Wage and Hour Defense Blog

Wage and Hour Defense Blog

California Meal and Rest Break Laws Ensnare Trucking Industry

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As if traffic in California was not bad enough by itself, employers in the trucking industry have one more thing to worry about – whether they are complying with California’s meal and rest break laws.  In  Dilts v. Penske Logistics, LLC, the plaintiffs represent a class of delivery drivers and installers.  Defendants had hoped to avoid the claim that they had violated California’s meal and rest break laws by arguing that as “motor carriers” the Federal Aviation Administration Authorization Act of 1994 (“FAAAA”) preempts California’s meal and rest break laws.  The trial court agreed and granted the defendants’ motion for summary judgment.  However,  the Ninth Circuit reversed finding that California’s meal and rest break laws are not the type of laws related to prices, routes, or services that Congress intended to preempt.

Defendants argued, among other things, that the requirement that drivers pull over and stop for each break period necessarily dictates that they alter their routes and that finding routes that allow drivers to comply with California’s meal and rest break laws will limit motor carriers to a smaller set of possible routes.  However, the Ninth Circuit was not persuaded.  Thus, motor carriers doing business in California which have relied on the FAAAA preemption, should carefully review their meal and rest break policies and practices to ensure that they comply with California law.

California Employers Must Revisit Exempt Status of Commissioned Employees In Light of Supreme Court Ruling

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By:  Amy Messigian

In a major blow to California employers who utilize a monthly commission scheme but pay biweekly or semimonthly salary to their commission sales employees, the California Supreme Court ruled earlier this week in Peabody v. Time Warner Cable, Inc. that a commission payment may be applied only to the pay period in which it is paid for the purposes of determining whether an employee is exempt from overtime.  Employers may not divide the commission payment across multiple pay periods in order to satisfy the minimum compensation threshold for meeting the exemption in any earlier pay period.  California employers who classify their commission sales employees as exempt should immediately take action to ensure compliance with the law.

The plaintiff in the case, Susan Peabody, worked approximately 45 hours per week as a commissioned salesperson for Time Warner Cable.  Peabody received biweekly paychecks, which included her salary for the pay period, as well as commission wages on a monthly basis.  After leaving her employment, she sued for a variety of wage and hour violations.  Peabody alleged that Time Warner Cable had misclassified her as an exempt employee for which it was not required to pay overtime.

In order to meet the commission sales exemption under California law, among other things, an employee must earn more than one and one-half times the minimum wage.  Peabody was paid less than one and one-half times the minimum wage in any pay period in which she did not also receive her commission payment; however, she was paid far in excess of one and one-half times the minimum wage on each pay period in which she also received her commission payment and her total monthly wages exceeded one and one-half times the minimum wage.  Based on the fact that the commission payment was reflective of commissions earned over the course of a month, Time Warner Cable argued that it should be permitted to split the commission payment between the pay periods in the month for the purposes of determining Peabody’s exemption from overtime.

The California Supreme Court rejected this approach holding that commission wages paid in one biweekly pay period cannot be attributed to other pay periods for purposes of meeting the exemption.  Rather, whether the minimum earnings prong of the commission sales exemption is satisfied depends on the amount of wages actually paid in a pay period.  “An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.”  This holding further differentiates that California commissioned sales exemption from the federal exemption, which permits employers to defer paying earned commissions so long as the employee is paid the minimum wage each pay period.

The Peabody ruling greatly impacts the manner in which companies structure their commission plans and payroll for commissioned employees.  Because a commission payment may only be allocated to the period in which it is paid for purposes of meeting the exemption, employers should consider adopting biweekly or semimonthly payroll structures for both salary and commission payments or allocating a greater distribution of employee income to base salary as opposed to commissions in order to meet the minimum salary threshold each pay period.

The ruling also forebodes a new wave of misclassification suits for unpaid overtime in cases such as this where an employee may only meet the exemption part of the time.  Of great concern will be the ability of employers to defend such suits where they have not kept good records of the hours worked by the employee, or their meal or rest breaks, due to the mistaken belief that they were exempt from overtime.  Employers with large numbers of commissioned salespeople should consult employment counsel to perform misclassification auditing and assess the risks of class litigation.

Kara Maciel Quoted in “For Fine Dining Sector, Tip Pools Can Be Legal Trap”

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Kara Maciel, a Member of the Firm in the Labor and Employment, Litigation, and Health Care and Life Sciences practices, in the Washington, DC, office, was quoted in an article titled “For Fine Dining Sector, Tip Pools Can Be Legal Trap.” (Read the full version – subscription required.)

Following is an excerpt:

As a wave of lawsuits hits restaurants over tip pool violations, fine dining establishments packed with sommeliers, mixologists and other high-end specialists that tend to take on some managerial duties face the greatest risks of becoming targets for litigation or Department of Labor audits, attorneys say. …

“It’s always an open question whether someone like a maitre d’ or sommelier or expediter should be included in the tip pool,” said Kara M. Maciel, a labor and employment litigator with Epstein Becker & Green PC.

And the stakes for being wrong on this can be high, since if a tip pool is found to violate federal or state laws, it could invalidate the tip credit that the restaurant took or was banking on for that period of time, Maciel says. …

The same goes with catering hall banquet captains, who might be tasked with taking care of brides and grooms on their big days but who also often supervise staff, according to Maciel.

Offset as Defense to FLSA Suit May Mitigate Unpaid Wage Claims

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Our colleague Jeffrey H. Ruzal recently wrote an article entitled “Offset as Defense to FLSA Suit May Mitigate Unpaid Wage Claims,” which appears in the June 2014 issue of Hospitality Law.

Following is an excerpt:

A federal district court in Michigan recently preserved for trial the question of whether a defendant employer may mitigate its back wage liability by offsetting paid break time, which would effectively extinguish plaintiff employees’ claims under the Fair Labor Standards Act.

In Hayes, et al., v. Greektown Casino, LLC, et al., No. 12-1552 (E.D. Mich. 03/31/14), a group of current and former security officers who were employed by Greektown Casino alleged that their employer violated the FLSA by failing to compensate them for all hours worked.

Read the full article here.

Reprinted with permission from Hospitality Law. Copyright 2014 by LRP Publications. Palm Beach Gardens, FL 33418. All rights reserved. For details on this or other related products, visit www.shoplrp.com/hospitality.html or call toll free 1-800-341-7874.

Not Waiting For Federal Legislation, Many States Increase Their Own Minimum Wages

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By Jeffrey Ruzal

President Obama has spent much of his second term zealously pursuing an increase to the current $7.25 federal minimum hourly wage. While it is not clear whether a federal wage hike is in the offing, many states have recently taken measures to increase their own minimum wage rates. Effective January 1, 2014, Arizona, Colorado, Connecticut, Florida, Missouri, Montana, New Jersey, New York, Ohio, Oregon, Rhode Island, Vermont and Washington have all increased their minimum wage rates. There are also five additional states, California, Delaware, Michigan, Minnesota, West Virginia, plus the District of Columbia, which have passed legislation for future minimum wage increases that will take effect in 2014.

Employers, especially ones which operate in multiple states, must be vigilant in monitoring and planning for future state minimum wages increases. What is more, employers in specific industries, such as hospitality, must consider additional compliance measures, including changes in the maximum tip credit an employer may take against its tipped employees’ hourly wages.

The chart below provides each state’s previous and current minimum wage and maximum tip credit rates, as well as scheduled future increases through the end of 2014.

State

Previous Minimum Wage

Current Minimum Wage

Future Minimum Wage Increases in 2014

Previous Tip Credit

Current Tip Credit

Arizona

$7.80

$7.90

(effective 1/1/14)

$4.80

$4.90

(eff. 1/1/14)

California

$8.00

$9.00

(eff. 7/1/14)

No tip credit permitted

Colorado

$7.78

$8.00

(eff. 1/1/14)

$4.76

$4.98

(eff. 1/1/14)

Connecticut

$8.25

$8.70

(eff. 1/1/14)

$7.34 for bartenders; $5.69 all other tipped employees

Delaware

$7.25

$7.75

(eff. 6/1/14)

$2.23

D.C.

$8.25

$9.50

(eff. 7/1/14)

$2.77

Florida

$7.79

$7.93

(eff. 1/1/14)

$4.77

$4.91

(eff. 1/1/14)

Michigan

$7.40

$8.15

(eff. 9/1/14)

$2.65

Minnesota

$6.15 for employers w/ annual sales >$625,000; $5.25 for employers w/ < $625,000

$8.00 for employers w/ annual sales >$500,000; $6.50 for employers w/ < $500,000

(eff. 8/1/14)

$6.15 for employers w/ annual sales >$625,000; $5.25 for employers w/ < $625,000

Missouri

$7.35

$7.50

(eff. 1/1/14)

$3.68

$3.75

(eff. 1/1/14)

Montana

$7.80

$7.90

(eff. 1/1/14)

No tip credit permitted

New Jersey

$7.25

$8.25

(eff. 1/1/14)

$2.13

No change in tip credit

New York

$7.25

$8.00

(eff.12/31/13)

$8.75

(eff.12/31/14)

$5.00 for food service employees; $5.65 for service employees (delivery and coat check)

No change in tip credit

Ohio

$7.85

$7.95

(eff. 1/1/14)

$3.93

$3.98

(eff. 1/1/14)

Oregon

$8.95

$9.10

(eff. 1/1/14)

No tip credit permitted

Rhode Island

$7.75

$8.00

(eff. 1/1/14)

$2.89

No change in tip credit

Vermont

$8.60

$8.73

(eff. 1/1/14)

$4.17

$4.23

(eff. 1/1/14)

Washington

$9.19

$9.32

(eff. 1/1/14)

No tip credit permitted

West Virginia

$7.25

$8.00

(eff.12/31/14)

$5.80

Minimum Wage for Employees of Federal Contractors and Subcontractors to Rise to $10.10 Per Hour

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By Evan J. Spelfogel

On Feb. 12, 2014 President Obama signed Executive Order 13,658 to raise the minimum wage for workers on federal service and construction contracts from the current $7.25 to $10.10 per hour.  On June 12, 2014 the United States Department of Labor announced proposed implementation of the Executive Order with respect to all new and renegotiated federal contracts starting Jan. 1, 2015.

This increased minimum wage would apply to the approximately 200,000 employees working for government contractors and subcontractors, and is another salvo in the President’s push for an increase in the federal minimum wage in the private sector nationwide. 

The Office of Management and Budget is reviewing the proposed rule which is expected to be published in the Federal Register in the near future.  Once published the public will have 30 days to submit comments. The final version of the rule is scheduled to be issued by October 1.

The proposed rule would apply to all construction contracts covered by the Davis-Bacon Act; service contracts covered by the Service Contract Act; concessions contracts to furnish food and lodging on federal property; and contracts to provide child care and dry cleaning, in federal buildings.  It would require government agencies to ensure that all contractors and subcontractors with whom they do business pay their employees at least $10.10 per hour starting in 2015. The amount of the minimum wage would be adjusted each year to account for inflation. 

The proposed rule would also eliminate under government contracts and subcontracts the right of employers to pay workers with disabilities who are in specialized certificate programs, less than other workers.

The proposed rule also contains special provisions for tipped employees working on federal contracts and subcontracts.  Beginning in January 2015, tipped workers would have to be paid a minimum hourly wage of $4.90 (in addition to the amount they earn in tips)…more than double the current federal tipped minimum wage of $2.13 per hour. Starting in 2016, the new $4.90 minimum for tipped workers would increase by 95 cents per year until it equals 70 percent of the minimum wage for non-tipped workers under government contracts.

In addition to all of the usual penalties including back pay, liquidated damages and attorneys’ fees, employers in violation of federal contract requirements also face debarment from being able to perform federal contracts.

Simultaneously with the announcement of the proposed rule, the Labor Department issued guidance to federal agencies on steps they should take now to begin implementing the increased minimum wage before the final rule is issued, so workers on federal contracts and sub contracts would be able to receive the anticipated wage increases as soon as possible after Jan. 1, 2015.

More information about the proposed rule and the joint guidance to federal agencies is available at http://www.dol.gov/whd/flsa/nprm-eo13658/.

Kara Maciel Quoted in “Six Tips on Not Getting Tripped Up by FLSA’s Tipped Employee Rules”

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Our colleague Kara Maciel, the editor of Hospitality Labor and Employment Law Blog, was quoted in an article titled “Six Tips on Not Getting Tripped Up by FLSA’s Tipped Employee Rules” that was recently published in Thompson’s HR Compliance Expert.

Following is an excerpt:

Employers need to make sure they are following both federal Fair Labor Standards Act requirements and state laws regarding tipped employees, said Kara Maciel of the firm Epstein Becker Green during a recent seminar focused on tipped employees. …

However, every state has its own set of rules regarding tipped workers and employers must make sure they also are compliant with those local requirements. States such as Hawaii, Massachusetts and New York are particularly challenging and in some cases have seen increased litigation over tip practices in recent years, Maciel noted. …

Click here to read more.

California Supreme Court Decision Guarantees Only One Thing – More Wage-Hour Class Actions with More Expert Witnesses

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By Michael Kun

Much has already been written about last week’s California Supreme Court decision in Duran v. U.S. Bank Nat’l Ass’n, a greatly anticipated ruling that will have a substantial impact upon wage-hour class actions in California for years to come.  Much more will be written about the decision as attorneys digest it, as parties rely on it in litigation, and as the courts attempt to apply it.

In a lengthy and unanimous opinion, the California Supreme Court affirmed the Court of Appeal’s decision to reverse a $15 million trial award in favor of a class of employees who claimed they had been misclassified as exempt, and to decertify the class.  How the$15 million award had been obtained in the first place has been the subject of much discussion and more than a bit of ridicule.  In short, the trial court had tried the case by essentially pulling names from a hat to determine which class members would be able to testify at trial, with the defendant precluded from presenting evidence as to other employees.  The California Supreme Court described this approach as a “miscarriage of justice.”   It then discussed in great length whether, when and how statistical sampling could be used in these cases, among other things.

Already, both the plaintiffs’ bar and the defense bar are claiming that the Supreme Court’s decision is a victory for them.

Because the Supreme Court did not foreclose the possibility that statistical evidence could be used to establish liability in these types of cases – instead, it recognized that “[s]tatistical sampling may provide an appropriate means of proving liability and damages in some wage and hour class actions” —  the plaintiffs’ bar is claiming victory.  To the extent they contend that Duran allows the use of statistical evidence to prove liability, they are ignoring the most important word in that sentence – “may” – along with the various caveats laid out by the Court.

Because the Supreme Court explained that the process must allow an employer to impeach the statistical model and litigate its affirmative defenses, and that there must be “glue” holding claims together beyond statistical evidence, the defense bar is likewise claiming victory.  But even they must admit that it is not the death blow to wage-hour class actions that they may have hoped for.

In truth, Duran is a unusual decision in that it provides more than a few quotes for plaintiffs’ lawyers and defense lawyers alike to rely on.

Ultimately, the most important language in Duran may be this: “A trial plan that relies on statistical sampling must be developed with expert input and must afford the defendant an opportunity to impeach the model or otherwise show its liability is reduced.”

What does this mean?

It means that some trial plans based on statistical sampling may be approved.

And it means that some trial plans based on statistical sampling may not be approved.

It means that a trial court’s analysis will turn, at least in part, on whether the employer will be able to impeach the model and show that it does not work.

And it means that, more than ever, these cases are going to require the parties to retain expert witnesses, and whether classes will be certified will turn on those expert witnesses.  Remember, the Court did not just say that a trial plan that relies on statistical sampling might be appropriate.  No, it said that such a trial plan “developed with expert input” might be appropriate.

The result of all of this is that, with the plaintiffs’ bar now emboldened because the door has not been shut on the use of statistical evidence on liability, employers may face even more wage-hour class actions in California than before.

And statistical experts can go buy those new houses, cars and boats they’ve been eyeing because their services will be in greater demand than ever.  They are the real victors in this decision.

Webinar Review – Creating and Maintaining a Lawful Internship Program

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By: Jeffrey M. Landes and Susan Gross Sholinsky

The presentation slides and the recording for the webinar – Creating and Maintaining a Lawful Internship Program – are now accessible for your viewing. If you would like to review, please contact Kiirsten Lederer to obtain instructions.

During this timely and important webinar, we discussed how to minimize both your organization’s liability and the risk of wage and hour lawsuits. Specifically, participants walked away with answers to the following questions:

  • What are the best practices for recruiting and hiring interns, and what critical language should you include (or avoid) in offer letters, employment contracts, and other communications?
  • What assignments are appropriate for interns, and what tasks must you prevent interns from doing?
  • How does the Fair Labor Standards Act apply to interns?
  • What is the best way to handle various forms of remuneration (money, academic credit, company discounts, etc.) for interns?
  • How do the rules of for-profit and non-profit companies differ (and what rules apply to public-sector employers)?
  • How do child labor laws affect internships?
  • What are best practices for organizations—before, during and after an internship program?
  • Do company policies apply to interns?
  • What rules should you consider if you would like to hire an intern on a full-time basis in the future?
  • When does workers’ compensation or other insurance kick in, and how should you handle unemployment insurance?
  • What common blunders should you avoid when setting up school internship programs?
  • What ethical considerations apply when creating an internship program?

We look forward to your participation in future EBG educational programs. Please click here for a list of upcoming webinars/events that may be of interest to you or your colleagues.

Hot Topic for Summer: How to Handle Unpaid Internships

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By: Michael S. Kun

My colleagues have a new post on the Retail Labor and Employment Law blog that will help many of our readers at this time of year: “Summer’s Coming! How to Handle Unpaid Internships,” by Jeffrey M. Landes, Susan Gross Sholinsky, and Nancy L. Gunzenhauser.

Following is an excerpt:

A hot topic for every summer – but particularly this summer – is the status of unpaid interns. You are probably aware that several wage and hour lawsuits have been brought regarding the employment status of unpaid interns, particularly in the entertainment and publishing industries. The theory behind these cases is that the interns in question don’t fall within the “trainee” exception to the definition of “employee” under the federal Fair Labor Standards Act (“FLSA”), as well as applicable state laws. If the intern does fall within this exception, he or she is not subject to wage and hour laws (such as minimum wage or overtime) and the unpaid internship is thus permissible.

Read the full post here.

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