Wage and Hour Defense Blog

Wage and Hour Defense Blog

U.S. District Court Holds That an Employer May Retain Tips If It Takes No Tip Credit

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Julie Badel

Julie Badel

Addressing an unusual set of facts, the U.S. District Court for the Northern District of Georgia has dismissed a suit challenging an employer’s practice of retaining tips that customers give to valets. The plaintiff in Malivuk v. Ameripark, No. 1:15:cv-2570 WSD (N.D. Ga. 2016), alleged that she was promised an hourly wage plus tips but that her employer, who provided valet parking services, retained a portion of the tips.

The defendant moved to dismiss the case because the plaintiff did not allege that the company took a tip credit against the minimum wage or in any other way did not pay the minimum wage. The court agreed and dismissed the case, relying on section 203(m) of the FLSA, which provides that an employer must pay a cash wage but if that wage is less than the federal minimum wage, it can make up the difference with the employee’s tips.  If the cash wages plus the tips are not sufficient to amount to the minimum wage, the employer must increase the cash wages so the employee is paid the minimum.

In its ruling, the court declined to follow a recent Ninth Circuit case, Oregon Restaurant and Lodging Ass’n v. Perez, 816 F.23d 1080 (9th Cir. 2016), that upheld a DOL regulation that most courts have rejected.  This regulation, 29 C.F.R. §531.52, provides that tips are the property of the employee, whether or not the employer takes a tip credit.  The Ameripark court reasoned that if Congress wanted to articulate the principal that tips are the property of the employee, absent a valid tip pool, it could have done so without reference to the tip credit, and it concluded that the DOL regulation violates the plain language of section 203(m).

Conclusion

Although it would seem that employers in industries where employees customarily receive tips normally take a tip credit unless otherwise prohibited by state or local laws, Ameripark suggests that if an employer does not take a tip credit, it may retain a portion of the employees’ tips—at least in the jurisdiction of this federal court.  Of course, other courts may hold to the contrary.  Employers considering adopting such an approach would be wise to review whether the courts in their jurisdictions have weighed in on this subject, or whether such a practice could give rise to other types of claims.  And while the practice might be attractive to employers in some industries where employees receive significant tips, restaurant employers in particular might find it hard to recruit and retain servers to work once they are told that the restaurant will be keeping a portion of the tips.

Chicago City Council Approves Paid Sick Leave – Employment Law This Week

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Featured on Employment Law This Week: Employers in the city of Chicago will soon be required to offer up to 40 hours of paid sick leave a year.

The City Council unanimously approved the paid sick leave ordinance, which will apply to all individuals and businesses with at least one employee. Chicago will now join more than two dozen other U.S. cities that require employers to provide paid sick leave. The mayor is expected to sign the ordinance, which is scheduled to go into effect July 1, 2017.

View the episode below or read more about this ordnance in an Epstein Becker Green Act Now Advisory by Julie Badel and Mark M. Trapp.

 

U.S. Supreme Court Declines to Review DOL Home Care Rule

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Our colleagues Denise Merna Dadika and Brian W. Steinbach, attorneys in the Employment, Labor & Workforce Management practice at Epstein Becker Green, have a post on the Health Employment and Labor blog that will be of interest to many of our readers: “U.S. Supreme Court Declines to Review DOL Home Care Rule”

Following is an excerpt:

On Monday, June 27, 2016, the U.S. Supreme Court declined to review a D.C. Circuit Court of Appeals decision upholding the new U.S. Department of Labor’s (DOL) requirement that home care providers pay the federal minimum wage and overtime to home care workers. …

The U.S. Supreme Court’s decision not to grant review ends any hope that home care providers had that the implementation of the new regulation might be reversed

Read the full post here.

Washington, DC, Increases Minimum Wage to $15 – and Tipped Minimum Wage to $5.00 – by July 1, 2020

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Sign - Minimum Wage Increase AheadAs anticipated in our posting on June 9, 2016, on June 21, 2016, the Washington, DC, Council unanimously passed on second reading the Fair Shot Minimum Wage Amendment Act of 2016, without substantive amendment. As discussed in our prior posting, this bill increases the District of Columbia minimum wage – already set to increase to $11.50 on July 1, 2016 – by additional annual increments until it reaches $15.00 on July 1, 2020. It also increases the tipped minimum wage in annual increments starting July 1, 2017 from the existing $2.77 to $5.00 on July 1, 2020. Both rates will increase in subsequent years based on increases in the cost of living.

Mayor Bowser is expected to sign the bill soon. The bill will then be subject to a Congressional review period that, due to scheduled recesses, may not be complete until the end of 2016. Consequently, the Council also passed identical emergency legislation that will become effective upon the mayor’s approval for 90 days, and likely will then be renewed until the review period has passed. So, as a practical matter the law will take effect almost immediately.

Notably, similar measures raising the minimum wage to $20.00 in by July 1, 2020, in both suburban Montgomery County  and the City of Baltimore, are pending and at present appear likely to pass later this year.

Cities of Santa Monica, Pasadena, and San Diego Pass New Minimum Wage and Paid Sick Leave Laws

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Kevin Sullivan

Kevin Sullivan

The cities of Santa Monica, Pasadena, and San Diego have each recently passed ordinances increasing the minimum wage effective July 1, 2016. And two of them have passed ordinances providing for paid sick leave beyond that required by California state law.

Santa Monica

The City of Santa Monica has passed a new ordinance providing for a city-wide minimum wage of $10.50 beginning July 1, 2016, $12.00 beginning July 1, 2017, and $13.25 beginning July 1, 2018, $14.25 beginning July 1, 2019, $15.00 beginning July 1, 2020 for most businesses with 26 or more employees. There is a one-year lag for most businesses with 25 or fewer employees – i.e., the $10.50 minimum wage begins July 1, 2017.

Non-profit corporations may apply for a deferral if they meet certain requirements.

Effective January 1, 2017, there are also new paid sick leave requirements, with accrual limits as follows:

  • 1, 2017: 32 hours for small businesses (25 or fewer employees); 40 hours for larger businesses (26 or more employees)
  • 1, 2018: 40 hours for small businesses; 72 hours for larger businesses
  • Accrual rate is one hour for every 30 hours worked
  • Employees can carry over accrued sick leave annually (calendar year, fiscal year, or hiring date) up to the accrual cap
  • Employers can provide sick leave at the start of the year as a whole rather than by accrual, as long as this provides leave consistent with the required accrual amounts
  • Other sick leave plans will comply if equal to or more generous than the ordinance
  • Sick leave use follows California State guidelines.

Here are links to Santa Monica’s fact sheet of the new ordinance and the new ordinance itself.

Pasadena

Effective July 1, 2016, the minimum wage for hours worked within the geographic boundaries of the City of Pasadena will $10.50. The minimum wage will be $12.00 beginning July 1, 2017, and $13.25 effective July 1, 2018.

The Pasadena ordinance also requires that employers give a written notice of employees’ rights under the new ordinance to current employees and new employees at the time of hire.

Like Santa Monica’s ordinance, non-profit corporations may apply for a deferral concerning the Pasadena ordinance if they meet certain requirements.

Here is a link to the Pasadena ordinance that has specific details on the new requirements.

San Diego

The City of San Diego passed its own ordinance increasing the minimum wage to $10.50 (essentially, effective immediately) and $11.50 effective January 1, 2017 for each hour worked within the geographic boundaries of San Diego. Non-profit corporations may apply for a deferral for the San Diego ordinance if they meet certain requirements.

The new ordinance also provides for paid sick leave beyond state requirements: Employers must provide an employee with one hour of earned sick leave for every thirty hours worked by the employee within the geographic boundaries of the City of San Diego, but employers are not required to provide an employee with earned sick leave in less than one-hour increments for a fraction of an hour worked. Earned sick leave must be compensated at the same hourly rate or other measure of compensation as the employee earns from his or her employment at the time the employee uses the earned sick leave.

Additionally, employees may determine how much earned sick leave they need to use, provided that employers may set a reasonable minimum increment for the use of earned sick leave not to exceed two hours. Employers may limit an employee’s use of earned sick leave to forty hours in a “Benefit Year” (which is defined as a “regular and consecutive twelve-month period, as determined by the employer”), but employers must allow employees to continue to accrue earned sick leave based on the formula above. Unused earned sick leave must be carried over to the following Benefit Year.

Here is a link to the San Diego ordinance that has specific details on the new requirements.

Washington, D.C. Prepares to Increase Minimum Wage to $15 — and Tipped Minimum Wage to $5.00 — by July 1, 2020

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Washington, D.C. is poised to join California and New York by raising its minimum wage to $15.00 per hour.

Sign - Minimum Wage Increase AheadOn June 7, 2016, the D.C. Council, with support of Mayor Muriel Bowser, unanimously passed on first reading the Fair Shot Minimum Wage Amendment Act of 2016 . The bill will continue to raise the District of Columbia minimum wage – currently $10.50, but previously set to increase to $11.50 on July 1, 2016 – in additional annual increments until it reaches $15.00 by July 1, 2020. Beginning on July 1, 2021, the minimum wage will increase further based on the increase in the Consumer Price Index for All Urban Consumers for the Washington Metropolitan Statistical Area.

Notably, the bill will also increase the tipped minimum wage from the existing $2.77 per hour, where it has been since 2005, in annual increments of 56 cents (55 cents in 2020) to $5.00 on July 1, 2020, again with annual indexing in successive years. This increase in the tipped minimum wage represents a compromise between advocates who sought to eliminate any lower minimum wage for tipped employees, or to at least set a higher rate of half the minimum wage as Mayor Bowser originally proposed, and significant portions of the restaurant industry that resisted any increase at all.

The law also contains special provisions for government contractors that currently are covered by D.C.’s Living Wage Act, which generally require them to pay the minimum wage if it becomes higher that the living wage (currently $13.85, but also subject to annual adjustment). In addition, for the first time, District employees are covered by the D.C. minimum wage law.

The bill still faces a second vote, likely either on June 21 or 28, 2016, at which time it is possible there may be some amendments. After Mayor Bowser signs the bill, it is subject to a Congressional review period, but is expected to take full effect well in advance of the 2017 increases.

New York Attorney General Contends Domino’s Is a Joint Employer with Franchisees

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New York Attorney General Contends Domino’s is a Joint Employer with Franchisees

After spending the last few years litigating with Domino’s franchisees over wage hour violations, the New York Attorney General has filed suit contending that franchisor Domino’s Pizza Inc. is a joint employer with three franchisees, and therefore is liable for the “systematic underpayment” of franchise employees.

The New York Attorney General also claims that, regardless of whether it’s a joint employer, Domino’s is liable for misrepresentations and nondisclosures that led to the underpayment of employees at the three franchises and violated the New York Franchise Sales Act.

Background

Through settlements in March 2014 and April 2015, twelve Domino’s franchise owners paid a total of approximately $1.4 million to settle the Attorney General’s claims for violations of New York’s minimum wage and overtime laws.

After the second settlement, New York Attorney General Eric Schneiderman accused Domino’s Pizza, Inc. of “turn[ing] a blind eye to illegal working conditions.”  Mr. Schneiderman stated:  “My message for Domino’s CEO Patrick Doyle is this: To protect the Domino’s brand, protect the basic rights of the people who wear the Domino’s uniform, who make and deliver your pizzas.”

Domino’s was thus left to choose its poison:  It could involve itself directly in addressing the alleged “illegal working conditions” at the risk of making itself a joint employer; or it could maintain a hands-off approach in an effort to avoid joint employer status, while further violations might increase its potential liability.

Nevertheless, Domino’s attempted to balance these concerns.  In a March 18, 2016 letter to the New York Attorney General’s Labor Bureau Chief, Domino’s offered to fund legal compliance training for franchisees, require franchisee’s to accept a code of conduct and pay for a monitor to inspect franchisee stores for compliance.  Domino’s further stated that it would “work with its franchisees in an effort to create a pool of funds to pay restitution to any underpaid franchisee employees.”

Allegations of Joint Employment

The Attorney General apparently found Domino’s proposal to be insufficient.  Therefore, in May 2016, the Attorney General filed a Verified Petition in New York Supreme Court alleging that Domino’s was a joint employer with its franchisees because it had:

  • required Franchisees to purchase hardware and software for Domino’s PULSE management system;
  • maintained payroll and employment records for franchisees;
  • exerted control over franchisee hiring, firing and disciplining of employees;
  • controlled aspects of employee compensation at franchisee stores;
  • dictated staffing and scheduling requirements for franchisee stores;
  • imposed an antiunion policy on franchisees; and
  • required a franchisee purchasing existing stores to keep the prior staff largely intact and in the same positions at the same rates of pay.

Domino’s status as a joint employer in this case will be evaluated under New York law.  However, it is notable that in Patterson v. Domino’s, the California Supreme Court examined Domino’s practices in 2014 and found it was not a joint employer under California law.  The California Supreme Court based its decision on uncontradicted evidence that the franchisee (i) made day-to-day decisions involving the hiring, supervision, and disciplining of his employees, and (ii) ejected the franchisor’s suggestion that an alleged sexual harasser should be fired, and neither expected nor sustained any sanction for rejecting that suggestion.

Alleged Misrepresentations

In addition to joint employment, the Verified Petition alleges:

Domino’s itself caused many of the wage violations because Domino’s encouraged franchisees to use a “Payroll Report” function in the software system Domino’s required franchisees to install and use in their stores (known as “PULSE”), even though Domino’s knew since at least 2007 — yet failed to disclose to franchisees — that PULSE’s “Payroll Report” systematically under-calculated the gross wages owed to workers.

The Verified Petition further alleges that, while failing to tell franchisees about the problems with PULSE, Domino’s charged franchisees $15,000 to $25,000 for the PULSE hardware and software.

Therefore, the New York Attorney General contends that Domino’s is liable for fraud and violations of the New York Franchise Sales Act (which requires a franchisor to provide a prospective franchisee with detailed information regarding “all written or oral arrangements,” including those for the sale of goods or services, in which the franchisor has an interest).

Wage Hour Violations

Underlying these theories for imposing liability on Domino’s are the allegations that its franchisees failed to pay the proper overtime rates to tipped employees.

For example, the Verified Petition alleges that PULSE fails to properly calculate overtime pay for tipped employees under New York law.  12 NYCRR § 146-1.4 states that when “an employer is taking a credit toward the basic minimum hourly rate…, the overtime rate shall be the employee’s regular rate of pay before subtracting any tip credit, multiplied by 1½, minus the tip credit.”  The regulation goes on to state:

It is a violation of the overtime requirement for an employer to subtract the tip credit first and then multiply the reduced rate by one and one half.

The New York minimum wage was $8.75 per hour in 2015, and the maximum tip credit was $3.10 per hour.  Thus, the overtime rate of any tipped employee should have been at least ($8.75 per hour x 1.5 for overtime) minus ($3.10 per hour tip credit), or $10.03 per overtime hour.

However, according to the Verified Petition, the software used by the Domino’s franchisees subtracted the tip credit first, and then multiplied the reduced rate by 1.5.  The Petition states:  “PULSE calculates the employee’s overtime rate at $8.48 per hour ($5.65 times 1.5), which is $1.55 per hour less than the then-current 2015 legal overtime rate for tipped delivery employees.”

Accordingly, the Verified Petition contends that “PULSE systematically undercalculates the gross overtime wages owed to franchise delivery workers who were paid tipped rates.”

The New York Attorney general further contends that Domino’s is liable because the franchisees (i) did not aggregate the hours worked by employees who worked at more than one location; (ii) claimed tip credits for employees on days when they works at a non-tipped position for more than 20% of the employee’s shift or for two hours or more during the shift; (iii) did not calculate or pay the required “spread of hours” pay when a daily shift is longer than 10 hours; and (iv) required drivers to pay their own expenses for delivery vehicles in violation of New York Labor Law §193.

Conclusion

Undoubtedly, the franchise business model will continue to give rise to claims of joint employment.  To the extent possible, franchisors should attempt to eliminate any appearance that they control the employment with a franchisee, particularly in regard to hiring, firing and the payment of wages.  Where involvement by the franchisor is unavoidable, a franchisor must make every effort to comply with the law and communicate any potential concerns to franchisees.

DOL Final White Collar Exemption Rule to Take Effect on December 1, 2016

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Overtime Clock Faces - Abstract PhotoNearly a year after the Department of Labor (“DOL”) issued its Notice of Proposed Rulemaking to address an increase in the minimum salary for white collar exemptions, the DOL has announced its final rule, to take effect on December 1, 2016.

While the earlier notice had indicated that the salary threshold for the executive, administrative, and professional exemption would be increased from $23,660 ($455 per week) to $50,440 ($970 per week), the final rule will not raise the threshold that far.  Instead, it will raise it to $47,476 ($913 per week).

According to the DOL’s Fact Sheet, the final rule will also do the following:

  • The total annual compensation requirement for “highly compensated employees” subject to a minimal duties test will increase from the current level of $100,000 to $134,004, which represents the 90th percentile of full-time salaried workers nationally.
  • The salary threshold for the executive, administrative, professional, and highly compensated employee exemptions will automatically update every three years to “ensure that they continue to provide useful and effective tests for exemption.”
  • The salary basis test will be amended to allow employers to use non-discretionary bonuses and incentive payments, such as commissions, to satisfy up to 10 percent of the salary threshold.
  • The final rule does not in any way change the current duties tests.

While it is certainly good news for employers that the duties tests will not be augmented and that non-discretionary bonuses and other incentive payments can be used to partially contribute to the salary threshold, the increase to the salary threshold is expected to extend the right to overtime pay to an estimated 4.2 million workers who are currently exempt.

With the benefit of more than six months until the final rule takes effect, employers should not delay in auditing their workforces to identify any employees currently treated as exempt who will not meet the new salary threshold. For such persons, employers will need to determine whether to increase workers’ salaries or convert them to non-exempt.

Ninth Circuit Approves Time-Rounding Practice – Employment Law This Week

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One of the top stories featured on Employment Law This Week: The U.S. Court of Appeals for the Ninth Circuit reaffirms an employer’s time-rounding practice. A call-center employee in California recently brought a class action lawsuit against his employer for time-rounding practices. The employee claims that the policy caused him to be underpaid by a total of $15 over 13 months. Relying on a California Court of Appeals precedent, the Ninth Circuit found that the company’s facially neutral rounding policy—one that rounds time both up and down—is legal under California law. The employee also argued that he was denied payment for a total of one minute when he logged into call software before he clocked in. The Ninth Circuit found that the de minimis doctrine applied in this case, because identifying a single instance in order to provide payment would create an undue burden on the employer.

View the episode below or read more about this story in a previous blog post.

Ninth Circuit Approves Employer’s Time-Rounding Practice and Confirms That De Minimis Time Is Not Compensable

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Clock FaceOn May 2, 2016, the Ninth Circuit issued a published opinion in Corbin v. Time Warner Entertainment-Advance/Newhouse Partnership. The Corbin Court best summarized the action in its opening sentence: “This case turns on $15.02 and one minute.” The “$15.02” represented the wages the plaintiff claimed he lost over a period of time as a result of the company’s neutral time-rounding policy. And the “one minute” represented the amount of off-the-clock time that the plaintiff worked, which the Court held was de minimis and, therefore, not compensable.

Federal and California authorities have found that an employer complies with the law if it has a facially neutral time rounding policy – one that rounds time both up and down – and if, in practice, the policy is also neutral.

In Corbin, there was no dispute that Time Warner had a facially neutral rounding policy. Rather, Corbin argued that rounding was only permissible under circumstances that would create undue burdens on employers.

Following the California Court of Appeal’s decision in See’s Candy Shops, Inc. v. Superior Court, the Ninth Circuit rejected the employee’s argument that rounding violates California law that requires employees to be paid all wages due for each pay period where the employer does not engage in a “‘mini actuarial process at the time of payroll’ and reconcile the rounding with actual time punches.” The Court held that such a view was too short-sighted: “Employers use rounding policies to calculate wages efficiently; sometimes, in any given pay period, employees come out ahead and sometimes they come out behind, but the policy is meant to average out in the long-term.” The Ninth Circuit also found that such an interpretation would render rounding practices useless because “employers would have to ‘un-round’ every employee’s time stamps for every pay period to verify that the rounding policy had benefitted every employee.”

The employee’s records in Corbin demonstrated that sometimes rounding worked in his favor, and sometimes it did not. The Ninth Circuit determined that is exactly how rounding is intended to work and, thus, found that the company’s time-rounding practice was neutral in its application.

Also at issue in the case was the de minimis doctrine, which permits the non-payment of wages when the employer meets a three-prong test where courts are instructed to “consider (1) the practical administrative difficulty of recording the additional time; (2) the aggregate amount of compensable time; and (3) the regularity of the additional work.”

The plaintiff if Corbin – a call center employee – claimed that on one occasion he logged into call software before he clocked in for timekeeping purposes, although at all other times he clocked in before starting the program. The employee claimed that Time Warner should have known about this one-time log-in issue and compensated him for it because it had access to the records. The Ninth Circuit rejected this assertion: “Corbin’s contention that the de minimis doctrine does not apply because [Time Warner] could ascertain the exact log-in/out times by scouring its computer records is baseless; the de minimis doctrine is designed to allow employers to forego just such an arduous task.”

The Ninth Circuit also found that Corbin’s proposed standard would require employers to undermine their policies “prohibiting off-the-clock work by proactively searching out and compensating violations.” And because there was only one minute at issue and it was an irregular practice, the de minimis doctrine applied.

The Ninth Circuit’s opinion reaffirms the long-standing practice of rounding employees’ time so long as it is done in an even-handed manner. The Corbin Court’s opinion also confirms that employers are not required to scavenge through their records to ensure that any off-the-clock work did not occur, and that they need not compensate employees for de minimis time.

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