Timekeeping Requirement

[Federal Register Volume 64, Number 64 (Monday, April 5, 1999)]
[Proposed Rules]
[Pages 16383-16387]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-8223]


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LEGAL SERVICES CORPORATION

45 CFR Part 1635


Timekeeping Requirement

AGENCY: Legal Services Corporation.

ACTION: Proposed rule: Republication.

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SUMMARY: This proposed rule would revise the Corporation's timekeeping 
rule to require recipient attorneys and paralegals to provide the date 
as well as

[[Page 16384]]

the time spent on each case, matter or supporting activity. In 
addition, the rule would require that recipient part-time attorneys and 
paralegals who work part-time for a recipient and part-time for an 
organization that engages in restricted activities certify that they 
did not engage in any restricted activities during any time period for 
which they were compensated by the recipient.

DATES: Comments should be received on or before June 4, 1999.

ADDRESSES: Comments should be submitted to the Office of the General 
Counsel, Legal Services Corporation, 750 First St. NE., 11th Floor, 
Washington, DC 20002-4250.

FOR FURTHER INFORMATION CONTACT: Suzanne B. Glasow, 202-336-8817.

SUPPLEMENTARY INFORMATION:

Background

    The Operations and Regulations Committee (Committee) of the Legal 
Services Corporation's (LSC) Board of Directors (Board) met on 
September 11, 1998, in Chicago, Illinois, to consider proposed 
revisions to Sec. 1635.3(b)(1) of the Corporation's timekeeping rule. 
The revisions were intended to require records that would more clearly 
demonstrate that part-time employees do not engage in restricted 
activities during the time for which they are compensated by the 
recipient. A proposed rule was published on October 22, 1998 (63 FR 
56594), for public comment. The rule was a response to the 
Corporation's Office of Inspector General's (OIG) Summary Report on 
Audits of Selected Grantees for Compliance with Selected Regulations 
(February 1998) which found that timekeeping records could not 
demonstrate that part-time employees of recipients do not work on 
restricted activities during any time for which they are compensated by 
the recipient for their services. In order to address this finding, the 
OIG recommended revising the Corporation's timekeeping rule to require 
that part-time attorneys and paralegals account for all hours worked 
for the recipient by date and time of day in their timekeeping records. 
In subsequent discussions, the OIG stated that it would consider its 
recommendation implemented if LSC placed such a requirement only on 
part-time attorneys and paralegals who also work part-time for an 
organization that engages in restricted activities (hereinafter 
referred to as ``part-time attorneys'').

    Accordingly, the proposed rule required part-time attorneys to 
provide the date and exact time of day for time spent on each case, 
matter or supporting activity. In addition, the rule required that the 
timekeeping records for such attorneys be consistent with their time 
and attendance records maintained by the recipient for payroll purposes 
(hereinafter referred to as ``payroll records'').

    During the September meeting, the Committee questioned whether a 
certification requirement would constitute a better alternative to the 
timekeeping proposal and requested that the proposed rule include 
discussion of a certification alternative and requested comments on 
both proposals and any other alternatives that might better address the 
OIG's concerns.

    The Corporation received 19 comments on the rule. Although a few 
comments expressed agreement with certain of the proposed timekeeping 
requirements, most comments opposed the proposal and stated a 
preference for the certification alternative. Opposing comments argued 
that the timekeeping proposal would impose a substantial administrative 
burden on recipients, without any meaningful remedy to the problem 
identified by the OIG. They also alleged that the proposal would place 
recipients in jeopardy of being in non-compliance with the Fair Labor 
Standards Act (FLSA).

    The Committee met in Miami, Florida on February 21, 1999, to 
consider comments on the rule and, for the reasons set out below, 
determined that the certification alternative was the better remedy. 
The Committee also decided to retain the requirement that all attorneys 
and paralegals provide the date for each timekeeping entry and included 
a definition of restricted activities. Finally, the Committee decided 
to republish the rule for comment as revised at the Committee meeting 
because specific language on certification had not been included in the 
proposed rule.

Analysis of Comments

1. Exact Time of Day

    The proposed rule required that timekeeping records for part-time 
attorneys provide the exact time of day spent on each case, matter or 
supporting activity. Several comments stated that the exact time of day 
requirement does not reflect the reality of time spent by an attorney 
in a law office. According to the comments, attorneys rarely spend 
significant blocks of time on a specific task. Work is often done on 
multiple cases at the same time and is often interrupted by phone 
calls, clients, and other staff needing advice or assistance in a 
matter. In order to keep time for each such occurrence, an attorney 
would be constantly taking time to keep time. As one comment pointed 
out, it would be impossible ``for most attorneys to credibly recreate 
the exact time of day'' in which each activity took place. One comment 
pointed out that its program is already diverting significant time, 
staff positions and funds to timekeeping. It now uses an equivalent to 
6.78% of its LSC grant for timekeeping, even though its timekeeping 
system is fully computerized. Several recipients were concerned that 
they would need to buy new software and possibly hire new staff.

    Comments also stated a concern that the additional timekeeping 
requirements would not provide sufficiently useful information to 
justify their imposition. This is due in part, according to several 
comments, because the requirement is an attempt to prove a negative.

    In light of the comments and with the recommendation of the OIG, 
the Committee determined that the certification requirement, which is 
discussed below, would provide a better remedy than the timekeeping 
proposal.

2. Consistency Requirement

    The proposed rule also required that timekeeping records be 
consistent with payroll records. Comments were especially concerned 
about the administrative burden of implementing the proposed rule's 
directive that timekeeping records be consistent with the recipient's 
payroll records (consistency requirement). On this point, one comment 
stated that it would force them ``to combine two functions that are 
quite different.''

    Based on the comments received and the change in circumstances 
since the original recommendation was made, the Committee decided to 
take out the requirement that timekeeping records be consistent with 
time and attendance records used for payroll purposes. According to the 
OIG, the recommendation to include this provision was made as a result 
of the OIG audits which followed the 1996 appropriation act's 
implementation of additional restrictions and prohibitions on 
recipients. At that time, the prohibitions were new and required 
recipients to divest themselves from ongoing matters, and the OIG was 
receiving more complaints. Therefore, the risk of non-compliance was 
deemed to be relatively high. Subsequently, experience in OIG from 
audits and a significant reduction in complaints

[[Page 16385]]

suggests otherwise. The current view is that the risk of non-compliance 
is not high and, thus, the necessity for a regulatory requirement that 
timekeeping and payroll records be consistent is no longer deemed 
necessary.

    The Committee's decision was also based on the concern raised in 
comments about the burden the consistency requirement would impose on 
recipients. Comments suggested that current systems may not provide the 
type of determinative information envisioned in the rule, although they 
would provide some information that, in particular cases, would be 
helpful. Recognizing this, the Committee decided to remove the 
requirement from the rule. Recipients should recognize, however, that 
auditors, in the normal course of auditing, will certainly note 
inconsistencies in records. Thus, while there would be no requirement 
that timekeeping and payroll records be consistent, if a clear 
inconsistency appears, auditors will raise questions and may ask to 
review other records or otherwise request an explanation of the 
inconsistency. Recipients should be prepared to explain such 
inconsistencies. For example, if (as described in some of the comments) 
a recipient allows an employee to work less than a full day (determined 
from the timekeeping records) although paid for a full day (determined 
from the payroll records) because the employee had worked long hours 
the previous day, the timekeeping records should confirm that the 
employee worked long hours the previous day.

3. Fair Labor Standards Act

    Many comments were concerned that the requirement that timekeeping 
records be consistent with payroll records would place recipients in 
jeopardy of being in violation of the Fair Labor Standards Act (FLSA). 
Under the FLSA, exempt employees, in order to maintain their status, 
must be paid on a salary rather than on an hourly basis. Comments were 
concerned that a timekeeping proposal that focuses on time periods and 
requires consistency between time and payroll records would threaten 
the exempt status of recipient employees.

    For the reasons set out below, the Committee determined that it is 
unlikely that recipients would be in violation of the FLSA as to their 
exempt employees simply because they require set working hours, require 
their employees to keep timekeeping records or require that such 
records be consistent with payroll records, unless they also dock their 
employees' pay based on the quality or quantity of their work. See 
Hurley v. State of Oregon, 27 F.3d 392, 395 (9th Cir. 1994)(It is 
either the actual docking of pay or an express policy that pay for a 
class of employees would be docked that violates the FLSA.). Nothing in 
the timekeeping proposal is intended to affect the pay of recipient 
employees. Rather, the purpose of the requirement is to ensure 
compliance with LSC restrictions. As long as recipients do not use the 
timekeeping information to inappropriately dock the pay of exempt 
employees, there should be no violation of the FLSA.

    The FLSA, 29 U.S.C. 201, et seq., sets out Federal minimum wage and 
overtime requirements for public and private sector employees. However, 
employees employed in a bona fide executive, administrative, or 
professional capacity are exempt from these requirements. 29 U.S.C. 
213(a)(1). The United States Department of Labor (``DOL'') is the 
Executive agency designated to implement the FLSA and it has issued 
regulations which define whether an employee is exempt under section 
213(a)(1).

    One criterion to determine whether an employee is exempt is whether 
the employee is compensated on a salary basis. 29 CFR 541.118. 
According to DOL regulations, an employee will not be considered to be 
on a salary basis if the employee is subject to a salary reduction 
because of variations in quantity or quality of work performed. 29 
U.S.C. 541.118(a). Thus, an employee will not be found to be exempt if 
the employee's pay is docked for a pay period for absences from work 
for less than a day. Sec. 541.118(a)(2). ( Although this anti-docking 
requirement was recently revised for public employees, it remains a 
determinate factor for private sector employees. See 57 FR 37666 
(August 19, 1992). Failure to pay non-exempt employees a fair hourly 
wage and overtime subjects an employer to financial sanctions.

    Various practices of employers have been called into question by 
the courts as violative of the salary basis test and there has been 
disagreement over time and among courts regarding certain of these 
practices. However, certain common practices of employers are 
permissible because of Wage & Hour opinions issued by DOL may be relied 
upon by employers. 29 U.S.C. 258. Under the Portal-to-Portal Act, 
employers have an absolute defense against FLSA actions if the 
employer's actions are done in good faith and the employer relies on an 
administrative regulation, order, ruling, approval, or interpretation 
of the Wage & Hour Administrator, or any administrative practice of 
enforcement policy of the Administrator with respect to the class of 
employers to which the employer belongs. Id.

    Existing Wage and Hour Opinion letters provide that the following 
practices are consistent with the ``salary basis test.''

    An exempt employee can be required to work specific hours, fill 
out time cards or time sheets and to obtain permission before taking 
time off from work. W.H. OP. Ltr. (July 1, 1993).
    An exempt employee can be paid overtime--on any basis the 
employer wishes. W.H. Op. Ltr. (April 13, 1967); W.H. Op. Ltr. 
(March 3, 1970; and W.H. Op. Ltr. (March 16, 1984).
    An exempt employee can be docked leave by the hour, i.e., for 
absences of less than a day, as long as there are no cash deductions 
from the weekly salary for such absences. W.H. OP. Ltr. (April 9, 
1993); W.H. Op. Ltr. (July 17, 1987); and W.H. Op. Ltr. (Marcy 30, 
1994).


    The Supreme Court in Auer v. Robbins, 117 S. Ct. 905, 911 (1997), 
has held that the DOL Secretary's interpretations of FLSA are 
controlling, unless clearly erroneous or inconsistent with the law. In 
Graziano v. The Society of the New York Hospital, 1 a 
Federal District Court vacated its earlier holding in the case based on 
W&H Opinion letters that were brought to the Court's attention in a 
motion to reconsider. The Court based its order to vacate on Auer's 
finding that DOL interpretations of FLSA are controlling. Because the 
opinion letters brought to the Court's attention were controlling 
decisions to which the Court was bound, the Court vacated its earlier 
decision which was inconsistent with the opinions.
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    \1\ 1997 WL 639026 (S.D.N.Y. Oct. 15, 1997). This opinion was 
not reported in the Federal Supplement. It is also cited as a W&H 
Opinion at 4 Wage & Hour Cas.2d (BNA) 286. The underlying opinion 
that was vacated was also not reported, see 4 Wage & Hour Cas.2d 
(BNA) 12.

    A few comments cited case law that suggests that requiring 
employees to keep time is inconsistent with the exempt status of an 
employee. Although some courts have found that ``rigid attendance and 
time keeping requirements are not consistent with salaried status,'' 
Service Employees International Union, Local 102, v. County of San 
Diego, 784 F. Supp. 1503, 1510 (S.D. Ca. 1992), the findings in these 
cases were not based on that factor alone, and, as noted above, Wage & 
Hour opinions approve of the practice. See also Martin v. Malcolm, 949 
F.2d 611 (2d Cir. 1991).

[[Page 16386]]

4. Certification requirement

    The certification requirement in Sec. 1635.3(e) of this proposed 
rule would require part-time attorneys or paralegals who also work for 
an organization that engages in restricted activities to certify on a 
quarterly basis that they were not compensated by the recipient for any 
restricted activities. The Committee favors this alternative to the 
timekeeping proposal because it does not create any undue 
administrative burden, is consistent with the Corporation's program 
integrity certification requirement, is more likely to achieve the 
intended goal, and would not implicate the FLSA.

    Comments generally favored the certification alternative over the 
timekeeping proposal. One comment stated that certification would act 
as a true deterrent because violations would be subject to the 
sanctions under part 1640. Another recognized that ``the consequences 
of a false certification will encourage honest and careful attention by 
staff.''

    Several suggestions and reservations were expressed about 
certification. A few comments expressed concern that the certification 
requirement creates a presumption that attorneys have violated the 
rules. This is not the intent of the requirement. The Corporation is 
aware that program attorneys generally provide high quality legal 
assistance and make every effort to comply with their LSC grant 
requirements. The certification requirement is no different than other 
LSC recordkeeping or certification requirements. The Corporation is 
required by statute to ensure that LSC funds are appropriately used. 
Tools such as records and certifications must be available to 
Corporation auditors to enable them to document that programs are in 
compliance.

    Because of the seriousness of the sanctions for a false 
certification, one comment encouraged the Corporation to include an 
exception for de minimis involvement in restricted activities. The 
Committee agreed to add de minimis langauge to the certification 
requirement and requests comments on the exception. De minimis activity 
would include actions related to restricted activities that fall short 
of actually working on a restricted activity. Examples include such 
unavoidable actions as answering the phone and establishing another 
time to discuss a restricted case with the caller, or opening and 
screening mail.

    Another comment questioned the necessity of the certification 
requirement when recipients are already subject to part 1640 and the 
certification requirement in part 1610 on program integrity. The 
certification in part 1610 is required of the program, not individuals. 
Certification by individual attorneys and paralegals would serve as a 
notice to such individuals of the seriousness with which the 
Corporation views the use of recipient funds and resources for 
involvement in restricted activities. It would also help provide 
documentation to auditors necessary to ensure compliance by part-time 
attorneys and would provide information to the recipient for use in its 
annual part 1610 program integrity certification. Part 1640 would not 
be implicated unless an attorney made a false certification about 
involvement in restricted activities or violated other laws listed in 
part 1640.

    The proposed certification language requires quarterly 
certification on dates established by the Corporation. This language 
would allow the Corporation to establish the date for the initial 
certification at an appropriate time so that subsequent certification 
dates would coincide with the dates normally attributed to the end of 
each of a year's quarters. Certifications would be for a period of time 
that has already occurred. Thus, the first certification would most 
likely occur approximately three months after the effective date of the 
final rule.

    A false certification, depending on the applicable law or 
circumstances, may constitute a violation of civil or criminal law. For 
LSC purposes, a false certification by a recipient employee would 
implicate certain Federal laws related to the use of Federal funds that 
are currently applicable to LSC recipients pursuant to 45 CFR part 
1640. Violations of certain laws listed in part 1640 carry severe 
sanctions for false statements or claims to the Federal government 
regarding the use of Federal funds. See for example, 18 U.S.C. 287, 
371, 1001 and 31 U.S.C. 3729; United States v. Columbia/HCA Healthcare 
Corporation, 125 F.3d 899 (5th Cir. 1997) (``false certifications of 
compliance create liability under the (False Claims Act) when 
certification is a prerequisite to obtaining a government benefit.''); 
United States v Burns, 104 F.3d 529 (2nd Cir. 1997) (falsified time 
sheets submitted for pay under government-funded program found to be 
violation of 18 U.S.C. 1001).

    Under part 1640, whether or not a recipient or an employee of a 
recipient has violated any of the applicable Federal laws is determined 
by the Federal court having jurisdiction of the matter. The Corporation 
does not prosecute or make judgments under the applicable Federal laws 
but it has authority to terminate funding under the conditions set out 
in Sec. 1640.4. In addition, the Corporation's Inspector General has 
statutory authority to refer unlawful activity to the proper 
authorities. Several of the laws included in part 1640 prohibit making 
false claims to the government regarding the use of Federal funds. LSC 
funds are Federal funds for the purposes of the laws included in part 
1640. Thus, a false certification regarding activities for which the 
applicable employee is compensated by the recipient, in certain 
circumstances, may put the employee at risk of prosecution for 
violation of such laws. Employees who sign such certifications should 
be fully informed of the implications and sign forms that, to the best 
of their knowledge, are true and accurate. Comments on the effects of 
requiring certification on program attorneys and paralegals are 
specifically requested by the Committee.

5. Date for Each Timekeeping Entry

    The proposed rule also required both full-time and part-time 
attorneys and paralegals to provide the date as well as the amount of 
time spent on each case, matter or supporting activity. Comments 
generally opposed the requirement to include the date on the grounds 
that it is not required by the statutory timekeeping provision and 
because it does not address any specific concern. A few comments also 
alleged that it would impose an undue administrative burden on 
recipients to revise their current timekeeping systems.

    The Committee did not agree that providing the date is unreasonable 
or would put an undue burden on recipients. Timekeeping records have 
little significance unless put into the context of a particular 
timeframe. 63 FR 56595 (Oct. 22, 1998). The current rule already 
implies a connection between timekeeping records and a particular date 
because it requires that timekeeping records be made contemporaneously. 
The preamble to the current rule explains that, in most cases, 
contemporaneous timekeeping means ``records should be created no later 
than the end of the day.'' 61 FR 14262 (April 1, 1996). This makes 
sense because identifying a record with a particular time is the way to 
determine whether it is a contemporaneous record. It is also consistent 
with the Corporation's 1996 Timekeeping Guide for recipients which 
includes sample timekeeping forms, all of which require a date. In 
addition, according to the

[[Page 16387]]

OIG, most recipients already provide the date in their timekeeping 
records. Therefore, the Committee was not convinced that this 
requirement would impose additional burdens on most recipients. 
However, comments are requested in this proposed rule from those 
recipients who do not currently provide the date to explain how the 
requirement will affect their programs. Finally, the language setting 
out the date requirement has been moved and simplified from the 
proposed rule and is found in Sec. 1635.3(b)(1).

6. Definition of Restricted Activities

    A definition is added to this proposed rule in Sec. 1635.2(c) in 
order to clarify the meaning of the term as used in the certification 
requirement. Restricted activities has been used as an umbrella term to 
refer to the restrictions listed in the definitions of purpose 
prohibited by the LSC Act and activity prohibited by or inconsistent 
with section 504 in 45 CFR 1610.2 (a) and (b). See preamble to 45 CFR 
part 1610, 62 FR 27695 (May 21, 1997). The restrictions therein apply 
variously to a recipient's LSC, private and public funds. A particular 
activity is restricted only to the extent it is limited pursuant to 
statutory or regulatory law. Thus, if the law permits an activity that 
is funded with non-LSC public funds, the activity is not restricted if 
it is funded with non-LSC public funds. Nothing in the proposed rule is 
intended to expand on the scope of any restriction or the type of 
recipient funds implicated by a particular restriction.

List of Subjects in 45 CFR Part 1635

    Legal services, Reporting and recordkeeping requirements.


    For reasons set out in the preamble, LSC proposes to revise 45 CFR 
part 1635 to read as follows:

PART 1635--TIMEKEEPING REQUIREMENT

Sec.
1635.1  Purpose.
1635.2  Definitions.
1635.3  Timekeeping requirement.
1635.4  Administrative provisions.

    Authority: 42 U.S.C. 2996e(b)(1)(A), 2996g(a), 2996g(b), 
2996g(e).


Sec. 1635.1   Purpose.

    This part is intended to improve accountability for the use of all 
funds of a recipient by:

    (a) Assuring that allocations of expenditures of Corporation funds 
pursuant to 45 CFR part 1630 are supported by accurate and 
contemporaneous records of the cases, matters, and supporting 
activities for which the funds have been expended;

    (b) Enhancing the ability of the recipient to determine the cost of 
specific functions; and

    (c) Increasing the information available to the Corporation for 
assuring recipient compliance with Federal law and corporation rules 
and regulations.


Sec. 1635.2  Definitions.

    As used in this part--

    (a) A case is a form of program service in which an attorney or 
paralegal of a recipient provides legal services to one or more 
specific clients, including, without limitation, providing 
representation in litigation, administrative proceedings, and 
negotiations, and such actions as advice, providing brief services and 
transactional assistance, and assistance with individual PAI cases.

    (b) A matter is an action which contributes to the overall delivery 
of program services but does not involve direct legal advice to or 
legal representation of one or more specific clients. Examples of 
matters include both direct services, such as community education 
presentations, operating pro se clinics, providing information about 
the availability of legal assistance, and developing written materials 
explaining legal rights and responsibilities; and indirect services, 
such as training, continuing legal education, general supervision of 
program services, preparing and disseminating desk manuals, PAI 
recruitment, intake when no case is undertaken, and tracking 
substantive law developments.

    (c) Restricted activities means the restrictions listed in the 
definitions of purpose prohibited by the LSC Act and activity 
prohibited by or inconsistent with section 504 in 45 CFR 1610.2(a) & 
(b).

    (d) A supporting activity is any action that is not a case or 
matter, including management and general, and fundraising.


Sec. 1635.3  Timekeeping requirement.

    (a) All expenditures of funds for recipient actions are, by 
definition, for cases, matters, or supporting activities. The 
allocation of all expenditures must be carried out in accordance with 
45 CFR part 1630.

    (b) Time spent by attorneys and paralegals must be documented by 
time records which record the amount of time spent on each case, 
matter, or supporting activity.

    (1) Time records must be created contemporaneously and account for 
time by date and in increments not greater than one-quarter of an hour 
which comprise all of the efforts of the attorneys and paralegals for 
which compensation is paid by the recipient.

    (2) Each record of time spent must contain: For a case, a unique 
client name or case number; for matters or supporting activities, an 
identification of the category of action on which the time was spent.

    (c) The timekeeping system must be implemented within 30 days of 
the effective date of this regulation or within 30 days of the 
effective date of a grant or contract, whichever is later.

    (d) The timekeeping system must be able to aggregate time record 
information from the time of implementation on both closed and pending 
cases by legal problem type.

    (e) Recipients shall require any attorney or paralegal who works 
part-time for the recipient and part-time for an organization that 
engages in restricted activities to certify in writing that the 
attorney or paralegal has not engaged in restricted activity during any 
time period for which the attorney or paralegal was compensated by the 
recipient or has not used recipient resources for restricted 
activities. The certification requirement does not apply to a de 
minimis action related to a restricted activity that does not involve 
working on the restricted activity. Such de minimis actions would 
include activities such as answering the phone and establishing another 
non-program time with the caller to discuss the restricted activity, or 
opening and briefly screening mail. Certifications shall be made on a 
quarterly basis on dates established by the Corporation and shall be 
made on a form determined by the Corporation.


Sec. 1635.4  Administrative provisions.

    Time records required by this section shall be available for 
examination by auditors and representatives of the Corporation, and by 
any other person or entity statutorily entitled to access to such 
records. The Corporation shall not disclose any time record except to a 
Federal, State or local law enforcement official or to an official of 
an appropriate bar association for the purpose of enabling such bar 
association official to conduct an investigation of an alleged 
violation of the rules of professional conduct.

    March 30, 1999.
Suzanne B. Glasow,
Senior Assistant General Counsel.
[FR Doc. 99-8223 Filed 4-2-99; 8:45 am]
BILLING CODE 7050-01-P