State Wage and Hour Laws

Kevin SullivanOn February 28, 2017, the California Court of Appeal issued its opinion in Vaquero v. Stoneledge Furniture, LLC. The opinion provides guidance to California employers who pay their hourly employees on a commission basis but do not pay separate compensation for time spent during rest periods.

In the case, the employer kept track of hours worked and paid hourly sales associates on a commission basis where, if an employee failed to earn a minimum amount in commissions – comprising of at least $12.01 per hour in commission pay in any pay period – then the employee was paid a “draw” against future advanced commissions. The commission agreement explained: “The amount of the draw will be deducted from future Advanced Commissions, but an employee will always receive at least $12.01 per hour for every hour worked.” In other words, for hourly sales associates whose commissions did not exceed the minimum rate in a given week, the employer clawed back (by deducting from future paychecks) wages advanced to compensate employees for hours worked, including rest periods. The commission agreement did not provide separate compensation for any non-selling time, such as time spent in meetings, on certain types of training, and during rest periods. Although employees clocked out for meal periods, they did not clock out for rest periods.

Two former employees brought suit, alleging, among other things, that the employer did not pay all wages earned during rest periods. The employer filed a motion for summary judgment, arguing that “the rest period claim failed as a matter of law because Stoneledge paid its sales associates a guaranteed minimum for all hours worked, including rest periods.” The trial court granted the employer’s motion, finding that, under the employer’s system, “there was no possibility that the employees’ rest period time would not be captured in the total amount paid each pay period.” The employees appealed.

The California Court of Appeal reversed the trial court’s decision, starting with the premise that the “plain language of Wage Order No. 7 requires employers to count ‘rest period time’ as ‘hours worked for which there shall be no deduction from wages.’” (Italics added by the Court.) The Vaquero Court relied on a 2013 decision in Bluford v. Safeway, Inc., where a sister court had held that this language in Wage Order 7 requires employers to “separately compensate[]” hourly employees for rest periods where the employer uses an “activity based compensation system” that does not directly compensate for rest periods.

Finding that “nothing about commission compensation plans justifies treating commissioned employees differently from other [hourly] employees,” the Vaquero Court agreed with the Bluford Court’s holding that “Wage Order No. 7 requires employers to separately compensate employees for rest periods if an employer’s compensation plan does not already include a minimum hourly wage for such time.” And because the Vaquero employer did not separately compensate its sales associates for rest periods, the Court of Appeal reversed summary judgment.

As had been the case for employers with piece-rate compensation plans, the Vaquero decision makes clear that commission-based compensation plans must separately account for – and pay for rest periods – to comply with California law.

Michael D. ThompsonThe Missouri Supreme Court has overturned a lower court’s ruling that St. Louis’ minimum wage ordinance is invalid, finding that the ordinance is not preempted by the state law.

St. Louis City’s Ordinance 70078 (“the Ordinance”) provides for a series of increases to the minimum wage for employees working within the boundaries of St. Louis. The plaintiffs argued that Ordinance 70078 was preempted by the state minimum wage law.  The plaintiffs contended that state law affirmatively authorized employers to pay as little as $7.65 per hour, the state minimum wage rate.

A trial court accepted the plaintiffs’ argument and, in October 2015, held that the Ordinance was invalid.

The Missouri Supreme Court reversed the trial court’s ruling and rejected the plaintiffs’ argument.  Because the state minimum wage law merely prohibits employers from paying employees a wage lower than the state minimum, local ordinances imposing higher minimum wages did not conflict with the state statute.

Furthermore, Missouri’s minimum wage law did not “occupy the field” of minimum wage laws. In fact, the Missouri Supreme Court noted that the state legislature had recognized and authorized local ordinances addressing minimum wages.

Notably, both the trial court and the Missouri Supreme Court rejected the plaintiffs’ argument based on Section 67.1571 of the Missouri Statutes, which prohibits “political subdivisions of this state from establishing or requiring a minimum wage that exceeds the state minimum wage.” The courts agreed that the Missouri Constitution prohibits bills containing more than one subject, and Section 67.1571 violated this requirement because its primary purpose was to establish community improvement districts.

Under the phase-in schedule in the Ordinance, the minimum wage in St. Louis was set to rise to $10.00 per hour on January 1, 2017 and $11.00 per hour on January 1, 2018, after which the minimum wage will be increased annually to reflect the rate of inflation.

St. Louis city officials issued a statement explaining that businesses will be provided “a reasonable grace period to adjust to the new minimum wage rate,” but will be subject to revocation of their business licenses if they do not comply with the Ordinance.

A New Year and a New Administration: Five Employment, Labor & Workforce Management Issues That Employers Should MonitorIn the new issue of Take 5, our colleagues examine five employment, labor, and workforce management issues that will continue to be reviewed and remain top of mind for employers under the Trump administration:

Read the full Take 5 online or download the PDF. Also, keep track of developments with Epstein Becker Green’s new microsite, The New Administration: Insights and Strategies.

The District Court for the Eastern District of Texas has denied the U.S. Department of Labor’s application to stay the case in which the district court enjoined the DOL’s new overtime regulations. The DOL had asked the court for a stay while the Fifth Circuit Court of Appeals considered an interlocutory appeal of the injunction.

As wage and hour practitioners know:

  • In May 2016, the U.S. Department of Labor announced that it would implement new regulations increasing the salary threshold for the executive, administrative, and professional overtime exemptions to $47,476 ($913 per week);
  • In September 2016, a group of 21 states filed a Complaint in the Eastern District of Texas challenging the new regulations. A similar lawsuit was filed in the same court by several private industry groups, and those plaintiffs moved for summary judgment; and
  • In November 2016, the district court issued a nationwide preliminary injunction against the new regulations. The district court made a preliminary conclusion that, because the FLSA did not reference any salary thresholds, the DOL had exceeded its authority.

The Fifth Circuit Court of Appeals granted the DOL’s application for interlocutory review, and ordered that briefing be concluded by January 31, 2017.

The DOL then sought a stay of the proceedings before the district court.

In denying the DOL’s motion, the district court stated that the decision to grant or deny a discretionary stay pending an interlocutory appeal depends on: (1) whether the application is likely to succeed on the merits; (2) whether the applicant will be irreparably injured without a stay; (3) whether a stay will substantially injure other parties; and (4) where the public interest lies.

The district court stated that the DOL’s application argued only that the outcome of the case “will likely be controlled in large part by the Fifth Circuit’s decision on appeal.” Because the DOL did not “present a substantial case on the merits,” its application for a stay was denied.

Accordingly, the proceedings before the Fifth Circuit and the district court will proceed concurrently. We will continue to monitor each of these matters, and share any significant developments.

Featured on Employment Law This Week:  Another Department of Labor action currently in limbo is the new federal salary thresholds for the overtime exemption. But New York went ahead with its own increased thresholds, sealing the deal at the end of 2016.

In New York City, the threshold is now $825 a week, or $42,950 annually, for an executive or administrative worker at a company with 11 or more employees. The salary thresholds will increase each year, topping out at $1,125 per week in New York City and in Nassau, Suffolk, and Westchester counties.

Watch the segment below and see our colleagues’ advisory.

On October 21, 2016, a Pennsylvania appeals court found that a group of franchisees were in violation of the state’s Wage Payment and Collection Law (“WPCL”) when they required employees to be paid with payroll debit cards. While the WPCL only permitted wage payment in cash or check, the Pennsylvania court noted that voluntary use of payroll debit cards may be an appropriate method payment. In this case, the court held that mandatory use of payroll debit cards was not lawful, as it may subject the employee to fees without his or her consent.

Two weeks later, on November 4, 2016, the Pennsylvania legislature adopted new legislation amending the WPCL and officially including payroll debit cards as a permissible form of payment by employers, provided that several conditions are met. The new law takes effect on May 5, 2017.

Under the new law, the use of payroll debit cards is permitted if, among other things:

  • The payroll card account is established at a financial institution whose funds are insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration;
  • The employer does not make the payment of wages, salary, commissions or other compensation by means of a payroll card account a condition of employment or a condition for the receipt of any benefit for any employee;
  • Prior to obtaining an employee’s authorization, the employer provides the employee with clear and conspicuous notice, in writing or electronically, of all of the following: all of the employee’s wage payment options, the terms and conditions of the payroll card account option, including the fees that may be deducted, a notice that third parties may assess fees in addition to the fees assessed by the card issuer, and the methods available to the employee for accessing wages without fees;
  • The payroll card account provides the employee with the ability without charge to make at least one withdrawal each pay period and one in-network ATM withdrawal each pay period;
  • The payroll card account provides the employee with a means of ascertaining the balance in the employee’s payroll card account through an automated telephone system or other electronic means without cost to the employee; and
  • An employer does not use a payroll card account that charges fees to the employee for any of the following: the application, initiation or privilege of participating in the payroll card program, the issuance of the initial payroll card, the issuance of one replacement card per calendar year upon request of the employee, the transfer of wages, salary, commissions or other compensation from the employer to the payroll card account, purchase transactions at the point of sale, and nonuse or inactivity in a payroll card account consisting of the failure to withdraw funds from an account, deposit funds into an account, transfer funds to another person or use an account for purchase transactions, if the nonuse or inactivity is less than 12 months in duration.

Pennsylvania employers now have another option in paying employees. Payroll debit card regulations have been introduced in many states, so employers should ensure they review any applicable laws before setting up these cards.

Abstract Image - Business TimeAs we recently reported on our Wage & Hour Defense Blog, on November 22, 2016, a federal judge in the Eastern District of Texas issued a nationwide preliminary injunction enjoining the U.S. Department of Labor from implementing its new overtime exemption rule that would have more than doubled the current salary threshold for the executive, administrative, and professional exemptions and was scheduled to take effect on December 1, 2016. To the extent employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction will, at the very least, appear to allow many employers to postpone those changes—but likely not in the case of employees who work in New York State.

On October 19, 2016, the New York State Department of Labor (“NYSDOL”) announced proposed amendments to the state’s minimum wage orders (“Proposed Amendments”) to increase the salary basis threshold for executive and administrative employees under the state’s wage and hour laws (New York does not impose a minimum salary threshold for exempt “professional” employees).  The current salary threshold for the administrative and executive exemptions under New York law is $675 per week ($35,100 annually) throughout the state.  The NYSDOL has proposed the following increases to New York’s salary threshold for the executive and administrative exemptions:

Employers in New York City

Large employers (11 or more employees)

—$825.00 per week ($42,900 annually) on and after 12/31/16

—$975.00 per week ($50,700 annually) on and after 12/31/17

—$1,125.00 per week ($58,500 annually) on and after 12/31/18

Small employers (10 or fewer employees)

—$787.50 per week ($40,950 annually) on and after 12/31/16

—$900.00 per week ($46,800 annually) on and after 12/31/17

—$1,012.50 per week ($52,650 annually) on and after 12/31/18

—$1,125.00 per week ($58,500 annually) on and after 12/31/19

Employers in Nassau, Suffolk, and Westchester Counties

—$750.00 per week ($39,000 annually) on and after 12/31/16

—$825.00 per week ($42,900 annually) on and after 12/31/17

—$900.00 per week ($46,800 annually) on and after 12/31/18

—$975.00 per week ($50,700 annually) on and after 12/31/19

—$1,050.00 per week ($54,600 annually) on and after 12/31/20

—$1,125.00 per week ($58,500 annually) on and after 12/31/21

Employers Outside of New York City, Nassau, Suffolk, and Westchester Counties

—$727.50 per week ($37,830 annually) on and after 12/31/16

—$780.00 per week ($40,560 annually) on and after 12/31/17

—$832.00 per week ($43,264  annually) on and after 12/31/18

—$885.00 per week ($46,020 annually) on and after 12/31/19

—$937.50 per week ($48,750 annually) on and after 12/31/20

The publication of the NYSDOL’s Proposed Amendments opened a 45-day public comment period. During this period, the NYSDOL will accept comments on the Proposed Amendments until December 3, 2016. The NYSDOL will then review any comments and publish new wage orders. The Proposed Amendments, if finalized by the NYSDOL, would become effective on December 31, 2016.

While New York employers may not, at this moment, be required to increase exempt employees’ salaries to $913 under the currently enjoined federal rule, they would still be required to comply with NYSDOL regulations, which, in all likelihood, will result in an increase to the current $675 weekly salary threshold for exempt executive and administrative employees.  Employers should also keep in mind that the salary threshold for the executive and administrative exemptions under the NYSDOL’s regulations will, if the Proposed Amendments are adopted, increase on December 31 of each year until, at least for many counties, the threshold reaches $1,125 per week.  Employers should consider these systematic annual salary increases when deciding by how much to increase exempt executive and administrative employees’ salaries this year, and whether surpassing this year’s proposed minimum threshold is economically and operationally prudent. Employers in other states should also examine whether there are similar state law requirements that will require changes such as these.

Stop SignWe have written often in the past several months about the new FLSA overtime rules that were scheduled to go into effect in little more than a week, dramatically increasing the salary thresholds for “white collar” exemptions and also providing for automatic increases for those thresholds.

In our most recent piece about the important decisions employers had to make by the effective date of December 1, 2016, careful readers noticed a couple of peculiar words — “barring … a last-minute injunction.”

On November 22, 2016, a federal judge in the Eastern District of Texas entered just such an injunction, enjoining the Department of Labor from implementing the new rules on a nationwide basis.

“The court determines that the state plaintiffs have satisfied all prerequisites for a preliminary injunction,” wrote United States District Court Judge Amos Mazzant III. “The state plaintiffs have established a prima facie case that the Department’s salary level under the final rule and the automatic updating mechanism are without statutory authority.”

The state plaintiffs had argued that the Department of Labor usurped Congress’ authority in establishing new salary thresholds. Finding that the Department had overstepped its bounds, Judge Mazzant wrote, “If Congress intended the salary requirement to supplant the duties test, then Congress and not the department, should make that change.”

The injunction could leave employers in a state of limbo for weeks, months and perhaps longer as injunctions often do not resolve cases and, instead, lead to lengthy appeals. Here, though, the injunction could spell the quick death to the new rules should the Department choose not to appeal the decision in light of the impending Donald Trump presidency. We will continue to monitor this matter as it develops.

To the extent that employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction will at the very least allow employers to postpone those changes. And, depending on the final resolution of this issue, it is possible they may never need to implement them.

The last-minute injunction puts some employers in a difficult position, though — those that already implemented changes in anticipation of the new rules or that informed employees that they will receive salary increases or will be converted to non-exempt status effective December 1, 2016.

Whether employers can reverse salary increases they have already implemented is an issue that should be addressed carefully with legal guidance.

As for those employers that informed employees of changes that would go into effect on December 1, 2016, they, too, should seek legal guidance as to how to communicate with employees that those announced changes will not go into effect at that time.

While the FLSA rules are now enjoined, employers must now be mindful not only of morale issues that might result from not providing employees with raises that were implemented or announced, but also of potential breach of contract claims.

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.

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.