As courts continue to address whether and when employers can compel employees to arbitrate their wage-hour claims, the California Court of Appeal has issued a decision in Cortez v. Doty Bros. Equipment Company, No. B275255, ___ Cal. App. 5th ___ (2017), that should be of great help to many California employers with collective bargaining agreements (“CBAs”) that include arbitration provisions.

The United States Supreme Court and multiple California courts have held that a CBA may require arbitration of an employee’s statutory claims only if the CBA includes a “clear and unmistakable” waiver of the right to bring those statutory claims in a judicial forum. What constitutes a “clear and unmistakable” waiver has been a fact-based issue resolved on a case-by-case basis, often in favor of allowing employees to avoid arbitration of their wage-hour claims.

The Cortez Court reached a different, employer-friendly conclusion.

The CBA at issue in Cortez provided that “[a]ny dispute or grievance arising from … Wage Order 16[] shall be processed under and in accordance with” the arbitration procedure outlined in the CBA.  The plaintiff brought claims under not only Wage Order 16, but also under the California Labor Code.  For this reason, the plaintiff argued that the CBA did not apply to his Labor Code claims.  But there was no dispute that the agreement to arbitrate claims “arising under” Wage Order 16 was clear and unmistakable.  For this reason, the Court concluded, it could not “disregard the reality that an employee may enforce the protections of the wage order in court only by bringing a claim under the Labor Code,” and that “[t]o hold that wage and hour disputes arising under Wage Order 16 are arbitrable under the CBA only in theory, but not in practice because they are, by necessity, brought under the Labor Code, would result in the very absurdity courts are required to avoid.”  As a result, the Court concluded that those Labor Code claims that arise under Wage Order 16 must be arbitrated.

However, the Cortez Court did not compel arbitration of those Labor Code claims that did not arise under Wage Order 16 – in this case, claims that concerned the timely payment of all wages due upon termination – because there is no reference to such a requirement in Wage Order 16.  The Cortez Court concluded that the plaintiff’s claim for failure to pay all wages due upon termination “is based on a statute that is not informed by, referenced in, or even relevant to, the wage order disputes they clearly and unmistakably agreed to arbitrate.”

The plaintiff may well seek California Supreme Court review of Cortez.  Whether that happens or not, employers in California negotiating CBAs will want to keep the “clear and unmistakable” standard in mind if they want arbitration to be the sole and exclusive forum for employees to resolve any statutory claims they may have.

Featured on Employment Law This Week: The U.S. Supreme Court takes on class action waivers.

In 2012, the National Labor Relations Board (NLRB) ruled that class action waivers in arbitration agreements violate employees’ rights under the National Labor Relations Act (NLRA). The U.S. Court of Appeals for the Second, Fifth, and Eighth Circuits disagreed, finding that these waivers do not violate the NLRA and are enforceable under the Federal Arbitration Act. More recently, the Seventh and Ninth Circuits sided with the NLRB on the issue. The Supreme Court will consider three cases in order to resolve this split, but any resolution could depend on the timing of the hearing. If the case is heard this term, before President Trump’s nominee for the vacancy on the Supreme Court is confirmed, it could end in a 4-4 tie. That would leave the law as it stands, and the split would continue.

Watch the segment below and see our recent blog post by Michael Kun.

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.

Supreme Court Set To Resolve Class Action Waiver DisputeOn January 13, 2017, the United States Supreme Court granted certiorari to hear three cases involving the enforceability of arbitration agreements that contain class action waivers.

Whether such agreements are enforceable has been a hotly contested issue for several years now, particularly in cases involving wage-hour disputes.

The Fifth Circuit has held that such waivers can be enforceable (NLRB v. Murphy Oil, Inc.), joining the Second and Eighth Circuits in that conclusion. The Seventh (Epic Systems, Inc. v. Lewis) and Ninth Circuits (Ernst & Young LLP v. Morris) have held that they are not, determining that they violate employees’ rights to engage in collective activities under the National Labor Relations Act.

Barring the failure to confirm a new Supreme Court Justice to fill the vacant seat before the cases are argued — which could well result in a 4-4 tie — the Supreme Court’s decision to hear the Murphy Oil, Epic Systems and Ernst & Young cases would seem likely to resolve the current dispute between the Circuits regarding the enforceability of those waivers. And it would provide some much-needed guidance to employers across the country.

Whether a ninth Supreme Court Justice will be seated in time to hear the cases is questionable, though. It is possible that the case could be held over until the next term, when a full Court presumably will be seated. If that does not occur, and if a 4-4 tie resulted, the split among the Circuits would remain.

Of course, there are many cases across the country in which parties are currently debating whether class action waivers are enforceable. One would think that most, if not all, of those cases will now be stayed while the courts await the Supreme Court’s ruling.

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.

Over the past year, there has been an increased discussion of Fair Labor Standards Act (“FLSA”) requirements for tipped employees. The courts have focused on a number of issues related to tipped employees, including addressing who can participate in tip pools and whether certain deductions may be made from tips. While the FLSA requires employers to pay a minimum wage of $7.25 per hour in most cases, Section 203(m) of the FLSA provides that employers may take a “tip credit” and pay as little as $2.13 per hour to employees who customarily and regularly receive tips, so long as two criteria are satisfied:

  • the employee’s wages and tips are at least equal to the minimum wage, and
  • all tips “received” by a tipped employee are actually retained by the employee or added into a tip pool that aggregates the tips of a group of tipped employees.

Notably, 29 CFR § 531.55 states that a “compulsory charge for service . . . imposed on a customer by an employer’s establishment, is not a tip . . . .” However, some states (such as New York) have their own requirements for determining whether a service charge will be considered a “tip.”

Who Can Be Treated as a Tipped Employee?

When a tip pool is covered by Section 203(m) of the FLSA, an employer may not divert tips from tipped employees by including “non-customarily tipped employees” in the tip pools. But whether an employee customarily (and regularly) receives tips may be unclear.

In Montano v. Montrose Restaurant, the U.S. Court of Appeals for the Fifth Circuit considered a tip pool in which the employer included a “coffeeman,” and the parties submitted conflicting evidence regarding the coffeeman’s duties. The Fifth Circuit concluded that an employee can be part of a tip pool if it can be expected that the customer intended the employee to receive a portion of the tip. Satisfying that requirement depends on such factors as whether the employee had more than a de minimis interaction with the customers who leave the undesignated tips and whether the employee is engaging in customer service functions.

In Schaefer v. Walker Bros. Enterprises, the Seventh Circuit evaluated a plaintiff’s contention that he and other employees at his restaurant (who primarily worked in a tipped capacity) had to be paid the full minimum wage during any time spent performing non-tipped work. The Seventh Circuit noted that the DOL’s Field Operations Handbook states that an employer may pay the tip-credit rate for time that tipped employees spend on non-tipped duties “related to” their tipped work. According to the Seventh Circuit, making coffee, cleaning tables, and “ensuring that hot cocoa is ready to serve” and that “strawberries are spread on the waffles” are activities related to a tipped server’s work. The Seventh Circuit characterized other duties, however, such as wiping down burners and woodwork and dusting picture frames, as “problematic” because they did not seem to be “closely related to tipped duties.” But the time spent on those duties was “negligible” and therefore did not require the restaurants to pay the normal minimum wage rather than the tip-credit rate for those minutes.

Can Credit Card Fees Be Deducted from “All Tips”?

In Steele v. Leasing Enterprises, Ltd., the Fifth Circuit considered whether an employee is receiving “all tips” when an employer deducts the costs and fees associated with collecting tips that are paid through a customer’s credit card.

To offset costs associated with credit card tips, the defendant retained 3.25 percent of any tips paid by credit card. According to the defendant, the costs included not only fees charged by the card issuer, but also the cost of cash deliveries made by an armored vehicle three times per week to ensure that the employees could be paid their tips on a daily basis (as the employees had requested).

Based on prior authority from the Sixth Circuit and a DOL opinion letter, the Fifth Circuit agreed that the defendant could offset credit card tips by the amount of the credit card issuer fees and still satisfy the requirements of Section 203(m). One week later, the Southern District of Ohio reached a similar conclusion in Craig v. Landry’s, Inc., ruling that “controlling precedent specifically permits” the deduction of credit card processing fees as long as the amount of the deduction “reasonably approximates the charge incurred by the employer.”

What Other Fees or Costs Can Be Deducted from “All Tips”?

After approving the deduction of credit card issuer fees from the gross tips in Steele, the Fifth Circuit turned to the question of whether an employer violates Section 203(m)’s requirements if the employer deducts costs other than direct fees charged by the credit card issuers. The defendant argued that employers could deduct the additional expenditures associated with paying credit card tips and still maintain the tip credit. Specifically, the defendant argued that the additional costs that it was incurring in arranging for the payment of tips paid via credit card, such as the cost of the armored car deliveries to its restaurants, could be deducted from the gross tips.

The Fifth Circuit concluded that “an employer only has a legal right to deduct those costs that are required to make such a collection.” While the defendant had no choice but to pay to credit card issuer fees, the costs relating to its thrice-weekly armored car deliveries were discretionary costs resulting from internal business decisions by the defendant. Therefore, deducting those amounts from employees’ tips was a violation of Section 203(m).

It is worth noting the Eastern District of New York added an interesting twist to this principle in Widjaja v. Kang Yue USA Corp. The court had previously ruled that the defendant violated the minimum wage as a result of, among other things, improperly withholding 11.5 percent of credit card tips. In a late-2015 ruling on damages, the court found that the defendant was liable for the difference between the minimum wage and the hourly wage that it actually paid its tipped employees. Moreover, the court in Widjaja held that the wage deficiency could not be offset by the tips actually received by the tipped employees because those tips were not an hourly wage. Consequently, because it improperly applied the tip-credit rule, the employer received no credit against the minimum wage for the tips actually received by its tipped employees.

Is There a Cause of Action for Withheld Tips If the Employer Does Not Take a Tip Credit?

Several years ago, the DOL revised 29 C.F.R. § 531.52 to provide that all tips are the property of the employee and, thus, must be passed along to the tipped employee or a pool of tipped employees regardless of whether the employer has taken a tip credit under Section 203(m). Because the FLSA, on its face, does not specifically prohibit or address wage deductions that do not result in minimum-wage violations, there has been substantial controversy regarding the DOL’s authority to issue this regulation.

Earlier this year, in Oregon Rest. & Lodging Ass’n v. Perez, the Ninth Circuit noted that Section 203(m) of the FLSA is silent as to employers that do not take a tip credit. Therefore, the Ninth Circuit concluded that the DOL has the authority to regulate “tip pooling” practices even if employers do not take tip credits. Conversely, this past summer, federal courts in Florida and Georgia arguably joined with the position taken by the Fourth Circuit and courts in Maryland, New York, and Utah that Section 203(m) of the FLSA does not create a cause of action for improperly withheld tips unless the employer is taking a tip credit.

A version of this article originally appeared in the Take 5 newsletter Five Critical Wage and Hour Issues Impacting Employers.”

Brian W. Steinbach, attorney at Epstein Becker Green, has a post on the Hospitality Labor and Employment Law Blog that will be of interest to many of our readers: “Southern District of New York’s Rejection of FLSA Settlement Highlights Need to Settle on Terms That Will Pass Judicial Muster.”

Following is an excerpt:

In rejecting the terms of a collective action settlement in Yun v. Ippudo USA Holdings, No. 14-CV-8706 (S.D.N.Y. March 24, 2016) the United States District Court for the Southern District of New York has confirmed the significance of last year’s Second Circuit Court of Appeals decision in Cheeks v. Freeport Pancake House, Inc., 796 F.3d 199 (2015)Cheeks held that parties cannot enter into an enforceable private settlement of Fair Labor Standards Act (“FLSA”) claims without the approval of either the district court or the Department of Labor. Yun shows what this means in practice by highlighting the issues that may arise in seeking to obtain approval.

Read the full post here.

On September 11, 2015 the U.S. Court of Appeals for the Eleventh Circuit announced that it joined the Second Circuit in rejecting the U.S. Department of Labor’s (“DOL”) rigid six part test for determining whether unpaid interns were employees and should have been paid minimum wages and overtime for their services. Schumann and Abraham et al v Collier Anesthesia, P.A., Wolford College, LLC, Thomas Cook and Lynda Waterhouse, No. 14-13169, 2015 BL 294459 (11th Cir. Sept. 11, 2015), citing to Glatt v. Fox Searchlight Pictures, Inc., Nos. 13-4478-cv, 13-4481-cv (2d Cir. July 2, 2015)

As did the Second Circuit, the Eleventh Circuit found the factors considered by the DOL in its “guidance” on interns and trainees and the DOL’s  interpretation of the U.S. Supreme Court’s 1947 holding in Walling v. Portland Terminal Co., 330 U.S. 148 (1947) to be “useful” but refused to defer to that guidance.  Noting that the DOL has no special expertise in interpreting court decisions, the Eleventh Circuit instead followed the Second Circuit in holding that seven non-exclusive factors should be considered to determine whether the intern or the putative employer was the primary beneficiary of the services being rendered:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including clinical and other hands‐on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The Eleventh Circuit expressly stated that in applying these factors to determine whether the intern or the putative employer was the primary beneficiary of the interns’ services, no one factor is determinative and every factor need not point in the same direction.  Further, courts may consider other relevant evidence beyond the specified factors in appropriate cases.

Because the District Court had applied the old DOL six factor test in determining that the interns here were not employees, the Court of Appeals vacated and remanded the case back to the District Court to apply the correct test.  In doing so, the Appeals Court went to great lengths to discuss each of the seven factors as applied to the facts at hand and to describe the road map that the District Court should follow, while carefully stating: “we do not take a position at this time regarding whether the students in this case were “employees” for purposes of the FLSA.”

Wage & Hour Guide for Employers AppMany of our clients have downloaded our free, first-of-its-kind Wage & Hour Guide for Employers app, available for Apple, Android, and BlackBerry devices.

We have just updated the app, and the update is a significant one.

While the app originally included summaries of federal wage-hour laws and those for several states and the District of Columbia, the app now includes wage-hour summaries for all 50 states, as well as D.C. and Puerto Rico.

Now, more than ever, we can say that the app truly makes nationwide wage-hour information available in seconds. At a time when wage-hour litigation and agency investigations are at an all-time high, we believe the app offers an invaluable resource for employers, human resources personnel, and in-house counsel.

Key features of the updated app include:

  • New summaries of wage and hour laws and regulations are included, including 53 jurisdictions (federal, all 50 states, the District of Columbia, and Puerto Rico)
  • Available without charge for iPhoneiPad, Android, and BlackBerry devices
  • Direct feeds of EBG’s Wage & Hour Defense Blog and @ebglaw on Twitter
  • Easy sharing of content via email and social media
  • Rich media library of publications from EBG’s Wage and Hour practice
  • Expanded directory of EBG’s Wage and Hour attorneys

If you haven’t done so already, we hope you will download the free app soon.  To do so, you can use these links for iPhoneiPad, Android, and BlackBerry.

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.