The Federal Fair Labor Standards Act (FLSA) requires that covered employees who work more than forty hours in a week be paid overtime. However, the statute contains a number of exemptions removing certain groups of employees from the law’s protections. These “exempt” employees are not entitled to overtime pay when they work more than forty hours in a week, whereas “non-exempt” employees must be paid at the higher overtime rate for excess hours.
Last week, the Department of Labor issued new guidance on whether interns are “employees” covered by the Fair Labor Standards Act’s minimum wage and overtime provisions. In the updated guidance, the DOL has adopted the “primary beneficiary test,” first applied by the U.S. Court of Appeals for the Second Circuit in 2015, and used by a growing number of courts in recent years.
Last November, a Federal District Court Judge in Texas issued a nationwide injunction preventing changes to the overtime rules under the Fair Labor Standards Act (“FLSA”) from going into effect. Among other things, the new rules would have modified the so-called “salary level test,” such that an employee would need to make at least $913 per week in order to fall under the executive, administrative, and professional exemption (the “EAP exemption”). In the months that have passed since the injunction went into effect, there has been great uncertainty about the future of the new overtime rules. However, a brief filed by the Department of Labor on June 30 in its appeal to the U.S. Court of Appeals for the Fifth Circuit sheds some light on the Trump Administration’s plans for the overtime rules. Continue Reading DOL Defends Its Authority to Establish a Salary Level Test under the FLSA, but Backs Away From the Amount Set in 2016 Rule
The winter season presents employers with many weather related issues ranging from obligations to keep outdoor areas safe to deciding whether to close the business for all or part of the day. Closing the business due to inclement weather raises pay issues – what pay are employees entitled to when the business closes? It depends, in part, whether the employee is considered exempt or non-exempt and whether, the employee is paid on a salary basis. Continue Reading Winter Weather and Employee Challenges – To Pay or Not to Pay?
Late in the afternoon on November 22, Judge Amos Mazzant of the U.S. District Court in Sherman, Texas issued an order granting an injunction which will at least delay and possibly derail the changes to the overtime rules under the Fair Labor Standards Act (FLSA), which are scheduled to go into effect on December 1.
Twenty-one states filed an emergency motion for a preliminary injunction in October to halt the rule. They claimed that the DOL exceeded its authority by raising the salary threshold too high and by providing for automatic adjustments to the threshold every three years.
The states’ case was consolidated last month with another lawsuit filed by the U.S. Chamber of Commerce and other business groups, which raised similar objections to the rule.
The court found, on a preliminary basis, that Congress intended for the classification of executive, administrative, and professional employees under the FLSA to be determined with regard to duties, and not solely based on a minimum salary level test. The court found that the new overtime rule, with its increase in the salary level test to $913 per week, will render millions of employees ineligible for the EAP exemption without regard to their job duties, in violation of Congress’s intent. The court likewise took issue with the new rule’s automatic triennial increase to the salary level test.
The court referred to the injunction as a means of maintaining the status quo while it took sufficient time to make a final determination on the issue of whether the USDOL had the authority to promulgate the rule as well as whether the rule is valid. Unfortunately, many businesses have already implemented the changes which would have been required for compliance.
Employers are undoubtedly asking what they should do now and what happens next. Some suggestions:
- If you procrastinated and have not made the changes or informed employees of your intended changes, do nothing for now. Time will tell whether the rule will remain, be modified or revert to the current rule.
- If you have made the changes or have notified employees of new classifications or new pay rates, stay the course. Taking away pay increases now will not only affect employee morale, it could lead to wage and hour complaints, especially if part of the reason for reclassification was that the employees did not meet the duties tests which were NOT changed by the new regulation.
- If during this process, you have discovered that you have misclassified employees based on the duties test, make the changes anyway. If employees should be non-exempt based on their duties, now is the best time to make it right.
As far as what the future holds, it is hard to say. The court could make a decision between now and December 1 or it might delay even longer. Once that decision is made, the issue could end up before the US Supreme Court, which still has only eight members. If nothing is done between now and January 20, the new administration could decide not to defend the rule promulgated by the DOL, an arm of the federal government.
If employers find themselves in a quandary our FLSA Task Force is available to assist. Contact us at FLSA@mclane.com.
For additional information about the firm’s FLSA Task Force, please email FLSA@mclane.com.
The United States Department of Labor (“DOL”) yesterday released its long awaited final rule which revises the salary test for the “white collar” exemptions to the Fair Labor Standards Act (“FLSA”). The new rule will be effective December 1, 2016 and is expected to impact some 4.2 million salaried workers based simply on the revision of the salary threshold for exemption. The rule is similar to the proposed rule on which the DOL received an unprecedented number of comments (270,000) from businesses, workers, organized labor and non-profit organizations, but is different in some respects. The highlights are as follows;
- The minimum salary level for the executive, professional and administrative exemptions is raised from $455 per week to $913 per week, the first increase since 2004.
- The salary threshold for automatic exemption as a highly compensated employee (“HCE”) is increased from $100,000 per year to $134,004 per year.
- The salary threshold will be increased automatically every three years beginning January 1, 2020. New salary levels will be posted by the DOL 150 days in advance of their effective date.
- The final rule will allow up to 10% of the salary threshold for non-HCE employees to be met by non-discretionary bonuses, incentive pay or commissions provided the payments are made at least quarterly.
- No changes are made to the duties test which determines whether white collar salaried workers earning more than the salary threshold are ineligible for overtime pay based on the jobs they perform.
The DOL states that the revised regulation will “put more money into the pockets of many middle class workers – or give them more free time.” Businesses have been aware of this impending change since President Obama directed the Secretary of Labor in March of 2014 to update the regulations to reflect the current economy and workforce. Now, however, is the time for those who have not yet done so to prepare for the change. Preparations should include reviewing and updating job descriptions to reflect accurately the tasks performed by workers and reviewing compensation levels to determine whether it is more beneficial or consistent with the law to revise salaries or reclassify employees as non-exempt.
As more information develops, we will continue to post periodic updates and advice on preparing for the changes.
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.
It is no surprise that businesses often struggle with categorizing workers as employees versus independent contractors. The U.S. Department of Labor’s (“USDOL”) latest guidance highlights a similar challenge businesses face, but may overlook, especially those using staffing agencies or hire temporary workers to supplement their workforces: the issue of joint employment. On January 20, 2016, the Wage and Hour Division of the USDOL issued new guidance on joint employment making it clear that the Department takes this issue seriously and will be working to ensure that all responsible employers are aware of their obligations. For the full text of the Department’s Interpretation see Administrator’s Interpretation No. 2016-1 available at http://www.dol.gov/whd/flsa/Joint_Employment_AI.htm.
The USDOL identified common scenarios in which two or more employers jointly employ an employee and are thus jointly liable for compliance with the Fair Labor Standards Act (“FLSA”) and the Migrant and Seasonal Agricultural Worker Protection Act (“MSPA”). Joint employer issues often arise where an employee works for two employers who are associated or related in some way with respect to the employee or where the employer is an intermediary or otherwise provides labor to another employer. The Interpretation pulls together all the relevant statutory provisions, regulations and case law to provide comprehensive guidance on joint employment under the FLSA and MSPA so that employers can properly analyze a potential joint employment scenario.
So when does a joint employment relationship exist? Unlike the common law control test which focuses on the amount of control exercised by the employer over the worker to determine if the worker is an employee, under the FLSA and MSPA a much broader “suffer or permit” test is used. Under this broader definition, a worker can be an employee even where the employer exercises little or no control over the worker. Thus, the test for joint employment under the FLSA and MSPA is different, and more encompassing, than the test under other labor statutes.
There are two types of joint employment: horizontal and vertical. The structure and nature of the relationship at issue determines whether a particular case is analyzed under horizontal or vertical joint employment (or both). Horizontal joint employment may exist when two or more employers each separately employ an employee and are sufficiently associated with or related to each other with respect to the employee. The focus is on the relationship between the employers. Common examples include separate restaurants that share economic ties and have the same managers and waitresses working in both restaurants. Another example is where a nurse works at one nursing home part-time and another related nursing home part-time during the same week. If the nursing homes are joint employers, the nurses’ hours for the week are added together as a single employment relationship.
The following facts may be relevant when analyzing the degree of association between potential horizontal joint employers:
- Who owns the potential joint employers (i.e., does one employer own part or all of the other or do they have any common owners)?
- Do the potential joint employers have any overlapping officers, directors, executives, or managers?
- Do the potential joint employers share control over operations (e.g., hiring, firing, payroll, advertising, overhead costs)?
- Are the potential joint employers’ operations inter-mingled (for example, is there one administrative operation for both employers, or does the same person schedule and pay the employees regardless of which employer they work for)?
- Does one potential joint employer supervise the work of the other?
- Do the potential joint employers share supervisory authority for the employee?
- Do the potential joint employers treat the employees as a pool of employees available to both of them?
- Do the potential joint employers share clients or customers?
- Are there any agreements between the potential joint employers?
On the other hand, “vertical” joint employment may exist where an employee of one employer (referred to as an “intermediary employer”) is also economically dependent on another employer (the “potential joint employer”). The potential joint employer typically has contracted with the intermediary employer to provide it with labor and/or perform for it some employer functions, like hiring and payroll. There is often an admitted employment relationship between the employee and the intermediary employer, but the question becomes whether the employee’s work is also for the benefit of the potential joint employer. Vertical joint employment can arise where a construction worker who works for a subcontractor is also employed by the general contractor, where a farmworker who works for a farm labor contractor is also employed by the grower, or where nurses are placed at a hospital by staffing agencies. Unlike horizontal joint employment where the focus is between the employers, vertical joint employment focuses on the economic realities of the relationship between the worker and potential joint employer (i.e. vertical joint employment focuses on the economic dependence of the worker on the general contractor, rather than the relationship between the subcontractor and the general contractor).
The MSPA regulation describes seven economic realities factors in the context of a farm labor contractor acting as an intermediary employer for a grower and is useful to analyze other vertical joint employment scenarios. It is important to note that the economic realities factors are applied in varying ways depending on the court, but the ultimate focuses is always on determining economic dependence. The seven MSPA factors are:
- The extent that the work performed by the employee is controlled or supervised by the potential joint employer beyond a reasonable degree of contract performance oversight;
- The extent that the potential joint employer has the power to hire or fire the employee, modify employment conditions or determine the rate or method of pay;
- The permanency and duration of the relationship by the employee with the potential joint employer;
- The extent that the employee’s work for the potential joint employer is repetitive and rote, is relatively unskilled, and/or requires little or no training;
- Whether the employee’s work is an integral part of the potential joint employer’s business;
- Whether the employee’s performance of the work is performed on premises owned or controlled by the potential joint employer;
- The extent that the potential joint employer performs administrative functions for the employee commonly performed by employers.
In sum, joint employment has become more common with today’s increasing trend toward businesses sharing employees, or using third party management companies, independent contractors, staffing agencies or labor providers. In view of these evolving employment scenarios which depart from the traditional employment situation, the USDOL is scrutinizing these relationships more carefully. The Interpretation makes clear that joint employment will be defined expansively and thus the scope of employment relationships subject to the protections of the FLSA and MSPA is broad. Why does this matter? Whether an employee has one or more employer is important in determining both the employee’s rights and the employer’s obligations. In cases where joint employment is established, the employee’s work for the joint employers during the workweek is considered as one employment and the joint employers are jointly and severally liable for compliance, including paying overtime compensation for all hours worked over 40 during the workweek. Therefore, it is in a business’ best interest to become familiar with this Guidance.
As reported in my blog post on this page on June 30, 2015, the United States Department of Labor (“DOL”) issued proposed regulations calling for the revision of the salary test for the “white collar” exemptions to the Fair Labor Standards Act (“FLSA”). The recommendation was to raise the minimum salary level for the executive, professional and administrative exemptions from $455 per week to almost double that.
Shortly after the proposed regulation was issued, the DOL opened a 60 day comment period allowing stakeholders to share thoughts on the proposed change and to provide input on how the current duties tests, to which no changes were proposed, were working. The expectation was that a final rule would be issued in early 2016.
It looks like the more realistic time frame is closer to the end of 2016. Just last week, Solicitor of Labor Patricia Smith announced that the volume of comments received and the complexity of the changes necessitated the delay. She stated that as many as 270,000 individuals and business submitted comments and that this was more than three times the number of comments received in 2004, the last time substantive changes were made to the rules. Although the number of comments and the need to review them seems to be a valid reason for delay, the comment about the complexity of the changes causes concern. This may signal that the DOL is considering changes to the duties test, a far more complicated endeavor than simply changes the salary threshold. That is, of course, speculation. However, it appears that the business community is once again in “wait and see” mode on this issue.