A few weeks ago, the Department of Labor filed a brief with the Fifth Circuit Court of Appeals in which it backed away from the $913 per week salary level test set in the 2016 amendments to the FLSA overtime rules. In that brief, the DOL stated that it would soon publish a request for information seeking public input to be used by the DOL in drafting a new proposed overtime rule.
In Tyson Foods, Inc. v. Bouaphakeo, the U.S. Supreme Court held that statistical or representative evidence could be used by a class of employees to prove liability for an employer’s failure to pay them for donning and doffing protective gear in violation of the Fair Labor Standards Act (FLSA). In this class action lawsuit, workers at a meat-processing plant alleged that Tyson failed to give them credit for time spent donning and doffing protective gear and walking to and from their production line. The workers were claiming overtime pay as a result of all hours worked over 40 hours a week when adding this additional time.
A jury found for the workers and awarded the class about $2.9 million in unpaid wages. At trial, the court allowed the employees to use representative or an average sample of time it took workers in donning and doffing their gear rather than requiring each class member to present individualized proof of time spent. Plaintiffs’ expert testified at trial that he determined the average time it took 53 of the 3,344 workers in the class to do these tasks and concluded that an average of 18 minutes a day needed to be added to weekly hours worked for one department and 21.25 minutes a day for another department. Plaintiffs claimed it could be presumed that all class members were identical to the statistical average and that the workers were owed overtime for all time over 40 hours when adding the representative time to the weekly time worked.
Tyson argued that the trial court erred because the time per employee to perform those tasks was so different that they cannot rely on averages and the class should not have been certified under Federal Rule of Civil Procedure 23(b)(3). The U.S. Supreme Court disagreed and found that a categorical exclusion of the use of samples made little sense. It held that it would allow statistical samples to establish liability on a case by case basis — depending on the purpose for which the evidence was being introduced and on the elements of the underlying action. In reaching this decision, the Supreme Court highlighted the employer’s violation of its duty to maintain records of this time. Because there was a gap in employer required records of work-time, each employee could have relied on the average sample of time to prove liability and therefore the representative evidence could be used on a class-wide basis.
The Supreme Court explained that its holding was consistent with its 2011 decision in Wal-Mart Stores, Inc. v. Dukes as that case involved 1.5 million employees who were not similarly situated because they were at different stores and under different policies. The class in Dukes failed to meet even Rule 23(a)’s basic requirement that class members share a common question of fact or law. On the contrary, in Tyson, the employees worked out of the same facility, did similar work, and were under the same policies for pay.
While refusing to establish a general rule governing the use of such evidence, the Supreme Court widened the potential liability for employers in defending class action suits by allowing representative samples. This is particularly the case where there are record keeping violations by the employer in the wage and hour area. Employers should make sure that they review their practices and procedures and confirm that they are maintaining appropriate records of time for all employees.
The wait is over; well sort of. In March 2014 President Obama directed the US Department of Labor (“DOL”) to review the so-called “White Collar” exemptions under the Fair Labor Standards Act (“FLSA”) to determine whether they were in need of revision having last been updated in 2004. Today the DOL announced a new proposed rule regarding the salary basis which applies to the executive, administrative and professional tests which employees must meet in order to be exempt from the minimum wage and overtime requirements of the FLSA. This exception to overtime eligibility was originally meant for certain highly-compensated or white collar workers.
An employee’s salary level was typically viewed as the best test of exempt status. However, the current minimum salary level required for the exemption is $455 per week or $23,660.00 per year. If an employee meets that test, then his or her duties are evaluated to determine whether the job itself is of the type which should be considered exempt. Also, under the current rule, certain highly compensated employees, those making a salary of $100,000.00 per year or more, are automatically exempt.
The proposed revision would increase the salary threshhold to $921 per week or $47,892.00 per year. The DOL also proposes to raise the threshhold for a highly compensated employee to $122,148.00 per year. The department estimates that these changes would extend overtime protections to nearly 5 million white collar workers within the first year of its implementation. Finally, the proposed rule would automatically update the standard salary and compensation levels annually “to make sure that they maintain their effectiveness,” either by maintaining levels at a fixed percentile of earnings or by updating amounts based on changes to the CPI-U.
What the DOL did NOT do is make specific proposals to modify the standard duties tests, something which was expected. Rather, the department is seeking comments on whether the tests are working as intended to screen out individuals who are not appropriately classified as executive, administrative or professional employees.
So what happens next? As soon as the proposed rules are published in the Federal Register, a comment period of sixty days begins. Interested parties may submit comments electronically through the Federal eRulemaking Portal at http://www.regulations.gov. Comments by mail should be addressed to Mary Ziegler, Director of the Division of Regulations, Legislation, and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Avenue, N.W., Washington, D.C. 20210. It is expected that the DOL will receive comments from organized labor as well as any number of business and trade associations. Industries expected to be most affected by the proposed changes include retail and hospitality where managers often work long hours for low pay with many non-management responsibilities. Also likely to be impacted are businesses which employ individuals who might otherwise qualify as executive, administrative or professional based on their education and duties on a part time basis for reduced pay. In the rare week that such an employee works more than 40 hours, he or she could receive overtime pay at a rich hourly rate.
In March of 2014 President Obama issued a Presidential Memorandum directing the Secretary of the United States Department of Labor (“DOL”) to update the FLSA regulations governing exemptions from overtime, the so-called White Collar Exemptions. The existing regulations were viewed as out of date and needing overhaul. Of particular concerns were the $455 per week salary threshold applicable to most of the tests and the administrative and executive exemptions.
On May 5, 2015, the Secretary announced that the proposed rule has been completed and sent to the Office of Management and Budget for review. The Department’s blog post making the announcement can be viewed here. The next step in the rulemaking process is a release of the rule for public comment. Often the comment period is brief, and employers and stakeholders should be on the lookout for an announcement. These revisions are expected to have a significant impact on the pay structure for a large number of employees in office and administrative jobs.
Coach, Inc. is the latest company to be sued for alleged misclassification of employees as unpaid interns. I just wrote about the trend in these class action lawsuits for the Union Leader’s Know The Law. These cases are often high profile because they involve a large number of former and current interns seeking monetary relief against a company for violations of labor practices. With this new lawsuit, the trend continues.
In that action, ex-intern, Johnetta Campbell, has alleged she was misclassified as an intern when she worked in Coach, Inc.’s Manhattan Office from January 2012 through March 2012. She contends she worked five days each week, routinely five to eight hour days. During that time, she created trend boards, “researching new trends or fabrics, working in the warehouse, and other similar tasks necessary to the operation” of the business. She seeks minimum wage compensation for all hours worked during that time as well as liquidated damages under state law for herself and all similarly situated employees.
While NY’s law for internships is different from the Fair Labor Standards Act (US Department of Labor), this recent case is another reason companies should carefully review their internship programs to confirm compliance under the law. For more information, visit dol.gov/whd/regs/compliance/whdfs71.htm. New Hampshire law is similar to federal law in the restrictions it places on unpaid internships at for-profit businesses and more school-to-work facts can be obtained at nh.gov/labor/faq/school-to-work.htm.
Perhaps one of the biggest and most unexpected pieces of news for employers came on March 13, 2014 when President Obama signed a memorandum instructing the USDOL to undertake its first overhaul of the FLSA since 2004. The agency is charged with the responsibility to update the regulations of who qualifies for overtime pay. The FLSA requires employers to pay employees at least minimum wage for each hour worked and at a rate of time and a half the regular rate of pay for each hour over 40 unless the employee qualifies as exempt.
Exemption is determined based on whether an employee meets the criteria set out in certain “white collar exemptions” which take into account both the salary and the duties of the individual. The memorandum focuses first on increasing the salary threshold of $455 per week for the salary-basis test to account for inflation. It then suggests that the executive, administrative and professional exemptions should be reviewed to determine whether the second aspect of the test for exemption, the primary duties test, should be revised.
The thinking is that the so-called “white collar” exemptions which were originally meant for highly compensated employees with the power to negotiate favorable salaries and benefits for themselves should not apply to workers earning as little as $23,660.00 per year. This review is likely to have significant implications for businesses, especially small businesses, and employees; and it will be completed without legislative action. The expectation is that large numbers of currently exempt employees, particularly retail and restaurant managers, will be reclassified.
The Society for Human Resource Management (“SHRM”) on April 30, 2014 sent out a call to its members asking for volunteers to speak on the impact to business when the rulemaking process begins. The rulemaking is likely to begin in the fall with the expectation of completion within one year.
Businesses should keep a watchful eye on this process as it unfolds since the impact of the changes is likely to be significant.