Wage and Hour Defense Blog

Wage and Hour Defense Blog

DOL’s Fiduciary Rule Takes Final Step – Employment Law This Week

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One of the featured stories on Employment Law This Week is the Department of Labor’s proposed fiduciary rule heading to the White House.

The new rule would impose stricter conflict-of-interest rules and fiduciary requirements on advisors working with retirement plans and investors. Critics of the DOL proposal have charged that it would prevent workers who cannot afford highly individualized advice from receiving basic retirement planning services. As with the EEOC, the Department of Labor is making a big regulatory push in Obama’s last year as president. Next on the horizon is the Department’s contentious overtime rule, which will most likely go into effect in July.

View the episode below or read more about the proposed overtime rule in an earlier blog post.

Wage and Hour Division Offers Guidance on Joint Employment – Employment Law This Week

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The top story on Employment Law This Week – Epstein Becker Green’s new video program – is the Department of Labor’s Wage and Hour Division’s new interpretation of joint employment.

The federal Wage and Hour Division issued an Administrator’s Interpretation with new guidelines for joint employers under the FLSA and Migrant and Seasonal Agricultural Worker Protection Act. The Division makes it clear that it believes employers are regularly part of joint employment relationships with their vendors and business partners. If an employee files a claim or lawsuit and a joint-employment relationship is found, both employers can be found liable for violations. Michael Thompson, co-editor of this blog, explains it more in depth on the show.

View the episode below or read more about this decision in an earlier blog post.

 

The Wage Hour Division Issues an Interpretation on Joint Employment Relationships

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Joint EmploymentAs part of the Wage Hour Division’s continuing focus on defining the employment relationships covered by the FLSA, the Division’s Administrator has issued an Administrators’ Interpretation (as well as a Fact Sheet) addressing joint employment relationships.  At the very least, the Interpretation suggests that the Division will be seeking to use the “joint employer” doctrine to pursue multiple entities – and “deeper pockets” – to address wage issues.

“Larger and More Established” Employers

The Administrator’s Interpretation notes that joint employment often involves one “larger and more established” employer “with a greater ability to implement policy or systemic changes to ensure compliance.”  In those cases, the Administrator suggests that the Wage Hour Division may hold the larger company responsible for “financial recovery” and “future compliance.”

The larger company’s financial resources are particularly relevant because joint employers are jointly and severally liable for violations. Therefore, if a smaller employer cannot pay amounts owed to its employees, the joint employer will be responsible the entire amount of wages.

Types of Joint Employment

In the Administrator’s Interpretation, the Wage Hour Division focuses on the concepts of horizontal and vertical joint employment under the FLSA.  Those terms appear to be taken from an opinion that the Ninth Circuit issued in a case litigated by the Department of Labor in 2003.  Chao v. A-One Medical Services, Inc., 346 F. 3d 908 (9th Cir. 2003).

The Wage Hour Division’s guidance and publications had not previously recognized these distinctions, and describe an analysis of horizontal employment relationships that differs from the economic realities test used by the Division on other contexts.

Horizontal Joint Employment

Horizontal joint employment exists where an employee has employment relationships with two or more companies that are related to each other.

Quoting 29 C.F.R. 791.2, the Administrator’s Interpretation states a horizontal joint employment relationship may exist in situations where: (1) employers share an employee’s services; (2) one employer acts in the interest of the other employer in relation to the employee; or (3) one employer controls the other employer and therefore shares control of the other employer.

The Administrator cites to the Fourth Circuit’s decision in Schultz v. Capital International Security, Inc., 466 F.3d 298, 306 (4th Cir. 2006) for the proposition that relevant criteria include whether the potential joint employers:

  • have common ownership or management;
  • share control over operations;
  • have interrelated operations;
  • supervise the work of the same employees;
  • treat employees as part of a pool available to both of them;
  • share clients or customers; and
  • have any relevant agreements between them.

To illustrate the practical consequences of a horizontal joint employment relationship, the Administrator’s Interpretation offers the following example:

Example: Casey, a registered nurse, works at Springfield Nursing Home for 25 hours in one week and at Riverside Nursing Home for 25 hours during that same week. If Springfield and Riverside are joint employers, Casey’s hours for the week are added together, and the employers are jointly and severally liable for paying Casey for 40 hours at her regular rate and for 10 hours at the overtime rate. Casey should receive 10 hours of overtime compensation in total (not 10 hours from each employer).

As made clear by this example, horizontal joint employment is particularly significant in relation to wage-hour claims because the hours that an employee works for one employer may be added to the hours worked for the other joint employer to create overtime liability.

Vertical Joint Employment

Vertical joint employment is more common, and typically involves employment by staffing agencies, subcontractors, etc.

The Administrator’s Interpretation states that a threshold question in a vertical joint employment case is whether the individual’s immediate employer is actually an employee of the potentially joint employer. If no such relationship exists, an economic realities analysis should be applied to determine whether an employee of one company is economically dependent another entity involved in the same work.

The Interpretation states that the “economic realities” criteria used by courts differ, but often include:

  • the use of the potential joint employer’s premises and equipment for work;
  • the immediate employer’s history and ability to shift from one potential joint employer to another;
  • whether the employee performs a discrete line-job that is integral to the potential joint employer’s production process;
  • the potential joint employer’s ability to pass responsibility for the work from one intermediary to another without material changes for the employees;
  • the potential joint employer’s supervision of the employee’s work; and
  • the exclusivity of the relationship.

Conclusion

As with many other Administrator’s Interpretations, this interpretation primarily restates existing law.  However, the Administrator’s Interpretation reflects the priorities of the DOL, and it may be given deference by some courts.

For these reasons, employers would be wise to reexamine the extent to which they are “horizontal” joint employers with related companies, or “vertical” joint employers with outside vendors.  In particular:

  • Related companies should take steps to avoid employing the same individual in any coordinated fashion, or to ensure that they are not violating the FLSA in the event they are found to be joint employers.
  • Companies using outside vendors should review their relationships to comply with the economic realities test used by the Department of Labor.
  • Companies should take steps to ensure that their vendors are reputable companies that will not only comply with wage-hour laws, but agree to indemnify them for any liability arising from a joint employment relationship — andy have the financial resources to fulfill that commitment.

 

Minimum Wage Laws Rise in Many States Nationwide in 2016 – Employment Law This Week

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One of the featured stories on Employment Law This Week – Epstein Becker Green’s new video program – is the increase in minimum wage laws across the country in 2016. Nationwide, activism around minimum wages has had a big impact on new legislation coming into effect this year. Sixteen states and the District of Columbia will raise their minimum wages in 2016. California and Massachusetts will have the highest state minimum wages at $10/hour. Some city governments have gone even higher. San Francisco employers and large Seattle employers who do not provide medical benefits will have to pay a minimum of $13/hour.

See below to view the episode and read more about this important decision in an earlier post on this blog.

The Ninth Circuit Declines to Adopt Bright-Line Rule for Managers Claiming FLSA Retaliation

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Conference room behind blindsIn a split decision, the Ninth Circuit Court of Appeals has declined to adopt a bright-line rule to assess whether a managerial employee has filed a complaint for the purposes of § 215(a)(3) of the Fair Labor Standards Act (“FLSA”), the statute’s anti-retaliation provision.  The decision, Rosenfield v. GlobalTranz Enterprises, appears to highlight a disagreement among the Circuits.

At least four Circuit Courts – the First, Fifth, Sixth and Tenth – have adopted a manager-specific legal standard:  in order to engage in protected activity under § 215(a)(3), the employee must step outside his or her role of representing the company and either file (or threaten to file) an action adverse to the employer, actively assist other employees in asserting FLSA rights, or otherwise engage in activities that reasonably could be perceived as directed towards the assertion of rights protected by the FLSA.  Declining to adopt such a standard, the Ninth Circuit has opted to follow a generalized “fair notice” standard, ruling that a complaining employee’s position as a manager is only one contextual element for a fact-finder to consider.

In Rosenfield, a former Director of Human Resources alleged that her employer fired her for complaining to other managers and executives about alleged FLSA violations.  The issue before the Ninth Circuit was whether managerial employees must step outside of their roles representing the company in order to be considered to have engaged in protected activity under § 215(a)(3), by either filing (or threatening to file) an action adverse to the employer, actively assisting other employees in asserting FLSA rights, or otherwise engaging in activities that reasonably could be perceived as directed towards the assertion of rights protected by the FLSA.  In addition to considering arguments presented by the parties, the Ninth Circuit solicited the views of the Department of Labor and the Equal Opportunity Commission.

In Rosenfield, both the majority and dissent agreed that managers are necessarily in a different position vis-à-vis the employer than are rank-and-file employees because their employer expects them to voice work-related concerns and to suggest changes in policy.  The majority went so far as to acknowledge that while an employer “almost certainly” would understand a report made by an entry-level employee that someone is underpaid in violation of the FLSA as a “complaint,” a reasonable employer would not necessarily recognize as a “complaint” an identical report made by a manager tasked with ensuring the company’s compliance with the FLSA.  Rather, the employer would understand the manager to be simply carrying out his or her duties.

While other Circuits have adopted a manager-specific legal standard that requires a managerial employee to step out of his or her role of representing the company by becoming adverse to his or her employer in some way in order to file a “complaint” under § 215(a)(3), the Ninth Circuit has concluded that  such a bright-line rule is unnecessary.  Instead, it concluded that the “fair notice” test articulated by the U.S. Supreme Court in a 2011 decision provides adequate guidance for considering an employee’s status as a “manager” as one of several important factors.  In addition, the Ninth Circuit held that a narrower rule fails to account for varying levels of managers.  Specifically, “[a] different perspective on fair notice may apply as between a first level manager who is responsible for overseeing day-to-day operations and a high-level manager who is responsible for insuring the company’s compliance with the FLSA.  Refining the general rule to focus on only one specific factual element may obscure important nuances.”

Applying the fair notice test to the facts, the Ninth Circuit reversed the District Court’s decision granting summary judgment in favor of GlobalTranz and found that a reasonable jury could find that the plaintiff’s advocacy reached the requisite degree of formality to constitute protected activity under § 215(a)(3).

While the Supreme Court may eventually weigh in on the split between the Circuits, it remains as important as ever for employers in all Circuits to take all reports of FLSA violations seriously, regardless of whether they are made by managerial or non-managerial employees.

State and Local Minimum Wages Set to Increase in 2016

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Minimum Wage IncreaseAs we look towards the New Year, employers with locations in various jurisdictions should be mindful of state and local minimum wage increases that will soon take effect.

Some of these increases are a result of laws that tie wages to an economic index (generally the Consumer Price Index). Others are the result of recent legislation.

Below are two charts addressing these changes. The first summarizes the relevant changes for states; the second, for cities and other localities.

Please note that Arizona, Florida, Missouri, Montana, New Jersey, Ohio, Oregon, and Washington all have CPI based wage laws, and all have determined that there will be no minimum wage increase in 2016.

Many jurisdictions, such as Alaska, Minnesota, and Vermont, have passed sweeping minimum wage laws, but those changes will not go into effect for some time.

In the charts below,  denotes a jurisdiction that ties minimum wage increase to an index annually.

State Increases

State Current Change (1/1/16 unless stated otherwise) Current for Tipped Employees Change for Tipped Employees
Alaska $8.75 $9.75
Arkansas $7.50 $8.00
California $9.00 $10.00
Colorado $8.23 $8.31 $5.21 $5.29
Connecticut $9.15 $9.60 $5.78-$7.46 $6.07-$7.82
Hawaii $7.75 $8.50 $7.25 $7.75
Maryland $8.25 $8.75
Massachusetts $9.00 $10.00 $3.00 $3.35
Michigan $8.15 $8.50 $3.10 $3.23
Minnesota $7.25-$9.00 $7.75-$9.50 (8/1/16)
Nebraska $8.00 $9.00
New York $8.75 $9.00-$10.50 (12/31/15) $4.9-$5.65 $7.50
Rhode Island $9.00 $9.60 $2.89 $3.39
South Dakota $8.50 $8.55 $4.25 $4.28
Vermont $9.15 $9.60 $4.58 $4.80
West Virginia $8.00 $8.75 $2.40 $2.62

A few points of note on the above chart:

  • Minnesota’s wage law differentiates between a “large” and “small” employer based on gross revenue of more than $500,000.
  • New York passed a minimum wage order specifically applying to the fast food industry, which has different wage levels compared the $9.00 minimum for other sectors (e.g., the hospitality industry, the farming industry, and other miscellaneous industries and occupations).
  • Nevada’s minimum wage law, which is generally tied to an economic index for yearly increases, is being contested in court and has been deemed impermissible under the State constitution.  An appeal of that decision is pending.  Should the law be deemed constitutional, the determination of the indexing has not yet occurred; therefore, no minimum wage has been set for 2016.

Local Increases

City or Municipality Current Change (1/1/16 unless stated otherwise) Current for Tipped Employees Change for Tipped Employees
Birmingham City, AL $7.25 $8.50 (7/1/2016)
Berkeley, CA $11.00 $12.53 (10/1/16)
Chicago, IL $10.00 $10.50 (7/1/16) $5.45 $5.95 (7/1/16)
Washington, DC $10.50 $11.50 (7/1/2016)
King County, WA $9.47 $10.50-13
Lexington-Fayette County, KY $7.25 $8.20 (7/1/16)
Louisville, KY $7.75 $8.15 (7/1/16)
Montgomery County, MD $9.55 $10.75 (10/1/16)
Oakland, CA $12.25 $12.55
Portland, ME $7.50 $10.10 $3.25 $3.75
Prince George’s County, MD $9.55 $10.75 (10/1/16)
San Diego, CA $9.75 $10.50
San Francisco, CA $12.25 $13.00 (7/1/16)
Santa Fe, NM $10.84 $ (3/1/16)
Seattle, WA $10.00 or $11.00 $10.50-$13.00 $10.00 $10.50
Tacoma, WA $9.47 $10.35 (2/1/16)

As seen in the above chart, King County and Seattle’s minimum wage law are structured similarly in that the appropriate wage varies based on several factors, including the number of employees (500 or more) and whether the employer provides medical benefits,  Generally, the lower end of the minimum wage range is for smaller companies, and the higher end is for larger companies that do not pay health insurance. Both laws provide for a gradual increase over the next few years.

 

No Overtime Pay for Off-Duty BlackBerry Use – Employment Law This Week

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One of the featured stories on Employment Law This Week – Epstein Becker Green’s new video program – is that there will be no BlackBerry overtime pay for cops in Chicago.

A federal magistrate judge in the Northern District of Illinois ruled that time spent by Chicago police officers actually answering emails on their BlackBerries was work eligible for overtime. However, “monitoring” of their BlackBerries was not work because the officers were still free to use the time predominantly for their own benefit. Regardless, the judge found that the City did not know the employees were doing any work, and the officers failed to report it, so the workers were not entitled to any compensation. There is reportedly a plan to appeal. In mid-2015, the Wage & Hour Division requested information regarding the use of portable electronic devices by employees outside of scheduled work hours, so this issue is one to watch.

See below to view the episode and watch “What’s Behind the 2015 Increase in FLSA Lawsuits?” on our blog.

What’s Behind the 2015 Increase in FLSA Lawsuits?

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As we mentioned earlier this week, I was recently interviewed on our firm’s new video program, Employment Law This Week.  The show has now released “bonus footage” from that episode – see below.

I elaborate on some of the reasons behind this year’s sharp increase in federal wage-and-hour suits: worker-friendly rules, increased publicity around minimum wage and overtime issues, and the difficulties of applying an outdated law to today’s “gig” economy.

The Third Circuit Adopts Predominant Benefit Test For Meal Periods, Leaving The Ninth Circuit As The Sole Holdout

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PostThe Third Circuit Court of Appeals recently joined the chorus of Circuits adopting the pro-employer “predominant benefit test” when weighing the compensability of meal periods under the Fair Labor Standards Act (“FLSA”).  As a result, the Ninth Circuit is the lone Circuit to apply a different standard, opting to follow the U.S. Department of Labor regulations providing that an “employee must be completely relieved from duty” in order for a meal period to be deemed bona fide and thus not compensable.

In Babcock v. Butler County, a putative class action lawsuit, employees at the Butler County prison alleged that their employer required them to abide by certain restrictions beneficial to the employer during their one-hour meal periods, and that they were not paid for 15 minutes of the one-hour break, in violation of the FLSA. The issue before the Third Circuit was whether the 15 minutes was compensable under the FLSA.  The Third Circuit covers the States of Delaware, New Jersey and Pennsylvania.

While there is no provision of the FLSA that directly addresses the issue, the regulations provide that bona fide meal periods are not work time, and that employees “must be completely relieved from duty for the purposes of eating regular meals … [and that an] employee is not relieved if he is required to perform any duties, whether active or inactive, while eating.”  The courts, however, have generally avoided a literal reading of the regulations. Indeed, despite the “completely relieved from duty” language followed by the Ninth Circuit, the other Circuits, now including the Third, have taken the position that a meal period is compensable if an employee is performing activities predominantly for the benefit of the employer. This approach is derived from Supreme Court precedent from 1944 holding that “[w]hether time is spent predominantly for the employer’s benefit or for the employee’s is a question dependent upon all the circumstances of the case.” (Emphasis added.). As a result, the “predominant benefit test” is necessarily a fact-intensive inquiry.

Although the Third Circuit decision in Babcock was split, on appeal the parties and the justices agreed that applying the “predominant benefit test” was appropriate.  In support of the argument that the meal period was spent predominantly for the benefit of the employer, the employees specifically claimed that, during the one-hour meal period, they were subject to the following restrictions: they were not permitted to leave the prison building (unless granted permission by the warden); they were required to remain in uniform; they were required to remain in close proximity to emergency response equipment; and they were required to respond to any emergencies.

While there were restrictions that clearly benefitted the employer, the District Court found, and the Third Circuit agreed, that the restrictions did not predominantly benefit the employer. Rather, under the totality of the circumstances, the employees enjoyed the predominant benefit of their uninterrupted hour-long meal period. Simply put, outside of the restrictions described above, the employees were free to comfortably and adequately spend their meal period how they wished, including eating away from their desks or seeking approval to leave the premises, without their time or attention devoted primarily to official responsibilities.  Although deemed a relevant, but not dispositive, factor, the Third Circuit noted that the parties’ collective bargaining agreement set forth the terms of the one-hour meal period, including that the fifteen minutes would be unpaid.

Until the Supreme Court weighs in on the split between the Circuits, employers located in those states covered by the Ninth Circuit – Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington – will need to ensure that employees are provided a “completely relieved from duty” meal period, or risk being in violation of the FLSA.  Employers located in any of the other states stand to benefit from the pro-employer “predominant benefit test,” which as evidenced by the decision in Babcock, permits employers to place some restrictions on employee meal periods, so long as the employees remain free to comfortably and adequately spend their meal period without primarily engaged in their official responsibilities.  Note, the First Circuit, covering the States of Maine, Massachusetts, New Hampshire and Rhode Island, has not had an opportunity to establish a test to determine whether a meal period is compensable under the FLSA.  However, the District Court in Massachusetts has had three opportunities, and adopted the “predominant benefits test.”

FLSA Lawsuits Hit Record in 2015 – Employment Law This Week

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The top story on Employment Law This Week – Epstein Becker Green’s new video program – is the record high for Fair Labor Standards Act lawsuits in 2015.

The number of federal wage-and-hour suits rose almost 8% this year. There are many reasons for the increase, including more worker-friendly rules and increased publicity around minimum wage and overtime issues. Some point to the difficulties of applying an outdated law to our modern day economy.

Jeff Ruzal, co-editor of this blog, is interviewed. Click below to view the episode.

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