCCP004597, preliminary approval of settlement 11/14/11).

If finalized, the settlement will end two of three coordinated class actions filed against the Redwood Shores, Calif., software maker alleging that quality assurance, customer support/technical analysts, and project managers were not paid for overtime and missed meal and rest breaks and did not receive accurate wage statements. The suit alleges that violations date back to April 2003 at Oracle and Pleasanton, Calif.-based PeopleSoft Inc., which was purchased by Oracle in December 2004.

Under the settlement, the California workers would receive a pro rata share based on weeks worked during the class period. The subclass for quality assurance workers runs from April 16, 2003, through Nov. 19, 2010. The support subclass runs April 16, 2003, through Aug. 15, 2006. The project manager subclass runs April 16, 2003, through Oct. 1, 2006. Oracle reclassified the customer support workers and project managers in 2006.

Notice was mailed in January to 1,742 class members, 17 of whom opted out, according to the joint stipulation.

Each of the five named plaintiffs would receive $30,000. Class counsel, attorneys with Goldstein, Demchak, Baller, Borden & Dardarian in Oakland, Calif., Weltin, Streb & Weltin in Oakland, and Flynn, Delich & Wise in San Francisco, would share 30 percent of the gross settlement amount, or $10.5 million, and $1 million in litigation of costs.

Subject to court approval, $100,000 would be paid from the gross settlement amount to the California Labor & Workforce Development Agency as payment for claims of penalties under the state Private Attorney Generals Act.

Half of any unclaimed funds would be split equally by the Alexander Community Law Center at Santa Clara University and the Legal Aid Society Employment Law Center while half would be split between the Wounded Warrior Project and the Tenderloin Tech Lab of the St. Anthony Foundation in San Francisco. 11.22.2011.

Today, President Barack Obama signed into law legislation, the VOW to Hire Heroes Act, targeted at helping unemployment veterans find work. It is estimated that about 850,000 veterans are currently unemployed with tens of thousands returning from Iraq and Afghanistan over the next few months.

The following provisions are included with the new legislation:

  • Makes the Transition Assistance Program (TAP) mandatory for service members moving on to civilian life to help them secure 21st century jobs through resume-writing workshops and career counseling.
  • Helps veterans translate their military skills and certifications into similar jobs in the civilian work force.
  • Expands education and training opportunities for older veterans by providing 100,000 unemployed veterans of past eras and wars with up to 1-year of additional Montgomery GI benefits for education or training programs at community colleges or technical schools.
  • Provides disabled veterans up to one year of additional vocational rehabilitation and employment benefits.
  • Allows service members to begin the federal employment process prior to separation in order to facilitate a truly seamless transition from the military to jobs at VA, the Department of Homeland Security, and the many other federal agencies in need of our veterans.
  • Authorizes tax credits of up to $5,600 for businesses that hire veterans who have been looking for a job for more than six months, as well as a $2,400 credit for veterans who are unemployed for more than 4 weeks but less than 6 months.
  • Authorizes tax credits of up to $9,600 for businesses that hire veterans with service-connected disabilities who have been looking for a job for more than six months.

The new law, which creates tax breaks for companies that hire jobless veterans, is the first proposal from Mr. Obama’s $447 billion jobs bill to be signed into law. The remaining parts of the package have not gained any Congressional support, however, largely due to Republican pushback.

In addition to its tax breaks for businesses, the new legislation strengthens job training and counseling programs for unemployed
veterans. The new law, which takes effect in 2013, also repeals a 2006 law that would have required the federal, state and local governments to withhold 3% of their payments to contractors.

The tax credits for hiring veterans will cost the government an estimated $95 million — a tiny fraction of Obama’s overall jobs plan. The credits would be as much as $9,600 for companies hiring disabled vets who have looked for work for more
than half a year. The size of the credit would be based on the worker’s salary and how long the worker was unemployed.

Erasing the withholding requirement for contractors would reduce federal revenues by an estimated $11.2 billion over the coming decade. It would be paid for by making it harder for some elderly people to qualify for Medicaid by changing the formula used to determine their eligibility. 11.21.2011.