Featured on Employment Law This Week: The California Supreme Court has clarified the state’s ambiguous “day of rest” provisions.

The provisions state that, with certain exceptions, employers will not cause “employees to work more than six days in seven.” The state’s high court addressed three questions about this law that had been certified by the U.S. Court of Appeals for the Ninth Circuit. The court determined that employees are entitled to one day of rest per workweek. So, every Sunday marks the beginning of a new seven-day period. Additionally, the court clarified that employees who work six hours or less during each day of the week are not entitled to a day of rest and that employees can choose not to take the day of rest if they are fully aware of the entitlement.

Watch the segment below, with commentary from our colleague Kevin Sullivan, and read our recent post.

A new “comp time” bill that would dramatically change when and how overtime is paid to private sector employees in many, if not most, jurisdictions has passed the House of Representatives.  And unlike similar bills that have been considered over the years, this one might actually have a chance of passing. If it can get past an expected Democratic filibuster in the Senate, that is.

“Comp time” – short for “compensatory time” – is generally defined as paid time off that is earned and accrued by an employee instead of immediate cash payment for working overtime hours.

Generally speaking, public sector employers may provide “comp time” to employees.

However, putting aside various nuances and state law differences, it has long been the case that the Fair Labor Standards Act (“FLSA”) requires private sector employers to pay non-exempt employees time-and-a-half for all work performed beyond 40 hours in a workweek.  “Comp time” generally is not permissible in the private sector.

(If you want to gain a better understanding of the various nuances and state law differences, we invite you to download our free wage-hour app, available on Apple and Android devices.)

This long-standing law could change under the new bill, known as the Working Families Flexibility Act (“the Act”). (Although its title references “working families,” it does not appear that the proposed limitation would be limited to persons with families. It would apply to single persons, too.)

Although its title does not reference the FLSA or overtime, the Act would amend the FLSA to allow private sector employers to offer non-exempt employees the choice between being paid in cash for hours they work beyond 40 in a work week or accruing an hour and one-half of paid time off.  More specifically, employees could accrue up to 160 hours of “comp time” for hours worked beyond 40 in a week – again, at a rate of an hour and one-half for each overtime hour worked.

The Act has been presented as a potential benefit to employers and employees alike – employers might be able to improve cash flow by postponing payments, and employees would have greater flexibility in scheduling their work around their personal lives.

As written, the Act would not apply to all employees. Instead, it would only apply to those employees who have worked at least 1,000 hours in a 12-month period before they agree to the employer’s proposed “comp time” arrangement.  In most circumstances, it would not apply to new hires, and it would not apply to many part-timers.

As written, eligible employees would have to agree in writing to the “comp time” arrangement.  Their agreement would have to be voluntary, and they would reserve the right to revoke their agreement at any time and receive cash for their unused “comp time.” At the same time, employers could revoke the “comp time” arrangement by giving their employees 30 days’ notice of the change in the employer’s policy.

Like much legislation, the Act leaves some questions unanswered and could lead to significant litigation if passed, including collective actions. On first glance, the most significant grounds for potential litigation would be the requirement that any acceptance of a “comp time” arrangement be entirely “voluntary.” Employees may well claim that they were pressured into accepting “comp time” by management, particularly those in seasonal businesses.

But the most significant unanswered question remains the most important – will the bill get past an expected filibuster?

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.

The new episode of Employment Law This Week offers a year-end roundup of the biggest employment, workforce, and management issues in 2016:

  • Impact of the Defend Trade Secrets Act
  • States Called to Ban Non-Compete Agreements
  • Paid Sick Leave Laws Expand
  • Transgender Employment Law
  • Uncertainty Over the DOL’s Overtime Rule and Salary Thresholds
  • NLRB Addresses Joint Employment
  • NLRB Rules on Union Organizing

Watch the episode below and read EBG’s Take 5 newsletter, “Top Five Employment, Labor & Workforce Management Issues of 2016.”

Even employers who were opposed to the new overtime regulations are in a quandary after the District Court for the Eastern District of Texas enjoined the Department of Labor from implementing new salary thresholds for the FLSA’s “white collar” exemptions.

Will the injunction become permanent?  Will it be upheld by the Fifth Circuit? 

Will the Department of Labor continue to defend the case when the Trump Administration is in place? 

What does the rationale behind the District Court’s injunction (that the language of the FLSA suggests exempt status should be determined based only on an employee’s duties) mean for the $455-per-week salary threshold in the “old” regulations?

As noted in our post regarding the injunction, whether employers can reverse salary increases that already have been implemented or announced is an issue that should be approached carefully.

For example, employers should be aware that state law may specify the amount of notice that an employer must provide to an employee before changing his or her pay.

In most states, employers merely need to give employees notice of a change in pay before the beginning of the pay period in which the new wage rate comes into effect.

But some states require impose additional requirements.  The New York Department of Labor, for example, explains that if the information in an employee’s wage statement changes, “the employer must tell employees at least a week before it happens unless they issue a new paystub that carries the notice. The employer must notify an employee in writing before they reduce the employee’s wage rate. Employers in the hospitality industry must give notice every time a wage rate changes.”

Maryland (and Iowa) requires notice at least one pay period in advance.  Alaska, Maine, Missouri, North Carolina, Nevada and South Carolina have their own notice requirements.

Employers who are making changes to wage rates based on the status of the DOL’s regulations should be nimble – while also making sure that they are providing the notice required under state law.

Michael D. Thompson
Michael D. Thompson

In Gonzalez v. Allied Concrete Industries, Inc., thirteen construction laborers filed suit in the Eastern District of New York.  The plaintiffs claimed they worked in excess of forty hours per week, but were not paid overtime in violation of the Fair Labor Standards Act and the New York Labor Law.

To obtain information regarding the plaintiffs’ activities during hours they claimed to have been working, the defendants sought an order compelling discovery of their ATM and cell phone records.

ATM Receipts

The defendants asserted that records of the plaintiffs’ ATM transactions were likely to lead to the discovery of admissible evidence because they could reveal each plaintiff’s “whereabouts and activities during hours they claim to have been working.” The defendants relied in large part on Caputi v. Topper Realty Corp., a 2015 case decided by the same court.  In Caputi, a plaintiff asserting overtime claims was ordered to produce “a sampling of records of her ATM transactions” for the time period in question.

In denying the defendants’ motion, the Court acknowledged the ruling in Caputi.  However, the Court concluded that the discovery of ATM records was allowed in that case because the Caputi defendants stated that witnesses would testify that the plaintiff attended prolonged lunches during the workweek and withdrew cash from ATMs for that purpose.

Conversely, in Allied Concrete, the Court concluded that the defendants had not shown any “evidentiary nexus between the en masse discovery sought and a good faith basis to believe that such discovery material is both relevant and proportional to the needs of the case.”

Cell Phone Records

The defendants in Allied Concrete also sought the release of the plaintiffs’ cell phone records in order to determine whether the plaintiffs “engaged in personal activities such as non-work related telephone calls, extended telephone calls, [and] frequent text messaging” during times they claimed to have been working.

The defendants cited to Caputi and to Perry v. The Margolin & Weinreb Law Group, another Eastern District of New York case from 2015.  In both cases, the plaintiffs asserting wage hour claims were ordered to produce cell phone records based on testimony that they had made personal telephone calls during the workday.  Allied Concrete had not obtained any such testimony.  Accordingly, the Court stated that the defendants’ speculation that the cell phone records might contain relevant evidence did not warrant a “wholesale intrusion into the private affairs” of the plaintiffs.

Employers, therefore, should be aware that electronic evidence of an employee’s activities may be discoverable in FLSA cases – provided that there is a sufficient basis for seeking the discovery.

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.

More than a year after its efforts were first announced, the U.S. Department of Labor (“DOL”) has finally announced its proposed new rule pertaining to overtime. And that rule, if implemented, will result in a great many “white collar” employees previously treated as exempt becoming eligible for overtime pay for work performed beyond 40 hours in a workweek – or receiving salary increases in order that their exempt status will continue.

In 2014, President Obama directed the DOL to enhance the “white collar” exemptions to the Fair Labor Standards Act (“FLSA”), which currently exempt from overtime some employees who earn $455 per week, or $23,660 per year.  The DOL’s proposed rule would more than double the salary threshold for an executive, administrative or professional exemption to apply, increasing it to $970 per week, or $50,440 per year.  In addition, the highly compensated employee exemption would increase from $100,000 to $122,148.  Not unimportantly, pursuant to the proposed rule, These salary figures would automatically adjust for annual inflation.  

Somewhat surprisingly, the proposed rule does not propose any enhancements to the duties requirements for an employee to qualify for any of the “white collar” exemptions.  The proposed rule does, however, invite comments regarding the amount of time employees should be engaged in executive, administrative, or professional work to qualify for the exemption.  Under the current federal regulations, exempt work must constitute the employee’s “primary duty.”  That is a qualitative analysis, not a quantitative one.  By inviting comments on consideration of California’s requirement that exempt duties be performed more than 50 percent of the time – a quantitative analysis – the DOL has suggested the possibility of another significant change to “white collar” exemptions.  As California employers know all too well, employees frequently file suit alleging they spend less than 50 percent of their time in exempt activities, challenging their employers to prove otherwise.  

The proposed rule likely will be published shortly in the Federal Register.  Upon publication, the proposed rule will be open to a 60-day comment period.  The DOL will review the comments, respond where appropriate and issue its final regulations.  The regulations will not be subject to Congressional approval.  It is important to note that when the “white collar” exemptions were last revised in 2004, the DOL received over 100,000 comments and spent nearly a full year responding to those comments before finalizing the regulations. 

 

By Michael D. Thompson

A recent decision by the First Circuit Court of Appeals examined the question of whether expense reimbursements were actually "shadow wages" that should have been included when calculating an employee’s overtime rate.

In Newman v. Advanced Technology Innovation Corp., the plaintiffs were non-exempt engineers who worked remotely. Each plaintiff signed an agreement with Advanced Tech under which they were to receive (i) an hourly wage, (ii) overtime at a rate more than one-and-a-half times the hourly wage, and (iii) a "per diem expense reimbursement" in light of their remote work assignments.

The plaintiffs claimed that the per diem was “tied to hours worked in a week and thus, in reality, was a shadow wage.”  The plaintiffs therefore contended that the calculation of their regular rates should have included both their hourly wages and their per diems, and thus Advanced Tech should have paid them one-and-a-half times that combined amount for any overtime hours worked.   

The United States District Court for the District of Massachusetts granted summary judgment to Advanced Tech, and the plaintiffs appealed to the First Circuit Court of Appeals.

On appeal, the First Circuit Court of Appeals noted that the regular rate does not include reasonable payments for travel expenses, “supper money” when an employee works late or expenses incurred because the employee “is required to report for work at a place other than his regular workplace.”

By contrast, payments for expenses normally incurred by the employee for his or her own benefit, such as “buying lunch, paying rent, and the like,” are included in the regular rate.

The Court of Appeals then quoted the Department of Labor Wage and Hour Division’s Field Operations Handbook on the issue of “per diem” payments:

If the amount of per diem or other subsistence payment is based upon and thus varies with the number of hours worked per day or week, such payments are a part of the regular rate.

However, … if an employee returns to his home or employer’s place of business at noon, the payment of only one-half the established per diem rate for that particular day would not thereby be considered as payment for hours worked and could thus be excluded from the regular rate.

According to the First Circuit, when paying less than a full-day per diem, “the method of calculating the per diem in that circumstance must use a day as its measuring unit, and not an hour…  If the per diem method makes reductions from that maximum on an hourly basis— such that it would reduce the total per diem by a mere hour’s worth — it runs afoul of the Handbook’s guidance.”

The Circuit Court then pointed to evidence that the number of hours worked was a factor in the formula that Advanced Tech used to calculate the per diem payments it made to its employees. For that reason, the First Circuit concluded that the per diem payments to the plaintiffs should have been included in their regular rates for purposes of calculating their overtime rates.

Accordingly, the First Circuit reversed the summary judgment for the employer and remanded the case for entry of partial summary judgment for the plaintiffs as to liability.

Newman v. Advanced Tech is a reminder that employers should make certain they are not paying per diem reimbursements calculated on an hourly basis, and are not reimbursing employees for expenses that the employees would normally incur for their own benefit.

By Brian Steinbach

True to its word, the Obama administration is continuing its effort to do administratively what it cannot achieve legislatively.

While efforts to increase the minimum wage to $10.10 per hour are mired in the Congress, the administration on March 13 announced that it has instructed the Secretary of Labor to “update” and “simplify” the regulations defining who is considered an exempt employee not entitled to overtime pay. These regulations were most recently overhauled in 2004.

 
“Regulations regarding exemptions … for executive, administrative, and professional employees (often referred to as "white collar" exemptions) have not kept up with our modern economy.”  - Barack Obama
Regulations “for executive, administrative, and professional employees (often referred to as ‘white collar’ exemptions) have not kept up with our modern economy.”                Barack Obama

The announcement makes it clear that the goal is to significantly narrow the number of individuals who qualify as exempt. A major target of the proposed revisions is the current $455-per-week salary threshold for executive, administrative and professional employees. That threshold is roughly equivalent to $11.38 per hour for a forty-hour week – not much more than the $10.10 minimum wage that the administration seeks, and which it claims is the equivalent of $561 in today’s dollars.

While many exempt employees already make far more than this amount, in some industries – particularly retail and restaurants – front-line managers who currently qualify as executive or administrative employees may not earn much more than this amount, so even a relatively modest increase could cause them to no longer be exempt.

Another likely target may be changing the portion of the definition of an executive employee that currently requires only that the “primary duty” be managing, to a requirement that a fixed percentage of work be devoted to managerial tasks. Again, this is particularly likely to affect the retail and restaurant industry, where managers frequently step in and handle nonexempt tasks when needed.

Fortunately, the regulatory process likely will last at least 18 months, if not longer, and there will be ample opportunity to comment on whatever specific proposed changes the Department of Labor makes, as well as for the Congress to weigh in. In the meantime, this is a good opportunity for employers to review their classifications to make sure exempt individuals are properly classified, and in particular look at how much time they are spending on exempt activities.