Effective December 31, 2018, New York State’s salary basis threshold for exempt executive and administrative employees[1] will increase again, as a part of amendments to the minimum wage orders put in place in 2016.[2] Employers must increase the salaries of employees classified as exempt under the executive and administrative exemptions by the end of the year to maintain these exemptions.

The increases to New York’s salary basis threshold for the executive and administrative exemptions will take effect as follows:

Employers in New York City 

  • Large employers (11 or more employees)
    • $1,125.00 per week ($58,500 annually) on and after 12/31/18
  • Small employers (10 or fewer employees)
    • $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

  • $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 and Nassau, Suffolk, and Westchester Counties

  • $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

What New York Employers Should Do Now

  • Review executive and administrative exempt positions in New York State with salaries below the stated thresholds to determine whether (a) the employee’s salary should be increased or (b) the employee’s position should be reclassified as non-exempt.
    • For executive and administrative employees remaining exempt, increase their salaries to the new threshold based on their primary work location as of the December 31, 2018, effective date.
    • For employees reclassified to non-exempt, ensure that all of their work time is accurately recorded as of December 31, 2018.
  • Consider establishing procedures to track and update the weekly salaries for employees who work in different locations within New York State.
  • Conduct a regular review of primary duties tests for the executive, administrative, and professional exemptions because meeting the salary threshold alone does not confer exempt status upon employees.

Download a PDF of this Advisory.

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[1] New York law does not contain a salary threshold for employees who meet the duties requirements of the professional exemption.

[2] See Epstein Becker Green’s prior Act Now Advisory titled “New York State Department of Labor Implements New Salary Basis Thresholds for Exempt Employees.”

Under the Fair Labor Standards Act (“FLSA”), employers can satisfy their minimum wage obligations to tipped employees by paying them a tipped wage of as low as $2.13 per hour, so long as the employees earn enough in tips to make up the difference between the tipped wage and the full minimum wage. (Other conditions apply that are not important here.) Back in 1988, the U.S. Department of Labor’s Wage and Hour Division amended its Field Operations Handbook, the agency’s internal guidance manual for investigators, to include a new requirement the agency sought to apply to restaurants. Under that then-new guidance, when tipped employees spend more than 20% of their working time on tasks that do not specifically generate tips—tasks such as wiping down tables, filling salt and pepper shakers, and rolling silverware into napkins, duties generally referred to in the industry as “side work”—the employer must pay full minimum wage, rather than the lesser tipped wage, for the side work.

This provision of the Handbook flew largely under the radar for years. This was partly because the Department did not publicize the contents of the Handbook, and party because the Department did not bring enforcement actions premised on a violation of this 20% standard. And historically, virtually nobody in the restaurant industry maintained records specifically segregating hours and minutes spent on tip-generating tasks as compared to side work.

In 2007, a federal district court in Missouri issued a ruling in a class action upholding the validity of the 20% standard, and that decision received an enormous amount of attention and publicity. In the years that followed, a wave of class actions against restaurants flooded the courts across the country, all contending that the restaurants owe the tipped employees extra money because of the Department’s 20% standard in the Handbook.

In January of 2009, in the waning days of the George W. Bush Administration, the Department issued an opinion letter rejecting the 20% standard, superseding the Handbook provision, and stating that there is no limit on the amount of time a tipped employee can spend on side work. Six weeks later, however, in March of 2009, the Obama Administration withdrew that opinion letter. In subsequent years, the Department filed several amicus curiae briefs in pending court cases endorsing the 20% standard, and the Department even modified the Handbook provision to make the requirements even more difficult for employers to satisfy.

In late 2017, a divided three-judge panel of the U.S. Court of Appeals for the Ninth Circuit concluded, in nine consolidated appeals presenting the same issue, that the Department’s 20% standard is not consistent with the FLSA and thus was unlawful. A few months later, however, a divided 11-judge en banc panel of the same court reached the opposite conclusion, ruling by an 8-3 vote that the 20% standard is worthy of deference.

In July of 2018, the Restaurant Law Center, represented by Epstein Becker Green, filed a declaratory judgment action against the Department in federal court in Texas challenging the validity of the 20% standard under the FLSA, the Administrative Procedure Act, and the U.S. Constitution. Roughly a month before the employers’ deadline to file a certiorari petition with the Supreme Court regarding the en banc Ninth Circuit ruling, and just days before the government’s response is due in the Texas litigation, the Department reissued the 2009 opinion letter.

This opinion letter, now designated as FLSA2018-27, once again rejects the 20% standard and clarifies that employers may pay a tipped wage when employees engage in side work so long as the side work occurs contemporaneously with, or in close proximity to, the employees’ normal tip-generating activity. This opinion letter should put an end to the many pending cases, including numerous class actions, that depend on the 20% standard.

The overall take-away for employers is that at least under federal law, side work performed during an employee’s shift, in between tip-generating tasks, should present no concern. The same should be true of side work performed at the start or end of an employee’s shift, so long as the side work does not take too long. An employee coming in fifteen or thirty minutes before the restaurant is open to help get the restaurant ready for the day, followed by the remainder of the shift in which the employee generates tips, seems to be consistent with the new opinion letter. Likewise for employees who spend some time at the end of the shift helping to close the restaurant for the day. But employers should use common sense and good judgment, as having tipped employees spend hours and hours performing side work may still give rise to risks. And it remains important to be aware of any state or local law requirements that may differ from federal law.

Joining several other federal appellate courts including the Fourth and Ninth Circuits , on October 22, 2018 the Seventh Circuit concluded in Herrington v. Waterstone Mortgage Corporation, No. 17-3609 (7th Cir. Oct. 22, 2018) that the arbitrability of a class claim is one for the court to decide, not the arbitrator. In so doing, the court placed in jeopardy a $10 million arbitration award in a wage-hour case.

Herrington originally filed suit against Waterstone, alleging that Waterstone failed to pay her and other employees minimum wages and overtime pay in violation of  the FLSA. Waterstone moved to enforce an agreement to arbitrate that stated the “arbitration may not be joined with . . . any claims by any person not party to this Agreement.” Despite that language, the district court sent the parties to arbitration, instructing the arbitrator to allow other employees to join the case.

In a collective arbitration , the arbitrator awarded more than $10 million in damages.

Following the Supreme Court’s decision in Epic Sys. Corp. v. Lewis, ___ U.S. ___, 138 S. Ct. 1612 (2018), the Seventh Circuit concluded that the waiver of class claims was enforceable. One question not addressed by Epic, however, was whether the court or the arbitrator should make this determination.

Because the availability of a class or collective action is a “gateway matter,” the Seventh Circuit concluded it is a question of arbitrability for the court to decide, not the arbitrator. The fundamental question was whether the employees had agreed to arbitrate — and whether Waterstone also agreed. The Court noted  that in agreeing to arbitration, an employer essentially waives appellate review—which could result in a large arbitration award with little or no opportunity for review.

In view of Herrington, two issues now seem settled in the Seventh and several other circuits. First, agreements mandating individual arbitration of wage-hour claims are enforceable. Second, it is for the court to interpret the arbitration agreement to determine whether it permits class claims, not the arbitrator .

In April 2018, we wrote about the California Supreme Court’s decision in Dynamex Operations West, Inc. v. Superior Court, which had clarified the standard for determining whether workers in California should be classified as employees or as independent contractors for purposes of the wage orders adopted by California’s Industrial Welfare Commission (“IWC”).

In Dynamex, the Court adopted the “ABC” test that has been used in some other jurisdictions.  Because Dynamex had adopted the “ABC” test for claims arising under IWC wage orders, there was some uncertainty after Dynamex regarding whether the new test would apply to claims that are not brought under a wage order.  The Dynamex Court did not consider or express a view about non-wage-order claims.

On October 22, 2018, the California Court of Appeal addressed that issue in Garcia v. Border Transportation Group, LLC, holding that Dynamex’s “ABC” test does not apply to claims not arising under a wage order.  The Garcia Court held that the widely used Borello standard applies to non-wage-order claims for determining whether workers are employees or independent contractors.

Although many wage-hour claims do arise under an IWC wage order, a number do not.  For example, certain claims for expense reimbursement under Labor Code section 2802, claims for wage statement violations under section 226, and claims for waiting time penalties under section 203 for an alleged failure to pay all wages due at the end of employment arise under the Labor Code only; there are no equivalent claims under any IWC wage order.

Following Garcia, entities doing business in California that have had actions filed against them alleging independent contractor misclassification based on Dynamex now have authority to argue that a number of claims should be dismissed.

In our July 9, 2018 post we reported that a seven-member majority of the D.C. Council had introduced a bill, Bill 22-0913 (Tipped Wage Workers Fairness Amendment Act of 2018) to repeal Initiative 77, an initiative that District of Columbia voters approved on June 27, 2018 that would incrementally increase the minimum cash wage for tipped workers to $15.00 per hour by July 1, 2025 and effectively eliminate the tip credit starting July 1, 2026. We also noted that no further action would occur until this Fall due to a two-month summer recess.

The Council is now back in session and on October 2, 2018, gave initial approval to repeal Initiative 77 by a margin of 8-5. In so doing it rejected a proposed compromise that would create an exemption under Initiative 77 for servers and bartenders, who had expressed the most opposition to the measure, while keeping the minimum wage hike for other categories of workers such as parking lot attendants, hotel bell-hops, and restaurant workers who share gratuities, who proponents of Initiative 77 claim do not earn enough tips to reach the standard minimum wage. However, the repeal bill will not be effective until it is approved by the Council at a second vote, at which there could be additional amendments before it becomes final, and after signature by the Mayor and a Congressional review period.

The Council also passed emergency legislation, Bill 22-0992, the Tipped Wage Workers Fairness Emergency Amendment Act of 2018, which revokes the increase in the tipped minimum wage from $3.89 to $4.50 as of July 1, 2018 contained in Initiative 77 as of October 9, 2018, the same date that Initiative 77 is otherwise scheduled to become effective. This emergency legislation will take effect immediately upon approval by the Mayor and is good for up to 90 days. Thus, employers need not worry about any increase in the tip minimum wage taking effect while the repeal of Initiative 77 remains in process.

Notably, some aspects of the proposed compromise were added to the repeal legislation, although, the Council will have to budget funds in order for these provisions to take effect. These include:

(1) a mandate that the Mayor create a website outlining the rights and benefits guaranteed to an individual under ten different District labor and anti-discrimination laws, and provide employers a poster with information about the website as well as a description of employee rights under the District’s labor and anti-discrimination laws (this apparently would replace most, if not all, of the current required posters);

(2) a mandate for businesses with tipped workers to require annual training on sexual harassment and minimum wages for all owners, operators and managers;

(3) a requirement that all businesses with tipped workers utilize a third-party payroll company to prepare their payroll and provide a quarterly wage report showing hours worked, total pay and gratuities received, and average weekly wage for each employee;

(4) establishment of a dedicated phone line for reporting violations of tipped wage laws;

(5) establishment of a Tipped Workers Coordinating Council (TWCC) consisting of representatives of several District government agencies, the Restaurant Association of Metropolitan Washington, The Hotel Association of Washington, two Mayoral appointees from policy organizations, and three Council employees; the TWCC is to work on coordination of tipped worker polices, conduct regular and anonymous case reviews of tipped wage violations, and develop protocols to ensure recommendations are incorporated into DOES policies and procedure; and

(6) a public education campaign to raise awareness and educate the public about the rights of tipped workers.

There are likely to be amendments to these provisions at the second vote session.

The question whether an individual may be held liable for alleged wage-hour violations is one that occasionally arises in class action litigation – and, for obvious reasons, it is one that is particularly important to individuals who own entities or who are responsible for overseeing wage-hour compliance.

In Atempa v. Pedrazzani, the California Court of Appeal held that persons responsible for overtime and/or minimum wage violations in fact can be held personally liable for civil penalties, regardless of whether they were the employer or the employer is a limited liability entity. And the Court concluded that private plaintiffs may pursue and collect these penalties for “aggrieved employees” on behalf of the state of California through the Private Attorneys’ General Act (“PAGA”).

Defendant Paolo Pedrazzani was the owner, president, director, and secretary of Pama, Inc.. Two former employees filed a variety of wage-hour claims against Pedrazzani and Pama in July 2013, including claims for civil penalties on the basis of unpaid minimum wages (Cal. Lab. Code 1197.1) and unpaid overtime (Cal. Lab. Code 558). Following a judgment in favor of the employees that Pedrazzani and Pama were jointly and severally liable for the civil penalties, Pedrazzani appealed and Pama filed for bankruptcy.

The Court of Appeal held that Pedrazzani was personally liable for the civil penalties because “the Legislature has decided that both the employer and any ‘other person’ who causes a violation of the overtime pay or minimum wage laws are subject to specified civil penalties.” (italics original). And because neither statute mentions corporate structure, corporate form, or suggests that the same has any bearing on liability, it concluded that “the business structure of the employer is irrelevant.”

The Court also held that personal liability can attach even if a person has no formal relationship with the corporate employer (e.g., employee, manager, officer). Rather, for overtime violations, it is sufficient that that the “other person” was “acting on behalf of the employer”; and for minimum wage violations, it is sufficient that the “other person” “pays or causes to be paid less than the prescribed minimum wage.” Summarizing, the Court held that the statutes at issue “provide for an award of civil penalties against the person who committed the underlying statutory violations.”

After establishing the basis for Pedrazzani’s personal liability, the Court went onto explain that the former employees had standing to seek and collect the penalties under PAGA, and that such penalties are subject to the standard division between the aggrieved employees and the State (25% to the former; 75% to the latter).

Unfortunately, the Court did not address the standard or evidentiary showing needed to establish that someone is an “other person” who can be held personally liable for the civil penalties.

In 2018, we have seen important new wage and hour developments unfolding on a seemingly weekly basis. To help you stay up to date and out of the crosshairs of the plaintiffs’ bar, we invite you to join Epstein Becker Green’s Employment, Labor & Workforce Management Webinar Series presentation for September. Presented by our Wage and Hour practice group, this webinar will focus on wage and hour developments affecting the hospitality and home health care industries, although much of the information will also be of interest to employers in other industries.

With an eye toward the hospitality industry, the key issues we plan to cover include:

  • New statutory and regulatory changes affecting tip pooling and sharing, as well as required notice to employees
  • Litigation risks presented by service charges
  • New York’s requirements concerning spread-of-hours and call-in pay

For home health care businesses, we will focus on these topics:

  • The emerging case law on 24-hour sleep time
  • How to track hours worked, especially for employees previously viewed as exempt
  • Whether to classify workers as “employees” or “independent contractors”

Thursday, September 13, 2018

1:00 p.m. – 2:30 p.m. ET

Register for this complimentary webinar today!

Changes to the white collar exemptions under the Fair Labor Standards Act (“FLSA”) are coming slowly.  Very, very slowly.  Back in May 2016, under the Obama Administration, the Department of Labor issued a Final Rule updating the regulations for the FLSA’s minimum wage and overtime executive, administrative, and professional exemptions.  That rule would, among other things, have increased the minimum salary required for most employees within these exemptions from $455 a week ($23,660 a year) to $913 a week ($47,476 a year).  In November 2016, a federal judge in Texas enjoined that regulation just nine days before it was to go into effect.

In July 2017, the Department issued a Request for Information seeking public comment on a whole series of questions relating to whether and how the Department should update the existing regulations, which have been on the books since 2004.  Those questions include such topics as whether and how to revise the salary threshold, whether to differentiate salary levels based on geographic or other criteria, and whether to even have a salary requirement at all.

The Department’s semi-annual regulatory agenda indicates that the current plan is to issue a Notice of Proposed Rulemaking regarding these exemption regulations in or about January 2019.  That date has slipped before, and it may well slip again.

Apparently feeling that it does not yet have sufficient information to be able to make an informed decision about what it should say in the proposed regulations—notwithstanding the more than 214,000 comments received to date in response to the 2017 Request—the Department has announced a series of five “listening sessions” to be held in September in Atlanta, Seattle, Kansas City, Denver, and Providence.  According to the Department’s press release, “[t]he Department plans to update the Overtime Rule, and it is interested in hearing the views of participants on possible revisions to the regulations.”

Employers interested in letting their views be known to the Department in connection with this rulemaking are may register for one or more of these two-hour sessions.  There is no charge to attend, but the Department requires registration.  Given the nature of this type of gathering, it seems unlikely that the Department will provide any insights into where the rulemaking may be headed.  Instead, the purpose seems to be for the public to express its views and for the Department to take note of those views.

If you are interested in attending, please click here for the Department’s registration link.

On August 13, 2018, in Ehret v. WinCo Foods, the California Court of Appeal held that a provision in a collective bargaining agreement (“CBA”) regarding employees’ meal periods during shifts lasting between five and six hours effectively waived employees’ rights under California Labor Code section 512. In so holding, the Court held that the waiver in question passed the “clear and unmistakable” standard used to determine whether a provision in a CBA is intended to waive a statutorily protected right. Although WinCo argued that the “clear and unmistakable” standard only applies to waivers of “non-negotiable” rights, not “negotiable” rights like a meal break for shifts between five and six hours, the Court avoided that question and found that, even assuming that the standard applies to waivers of any statutory right, negotiable or non-negotiable, the waiver in the WinCo CBA was “clear and unmistakable.”

California Labor Code section 512(a) states, in part: “An employer may not employ an employee for a work period of more than five hours per day without providing the employee with a meal period of not less than 30 minutes, except that if the total work period per day of the employee is no more than six hours, the meal period may be waived by mutual consent of both the employer and employee.” (Emphasis added.)

The WinCo CBA in question provided: “Employees who work shifts of more than 5 hours will be provided a meal period of at least 30 minutes, except that when a work period of not more than 6 hours will complete a day[‘]s work, a meal period is not required…. It is WinCo Foods policy not to mutually agree with employees to waive their lunch period.” (Emphasis in original.)

The Court held that the agreement effectively waived employees’ meal periods because it explicitly stated that no meal period is required for shifts of under six hours. Because that provision was “flatly irreconcilable” with Labor Code section 512, the Court held that it was a “clear and unmistakable” waiver of that statutory provision. Importantly, the Court distinguished cases that concern arbitration clauses in CBAs, which have held that statutory rights must be clearly stated in the agreement before they can be waived. The Court also rejected the employees’ contention that, under Choate v. Celite Corporation, 215 Cal. App. 4th 1460 (2013), to be valid, the waiver must either cite to the applicable statute explicitly or “specify the content of the statutory right.” Rather, the Court interpreted Choate to hold that the waiver need only “mention” the statutory protection.

The Court found of no import that the CBA also stated: “It is WinCo Foods policy to not mutually agree with employees to waive their lunch periods.” The Court held that that section of the agreement referred to waivers by individual employees, and had no effect on the collective waiver in question. The Court also flatly rejected the employees’ argument that a waiver must explicitly use the words “waiver,” “waived” or “waiving.”

This decision is welcome news to employers that have similar provisions in their CBAs. However, it is not binding upon other Courts of Appeal, and should the California Supreme Court decide to review the issue, it may well reach a different conclusion.

Three months ago, the United States Supreme Court issued its decision in Epic Systems Corp. v. Lewis, holding that the National Labor Relations Act (“NLRA”) does not prevent the use of arbitration agreements with class and collective action waivers covered by the Federal Arbitration Act (“FAA”). (See our discussion of Epic here.) The Court of Appeals for the Sixth Circuit has now similarly concluded in Gaffers v. Kelly Services, Inc.that the Fair Labor Standards Act (“FLSA”) does not bar such arbitration arrangements. While this is not a surprising outcome in light of the Supreme Court’s ruling, the decision underscores the influence that Epic has had and will continue to have as courts evaluate efforts to evade promises to arbitrate.

Case Background

A former employee of a business that provides outsourcing and consulting services sued the company in an FLSA collective action in the Eastern District of Michigan, alleging failure to pay virtual call center support workers for time spent logging into and out of the network and addressing technical problems. More than 1,600 workers opted into the lawsuit. Although the named plaintiff did not agree to arbitrate disputes with the company, approximately half of the opt-in plaintiffs did, and their agreements specified that arbitration would be on an individual basis.

The company moved to compel individual arbitration for those opt-in plaintiffs who signed arbitration agreements. The plaintiffs opposed the motion, arguing that the NLRA and the FLSA render the arbitration agreements unenforceable. The district court denied the motion to compel arbitration, and the company appealed.

The Sixth Circuit’s Decision

1. Under Epic, the NLRA does not render the agreements unenforceable.

The Sixth Circuit noted at the outset that Epic “answers half of this case.” (Slip Op. at 1-2.) In light of the Supreme Court’s recent decision, the plaintiffs’ NLRA-based challenge to the arbitration agreements with class action waivers was unavailing. “[A]s it relates to the NLRA, the Supreme Court heard and rejected these arguments last term in Epic.” (Id. at 3.)

2. The FLSA’s collective action provision does not conflict with the FAA.

The Court then turned to the plaintiffs’ FLSA-based contentions. Their first argument was that “the FLSA’s collective-action provision and the Arbitration Act are irreconcilable and that the former therefore displaces the latter.” (Slip Op. at 3.) Relying on Epic, the Court explained that “a federal statute does not displace the Arbitration Act unless it includes a ‘clear and manifest’ congressional intent to make individual arbitration agreements unenforceable.” (Id.) That standard, as the court saw it, requires that Congress “do more than merely provide a right to engage in collective action. Instead, Congress must expressly state that an arbitration agreement posed no obstacle to pursuing a collective action.” (Id. (citation omitted).)

The FLSA “provides that an employee can sue on behalf of himself and other employees similarly situated.” (Slip Op. at 3.) Thus, “it gives employees the option to bring their claims together” but “does not require employees to vindicate their rights in a collective action, and it does not say that agreements requiring one-on-one arbitration become a nullity if an employee decides that he wants to sue collectively after signing one.” (Id.) The Court, therefore, was able to “give effect to both statutes: employees who do not sign individual arbitration agreements are free to sue collectively, and those who do not sign individual arbitration agreements are not.” (Id.)

3. These arbitration agreements are outside the FAA’s savings clause.

The Sixth Circuit then focused on the plaintiffs’ second FLSA-based argument: that the arbitration agreements fall within the FAA’s savings clause. That portion of the law “allows courts to refuse to enforce arbitration agreements ‘upon such grounds as exist at law or in equity for the revocation of any contract.’” (Slip Op. at 4 (quoting 9 U.S.C. § 2).) Specifically, the plaintiffs asserted that “because the FLSA gives the employees a right to pursue a collective action, the agreements that the employees signed . . . requiring them to pursue individual arbitration are illegal and therefore unenforceable.” (Id.)

The Court explained that the savings clause “includes an ‘equal-treatment’ rule: individuals can attack an arbitration agreement like they would any other contract, but they cannot attack the agreement simply because it is one involving arbitration.” (Slip Op. at 5.) The court pointed out that under Epic, defenses that “interfere with the ‘fundamental attributes of arbitration’ are . . . insufficient.” (Id. at 5 (quotation omitted).) As shown in Epic, “one of arbitration’s fundamental attributes is its historically individualized nature.” (Id.) Thus, objecting to an agreement because it requires individualized arbitration “does not bring a plaintiff within the territory of the savings clause[,]” or else litigants “could use this contract defense to attack arbitration itself.” (Id.) As the court observed, “[t]hat selective treatment is exactly what Epic says is not allowed.” (Id.)

What the Decision Means for Employers

The Sixth Circuit’s holding confirms that the Supreme Court set a high bar in Epic for parties to argue that statutes other than the FAA provide a basis for courts not to enforce arbitration agreements. A number of significant issues remain for the courts to decide, however, including the applicability of the FAA to independent contractor agreements in the transportation industry (set for oral argument in the U.S. Supreme Court on October 3, 2018), as well as whether claims under California’s Private Attorneys General Act must now be arbitrated. In addition, employers must remain mindful that courts continue to scrutinize arbitration agreements for elements of substantive and procedural unconscionability. Whether and to what extent Epic may affect how courts evaluate unconscionability remains to be seen.